-----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, F/Vwc0i83f80LiYQJXaERiSddTa+WUOV7PA3+bCKCVTcxxrieap/AMgXtKQ0klOv EZopocmJbpIgoIvpAQMr3w== 0000950129-98-000280.txt : 19980128 0000950129-98-000280.hdr.sgml : 19980128 ACCESSION NUMBER: 0000950129-98-000280 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19980126 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMPERIAL HOLLY CORP 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: S-4 SEC ACT: SEC FILE NUMBER: 333-44955 FILM NUMBER: 98513841 BUSINESS ADDRESS: STREET 1: ONE IMPERIAL SQ STE 200 STREET 2: P O BOX 9 CITY: SUGAR LAND STATE: TX ZIP: 77487 BUSINESS PHONE: 7134919181 FORMER COMPANY: FORMER CONFORMED NAME: IMPERIAL SUGAR CO /TX/ DATE OF NAME CHANGE: 19880606 S-4 1 IMPERIAL HOLLY CORPORATION 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1998 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- NOTE EXCHANGE OFFER ON FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ IMPERIAL HOLLY CORPORATION AND OTHER REGISTRANTS (SEE TABLE OF OTHER REGISTRANTS BELOW) (Exact Name of Registrant as specified in its charter) TEXAS 2062 74-0704500 (State or other jurisdiction of Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) (Classification Code Number) Identification No.)
ONE IMPERIAL SQUARE, SUITE 200 8016 HIGHWAY 90-A SUGAR LAND, TEXAS 77478 (281) 491-9181 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) --------------------- WILLIAM F. SCHWER MANAGING DIRECTOR AND GENERAL COUNSEL ONE IMPERIAL SQUARE, SUITE 200 8016 HIGHWAY 90-A SUGAR LAND, TEXAS 77478 (281) 491-9181 (Name, Address, Including Zip Code and Telephone Number, Including Area Code, of Agent for Service for All Registrants) ------------------------ Copies to: ROBERT V. JEWELL, ESQ. DAN A. FLECKMAN, ESQ. ANDREWS & KURTH L.L.P. 600 TRAVIS, SUITE 4200 HOUSTON, TEXAS 77002 (713) 220-4200 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] CALCULATION OF REGISTRATION FEE
================================================================================================================================= PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT OFFERING AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED TO BE REGISTERED PRICE PER UNIT(1) OFFERING PRICE(2) REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------------------------- 9 3/4% Senior Subordinated Notes due 2007, Series A......................... $250,000,000 $102.50 $256,250,000 $75,594 - --------------------------------------------------------------------------------------------------------------------------------- Subsidiary Guarantees of 9 3/4% Senior Subordinated Notes due 2007, Series A...................................... $250,000,000 None(3) None(3) None(3) =================================================================================================================================
(1) Based on average of the bid price of $102.25 and ask price of $102.75 per $100.00 principal amount of the Old Notes at the close of business on January 23, 1998. (2) Calculated pursuant to Rule 457(f) under the Securities Act of 1933 as the market value of the securities to be cancelled in the exchange. (3) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee is payable for the Subsidiary Guarantees. THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 TABLE OF OTHER REGISTRANTS
STATE OR OTHER JURISDICTION OF PRIMARY STANDARD EXACT NAME OF REGISTRANT INCORPORATION OR INDUSTRIAL CLASSIFICATION I.R.S. EMPLOYER AS SPECIFIED IN ITS CHARTER ORGANIZATION CODE NUMBER IDENTIFICATION NUMBER --------------------------- ---------------- ------------------------- --------------------- Savannah Foods & Industries, Inc. Delaware 2060 58-1089367 Biomass Corporation Delaware 2096 58-1352153 Dixie Crystals Brands, Inc. Delaware 2096 59-2042699 Dixie Crystals Foodservice, Inc. Delaware 2096 (Applied For) King Packaging Company, Inc. Georgia 5098 58-1111816 Food Carrier, Inc. Georgia 4200 58-1217108 Michigan Sugar Company Michigan 2063 38-0830870 Great Lakes Sugar Company Ohio 2063 34-1470741 Savannah Foods Industrial, Inc. Delaware 2062 58-2181649 Phoenix Packing Corporation Delaware 2096 58-1871380 Savannah Sugar Refining Corporation Georgia 4200 58-1779614 Savannah Investment Company Delaware 2062 58-1697589 Holly Northwest Company Nevada 2063 84-1307934 Holly Sugar Corporation New York 2063 84-0228800 Fort Bend Utilities Company Texas 4931 74-0629715 Imperial Sweetener Distributors, Inc. Texas 4212 74-1993077 Limestone Products Company Delaware 1498 13-3366165 Crown Express, Inc. Texas 4212 76-0218213
3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JANUARY 26, 1998 PROSPECTUS IMPERIAL HOLLY CORPORATION OFFER TO EXCHANGE $1,000 PRINCIPAL AMOUNT OF 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A FOR EACH $1,000 PRINCIPAL AMOUNT OF OUTSTANDING 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007 ($250,000,000 IN AGGREGATE PRINCIPAL AMOUNT OUTSTANDING) --------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED --------------------- Imperial Holly Corporation, a Texas corporation (the "Company"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal, to exchange $1,000 principal amount of its 9 3/4% Senior Subordinated Notes Due 2007, Series A (the "Exchange Notes"), in a transaction registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement (as defined herein) of which this Prospectus constitutes a part, for each $1,000 principal amount of the outstanding 9 3/4% Senior Subordinated Notes due 2007 (the "Old Notes"), of which $250,000,000 aggregate principal amount is outstanding (the "Exchange Offer"). The Exchange Notes and the Old Notes are sometimes referred to herein collectively as the "Notes." The Company will accept for exchange any and all Old Notes that are validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the date the Exchange Offer expires, which will be , 1998 unless the Exchange Offer is extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange. However, the Exchange Offer is subject to certain conditions that may be waived by the Company and to the terms and provisions of the Registration Rights Agreement (as defined herein). See "The Exchange Offer." Old Notes may be tendered only in denominations of $1,000 and integral multiples thereof. The Company has agreed to pay the expenses of the Exchange Offer. There will be no cash proceeds to the Company from the Exchange Offer. See "Use of Proceeds." The Exchange Notes will be obligations of the Company entitled to the benefits of the indenture relating to the Notes (the "Indenture"). The form and terms of the Exchange Notes are identical in all material respects to the form and terms of the Old Notes, except that (i) the offering of the Exchange Notes has been registered under the Securities Act, (ii) the Exchange Notes will not be subject to transfer restrictions and (iii) the Exchange Notes will not be entitled to registration or other rights under the Registration Rights Agreement (as defined herein) including the provision in the Registration Rights Agreement for payment of Liquidated Damages (as defined in the Registration Rights Agreement) upon failure by the Company to consummate the Exchange Offer or the occurrence of certain other events. Following the Exchange Offer, any holders of Old Notes will continue to be subject to the existing restrictions on transfer thereof and, as a general matter, the Company will not have any further obligation to such holders to provide for registration under the Securities Act of transfers of the Old Notes held by them. To the extent that Old Notes are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered and tendered but unaccepted Old Notes could be adversely affected. See "Risk Factors" and "The Exchange Offer -- Purpose and Effect of the Exchange Offer." (continued on next page) --------------------- SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN THE EXCHANGE NOTES OFFERED HEREBY. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------- The date of this Prospectus is , 1998. 4 The Old Notes were sold by the Company on December 22, 1997, to Lehman Brothers, BNY Capital Markets, Inc. and Nesbitt Burns Securities Inc. (the "Initial Purchasers") in transactions not registered under the Securities Act in reliance upon the exemption provided in Section 4(2) of the Securities Act (the "Offering"). The Initial Purchasers placed the Old Notes with qualified institutional buyers (as defined in Rule 144A under the Securities Act) ("Qualified Institutional Buyers" or "QIBs"), each of whom agreed to comply with certain transfer restrictions and other restrictions. Accordingly, the Old Notes may not be reoffered, resold or otherwise transferred in the United States unless such transaction is registered under the Securities Act or an applicable exemption from the registration requirements of the Securities Act is available. The Exchange Notes are being offered hereby in order to satisfy the obligations of the Company under a registration rights agreement among the Company and the Initial Purchasers relating to the Old Notes (the "Registration Rights Agreement"). The Exchange Notes will bear interest at a rate of 9 3/4% per annum, payable semi-annually on June 15 and December 15 of each year, commencing June 15, 1998. Holders of Exchange Notes of record on June 1, 1998, will receive on June 15, 1998, an interest payment in an amount equal to (x) the accrued interest on such Exchange Notes from the date of issuance thereof to June 15, 1998, plus (y) the accrued interest on the previously held Old Notes from the date of issuance of such Old Notes (December 22, 1997) to the date of exchange thereof. Interest will not be paid on Old Notes that are accepted for exchange. The Notes mature on December 15, 2007. The Old Notes were initially represented by three global Old Notes (the "Old Global Notes") in registered form, registered in the name of Cede & Co., as nominee for The Depository Trust Company ("DTC" or the "Depositary"), as depositary. The Exchange Notes exchanged for Old Notes represented by the Old Global Notes will be initially represented by two global Exchange Notes (the "Exchange Global Notes") in registered form, registered in the name of the Depositary. See "Book-Entry; Delivery and Form." References herein to "Global Notes" shall be references to the Old Global Notes and the Exchange Global Notes. Based on an interpretation of the Securities Act by the staff of the Securities and Exchange Commission (the "SEC"), Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than (i) a broker-dealer who purchased such Old Notes directly from the Company for resale pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an "affiliate" (within the meaning of Rule 405 of the Securities Act) of the Company), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the holder is acquiring the Exchange Notes in its ordinary course of business and is not participating, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. Holders of Old Notes wishing to accept the Exchange Offer must represent to the Company that such conditions have been met. Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must agree that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of one year after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." The Exchange Notes will be a new issue of securities for which there currently is no market. Although one of the Initial Purchasers has informed the Company that it currently intends to make a market in the Exchange Notes, it is not obligated to do so, and any such market making may be discontinued at any time without notice. As the Old Notes were issued and the Exchange Notes are being issued to a limited number of institutions who typically hold similar securities for investment, the Company does not expect that an active public market for the Exchange Notes will develop. Accordingly, there can be no assurance as to the ii 5 development, liquidity or maintenance of any market for the Exchange Notes on any securities exchange or for quotation through the Nasdaq Stock Market. See "Risk Factors." NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. iii 6 PROSPECTUS SUMMARY The following summary information is qualified in its entirety by the detailed information and financial statements (including the notes thereto) appearing elsewhere in this Prospectus. Prospective investors should carefully consider the matters discussed under the caption "Risk Factors." As used in this Prospectus, the terms "Imperial Holly" and "Savannah Foods" refer to Imperial Holly Corporation and Savannah Foods & Industries, Inc., respectively, as each company existed prior to the consummation of the Transactions (as defined herein) and the term the "Company" refers to Imperial Holly Corporation and its subsidiaries (including Savannah Foods and its subsidiaries) following the consummation of the Transactions. This Prospectus contains certain forward-looking statements with respect to the business of the Company and the industry in which it operates. These forward-looking statements are subject to certain risks and uncertainties which may cause actual results to differ significantly from such forward-looking statements. See "Disclosure Regarding Forward-Looking Statements" and "Risk Factors." THE COMPANY OVERVIEW The Company is the largest, most geographically diverse and most balanced producer and marketer of refined sugar in the United States. The Company's pro forma sales for the 12 months ended September 30, 1996 represented approximately 33% of the total refined sugar market in the United States, and the Company controls approximately 37% of all domestic sugarcane refining capacity and 30% of all domestic sugar beet processing capacity. The Company refines raw cane sugar at four refineries located in Texas, Georgia, Florida and Louisiana and produces beet sugar at 12 beet factories located in California, Wyoming, Montana, Texas and Michigan. During the 12 months ended September 30, 1997, the Company sold approximately 61 million cwt. ("hundred weights" equal to one hundred pounds) of refined sugar. The Company offers one of the broadest product lines in the industry and sells to a wide range of customers, including (i) retail grocers, (ii) foodservice companies, which include restaurants, schools and other institutions, and (iii) industrial customers, which are principally food manufacturers. The Company's 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), Evercane(R) and Pioneer(R)) or private market labels. Complementary non-sugar products marketed by the Company include salt, pepper, non-nutritive sweeteners, non-dairy creamers and plastic cutlery. In addition, the Company produces selected specialty sugar products including Savannah Gold(TM) (a premium-priced, free-flowing brown sugar), Imbrocon(TM) (a liquid flavoring) and specialty sugars used in confections and icings. For the 12 months ended September 30, 1997, the Company had pro forma revenues of approximately $2.0 billion and pro forma EBITDA (as defined herein) of approximately $142 million. Imperial Holly was incorporated in 1924 as Imperial Sugar Company, and is the successor to a cane sugar plantation and milling operation begun in Sugar Land, Texas in the early 1800's that began producing granulated sugar in 1843. In December 1997, the Company completed its acquisition of Savannah Foods, pursuant to a merger of Savannah Foods with a wholly owned subsidiary of the Company, for an aggregate consideration of approximately $582 million, consisting of 70% cash and 30% shares of the Company's common stock, no par value ("Company Common Stock"). See "-- The Transactions." Savannah Foods was incorporated in Delaware in 1969 as the successor to the Savannah Sugar Refining Corporation, which was originally incorporated in New York in 1916. The Company's principal executive offices are located at One Imperial Square, Suite 200, 8016 Highway 90-A, Sugar Land, Texas 77478, and its telephone number is (281) 491-9181. INDUSTRY There are two methods for producing refined sugar: (i) processing sugar beets and (ii) processing and refining sugarcane, each of which possesses distinct operating characteristics. During the crop year ended September 1996, total United States refined sugar sales consisted of approximately 57% cane sugar and 43% 1 7 beet sugar. The profitability of cane sugar and beet sugar operations is impacted by government programs designed to support the price of domestic crops of sugar beets and sugarcane. These programs affect cane sugar and beet sugar operations differently. See "Business -- Sugar Legislation and Other Market Factors." Domestic demand for refined sugar has increased each year since 1986, and the average rate of growth over the past five years has been 1.5%. The trend in the food manufacturing industry toward production of "low fat" products has increased industrial demand for sugar as many food manufacturers add sugar to enhance flavor and texture as fat is removed. At the current market level, a 1.5% increase in domestic demand translates into the sale of an additional 150,000 tons of refined sugar per year, or the annual production capacity of an average-sized sugar beet factory. In addition, the domestic sugar industry has seen marked consolidation in the past five years. Since the crop year ended September 1992, the number of domestic sugar marketers has dropped from 13 to 8, and five beet factories and two cane refineries have been closed (although total production capacity has increased by 5.4 million cwt.). During the same period, the market share of the three largest marketers of refined sugar increased from 55% to the current figure of 74%. The Company believes that this significant consolidation among producers and marketers coupled with moderate growth in demand presents an attractive business environment in which to implement its business strategies. See "Business -- Industry." COMPETITIVE STRENGTHS The Company believes that the following factors contribute to the Company's position as a national market leader and provide a foundation for the Company's business strategy: LARGEST PRODUCER AND MARKETER OF REFINED SUGAR. The Company is the largest producer and marketer of refined sugar in the country, with pro forma revenues for the 12 months ended September 30, 1997 of $2.0 billion, accounting for approximately 33% of total United States refined sugar sales in such period. The Company believes that it sells sugar products to more major industrial customers and national grocery chains than any of its competitors, giving it unmatched national market penetration. By taking advantage of the efficiencies provided by a national network of production and distribution facilities, the Company believes that it is able to offer customers superior service in a timely manner. The Company's breadth of market penetration also enabled it to avoid dependency on any single customer for more than 3% of total sales during the 12 months ended September 30, 1997. GEOGRAPHIC DIVERSITY. The Company is the most geographically diverse refined sugar producer in the United States. This geographic diversity minimizes the impact of adverse conditions at any one facility (e.g., reduced acreage availability, unfavorable weather and disease), smoothes production cycles and creates opportunities to optimize processing schedules and provide more reliable and efficient sourcing and distribution of refined sugar products for customers in all domestic market areas. BALANCED OPERATIONS. The Company is the most balanced producer and marketer of refined sugar in the United States. While most refined sugar marketers are heavily weighted toward either beet sugar or cane sugar, the Company's current refined sugar production capacity consists of approximately 60% cane sugar and 40% beet sugar. The Company believes that this balanced mix of production capacity should serve to (i) reduce the volatility in the Company's operating results and (ii) reduce the Company's exposure to any changes in federal trade and agricultural policy. COMPLETE PRODUCT LINE. The Company has one of the broadest product lines in the sugar industry. In addition to its flagship consumer sugar brands, which the Company offers in a variety of packaging options ranging from one pound boxes to 25-pound bags, the Company also markets a complete line of specialty sugar products. In addition, the Company markets complementary non-sugar products including salt, pepper, nondairy creamers, non-nutritive sweeteners and plastic cutlery. Savannah Foods has emerged as a leader in serving the higher margin foodservice sector, growing its foodservice sales at an annual rate of 10% over the past ten fiscal years. With the foodservice industry continuing to be the fastest growing segment of the United States food and beverage industry, the Company's goal is to provide attractive "one stop shopping" alternatives for foodservice customers. 2 8 DOMINANT BRANDS IN REGIONAL MARKETS. The Company enjoys the benefit of highly recognized consumer brand labels, which command premium prices and provide higher margins than the Company's unbranded products. According to data compiled by a leading grocery industry market research firm, the Company's Imperial(R) and Holly(R) brands command a combined, estimated 93% market share for branded refined sugar grocery sales in the principal metropolitan markets in Texas. In addition, the Company's Dixie Crystals(R) brand possesses an estimated 81% market share for branded refined sugar grocery sales in the region comprised of Georgia, Florida, North Carolina, South Carolina and eastern Tennessee. Sales of branded sugar constitute approximately 30% of total retail sales of refined sugar nationally. ABILITY TO INTEGRATE ACQUISITIONS. Over the past ten years, Imperial Holly has consummated two significant acquisitions and successfully integrated the operations of such companies. In 1988, Imperial Holly (then known as Imperial Sugar Company) acquired Holly Sugar Corporation ("Holly"), a large beet sugar producer, for approximately $100 million. At the time of its acquisition, Holly's revenues were approximately 160% of Imperial Sugar Company's revenues. In 1996, Imperial Holly acquired Spreckels Sugar Company ("Spreckels"), a beet sugar producer with operations in California, for approximately $35 million. EXPERIENCED MANAGEMENT TEAM AND SIGNIFICANT OWNERSHIP BY MANAGEMENT AND DIRECTORS. The Company benefits from a strong and experienced management team at both the corporate and operating levels. The members of the Company's senior management have extensive experience in the sugar industry and at consumer products companies, such as Procter & Gamble Company and PepsiCo Inc. In addition, the Company has retained certain key members of the management of Savannah Foods after the Transactions. The Company's executive officers and directors in the aggregate beneficially own approximately 26% of the Company Common Stock. BUSINESS STRATEGY The Company's strategic objective is to capitalize on the opportunities afforded by its position as the national market leader in the production, marketing and distribution of refined sugar products and to fully realize the significant synergy and cost saving opportunities created by the Transactions by pursuing the following strategies: ACHIEVE OPERATING EFFICIENCIES. The Company believes that combining Imperial Holly's operations with those of Savannah Foods will allow the Company to (i) reduce administrative costs, (ii) reduce freight and distribution costs through more efficient sourcing of customer orders, (iii) reduce costs by refocusing selling, marketing and promotional activities, (iv) reduce operating costs by optimizing the operating schedules of the combined production facilities and (v) reduce costs of procuring operating supplies and packaging materials. The Company anticipates that it will begin to realize such cost savings in its current fiscal year, with the full impact, which the Company estimates could approximate $40 million annually, being achieved in the fiscal year ended September 30, 1999. Independent of the acquisition of Savannah Foods, the Company also anticipates that it will complete the expansion of certain of its production facilities in the current fiscal year resulting in an additional reduction in per unit operating costs. INTEGRATE AND CROSS-SELL PRODUCT LINES. The combination of Imperial Holly and Savannah Foods' product lines and sales and marketing efforts will be complementary with minimal overlap, as each company has focused its marketing efforts in different geographic regions. The Company plans to integrate sales and production functions with the goal of increasing sales and reducing costs. The Company believes that this can be achieved by optimizing product sourcing decisions for similar product lines, cross selling specialty product lines to all customers and cross selling similar product lines to major customers with multi-plant needs. EXPAND SALES OF "VALUE-ADDED" PRODUCTS. The Company plans to expand its production and marketing of higher margin, "value-added" products. Value-added products, such as branded and specialty sugars and all of the Company's non-sugar items, constituted approximately 18.3% of pro forma sales for the 12 months ended September 30, 1997. The Company believes there are opportunities to extend brand penetration into other geographic areas and to leverage these brand names to include new product introductions. In addition, management of the Company believes there are significant opportunities to build on Savannah Foods' strong 3 9 position in the foodservice business and increase higher margin, foodservice sales in Imperial Holly's primary market areas. BUILD ON SUCCESSFUL RELATIONSHIPS WITH CUSTOMERS. The Company believes it can build on Imperial Holly and Savannah Foods' historically strong customer relationships and its position as the largest, most diversified sugar producer to become the preferred national supplier for major national retail, foodservice and industrial customers. The Company's geographically diverse production facilities and national network of distribution centers will give the Company the unique ability to distribute refined sugar to locations anywhere in the country on a timely and efficient basis year-round. ENHANCE RELATIONSHIPS WITH SUPPLIERS. The Company believes that Imperial Holly and Savannah Foods' good relationships with raw cane sugar suppliers and sugar beet growers will allow it to develop more efficient sources of supply. Imperial Holly has forged close relationships with its beet growers. The Company intends to continue to enhance these relationships by providing technical and agronomic assistance and offering improved varieties of sugar beet seed in an effort to increase the profitability of its sugar beet growers. The Company believes that it can strengthen its relationships with sugar beet growers to increase acreage available to Savannah Foods' sugar beet factories, resulting in increased production and enhanced profitability for these facilities. As a cane sugar refiner, the Company also plans to actively pursue partnering arrangements with raw cane sugar suppliers as it does with its sugar beet growers. THE TRANSACTIONS THE TENDER OFFER. On October 16, 1997, the IHK Merger Sub Corporation, a wholly owned subsidiary of Imperial Holly ("IHK Sub"), completed a tender offer (the "Tender Offer") for 50.1% of the outstanding shares of common stock of Savannah Foods ("Savannah Common Stock") at a price of $20.25 per share in cash. The Tender Offer was made pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated September 12, 1997, by and among Imperial Holly, IHK Sub and Savannah Foods. THE MERGER. On December 22, 1997, the Company completed its acquisition of Savannah Foods by means of the merger (the "Merger") of IHK Sub with and into Savannah Foods with Savannah Foods surviving as a wholly owned subsidiary of the Company. In the Merger, 30% of the outstanding shares of Savannah Common Stock were each converted into the right to receive $20.25 of Company Common Stock (based upon a value of $13.25 per share of Company Common Stock) and 19.9% of the outstanding shares of Savannah Common Stock were each converted into the right to receive $20.25 in cash. The remaining 50.1% of the outstanding shares of Savannah Common Stock held by IHK Sub as a result of the Tender Offer were canceled in the Merger. The Tender Offer, the Merger, the H. Kempner Trust Financing (as defined herein) and the Debt Tender Offer (as defined herein) are referred to herein as the "Transactions." See "-- The Financing" and "Description of the Transactions." THE FINANCING The Tender Offer was financed through a secured credit facility (the "Tender Credit Facility") in the amount of $505 million provided by Lehman Commercial Paper Inc. ("LCPI"), an affiliate of Lehman Brothers. Upon consummation of the Merger, the Tender Credit Facility was amended and restated as the "Senior Credit Facility." The Senior Credit Facility was entered into in connection with the closing of the Merger and the Offering. The Senior Credit Facility is comprised of term loan facilities aggregating $255 million and a $200 million revolving credit facility. The proceeds of the Senior Credit Facility, together with the proceeds of the Offering and the H. Kempner Trust Financing, provided the financing to repay the Tender Facility, to fund the cash consideration paid in the Merger, to pay certain fees and expenses related to the Transactions and the Debt Financing and to provide financing for future working capital and other general corporate purposes. The Senior Credit Facility is guaranteed by substantially all of the Company's direct and indirect subsidiaries and is secured by substantially all of the assets of the Company and each of the Guarantors. The Senior Credit Facility and the Offering are referred to herein as the "Debt Financing." See "Description of Indebtedness." 4 10 SUMMARY OF TERMS OF EXCHANGE OFFER The Exchange Offer relates to the exchange of up to $250,000,000 aggregate principal amount of Exchange Notes for up to an equal aggregate principal amount of Old Notes. The Exchange Notes will be obligations of the Company entitled to the benefits of the Indenture. The form and terms of the Exchange Notes are identical in all material respects to the form and terms of the Old Notes, except that (i) the offering of the Exchange Notes has been registered under the Securities Act, (ii) the Exchange Notes will not be subject to transfer restrictions and (iii) the Exchange Notes will not be entitled to registration or other rights under the Registration Rights Agreement including the provision in the Registration Rights Agreement for payment of Liquidated Damages upon failure by the Company to consummate the Exchange Offer or the occurrence of certain other events. See "Description of the Notes." Capitalized terms followed by the parenthetical "(as defined)" and not defined herein will have the meanings given them in the Indenture. Registration Rights Agreement................ The Old Notes were sold by the Company on December 22, 1997 to the Initial Purchasers pursuant to a Purchase Agreement, dated December 17, 1997 (the "Purchase Agreement"). Pursuant to the Purchase Agreement, the Company and the Initial Purchasers entered into the Registration Rights Agreement which, among other things, grants the holders of the Old Notes certain exchange and registration rights. The Exchange Offer is intended to satisfy certain obligations of the Company under the Registration Rights Agreement. The Exchange Offer......... $1,000 principal amount of Exchange Notes will be issued in exchange for each $1,000 principal amount of Old Notes validly tendered and accepted pursuant to the Exchange Offer. As of the date hereof, $250,000,000 in aggregate principal amount of Old Notes are outstanding. The Company will issue the Exchange Notes to tendering holders of Old Notes promptly following the Expiration Date. The terms of the Exchange Notes are identical in all material respects to the Old Notes except for certain transfer restrictions and registration rights relating to the Old Notes. No federal or state regulatory requirements must be complied with or approval obtained in connection with the Exchange Offer, other than the registration requirements under the Securities Act. Resale..................... Based on existing interpretations of the Securities Act by the staff of the SEC set forth in several no-action letters to third parties, and subject to the immediately following sentence, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than (i) a broker-dealer who purchased such Old Notes directly from the Company for resale pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an "affiliate" (within the meaning of Rule 405 of the Securities Act) of the Company), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the holder is acquiring the Exchange Notes in its ordinary course of business and is not participating, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. However, any purchaser of Notes who is an affiliate of the Company or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Notes, or any broker-dealer who purchased the Old Notes from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (i) will not be able to rely on the interpretations by the staff of the SEC set forth in the 5 11 above-mentioned no-action letters, (ii) will not be able to tender its Old Notes in the Exchange Offer and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Notes unless such sale or transfer is made pursuant to an exemption from such requirements. The Company does not intend to seek its own no-action letter and there is no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Notes as it has in such no-action letters to third parties. See "The Exchange Offer -- Purpose and Effect of the Exchange Offer" and "Plan of Distribution." Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of one year after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." Expiration Date............ 5:00 p.m., New York City time, on , 1998, unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. See "The Exchange Offer -- Expiration Date; Extensions; Amendments." Accrued Interest on the Exchange Notes and the Old Notes................ The Exchange Notes will bear interest at a rate of 9 3/4% per annum, payable semiannually on June 15 and December 15 of each year, commencing June 15, 1998. Holders of Exchange Notes of record on June 1, 1998, will receive on June 15, 1998, an interest payment in an amount equal to (i) the accrued interest on such Exchange Notes from the date of issuance thereof to June 15, 1998, plus (ii) the accrued interest on the previously held Old Notes from the date of issuance of such Old Notes (December 22, 1997) to the date of exchange thereof Interest will not be paid on Old Notes that are accepted for exchange. The Notes mature on December 15, 2007. Conditions to the Exchange Offer.................... The Company may terminate the Exchange Offer if it determines that its ability to proceed with the Exchange Offer could be materially impaired due to the occurrence of certain conditions. The Company does not expect any of such conditions to occur, although there can be no assurance that such conditions will not occur. Holders of Old Notes will have certain rights under the Registration Rights Agreement should the Company fail to consummate the Exchange Offer. See "The Exchange Offer -- Conditions to the Exchange Offer" and "Description of the Notes -- Registration Rights; Liquidated Damages." 6 12 Procedures for Tendering Old Notes................ Each holder of Old Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with the Old Notes to be exchanged and any other required documentation, to The Bank of New York, as Exchange Agent, at the address set forth herein and therein or effect a tender of Old Notes pursuant to the procedures for book-entry transfer as provided for herein and therein. By executing the Letter of Transmittal, each holder will represent to the Company that, among other things, the Exchange Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the holder, that neither the holder nor any such other person has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that neither the holder nor any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. See "The Exchange Offer -- Procedures for Tendering." Following consummation of the Exchange Offer, holders of Old Notes not tendered as a general matter will not have any further registration rights, and the Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for the Old Notes could be adversely affected. See "Risk Factors -- Absence of Public Market for the Notes" and "-- Consequences of Exchange and Failure to Exchange" and "The Exchange Offer -- Consequences of Failure to Exchange." Special Procedures for Beneficial Owners........ Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender in the Exchange Offer should contact such registered holder promptly and instruct such registered holder to tender on his behalf. If such beneficial owner wishes to tender on his own behalf, such beneficial owner must, prior to completing and executing the Letter of Transmittal and delivering his Old Notes, either (a) make appropriate arrangements to register ownership of the Old Notes in such holder's name or (b) obtain a properly completed bond power from the registered holder or endorsed certificates representing the Old Notes to be tendered. The transfer of record ownership may take considerable time, and completion of such transfer prior to the Expiration Date may not be possible. See "The Exchange Offer -- Procedures for Tendering." Guaranteed Delivery Procedures............... Holders of Old Notes who wish to tender their Old Notes and whose Old Notes are not immediately available, or who cannot deliver their Old Notes (or complete the procedure for book-entry transfer) and deliver a properly completed Letter of Transmittal and any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date may tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures." 7 13 Withdrawal Rights.......... Tenders of Old Notes may be withdrawn at any time prior to the Expiration Date by furnishing a written or facsimile transmission notice of withdrawal to the Exchange Agent containing the information set forth in "The Exchange Offer -- Withdrawal of Tenders." Acceptance of Old Notes and Delivery of Exchange Notes.................... Subject to certain conditions (as summarized above in "Termination of the Exchange Offer" and described more fully in "The Exchange Offer -- Termination"), the Company will accept for exchange any and all Old Notes that are properly tendered in the Exchange Offer prior to the Expiration Date. See "The Exchange Offer -- Procedures for Tendering." The Exchange Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. Exchange Agent............. The Bank of New York, the Trustee under the Indenture, is serving as exchange agent (the "Exchange Agent") in connection with the Exchange Offer. The mailing address of the Exchange Agent is The Bank of New York, P. O. Box 11248, Church Street Station, New York, NY 10286-1248. The overnight courier and hand delivery address for the Exchange Agent is The Bank of New York, Tender and Exchange Department, 101 Barclay Street, Receive & Deliver Window, New York, NY 10286. For assistance and request for additional copies of this Prospectus, the Letter of Transmittal or the Notice of Guaranteed Delivery, the telephone number for the Exchange Agent is (212) 507-9357, and the facsimile number for the Exchange Agent is (212) 815-6213. All communications should be directed to the attention of . Effect on Holders of Old Notes.................... Holders of Old Notes who do not tender their Old Notes in the Exchange Offer will continue to hold their Old Notes and will be entitled to all the rights and limitations applicable thereto under the Indenture. All untendered, and tendered but unaccepted, Old Notes will continue to be subject to the restrictions on transfer provided for in the Old Notes and the Indenture. To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market, if any, for the Old Notes could be adversely affected. See "Risk Factors -- Consequences of Exchange and Failure to Exchange." See "The Exchange Offer" for more detailed information concerning the terms of the Exchange Offer. 8 14 SUMMARY OF TERMS OF EXCHANGE NOTES Securities Offered......... $250,000,000 principal amount of 9 3/4% Senior Subordinated Notes due 2007, Series A. Maturity Date.............. December 15, 2007. Interest Payment Dates..... Interest on the Notes will be payable semiannually in arrears on June 15 and December 15 of each year, commencing June 15, 1998. Mandatory Redemption....... The Company is not required to make mandatory redemption or sinking fund payments with respect to the Exchange Notes. Optional Redemption........ The Exchange Notes are redeemable at the option of the Company, in whole or in part, at any time on or after December 15, 2002 at the redemption prices set forth herein plus accrued and unpaid interest, if any, thereon to the date of redemption. In addition, at any time before December 15, 2000, the Company may, in its discretion, redeem up to 35% of the original aggregate principal amount of the Exchange Notes at a redemption price of 109.75% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the date of redemption, with the net proceeds of one or more Equity Offerings; provided that at least 65% of the original aggregate principal amount of the Notes remains outstanding immediately after each such redemption. See "Description of Notes -- Optional Redemption." Change of Control.......... Upon the occurrence of a Change of Control, the holders of the Exchange Notes will have the right to require the Company to repurchase their Notes, in whole or in part, at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon to the date of repurchase. See "Description of Notes -- Optional Redemption" and "Description of Notes -- Repurchase at the Option of Holders -- Change of Control." Ranking.................... The Exchange Notes are general unsecured obligations of the Company subordinate in right of payment to all existing and future Senior Debt of the Company. At September 30, 1997, the Company and its Subsidiaries had $554.7 million of pro forma Senior Debt outstanding (excluding an additional $191.3 million available under the revolving credit portion of the Senior Credit Facility). See "Capitalization" and "Description of Notes -- Subordination." Subsidiary Guarantees...... The Company's payment obligations under the Exchange Notes will be, and the Old Notes remaining outstanding after the Exchange Offer will continue to be, jointly and severally guaranteed on a senior subordinated basis by the Guarantors. The Subsidiary Guarantees are subordinated in right of payment to all existing and future Senior Debt of the Guarantors, including the Guarantors' guarantees of the Company's obligations under the Senior Credit Facility. See "Description of Notes -- Subsidiary Guarantees." Certain Covenants.......... The Indenture pursuant to which the Exchange Notes will be, and the Old Notes were, issued contains certain covenants that, among other things, limit the ability of the Company and its Restricted Subsidiaries (as defined) to: (i) incur additional Indebtedness (as defined) and issue preferred stock; (ii) pay dividends or make certain other restricted payments; (iii) enter into transactions with affiliates; (iv) make certain 9 15 asset dispositions; (v) in the case of the Company, merge or consolidate with, or transfer substantially all of its assets to another Person (as defined herein); (vi) encumber assets under certain circumstances; (vii) restrict dividends and other payments from Restricted Subsidiaries; (viii) issue Capital Stock (as defined) of wholly-owned subsidiaries; or (ix) engage in certain business activities. See "Description of Notes -- Certain Covenants." In addition, under certain circumstances, the Company will be required to offer to repurchase the Exchange Notes at a price equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, thereon to the date of repurchase, with the proceeds of certain Asset Sales (as defined herein). See "Description of Notes -- Repurchase at the Option of Holders -- Asset Sales." Transfer Restrictions...... For restrictions on transfer of the Exchange Notes, see "The Exchange Offer -- Resale of New Notes." RISK FACTORS An investment in the Exchange Notes involves certain risks that a potential investor should carefully evaluate prior to making such an investment. See "Risk Factors." 10 16 UNAUDITED SUMMARY PRO FORMA COMBINED CONDENSED FINANCIAL DATA The following Unaudited Summary Pro Forma Combined Condensed Financial Data give effect to the Transactions using the purchase method of accounting for Imperial Holly's acquisition of Savannah Foods after giving effect to the pro forma reclassifications and adjustments described in the notes accompanying the Pro Forma Financial Statements. The Unaudited Summary Pro Forma Combined Condensed Financial Data is intended for informational purposes only and is not necessarily indicative of the future financial position or results of operations of the Company had the Transactions described above occurred on the indicated dates or been in effect for the periods presented. The Unaudited Summary Pro Forma Combined Condensed Financial Data should be read in conjunction with, and is qualified in its entirety by, the Pro Forma Financial Statements and the historical consolidated financial statements of Imperial Holly and Savannah Foods, including in each case, the related notes thereto, included elsewhere in or incorporated by reference in this Prospectus, and with "Management's Discussion and Analysis of Financial Condition and Results of Operations."
TWELVE FISCAL YEAR SIX MONTHS MONTHS ENDED ENDED SEPTEMBER 30, ENDED MARCH 31, --------------------- SEPTEMBER 30, 1997 1996 1997 1997 ----------- -------- ---------- ------------- (IN THOUSANDS OF DOLLARS, EXCEPT RATIOS) INCOME STATEMENT DATA(1): Net sales.................................... $1,923,324 $985,074 $1,018,911 $1,957,161 Cost of sales................................ 1,682,208 866,393 880,460 1,696,275 Selling, general and administrative.......... 113,977 56,173 61,379 119,183 Depreciation and amortization................ 47,156 24,618 22,883 45,421 Impairment of long-lived assets.............. 10,280 10,280 -- -- Cost of workforce reduction.................. 723 723 -- -- ---------- -------- ---------- ---------- Operating income............................. $ 68,980 $ 26,887 $ 54,189 $ 96,282 ========== ======== ========== ========== OTHER DATA: EBITDA(2).................................... $ 126,416 $ 61,785 $ 77,072 $ 141,703 Interest expense............................. 56,916 29,327 26,066 53,655 Capital expenditures......................... 19,445 9,629 28,039 37,855 Ratio of earnings to fixed charges(3)........ 1.2x -- 2.1x 1.8x Ratio of EBITDA to interest expense.......... 2.2x 2.1x 3.0x 2.6x
SEPTEMBER 30, 1997 ------------- BALANCE SHEET DATA: Cash and marketable securities.............................. $ 79,914 Total assets................................................ 1,252,861 Total debt, including current maturities.................... 554,670 Shareholders' equity........................................ 355,570
- --------------- (1) The Unaudited Summary Pro Forma Combined Condensed Financial Data do not give any effect to the cost savings and revenue enhancements which the Company expects will result from integrating the operations of Imperial Holly and Savannah Foods after the Merger. The full annual impact of such cost savings and revenue enhancements, which the Company estimates could approximate $40 million annually, is expected to be achieved in the fiscal year ending September 30, 1999. (2) EBITDA is defined as operating income before depreciation and amortization, and impairment of long-lived assets charge. EBITDA does not represent cash flows as defined by generally accepted accounting principles and does not necessarily indicate that cash flows are sufficient to fund all of a company's cash needs. EBITDA is presented because it is a widely accepted financial indicator of a company's ability to incur and service debt. However, EBITDA should not be considered in isolation or as a substitute for net income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. EBITDA as defined in this Offering Memorandum may differ from EBITDA as defined in other similar offerings, and therefore may not be comparable. (3) For purposes of this computation, earnings consist of income before taxes plus fixed charges. Income before taxes is stated after deducting amortization of goodwill, depreciation and other non-cash charges. Fixed charges consist of interest on indebtedness plus interest on capital leases. Earnings before taxes and fixed charges for the six months ended September 30, 1996 were insufficient to cover fixed charges by $1.8 million. 11 17 DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS This Prospectus contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including, without limitation, statements that include the words "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "predicts," "projects," "should," and similar expressions and statements relating to anticipated synergies and cost savings following the Merger, the Company's strategic plans, capital expenditures, industry trends and prospects and the Company's financial position. Such forward-looking statements involve known and unknown risks, assumptions, uncertainties and other factors that may cause actual results, performance or achievements of the Company to differ materially from those expressed or implied by such forward-looking statements. Although the Company believes that its plans, intentions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved. Important factors that could cause actual results to differ materially from the Company's expectations ("Cautionary Statements") are set forth under the captions "Prospectus Summary," "Risk Factors," "Pro Forma Financial Statements," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," and elsewhere in this Prospectus. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. RISK FACTORS Holders of Old Notes should carefully consider the risk factors set forth below, as well as the other information appearing in this Prospectus, before tendering any Old Notes for exchange into Exchange Notes. Certain matters set forth below also apply to the Old Notes and will continue to apply to any Old Notes remaining outstanding after the Exchange Offer. SUBSTANTIAL LEVERAGE AND DEBT SERVICE In connection with the Transactions, the Company incurred significant indebtedness. Concurrently with the consummation of the Merger, the Company issued the Old Notes and entered into the Senior Credit Facility. As of September 30, 1997, the Company's pro forma consolidated indebtedness, including capitalized leases, would have been $554.7 million (including the Notes, but excluding an additional $191.3 million available under the revolving credit portion of the Senior Credit Facility). The Company's pro forma debt to total capital at September 30, 1997 would have been 60.9%, and the ratio of earnings to fixed charges for the 12 months ended September 30, 1997 would have been 1.8x. The increased indebtedness and higher debt to total capital ratio of the Company after the consummation of the Transactions in comparison to that of either Imperial Holly or Savannah Foods on a historical basis has reduced the flexibility of the Company to respond to changing business and economic conditions, and could limit capital expenditures and acquisitions by the Company. A substantial portion of the indebtedness incurred by the Company bears interest at variable rates. The Company has entered into certain interest rate protection agreements to limit its exposure to increases in such interest rates with respect to an aggregate of $180 million of indebtedness and may enter into additional interest rate protection agreements. Such agreements, however, will not entirely eliminate such exposure. Any increase in the interest rate on the Company's indebtedness will reduce funds available to the Company for its operations and future business opportunities and will exacerbate the consequences of the Company's leveraged capital structure. The Company's high degree of leverage may have important consequences including the following: (i) the ability of the Company to obtain additional financing for acquisitions, working capital, capital expenditures or other purposes, if necessary, may be impaired or such financing may not be on terms favorable to the Company; (ii) a substantial portion of the Company's cash flow will be used to make debt service payments, which will reduce the funds that would otherwise be available to the Company for its operations and future business opportunities; (iii) a substantial decrease in operating cash flow or an increase in expenses of 12 18 the Company could make it difficult for the Company to meet its debt service requirements and force it to modify its operations; (iv) the Company's high degree of leverage may make it more vulnerable to a downturn in its business or the economy generally; and (v) dividends to stockholders are restricted under the Senior Credit Facility and the Indenture. See "Description of Indebtedness" and "Description of the Notes -- Certain Covenants." In addition, the Company's ability to make scheduled payments of principal of, or to pay the interest or Liquidated Damages, if any, on, or to refinance, its indebtedness (including the Notes), or to fund planned capital expenditures, will depend upon its future performance, which, in turn, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. Based upon current levels of operations, the Company believes that its cash flow from operations, amounts available under the Senior Credit Facility and available cash will be adequate to meet its anticipated future requirements for working capital, capital expenditures and scheduled payments of principal and interest on its indebtedness, including the Notes. There can be no assurance, however, that the Company's business will generate cash flow at or above anticipated levels or that the Company will be able to borrow funds under the Senior Credit Facility in an amount sufficient to enable the Company to service its indebtedness, including the Notes, or make anticipated capital expenditures. If the Company is unable to generate sufficient cash flow from operations or to borrow sufficient funds in the future to service its debt, it may be required to sell assets, reduce capital expenditures, refinance all or a portion of its existing debt (including the Notes) or obtain additional financing. There can be no assurance that any such financing could be obtained, particularly in view of the Company's high level of debt, the restrictions on the Company's ability to incur debt under the Senior Credit Facility and the Indenture, and the fact that substantially all of the Company's assets will be pledged to secure obligations under the Senior Credit Facility. SUBORDINATION AND RANKING OF THE NOTES AND SUBSIDIARY GUARANTEES The Notes and Subsidiary Guarantees will be general unsecured obligations of the Company and the Guarantors, respectively, subordinate in right of payment to all existing and future Senior Debt of the Company and the Guarantors, including all indebtedness under the Senior Credit Facility. The Senior Credit Facility is secured by liens upon substantially all assets of the Company and the Guarantors. By reason of such subordination, in the event of an insolvency, liquidation, reorganization, dissolution or other winding-up of the Company or any Guarantor, the Senior Debt of such Person must be paid in full before the principal of, and premium, if any, interest and Liquidated Damages, if any, on the Notes may be paid. In the event of a bankruptcy, liquidation or reorganization of the Company or any Guarantor, Holders of the Notes will participate ratably with all holders of subordinated indebtedness of the Company or any Guarantor that is deemed to be of the same class as the Notes, based upon the respective amounts owed to each holder or creditor, in the remaining assets of the Company or any Guarantor. If any of the foregoing events should occur, there can be no assurance that there would be sufficient assets to pay amounts due on the Notes. In addition, the Indenture provides that no payment with respect to the Notes may be made in the event of a payment default with respect to Senior Debt under certain circumstances and the holders of Designated Senior Debt (as defined) will be entitled to block payments with respect to the Notes in the event of a nonpayment default on Designated Senior Debt. At September 30, 1997, on a pro forma basis after giving effect to the Transactions, the Company and the Guarantors would have had approximately $554.7 million of Senior Debt outstanding (exclusive of an additional $191.3 million available under the revolving credit portion of the Senior Credit Facility, which, if drawn, would constitute Senior Debt). The Indenture permits the Company to incur additional indebtedness under certain conditions. See "Capitalization," "Description of Indebtedness -- Senior Credit Facility" and "Description of the Notes -- Certain Covenants." FRAUDULENT CONVEYANCE CONSIDERATIONS In the event the Company or a Guarantor is the subject of a bankruptcy proceeding or a suit on behalf of creditors, the incurrence of indebtedness (such as the Notes or the Subsidiary Guarantees) in connection with the Transactions may be subject to review under federal or state fraudulent transfer laws. Under such laws, if a court in a lawsuit by a creditor or a representative of creditors of the Company or a Guarantor, such as a 13 19 trustee in bankruptcy of the Company or a Guarantor as debtor-in-possession, were to find that at the time of, or after giving effect to, the incurrence of such indebtedness and the application of its proceeds, the Company or a Guarantor (i) was insolvent or rendered insolvent thereby, (ii) was engaged in a business or transaction for which its remaining assets constituted an unreasonably small amount of capital, (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay as they matured or (iv) intended to hinder, delay or defraud creditors and, in the case of clauses (i), (ii) and (iii), that such Person did not receive reasonably equivalent value or fair consideration for the incurrence of such indebtedness, such court could void the Company's obligations under the Notes or a Guarantor's obligations under its Subsidiary Guarantee, subordinate the Notes or the Subsidiary Guarantees to other indebtedness of the Company or such Guarantor, recover payments on the Notes or the Subsidiary Guarantees or take other action detrimental to the Holders of the Notes. In addition, if a court were to find that the Company or a Guarantor came within any of clauses (i) through (iv) above, such Person or its creditors or the trustee in bankruptcy could seek to void the grant of security interests to the lenders under the Senior Credit Facility. This would result in an event of default with respect to indebtedness incurred under such facility which, under the terms of such indebtedness (subject to applicable law), would allow the lenders to terminate their obligations thereunder and to accelerate repayment of such indebtedness. In addition, the payment of interest and principal by the Company pursuant to the Notes or the payment of amounts by a Guarantor pursuant to a Subsidiary Guarantee could be voided and required to be returned to the person making such payment, or to a fund for the benefit of the creditors of the Company or such Guarantor, as the case may be. The measure of insolvency for purposes of the foregoing varies depending upon the law of the jurisdiction being applied. Generally, however, a company would be considered insolvent for purposes of the foregoing if: (i) the sum of such company's debts including contingent liabilities is greater than all such company's assets at a fair valuation; (ii) the present fair saleable value of such company's assets is less than the amount that will be required to pay its probable liability on its existing debts as they become absolute and matured; (iii) such company has incurred obligations beyond its ability to pay as such obligations become due or (iv) such company has unreasonably small capital for its business. As a condition to consummation of each of the Tender Credit Facility, the Senior Credit Facility and the Offering, the Company received a solvency opinion delivered by Murray, Devine & Co. Such solvency opinion would not be binding on a court, and there can be no assurance that a court would not determine that the Company and the Guarantors were insolvent at the time of or after giving effect to the Transactions. On the basis of historical financial information, recent operating history as discussed in "Pro Forma Financial Statements," "Selected Historical Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other factors, each of the Company and each Guarantor believes that, after giving effect to the indebtedness incurred in connection with the Transactions, it will not be insolvent, will not have unreasonably small capital for the business in which it is engaged and will not incur debts beyond its ability to pay such debts as they mature. There can be no assurance, however, as to what standard a court would apply in making such determinations or that a court would agree with the Company's or such Guarantor's conclusions. RESTRICTIVE DEBT COVENANTS The Indenture contains covenants that will restrict, among other things, the ability of the Company to incur additional indebtedness, pay dividends or make certain other Restricted Payments (as defined therein), enter into transactions with affiliates, make certain asset dispositions, merge or consolidate with, or transfer substantially all of its assets to another Person, encumber assets under certain circumstances, restrict dividends and other payments from Restricted Subsidiaries, issue Capital Stock (as defined) of Restricted Subsidiaries, engage in certain business activities, or engage in certain change of control transactions. In addition, the Senior Credit Facility contains other and more restrictive covenants and will prohibit the Company from prepaying certain of its indebtedness, including the Notes. Under the Senior Credit Facility, the Company will also be required to maintain specified financial covenants, including maximum capital expenditures, a maximum ratio of total debt to EBITDA and senior debt to EBITDA, a minimum interest coverage ratio and a minimum fixed charge coverage ratio (each as defined in the Senior Credit Facility). The failure by the Company to maintain such financial covenants or to comply with the restrictions contained in 14 20 the Senior Credit Facility or the Indenture could result in a default thereunder, which in turn could cause such indebtedness (and by reason of cross-default provisions, other indebtedness) to become immediately due and payable. The Company's ability to comply with such covenants can be affected by many events beyond its control and no assurance can be given that the Company's future operating results will be sufficient to enable compliance with such covenants, or in the event of a default, to remedy such default. See "Description of Indebtedness -- Senior Credit Facility" and "Description of the Notes -- Certain Covenants." INTEGRATION OF OPERATIONS While Savannah Foods has continued to operate as a wholly owned subsidiary of the Company after the consummation of the Merger, the success of the Merger nevertheless will depend in part on the ability of management of the Company to consolidate the operations of Savannah Foods and Imperial Holly and to integrate departments, systems and procedures. The integration of the operations of Savannah Foods and Imperial Holly may require substantial attention of management. The Company anticipates that it will begin to realize cost savings in its current fiscal year, with the full impact, which the Company estimates could approximate $40 million annually, being achieved in the fiscal year ended September 30, 1999; however, no assurance can be given that such cost savings will be realized in such amount. Any inability of the Company to integrate the operations of the two companies in a timely and efficient manner would adversely affect the Company's ability to realize its planned synergies and cost savings. MARKET RISK AND GOVERNMENT REGULATION The Company's results of operations are substantially affected by market factors, principally domestic prices for refined sugar and raw cane sugar and the quality and quantity of sugar beets available to the Company. These market factors are influenced by a variety of external forces that the Company is unable to predict or control, including the number of domestic acres contracted to grow sugar beets, prices of competing crops, weather conditions and United States farm and trade policy. Certain segments of the beet sugar industry in the recent past have expanded sugar beet acreage at rates exceeding the rate of growth in the demand for refined sugar, which along with large crop yields, put downward pressure on refined sugar prices. Although smaller sugar beet crops in the fall of 1995 and 1996 caused an increase in refined sugar prices, a larger crop in the fall of 1997 has recently caused a decrease in refined sugar prices. The domestic refined sugar industry is also subject to substantial influence by legislative and regulatory actions. Current federal legislation limits the importation of raw cane sugar, affecting the supply and the cost of raw cane sugar available to the Company's cane sugar refineries. In the cane sugar industry, refiners purchase raw sugar at prices which are regulated by United States government policy to support sugarcane farmers, and which do not fluctuate in tandem with refined sugar selling prices. Consequently, when competitive pressures reduce refined sugar prices, the margins of cane sugar refiners are affected more adversely than those of beet sugar producers. See "-- Industry Competition" and "Business -- Sugar Legislation and Other Market Factors." A significant portion of the Company's industrial sales are made under fixed price, forward sales contracts, most of which commence each year on October 1 and extend for up to one year. As a result, changes in the Company's realized sales prices tend to lag market price changes. To mitigate its exposure to future price changes, the Company enters into forward purchase contracts for raw cane sugar and utilizes futures contracts and other pricing techniques. Sugar beets are purchased under participatory contracts which provide for a percentage sharing of the net selling price realized on refined beet sugar sales between the Company and the grower. Use of participatory contracts also reduces the Company's exposure to refined sugar price risk. SUGAR BEET CROP AND STORAGE RISKS The Company's beet sugar operations are dependent upon the quantity, quality and proximity of sugar beets available to its factories. Sugar beet acreage varies depending on factors such as prices anticipated by growers for sugar beets versus alternative crops, prior crop quality, productivity, availability of irrigation and 15 21 weather conditions. During the crop years ended September 1995 through September 1997, the Company's sugar beet acreage under contract declined. Although such acreage under contract has recently increased, there can be no assurance that the Company's sugar beet acreage under contract will not again decline in the future. In addition, the quantity of refined sugar subsequently produced from the sugar beet crop may be materially affected by the acreage harvested, disease, insects and unfavorable weather conditions during the growing, harvesting, processing and storage seasons. Once harvested, sugar beets are purchased by the Company and, in some locations, stored in piles until processed. Under some of the Company's contracts, the beet growers continue to share the risk of deterioration of the stored sugar beets with the Company. However, more frequently, the Company contractually accepts most of the risk with respect to stored sugar beets. Management believes that the geographic diversity of its growing areas reduces the risk that adverse conditions will occur company-wide; however, there can be no assurance that the Company's results of operations will not be adversely affected in future years by such risks. RAW SUGAR SUPPLY The United States Sugar Corporation ("U.S. Sugar"), a supplier of raw sugar which supplies approximately 14% of the Company's supply of raw cane sugar, has notified Savannah Foods that it intends to terminate its supply contract with Savannah Foods effective October 31, 2001. In addition, in March 1997, U.S. Sugar began construction of a refinery in Florida with an annual capacity of approximately 10 million cwt. The Company expects that adequate supplies of raw cane sugar from other sources will be available upon the expiration of such contract. No assurance can be given, however, that such supplies will be available. The amount of raw sugar available from offshore supplies to all United States cane sugar refiners including the Company is directly dependent upon quotas set by the United States Department of Agriculture (the "USDA"). See "-- Market Risk and Government Regulation." DEMAND FOR REFINED SUGAR Although demand for refined sugar has increased each year since 1986, and the average rate of growth over the past five years has been 1.5%, the Company is not able to predict future rates of growth. Demand for refined sugar in the future could be adversely affected by numerous factors, including the impact of changes in the availability, development or potential use of various types of sweeteners or future changes in consumer sweetener preferences or in population size. The decline in demand for refined sugar products attributable to the replacement of refined sugar by high fructose corn syrup ("HFCS") and non-nutritive sweeteners in the beverage market stabilized a decade ago. The Company generally does not consider HFCS a significant competitive threat, as refined sugar and HFCS support different markets. HFCS is a liquid sweetener and generally does not compete in the dry sugar market. However a number of other consumer food products use both refined sugar and HFCS as production ingredients. In certain applications, refined sugar also competes with non-nutritive and low calorie sweeteners, principally aspartame and, to a lesser extent, saccharin and acesulfam-k. The level of per capita sucrose consumption in the United States has increased in recent years; the Company believes that future increases or decreases in sucrose consumption will be dependent upon technological improvements, changes in population, geographic shifts in population and changes in consumer sweetener preferences. INDUSTRY COMPETITION The Company competes with other cane sugar refiners and beet sugar processors and, in certain product applications, with producers of other nutritive and non-nutritive sweeteners. Selling price and the ability to supply the buyer's quality and quantity requirements in a timely fashion are important competitive factors. Certain competing beet sugar processors have expanded their production capacity in the recent past. The additional sugar marketed as a result of this expansion has served to reduce sugar market prices at times during this period. 16 22 ENVIRONMENTAL MATTERS The Company's 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. Additional testing requirements and more stringent permit limitations have resulted in increased environmental costs, and the Company expects that the cost of compliance will continue to increase. The Company's management does not believe that such costs of compliance will have a material adverse impact on the Company's capital resources or its operating results or financial condition. POTENTIAL INABILITY TO FUND A CHANGE OF CONTROL OFFER In the event of a Change of Control (as defined), if the Company does not exercise its right to purchase the Notes, each Holder will have the right to require the Company to repurchase all or any portion of its Notes then outstanding at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the date of purchase. See "Description of the Notes -- Repurchase at the Option of Holders -- Change of Control." The events that constitute a Change of Control under the Indenture may also be events of default under the Senior Credit Facility or other senior indebtedness of the Company and the Restricted Subsidiaries. Such events may prohibit the Company from repurchasing the Notes, permit the lenders under such debt instruments to accelerate the debt and, if the debt is not paid, to enforce security interests on, or commence litigation that could ultimately result in a sale of, substantially all the assets of the Company. If the Company is unable to repay all of such indebtedness or is unable to obtain any necessary consents, then the Company will be unable to offer to repurchase the Notes and such failure will constitute an Event of Default under the Indenture. There can be no assurance that the Company will have sufficient funds available at the time of any Change of Control to make any debt payment (including repurchases of the Notes) as described above. See "Description of Indebtedness." ABSENCE OF PUBLIC MARKET FOR THE NOTES The Old Notes are currently owned by a relatively small number of beneficial owners. The Old Notes have not been registered under the Securities Act or any state securities laws and, unless so registered and to the extent not exchanged for the Exchange Notes, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Any Old Notes tendered and exchanged in the Exchange Offer will reduce the aggregate principal amount of Old Notes outstanding. Following the consummation of the Exchange Offer, holders who did not tender their Old Notes generally will not have any further registration rights under the Registration Rights Agreement, and such Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such Old Notes could be adversely affected. The Old Notes are currently eligible for sale pursuant to Rule 144A through The Portal Market of the National Association of Securities Dealers, Inc. ("Portal"). Because the Company anticipates that most holders will elect to exchange their Old Notes for Exchange Notes due to the restrictions on the resale of Old Notes under the Securities Act, the Company anticipates that the liquidity of the market for any Old Notes remaining after the consummation of the Exchange Offer may be substantially limited. The Exchange Notes will constitute a new issue of securities for which there is currently no active trading market. If the Exchange Notes are traded after their initial issuance, they may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar securities and other factors including general economic conditions and the current financial condition, results of operations and business prospects of the Company. Although the Exchange Notes will generally be permitted to be resold or otherwise transferred by non-affiliates of the Company without compliance with the registration and prospectus delivery requirements of the Securities Act, the Company does not intend to apply for a listing or quotation of the Exchange Notes on any securities exchange or stock market. One of the Initial Purchasers have informed the Company that it currently intends to make a market in the Exchange Notes. However, such 17 23 Initial Purchaser is not obligated to do so, and any such market-making may be discontinued at any time without notice. In addition, such market-making activity will be subject to the limits imposed under the Exchange Act. Accordingly, there can be no assurance as to the development, liquidity or maintenance of any market for the Exchange Notes (or in the case of non-tendering holders of Old Notes, the trading market for the Old Notes following the Exchange Offer). If no trading market develops or is maintained for the Exchange Notes, holders may experience difficulty in reselling the Exchange Notes or may be unable to sell them. The liquidity of, and trading market for, the Old Notes or the Exchange Notes also may be adversely affected by general declines in the market for similar securities. Such a decline may adversely affect such liquidity and trading markets independent of the financial performance of, and prospects for, the Company. CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE Holders of Old Notes who do not exchange their Old Notes for Exchange Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. The Company does not currently anticipate that it will register the Old Notes under the Securities Act. In addition, upon the consummation of the Exchange Offer holders of Old Notes which remain outstanding will not be entitled to any rights to have such Old Notes registered under the Securities Act or to any similar rights under the Registration Rights Agreement, subject to certain exceptions. To the extent that Old Notes are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered, or tendered but unaccepted, Old Notes could be adversely affected. 18 24 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Old Notes were sold by the Company on December 22, 1997, to the Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers subsequently resold all of the Old Notes to Qualified Institutional Buyers (as defined in Rule 144A), each of whom agreed to comply with certain transfer restrictions and other conditions. As a condition to the purchase of the Old Notes by the Initial Purchasers, the Company entered into the Registration Rights Agreement with the Initial Purchasers, which requires, among other things, that promptly following the issuance and sale of the Old Notes, the Company file with the SEC the Registration Statement with respect to the Exchange Notes, use its best efforts to cause the Registration Statement to become effective under the Securities Act and, upon the effectiveness of the Registration Statement, offer to the holders of the Old Notes the opportunity to exchange their Old Notes for a like principal amount of Exchange Notes, which will be issued without a restrictive legend and may be reoffered and resold by the holder without restrictions or limitations under the Securities Act subject to certain exceptions described below. A copy of the Registration Rights Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The term "holder" with respect to the Exchange Offer means any person in whose name Old Notes are registered on the Company's books or any other person who has obtained a properly completed bond power from the registered holder or any person whose Old Notes are held of record by the Depositary who desires to deliver such Old Notes by book-entry transfer of the Depositary. Based on existing interpretations of the Securities Act by the staff of the SEC set forth in several no-action letters to third parties, and subject to the immediately following sentence, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than (i) a broker-dealer who purchased such Old Notes directly from the Company for resale pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an "affiliate" (within the meaning of Rule 405 of the Securities Act) of the Company), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the holder is acquiring the Exchange Notes in its ordinary course of business and is not participating, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. However, any purchaser of Old Notes who is an affiliate of the Company or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Notes, or any broker-dealer who purchased the Old Notes from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act, (i) will not be able to rely on the interpretations by the staff of the SEC set forth in such no-action letters, (ii) will not be able to tender its Old Notes in the Exchange Offer and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Old Notes unless such sale or transfer is made pursuant to an exemption from such requirements. Accordingly, any holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. See "Plan of Distribution." As a result of the filing and effectiveness of the Registration Statement of which this Prospectus is a part, the Company will not be required to pay an increased interest rate on the Old Notes. Following the consummation of the Exchange Offer, holders of Old Notes not tendered will not have any further registration rights except in certain limited circumstances requiring the filing of a Shelf Registration Statement (as defined), and the Old Notes will continue to be subject to certain restrictions on transfer. See "Description of the Notes -- Registration Rights; Liquidated Damages." Accordingly, the liquidity of the market for the Old Notes could be adversely affected. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept all Old Notes properly tendered and not withdrawn prior to 5:00 p.m. New York City 19 25 time, on the Expiration Date. After authentication of the Exchange Notes by the Trustee or an authenticating agent, the Company will issue and deliver $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or all of their Old Notes pursuant to the Exchange Offer in denominations of $1,000 and integral multiples thereof. Each holder of Old Notes who wishes to exchange Old Notes for Exchange Notes in the Exchange Offer will be required to represent that (i) it is not an affiliate of the Company, (ii) any Exchange Notes to be received by it were acquired in the ordinary course of its business and (iii) it has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." The form and terms of the Exchange Notes are identical in all material respects to the form and terms of the Old Notes, except that (i) the offering of the Exchange Notes has been registered under the Securities Act, (ii) the Exchange Notes will not be subject to transfer restrictions and (iii) the holders of the Exchange Notes will not be entitled to registration or other rights under the Registration Rights Agreement including the provision for payment of Liquidated Damages upon failure by the Company to consummate the Exchange Offer or the occurrence of certain other events. The Exchange Notes will evidence the same debt as the Old Notes. The Exchange Notes will be issued under and entitled to the benefits of the Indenture. As of the date of this Prospectus, $250,000,000 aggregate principal amount of the Old Notes is outstanding. In connection with the issuance of the Old Notes, the Company arranged for the Old Notes to be issued and transferable in book-entry form through the facilities of the Depositary, acting as depositary. The Exchange Notes will also be issuable and transferable in book-entry form through the Depositary. This Prospectus, together with the accompanying Letter of Transmittal, is initially being sent to all registered holders of the Old Notes as of the close of business on , 1998. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of the Exchange Act, and the rules and regulations of the SEC thereunder, including Rule 14e-1, to the extent applicable. The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Old Notes being tendered, and holders of the Old Notes do not have any appraisal or dissenters' rights under the Texas Business Corporation Act or under the Indenture in connection with the Exchange Offer. The Company shall be deemed to have accepted validly tendered Old Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. See "-- Exchange Agent." The Exchange Agent will act as agent for the tendering holders for the purpose of receiving Exchange Notes from the Company and delivering Exchange Notes to such holders. If any tendered Old Notes are not accepted for exchange because of an invalid tender or the occurrence of certain other events set forth herein, certificates for any such unaccepted Old Notes will be returned, at the Company's cost, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender Old Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes, in connection with the Exchange Offer. See "-- Solicitation of Tenders; Fees and Expenses." NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER. MOREOVER, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISION 20 26 WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR ADVISORS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS. EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 1998, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date to which the Exchange Offer is extended. The Company may extend the Exchange Offer at any time and from time to time by giving oral or written notice to the Exchange Agent and by timely public announcement. The Company expressly reserves the right, in its sole discretion (i) to delay acceptance of any Old Notes, to extend the Exchange Offer or to terminate the Exchange Offer and to refuse to accept Old Notes not previously accepted, if any of the conditions set forth herein under "-- Conditions of the Exchange Offer" shall have occurred and shall not have been waived by the Company (if permitted to be waived by the Company), by giving oral or written notice of such delay, extension or termination to the Exchange Agent and (ii) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof by the Company to the registered holders of the Old Notes. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment in a manner reasonably calculated to inform the holders of such amendment and the Company will extend the Exchange Offer to the extent required by law. Without limiting the manner in which the Company may choose to make public announcements of any delay in acceptance, extension, termination or amendment of the Exchange Offer, the Company shall have no obligation to publish, advise or otherwise communicate any such public announcement, other than by making a timely release thereof to the Dow Jones News Service. INTEREST ON THE EXCHANGE NOTES The Exchange Notes will bear interest at a rate of 9 3/4% per annum, payable semi-annually on June 15 and December 15 of each year, commencing June 15, 1998. Holders of Exchange Notes of record on June 1, 1998, will receive on June 15, 1998, an interest payment in an amount equal to (i) the accrued interest on such Exchange Notes from the date of issuance thereof to June 15, 1998, plus (ii) the accrued interest on the previously held Old Notes from the date of issuance of such Old Notes (December 22, 1997) to the date of exchange thereof. Interest will not be paid on Old Notes that are accepted for exchange. The Notes mature on December 15, 2007. PROCEDURES FOR TENDERING Each holder of Old Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with the Old Notes to be exchanged and any other required documentation, to The Bank of New York, as Exchange Agent, at the address set forth herein and in the Letter of Transmittal or effect a tender of Old Notes pursuant to the procedures for book-entry transfer as provided for herein and therein. By executing the Letter of Transmittal, each holder will represent to the Company, that, among other things, the Exchange Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the holder, that neither the holder nor any such other person has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that neither the holder nor any such other person is an "affiliate,"as defined in Rule 405 under the Securities Act, of the Company. 21 27 Any financial institution that is a participant in the Depositary's Book-entry Transfer Facility system may make book-entry delivery of the Old Notes by causing the Depositary to transfer such Old Notes into the Exchange Agent's account in accordance with the Depositary's procedure for such transfer. Although delivery of Old Notes may be effected through book-entry transfer into the Exchange Agent's account at the Depositary, the Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at its address set forth herein under "-- Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO THE DEPOSITARY IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. See "-- Book Entry Transfer." Only a holder may tender its Old Notes in the Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign and date the Letter of Transmittal or a facsimile thereof, have the signatures thereof guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the Old Notes (unless such tender is being effected pursuant to the procedure for book-entry transfer) and any other required documents, to the Exchange Agent for receipt, prior to 5:00 p.m., New York City time, on the Expiration Date. The Tender by a holder will constitute an agreement between such holder, the Company and the Exchange Agent in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. If less than all of the Old Notes are tendered, a tendering holder should fill in the amount of Old Notes being tendered in the appropriate box on the Letter of Transmittal. The entire amount of Old Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. THE LETTER OF TRANSMITTAL WILL INCLUDE REPRESENTATIONS TO THE COMPANY THAT, AMONG OTHER THINGS, (1) THE EXCHANGE NOTES ACQUIRED PURSUANT TO THE EXCHANGE OFFER ARE BEING ACQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE PERSON RECEIVING SUCH EXCHANGE NOTES (WHETHER OR NOT SUCH PERSON IS THE HOLDER), (2) NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS ENGAGED IN, INTENDS TO ENGAGE IN OR HAS ANY ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE DISTRIBUTION OF SUCH EXCHANGE NOTES, (3) NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS AN "AFFILIATE" (AS DEFINED IN RULE 405 UNDER THE SECURITIES ACT), OF THE COMPANY AND (4) IF THE TENDERING HOLDER IS A BROKER OR DEALER (AS DEFINED IN THE EXCHANGE ACT) (A) IT ACQUIRED THE OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND (B) IT HAS NOT ENTERED INTO ANY ARRANGEMENT OR UNDERSTANDING WITH THE COMPANY OR ANY "AFFILIATE" THEREOF TO DISTRIBUTE THE EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER. IN THE CASE OF A BROKER-DEALER THAT RECEIVES EXCHANGE NOTES FOR ITS OWN ACCOUNT IN EXCHANGE FOR OLD NOTES WHICH WERE ACQUIRED BY IT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES, THE LETTER OF TRANSMITTAL WILL ALSO INCLUDE AN ACKNOWLEDGMENT THAT THE BROKER-DEALER WILL DELIVER A COPY OF THIS PROSPECTUS IN CONNECTION WITH THE RESALE BY IT OF EXCHANGE NOTES RECEIVED PURSUANT TO THE EXCHANGE OFFER; HOWEVER, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH HOLDER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT. SEE "PLAN OF DISTRIBUTION." THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY ALSO REQUEST THAT THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES EFFECT SUCH TENDER FOR HOLDERS, IN EACH CASE AS SET FORTH HEREIN AND IN THE LETTER OF TRANSMITTAL. Any beneficial owner whose Old Notes are registered in the name of his broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on his behalf. If such beneficial owner wishes to tender on his own behalf, such beneficial owner must, prior to completing and executing the Letter of Transmittal and delivering 22 28 his Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of record ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible Institution"), unless the Old Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" of the Letter of Transmittal or (ii) for the account of an Eligible Institution. If the Letter of Transmittal is signed by a person other than the registered holder listed therein, such Old Notes must be endorsed or accompanied by appropriate bond powers which authorize such person to tender the Old Notes on behalf of the registered holder, in either case signed as the name of the registered holder or holders appears on the Old Notes. If the Letter of Transmittal or any Old Notes or bond powers are signed or endorsed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such person should so indicate when signing, and unless waived by the Company. evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of the tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding, The Company reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the absolute right to waive irregularities or conditions of tender as to particular Old Notes. The Company's interpretation of the terms, and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Old Notes, neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Old Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that the Company determines are not properly tendered or the tender of which is otherwise rejected by the Company, and as to which the defects or irregularities have not been cured or waived by the Company, will be returned by the Exchange Agent to the tendering holder unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. In addition, the Company reserves the right in its sole discretion (i) to purchase or make offers for any Old Notes that remain outstanding subsequent to the Expiration Date, or, as set forth under "-- Conditions of the Exchange Offer," terminate the Exchange Offer and (ii) to the extent permitted by applicable law, to purchase Old Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers may differ from the terms of the Exchange Offer. BOOK-ENTRY TRANSFER The Company understands that the Exchange Agent will make a request promptly after the date of this Prospectus to establish accounts with respect to the Old Notes at the DTC (the "Book-Entry Transfer Facility") for the purpose of facilitating the Exchange Offer, and subject to the establishment thereof, any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of Old Notes by causing such Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account with respect to the Old Notes in accordance with the Book-Entry Transfer Facility's procedures for such transfer. ALTHOUGH DELIVERY OF OLD NOTES MAY BE EFFECTED THROUGH BOOK-ENTRY TRANSFER INTO THE EXCHANGE AGENT'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY, AN APPROPRIATE LETTER OF TRANSMITTAL PROPERLY COMPLETED AND DULY EXECUTED WITH ANY REQUIRED SIGNATURE GUARANTEE AND ALL OTHER 23 29 REQUIRED DOCUMENTS MUST IN EACH CASE BE TRANSMITTED TO AND RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT AT ITS ADDRESS SET FORTH BELOW ON OR PRIOR TO THE EXPIRATION DATE, OR, IF THE GUARANTEED DELIVERY PROCEDURES DESCRIBED BELOW ARE COMPLIED WITH, WITHIN THE TIME PERIOD PROVIDED UNDER SUCH PROCEDURES. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available, or (ii) who cannot deliver their Old Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, or who cannot complete the procedure for book-entry transfer on a timely basis, may effect a tender if: (a) the tender is made through an Eligible Institution; (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmittal, mail or hand delivery) setting forth the name and address of the holder, the certificate number or numbers of such holder's Old Notes and the principal amount of such Old Notes tendered, stating that the tender is being made thereby, and guaranteeing that, within three New York Stock Exchange ("NYSE") trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof), together with the certificate(s) representing the Old Notes to be tendered in proper form for transfer (or confirmation of a book-entry transfer into the Exchange Agent's account at the Depositary of Old Notes delivered electronically) and any other documents required by the Letter of Transmittal, will be deposited by the Eligible Institution with the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal (or facsimile thereof), together with the certificate (s) representing all tendered Old Notes in proper form for transfer (or confirmation of a book-entry transfer into the Exchange Agent's account at the Depositary of Old Notes delivered electronically) and all other documents required by the Letter of Transmittal are received by the Exchange Agent within three NYSE trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Old Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the certificate number or numbers and principal amount of such Old Notes or, in the case of Old Notes transferred by book-entry transfer, the name and number of the account at the Depositary to be credited), (iii) be signed by the Depositor in the same manner as the original signature on the Letter of Transmittal, by which such Old Notes were tendered (including any required signature guarantee) or be accompanied by documents of transfer sufficient to permit the Trustee with respect to the Old Notes to register the transfer of such Old Notes into the name of the Depositor withdrawing the tender and (iv specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer, and no Exchange Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes that have been tendered but are not accepted for exchange will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. 24 30 Properly withdrawn Old Notes may be retendered by following one of the procedures described above under "-- Procedures for Tendering" at any time prior to the Expiration Date. CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other term of the Exchange Offer, the Company will not be required to accept for exchange, or to exchange Exchange Notes for, any Old Notes, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Old Notes if, in the Company's judgment, any of the following conditions has occurred or exists or has not been satisfied: (i) that the Exchange Offer, or the making of any exchange by a holder, violates applicable law or any applicable interpretation of the staff of the SEC, (ii) that any action or proceeding shall have been instituted or threatened in any court or by or before any governmental agency or body with respect to the Exchange Offer, (iii) that there has been adopted or enacted any law, statute, rule or regulation that can reasonably be expected to impair the ability of the Company to proceed with the Exchange Offer, (iv) that there has been declared by United States federal or Texas or New York state authorities a banking moratorium; or (v) that trading on the American Stock Exchange or the New York Stock Exchange or generally in the United States over-the-counter market has been suspended by order of the SEC or any other governmental agency, in each of clauses (i) through (iv) which, in the Company's judgment, would reasonably be expected to impair the ability of the Company to proceed with the Exchange Offer. If the Company determines that it may terminate the Exchange Offer for any of the reasons set forth above, the Company may (i) refuse to accept any Old Notes and return any Old Notes that have been tendered to the holders thereof, (ii) extend the Exchange Offer and retain all Old Notes tendered prior to the Expiration Date of the Exchange Offer, subject to the rights of such holders of tendered Old Notes to withdraw their tendered Old Notes or (iii) waive such termination event with respect to the Exchange Offer and accept all properly tendered Old Notes that have not been withdrawn. If such waiver constitutes a material change in the Exchange Offer, the Company will disclose such change by means of a supplement to this Prospectus that will be distributed to each registered holder, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such period. EXCHANGE AGENT The Bank of New York, the Trustee under the Indenture, has been appointed as Exchange Agent for the Exchange Offer. In such capacity, the Exchange Agent has no fiduciary duties and will be acting solely on the basis of directions of the Company. Requests for assistance and requests for additional copies of this Prospectus or of the Letter of Transmittal should be directed to the Exchange Agent addressed as follows: The Bank of New York, Exchange Agent By Mail: Facsimile Transmission By Hand or Overnight (for Eligible Institutions Courier: The Bank of New York Only) Tender and Exchange (212) 815-6213 The Bank of New York Department Tender and Exchange P.O. Box 11248 For Information Telephone: Department Church Street Station 101 Barclay Street New York, NY 10286-1248 (212) 507-9357 Receive & Deliver Window New York, NY 10286
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL. 25 31 SOLICITATION OF TENDERS; FEES AND EXPENSES The expenses of soliciting tenders pursuant to the Exchange Offer will be borne by the Company. The principal solicitation pursuant to the Exchange Offer is being made by mail. Additional solicitations may be made by officers and regular employees of the Company and its affiliates in person, by telegraph, telephone or telecopier. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or other persons soliciting acceptances of the Exchange Offer. The Company will, however, pay the Exchange Agent reasonable and customary fees for its services, reimburse the Exchange Agent for its reasonable out-of-pocket costs and expenses in connection therewith and indemnify the Exchange Agent for all losses and claims incurred by it as a result of the Exchange Offer. The Company may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this Prospectus, the Letter of Transmittal and related documents to the beneficial owners of the Old Notes and in handling or forwarding tenders for exchange. The expenses to be incurred in connection with the Exchange Offer, including fees and expenses of the Exchange Agent and Trustee and accounting and legal fees and printing costs, will be paid by the Company. The Company will pay all transfer taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates representing Exchange Notes or Old Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old Notes tendered, or if tendered Old Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed by the Company directly to such tendering holder. ACCOUNTING TREATMENT The Exchange Notes will be recorded at the same carrying value as the Old Notes, as reflected in the Company's accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized by the Company as a result of the consummation of the Exchange Offer. The expenses of the Exchange Offer will be amortized by the Company over the term of the Exchange Notes. CONSEQUENCES OF FAILURE TO EXCHANGE Participation in the Exchange Offer is voluntary. Holders of the Old Notes are urged to consult their financial and tax advisors in making their own decisions as to what action to take. As a result of the making of, and upon acceptance for exchange of all validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the Company will have fulfilled a covenant contained in the Registration Rights Agreement. Holders of the Old Notes who do not tender their Old Notes in the Exchange Offer will continue to hold such Old Notes and will be entitled to all the rights, and subject to the limitations applicable thereto, under the Indenture and the Registration Rights Agreement, except for any such rights under the Registration Rights Agreement that by their terms terminate or cease to have further effect as a result of the malting of this Exchange Offer. See "Description of the Notes." All untendered Old Notes will continue to be subject to the restrictions on transfer set forth in the Indenture. The Old Notes may not be offered, resold, pledged or otherwise transferred, prior to the date that is two years after the later of December 22, 1997 and the last date on which the Company or any "affiliate" (within the meaning of Rule 144 of the Securities Act) of the Company was the owner of such Old Note except (i) to the Company, (ii) pursuant to a registration statement which has been declared effective under the Securities Act, (iii) to Qualified Institutional Buyers in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A, (iv) in a transaction occurring outside the United States to a foreign 26 32 person, which transaction meets the requirements of Rule 904 under the Securities Act, (i) in transactions complying with the provisions of Regulation S under the Securities Act or (vi) in accordance with another exemption from the registration requirements under the Securities Act (and based upon an opinion of counsel if the Company so requests), and, in each case, in accordance with any applicable securities laws of any State of the United States or any other applicable jurisdiction. To the extent that Old Notes are tendered and accepted in the Exchange Offer, the liquidity of the trading market for untendered Old Notes could be adversely affected. The Company may in the future seek to acquire untendered Old Notes in the open market or through privately negotiated transactions, through subsequent exchange offers or otherwise. The Company intends to make any such acquisitions of Old Notes in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the SEC thereunder, including Rule 14e-1, to the extent applicable. The Company has no present plan to acquire any Old Notes that are not tendered in the Exchange Offer or to file a registration statement to permit resales of any Old Notes that are not tendered in the Exchange Offer. 27 33 USE OF PROCEEDS The Company will not receive any cash proceeds from the issuance of the Exchange Notes offered hereby. In consideration for issuing the Exchange Notes as contemplated in this Prospectus, the Company will receive in exchange Old Notes in like principal amount. The form and terms of the Exchange Notes are identical in all material respects to the form and terms of the Old Notes, except that (i) the offering of the Exchange Notes has been registered under the Securities Act, (i) the Exchange Notes will not be subject to transfer restrictions and (iii) the holders of the Exchange Notes will not be entitled to registration or other rights under the Registration Rights Agreement including the payment of Liquidated Damages upon failure by the Company to consummate the Exchange Offer or the occurrence of certain other events. The Old Notes surrendered in exchange for Exchange Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes will not result in a change in the indebtedness of the Company. CAPITALIZATION The following table sets forth the consolidated unaudited capitalization of the Company as of September 30, 1997 on a pro forma basis adjusted to give effect to the Transactions and the Debt Financing. This table should be read in conjunction with the Company's consolidated financial statements and notes thereto, the pro forma financial statements and notes thereto, "Selected Historical Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in or incorporated by reference into this Prospectus.
PRO FORMA AS OF SEPTEMBER 30, 1997 ------------------------- (IN THOUSANDS OF DOLLARS) Cash and marketable securities.............................. $ 79,914 =========== Total debt, including current maturities: Senior Credit Facility: Term loans............................................. $255,000 Revolving loans (1).................................... 8,640 Notes offered hereby...................................... 250,000 Other debt (2)............................................ 41,030 ----------- Total debt........................................ 554,670 ----------- Total stockholders' equity (3).............................. 355,570 ----------- Total capitalization........................................ $910,240 ===========
- --------------- (1) The maximum amount available for the revolving credit portion of the Senior Credit Facility is $200 million. (2) Includes $22.5 million in indebtedness outstanding under Savannah Foods' industrial revenue bonds, $5.8 million in indebtedness outstanding under Existing Notes not purchased in the Debt Tender Offer and $12.7 million in other existing indebtedness of Savannah Foods and Imperial Holly. (3) As adjusted to reflect the issuance of shares of Company Common Stock in the Merger and the H. Kempner Trust Financing. 28 34 PRO FORMA FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements give effect to Transactions using the purchase method of accounting for Imperial Holly's acquisition of Savannah Foods after giving effect to the pro forma reclassifications and adjustments described in the accompanying notes. These unaudited pro forma combined condensed financial statements have been prepared from, and should be read in conjunction with, the historical consolidated financial statements and notes thereto of Imperial Holly and of Savannah Foods, which are included in or incorporated by reference in this Prospectus. The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the Transactions and the Debt Financing as if each had occurred on September 30, 1997. The Unaudited Pro Forma Combined Condensed Statements of Earnings for the year ended March 31, 1997 and the six months ended September 30, 1997 and 1996 give effect to the Transactions and the Debt Financing as if each had occurred at the beginning of the earliest period presented. Savannah Foods' results of operations, which are reported on a fiscal year ending on the Sunday closest to September 30, have been adjusted to a March 31 year end. The estimates of the fair value of Savannah Foods' assets and liabilities are based on valuations that are preliminary. Such valuations will be updated to the effective date of the Merger and may change from the amounts shown herein; however, the Company does not expect such changes to be material. The unaudited pro forma combined condensed financial statements are intended for informational purposes and are not necessarily indicative of the future financial position or future results of the combined companies or of the financial position or the results of operations that would have actually occurred had the Merger been in effect as of the date or for the periods presented. The Unaudited Pro Forma Combined Condensed Statements of Earnings do not reflect any benefits from cost savings or revenue enhancements that are anticipated to result from the integration of operations of Imperial Holly and Savannah Foods. Such cost savings and revenue enhancements are discussed in Note 8 to the Unaudited Pro Forma Combined Condensed Statements of Earnings. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS FOR THE YEAR ENDED MARCH 31, 1997
HISTORICAL ------------------------ IMPERIAL SAVANNAH PRO FORMA PRO FORMA HOLLY FOODS ADJUSTMENTS COMBINED ---------- ---------- ----------- ----------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) Net sales............................... $ 752,595 $1,170,729 $ -- $ 1,923,324 Cost of sales........................... 651,677 1,031,475 (944)(1) 1,682,208 Selling, general & administrative expense............................... 57,722 56,255 -- 113,977 Depreciation & amortization............. 14,773 25,771 9,328(2) 47,156 (2,716)(3) Impairment of long-lived assets......... -- 10,280 -- 10,280 Cost of workforce reduction............. -- ....... 723 -- 723 ---------- ---------- -------- ----------- Operating income.............. 28,423 46,225 (5,668) 68,980 Interest expense........................ 12,430 9,572 34,914(5) 56,916 Other (income) expense.................. (1,695) 285 -- (1,410) ---------- ---------- -------- ----------- Income before income taxes.............. 17,688 36,368 (40,582) 13,474 Income tax provision.................... 6,170 12,948 (11,684)(6) 7,434 ---------- ---------- -------- ----------- Income before extraordinary item........ $ 11,518 $ 23,420 $(28,898) $ 6,040 ========== ========== ======== =========== Average shares outstanding.............. 12,576,489 Shares sold to H. Kempner Trust......... 377,358(7) Shares issued in the Merger............. 12,029,962(7) ----------- Pro forma average shares outstanding.... 24,983,809 =========== Pro forma earnings per share............ $ 0.24 ===========
29 35 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997
HISTORICAL -------------------------- IMPERIAL SAVANNAH PRO FORMA PRO FORMA HOLLY FOODS ADJUSTMENTS COMBINED ----------- ----------- -------------- -------------- (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS) Net sales............................... $406,682 $612,229 $ -- $ 1,018,911 Cost of sales........................... 348,869 531,899 (308)(1) 880,460 Selling, general and administrative expense............................... 30,668 30,711 -- 61,379 Depreciation & amortization............. 6,786 11,329 4,664(2) 22,883 104(3) Merger related costs.................... 13,394 (13,394)(4) -- -------- -------- -------- ----------- Operating income........................ 20,359 24,896 8,934 54,189 Interest expense........................ 5,301 2,968 17,797(5) 26,066 Other (income) expense.................. (735) (294) -- (1,029) -------- -------- -------- ----------- Income before income taxes.............. 15,793 22,222 (8,863) 29,152 Income tax provision.................... 5,842 8,118 (1,618)(6) 12,342 -------- -------- -------- ----------- Income before extraordinary item........ $ 9,951 $ 14,104 $ (7,245) $ 16,810 ======== ======== ======== =========== Average shares outstanding.............. 14,247,193 Shares sold to H. Kempner Trust......... 377,358(7) Shares issued in the Merger............. 12,029,962(7) =========== Pro forma average shares outstanding.... 26,654,513 =========== Pro forma earnings per share............ $ 0.63 ===========
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
HISTORICAL -------------------------- IMPERIAL SAVANNAH PRO FORMA PRO FORMA HOLLY FOODS ADJUSTMENTS COMBINED ----------- ----------- -------------- -------------- (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS) Net sales............................... $393,955 $591,119 $ -- $ 985,074 Cost of sales........................... 341,157 525,872 (636)(1) 866,393 Selling, general and administrative expense............................... 29,057 27,116 -- 56,173 Depreciation & amortization............. 7,293 13,665 4,664(2) 24,618 (1,004)(3) Impairment of long-lived assets......... 10,280 -- 10,280 Cost of workforce reduction............. 723 -- 723 -------- -------- -------- ----------- Operating income........................ 16,448 13,463 (3,024) 26,887 Interest expense........................ 6,337 5,690 17,300(5) 29,327 Other (income) expense.................. (1,046) 400 -- (646) -------- -------- -------- ----------- Income before income taxes.............. 11,157 7,373 (20,324) (1,794) Income tax provision.................... 4,080 1,930 (5,854)(6) 156 -------- -------- -------- ----------- Income before extraordinary item........ $ 7,077 $ 5,443 $(14,470) $ (1,950) ======== ======== ======== =========== Average shares outstanding.............. 11,009,476 Shares sold to H. Kempner Trust......... 377,358(7) Shares issued in the Merger............. 12,029,962(7) =========== Pro forma average shares outstanding.... 23,416,796 =========== Pro forma earnings per share............ $ (0.08) ===========
30 36 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF EARNINGS FOR THE YEAR ENDED MARCH 31, 1997 AND THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (1) Represents the adjustment of pension and other employee benefit costs due to elimination of the amortization of deferred gains and losses on a purchase accounting basis. (2) Represents the amortization of goodwill and brand related intangibles over 40 years and debt issuance costs related to the Debt Financing over the terms of the respective loans. (3) Represents the adjustment in depreciation due to the step-up of Savannah Foods' property, plant and equipment to fair value. Pro forma depreciation is calculated on the straight-line method over estimated useful lives of eight to 37 years for real property improvements and five to ten years for machinery and equipment. (4) Represents elimination of the charge for costs related to the Merger recognized in the Savannah Foods historical financial results. (5) Represents additional interest under the Debt Financing. The weighted average annual interest rate on the Debt Financing is assumed to be 8.53%, 8.58% and 8.51% for the year ended March 31, 1997 and the six months ended September 30, 1997 and 1996, respectively. A 0.125% increase or decrease in the assumed weighted average interest rate would change pro forma interest expense for the year ended March 31, 1997 and the six months ended September 30, 1997 and 1996 by $650,000, $329,000 and $321,000, respectively. (6) Represents the tax effect of the adjustments above, excluding amortization of goodwill and brand related intangibles, based on the statutory rate in effect for the periods shown. (7) Represents the additional shares issued in the Merger and the H. Kempner Trust Financing. 31 37 (8) The Unaudited Pro Forma Combined Condensed Statements of Earnings do not give any effect to the cost savings and revenue enhancements which the Company expects will result from integrating the operations of the companies after the Merger. Management expects to begin to realize such cost savings and revenue enhancements in the fiscal year ending September 30, 1998. The full annual impact of such cost savings and revenue enhancements is expected to be achieved in the fiscal year ending September 30, 1999, and is preliminarily estimated to include the following (in millions of dollars): Reduction of administrative costs resulting from elimination of duplicate functions.................................... $13.5 Reduction of freight and distribution costs resulting from more efficient sourcing of customer orders................ 7.0 Reductions in costs resulting from refocused selling, marketing and promotion activities........................ 7.5 Reduction of costs resulting from optimizing the operating schedules of the combined production facilities........... 5.0 Reduction of costs of procuring operating and packaging supplies of the combined production facilities............ 7.0 ----- Total....................................................... $40.0 =====
Additionally, the Company believes, based upon preliminary analysis, that there are potential opportunities to achieve improved operating results by expanding the distribution of higher value added products to each of Imperial Holly and Savannah Foods' respective markets, to expand sugar beet acreage supplying Savannah Foods' sugar beet processing plants and to achieve reductions in working capital by negotiating new arrangements with suppliers. 32 38 UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET SEPTEMBER 30, 1997
HISTORICAL -------------------- IMPERIAL SAVANNAH PRO FORMA PRO FORMA HOLLY FOODS ADJUSTMENTS COMBINED -------- -------- ----------- ---------- (IN THOUSANDS OF DOLLARS) Cash...................................... $ 9,354 $ 14,677 $ -- $ 24,031 Marketable securities..................... 55,883 -- -- 55,883 Accounts receivable....................... 62,158 68,635 -- 130,793 Inventories............................... 127,375 90,908 9,949(1) 228,232 Manufacturing costs prior to production... 22,357 -- 16,747(2) 39,104 Prepaid expenses.......................... 5,448 6,175 -- 11,623 -------- -------- --------- ---------- Total current assets............ 282,575 180,395 26,696 489,666 Notes receivable & other investments...... 13,250 -- -- 13,250 Property, plant & equipment -- net........ 154,309 179,993 73,000(3) 407,302 Intangible assets......................... -- -- 302,954(4) 302,954 Investment in Savannah Foods.............. 3,123 -- (3,123)(11) -- Other assets.............................. 4,642 38,683 (3,636)(5) 39,689 -------- -------- --------- ---------- Total assets.................... $457,899 $399,071 $ 395,891 $1,252,861 ======== ======== ========= ========== Accounts payable.......................... $ 53,923 $ 55,756 $ -- $ 109,679 Short-term borrowings..................... 43,091 -- (43,091)(7) -- Current maturities of long-term debt...... 1,173 7,824 5,600(7) 14,597 Other current liabilities................. 54,525 23,644 -- 78,169 -------- -------- --------- ---------- Total current liabilities....... 152,712 87,224 (37,491) 202,445 Long-term debt............................ 81,304 26,100 432,669(7) 540,073 Deferred taxes and other credits.......... 30,924 69,058 33,086(6) 154,773 21,705(8) Common stock.............................. 83,707 17,365 164,397(9) 271,485 23,381(10) (17,365)(11) Additional paid in capital................ -- 43,639 (43,639)(11) -- Retained earnings......................... 90,870 221,949 (221,949)(11) 89,084 (1,786)(7) Treasury stock............................ -- (15,849) 15,849(11) -- Benefit Trust............................. -- (46,875) 46,875(11) (23,381) (23,381)(10) Other equity.............................. 18,382 (3,540) 3,540(11) 18,382 -------- -------- --------- ---------- Total stockholders' equity...... 192,959 216,689 (54,078) 355,570 -------- -------- --------- ---------- Total liabilities and equity.... $457,899 $399,071 $ 395,891 $1,252,861 ======== ======== ========= ==========
33 39 NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET SEPTEMBER 30, 1997 (1) Represents the adjustment of Savannah Foods' finished goods inventories to net realizable value, less an allowance for a normal profit margin, and of raw material inventories to replacement cost. (2) Represents an adjustment to conform Savannah Foods' accounting policy for certain manufacturing costs incurred between processing periods which are necessary to prepare the factory for the next processing campaign, to that of Imperial Holly's. (3) Represents the adjustment to fair value of Savannah Foods' property, plant and equipment as follows (in thousands):
Land.............................................. $10,000 Real property improvements........................ 39,000 Machinery and equipment........................... 24,000 ------- Total................................... $73,000 =======
(4) Represents intangible assets including an estimate of the excess purchase price over the book value of Savannah Foods' net assets acquired ("goodwill"), brand related intangibles and debt acquisition cost. (5) Represents the adjustment of other assets to fair value. (6) Represents the adjustment to fair value of pension and other employee benefit plan liabilities. (7) Represents the adjustment to reflect the borrowings under the Debt Financing to finance the cash consideration paid in the Transactions and pay related fees and expenses. (The cash consideration paid in the Tender Offer, the amount required to purchase the Existing Notes in the Debt Tender Offer and certain of such fees and expenses were originally financed with borrowings under the Tender Credit Facility, which amounts were repaid under the Debt Financing.) (8) Represents the net deferred tax effect of various adjustments to the Unaudited Pro Forma Combined Condensed Balance Sheet. (9) Represents the issuance of Company Common Stock to Savannah Foods stockholders in the Merger, and sale of Company Common Stock in the H. Kempner Trust Financing, the proceeds of which were used to reduce the borrowing requirements. (10) Represents the effect of transactions with the Benefit Trust as a result of the Tender Offer, the Merger and the use of the cash consideration to repay the Benefit Trust Note and purchase additional shares of Company Common Stock. (11) Represents the elimination of Savannah Foods' historical equity and Imperial Holly's costs of the Transactions capitalized at September 30, 1997. 34 40 SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION The following tables set forth certain selected historical consolidated financial information for Savannah Foods and Imperial Holly and are based upon the respective historical financial statements of each company included in or incorporated by reference in this Prospectus. SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA FOR IMPERIAL HOLLY CORPORATION
SIX MONTHS ENDED FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30, (1) -------------------------------------------------------- -------------------- 1993 1994 1995 1996 1997(1) 1996 1997(2) -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS OF DOLLARS, EXCEPT FOR RATIOS) INCOME STATEMENT DATA: Net sales........................... $647,825 $655,498 $586,925 $616,450 $752,595 $393,955 $406,682 Cost of sales....................... 563,063 585,707 520,996 550,782 651,677 341,157 348,869 Selling, general and administration expense........................... 59,072 58,072 54,591 53,193 57,722 29,057 30,668 Depreciation & amortization......... 15,251 15,360 13,429 12,681 14,773 7,293 6,786 Restructuring charges............... 3,300 925 -- 2,225 -- -- -- -------- -------- -------- -------- -------- -------- -------- Operating income (loss)............. 7,139 (4,566) (2,091) (2,431) 28,423 16,448 20,359 Interest expense.................... 10,824 10,906 11,426 11,207 12,430 6,337 5,301 Other income........................ 3,411 4,195 4,868 8,562 1,695 1,046 735 -------- -------- -------- -------- -------- -------- -------- Income (loss) before income taxes and extraordinary item............ (274) (11,277) (8,649) (5,076) 17,688 11,157 15,793 Provision (credit) for income taxes............................. (397) (3,312) (3,284) (1,858) 6,170 4,080 5,842 Extraordinary item(3)............... (3,509) -- -- 604 -- -- -- -------- -------- -------- -------- -------- -------- -------- Net income (loss)................... $ (3,386) $ (7,965) $ (5,365) $ (2,614) $ 11,518 $ 7,077 $ 9,951 ======== ======== ======== ======== ======== ======== ======== OTHER DATA: EBITDA.............................. $ 22,390 $ 10,794 $ 11,338 $ 10,250 $ 43,196 $ 23,741 $ 27,145 Capital expenditures................ 12,111 8,423 7,850 8,890 12,322 5,345 15,214 Ratio of earnings to fixed charges(4)........................ 1.0x -- -- -- 2.4x 2.8x 4.0x Ratio of EBITDA to interest expense........................... 2.1x 1.0x 1.0x .9x 3.5x 3.7x 5.1x BALANCE SHEET DATA: Cash and marketable securities...... $ 31,553 $ 28,889 $ 36,765 $ 39,303 $ 56,682 $ 48,869 $ 65,237 Working capital(5).................. 121,661 132,677 111,583 74,270 140,711 131,975 109,429 Total assets........................ 398,202 393,660 374,124 325,319 449,933 450,983 457,619 Long-term debt...................... 108,181 100,044 100,010 89,800 90,619 90,947 81,304 Stockholders' equity................ 122,462 114,737 109,977 111,043 176,956 169,993 192,959
- --------------- (1) The results of Spreckels, which was acquired in a purchase transaction, are included in Imperial Holly's consolidated results commencing April 19, 1996. (2) In October 1997, Imperial Holly changed its fiscal year end to September 30. (3) In fiscal 1993, Imperial Holly paid a make-whole premium in connection with the prepayment of a series of senior notes. In fiscal 1996, Imperial Holly purchased and retired a portion of a series of senior notes at a price below book value. (4) Imperial Holly's earnings before income taxes, extraordinary item and fixed charges for its fiscal years ended March 31, 1994, 1995 and 1996 were insufficient to cover fixed charges by $11.3 million, $8.6 million and $5.1 million, respectively. (5) Excludes cash, marketable securities, short-term debt and current maturities of long-term debt. 35 41 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA FOR SAVANNAH FOODS & INDUSTRIES, INC.
FISCAL YEAR ENDED --------------------------------------------------------------------------------- JANUARY 3, OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 29, SEPTEMBER 28, 1993 1993(1) 1994 1995 1996 1997 ---------- ---------- ---------- ---------- ------------- ------------- (IN THOUSANDS OF DOLLARS, EXCEPT RATIOS) INCOME STATEMENT DATA: Net sales.......................... $1,138,114 $ 818,116 $1,074,367 $1,098,544 $1,146,332 $1,191,839 Cost of sales...................... 1,008,658 743,731 969,621 1,002,679 1,028,218 1,037,502 Selling, general and administrative................... 56,608 43,184 53,392 55,866 54,667 59,850 Depreciation & amortization........ 23,705 19,362 28,972 28,314 27,994 23,435 Impairment of long-lived assets.... -- -- -- -- 10,280 -- Other costs(2)..................... -- -- 2,950 4,284 3,374 13,394 ---------- ---------- ---------- ---------- ---------- ---------- Operating income................... 49,143 11,839 19,432 7,401 21,799 57,658 Interest expense................... 10,526 10,226 13,380 14,847 12,355 6,850 Other income (expense)............. 2,351 1,528 2,554 1,368 237 409 ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) before change in accounting principle, income taxes and extraordinary item..... 40,968 3,141 8,606 (6,078) 9,681 51,217 Provision (credit) for income taxes............................ 13,628 1,155 2,863 (2,585) 2,738 19,136 Extraordinary item, net of tax(3)........................... -- -- -- -- (971) (376) Cumulative effect of change in accounting principle(4).......... (18,170) 600 -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss).................. $ 9,170 $ 2,586 $ 5,743 $ (3,493) $ 5,972 $ 31,705 ========== ========== ========== ========== ========== ========== OTHER DATA: EBITDA............................. $ 72,848 $ 31,201 $ 48,404 $ 35,715 $ 60,073 $ 81,093 Capital expenditures............... 45,301 35,354 22,218 16,303 7,916 15,664 Ratio of earnings to fixed charges(5)....................... 4.9x 1.3x 1.6x -- 1.8x 8.5x Ratio of EBITDA to interest expense.......................... 6.9x 3.1x 3.6x 2.4x 4.9x 11.8x BALANCE SHEET DATA: Cash and marketable securities..... $ 7,979 $ 7,481 $ 28,436 $ 11,574 $ 15,300 $ 14,677 Working capital(6)................. 161,092 136,470 86,947 100,088 88,976 86,318 Total assets....................... 635,755 567,852 486,127 476,507 398,261 399,071 Long-term debt..................... 126,464 142,078 140,224 106,864 59,754 26,100 Stockholders' equity............... 210,620 194,714 188,174 169,649 173,727 216,689
- --------------- (1) During the fiscal period ended October 3, 1993, Savannah Foods changed its year end from the Sunday closest to December 31 to the Sunday closest to September 30. As a result, the fiscal period ended October 3, 1993 represents a 39-week period. (2) Other costs include $13,394,000 of Merger related costs in fiscal 1997. (3) Savannah Foods reported extraordinary items related to penalties incurred on the prepayment of long-term debt during the fiscal years ended September 29, 1996 and September 28, 1997. (4) Savannah Foods adopted Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions during the fiscal year ended January 3, 1993, and adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, during the fiscal period ended October 3, 1993. (5) Savannah Foods' earnings before income taxes, extraordinary item and fixed charges for its fiscal year ended October 1, 1995 were insufficient to cover fixed charges by $6.1 million. (6) Excludes cash, marketable securities, short-term debt and current maturities of long-term debt. 36 42 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company is the largest, most geographically diverse and most balanced producer and marketer of refined sugar in the United States, refining raw cane sugar at four refineries located in Texas, Georgia, Florida and Louisiana and producing beet sugar at 12 beet factories located in California, Wyoming, Montana, Texas and Michigan. The Company also offers one of the broadest product lines in the industry and sells to a wide range of customers including (i) retail grocers, (ii) foodservice companies, which include restaurants, schools and other institutions, and (iii) industrial customers, which are principally food manufacturers. INDUSTRY ENVIRONMENT. The Company's results of operations are substantially dependent on 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 beets, prices of competing crops, weather conditions and United States farm and trade policy, that the Company is unable to predict. Certain segments of the beet sugar industry in the recent past have expanded sugar beet acreage at rates exceeding the rate of growth in the demand for refined sugar, which, along with large crop yields, exerted downward pressure on refined sugar prices. Smaller sugar beet crops in the fall of 1995 and 1996 caused an increase in refined sugar prices. A larger crop in the fall of 1997 has caused a decrease in market prices. The domestic sugar industry is subject to substantial influence by legislative and regulatory actions. The current federal legislation limits the importation of raw cane sugar, affecting the supply and cost of raw material available to the Company's cane sugar operations. See "Risk Factors," "Business -- Sugar Legislation and Other Market Factors" and "-- Competition." Weather conditions during the growing, harvesting, processing and storage seasons, the availability of acreage to contract for sugar beets, as well as the effects of diseases and insects, may materially affect the quality and quantity of sugar beets available for purchase by the Company as well as the unit costs of raw materials and processing. See "Business -- Raw Material and Processing Requirements." 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 the Company's beet sugar factories operates during sugar-making campaigns, which generally total 120 days to 180 days in length each year, depending upon the supply of sugar beets available to the factory. Because of the geographical diversity of its manufacturing facilities, the Company is generally able to produce beet sugar year-round. While the seasonal production of beet sugar requires the Company to store significant refined sugar inventory at each factory, the geographical diversity and staggered periods of production aid in distribution and enable the Company's total investment in inventories to be reduced. Additionally, these factors reduce the likelihood that adverse weather conditions will affect all the Company's productive areas simultaneously. COMBINED FUTURE OPERATIONS. As a result of the completion of the Transactions, Imperial Holly's consolidated operating results will in the future include Savannah Foods, resulting in substantial increases in sales and costs, including the impact of interest on the higher level of indebtedness and increases in depreciation and amortization. HISTORICAL RESULTS OF OPERATIONS -- IMPERIAL HOLLY SIX MONTHS ENDED SEPTEMBER 30, 1997 VERSUS 1996 Net Sales. Net sales increased $12.7 million or 3.2% in the six months ended September 30, 1997 compared to the six months ended September 30, 1996, primarily as a result of higher refined sugar prices. Price increases resulted from smaller sugar beet crops in the fall of 1995 and 1996; a larger crop in the fall of 1997 has caused a decrease in the market prices for refined sugar. A significant portion of Imperial Holly's 37 43 industrial sales are made under fixed price, forward sales contracts, most of which commence October 1 and extend for up to one year. As a result, changes in Imperial Holly's realized sales prices for industrial sales tend to lag market price changes. Industrial sales contracts for the period beginning in October 1997 were written at lower prices than the prior contract year. To mitigate its exposure to future price changes, Imperial Holly enters into forward purchase contracts for raw cane sugar and utilizes a participating sugar beet purchase contract described below. Sugar sales volumes increased modestly during the six months, principally due to higher beet sugar sales. Cost of Sales. Cost of sales increased $7.7 million or 2.3% which, coupled with the increase in sales, resulted in the gross margin before depreciation improving to 14.2% of sales from 13.4%. Unit sugar gross margins improved as reductions in raw sugar costs and improved beet sugar operations more than offset higher sugar beet costs resulting from higher selling prices and higher cane sugar refining costs. Imperial Holly purchases sugar beets under participatory contracts that provide for a percentage sharing with the grower of the net selling price realized on refined beet sugar sales. Use of this type of contract reduces Imperial Holly's exposure to inventory price risk. The increase in sales prices during the six month period resulted in an increase in the cost of sugar beets under the participatory purchase contracts, mitigating the improvement in gross margin. As discussed in Note 1 to Imperial Holly's Consolidated Financial Statements, Imperial Holly utilizes LIFO inventory method for sugar inventories. During the six months ended September 30, 1997, Imperial Holly liquidated beginning inventory layers at costs below current year levels, reducing cost of sales approximately $0.7 million. In recent years Imperial Holly has experienced reductions in the availability of acreage planted in sugar beets supplying its Hereford, Texas, Torrington, Wyoming and Northern California factories, resulting in reduced throughput and corresponding increases in unit manufacturing costs. Sugar beet acreage supplying each of these factories is expected to increase in fiscal 1998, although acreage is expected to remain below Imperial Holly's targeted levels. Imperial Holly has processed raw cane sugar at some of these factories, which increases throughput and lowers unit fixed manufacturing costs. Selling, General and Administrative. Selling, general and administrative expenses increased $1.6 million or 5.5% during the six month period as increases in warehousing and advertising costs more than offset a reduction in general and administrative costs, principally resulting from closure of Spreckels' Pleasanton, California office. Interest Expense. Interest expense declined $1.0 million during the six month period as reduced long and short-term borrowings more than offset higher short-term interest rates. In April 1997, Imperial Holly purchased and retired $8.3 million of its senior notes due 1999. Strong operating cash flow allowed for the reduction in average short-term borrowings by approximately $19.0 million during the period. Other. Realized gains on marketable securities decreased $383,000; net unrealized gains that have not been recognized in Imperial Holly's results of operations increased $8.3 million to $28.3 million during the six months ended September 30, 1997. Imperial Holly's effective income tax rate was 37% for the six months ended September 30, 1997, which is higher than the statutory federal rate primarily due to state income taxes. YEAR ENDED MARCH 31, 1997 VERSUS 1996 Net Sales. Net sales increased $136.1 million or 22.1% in fiscal 1997 as a result of almost equal contributions from higher sugar sales prices and volumes, as well as higher beet pulp sales prices. Sugar sales prices increased as a result of smaller than usual sugar beet crops in the fall of 1995 and 1996. Increases in cane sugar sales volumes and the additional volumes attributable to the Spreckels acquisition more than offset lower sales by Imperial Holly's beet sugar operations resulting from lower refined sugar inventories in the first half of the fiscal year. Beet pulp prices began increasing late in fiscal 1996 as a result of higher feed grain prices and returned to more normal levels in the latter part of fiscal 1997. Cost of Sales. Cost of sales increased $100.9 million or 18.3% and gross margin before depreciation improved to 13.4% of sales in fiscal 1997 from 10.6% in fiscal 1996. Unit sugar sales margins improved as reductions in cane sugar unit manufacturing costs resulting from increased volumes and reductions in raw cane 38 44 sugar costs offset higher energy costs and higher beet sugar manufacturing costs owing to reduced throughput at three of Imperial Holly's beet sugar factories. Additionally, winter flooding disrupted rail service in Northern California requiring the diversion of harvested beets in Oregon and Washington to Imperial Holly's Sidney, Montana factory. The delays in processing these beets, as well as the Sidney beets, affected beet quality and impacted processing, reducing sugar recovery and increasing costs several million dollars. The increase in sales prices for beet sugar resulted in an increase in the cost of sugar beets under the participatory purchase contracts described above. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $4.5 million resulting from increases in volume related selling and distribution costs and incentive compensation as well as increases in administrative costs associated with Spreckels' Pleasanton, California office, which was closed in Imperial Holly's second fiscal quarter. Interest Expense -- Net. Interest expense -- net, increased primarily due to higher average short-term borrowings. Other income -- net includes losses on asset dispositions of approximately $700,000 in 1997 and gains of $400,000 in 1996. Other. Realized gains on marketable securities decreased $5.0 million in fiscal 1997; net unrealized gains that have not been recognized in Imperial Holly's results of operations increased $6.2 million and are detailed in Note 3 to Imperial Holly's Consolidated Financial Statements. The components of income tax expense and its relationship to statutory rates are detailed in Note 7 to Imperial Holly's Consolidated Financial Statements. YEAR ENDED MARCH 31, 1996 VERSUS 1995 Net Sales. Net sales increased $29.5 million or 5.0% in fiscal 1996 resulting from increases in both sugar sales volumes and average sales prices. Average sales prices of refined sugar increased modestly during fiscal 1996. Spot prices began strengthening in the second half of the fiscal year as a result of the smaller domestic sugar beet crop. By-product sales revenues were virtually unchanged as lower volumes offset the impact of higher prices. Beet pulp prices began rising significantly late in the fiscal year as a result of higher feed grain prices. Cost of Sales. Cost of sales increased $29.8 million or 5.7% as a result of both higher sales volumes and increases in unit costs. Raw cane sugar costs increased significantly during the fiscal year, particularly during the first six months, due to a tight raw sugar market. Average beet sugar manufacturing costs increased slightly as the reduced throughput from the smaller fall sugar beet crop offset cost reductions achieved in the spring processing campaigns. As discussed in Note 1 to Imperial Holly's Consolidated Financial Statements, Imperial Holly liquidated beginning LIFO inventory layers at costs below current year cost, and charged such beginning amounts to cost of sales. Selling, General and Administrative. Selling, general and administrative costs declined $1.4 million or 2.6% as increases in volume related selling and distribution costs were more than offset by reductions in general and administrative expenses as well as research and development costs. During the third fiscal quarter, Imperial Holly commenced a cost reduction program in the sales, administrative and manufacturing overhead areas and recorded a charge to earnings of $475,000 for the cost of a work force reduction. Additionally, Imperial Holly recorded a $1,750,000 charge in the fourth quarter related to the closure of the Hamilton City, California factory. Interest Expense. Interest expense for fiscal 1996 was lower than fiscal 1995 as lower balances of both short-term and long-term borrowings were partially offset by higher short-term interest rates and a lower earnings credit from the interest rate swap described in Note 6 to Imperial Holly's Consolidated Financial Statements. The interest rate swap, which was entered into effectively to convert a portion of Imperial Holly's fixed rate debt to a floating rate basis and has provided positive cash flow for each period during its term, expired in October 1996. Other. Realized gains on marketable securities increased $3.7 million during fiscal 1996; unrealized gains and losses, which have not been recognized in Imperial Holly's results of operations, but are shown, net of tax, as a component of shareholders' equity, are detailed in Note 3 to Imperial Holly's Consolidated Financial 39 45 Statements. The components of income tax expense and its relationship to statutory rates are detailed in Note 7 to Imperial Holly's Consolidated Financial Statements. The extraordinary item is discussed in Note 6 to Imperial Holly's Consolidated Financial Statements. HISTORICAL RESULTS OF OPERATIONS -- SAVANNAH FOODS YEAR ENDED SEPTEMBER 28, 1997 VERSUS SEPTEMBER 29, 1996 Savannah Foods' net income for fiscal 1997 was $31,705,000, on sales of $1,191,839,000, compared to net income of $5,972,000, on sales of $1,146,332,000 for fiscal 1996. Fiscal 1997 net income includes an after-tax extraordinary charge of $376,000, for prepayment penalties incurred on Savannah Foods' senior notes. Fiscal 1996 includes a similar after-tax extraordinary charge of $971,000. Income from operations for fiscal 1997 and fiscal 1996 includes four transactions that affect comparability between the two years. In the fourth quarter of fiscal 1997, Savannah Foods recorded $13,394,000 of costs related to the Merger, and in fiscal 1996 Savannah Foods recorded three significant transactions. First, in 1996, Savannah Foods sold its plane, resulting in a gain of $2,289,000. Second, in 1996, Savannah Foods recognized a $3,800,000 loss on the sale of the property, plant and equipment and certain other assets of Raceland Sugars, Inc. ("Raceland"), its raw sugar mill subsidiary. Third, Savannah Foods recorded a non-cash charge of $10,280,000 in 1996 for the impairment of long-lived assets located at its Fremont, Ohio beet sugar manufacturing facility. Excluding the impairment of long-lived assets and other costs, income from operations for fiscal 1997 was $71,052,000 or double the comparable amount in fiscal 1996 of $35,453,000. Income from operations for fiscal 1997 improved significantly from fiscal 1996 due to increased operating profits in the cane sugar division. Volumes and margins for cane refiners were favorably impacted by the reduction of national beet sugar production. At approximately 4,050,000 tons, domestic production from the 1996 beet crop was up slightly from the 1995 beet crop, which was down about 600,000 tons, or 13%, from the 1994 beet crop's record production. Over the same two years, domestic consumption of sugar increased by about 300,000 tons. With less beet sugar on the market and with increased consumption, cane sugar volumes expanded to meet the overall demand for refined sugar. Refined sugar selling prices rose as a result of the tightened supply. Also, average raw sugar costs were lower than in fiscal 1996. Reduced raw sugar costs and increased selling prices resulted in higher operating profit margins for fiscal 1997 compared to fiscal 1996. Savannah Foods' beet sugar division was only modestly profitable in fiscal 1997, and profits were slightly lower than in fiscal 1996. Higher selling prices in fiscal 1997 offset lower volumes resulting from a reduction in contracted acres harvested. Selling, general and administrative expense for fiscal 1997 was up $5,183,000, or 9%, from fiscal 1996. This increase was primarily due to an incentive compensation program that links employee compensation to Savannah Foods' earnings and to an increase in advertising expense. Depreciation and amortization expense for fiscal 1997 was down $4,559,000, or 16%, from fiscal 1996, due to asset sales and write-downs in fiscal 1996 and a reduction in depreciation related to the Savannah Foods' Colonial Sugars Refinery, which was purchased in 1986. Interest expense for fiscal 1997 was down $5,505,000, or 45%, from fiscal 1996. Average short-term borrowings were down about $33,000,000 for the year due to higher net income and a lower investment in inventories. Average long-term debt was down about $45,000,000 compared to last year. YEAR ENDED SEPTEMBER 29, 1996 VERSUS OCTOBER 1, 1995 Savannah Foods' net income for fiscal 1996 was $5,972,000 on sales of $1,146,332,000, compared to a net loss ($3,493,000) on sales of $1,098,544,000 for fiscal 1995. Fiscal 1996 net income includes an after-tax extraordinary charge of $971,000 for the prepayment of long-term debt. Domestic sugar sales volumes increased 5% over fiscal 1995, but overall sugar sales volume was flat as export volume decreased significantly from fiscal 1995. Domestic sugar sales prices increased 4% and average raw sugar costs decreased 2%. 40 46 Fiscal 1996 income from operations includes three significant transactions that affect the comparability between fiscal 1996 and fiscal 1995. First, in the first quarter of 1996, Savannah Foods sold its plane resulting in a gain of $2,289,000. Second, in the second quarter of fiscal 1996, Savannah Foods sold the property, plant and equipment and certain other assets of Raceland for $12,500,000 cash and recognized a loss on the sale of $3,800,000. After liquidation of the inventories and other working capital accounts, Savannah Foods received net proceeds of approximately $15,000,000 on the sale of Raceland. Third, in accordance with Statement of Financial Accounting Standards No. 121 -- Accounting for the Impairment of Long-lived Assets and for Assets to be Disposed Of, Savannah Foods recorded a non-cash charge in the fourth quarter of fiscal 1996 of $10,280,000 ($6,476,000 net of tax) for the impairment of long-lived assets located at Savannah Foods' Fremont, Ohio beet sugar manufacturing facility. Fiscal 1996 income from operations before the impairment of long-lived assets and other costs was $35,453,000, up $23,768,000 from fiscal 1995. The large increase resulted from smaller domestic beet sugar production of 3.9 million tons in fiscal 1996 compared to 4.5 million tons in fiscal 1995. This reduction improved refined sugar selling prices and, therefore, Savannah Foods' profitability. Additionally, average raw sugar costs have decreased from fiscal 1995 which has also increased profitability. Savannah Foods' cane sugar divisions experienced significant domestic volume and margin increases over fiscal 1995 as the reduced domestic sugar beet crop and increased sugar consumption provided more sales opportunities from cane refiners. Savannah Foods' beet sugar division benefited from the higher refined sales prices, but reported much lower operating profit due to significantly reduced sugar production. The sugar beet crop was smaller and of lesser quality due to poor growing conditions and an insect infestation. Selling, general and administrative expenses decreased $1,199,000 in fiscal 1996 from fiscal 1995 despite a $1,177,000 increase in advertising costs related to Savannah Foods' new products. Interest expense decreased compared to fiscal 1995 as a result of lower long-term debt levels throughout the year resulting from the prepayment of Savannah Foods' senior notes. LIQUIDITY AND CAPITAL RESOURCES Following completion of the Transactions and closing of the Senior Credit Facility and the Offering, the Company had pro forma indebtedness as of September 30, 1997 of approximately $554.7 million (including the Notes, but excluding an additional $191.3 million available under the revolving credit portion of the Senior Credit Facility). The Company's primary capital requirements are expected to include debt service, capital expenditures and working capital. The primary sources of capital are expected to be cash flow from operations and borrowings under the Senior Credit Facility. Based upon current and anticipated future operations and anticipated future cost savings, the Company believes that capital resources will be adequate to meet anticipated future capital requirements. There can be no assurance, however, that the Company's business will generate sufficient cash flow that, together with the other sources of capital, will enable the Company to service its indebtedness or make anticipated capital expenditures. If the Company is unable to generate sufficient cash flow from operations or to borrow sufficient funds in the future to service its debt, it may be required to sell assets, reduce capital expenditures, refinance all or a portion of its existing indebtedness, or obtain additional financing. See "Risk Factors -- Substantial Leverage and Debt Service." The Senior Credit Facility and the Notes will, and other debt instruments of the Company may, pose various restrictions and covenants on the Company that could potentially limit the Company's ability to respond to market conditions, to provide for unanticipated capital investments, to raise additional debt or equity capital or to take advantage of business opportunities. See "Description of Indebtedness" and "Description of the Notes." The Senior Credit Facility will incur interest at variable rates. The Company has entered into interest rate swap arrangements to limit its exposure to future increases in interest rates with respect to an aggregate of $180 million of indebtedness incurred under the Senior Credit Facility, and may enter into additional arrangements in the future. 41 47 The Company's capital expenditures for fiscal 1998 are expected to be approximately $58 million, including $26 million to complete an expansion and modernization program at certain of its production facilities. Capital expenditures for fiscal 1999 are estimated to be $40 million. The Company expects to continue to pay its regular quarterly dividends of $0.03 per share. 42 48 BUSINESS GENERAL The Company is the largest, most geographically diverse and most balanced producer and marketer of refined sugar in the United States. The Company's pro forma sales for the 12 months ended September 30, 1996 represented approximately 33% of the total refined sugar market in the United States, and the Company controls approximately 37% of all domestic sugarcane refining capacity and 30% of all domestic sugar beet processing capacity. The Company refines raw cane sugar at four refineries located in Texas, Georgia, Florida and Louisiana and produces beet sugar at 12 beet factories located in California, Wyoming, Montana, Texas and Michigan. During the 12 months ended September 30, 1997, the Company sold approximately 61 million cwt. of refined sugar. The Company offers one of the broadest product lines in the industry and sells to a wide range of customers, including (i) retail grocers, (ii) foodservice companies, which include restaurants, schools and other institutions, and (iii) industrial customers, which are principally food manufacturers. The Company's sugar products include granulated, powdered, liquid, liquid blends 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), Evercane(R) and Pioneer(R)) or private market labels. Complementary non-sugar products marketed by the Company include salt, pepper, non-nutritive sweeteners, non-dairy creamers and plastic cutlery. In addition, the Company produces selected specialty sugar products including Savannah Gold(TM) (a premium-priced, free-flowing brown sugar), Imbrocon(TM) (a liquid flavoring) and specialty sugars used in confections and icings. For the 12 months ended September 30, 1997, the Company had pro forma revenues of approximately $2.0 billion and pro forma EBITDA of approximately $142 million. INDUSTRY OVERVIEW There are two methods for producing refined sugar: (i) processing sugar beets and (ii) processing and refining sugarcane, each of which possesses distinct operating characteristics. During the crop year ended September 1996, total refined sugar sales in the United States consisted of approximately 57% cane sugar and 43% beet sugar. The profitability of cane sugar and beet sugar operations is impacted by government programs designed to support the price of domestic crops of sugar beets and sugarcane. These programs affect cane sugar and beet sugar operations differently. See "-- Sugar Legislation and Other Market Factors." CANE SUGAR PRODUCTION PROCESS. Sugarcane takes 9 to 18 months to mature and, as a consequence, is grown in tropical and semi-tropical climates. Primary growing areas in the United States include Louisiana, Florida, Texas and Hawaii. The harvesting of sugarcane generally begins in October or November. Once harvested, sugarcane is transported to raw cane sugar mills. Sugarcane is highly perishable and must be processed by raw cane mills into raw cane sugar quickly to avoid deterioration in the quality of the sucrose. The raw cane sugar which is produced in this process is approximately 98% sucrose and may be stored for long periods and transported over long distances without impacting its quality. In addition to the raw sugar produced domestically, raw sugar is also imported from various foreign sources. The amount of such imports is currently limited by United States government programs. Cane sugar refineries, such as the Company's four refineries, 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. See "-- Sugar Legislation and Other Market Factors." BEET SUGAR PRODUCTION PROCESS. Sugar beets can flourish wherever a five-month growing season is possible. In the United States, sugar beets are grown in the Red River Valley area of Minnesota and in North Dakota, Idaho, California, Colorado, Nebraska, Michigan, Washington, Texas, Oregon and New Mexico. Harvest periods depend on the growing area, but are generally in the early fall, except in California where spring and summer harvests also occur. Once harvested, the beets are transported to beet factories. 43 49 Sugar beets are highly perishable and must be processed into refined sugar quickly after harvest to avoid deterioration. Beets may be stored in piles awaiting processing where temperatures are sufficiently cool. Sugar beets are converted to refined sugar through a single continuous process at beet factories. Beet factories are located near the areas in which beets are grown in order to reduce freight costs and the risk of deterioration. The Company's staggered harvest seasons with respect to the sugar beet acreage supplying the Company's 12 sugar beet production facilities allows it 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 sugar beets dedicated to the factory and the net sales prices received for the refined beet sugar. The beet processor shares a portion of the net sales price with growers through various participation or recovery contracts or cooperative arrangements. See "-- Raw Material and Processing Requirements -- Sugar Beet Purchases." GOVERNMENT REGULATION. Federal government programs have existed to support the price of domestic crops of sugar beets and sugarcane almost continually since 1934. The regulatory framework that currently affects the domestic sugar industry includes the Federal Agricultural Improvement and Reform Act of 1996 (the "Farm Bill"), which provides for loans on sugar inventories to first processors (i.e., raw sugar mills and beet processors) and implements a tariff rate quota which limits the amount of raw and refined sugar that can be imported into the United States. The North American Free Trade Agreement ("NAFTA"), which limits the amount of sugar that can be imported to and exported from Mexico, has had, to date, a lesser impact on the United States sugar market. In the crop year ended September 1997, the USDA implemented a program of increasing the tariff rate quota in known quantities at three known dates based on the level of the projected ending stocks-to-use ratio. There was previously no target for the ending stocks-to-use ratio and the USDA could increase or decrease the quota at will. The Company believes that this administration of the tariff rate quota for foreign sugar has caused the market to be less volatile, and as a result, has helped to reduce fluctuations in profitability of the Company's cane sugar operations. The USDA's targeted ending stocks-to-use ratio has historically correlated to a raw sugar price of approximately $22.50 per cwt., substantially lower than the $25 per cwt. that was experienced in July 1995. The USDA is continuing this management strategy for the crop year ending September 1998. See "-- Sugar Legislation and Other Market Factors." DOMESTIC DEMAND. The Company considers its primary competition to be other cane sugar refiners and beet sugar processors. Selling price and the ability to supply the buyer's quality and quantity requirements in a timely fashion are important competitive factors. The decline in demand for refined sugar products attributable to the replacement of refined sugar by HFCS and non-nutritive sweeteners in the beverage market was completed a decade ago. The Company does not currently consider HFCS a significant competitive threat, as refined sugar and HFCS support different markets. HFCS is primarily a liquid sweetener and generally does not compete in the dry sugar market. Domestic demand for refined sugar has increased each year since 1986, and the average rate of growth over the last five years has been 1.5%. The trend in the food manufacturing industry toward production of "low fat" products has increased industrial demand for sugar, as food manufacturers add sugar to enhance flavor and texture as fat is removed. At the current market level, a 1.5% increase in domestic demand translates into the sale of an additional 150,000 tons of refined sugar per year, or the annual production capacity of an average-sized sugar beet factory. DOMESTIC SUPPLY. Reduced demand in the early 1980's was absorbed principally by capacity reductions in the cane sugar refining sector. Approximately 33% of domestic cane sugar refining capacity was eliminated between 1981 and 1988 and cane sugar refining capacity has remained relatively flat since 1988. 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 increased acreage dedications. The Company believes that the rate of growth of beet sugar production has slowed as most of the beet factory expansions that are economic under current conditions have been completed. The Company believes that further expansion of existing beet factories requires that beets be 44 50 transported over greater distances, which is often uneconomical. Accordingly, construction of new factory sites would be required for further expansion. DOMESTIC REFINED SUGAR PRICES. Given the existing domestic supply and demand balance, the increasing role of beet production 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. Good crop years have led to relatively soft refined sugar prices and weak crop years have led to relatively strong refined sugar prices. The following chart sets forth the total supply of beet sugar available for the previous seven years and as estimated for 1997, and the price per cwt. of refined sugar for such periods: [GRAPH] Source: USDA. COMPETITIVE STRENGTHS The Company believes that the following factors contribute to the Company's position as a national market leader and provide a foundation for the Company's business strategy: LARGEST PRODUCER AND MARKETER OF REFINED SUGAR. The Company is the largest producer and marketer of refined sugar in the country, with pro forma revenues for the 12 months ended September 30, 1997 of $2.0 billion, accounting for approximately 33% of total United States refined sugar sales in such period. The Company believes that it sells sugar products to more major industrial customers and national grocery chains than any of its competitors, giving it unmatched national market penetration. By taking advantage of the efficiencies provided by a national network of production and distribution facilities, the Company believes that it is able to offer customers superior service in a timely manner. The Company's breadth of market penetration also enabled it to avoid dependency on any single customer for more than 3% of total sales during the 12 months ended September 30, 1997. GEOGRAPHIC DIVERSITY. The Company is the most geographically diverse refined sugar producer in the United States. This geographic diversity minimizes the impact of adverse conditions at any one facility (e.g., reduced acreage availability, unfavorable weather and disease), smoothes production cycles and creates opportunities to optimize processing schedules and provide more reliable and efficient sourcing and distribution of refined sugar products for customers in all domestic market areas. BALANCED OPERATIONS. The Company is the most balanced producer and marketer of refined sugar in the United States, with refined sugar production capacity consisting of approximately 60% cane sugar and 40% beet sugar. The Company believes that this balanced mix of production capacity should serve to (i) reduce the 45 51 volatility in the Company's operating results and (ii) reduce the Company's exposure to any changes in federal trade and agricultural policy. COMPLETE PRODUCT LINE. The Company has one of the broadest product lines in the sugar industry. In addition to its flagship consumer sugar brands, which the Company offers in a variety of packaging options ranging from one pound boxes to 25-pound bags, the Company also markets a complete line of specialty sugar products. In addition, the Company markets complementary non-sugar products, including salt, pepper, nondairy creamers, non-nutritive sweeteners and plastic cutlery. Savannah Foods has emerged as a leader in serving the foodservice sector, growing its foodservice sales at an annual rate of 10% over the past ten fiscal years. With the foodservice industry continuing to be the fastest growing segment of the United States food and beverage industry, the Company's goal is to provide attractive "one stop shopping" alternatives for foodservice customers. DOMINANT BRANDS IN REGIONAL MARKETS. The Company enjoys the benefit of highly recognized consumer brand labels, which command premium prices and provide higher margins than the Company's unbranded products. According to data compiled by a leading grocery industry market research firm, the Company's Imperial(R) and Holly(R) brands command a combined, estimated 93% market share for branded refined sugar grocery sales in the principal metropolitan markets in Texas. In addition, the Company's Dixie Crystals(R) brand possesses an estimated 81% market share for branded refined sugar grocery sales in the region comprised of Georgia, Florida, North Carolina, South Carolina and eastern Tennessee. Sales of branded sugar constitute approximately 30% of total retail sales of refined sugar nationally. ABILITY TO INTEGRATE ACQUISITIONS. Over the past ten years, Imperial Holly has consummated two significant acquisitions and successfully integrated the operations of such companies. In 1988, Imperial Holly (then known as Imperial Sugar Company) acquired Holly for approximately $100 million. At the time of its acquisition, Holly's revenues were approximately 160% of Imperial Sugar Company's revenues. In 1996, Imperial Holly acquired Spreckels for approximately $35 million. EXPERIENCED MANAGEMENT TEAM AND SIGNIFICANT OWNERSHIP BY MANAGEMENT AND DIRECTORS. The Company benefits from a strong and experienced management team at both the corporate and operating levels. The members of the Company's senior management have extensive experience in the sugar industry and at consumer products companies, such as Procter & Gamble Company and PepsiCo Inc. In addition, the Company has retained certain key members of the management of Savannah Foods after the Transactions. The Company's executive officers and directors in the aggregate beneficially own approximately 26% of the Company Common Stock. BUSINESS STRATEGY The Company's strategic objective is to capitalize on the opportunities afforded by its position as the national market leader in the production, marketing and distribution of refined sugar products and to fully realize the significant synergy and cost saving opportunities created by the Transactions by pursuing the following strategies: ACHIEVE OPERATING EFFICIENCIES. The Company believes that combining Imperial Holly's operations with those of Savannah Foods will allow the Company to (i) reduce administrative costs, (ii) reduce freight and distribution costs through more efficient sourcing of customer orders, (iii) reduce costs by refocusing selling, marketing and promotional activities, (iv) reduce operating costs by optimizing the operating schedules of the combined production facilities and (v) reduce costs of procuring operating supplies and packaging materials. The Company anticipates that it will begin to realize such cost savings in its current fiscal year, with the full impact, which the Company estimates could approximate $40 million annually, being achieved in the fiscal year ended September 30, 1999. Independent of the acquisition of Savannah Foods, the Company also anticipates that it will complete the expansion of certain of its production facilities in the current fiscal year resulting in an additional reduction in per unit operating costs. INTEGRATE AND CROSS-SELL PRODUCT LINES. The combination of Imperial Holly and Savannah Foods' product lines and sales and marketing efforts will be complementary with minimal overlap, as each company 46 52 has focused its marketing efforts in different geographic regions. The Company plans to integrate sales and production functions with the goal of increasing sales and reducing costs. The Company believes that this can be achieved by optimizing product sourcing decisions for similar product lines, cross selling specialty product lines to all customers and cross selling similar product lines to major customers with multi-plant needs. EXPAND SALES OF "VALUE-ADDED" PRODUCTS. The Company plans to expand its production and marketing of higher margin, "value-added" products. Value-added products, such as branded and specialty sugars and all of the Company's non-sugar items, constituted approximately 18.3% of pro forma total sales for the 12 months ended September 1997. The Company believes there are opportunities to extend brand penetration into other geographic areas and to leverage these brand names to include new product introductions. In addition, management of the Company believes there are significant opportunities to build on Savannah Foods' strong position in the foodservice business and increase higher margin, foodservice sales in Imperial Holly's primary market areas. BUILD ON SUCCESSFUL RELATIONSHIPS WITH CUSTOMERS. The Company believes it can build on Imperial Holly and Savannah Foods' historically strong customer relationships and its position as the largest, most diversified sugar producer to become the preferred national supplier for major national retail, foodservice and industrial customers. The Company's geographically diverse production facilities and national network of distribution centers will give the Company the unique ability to distribute refined sugar to locations anywhere in the country on a timely and efficient basis year-round. ENHANCE RELATIONSHIPS WITH SUPPLIERS. The Company believes that Imperial Holly and Savannah Foods' good relationships with raw cane sugar suppliers and sugar beet growers will allow it to develop more efficient sources of supply. Imperial Holly has forged close relationships with its beet growers. The Company intends to continue to enhance these relationships by providing technical and agronomic assistance and offering improved varieties of sugar beet seed in an effort to increase the profitability of its sugar beet growers. The Company believes that it can strengthen its relationships with sugar beet growers to increase acreage available to Savannah Foods' sugar beet factories, resulting in increased production and enhanced profitability for these facilities. As a cane sugar refiner, the Company also plans to actively pursue partnering arrangements with raw cane sugar suppliers as it does with its sugar beet growers. PRODUCTS AND SALES REFINED SUGAR AND SPECIALTY PRODUCTS. The Company's principal product line is refined sugar, which accounted for approximately 94% of the Company's pro forma consolidated net sales for the twelve months ended September 30, 1997. The Company has the most balanced combination of cane and beet sugar sales in the industry, with cane sugar constituting approximately 72% and beet sugar constituting 28% of the Company's pro forma refined sugar sales for the 12 months ended September 30, 1997. The Company markets its refined sugar products to retail/grocery, foodservice and industrial customers by direct sales and through brokers or wholesalers. For the twelve months ended September 30, 1997, the Company's pro forma sales to grocery (retail) and foodservice customers accounted for 36% of total sales, and pro forma sales to industrial customers accounted for 58% of total sales. GROCERY SALES. The Company produces and sells 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), Dixie Crystals(R), Holly(R), Spreckels(R), Pioneer(R) and Evercane(R), and are also sold under retailers' private labels. Private label packaged sugar, which represents a significant percentage of the Company's grocery sales, is generally sold at prices lower than those received for branded sugar. The Company plans to capitalize on its well-known brands to increase sales of higher-margin branded products as a percentage of total grocery sales. FOODSERVICE SALES (INCLUDING SALES OF NON-SUGAR PRODUCTS). The Company produces and sells over 30 different products to foodservice customers, ranging from 50-pound sugar bags to individual packets of sugar, salt, pepper, non-dairy creamer and plastic cutlery. The Company believes that the foodservice sector is one of the most \rapidly growing segments of the domestic food industry. Savannah Food's foodservice sales have grown at an average annual rate of 10% over the past 10 years. The Company believes it can utilize Savannah 47 53 Foods' success in the foodservice industry to increase foodservice sales in the markets historically served by Imperial Holly. INDUSTRIAL SALES. The Company produces and sells 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. The majority of the Company's industrial sales are made to customers under fixed price contracts with terms of one year or less. Although industrial sales provide lower margins than grocery or foodservice sales, the Company believes that an opportunity exists to improve profit contributions from this sector by offering major national customers a single source of supply for distribution to multiple locations across the country. SPECIALTY PRODUCT SALES. The Company produces and sells specialty sugar products to grocery, foodservice and industrial customers. Specialty sugar products include Savannah Gold(TM), a premium-priced free flowing brown sugar marketed primarily to industrial customers, Imbrocon(TM), a liquid flavoring also marketed to industrial customers, edible molasses, syrups and specialty sugars used in confections and icings. The Company also markets artificial sweeteners including Sweet Thing(R), a saccharin-based sweetener, and Sweet Thing II(R), an aspartame-based sweetener. SALES AND MARKETING. The Company's products are sold directly by the Company's sales force and through independent brokers. The Company maintains sales offices in the following locations: at its corporate headquarters in Sugar Land, Texas; Chicago, Illinois; Tracy, California; Denver, Colorado; Mobile, Alabama; Saginaw, Michigan; and Savannah, Georgia. The Company considers its marketing and promotional activities important to its overall sales effort. The Company advertises its brand names in both print and broadcast media and distributes various promotional materials, including discount coupons and compilations of recipes. Using a value model utilized by many of the leading consumer goods companies, Imperial Holly has worked to improve the consumer value of its brands. By keeping its brands priced competitively versus private labels, and advertising the brands' unique points of difference, Imperial Holly has been able to increase its branded business over the last 12 months without major promotional expenditures. Imperial Holly has also been successful in streamlining its grocery promotional/trade allowances and marketing programs. This effort has enabled a reduction of total marketing costs while improving efficiency of the marketing program and increasing brand sales. In all business segments the Company intends to use a customer profitability model similar to the one developed by and utilized by Imperial Holly. Through use of the model, the Company is able to track any given customer's profit impact to the Company. This customer profitability model enables the Company to direct its marketing efforts and resources toward those customers which have the highest profit potential and to work closely with its customers whose profit contribution is less than optimal. No customer accounted for more than 3% of the Company's pro forma sales for the 12 months ended September 30, 1997. SEASONALITY. Sales of refined sugar are moderately seasonable, 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 the Company's beet sugar factories operates during sugar-making campaigns, which generally total 120 days to 180 days in length each year, depending upon the supply of sugar beets available to the factory. Because of the geographical diversity of its manufacturing facilities, the Company is generally able to produce beet sugar year-round. While the seasonal production of sugar beets requires the Company to store significant refined sugar inventory at each factory, the geographic diversity and staggered periods of production enable the Company's total investment in inventories to be reduced. Additionally, these factors reduce the likelihood that adverse weather conditions will affect all the Company's productive areas simultaneously, and aid in distribution. BY-PRODUCTS. The Company sells by-products from its beet sugar processing as livestock feeds to dairymen, livestock feeders and livestock feed processors. Such by-products include beet pulp and molasses. The major portion of the beet pulp and molasses produced from sugar beet operations is sold during and 48 54 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 sugar beet processors and corn wet millers, as well as other livestock feeds and grains. The market price of the Company's 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. The Company's by-products pro forma sales for the 12 months ended September 30, 1997 were $74.6 million or 4% of total pro forma sales for such period. BEET SEED. The Company develops, produces and markets commercial seed to beet growers under contract to the Company as well as growers under contract to grow for other beet sugar processors. The Company's beet seed sales program is conducted primarily in Sheridan, Wyoming and Tracy, California. The Company has entered into an agreement with D. J. van der Have B.V., a Netherlands beet seed company ("VDH"), granting VDH access to the Company's proprietary beet seed breeding material for varietal seed development in exchange for the exclusive marketing rights to VDH's beet seed in certain markets in the United States, Canada and Mexico. The Company has also participated in a similar joint venture with Societe Europeenne de Semences, N.V., S.A., a Belgian beet seed company ("SES"), to develop improved beet seed varieties. VDH and SES recently agreed to merge their interests to form ADVANTA SEEDS ("ADVANTA"). ADVANTA plans to introduce novel and improved varietal genetic material into the beet seed industry, which the Company believes may lead to advances in crop yield, sugar content of the beets, resistance to disease and certain plant processing benefits. The Company is also active in sugar beet disease control. The Company's growing areas have varying levels of diseases that affect sugar beet quality and quantity as well as the cost of processing. The Company has a sugar beet plant pathology disease control research laboratory in Tracy, California that develops and implements disease control strategies for all of the Company's sugar beet growing areas. The Company communicates information about agricultural practices to growers through its computerized agriculture information systems and printed material, including its magazine Sugar Beet Update, published semiannually. The Company believes that these activities strengthen its relationship with its growers, which, in turn, leads to increased acreage available to the Company and enhanced production and profitability at its facilities. INULIN. In 1995, the Company and Cooperatie Cosun U.A., a Netherlands sugar processor ("Cosun"), have formed Imperial-Suiker Unie, L.L.C. ("ISU"), a 50-50 joint venture to introduce and market inulin in North America. Inulin is a natural carbohydrate with multifunctional properties with potential both as a nutritional additive and as a functional food ingredient. Inulin is extracted from chicory roots by a process similar to sugar extraction from sugar beets. ISU has the exclusive right to market inulin and inulin-based products produced by Cosun in Canada, Mexico and the United States. The Company has also entered into various agreements to provide certain marketing and administrative services to the joint venture. Inulin is in the early stages of market development, although some commercial sales have occurred. MANUFACTURING FACILITIES The Company operates four cane sugar refineries and 12 sugar beet 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 the Company's refineries and processing plants:
APPROXIMATE DAILY MELTING CAPACITY CANE SUGAR REFINERIES (POUNDS OF RAW SUGAR) --------------------- --------------------- Sugar Land, Texas........................................... 4,000,000 Port Wentworth, Georgia..................................... 6,300,000 Gramercy, Louisiana......................................... 4,200,000 Clewiston, Florida.......................................... 1,700,000 ---------- Total............................................. 16,200,000 ==========
49 55
APPROXIMATE DAILY SLICING CAPACITY BEET SUGAR FACTORIES (TONS OF SUGAR BEETS) -------------------- --------------------- Brawley, California......................................... 8,200 Mendota, California......................................... 4,200 Tracy, California........................................... 5,000 Woodland, California........................................ 4,000 Sidney, Montana............................................. 5,700 Hereford, Texas............................................. 7,700 Torrington, Wyoming......................................... 5,700 Worland, Wyoming............................................ 3,600 Caro, Michigan.............................................. 4,000 Carrollton, Michigan........................................ 3,400 Sebewaing, Michigan......................................... 6,000 Croswell, Michigan.......................................... 4,000 ------- Total............................................. 61,500 =======
The Company also has a 43% limited partnership interest in a partnership that owns the site of a former beet sugar production facility in Moses Lake, Washington. The partnership is constructing a beet processing facility on the 1,400 acre site that is scheduled for commissioning in 1998. RAW MATERIAL AND PROCESSING REQUIREMENTS RAW CANE SUGAR. The Company purchases raw cane sugar from both domestic and foreign sources of supply located in Louisiana, Florida and 44 foreign countries. The availability of foreign raw cane sugar is determined by the import quota level designated by applicable regulation. See "-- Industry Overview" and "-- Sugar Legislation and Other Market Factors." The Company has not experienced difficulties in the past in contracting sufficient quantities of raw sugar to supply its refineries. Raw 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 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. The Company contracts to purchase raw cane sugar substantially in advance of the time it delivers the refined sugar produced from that purchase. The majority of the Company's industrial sales are under fixed price contracts; in order to minimize price risk in raw and refined sugar commitments, the Company generally matches refined sugar sales contracted for future delivery with the purchase or pricing of raw sugar. The Company uses the raw sugar futures market as a hedging and purchasing mechanism, as management deems appropriate. The Company possesses approximately 350,000 short tons of aggregate raw sugar storage capacity, including 215,000 short tons of storage capacity at its Port Wentworth, Georgia refinery. At Port Wentworth, the Company has the capability to segregate its raw sugar inventory, which allows the Company to store bonded sugar for re-export. This capability facilitates the Company's participation in the re-export market. The Company has been active in such market and will continue to be active in the future when pricing and market conditions are favorable. The Company supplements its beet sugar production by refining raw cane sugar at certain of its sugar beet processing facilities. SUGAR BEET PURCHASES. The Company purchases sugar beets from over 2,400 independent growers, which supply the Company's factories with approximately 310,000 acres of beets. The sugar beets are purchased under contracts negotiated with associations representing growers. The Company contracts for acreage prior to 50 56 the planting season based on estimated demand, marketing strategy, processing capacity and historical crop yields. The type of contract used in the western United States provides for payments to the grower based on the sugar content of the sugar beets delivered by each grower and the net selling price of refined beet sugar during the specified contract year. The type of contract used in Michigan provides for growers to share in the revenues generated by sales of pulp and molasses, as well as sales of refined sugar. 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 this type of participating contract reduces the Company's exposure to inventory price risks on its sugar beet purchases. See "-- Sugar Legislation and Other Market Factors." Acreage contracted at each factory location may vary from year to year on the basis of anticipated refined sugar prices, prior crop quality, productivity, weather conditions, availability of irrigation water, prices anticipated by growers for alternate crops and competition with other beet sugar processors. The Company expects modest growth in acreage in fiscal 1998. See "Risk Factors -- Sugar Beet Crop and Storage Risks." ENERGY. The primary fuel used by the Company is natural gas, although certain of the Company's factories use significant amounts of coal. The Company generates a substantial portion of the electricity used at its refineries and factories. Fuel oil can be used by the Company 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. Natural gas and coal supplies are typically purchased under contracts for terms of one year or more, which do not contain minimum quantity requirements. Pricing of natural gas contracts is generally fixed for the term or indexed to a spot market index. The Company has also utilized financial tools such as swaps and caps to stabilize the price for gas purchases under indexed contracts. Coal is available in abundant supply domestically and the Company is able to purchase coal competitively. The Company owns a royalty interest in a coal seam methane gas project in the Black Warrior Basin of Alabama as an additional indirect hedge against future natural gas price increases. OTHER RAW MATERIALS. Foundry coke and limestone are used in the beet sugar extraction process. The Company generally purchases coke under contracts with one to three year terms and utilizes rail transportation to deliver the coke to factories. Domestic coke supplies may become tighter due to environmental restrictions; the Company has the option of converting existing coke-fired equipment to natural gas should the availability and economics of coke so dictate. The Company owns a 50% share of a limestone quarry in Warren, Montana that supplies the Sidney, Montana and Worland, Wyoming factories with their annual limestone requirements. A subsidiary of the Company operates a limestone quarry in Cool, California that supplies the Company's Northern California beet processing factories with limestone. These quarries do not normally supply the Company's other factories because of high freight costs. Limestone required in the other factory operations is generally purchased from independent sources under contracts with one to five-year terms. RESEARCH The Company operates research and development centers in Sugar Land, Texas and Savannah, Georgia where it conducts research relating to manufacturing process technology, factory operations, food science and new product development. In Savannah, the Company operates a "pilot plant" in connection with its research and development activities where it has developed sugar products co-crystallized with other flavors such as honey. The Company has begun to market the co-crystallized specialty products produced at the pilot plant to certain customers. COMPETITION The Company competes with other cane sugar refiners and beet sugar processors and, in certain product applications, with producers of other nutritive and non-nutritive sweeteners. Selling price and the ability to supply the buyer's quality and quantity requirements in a timely fashion are important competitive factors. 51 57 Certain competing beet sugar processors have expanded their production capacity significantly over the past five years. The additional sugar marketed as a result of this expansion has acted to reduce refined sugar prices at times during this period. To a lesser extent, refined sugar also competes with non-nutritive or low-calorie sweeteners, principally aspartame and, to lesser extents, saccharin and acesulfam-k. SUGAR LEGISLATION AND OTHER MARKET FACTORS The Company's 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 sugar beets available to the Company. These market factors are influenced by a variety of forces, including the number of domestic acres contracted to grow sugar beets, 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 beets and sugarcane is the Farm Bill, which became effective July 1, 1996 and extended the sugar price support program for sugarcane and sugar beets until June 30, 2003. CCC LOANS. Pursuant to the Farm Bill, the Commodity Credit Corporation ("CCC") is obligated annually to make loans available to domestic first processors of sugar on existing sugar inventories from the current crop year production at 18.0 cents per pound of raw cane sugar and 22.9 cents per pound of refined beet sugar (subject to a limited right of reduction by the USDA). CCC loans under the Farm Bill are recourse loans unless the tariff rate quota for import sugar is set at a level in excess of 1.5 million short tons raw value ("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 to the USDA; if the tariff rate quota is below 1.5 million STRV and the collateral for the loan is inadequate to cover the loan amount, the USDA may proceed against the processor for the difference between the loan amount and the proceeds from the sale of the forfeited sugar. Additionally, a processor will be penalized approximately 1 cent per pound for each pound of sugar forfeited. Although the Company does not currently utilize this program, it has in the past and may do so again in the future. TARIFF RATE QUOTA. Under the Farm Bill, the USDA utilizes 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 determined permitted imported quantity and is designed to make the importation of the 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 ended September 30, 1997 was 2.3 million STRV; for the year ended September 30, 1998 the tariff rate quota is expected to be 2.0 million STRV. The USDA currently determines the quota by targeting an ending stocks-to-use ratio. A portion of the quota will be made available immediately with separate allocations made available periodically depending on domestic production of raw cane sugar and refined beet sugar. The Company believes that the implementation of the tariff-rate quota for foreign sugar under the Farm Bill has caused the market for raw cane sugar to be less volatile, and as a result has helped to reduce fluctuations in profitability of the Company's cane sugar operations. NAFTA. NAFTA contains provisions that allow for Mexico to increase its sugar exports to the United States if Mexico is projected to produce a net surplus of sugar. The terms of NAFTA restrict 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 until the year 2000. Mexico's exports to the United States will be further increased in the event Mexico produces a sugar surplus for two consecutive years prior to the year 2000 or at any time thereafter. The Company's management believes that increased importation of raw cane sugar from Mexico would benefit the Company because the proximity of its Sugar Land, Texas refinery to Mexico would allow the Company to 52 58 import raw cane sugar more cheaply than its competition. However, if imports are in the form of refined cane sugar, the domestic refined sugar market may be adversely affected. EMPLOYEES In November 1997, the Company employed approximately 3,500 year-round employees. In addition, the Company employed 3,200 seasonal employees over the course of the crop year ended September 1997. While the Company's Port Wentworth, Georgia and Clewiston, Florida refineries use non-union labor, the Company has entered into collective bargaining agreements with union representatives with respect to the employees at all of the Company's other refineries and processing plants. The Company believes its employee and union relationships are good. ENVIRONMENTAL REGULATION The Company's 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. The Company has obtained or is making application for the permits required under these regulations. Waste water odor control is being addressed at the Company's facilities in Tracy, Mendota and Woodland, California. The soil and ground water at the Company's Mendota, California facility have high concentrations of salts. The Company has developed a prevention plan to install a clay cap on the areas of concern and to treat the affected ground water. This plan will be accomplished over a 20 to 30-year period with an expected annual cost ranging from $40,000 to $120,000. The Company has recorded a liability for the estimated costs of this project. The Company's Torrington, Wyoming facility has made significant operational modifications in order to meet more restrictive state solid waste and groundwater regulations. Ongoing compliance with environmental statutes and regulations has not had, and the Company does not anticipate that it will in the future have, a material adverse effect on the Company's competitive position since its competitors are subject to similar regulation. Additional capital expenditures will be required to comply with future environmental protection standards, although the amount of any further expenditures cannot be accurately estimated. Management does not believe that compliance will have a materially adverse impact on the Company's capital resources or its operating results or financial condition. PROPERTIES The Company owns each of its cane sugar refineries and sugar beet processing plants and its corporate headquarters in Sugar Land, Texas. The Company generally leases office space and contracts for throughput and storage at warehouses and distribution stations. The Company owns additional acreage at its factories and refineries which is used primarily for settling ponds and as buffers from nearby communities or is leased as farm or pasture land. See "-- Manufacturing Facilities" and "-- Raw Material and Processing Requirements -- Other Raw Materials." LEGAL PROCEEDINGS The Company is a 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. 53 59 BOARD OF DIRECTORS AND MANAGEMENT The directors and senior officers of the Company following the consummation of the Transactions, and their respective ages, are as set forth in the table below.
NAME AGE* POSITIONS ---- ---- --------- James C. Kempner....................... 58 President, Chief Executive Officer, Chief Financial Officer and Director Peter C. Carrothers.................... 58 Managing Director Douglas W. Ehrenkranz.................. 40 Managing Director Roger W. Hill.......................... 58 Managing Director and President and Chief Executive Officer of Holly John A. Richmond....................... 51 Managing Director William F. Schwer...................... 50 Managing Director, Secretary and General Counsel William W. Sprague III................. 41 President and Chief Executive Officer of Savannah Foods and Director John D. Curtin, Jr. ................... 65 Director David J. Dilger........................ 41 Director E. O. Gaylord.......................... 66 Director Gerald Grinstein....................... 65 Director Ann O. Hamilton........................ 61 Director Robert L. Harrison..................... 58 Director Harris L. Kempner, Jr.................. 57 Director I. H. Kempner, III..................... 65 Director H. E. Lentz............................ 52 Director Kevin C. O'Sullivan.................... 55 Director Fayez Sarofim.......................... 69 Director Daniel K. Thorne....................... 46 Director
- --------------- * As of December 31, 1997. Except as set forth below, the senior officers have held their present offices for at least the past five years. Positions, unless specified otherwise, are with the Company. Mr. James C. Kempner has been a director since 1988 and has been President and Chief Executive Officer from 1993 to present. Mr. Kempner is also Chief Financial Officer, a position he has held since he joined the Company in 1988. In 1994, Mr. Kempner was elected President of Imperial Sugar Company, a division of the Company, a position he had previously held. From 1988 to 1993, Mr. Kempner served as Executive Vice President. Mr. Kempner is also a director of Bouygues Offshore S.A. Mr. Carrothers became a Managing Director in October 1995 and had been Senior Vice President -- Operations since March 1995. Mr. Carrothers joined the Company as Senior Vice President -- Logistics in May 1994. From 1990 until joining the Company, he was Vice President -- Logistics of PepsiCo Foods International and had served in various other capacities with Frito Lay, Inc., a subsidiary of PepsiCo, since 1973. Mr. Ehrenkranz became a Managing Director in April 1997 and had been Vice President -- Sales & Marketing since September 1995. Prior thereto, Mr. Ehrenkranz had been Director of Sales, Planning & Marketing -- Development since joining the Company in April 1995. Prior to joining the Company, Mr. Ehrenkranz was Marketing Manager with PepsiCo's Taco Bell subsidiary from 1993 to 1994 and served in various positions at Procter & Gamble from 1979. His last position at Procter & Gamble before joining PepsiCo was Category Sales Manager for Folgers Coffee. 54 60 Mr. Hill was named a Managing Director in October 1995 and had been Executive Vice President since 1988. Mr. Hill also has been President and Chief Executive Officer of Holly since 1988. Mr. Hill joined Holly in 1963 and served in various capacities, including Vice President -- Agriculture and Executive Vice President. Mr. Hill served as a director of the Company from 1988 until his resignation from the Board of Directors in December 1997. Mr. Richmond became a Managing Director in April 1997 and was named Vice President -- Operations in October 1995. Mr. Richmond has been Senior Vice President and General Manager, Beet Sugar Operations, of Holly since 1993. Mr. Richmond was Senior Vice President and General Manager -- Eastern Division of Holly from June 1992 to 1993; Vice President and General Manager -- Eastern Division of Holly from December 1991 to June 1992; Vice President and Operations Manager -- Eastern Division from September 1990 to December 1991; Vice President, Technical Services and Assistant Operations Manager -- Eastern Division from July 1989 to September 1990; and Vice President, Technical Services from December 1982 to July 1989. Mr. Richmond joined Holly in 1973. Mr. Schwer became a Managing Director in October 1995 and was named Senior Vice President, Secretary and General Counsel of the Company in 1993. Mr. Schwer had been Vice President, Secretary and General Counsel since 1989. He joined Holly as Assistant General Counsel in 1988. Mr. Sprague was elected as a director in December 1997 pursuant to the Merger Agreement. Mr. Sprague has been President and Chief Executive Officer of Savannah Foods since 1995. He served as President and Chief Operating Officer from 1993 to 1995. Mr. Sprague began his career with Savannah Foods in 1983 and has held various positions since then. Mr. Curtin has been a director since 1993. Mr. Curtin has been Chairman and Chief Executive Officer of Aearo Corporation, a worldwide manufacturer and supplier of personal protection equipment, from May 1994 to present and was Executive Vice President and a director of Cabot Corporation, a specialty chemicals and materials company and manufacturer of carbon black, from 1989 to 1994. Mr. Curtin is a Trustee of Eastern Enterprises, Inc. Mr. Dilger has been a director since October 1996. Mr. Dilger has been Chief Executive Officer of Greencore Group plc, an Irish sugarbeet processing company, since 1995 and was Chief Operating Officer of Greencore Group plc from 1991 to 1995. He has been a director of Greencore since January 1992. Mr. Gaylord, a director since 1978, has been the President and a director of Gaylord & Company, Inc., a venture capital business, since 1988. Since January 1993, he has been Chairman of EOTT Energy Corporation, an oil trading and transportation company. Mr. Gaylord is also a director of Seneca Foods Corporation, Essex International, Kinder Morgan Energy Partners, L.P. and The Federal Reserve Bank of Dallas, Houston Branch. Mr. Grinstein has been a director since October 1996. He has been a director of Delta Air Lines, Inc. since 1987 and has served as Chairman of the Board of Directors since August 1997. He served as Chairman and Chief Executive Officer of Burlington Northern Inc., a diversified transportation and railroad company, from 1990 until September 1995 and served as Chairman until his retirement on December 31, 1995. Mr. Grinstein is also a director of Browning Ferris Industries, Inc., Pecar, Inc. and Sundstrand Corporation. Mrs. Hamilton, a director since 1974, was with the World Bank in Washington, D.C. from 1970 until her retirement in 1995. Mrs. Hamilton was Senior Adviser to the Vice President of South Asia Region, in 1995. She was Director of the Bangladesh, Bhutan & Nepal Department from 1993 to 1994, and Director of the Population & Human Resources Department from 1987 to 1992. Mr. Harrison was elected as a director in December 1997 pursuant to the terms of the Merger Agreement. He served as a director of Savannah Foods from 1990 until October 1997. Mr. Harrison has been President of Stevens Shipping & Terminal Co. in Savannah, Georgia for more than five years. Mr. Harris L. Kempner, Jr., a director of the Company since 1966, has been President of Kempner Capital Management, Inc., an investment advisory firm, since 1982 and a trustee of the H. Kempner Trust Association since 1967. He served as Chairman of the Board of United States National Bank from 1988 to 55 61 1993 when he became Chairman Emeritus. Mr. Kempner is a director of TNP Enterprises, Inc. and American Indemnity Financial Corporation and an advisory director of Cullen/Frost Bankers, Inc. Mr. I. H. Kempner, III has been Chairman of the Board of Directors since 1971 and was first elected a director in 1967. He became Chairman of the Executive Committee in 1978. Mr. Kempner joined the Company in 1964 and served in various executive capacities prior to his election as Chairman of the Board. Mr. Kempner is Chairman of the Board of Directors of the Houston Branch of the Federal Reserve Bank of Dallas. Mr. Lentz has been a director since 1993. Mr. Lentz has been a Managing Director of Lehman Brothers Inc., an investment banking firm, since 1993. Prior thereto, Mr. Lentz served Vice Chairman of Wasserstein Perella & Co. from 1988 to 1993 and as Managing Director of Shearson Lehman Hutton, Inc. from 1984 to 1988. Mr. Lentz serves as a director of the Rowan Companies, Inc. Mr. O'Sullivan has been a director since October 1996. Mr. O'Sullivan is Chief Financial Officer of Greencore Group plc, an Irish sugarbeet processing company. He has been a director of Greencore since January 1992. Prior thereto, Mr. O'Sullivan was Group Finance Director of Hillsdown Holdings plc, having previously held senior financial positions with other major UK companies. Mr. Sarofim, a director since 1991, is President and Chairman of the Board of Fayez Sarofim & Co., an investment advisory firm he founded in 1958. Mr. Sarofim is currently a director of Allegheny Teledyne Corporation, Argonaut Group, Unitrin, Inc. and the Exor Group, S.A. Mr. Thorne was elected a director in 1988. For more than the past five years, Mr. Thorne has been the President of Star Lake Cattle Company and Star Lake Properties, Inc., which are engaged in cattle and timber operations, and Eagle Island Citrus Corporation, a citrus production operation. Mr. Thorne is also President of Star Lake Capital, a venture capital firm. Mr. I. H. Kempner, III and Mr. James C. Kempner are brothers and are first cousins of Mr. Harris L. Kempner, Jr. In addition, Mrs. Hamilton, Mr. Harris L. Kempner, Jr., Mr. I. H. Kempner, III, Mr. James C. Kempner, Mr. Lynch and Mr. Thorne are each descendants of H. Kempner, a Galveston entrepreneur who died in 1894. 56 62 EXECUTIVE COMPENSATION The following table and narrative sets forth the compensation of the chief executive officer and the other four most highly compensated executive officers during the twelve-month period ending September 30, 1997 (collectively, the "named officers") for services rendered in all capacities. In October 1997, the Company changed its fiscal year end from March 31 to September 30. Accordingly, compensation reported in the following table is for the twelve-month period ended September 30, 1997 ("1997T"), as well as the fiscal years ended March 31, 1997 and 1996. As a result, compensation for the six-month period ended March 31, 1997 has been included in both the 1997T amounts and the fiscal year ended March 31, 1997 amounts. Consequently, bonus payments pursuant to the Company's Performance Incentive Plan for the fiscal year ended March 31, 1997, which were paid in May 1997, have been double counted by inclusion in both the 1997T amounts and the fiscal 1997 amounts. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION AWARDS ----------------------------------------- ------------------------- OTHER SECURITIES ANNUAL RESTRICTED UNDERLYING NAME AND FISCAL COMPEN- STOCK OPTIONS/SARS PRINCIPAL POSITION PERIOD SALARY BONUS(1) SATION(2) AWARD(4) (NUMBER)(5) ------------------ ------ -------- --------- --------- ---------- ------------ James C. Kempner................. 1997T $377,016 $647,251 $ (3) $242,046 0 President, Chief Executive Officer 1997 354,024 316,701 (3) $242,046 0 and Chief Financial Officer 1996 354,024 0 57,043 0 0 Roger W. Hill.................... 1997T 284,448 281,123 (3) 150,045 0 Managing Director and President, 1997 284,448 128,947 (3) 150,045 0 Holly Sugar Corporation 1996 284,448 0 58,140 0 0 Peter C. Carrothers.............. 1997T 198,408 423,100 (3) 155,316 0 Managing Director 1997 166,800 230,700 (3) 155,316 0 1996 166,800 8,340 28,051 0 20,000 William F. Schwer................ 1997T 202,512 412,242 (3) 155,316 0 Managing Director, Secretary 1997 175,008 222,492 (3) 155,316 0 and General Counsel 1996 175,008 8,750 24,954 0 28,000 John A. Richmond................. 1997T 168,504 296,500 (3) 109,893 0 Managing Director 1997 158,750 165,500 (3) 108,893 0 1996 134,600 0 25,319 0 8,000
- --------------- (1) Bonuses paid were pursuant to the Company's Performance Incentive Plan and include, in the twelve-month period ended September 30, 1997, a relocation bonus of $28,945 for Mr. Hill and include in fiscal year ending March 31, 1997, such relocation bonus of $28,945 for Mr. Hill and a relocation bonus of $15,500 for Mr. Richmond. Annual bonus payments for the fiscal year ended March 31, 1997, paid in May 1997 and included in both 1997T and fiscal 1997 bonus amounts, were $316,701 for Mr. Kempner, $128,947 for Mr. Hill, $230,700 for Mr. Carrothers, $222,492 for Mr. Schwer and $150,000 for Mr. Richmond. (2) Amounts are primarily payments under the Company's vacation policy and for taxes due on perquisites. Monetary service awards, which are earned on every fifth anniversary of employment, are also included when paid. Mr. James C. Kempner's fiscal year 1996 compensation included $8,361 payment for taxes due on perquisites, a $8,370 automobile allowance, a $23,465 disability insurance policy premium and $13,525 for a bargain vehicle purchase. Mr. Hill's fiscal 1996 other annual compensation included $10,940 in vacation pay, a $5,325 payment for taxes due on perquisites, a $23,355 disability insurance premium and $13,525 for a bargain vehicle purchase. Mr. Carrothers' fiscal year 1996 other annual compensation included a $7,500 automobile allowance and a moving allowance of $11,142. Mr. Schwer's fiscal year 1996 other annual compensation included $2,019 in vacation pay, a $3,196 payment for taxes on perquisites, a $2,753 automobile allowance and $13,525 for a bargain vehicle purchase. Mr. Richmond's fiscal 1996 other compensation included $3,882 in vacation pay, a $1,794 payment for taxes on perquisites, a $4,780 automobile allowance and $13,525 for a bargain vehicle purchase. 57 63 (3) Amount is less than $50,000 or 10% of the sum of salary and bonus. (4) On May 1, 1997, 86,811 shares of Restricted Stock valued at $911,516 were issued to six executive officers including the named officers. Dividends, if declared, are payable on restricted stock. The grant is included in both 1997T and the fiscal year ended March 31, 1997. (5) No options granted include SARs. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS TRANSACTIONS IN CONNECTION WITH THE TENDER OFFER AND THE MERGER BOARD OF DIRECTORS; MANAGEMENT. On October 24, 1997, upon the consummation of the Tender Offer and pursuant to the Merger Agreement, a majority of the Savannah Foods directors resigned as directors, and members of the senior management of Imperial Holly were elected to the Board of Directors of Savannah Foods to replace such resigning directors. Upon consummation of the Merger, the remaining original Savannah Foods directors (except for Mr. Sprague) resigned. In addition, Messrs. Sprague and Harrison, who served on Savannah Foods' Board of Directors prior to the Transactions, were elected as directors of the Company prior to the consummation of the Merger. EMPLOYMENT AND RELATED AGREEMENTS. In connection with the Merger, the Company entered into a new employment agreement with William W. Sprague III, the President and Chief Executive Officer of Savannah Foods, providing for a 5-year term beginning on the date of the consummation of the Merger. Pursuant to the employment agreement, Mr. Sprague will continue as the President of Savannah Foods and was elected as a director of the Company in December 1997. In addition to his base salary, which will continue at no less than $430,000 per year (his previous salary), Mr. Sprague will be entitled to participate in the annual bonus program, which provides him with a maximum bonus opportunity equal to 75% of his base salary, and to certain other benefits. In addition, the Company intends to enter into agreements with certain other members of Savannah Foods' management providing for certain payments in the event of changes of control. EQUITY FINANCING. Imperial Holly sold 377,358 shares of Company Common Stock to the H. Kempner Trust Association concurrently with the consummation of the Merger for an aggregate consideration of $5 million, at a purchase price equal to $13.25 per share, the per share price of Company Common Stock used to determine the stock consideration in the Merger. ADVISORY AND OTHER FEES. Lehman Brothers, an Initial Purchaser of the Notes, has provided investment banking and other services to the Company in the past and has acted as financial advisor to the Company in connection with the Transactions, for which it has received customary fees in connection therewith. LCPI acted as an arranger for the Company and the banks that are parties to the Tender Credit Facility and the Senior Credit Facility (the "Credit Facilities") in connection with the Credit Facilities and received customary fees in connection therewith. LCPI and its respective affiliates are Agents under the Credit Facilities. The net proceeds of the Offering were used to repay indebtedness under the Tender Credit Facility. Additionally, in 1991, the Company entered into an interest rate swap with Lehman Brothers which continued until October 1996. Mr. Lentz, who was elected a director of the Company in December 1993, became a Managing Director of Lehman Brothers in March 1993. In 1996, Mr. Lentz became a member of the Executive Compensation Committee of the Company's Board of Directors. OTHER RELATIONSHIPS Fayez Sarofim & Co. acts as an investment advisor to the Company and certain employee benefit plans maintained by the Company. During the twelve-month period ended September 30, 1997, Fayez Sarofim & Co. received approximately $379,000 for such services. Fayez Sarofim, a director, is Chairman of the Board, President and owner of a majority of the outstanding capital stock of Fayez Sarofim & Co. In 1989, the Company became one of the limited partners of ChartCo Terminal, L.P. ("ChartCo") upon the formation thereof and made a capital contribution of $1,000,000 to ChartCo. A company owned by Mr. Gaylord is the general partner of ChartCo, which owns an interest in a fuel oil terminal in Houston, Texas. The percentage interests of the partners in ChartCo are in proportion to their respective capital contributions. 58 64 OWNERSHIP OF COMMON STOCK The following table sets forth certain information regarding ownership of Company Common Stock, as of December 31, 1997 by: (i) each person who is known by the Company to own beneficially on a pro forma basis more than five percent of Company Common Stock; (ii) each of the Company's directors; (iii) each of the Company's senior officers; and (iv) all directors and executive officers of the Company as a group. Except as otherwise indicated, the Company believes that the beneficial owners of the Company Common Stock listed below have sole investment and voting power with respect to such shares, subject to community property laws.
BENEFICIAL OWNERSHIP OF COMMON STOCK ---------------------- NUMBER PERCENTAGE NAME OF SHARES OF CLASS ---- --------- ---------- Peter C. Carrothers(1)(2)(3)................................ 40,443 * % John D. Curtin, Jr.(1)...................................... 8,142 * David J. Dilger(4).......................................... 3,800,000 14.1 Douglas W. Ehrenkranz(1)(2)................................. 13,169 * Edward O. Gaylord........................................... 20,000 * Greencore Group plc......................................... 3,800,000 14.1 St. Stephen's Green House Earlsfort Terrace Dublin 2, Ireland Gerald Grinstein............................................ 2,466 * Ann O. Hamilton(6).......................................... 237,796 * Robert L. Harrison(7)(3).................................... 1,769 * Roger W. Hill(1)(2)(3)...................................... 70,830 * Harris L. Kempner, Jr.(8)(9)................................ 834,302 3.1 I. H. Kempner, III(1)(5)(8)(10)............................. 1,107,037 4.1 P.O. Box 25 Sugar Land, Texas 77487-0025 James C. Kempner(1)(2)(3)(8)(11)............................ 930,450 3.4 H. E. Lentz................................................. 19,142 * Kevin C. O'Sullivan(4)...................................... 3,800,000 14.1 John A. Richmond(1)(2)...................................... 31,656 * Fayez Sarofim............................................... 681,142 2.5 William F. Schwer(1)(2)..................................... 47,008 * William W. Sprague III(7)(3)................................ 7,358 * Daniel K. Thorne(5)(12)..................................... 695,718 2.6 United States National Bank(13)............................. 1,937,456 7.2 P.O. Box 179 Galveston, Texas 77553 Harris K. Weston(8)(14)..................................... 1,724,921 6.4 Dinsmore & Stohl 1900 Chemed Center 255 East 5th Street Cincinnati, Ohio 45202 All directors and executive officers as a group (23 persons)(1)(2)............................................ 7,040,010 26.1%
59 65 - --------------- * Percentage of shares of Company Common Stock beneficially owned does not exceed 1% of the class. (1) Includes shares subject to stock options exercisable within 60 days as follows: I. H. Kempner, III, 92,925 shares; Peter C. Carrothers, 21,250 shares; John D. Curtain, Jr., 750 shares; Douglas W. Ehrenkranz, 3,750 shares; Roger W. Hill, 46,975 shares; James C. Kempner, 82,975 shares; William F. Schwer, 28,750 shares; John A. Richmond, 13,450 shares and all directors and executive officers as a group, 315,650 shares. (2) Includes restricted shares as follows: Mr. Carrothers, 14,792; Mr. Ehrenkranz, 9,419; Mr. Hill, 14,290; Mr. James C. Kempner, 23,052; Mr. Richmond, 10,466; Mr. Schwer, 14,792 and all executive officers as a group, 86,811 shares. (3) Includes shares of Company Common Stock issued in the Merger in exchange for shares of Savannah Common Stock and held by Mr. Sprague and his spouse and children and in certain employee benefit plans. (4) Includes shares held by Greencore Group plc, of which Mr. Dilger is the Chief Executive Officer and a director and Mr. O'Sullivan is the Chief Financial Officer and a director. Messrs. Dilger and O'Sullivan disclaim beneficial ownership of such shares. (5) Includes 134,187 shares of Company Common Stock owned by the Harris and Eliza Kempner Fund, a charitable foundation, as to which Mr. I. H. Kempner, III and Mr. Thorne share voting power and investment power as co-trustees along with other trustees. (6) Includes 49,072 shares of Company Common Stock owned by a testamentary trust as to which Mrs. Hamilton is successor trustee and has voting and investment power. (7) Messrs. Sprague and Harrison were elected directors in December 1997. (8) Includes 709,721 shares of Company Common Stock owned by H. Kempner Trust Association, over which I. H. Kempner, III, James C. Kempner, Harris L. Kempner, Jr. and Harris K. Weston share voting power and investment power as co-trustees with one other co-trustee. (9) Includes 6,420 shares of Company Common Stock held by Mr. Kempner's wife, as to which he shares voting and investment power. Mr. Kempner disclaims beneficial ownership as to such shares. (10) Includes 4,443 shares of Company Common Stock held by Mr. Kempner's wife, as to which Mr. Kempner disclaims beneficial ownership. (11) Includes 6,750 shares of Company Common Stock owned by a trust of which Mr. Kempner is a beneficiary. (12) Includes 327,142 shares of Company Common Stock owned by a testamentary trust as to which Mr. Thorne is the sole beneficiary and a co-trustee. Also includes 166,947 shares owned by the Alan Pryce-Jones Trust, of which Mr. Thorne is a co-trustee and 18,722 shares owned by the Daniel K. Thorne Foundation of which Mr. Thorne is President. Also includes 875 shares owned by his wife of which Mr. Thorne disclaims beneficial ownership. (13) Consists of 1,937,906 shares of Company Common Stock that United States National Bank holds as trustee of various trusts for descendants of H. Kempner, but not including any shares that are held in nominee form for others. United States National Bank has sole voting power over 1,937,456 shares. The information given is based on a Statement on Form 4 filed by the stockholder with the Commission and other information furnished by the stockholder. (14) Includes 2,700 shares of Company Common Stock held by Mr. Weston's wife and 46,800 shares of Company Common Stock held by Mr. Weston's daughters. Mr. Weston disclaims beneficial ownership as to such shares. Also includes 106,200 shares of Company Common Stock owned by Mr. Weston as trustee for two trusts for the benefit of Mr. Weston's daughters and 396,000 shares of Company Common Stock owned by Mr. Weston as trustee of three charitable annuity lead trusts, as to all of which shares Mr. Weston disclaims beneficial ownership. 60 66 DESCRIPTION OF THE TRANSACTIONS THE TENDER OFFER On October 16, 1997, pursuant to the Merger Agreement, IHK Sub, a wholly owned subsidiary of Imperial Holly, completed the Tender Offer. On October 24, 1997, after the appropriate proration procedures had been completed, IHK Sub purchased 14,397,836 shares of Savannah Common Stock, representing 50.1% of the issued and outstanding shares of Savannah Common Stock, for $20.25 per share in cash. THE MERGER On December 22, 1997, the Company consummated the Merger. Pursuant to the Merger Agreement, upon consummation of the Merger, each outstanding share of Savannah Common Stock (other than shares of Savannah Common Stock owned by Imperial Holly and its affiliates, which include shares purchased in the Tender Offer, and shares of Savannah Common Stock held by Savannah Foods stockholders exercising dissenters' rights of appraisal under Delaware law) was converted into the right to receive, subject to stockholder elections and proration, either (i) $20.25 of Company Common Stock (based upon a value of $13.25 per share of Company Common Stock) or (ii) $20.25 in cash. In the Merger, 30% of the outstanding shares of Savannah Common Stock was converted into the right to receive Company Common Stock, and 19.9% of the outstanding shares of Savannah Common Stock was converted into the right to receive $20.25 in cash. The remaining 50.1% of the outstanding shares of Savannah Common Stock purchased by IHK Sub in the Tender Offer was canceled. DEBT TENDER OFFER In October 1997, the Company completed a successful tender offer and consent solicitation (the "Debt Tender Offer") for Imperial Holly's 8 3/8% Senior Notes due 1989 (the "Existing Notes") and borrowed $78.1 million to fund the Debt Tender Offer and premiums related thereto. H. KEMPNER TRUST FINANCING Concurrently with consummation of the Merger, Imperial Holly completed the H. Kempner Trust Financing. See "Certain Relationships and Related Transactions -- Equity Financing." DESCRIPTION OF INDEBTEDNESS In order to (i) finance the cash consideration to be paid to Savannah Foods stockholders in the Transactions, (ii) refinance certain indebtedness of Imperial Holly and Savannah Foods and purchase the Existing Notes tendered in the Debt Tender Offer, (iii) pay fees and expenses related to the Offer and the Merger and (iv) provide working capital to Imperial Holly, Imperial Holly replaced its and Savannah Foods' previous credit facilities with the credit facilities described below. TENDER CREDIT FACILITY In order to finance the Tender Offer and to repay approximately $140 million of indebtedness of Imperial Holly and certain related expenses and to provide for Imperial Holly's working capital needs pending the closing of the Merger, Imperial Holly entered into the Tender Credit Facility in an amount of up to $505 million. The Tender Credit Facility was comprised of a $295 million term loan facility (of which $292 million was drawn to fund the Tender Offer) and a $210 million revolving credit facility (of which approximately $146 million was outstanding on November 30, 1997). The Tender Credit Facility was guaranteed by substantially all of Imperial Holly's direct and indirect subsidiaries (other than Savannah Foods and its subsidiaries), and was secured by substantially all the assets of Imperial Holly and each of such guarantors. 61 67 SENIOR CREDIT FACILITY In connection with the consummation of the Merger, the Tender Credit Facility was amended and restated as the "Senior Credit Facility." The Company entered into the Senior Credit Facility with a group of financial institutions for which Lehman Brothers acted as arranger and LCPI acted as syndication agent. The following is a summary of the material terms and conditions of the Senior Credit Facility and is subject to the detailed provisions of the Senior Credit Facility and the various related documents entered into in connection therewith. LOANS; INTEREST RATES. The Senior Credit Facility is comprised of senior credit facilities of up to $455 million consisting of term loan facilities aggregating not more than $255 million (the "Term Loans") and a $200 million revolving credit facility (the "Revolver"). The proceeds of the Senior Credit Facility, together with the proceeds of this Offering and the H. Kempner Trust Financing, provided the financing to repay the amounts owing under the Tender Credit Facility, to provide a portion of the cash consideration payable upon consummation of the Merger and certain expenses related to the Merger, and to provide financing for future working capital and other general corporate purposes. The Term Loans were made on the date of the closing of the Merger, and consist of two tranches. The two tranches, Tranche A in the aggregate principal amount of $150 million and Tranche B in the aggregate principal amount of $105 million, will fully amortize over a period of six and eight years, respectively. The Revolver will be available on a revolving basis during the period commencing on the date of the closing of the Merger and ending on the date that is five years after the date of the closing of the Merger. The Revolver and the Term Loans will bear interest, at Imperial Holly's election, at either the Base Rate plus a margin ranging from 0.25% to 1.00% or the Eurodollar Rate plus a margin ranging from 1.25% to 2.00%. REPAYMENT. The principal amounts of the Tranche A Loans and the Tranche B Loans are repayable in quarterly installments during their respective terms in the following approximate aggregate annual amounts:
TRANCHE A LOANS TRANCHE B LOANS --------------- --------------- YEAR AMOUNT YEAR AMOUNT - ---- ----------- ---- ----------- 1.......................... $ 5,500,000 1........................... $ 100,000 2.......................... 7,000,000 2........................... 100,000 3.......................... 7,000,000 3........................... 100,000 4.......................... 9,000,000 4........................... 100,000 5.......................... 84,000,000 5........................... 100,000 6.......................... 37,500,000 6........................... 100,000 7........................... 52,200,000 8........................... 52,200,000
Revolving loans may be borrowed, repaid and reborrowed from time to time until five years after the closing of the Senior Credit Facility, subject to certain customary conditions on the date of any such borrowing. SECURITY. The obligations under the Senior Credit Facility and the related documents are secured by a first priority lien upon substantially all of the real and personal property of the Company and its subsidiaries and a pledge of all of the capital stock of the Company's subsidiaries (provided that no lien will be granted on the assets of foreign subsidiaries and no capital stock of foreign subsidiaries will be pledged to the extent that the granting of such lien or the making of such pledge would result in materially adverse United States federal income tax consequences to the Company or would violate applicable law). GUARANTEES. The obligations of the Company under the Senior Credit Facility are expected to be guaranteed by substantially all of the Company's subsidiaries (provided that no guarantee by a foreign subsidiary shall be made if such guarantee would result in materially adverse United States federal income tax consequences to the Company or would violate applicable law). 62 68 PREPAYMENTS. The Company will be required to make prepayments, with customary exceptions, on loans under the Senior Credit Facility in an amount equal to 100% of the net proceeds of the incurrence of certain indebtedness, 100% of the net proceeds of the sale of equity securities, 100% of the net proceeds received by the Company and its subsidiaries (other than certain net proceeds reinvested in the business of the Company or its subsidiaries) from the disposition of any assets, including proceeds from the sale of stock of any of the Company's subsidiaries and 75% of excess cash flow. CONDITIONS AND COVENANTS. The obligations of the lenders under the Senior Credit Facility are subject to the satisfaction of certain conditions precedent customary in similar credit facilities or otherwise appropriate under the circumstances. The Company and each of its subsidiaries will be subject to certain negative covenants contained in the Senior Credit Facility, including without limitation covenants that restrict, subject to specified exceptions: (i) the incurrence of additional indebtedness and other obligations and the granting of additional liens; (ii) mergers, acquisitions, investments and acquisitions and dispositions of assets; (iii) investments, loans and advances; (iv) dividends, stock repurchases and redemptions; (v) prepayment or repurchase of other indebtedness and amendments to certain agreements governing indebtedness, including the Indenture and the Notes; (vi) engaging in transactions with affiliates; (vii) capital expenditures; (viii) sales and leasebacks; (ix) changes in fiscal periods; (x) changes of lines of business; and (xi) entering into agreements which prohibit the creation of liens or limit the Company's subsidiaries' ability to pay dividends. The Senior Credit Facility also contains customary affirmative covenants, including compliance with environmental laws, maintenance of corporate existence and rights, maintenance of insurance, property and interest rate protection, financial reporting, inspection of property, books and records, and the pledge of additional collateral and guarantees from new Subsidiaries. In addition, the Senior Credit Facility requires the Company to maintain compliance with certain specified financial covenants including maximum capital expenditures, a maximum ratio of total debt to EBITDA and senior debt to EBITDA, a minimum interest coverage ratio and a minimum fixed charge coverage ratio. Certain of these financial, negative and affirmative covenants are more restrictive than those set forth in the Indenture. EVENTS OF DEFAULT. The Senior Credit Facility includes events of default that are typical for senior credit facilities and appropriate in the context of the Transactions, including, without limitation, nonpayment of principal, interest, fees or reimbursement obligations with respect to letters of credit, violation of covenants, inaccuracy of representations and warranties in any material respect, cross default to certain other indebtedness and agreements, bankruptcy and insolvency events, material judgments and liabilities, defaults or judgments under ERISA and change of control. The occurrence of any of such events of default could result in acceleration of the Company's obligations under the Senior Credit Facility and foreclosure on the collateral securing such obligations, which could have material adverse results to holders of the Notes. SAVANNAH FOODS INDUSTRIAL REVENUE BONDS Savannah Foods has six tax-advantaged industrial revenue bond issuances ("IRBs") in the aggregate amount of $22.5 million. The IRBs were issued to fund capital improvements in Savannah Foods' facilities located in Croswell, Sebewaing, Caro and Carrollton, Michigan, Visalia, California and Hendry County, Florida. Each of the IRBs is secured by a lien on the project equipment at such facilities. Savannah Foods is a party to two of such issuances and has guaranteed the other four issuances. The IRBs bear interest at variable rates which generally range from 71% to 75% of LIBOR. However, Savannah Foods has entered into hedging agreements which provided an effective interest rate of 6.48% for the fiscal year ended September 28, 1997. The effective interest rate under such agreements for the 1998 fiscal year is 5.17%. The IRBs mature at varying dates beginning with a $4.5 million issuance at September 1, 2000 and ending with a $1.5 million issuance at March 1, 2017. The IRBs are secured by letters of credit in the face amount of such bonds plus interest for up to 120 days. 63 69 DESCRIPTION OF THE NOTES The Exchange Notes will be issued, and the Old Notes were issued, pursuant to an Indenture (the "Indenture") among the Company, the Guarantors and The Bank of New York, as trustee (the "Trustee"). The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of the provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions therein of certain terms used below. Copies of the proposed form of Indenture and Registration Rights Agreement are available as set forth below under "-- Additional Information." The definitions of certain terms used in the following summary are set forth below under "-- Certain Definitions." For purposes of this summary, the term "Company" refers only to the Company and not to any of its Subsidiaries. GENERAL The Exchange Notes will be issued solely in exchange for an equal principal amount of Old Notes pursuant to the Exchange Offer. The form and terms of the Exchange Notes will be identical in all material respects to the form and terms of the old Notes except that the offering of the Exchange Notes has been registered under the Securities Act, and the Exchange Notes will therefore not be subject to transfer restrictions, registration rights and certain provisions relating to the payment of Liquidated Damages under certain circumstances. See "-- Registration Rights; Liquidated Damages." The Notes are subject to the terms stated in the Indenture, a copy of which has been filed as an exhibit to the Registration Statement, and holders of the Notes are referred thereto for a statement of those terms. The Old Notes and the Exchange Notes will constitute a single series of debt securities under the Indenture. If the Exchange Offer is consummated, holders of Old Notes who do not exchange their Old Notes for Exchange Notes will vote together with holders of the Exchange Notes for all relevant purposes under the Indenture. In that regard, the Indenture requires that certain actions by the holders thereunder (including following an Event of Default) must be taken, and certain rights must be exercised, by specified minimum percentages of the aggregate principal amount of the outstanding securities issued under the Indenture. In determining whether holders of the requisite percentage in principal amount have given any notice, consent or waiver or taken any other action permitted under the Indenture, any Old Notes that remain outstanding after the Exchange Offer will be aggregated with the Exchange Notes, and the holders of such Old Notes and the Exchange Notes will vote together as a single series for all such purposes. Accordingly, all references herein to specified percentages in aggregate principal amount of the outstanding Notes shall be deemed to mean, at any time after the Exchange Offer is consummated, such percentages in aggregate principal amount of the Old Notes and the Exchange Notes then outstanding. The Notes will be general unsecured obligations of the Company and will be subordinated in right of payment to all current and future Senior Debt, including Indebtedness under the Senior Credit Facility. Borrowings under the Senior Credit Facility will be secured by substantially all of the Company's assets, including the Capital Stock of substantially all of the Company's existing and future Subsidiaries, and will be guaranteed by substantially all such Subsidiaries, which guarantees will be secured by substantially all of such Subsidiaries' assets. The Notes will be guaranteed by all of the Company's existing and future Subsidiaries that guarantee any Indebtedness of the Company. The guarantees of the Notes terminate under certain circumstances. See "-- Subsidiary Guarantees." The Notes will rank pari passu in right of payment with all other senior subordinated Indebtedness of the Company issued in the future, if any, and senior in the right of payment to all subordinated Indebtedness of the Company issued in the future, if any. As of September 30, 1997, on a pro forma basis giving effect to the Transactions, the Company and its Restricted Subsidiaries would have had approximately $304.7 million of Senior Debt (exclusive of an additional $191.3 million available under the revolving credit portion of the Senior Credit Facility, which, if drawn, would be Senior Debt). The Indenture will limit, subject to certain financial tests and exceptions, the amount of additional Indebtedness, including Senior Debt, that the Company and its Restricted Subsidiaries may incur. See "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock." 64 70 As of the date of this Prospectus, all of the Company's Subsidiaries were Restricted Subsidiaries, except for Holly Finance Company, which was an Unrestricted Subsidiary. Under certain circumstances, the Company will be able to designate other current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to any of the restrictive covenants set forth in the Indenture. PRINCIPAL, MATURITY AND INTEREST The Notes will be limited in aggregate principal amount to $350 million, $250 million of which will be issued in the Offering, and will mature on December 15, 2007. Additional amounts may be issued after the date of the Indenture in one or more series from time to time subject to the limitations set forth under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" and restrictions contained in the Senior Credit Facility and any other agreement to which the Company is a party at the time of such issuance. The Company has agreed not to offer, issue or sell any notes, bonds or other amounts under the Indenture other than the Notes offered hereby and the Exchange Notes for a period of 180 days from the date of the Indenture without the prior written consent of Lehman Brothers. Interest on the Notes will accrue at the rate of 9 3/4% per annum and will be payable semi-annually in arrears on June 15 and December 15, commencing on June 15, 1998, to Holders of record on the immediately preceding June 1 and December 1. Interest on the Notes will accrue from the most recent date to which interest and Liquidated Damages, if any, has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Principal, premium, if any, and interest and Liquidated Damages, if any, on the Notes will be payable at the office or agency of the Company maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest and Liquidated Damages, if any, may be made by check mailed to the Holders of the Notes at their respective addresses set forth in the register of Holders of Notes; provided that all payments with respect to Notes the Holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Notes will be issued in denominations of $1,000 and integral multiples thereof. SUBORDINATION The payment of principal of, premium, if any, and interest and Liquidated Damages, if any, on the Notes will be subordinated in right of payment, as set forth in the Indenture, to the prior payment in full, in cash or Cash Equivalents, of all Senior Debt, whether outstanding on the date of the Indenture or thereafter incurred, assumed or guaranteed. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, in an assignment for the benefit of creditors or any marshaling of the Company's assets and liabilities, the holders of Senior Debt will be entitled to receive payment in full, in cash or Cash Equivalents, of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt (whether or not an allowable claim)) before the Holders of Notes will be entitled to receive any payment with respect to the Notes, and until all Obligations with respect to Senior Debt are paid in full, in cash or Cash Equivalents, any distribution to which the Holders of Notes would be entitled shall be made to the holders of Senior Debt (except that Holders of Notes may receive and retain (i) Permitted Junior Securities, (ii) payments made from the trust described under "-- Legal Defeasance and Covenant Defeasance"; provided that at the time of its creation such trust does not violate the Senior Credit Facility and (iii) payments from the trust described under "-- Special Redemption.") The Company also may not make any payment upon or in respect of the Notes (except (i) in Permitted Junior Securities, (ii) from the trust described under "-- Legal Defeasance and Covenant Defeasance"; provided that at the time of its creation such trust does not violate the Senior Credit Facility or (iii) from the trust described under "Special Redemption") if (i) a default in the payment of the principal of, premium, if 65 71 any, or interest on Designated Senior Debt occurs and is continuing beyond any applicable period of grace (a "Payment Default") or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity (a "Nonpayment Default") and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or the Representative of the holders of any Designated Senior Debt. Payments on the Notes may and shall be resumed (a) in the case of a Payment Default, upon the date on which such default is cured or waived and (b) in case of a Nonpayment Default, the earlier of the date on which such Nonpayment Default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated. No new period of payment blockage may be commenced unless and until (i) 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal, premium, if any, and interest and Liquidated Damages, if any, on the Notes that have come due have been paid in full in cash. No Nonpayment Default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 90 days. The Indenture will further require that the Company promptly notify holders of Senior Debt if payment of the Notes is accelerated because of an Event of Default. As a result of the subordination provisions described above, in the event of a liquidation or insolvency, Holders of Notes may recover less ratably than creditors of the Company who are holders of Senior Debt. On a pro forma basis, after giving effect to the Transactions, there would have been approximately $304.7 million of Senior Debt outstanding at September 30, 1997 (exclusive of an additional $191.3 million available under the revolving credit portion of the Senior Credit Facility, which, if drawn, would be Senior Debt). The Indenture will limit, subject to certain financial tests, the amount of additional Indebtedness, including Senior Debt, that the Company and its Restricted Subsidiaries can incur. See "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock." SUBSIDIARY GUARANTEES The Company's payment obligations under the Notes will be jointly and severally guaranteed on a senior subordinated basis by the Guarantors. Any Subsidiary of the Company that guarantees any Indebtedness of the Company shall be required to execute Subsidiary Guarantees and become a Guarantor under the Indenture. The Subsidiary Guarantee of each Guarantor will be subordinated to the prior payment in full of all Senior Debt of such Guarantor (of which an aggregate amount of $35.1 million (excluding guarantees of Senior Debt) was outstanding on a pro forma basis after giving effect to the Transactions as of September 30, 1997 for all Guarantors), and the amounts for which the Guarantors will be liable under the guarantees issued from time to time with respect to Senior Debt of the Company to the same extent as the Obligations of the Company with respect to the Notes are subordinated to Senior Debt of the Company. The obligations of each Guarantor under its Subsidiary Guarantee will be limited to the maximum amount the Guarantors are permitted to guarantee under applicable law without creating a "fraudulent conveyance." See "Risk Factors -- Fraudulent Conveyance Considerations." The Indenture will provide that no Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another corporation, Person or entity whether or not affiliated with such Guarantor unless (i) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes and the Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; (iii) such Guarantor, or any Person formed by or surviving any such consolidation or merger, would have Consolidated Net Worth (immediately after giving effect to such transaction) equal to or greater than the Consolidated Net Worth of such Guarantor immediately preceding the transaction; and (iv) except in the case of the merger of a Guarantor with or into another Guarantor or the Company, the Company would be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such transaction, to incur at least $1.00 of additional Indebtedness pursuant 66 72 to the Fixed Charge Coverage Ratio test set forth in the covenant described above under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock." Notwithstanding the foregoing paragraph, (i) any Guarantor may consolidate with, merge into or transfer all or a part of its properties and assets to the Company or any other Guarantor and (ii) any Guarantor may merge with a Wholly Owned Subsidiary of the Company that has no significant assets or liabilities and was incorporated solely for purpose of reincorporating such Guarantor in another State of the United States; provided that such merged entity continues to be a Guarantor. The Indenture will provide that upon (i) the release by the lenders under all Indebtedness of the Company of all Indebtedness of the Company of all guarantees of a Guarantor and all Liens on the property and assets of such Guarantor relating to such Indebtedness, or (ii) a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor in compliance with the Indenture to any entity that is not the Company or a Subsidiary, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor), or the Person acquiring the property (in the event of such a sale or other disposition of all of the assets of such Guarantor), will be released and relieved of any obligations under its Subsidiary Guarantee; provided, however, that any such termination shall occur only to the extent that all obligations of such Guarantor under such Indebtedness and all of its guarantees of, and under all of its pledges of assets or other security interests which secure, Indebtedness of the Company shall also terminate upon such release, sale or transfer and, in the event of any sale or other disposition, that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture. See "-- Repurchase at the Option of Holders -- Asset Sales." OPTIONAL REDEMPTION The Notes will not be redeemable at the Company's option prior to December 15, 2002. Thereafter, the Notes will be subject to redemption at any time at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on December 15, of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2002............................................... 104.875% 2003............................................... 103.250 2004............................................... 101.625 2005 and thereafter................................ 100.000%
Notwithstanding the foregoing, at any time before December 15, 2000, the Company may on any one or more occasions redeem up to an aggregate of 35% of the principal amount of Notes outstanding at a redemption price of 109.75% of the principal amount thereof, plus accrued and unpaid interest, if any, and Liquidated Damages, if any, thereon, to the redemption date, with the net cash proceeds of any Equity Offering; provided that at least 65% of the aggregate principal amount of Notes outstanding on the date of the Indenture remain outstanding immediately after each occurrence of such redemption; and provided, further, that each such redemption shall occur within 60 days of the date of the closing of such Equity Offering. SELECTION AND NOTICE If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notices of redemption may 67 73 not be conditional. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest and Liquidated Damages, if any, cease to accrue on Notes or portions of them called for redemption. SPECIAL REDEMPTION On February 2, 1998 (the "Special Redemption Date"), the Notes will be subject to mandatory redemption at a redemption price equal to 101% of the principal amount of the Notes, plus accrued interest to the date of redemption (the "Special Redemption Price"), if the Merger is not consummated prior to the Special Redemption Date. The Company will also have the option to redeem the Notes at any time on or prior to the Special Redemption Date if the Merger has not been consummated and the Merger Agreement has been terminated on or prior to such time at a redemption price equal to 101% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption. Pursuant to the Indenture, if the Merger is not consummated on the date of the Indenture, the Company will deposit with the Trustee, in trust, the net proceeds from the sale of the Notes, together with such other amount as, when added to such net proceeds, equals (the "Trust Amount") $252.5 million plus an amount equal to the interest thereon at the rate of 9 3/4% per annum to the Special Redemption Date. All amounts so deposited with the Trustee (collectively, the "Trust Funds") will be pledged to and held by the Trustee pursuant to the Indenture as security for the Notes. The Indenture will provide that if, prior to the Special Redemption Date, the Company delivers to the Trustee the required certificates and other documents, then the Trustee will release the Trust Funds to the Company for application to the payment of the Special Redemption Price. Following the release of the Trust Funds, the Notes will be unsecured obligations of the Company. Pending release of the Trust Funds as provided in the Indenture, the Trust Funds will be invested in Cash Equivalents having a maturity no later than the Special Redemption Date and otherwise in accordance with applicable law as directed by the Company and any investment proceeds thereon to the extent Trust Funds exceed the Trust Amount will be available to the Company. If the Notes are redeemed on or prior to the Special Redemption Date, the Notes will be redeemed with the Trust Funds and any portion of the Trust Funds not required to be used for such redemption will be returned to the Company. MANDATORY REDEMPTION Except as set forth above under "-- Special Redemption" or below under "-- Repurchase at the Option of Holders," the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. REPURCHASE AT THE OPTION OF HOLDERS CHANGE OF CONTROL. Upon the occurrence of a Change of Control, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the date of purchase (the "Change of Control Payment"). Within ten days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. 68 74 On the Change of Control Payment Date, the Company will, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent will promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Indenture will provide that, prior to complying with the provisions of this covenant, but in any event within 90 days following a Change of Control, the Company will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this covenant. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Change of Control provisions described above will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of the Company. There is little case law interpreting the phrase "all or substantially all" in the context of an indenture. Because there is no precise established definition of this phrase, the ability of a holder of Notes to require the Company to repurchase such Notes as a result of a sale, lease, exchange or other transfer of all or substantially all of the Company's assets to a Person or a Group may be uncertain. The Senior Credit Facility will limit the ability of the Company to purchase any Notes and will also provide that certain change of control events with respect to the Company would constitute a default thereunder. Any future Senior Credit Facilities or other agreements relating to Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the Senior Credit Facility. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes. The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. ASSET SALES. The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (which shall be determined in good faith by the Company's Board of Directors) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor (other than the consideration received in the disposition of the real property, improvements and equipment associated with Holly Sugar Corporation's non-operating facilities at Hamilton City, California and Santa Barbara, California) received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents; provided that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet), of the Company or any Restricted Subsidiary of the Company (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Subsidiary 69 75 Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are immediately converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision and provided, further, that any Asset Sale pursuant to a condemnation, appropriation or other similar taking, including by deed in lieu of condemnation, or pursuant to the foreclosure or other enforcement of a Permitted Lien or exercise by the related lienholder of rights with respect thereto, including by deed or assignment in lieu of foreclosure shall not be required to satisfy the conditions set forth in clauses (i) and (ii) of this paragraph. Within 270 days after the receipt of any Net Proceeds from an Asset Sale, the Company or such Restricted Subsidiary, as the case may be, may apply such Net Proceeds, at its option, (a) to permanently repay Senior Debt (and to correspondingly permanently reduce the commitments with respect thereto in the case of revolving borrowings), (b) to acquire a controlling interest in another business or all or substantially all of the assets of a business, engaged in a Permitted Business, or (c) to acquire other long term assets to be used in a Permitted Business, provided that the Company or such Restricted Subsidiary will have complied with clause (b) or (c) if, within 270 days of such Asset Sale, the Company or such Restricted Subsidiary shall have commenced and not completed or abandoned an investment in compliance with clause (b) or (c) and such Investment is substantially completed within 90 days after the first anniversary of such Asset Sale. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Indebtedness under any Credit Facility or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph shall be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10 million, the Company shall be required to make an offer to all Holders of Notes and other Indebtedness that ranks by its terms pari passu in right of payment with the Notes and the terms of which contain substantially similar requirements with respect to the application of net proceeds from asset sales as are contained in the Indenture (an "Asset Sale Offer") to purchase on a pro rata basis the maximum principal amount of the Notes, that is an integral multiple of $1,000, that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes and other such Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. CERTAIN COVENANTS RESTRICTED PAYMENTS. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company (other than any such Equity Interests owned by a Wholly Owned Subsidiary of the Company); (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes, except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through 70 76 (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock"; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company or any of its Restricted Subsidiaries after the date of the Indenture (excluding Restricted Payments permitted by clauses (ii), (iii),(iv), (v), (vii), (viii) or (ix) of the next succeeding paragraph), is less than the sum of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter immediately following the date of the Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company from the issue or sale, in either case, since the date of the Indenture of (A) Equity Interests of the Company (other than Disqualified Stock), or (B) Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible or exchangeable debt securities) sold to a Restricted Subsidiary of the Company and other than Disqualified Stock or debt securities that have been converted or exchanged into Disqualified Stock), plus (iii) in case any Unrestricted Subsidiary has been redesignated a Restricted Subsidiary pursuant to the terms of the Indenture or has been merged, consolidated or amalgamated with or into, or transfers or conveys assets to or is liquidated into, the Company or a Restricted Subsidiary and provided that no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof, the lesser of (A) the book value (determined in accordance with GAAP) at the date of such redesignation, combination or transfer of the aggregate Investments made by the Company and its Restricted Subsidiaries in such Unrestricted Subsidiary (or of the assets transferred or conveyed, as applicable) and (B) the fair market value of such Investment in such Unrestricted Subsidiary at the time of such redesignation, combination or transfer (or of the assets transferred or conveyed, as applicable), in each case as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive and evidenced by a resolution of such Board and, in each case, after deducting any Indebtedness associated with the Unrestricted Subsidiary so designated or combined or with the assets so transferred or conveyed, plus (iv) to the extent not already included in Consolidated Net Income for such period, without duplication, any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment, plus (v) $10 million. The foregoing provisions shall not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any Indebtedness which is subordinated to the Notes or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of, Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of Indebtedness which is subordinated to the Notes with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any dividend or 71 77 distribution by a Restricted Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; (v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any employee or director of the Company (or any of its Subsidiaries), or any former employee or director of the Company (or any of its Subsidiaries) issued pursuant to any management equity plan or stock option plan or any other management or employee benefit plan, agreement or trust; provided, however, that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests pursuant to this clause (v) shall not exceed $1 million in any twelve-month period; (vi) other Restricted Payments not to exceed $10 million in the aggregate; (vii) repurchases of Equity Interests deemed to occur upon the cashless exercise of stock options; (viii) payments in accordance with the terms of the Merger Agreement; and (ix) reasonable and customary directors' fees to the members of the Company's Board of Directors, provided that such fees are consistent with past practice, provided, further, that, with respect to clauses (ii), (iii), (v), (vi), (vii), (viii) and (ix) above, no Default or Event of Default shall have occurred and be continuing immediately after such transaction. In determining whether any Restricted Payment is permitted by the foregoing covenant, the Company may allocate or reallocate all or any portion of such Restricted Payment among the clauses (i) through (ix) of the preceding paragraph or among such clauses and the first paragraph of this covenant including clauses (a), (b) and (c), provided that at the time of such allocation or reallocation, all such Restricted Payments, or allocated portions thereof, would be permitted under the various provisions of the foregoing covenant. The amount of all Restricted Payments (other than cash) shall be the fair market value (as determined by the Board of Directors of the Company and as evidenced by a resolution of the Board of Directors of the Company set forth in an Officers' Certificate delivered to the Trustee) on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment, such determination to be based upon an opinion or appraisal by an Independent Financial Advisor if the fair market value of any Restricted Payment is greater than $10 million. Not later than (i) the end of any calendar quarter in which any Restricted Payment is made or (ii) the making of a Restricted Payment which, when added to the sum of all previous Restricted Payments made in a calendar quarter, would cause the aggregate of all Restricted Payments made in such quarter to exceed $5 million, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this covenant were computed, which calculations may be based upon the Company's latest available financial statements. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (i) immediately after giving effect to such designation, the Company is able to incur at least $1.00 of additional Indebtedness under the first paragraph of the covenant described above under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock", (ii) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing and (iii) the Company certifies that such designation complies with this covenant. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. For purposes of making the determination as to whether such designation would cause a Default or Event of Default, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of this covenant. All such outstanding Investments will be deemed to constitute Investments in an amount equal to the greatest of (i) the net book value (determined in accordance with GAAP) of such Investments at the time of such designation, (ii) the fair market value of such Investments at the time of such designation and (iii) the original fair market value of such Investments at the time they were made. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. 72 78 Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors of the Company giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred as of such date. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur")any Indebtedness (including Acquired Debt) and that the Company shall not issue any Disqualified Stock and shall not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company or any Guarantor may incur Indebtedness (including Acquired Debt) or the Company may issue shares of Disqualified Stock if the Company's Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.25 to 1, during the period from the date of the Indenture until the second anniversary of the date of the Indenture, and, thereafter, 2.50 to 1, in each case, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. The provisions of the first paragraph of this covenant shall not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes and the Subsidiary Guarantees; (ii) the incurrence by the Company or its Restricted Subsidiaries of Indebtedness and letters of credit pursuant to the Senior Credit Facility (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company or its Restricted Subsidiaries thereunder) in an aggregate principal amount not to exceed $455 million, less the sum of (A) the aggregate amount of all proceeds of Assets Sales that have been applied since the date of the Indenture to permanently reduce the outstanding amount of such Indebtedness pursuant to the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales"; plus (B) Indebtedness incurred and outstanding pursuant to clause (ix) below; (iii) the incurrence by the Company or any of its Restricted Subsidiaries of Existing Indebtedness; (iv) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, Indebtedness that was permitted by the Indenture to be incurred; (v) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided, however, that (i) if the Company or any Guarantor is the obligor on such Indebtedness, such Indebtedness is expressly subordinate to the payment in full of all Obligations with respect to the Notes and (ii) (A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (vi) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each 73 79 case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace Indebtedness incurred pursuant to this clause (vi), not to exceed $20 million at any time outstanding; (vii) the incurrence by the Company or any of its Restricted Subsidiaries of obligations in the ordinary course of business under (A) trade letters of credit which are to be repaid in full not more than one year after the date on which such Indebtedness is originally incurred to finance the purchase of goods by the Company or a Restricted Subsidiary of the Company; (B) standby letters of credit issued for the purpose of supporting (1) workers' compensation liabilities of the Company or any of its Restricted Subsidiaries, or (2) performance, payment, deposit or surety obligations of the Company or any of its Restricted Subsidiaries; and (C) bid, advance payment and performance bonds and surety bonds of the Company and its Restricted Subsidiaries, and refinancings thereof; (viii) the incurrence by the Company or any of its Restricted Subsidiaries of Financial Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk (including with respect to any floating rate Indebtedness that is permitted by the terms of the Indenture to be outstanding; and) and Commodity Hedging Obligations in connection with the conduct of their respective businesses and not for speculative purposes and otherwise consistent with past practices; (ix) the incurrence by the Company or any Restricted Subsidiary of CCC Loans in an aggregate principal amount outstanding not to exceed the lesser of (A) $200 million and (B) the undrawn portion of the revolving credit facility and unused letter of credit facility available under the Senior Credit Facility which would be permitted to be incurred pursuant to clause (ii) above; (x) Indebtedness arising from agreements of the Company or any of its Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred in connection with the disposition of any business, assets or a Restricted Subsidiary of the Company, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Restricted Subsidiary of the Company for the purposes of financing such acquisition; provided, however, that (A) such Indebtedness is not reflected on the balance sheet of the Company or any of its Restricted Subsidiaries (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (A)) and (B) the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds including noncash proceeds (the fair market value of such noncash proceeds being measured at the time received and without giving effect to any subsequent changes in value) actually received by the Company and its Restricted Subsidiaries in connection with such disposition; (xi) the guarantee by the Company or any of the Guarantors of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; provided, that the Guarantee of any Indebtedness of a Restricted Subsidiary of the Company that is not or is no longer a Guarantor shall be deemed a Restricted Investment at the time of such guarantee or at the time such Restricted Subsidiary's Guarantor status terminates in an amount equal to the maximum principal amount so guaranteed, for so long as, and to the extent that, such guarantee remains outstanding; (xii) the issuance by a Restricted Subsidiary of the Company of preferred stock to the Company or to any of its Restricted Subsidiaries; provided, however, that any subsequent event or issuance or transfer of any Equity Interests that results in the owner of such preferred stock ceasing to be the Company or any of its Restricted Subsidiaries or any subsequent transfer of such preferred stock to a Person, other than the Company or one of its Restricted Subsidiaries, shall be deemed to be an issuance of preferred stock by such Subsidiary that was not permitted by this clause (xii); and 74 80 (xiii) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness (in addition to Indebtedness permitted by any other clause of this paragraph) in an aggregate principal amount (or accreted value, as applicable) at any time outstanding not to exceed $25 million. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (ix) above or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant and such item of Indebtedness shall be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph hereof. Accrual of interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes of this covenant. LIENS. The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind securing Indebtedness or trade payables (other than Permitted Liens) upon any of their property or assets, now owned or hereafter acquired, unless all payments due under the Indenture and the Notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligations are no longer secured by a Lien. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of the Company or the Company to (i)(x) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (y) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) the Indenture, the Notes, Existing Indebtedness and the Senior Credit Facility as in effect on the date of the Indenture, (b) applicable law, (c) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except with respect to Indebtedness incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person or such Person's subsidiaries, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred, (d) restrictions of the nature described in clause (iii) above by reason of customary non-assignment provisions in contracts, agreements, and leases entered into in the ordinary course of business and consistent with past practices, (e) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, (f) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition, (g) agreements relating to secured Indebtedness otherwise permitted to be incurred pursuant to the covenants described under the Indebtedness otherwise permitted to be incurred pursuant to the covenants described under the "-- Incurrence of Indebtedness and Issuance of Preferred Stock" and "-- Liens" that limit the right of the debtor to dispose of assets securing such Indebtedness and (h) Permitted Refinancing Indebtedness in respect of Indebtedness referred to in clause (a), (c) and (e) of this paragraph, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. MERGER, CONSOLIDATION, OR SALE OF ASSETS. The Indenture will provide that the Company will not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving 75 81 corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately before and after such transaction no Default or Event of Default shall have occurred; and (iv) except in the case of a merger of the Company with or into a Wholly Owned Subsidiary, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of covenant described above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock." ADDITIONAL SUBSIDIARY GUARANTEES. The Indenture will provide that if any Subsidiary of the Company guarantees any Indebtedness of the Company, then such Subsidiary shall (i) execute a supplemental indenture in form and substance satisfactory to the Trustee providing that such Subsidiary shall become a Guarantor under the Indenture and (ii) deliver an opinion of counsel to the effect, inter alia, that such supplemental indenture has been duly authorized and executed by such Subsidiary. TRANSACTIONS WITH AFFILIATES. The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make any payment to, or sell, lease, transfer or otherwise dispose of any properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of any such Person (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1 million, a resolution of its Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above, (b) with respect to any Affiliate Transaction or series of related Affiliate Transaction involving aggregate consideration in excess of $5 million, a resolution of its Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of its Board of Directors, and (c) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an Independent Financial Advisor; provided that none of the following shall be deemed to be Affiliate Transactions: (1) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary, as the case may be, (2) transactions between or among the Company and/or its Restricted Subsidiaries, (3) Restricted Payments that are permitted by the covenant described above under the caption "-- Certain Covenants -- Restricted Payments", (4) fees and compensation paid to members of the Board of Directors of the Company and of its Restricted Subsidiaries in their capacity as such, to the extent such fees and compensation are reasonable and customary, (5) advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business and consistent with past practices, (6) maintenance in the ordinary course of business of customary benefit programs or arrangements for employees, officers or directors, including vacation plans, health and life insurance plans, deferred compensation plans and retirement or savings plans and similar plans; (7) payments in accordance with the terms of the Merger Agreement; and (8) fees and compensation paid to, and indemnity provided on behalf of, officers, directors or 76 82 employees of the Company or any of its Restricted Subsidiaries, as determined by the Board of Directors of the Company or of any such Restricted Subsidiary, to the extent such fees and compensation are reasonable and customary as determined by the Board of Directors of the Company or such Restricted Subsidiary. NO SENIOR SUBORDINATED DEBT. The Indenture will provide that, notwithstanding any other provision thereof, (i) the Company will not incur, create, issue, assume, guarantee or otherwise become liable directly or indirectly for any Indebtedness (including Acquired Debt) that is expressly subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes and (ii) no Guarantor will incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness (including Acquired Debt) that is expressly subordinate or junior in right of payment to any Senior Debt of a Guarantor and senior in any respect in right of payment to the Subsidiary Guarantees, it being understood that Indebtedness will not be considered senior to other Indebtedness solely by reason of being secured. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES. The Indenture will provide that the Company (i) will not, and will not permit any Restricted Subsidiary of the Company to, transfer, convey, sell or otherwise dispose of any Capital Stock of any Restricted Subsidiary of the Company to any Person (other than the Company or a Wholly Owned Subsidiary of the Company), unless (a) such transfer, conveyance, sale, lease or other disposition is of all the Capital Stock of such Restricted Subsidiary and (b) the net proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales," and (ii) shall not permit any Restricted Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Subsidiary of the Company. BUSINESS ACTIVITIES. The Indenture will provide that the Company will not, and the Company will not permit any of its Restricted Subsidiaries to, directly or indirectly, engage in any line of business other than a Permitted Business, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. PAYMENTS FOR CONSENT. The Indenture will provide that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture, the Subsidiary Guarantees or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. REPORTS. The Indenture will provide that whether or not the Company is required by the rules and regulations of the Commission, so long as any Notes are outstanding, the Company will furnish to each of the Holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such financial information, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and any consolidated Subsidiaries and, with respect to the annual information only, reports thereon by the Company's independent public accountants (which shall be firm(s) of established national reputation) and (ii) all information that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. All such information and reports shall be delivered to the Holders of Notes on or prior to the dates on which such filings would have been required to be made had the Company been subject to the rules and regulations of the Commission. In addition, whether or not required by the rules and regulations of the Commission, the Company shall file a copy of all such information and reports with the Commission for public availability within the time periods specified in the Commission's rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company has agreed that, for so long as any Notes remain outstanding, they will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. 77 83 EVENTS OF DEFAULT AND REMEDIES The Indenture will provide that each of the following constitutes an Event of Default: (i) default for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the Notes, (ii) default in payment when due of the principal of or premium, if any, on the Notes; (iii) failure by the Company or any of its Restricted Subsidiaries to comply with the provisions described under the captions "-- Certain Covenants -- Restricted Payments," "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock," "-- Certain Covenants -- Merger, Consolidation or Sale of Assets," "-- Special Redemption," "-- Repurchase at the Option of Holders -- Asset Sales," "Repurchase at the Option of Holders -- Change of Control,"; (iv) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice to comply with any of its other agreements in the Indenture or the Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates without duplication $10 million or more and such default shall not have been cured or acceleration rescinded within five business days after such occurrences; (vi) failure by the Company or any of its Restricted Subsidiaries to pay final judgments aggregating in excess of $5 million (excluding amounts covered by insurance), which judgments are not paid, discharged or stayed for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries; and (viii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee (other than by reason of the termination of the Indenture or the release of any such Subsidiary Guarantee in accordance with the Indenture). If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest or Liquidated Damages) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest and Liquidated Damages, if any, on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 78 84 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No director, officer, employee, incorporator or stockholder of the Company or the Guarantors, as such, shall have any liability for any obligations of the Company under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest and Liquidated Damages, if any, on such Notes when such payments are due from the trust referred to below, (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest and Liquidated Damages, if any, on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any of its Restricted Subsidiaries is a party or by which the Company or any of its Restricted Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the 79 85 Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. SATISFACTION AND DISCHARGE The Indenture will be discharged and will cease to be of further effect as to all Notes issued thereunder, when (a) either (i) all such Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has heretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or (ii) all such Notes not theretofore delivered to such Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or will become due and payable within one year and the Company has irrevocably deposited or caused to be deposited with such Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; (b) no Default or Event of Default with respect to the Indenture or the Notes shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company is a party or by which the Company is bound; (c) the Company has paid or caused to be paid all sums payable by it under the Indenture; and (d) the Company has delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited money toward the payment of such Notes at maturity or the redemption date, as the case may be. In addition, the Company must deliver an Officers' Certificate and an opinion of counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. TRANSFER AND EXCHANGE A Holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed. The registered Holder of a Note will be treated as the owner of it for all purposes. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next two succeeding paragraphs, the Indenture, the Notes or the Subsidiary Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (i) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than provisions relating to the covenants described above under the caption "-- Repurchase at the Option of Holders"), (iii) reduce the 80 86 rate of or change the time for payment of interest or Liquidated Damages on any Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest or Liquidated Damages, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Note payable in money other than that stated in the Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest or Liquidated Damages, if any, on the Notes, (vii) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption "-- Repurchase at the Option of Holders") or (viii) make any change in the foregoing amendment and waiver provisions. In addition, any amendment to certain provisions of the Indenture which relate to subordination will require the consent of the Holders of at least 75% in aggregate principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders of Notes. Notwithstanding the foregoing, without the consent of any Holder of Notes, the Company and the Trustee may amend or supplement the Indenture, the Notes or the Subsidiary Guarantees to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of Notes in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act or to allow any Guarantor to guarantee the Notes. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. ADDITIONAL INFORMATION Anyone who receives this Offering Memorandum may obtain a copy of the Indenture without charge by writing to Imperial Holly Corporation, One Imperial Square, Suite 200, 8016 Highway 90-A, Sugar Land, Texas 77478, Attention: Corporate Secretary. BOOK-ENTRY, DELIVERY AND FORM The Old Notes held by Qualified Institutional Buyers are represented by one or more global notes in registered, global form without interest coupons (collectively, the "Rule 144A Global Note"). The Rule 144A Global Note initially will be deposited upon issuance with the Trustee as custodian for the Depositary, in New York, New York, and registered in the name of the Depositary or its nominee, in each case for credit to an account of a direct or indirect participant as described below. The Old Notes sold in offshore transactions in reliance on Regulation S under the Securities Act initially will be represented by one or more temporary global notes in registered, global form without interest coupons 81 87 (collectively, the "Regulation S Temporary Global Note"). The Regulation S Temporary Global Note will be registered in the name of a nominee of the Depositary for credit to the subscribers' respective accounts at the Euroclear System ("Euroclear") and Cedel Bank, S.A. ("CEDEL"). Beneficial interests in the Regulation S Temporary Global Note may be held only through Euroclear or CEDEL. Within a reasonable time period after the expiration of the period of 40 days commencing on the latest of the commencement of the Offering and the original date of the Indenture of the Old Notes (such period through and including such 40th day, the "Restricted Period"), the Regulation S Temporary Global Note will be exchanged for one or more permanent global notes (collectively, the "Regulation S Permanent Global Note" and, together with the Regulation S Temporary Global Note, the "Regulation S Global Note" (the Regulation S Global Note and the Rule 144A Global Note collectively being the "Global Old Notes")) upon delivery to the Depositary of certification of compliance with the transfer restrictions applicable to the Old Notes pursuant to Regulation S as provided in the Indenture. During the Restricted Period, beneficial interests in the Regulation S Temporary Global Note may be held only through Euroclear or CEDEL (as indirect participants in the Depository). See "-- Depositary Procedures -- Exchanges between Regulation S Notes and the Rule 144A Global Note." Beneficial interests in the Rule 144A Global Note may not be exchanged for beneficial interests in the Regulation S Global Note at any time except in the limited circumstances described below. See "-- Depositary Procedures -- Exchanges between Regulation S Notes and the Rule 144A Global Note." The Rule 144A Global Note (including beneficial interests in the Rule 144A Global Notes) will be subject to certain restrictions on transfer and will bear a restrictive legend as described under "Notice to Investors." In addition, transfer of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of the Depositary and its direct or indirect participants (including, if applicable, those of Euroclear and CEDEL), which may change from time to time. The Exchange Notes also will be issued in the form of one or more Global Notes (the "Global Exchange Notes" and, together with the Global Old Notes, the "Global Notes"). The Global Exchange Notes will be deposited on the original date of issuance of the Exchange Notes with, or on behalf of, DTC and registered in the name of Cede & Co., as nominee of DTC. Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of the Depositary or to a successor of the Depositary or its nominee. Beneficial interests in the Global Notes may not be exchanged for Notes in certificated form except in the limited circumstances described below. See "-- Depositary Procedures -- Exchange of Book-Entry Notes for Certificated Notes." The Notes may be presented for registration of transfer and exchange at the offices of the Registrar. DEPOSITARY PROCEDURES The Depositary has advised the Company that the Depositary is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of Participants. The Participants include securities brokers and dealers (including the Initial Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to the Depositary's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of the Depositary only through the Participants or Indirect Participants. The ownership interest and transfer of ownership interest of each actual purchaser of each security held by or on behalf of the Depositary are recorded on the records of the Participants and Indirect Participants. The Depositary has also advised the Company that pursuant to procedures established by it, (i) upon deposit of the Global Notes, the Depositary will credit the accounts of Participants designated by the Initial Purchasers with portions of the principal amount of Global Notes and (ii) ownership of such interests in the Global Notes will be shown on, and the transfer of ownership thereof will be effected only through, records 82 88 maintained by the Depositary (with respect to Participants) or by Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Notes). Investors in the Rule 144A Global Note may hold their interests therein directly through the Depositary, if they are Participants in such system, or indirectly through organizations (including Euroclear and CEDEL) that are Participants in such system. Investors in the Regulation S Global Note must initially hold their interests therein through Euroclear or CEDEL, if they are Participants in such systems, or indirectly through organizations that are Participants in such systems. After the expiration of the Restricted Period (but not earlier), investors may also hold interests in the Regulation S Global Note through organizations other than Euroclear and CEDEL that are Participants in the Depositary system. Euroclear and CEDEL will hold interests in the Regulation S Global Note on behalf of their Participants through customers' securities accounts in their respective names on the books of their respective depositories, which are Morgan Guaranty Trust Company of New York, Brussels office, as operator of Euroclear, and Citibank, N.A. as operator of CEDEL. The depositories, in turn, will hold such interests in the Regulations S Global Note in customers' securities accounts in the depositories' names on the books of the Depositary. All interests in a Global Note, including those held through Euroclear or CEDEL, may be subject to the procedures and requirements of the Depositary. Those interests held by Euroclear or CEDEL may also be subject to the procedures and requirements of such system. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interest in a Global Note to such persons may be limited to that extent. Because the Depositary can act only on behalf of Participants, which in turn act on behalf of Indirect Participants and certain banks, the ability of a person having a beneficial interest in a Global Note to pledge such interest to persons or entities that do not participate in the Depositary system, or otherwise take actions in respect of such interests, may be affected by the lack of physical certificate evidencing such interest. For certain other restrictions on the transferability of the Notes, see "-- Exchange of Book-Entry Notes for Certificated Notes" and "-- Exchanges between Regulation S Notes and the Rule 144A Global Note." EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS, OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE. Payments in respect of the principal and premium and Liquidated Damages, if any, and interest on a Global Note registered in the name of the Depositary or its nominee will be payable by the Trustee to the Depositary or its nominee in its capacity as the registered Holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee will treat the persons in whose names the Notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither the Company, the Trustee nor any agent of the Company or the Trustee has or will have any responsibility or liability for (i) any aspect of the Depositary's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interests in the Global Notes, or for maintaining, supervising or reviewing any of the Depositary's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Notes or (ii) any other matter relating to the actions and practices of the Depositary or any of its Participants or Indirect Participants. The Depositary has advised the Company that its current practices, upon receipt of any payment in respect of securities such as the Notes (including principal and interest and Liquidated Damages, if any), is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in principal amount of beneficial interests in the relevant security such as the Global Notes as shown on the records of the Depositary. Payments by Participants and the Indirect Participants to the beneficial owners of Notes will be governed by standing instructions and customary practices and will not be the responsibility of the Depositary, the Trustee or the Company. Neither the Company nor the Trustee will be liable for any delay by the Depositary or its Participants in identifying the beneficial owners of the Notes, and the Company and the Trustee may conclusively rely on and will be 83 89 protected in relying on instructions from the Depositary or its nominee as the registered owner of the Notes for all purposes. Except for trades involving only Euroclear and CEDEL Participants, interests in the Global Notes will trade in the Depositary's Same-Day Funds Settlement System and secondary market trading activity in such interests will, therefore, settle in immediately available funds, subject in all cases to the rules and procedures of the Depositary and its Participants. Transfers between Participants in the Depositary will be effective in accordance with the Depositary's procedures, and will be settled in same-day funds. Transfers between Participants in Euroclear and CEDEL will be effected in the ordinary way in accordance with their respective rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the Notes described herein, cross-market transfers between Participants in the Depositary, on the one hand, and Euroclear or CEDEL Participants, on the other hand, will be effected through the Depositary in accordance with the depository's rules on behalf of Euroclear or CEDEL, as the case may be, by its respective depository; however, such cross-market transactions will require delivery of instructions to Euroclear or CEDEL, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or CEDEL, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depository to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Note in the Depositary, and making or receiving payment in accordance with normal procedures for same-day fund settlement applicable to the Depositary. Euroclear Participants and CEDEL Participants may not deliver instructions directly to the depositories for Euroclear or CEDEL. Due to time zone differences, the securities accounts of a Euroclear or CEDEL Participant purchasing an interest in a Global Note from a Participant in the Depositary will be credited, and any such crediting will be reported to the relevant Euroclear or CEDEL Participant, during the securities settlement processing day (which must be a business day for Euroclear or CEDEL) immediately following the settlement date of the Depositary. Cash received in Euroclear or CEDEL as a result of sales of interests in a Global Note by or through a Euroclear or CEDEL Participant to a Participant in the Depositary will be received with value on the settlement date of the Depositary but will be available in the relevant Euroclear or CEDEL cash account only as of the business day for Euroclear or CEDEL following the Depositary's settlement date. The Depositary has advised the Company that it will take any action permitted to be taken by a Holder of Notes only at the direction of one or more Participants to whose account the Depositary interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of the Notes as to which such Participant or Participants has or have given direction. However, if there is an Event of Default under the Notes, the Depositary reserves the right to exchange Global Notes for legend Notes in certificated form, and to distribute such Notes to its Participants. The information in this section concerning the Depositary, Euroclear and CEDEL and their book-entry systems has been obtained from sources that the Company believes to be reliable, but the Company takes no responsibility for the accuracy thereof. Although the Depositary, Euroclear and CEDEL have agreed to the foregoing procedures to facilitate transfers of interests in the Regulation S Global Note and in the Rule 144A Global Note among Participants in the Depositary, Euroclear and CEDEL, they are under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. None of the Company, the Initial Purchasers or the Trustee will have any responsibility for the performance by the Depositary, Euroclear or CEDEL or their respective Participants or Indirect Participants of their respective obligations under the rules and procedures governing their operations. EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES. A Global Note is exchangeable for definitive Notes in registered certificated form if (i) the Depositary (A) notifies the Company that it is unwilling or unable to continue as depository for the Global Note and the Company thereupon fails to appoint a successor depository or (B) has ceased to be a clearing agency registered under the Exchange Act or (ii) the Company, 84 90 at its option, notifies the Trustee in writing that it elects to cause issuance of the Notes in certificated form. In addition, beneficial interests in a Global Note may be exchanged for certificated Notes upon request but only upon at least 20 days prior written notice given to the Trustee by or on behalf of the Depositary in accordance with customary procedures. In all cases, certificated Notes delivered in exchange for any Global Note or beneficial interest therein will be registered in names, and issued in any approved denominations, requested by or on behalf of the Depositary (in accordance with its customary procedures) and will bear, in the case of the Rule 144A Global Note, the restrictive legend referred to in "Notice to Investors" and, in the case of the Regulation S Global Note, the legend set forth in bold type on the cover of this Offering Memorandum, in each case, unless the Company determines otherwise in compliance with applicable law. \EXCHANGES BETWEEN REGULATION S NOTES AND THE RULE 144A GLOBAL NOTE. Prior to the expiration of the Restricted Period, a beneficial interest in a Regulation S Global Note may not be transferred to a U.S. person. Thereafter, such transfers will be permitted on the terms specified in the Indenture. Beneficial interests in Rule 144A Global Notes may be transferred to a person who takes delivery in the form of an interest in Regulation S Global Notes, whether before or after the expiration of the Restricted Period, only if the transferor first delivers to the Trustee a written certificate to the effect that such transfer is being made in accordance with Rule 903 or 904 of Regulation S and that, if such transfer occurs prior to the expiration of the Restricted Period, the interest transferred will be held immediately thereafter through Euroclear and CEDEL. Any beneficial interest in one of the Old Global Notes that is transferred to a person who takes delivery in the form of an interest in another Old Global Note will, upon transfer, cease to be an interest in such Old Global Note and become an interest in such other Old Global Note, and accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other Old Global Note for as long as it remains such an interest. Transfers involving an exchange of a beneficial interest in the Regulation S Global Note for a beneficial interest in the Rule 144A Global Note or vice versa will be effected by the Depositary by means of an instruction originated by the Trustee through the Depositary/Deposit Withdraw at Custodian system. Accordingly, in connection with such transfer, appropriate adjustments will be made to reflect a decrease in the principal amount of the Regulation S Global Note and a corresponding increase in the principal amount of the Rule 144A Global Note or vice versa, as applicable. CERTIFICATED NOTES. Subject to certain conditions, any person having a beneficial interest in the Global Note may, upon request to the Trustee, exchange such beneficial interest for Notes in the form of certificated Notes. Upon any such issuance, the Trustee is required to register such certificated Notes in the name of, and cause the same to be delivered to, such person or persons (or the nominee of any thereof). All such certificated Old Notes would be subject to the legend requirements described herein under "Notice to Investors." In addition, if (i) the Company notifies the Trustee in writing that the Depositary is no longer willing or able to act as a depository and the Company is unable to locate a qualified successor within 90 days or (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Notes in the form of certificated Notes under the Indenture, then, upon surrender by the Global Note Holder of its Global Note, Notes in such form will be issued to each person that the Global Note Holder and the Depositary identify as being the beneficial owner of the related Notes. Neither the Company nor the Trustee will be liable for any delay by the Global Note Holder or the Depositary in identifying the beneficial owners of Notes and the Company and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the Global Note Holder or the Depositary for all purposes. SAME DAY SETTLEMENT AND PAYMENT. The Indenture will require that payments in respect of the Notes represented by the Global Note (including principal, premium, if any, interest and Liquidated Damages, if any) be made by wire transfer of immediately available funds to the accounts specified by the Global Note Holder. With respect to certificated Notes, the Company will make all payments of principal, premium, if any, interest and Liquidated Damages, if any, by wire transfer of immediately available funds to the accounts 85 91 specified by the Holders thereof or, if no such account is specified, by mailing a check to each such Holder's registered address. The Company expects that secondary trading in the certificated Notes will also be settled in immediately available funds. REGISTRATION RIGHTS; LIQUIDATED DAMAGES The Company, the Guarantors and the Initial Purchasers will enter into the Registration Rights Agreement on or prior to the Closing Date. Pursuant to the Registration Rights Agreement, the Company will agree to file with the Commission the Exchange Offer Registration Statement on the appropriate form under the Securities Act with respect to the Exchange Notes. Upon the effectiveness of the Exchange Offer Registration Statement, the Company will offer pursuant to the Exchange Offer to the Holders of Transfer Restricted Securities who are able to make certain representations the opportunity to exchange their Transfer Restricted Securities for Exchange Notes. If (i) the Company is not required to file the Exchange Offer Registration Statement or permitted to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy or (ii) any Holder of Transfer Restricted Securities notifies the Company within 20 business days following consummation of the Exchange Offer that (A) it is prohibited by law or Commission policy from participating in the Exchange Offer or (B) it may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales or (C) that it is a broker-dealer and owns Notes acquired directly from the Company or an affiliate of the Company, the Company will file with the Commission a Shelf Registration Statement to cover resales of the Notes by the Holders thereof who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement. The Company will use its best efforts to cause the applicable registration statement to be declared effective as promptly as possible by the Commission. For purposes of the foregoing, "Transfer Restricted Securities" means each Note until (i) the date on which such Note has been exchanged by a person other than a broker-dealer for a Exchange Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange Offer of a Note for a Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Note is distributed to the public pursuant to Rule 144 under the Securities Act. The Registration Rights Agreement will provide that (i) the Company will file an Exchange Offer Registration Statement with the Commission on or prior to 60 days after the Closing Date, (ii) the Company will use its best efforts to have the Exchange Offer Registration Statement declared effective by the Commission on or prior to 120 days after the Closing Date, (iii) unless the Exchange Offer would not be permitted by applicable law or Commission policy, the Company will commence the Exchange Offer and use its best efforts to issue on or prior to 30 business days after the date on which the Exchange Offer Registration Statement was declared effective by the Commission, Exchange Notes in exchange for all Notes tendered prior thereto in the Exchange Offer and (iv) if obligated to file the Shelf Registration Statement, the Company will use its best efforts to file the Shelf Registration Statement with the Commission on or prior to 60 days after such filing obligation arises (and in any event within 120 days after the Closing Date) and to cause the Shelf Registration to be declared effective by the Commission on or prior to 60 days after the date upon which the Company is obligated to make such filing. If (a) the Company fails to file any of the Registration Statements required by the Registration Rights Agreement on or before the date specified for such filing, (b) any of such Registration Statements is not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"), or (c) the Company fails to consummate the Exchange Offer within 30 business days of the Effectiveness Target Date with respect to the Exchange Offer Registration Statement, or (d) the Shelf Registration Statement or the Exchange Offer Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with resales of Transfer Restricted Securities during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (a) through (d) above a "Registration Default"), then the Company will pay Liquidated Damages to each Holder of Notes, with respect to the first 90-day period immediately 86 92 following the occurrence of such Registration Default in an amount equal to $0.05 per week per $1,000 principal amount of Notes held by such Holder. The amount of the Liquidated Damages will increase by an additional $0.05 per week per $1,000 principal amount of Notes with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Liquidated Damages of $0.50 per week per $1,000 principal amount of Notes. All accrued Liquidated Damages will be paid by the Company on each Damages Payment Date to the Global Note Holder by wire transfer of immediately available funds or by federal funds check and to Holders of Certificated Securities by wire transfer to the accounts specified by them or by mailing checks to their registered addresses if no such accounts have been specified. Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease. Holders of Notes will be required to make certain representations to the Company (as described in the Registration Rights Agreement) in order to participate in the Exchange Offer and will be required to deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have their Notes included in the Shelf Registration Statement and benefit from the provisions regarding Liquidated Damages set forth above. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "ACQUIRED DEBT" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "ASSET SALE" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than in the ordinary course of business consistent with past practices (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the covenants described above under the captions "-- Repurchase at the Option of Holders -- Change of Control" and "-- Certain Covenants -- Merger, Consolidation, or Sale of Assets" and not by the provisions of the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales"), and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $2 million or (b) for Net Proceeds in excess of $2 million. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Restricted Subsidiary of the Company or by a Restricted Subsidiary of the Company to the Company or to a Restricted Subsidiary of the Company, (ii) an issuance or sale of Equity Interests by a Restricted Subsidiary of the Company to the Company or to another Restricted Subsidiary of the Company, (iii) (A) a Permitted Investment or (B) a Restricted Payment that is permitted by the covenant described above under the caption " -- Restricted Payments" and (iv) the sale or other disposition of any portion of the Marketable Securities Portfolio that is reinvested in the Marketable Securities Portfolio within three days after the consummation of such sale or disposition, will not be deemed to be Asset Sales. 87 93 "BOARD OF DIRECTORS" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "CAPITAL STOCK" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participation, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CASH EQUIVALENTS" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit and Eurodollar time deposits with maturities of not more than one year from the date of acquisition, bankers' acceptances with maturities of not more than one year from the date of acquisition and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Rating Group with maturities of not more than one year from the date of acquisition. "CCC LOANS" means loans made to the Company and its Restricted Subsidiaries to finance their acquisition of sugar under loan programs extended by the Commodity Credit Corporation for which recourse is limited to the acquired sugar. "CHANGE OF CONTROL" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group") together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of the Indenture) unless immediately following such sale, lease, exchange or other transfer in compliance with the Indenture such assets are owned, directly or indirectly, by the Company or a Wholly Owned Subsidiary of the Company; (ii) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of the Indenture); (iii) the acquisition in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of Voting Securities of the Company by any Person or Group that either (A) beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, at least 50% of the Company's then outstanding voting securities entitled to vote on a regular basis for the board of directors of the Company, or (B) otherwise has the ability to elect, directly or indirectly, a majority of the members of the Company's board of directors, including, without limitation, by the acquisition of revocable proxies for the election of directors; or (iv) the first day on which a majority of the members of the Company's board of directors are not Continuing Directors. Notwithstanding clause (iii) above, the acquisition in one or more transactions, of beneficial ownership of up to 65% of the Company's then outstanding Voting Securities by a Person or Group consisting of the Permitted Holders shall not constitute a Change of Control (unless directly or indirectly (x) such acquisition has a reasonable likelihood or a purpose of causing such Voting Securities to be or (y) following such acquisition, such Voting Securities are (A) held of record by less than 300 persons or (B) neither listed on any national securities exchange nor authorized to be quoted on an inter-dealer quotation system of any registered national securities association "COMMODITY HEDGING OBLIGATIONS" means, with respect to any Person, the net payment Obligations of such Person under agreements or arrangements designed to protect such Person against fluctuations in the price of (i) natural gas, heating fuels, electricity and other sources of energy or power used in the Company's 88 94 sugar refining or processing operations or (ii) refined or raw sugar, in either case in connection with the conduct of its business and not for speculative purposes and consistent with past practices. "CONSOLIDATED CASH FLOW" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary, unusual or non-recurring expenses or losses (including, whether or not otherwise includable as a separate item in the statement of Consolidated Net Income for such period, losses on sales of assets outside of the ordinary course of business) plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation and amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation and amortization were deducted in computing such Consolidated Net Income, minus (v) non-cash items increasing such Consolidated Net Income for such period, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Restricted Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) that the Net Income of such Restricted Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Restricted Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Restricted Subsidiary or its stockholders. "CONSOLIDATED NET INCOME" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries (for such period, on a consolidated basis, determined in accordance with GAAP); provided that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Restricted Subsidiary, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, and (iv) the cumulative effect of a change in accounting principles shall be excluded. "CONSOLIDATED NET WORTH" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Restricted Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the 89 95 acquisition of such business) subsequent to the date of the Indenture in the book value of any asset owned by such Person or a consolidated Restricted Subsidiary of such Person, (y) all investments as of such date in unconsolidated Restricted Subsidiaries and in Persons that are not Restricted Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "CONSOLIDATED TANGIBLE ASSETS" means, with respect to any Person as of any date, the amount which, in accordance with GAAP, would be set forth under the caption "Total Assets" (or any like caption) on a consolidated balance sheet of such Person and its Restricted Subsidiaries, less all intangible assets, including, without limitation, goodwill, organization costs, patents, trademarks, copyrights, franchises and research and development costs. "CONTINUING DIRECTOR" means, as of any date of determination, any member of the Company's board of directors who (i) was a member of the Company's board of directors on the date of the Indenture or (ii) was nominated for election or elected to such board of directors with the approval of a majority of the Continuing Directors who were members of such board of directors at the time of such nomination or election. "CREDIT FACILITY" means, with respect to the Company or any Restricted Subsidiary, one or more debt facilities (including, without limitation, the Senior Credit Facility) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, other borrowings (including term loans), receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "DATE OF THE INDENTURE" means the date on which the Notes of the first series of Notes issued under the Indenture are first issued and delivered. "DEFAULT" means any event that is or with the passage of time or the giving of notice (or both) would be an Event of Default. "DESIGNATED SENIOR DEBT" means (i) any Indebtedness outstanding under the Senior Credit Facility and (ii) any other Senior Debt permitted hereunder the principal amount of which is $25 million or more and that has been designated by the Company as "Designated Senior Debt." "DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature, except to the extent that such Capital Stock is solely redeemable with, or solely exchangeable for, any Capital Stock of such Person that is not Disqualified Stock. "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "EQUITY OFFERING" means any primary offering of the Voting Stock (other than Disqualified Stock) of the Company; provided, however, that the proceeds net of any underwriting discount and commission and other expenses to the Company from any such offering shall be at least $25 million. "EXCHANGE NOTES" means notes registered under the Securities Act that are issued under the Indenture in exchange for the Notes pursuant to the Exchange Offer. "EXISTING INDEBTEDNESS" means up to $41,310,000 in aggregate principal amount of Indebtedness of the Company and its Restricted Subsidiaries (other than Indebtedness under the Senior Credit Facility and the Notes) in existence on the date of the Indenture, until such amounts are repaid. "FINANCIAL HEDGING OBLIGATIONS" means, with respect to any Person, the net payment Obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in 90 96 interest rates or currency exchange rates in connection with the conduct of its business and not for speculative purposes and consistent with past practices. "FIXED CHARGES" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period, (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv) the product of (a) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock), times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit borrowings under any Credit Facility) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, the statements and pronouncements of the Financial Accounting Standards Board and such other statements by such other entities as have been approved by a significant segment of the accounting profession, which are applicable at the date of determination. "GUARANTEE" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof or pledging assets to secure), of all or any part of any Indebtedness. "GUARANTORS" means (i) each of (a) Biomass Corporation; (b) Dixie Crystals Brands, Inc.; (c) Dixie Crystals Foodservice, Inc.; (d) King Packaging Company, Inc.; (e) Food Carrier, Inc.; (f) Michigan Sugar 91 97 Company; (g) Great Lakes Sugar Company; (h) Savannah Foods Industrial, Inc.; (i) Phoenix Packaging Corporation; (j) Savannah Investment Company; (k) Savannah Sugar Refining Corporation; (l) Holly Sugar Corporation; (m) Imperial Sweetener Distributors, Inc.; (n) Fort Bend Utilities Company; (o) Limestone Products Company; (p) Holly Northwest Company; (q) Crown Express Inc.; and (r) Savannah Foods & Industries, Inc., (ii) each of the Company's Restricted Subsidiaries which becomes a guarantor of the Notes pursuant to the covenant described above under "-- Certain Covenants -- Additional Subsidiary Guarantees" and (iii) each of the Company's Restricted Subsidiaries executing a supplemental indenture in which such Restricted Subsidiary agrees to be bound by the terms of the Indenture; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective Subsidiary Guarantee is released in accordance with the terms thereof. "HEDGING OBLIGATIONS" means, with respect to any Person, collectively, the Commodity Hedging Obligations of such Person and the Financial Hedging Obligations of such Person. "INDEBTEDNESS" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Financial Hedging Obligations or Commodity Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the guarantee by such Person of any Indebtedness of any other Person, and any liability, whether or not contingent, whether or not it appears on the balance sheet of such Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness that does not require current payments of interest, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "INDEPENDENT FINANCIAL ADVISOR" means a nationally recognized accounting, appraisal or investment banking firm that is, in the reasonable judgment of the Board of Directors, qualified to perform the task for which such firm has been engaged hereunder and disinterested and independent with respect to the Company and its Affiliates; provided, that providing accounting, appraisal or investment banking services to the Company or any of its Affiliates or having an employee, officer or other representative serving as a member of the Board of Directors of the Company or any of its Affiliates will not disqualify any firm from being an Independent Financial Advisor. "INVESTMENTS" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other Obligations), advances or capital contributions (excluding commission, travel and entertainment, moving, and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any of its Restricted Subsidiaries sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a direct or indirect Subsidiary of the Company, the Company, or such Restricted Subsidiary, as the case may be, shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the fourth paragraph of the covenant described above under the caption "-- Certain Covenants -- Restricted Payments." "LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in any asset and any filing of or 92 98 agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "MARKETABLE SECURITIES" means publicly traded debt and equity securities of a type consistent with those held in the Marketable Securities Portfolio on the date of the Indenture. "MARKETABLE SECURITIES PORTFOLIO" means publicly traded debt and equity securities maintained in the portfolio of the Company and its Restricted Subsidiaries, having an aggregate fair market value on the date of the Indenture not to exceed $60 million. "MERGER AGREEMENT" means the Agreement and Plan of Merger, dated as of September 12, 1997, among Imperial Holly Corporation, IHK Merger Sub Corporation and Savannah Foods & Industries, Inc. "NET INCOME" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "NET PROCEEDS" means the aggregate cash proceeds or Cash Equivalents received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting, investment banking and brokers fees, and sales and underwriting commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness (other than Indebtedness under any Credit Facility) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "NON-RECOURSE INDEBTEDNESS" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries, (a) provides any guarantee or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable (as a guarantor or otherwise), (ii) the incurrence of which will not result in any recourse against any of the assets of the Company or its Restricted Subsidiaries, and (iii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare pursuant to the express terms governing such Indebtedness a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. "OBLIGATIONS" means any principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company or its Restricted Subsidiaries whether or not a claim for post-filing interest is allowed in such proceeding), penalties, fees, charges, expenses, indemnifications, reimbursement obligations, damages (including Liquidated Damages), guarantees (including the Subsidiary Guarantees) and other liabilities or amounts payable under the documentation governing any Indebtedness or in respect thereof. "PERMITTED BUSINESS" means the lines of business conducted by the Company on the date hereof and businesses reasonably related or incidental thereto or which is a reasonable extension thereof. "PERMITTED HOLDERS" means the descendants of H. Kempner, a Galveston entrepreneur who died in 1894, or trusts controlled by or for the benefit of the descendants of H. Kempner. 93 99 "PERMITTED INVESTMENTS" means (a) any Investment in the Company or in a Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents or deposit accounts maintained in the ordinary course of business consistent with past practices; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Restricted Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; (d) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "-- Repurchase at the Option of Holders -- Asset Sales"; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (f) any Investment received in settlement of debts, claims or disputes owed to the Company or any Restricted Subsidiary of the Company that arose out of transactions in the ordinary course of business; (g) any Investment received in connection with or as a result of a bankruptcy, workout or reorganization of any Person; (h) advances and extensions of credit in the nature of accounts receivable arising from the sale or lease of goods or services or the licensing of property in the ordinary course of business; (i) other Investments by the Company or any Restricted Subsidiary of the Company in any Person having an aggregate fair market value (measured as of the date each such Investment is made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (i) (net of returns of capital, dividends and interest paid on Investments and sales, liquidations and redemptions of Investments), not to exceed $10 million; (j) Investments in the form of intercompany Indebtedness or Guarantees of Indebtedness of a Restricted Subsidiary of the Company permitted under clauses (v) and (xi) of the covenant described under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock;" (k) Investments arising in connection with Financial Hedging Obligations or Commodity Hedging Obligations that are incurred in the ordinary course of business for the purpose of fixing or hedging currency, commodity or interest rate risk (including with respect to any floating rate Indebtedness that is permitted by the terms of the Indenture to be outstanding) in connection with the conduct of the business of the Company and its Subsidiaries and not for speculative purposes and consistent with past practices; (1) any Investment in the Marketable Securities Portfolio existing as of the date of the Indenture and future purchases of and reinvestment in Marketable Securities from the proceeds (net of taxes, commissions and other costs and expenses) of dividends and interest and other distributions from and in respect of the Marketable Securities Portfolio and sales and other transfers of Marketable Securities in the Marketable Securities Portfolio; and (m) any Investments by the Company or any Restricted Subsidiary of the Company in Unrestricted Subsidiaries or Permitted Joint Ventures made after the date of the Indenture having an aggregate fair market value, when taken together with all other Investments made pursuant to this clause (m) (net of returns of capital, dividends and interest paid on Investments and sales, liquidations and redemptions of Investments) not exceeding in the aggregate 5% of the Consolidated Tangible Assets of the Company as of the last day of the most recent full fiscal quarter ending immediately prior to the date of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value.) "PERMITTED JOINT VENTURE" means any corporation, limited liability company, joint venture, partnership or other business entity designated by the Board of Directors, and until designation by the Board of Directors to the contrary, (i) which is engaged in a Permitted Business and (ii) of which 50% or less of the Capital Stock with voting power under ordinary circumstances to elect directors (or Persons having similar or corresponding powers and responsibilities) is at the time owned (beneficially, directly or indirectly) by the Company and its Restricted Subsidiaries. Any such designation or designation to the contrary shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "PERMITTED JUNIOR SECURITIES" means (i) Equity Interests in the Company or any Guarantor which, to the extent received by any Holder in connection with any bankruptcy, reorganization, insolvency or similar proceeding in which any Equity Interests are also exchanged for or distributed in respect of Senior Debt, are either common equity securities or are subordinated to all such Equity Interests so exchanged or distributed to 94 100 substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to the Indenture, and (ii) debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to the Indenture. "PERMITTED LIENS" means (i) Liens on assets of the Company or its Restricted Subsidiaries that secure Senior Debt permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of the Company or any Guarantor; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (iv) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (v) Liens existing on the date of the Indenture and any extensions or renewals thereof, provided that such extension or renewal of such Liens does not extend to or cover any other property or assets of the Company or any Restricted Subsidiary; (vi) statutory Liens (other than any Lien imposed by ERISA) or landlords and carriers', warehouseman's, mechanics', suppliers', materialmen's, repairmen's or other like Liens arising in the ordinary course of business; (vii) Liens for taxes, assessments, government charges or claims not yet due and payable or which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if a reserve or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made therefor; (viii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (ix) Liens created or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance and return-of-money bonds and other obligations of a like nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (x) easements, rights-of-way, restrictions and other similar charges or encumbrances not interfering in any material respect with the business of the Company or any Restricted Subsidiary incurred in the ordinary course of business; (xi) any attachment or judgment Lien, unless the judgment it secures shall not, within 60 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 60 days after the expiration of any such stay; (xii) any other Liens imposed by operation of law which do not materially affect the Company's or any Guarantor's ability to perform its obligations under the Notes, the Subsidiary Guarantees and the Indenture; (xiii) rights of banks to set off deposits against debts owed to said bank; (xiv) Liens upon specific items of inventory or other goods and proceeds of the Company or its Restricted Subsidiaries securing the Company's or any Restricted Subsidiary's obligations in respect of bankers' acceptances issued or created for the account of any such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (xv) Liens securing reimbursement obligations with respect to letters of credit which encumber documents and other property relating to such letters of credit and the products and proceeds thereof entered into in the ordinary course of business consistent with past practices; (xvi) Liens securing Indebtedness that is pari passu in right of payment with the Notes, provided that the Notes are equally and ratably secured; (xvii) Liens to secure any Permitted Refinancing Indebtedness incurred to refinance any Indebtedness secured by any Lien referred to in the foregoing clauses (i), (iii), (iv), (v) and (xvi), provided, however, that such new Lien shall be limited to all or part of the same property that secured the original Lien (provided that such Liens may extend to after-acquired property, including any assets or Capital Stock of any subsequently formed or acquired Subsidiary, if such original Lien included such property or assets as collateral), (xviii) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (vi) of the second paragraph of the covenant described above under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" covering only the assets acquired with such Indebtedness, together with any additions and accessions thereto and replacements, substitutions and proceeds (including insurance proceeds) thereof; (xix) Liens in favor of customs and revenue authorities to secure payment of customs duties in connection with the importation of goods in the ordinary course of business and other similar Liens arising in the ordinary course of business, (xx) leases or subleases granted to third Persons in ordinary course of business consistent with past practices not interfering with the ordinary course of business of the Company or its Restricted 95 101 Subsidiaries; (xxi) deposits made in the ordinary course of business to secure liability to insurance carriers, and Liens on the proceeds of insurance granted to insurance carriers solely to secure the payment of financed premiums; (xxii) Liens in favor of a trustee under any indenture securing amounts due to the trustee in connection with its services under such indenture; (xxiii) Liens under licensing agreements for use of intellectual property entered into in the ordinary course of business; (xxiv) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $10 million at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Restricted Subsidiary and (xxv) any attachment or judgment Lien not constituting an Event of Default under clause (vi) of the first paragraph of the section described under the caption "-- Events of Default and Remedies." "PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued and unpaid interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or a Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "PERSON" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, limited liability company, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "REGULATION S" means Regulation S promulgated under the Securities Act. "REPRESENTATIVE" means the administrative agent under the Senior Credit Facility or its successor thereunder or any other agent or representative on behalf of the holders of Designated Senior Debt. "RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment. "RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referenced Person that is not an Unrestricted Subsidiary; provided that, on the date of the Indenture, all Subsidiaries of the Company (other than Holly Finance Company) shall be Restricted Subsidiaries of the Company. "RULE 144A" means Rule 144A promulgated under the Securities Act. "SENIOR CREDIT FACILITY" means that certain Senior Credit Facility, dated as of December 22, 1997, by and among the Company, Lehman Brothers, as Arranger, Lehman Brothers Commercial Paper Inc., (as Syndication Agent), and Harris Trust and Savings Bank (as Administrative Agent and Collateral Agent) providing for up to $255 million of term loan borrowings and $200 million of revolving credit borrowings and letters of credit in each case, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith and in each case as amended, modified, renewed, restated, refunded, replaced or refinanced from time to time and any agreement (and related documents) governing Indebtedness incurred to refund or refinance credit extensions and commitments then outstanding or permitted to be outstanding under such Senior Credit Facility or a successor Credit Facility, whether by the 96 102 same or any other lender or group of lenders. The Company shall promptly notify the Trustee of any other lender or group of lenders. The Company shall promptly notify the Trustee of any such refunding or refinancing of the existing Senior Credit Facility. "SENIOR DEBT" means (i) indebtedness of the Company or any Guarantor for money borrowed and all obligations, whether direct or indirect, under guarantees, letters of credit, foreign currency or interest rate swaps, foreign exchange contracts, caps, collars, options, hedges or other agreements or arrangements designed to protect against fluctuations in currency values or interest rates, other extensions of credit, expenses, fees, reimbursements, indemnities and all other amounts (including interest at the contract rate accruing on or after the filing of any petition in bankruptcy or reorganization relating to the Company or any Guarantor whether or not a claim for post-filing interest is allowed in such proceeding) owed by the Company or any Guarantor under, or with respect to, the Senior Credit Facility or any other Credit Facility, (ii) the principal of and premium, if any, and accrued and unpaid interest, whether existing on the date hereof or hereafter incurred, in respect of (A) indebtedness of the Company or any Guarantor for money borrowed, (B) guarantees by the Company or any Guarantor of indebtedness for money borrowed by any other person, (C) indebtedness evidenced by notes, debentures, bonds, or other instruments of indebtedness for the payment of which the Company or any Guarantor is responsible or liable, by guarantees or otherwise, (D) obligations of the Company or any Guarantor for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (E) obligations of the Company or any Guarantor under any agreement to lease, or any lease of, any real or personal property which, in accordance with GAAP, is classified on the Company's or any Guarantor's consolidated balance sheet as a liability, and (F) obligations of the Company or any Guarantor under interest rate swaps, caps, collars, options and similar arrangements and commodity or foreign currency hedges and (iii) modifications, renewals, extensions, replacements, refinancings and refundings of any such indebtedness, obligations or guarantees, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is expressly provided that such indebtedness, obligations or guarantees, or such modifications, renewals, extensions, replacements, refinancings or refundings thereof, are not superior in right of payment to the Notes; provided that Senior Debt will not be deemed to include (a) any obligation of the Company or any Guarantor to any Subsidiary or other Affiliate, (b) any liability for federal, state, local or other taxes owed or owing by the Company or any Guarantor, (c) any accounts payable or other liability to trade creditors, (d) any Indebtedness, guarantee or obligation of the Company or any Guarantor which is expressly subordinate or junior by its terms in right of payment to any other Indebtedness, guarantee or obligation of the Company or any Guarantor, (e) that portion of any Indebtedness incurred in violation of the covenant described above under the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" (other than Indebtedness incurred under a Credit Facility if prior to the incurrence thereof or, in the case of contingent obligations such as letters of credit pursuant to which such Indebtedness is incurred, prior to the issuance thereof or agreement to extend credit in respect thereof, the Company has certified to the lenders under such Credit Facility that the such incurrence or extension of credit does not violate such covenant) or (f) Indebtedness of the Company or any Guarantor which is classified as non-recourse in accordance with GAAP or any unsecured claim arising in respect thereof by reason of the application of section 1111(b)(1) of the Bankruptcy Code. "SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the Indenture. "STATED MATURITY" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "SUBSIDIARY" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person and (ii) any partnership (a) the sole general partner 97 103 or the managing general partner of which is such Person or an entity described in clause (i) and related to such Person or (b) the only general partners of which are such Person or of one or more entities described in clause (i) and related to such Person (or any combination thereof). "SUBSIDIARY GUARANTEE" means the guarantee of the Notes by each of the Guarantors pursuant to Article 11 of the Indenture and in the form of guarantee endorsed on the form of Note attached as Exhibit A to the Indenture and any additional guarantee of the Notes to be executed by any Restricted Subsidiary of the Company pursuant to the covenant described above under the caption "-- Certain Covenants -- Additional Subsidiary Guarantees." "UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) that is designated by the Board of Directors as an Unrestricted Subsidiary and (ii) each of its Subsidiaries at the time of designation and thereafter, (a) have no Indebtedness other than Non-Recourse Indebtedness; (b) are not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained, in light of all the circumstances, at the time from Persons who are not Affiliates of the Company; (c) are Persons with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Persons' financial condition or to cause such Persons to achieve any specified levels of operating results; (d) have not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries and (e) do not own any Capital Stock of or own or hold any Lien on any property of, the Company or any Restricted Subsidiary of the Company. "VOTING STOCK" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "WHOLLY OWNED SUBSIDIARY" means a Subsidiary, 100% of the outstanding Capital Stock and other Equity Interests of which is directly or indirectly owned by the Company. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following sets forth a summary of the material anticipated federal income tax consequences expected to result to holders from the Exchange Offer and from the purchase, ownership and disposition of the Exchange Notes. The tax consequences of these transactions are uncertain. The discussion of the federal income tax consequences set forth below is based upon the Internal Revenue Code of 1986, as amended (the "Code"), and judicial decisions and administrative interpretations thereunder, as of the date hereof, and such authorities may be repealed, revoked, modified or otherwise interpreted or applied so as to result in federal income tax consequences different from those discussed below. There can be no assurance that the Internal Revenue Service (the "IRS") will not challenge one or more of the tax consequences described herein, and the Company has not obtained, nor does it intend to obtain, a ruling from the IRS or an opinion of counsel with respect to the United States federal income tax consequences of acquiring or holding Exchange Notes. As used herein, United States Holders means (i) citizens or residents (within the meaning of Section 7701(b) of the Code) of the United States, (ii) corporations, partnerships or other entities created in or under the laws of the United States or any political subdivision thereof, (iii) estates, the income of which is subject to United States federal income taxation regardless of its source, and (iv) in general, trusts subject to 98 104 the primary supervision of a court within the United States and the control of a United States person as described in Section 7701(a)(30) of the Code. This discussion does not purport to deal with all aspects of United States federal income taxation that may be relevant to a particular Holder in light of the Holder's circumstances (for example, persons subject to the alternative minimum tax provisions of the Code). Also, it is not intended to be wholly applicable to all categories of investors, some of which (such as dealers in securities, banks, insurance companies, tax-exempt organizations, and persons holding Exchange Notes as part of a hedging or conversion transaction or straddle or persons deemed to sell Exchange Notes under the constructive sale provisions of the Code) may be subject to special rules. The discussion below is premised upon the assumption that the Exchange Notes and Old Notes constitute indebtedness for U.S. federal income tax purposes, and that the Old Notes and Exchange Notes are held (or would be held if acquired) as capital assets within the meaning of Section 1221 of the Code. This summary does not discuss the tax considerations applicable to subsequent purchasers. The discussion also does not discuss any aspect of state, local or foreign law, nor federal estate and gift tax law. EXCHANGE OF NOTES The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer should not be a taxable exchange for United States federal income tax purposes. Accordingly, a holder should have the same adjusted issue price, adjusted basis and holding period in the Exchange Notes as it had in the Old Notes immediately before the exchange. STATED INTEREST The Exchange Notes will be issued without original issue discount. Stated interest on the Old Notes and Existing Notes will be includable in the holder's income under such holder's method of accounting. BOND PREMIUM Generally, if the Exchange Notes are purchased, or if the Old Notes were purchased, for an amount in excess of the amount payable at the maturity date (or a call date, if appropriate) of the Exchange Notes, such excess will constitute amortizable bond premium that the holder may elect to amortize under the constant interest method over the period from the date of acquisition to the date of maturity (or until an earlier call date). If bond premium is amortized, the amount required to be included in the holder's income each year with respect to interest on the Note will be reduced by the amount of amortizable bond premium allocable to such year. An election to amortize bond premium is available only if the Exchange Notes are held as capital assets. This election is revocable only with the consent of the IRS and applies to all obligations owned or subsequently acquired by the holder. To the extent the excess is deducted as amortizable bond premium, the holder's adjusted tax basis in the Exchange Notes will be reduced. MARKET DISCOUNT ON THE EXCHANGE NOTES To the extent a holder had market discount with respect to an Old Note, the holder generally will have market discount with respect to an Exchange Note. Any principal payment or gain realized by a holder on disposition or retirement of an Exchange Note will be treated as ordinary income to the extent that there is accrued market discount on the Exchange Note. Unless a holder elects to accrue under a constant-interest method, accrued market discount is the total market discount multiplied by a fraction, the numerator of which is the number of days the holder has held the obligation and the denominator of which is the number of days from the date the holder acquired the obligation under its maturity. A holder may be required to defer a portion of its interest deductions for the taxable year attributable to any indebtedness incurred or continued to purchase or carry an Exchange Note purchased with market discount. Any such deferred interest expense would not exceed the market discount that accrues during such taxable year and is, in general, allowed as a deduction not later than the year in which such market discount is includable in income. If the holder elects to include market discount in income currently as it accrues on all market discount instruments acquired by the holder in that taxable year or thereafter, the interest deferral rule described above will not apply. 99 105 SALE, EXCHANGE OR RETIREMENT OF THE EXCHANGE NOTES Upon the sale, exchange or retirement of an Exchange Note, the holder generally will recognize gain or loss equal to the difference between the amount realized on the sale, exchange or retirement (which does not include any amount attributable to accrued but unpaid interest) and the holder's adjusted tax basis in the Exchange Note. A holder's adjusted tax basis in an Exchange Note will generally equal the holder's adjusted basis for the Old Note exchanged therefor increased by any market discount previously included in income by such holder with respect to such Exchange Note and decreased by any payments received thereon that are not qualified stated interest and the amount of any amortizable bond premium applied to reduce interest on the Exchange Note. Gain or loss realized on the sale, exchange or retirement of an Exchange Note will be capital (subject to the market discount rules, discussed above), and will be long-term if at the time of sale, exchange or retirement the Exchange Note has been held or deemed held for more than one year. On August 5, 1997, legislation was enacted which, among other things, reduces to 20% the maximum rate of tax on long-term capital gains on most capital assets held by an individual for more than 18 months, and under which gain on most capital assets held by an individual more than one year and up to 18 months is subject to tax at a maximum rate of 28%. Holders are urged to consult their tax advisor with respects to the effects of legislation. The deductibility of capital losses is subject to limitations. 100 106 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS The following is a general discussion of certain United States federal income and estate tax consequences of the acquisition, ownership and disposition of Notes by an initial beneficial owner of Notes that, for United States federal income tax purposes, is not a "United States person" (a "Non-United States Holder"). This discussion is based upon the United States federal tax law now in effect, which is subject to change, possibly retroactively. For purposes of this discussion, a "United States person" means a citizen or resident of the United States, a corporation, partnership or other entity created or organized in the United States or under the laws of the United States or of any political subdivision thereof, an estate whose income is includible in gross income for United States federal income tax purposes regardless of its source or a trust, (A) for taxable years beginning after December 31, 1996 (or ending after August 20, 1996, if the trustee has made an applicable election) if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (B) for taxable years not described in clause (A), if the income of the trust is includible in gross income for United States federal income tax purposes regardless of its source. The tax treatment of the Holders of the Notes may vary depending upon their particular situations. U.S. persons acquiring the Notes are subject to different rules than those discussed below. In addition, certain other holders (including insurance companies, tax exempt organizations, financial institutions and broker-dealers) may be subject to special rules not discussed below. INTEREST Interest paid by the Company to a Non-United States Holder will not be subject to United States federal income or withholding tax if such interest is not effectively connected with the conduct of a trade or business within the United States by such Non-United States Holder and such Non-United States Holder: (i) does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company; (ii) is not a controlled foreign corporation with respect to which the Company is a "related person" within the meaning of the Code; and (iii) certifies, under penalties of perjury, that such holder is not a United States person and provides such holder's name and address. GAIN ON DISPOSITION A Non-United States Holder will generally not be subject to United States federal income tax on gain recognized on a sale, redemption or other disposition of a Note unless: (i) the gain is effectively connected with the conduct of a trade or business within the United States by the Non-United States Holder; or (ii) in the case of a Non-United States Holder who is a nonresident alien individual and holds the Note as a capital asset, such holder is present in the United States for 183 or more days in the taxable year and certain other requirements are met. FEDERAL ESTATE TAXES If interest on the Notes is exempt from withholding of United States federal income tax under the rules described above, the Notes will not be included in the estate of a deceased Non-United States Holder for United States federal estate tax purposes. INFORMATION REPORTING AND BACKUP WITHHOLDING The Company will, where required, report to the Holders of Notes and the Internal Revenue Service the amount of any interest paid on the Notes in each calendar year and the amounts of tax withheld, if any, with respect to such payments. In the case of payments of interest to Non-United States Holders, temporary Treasury regulations provide that the 31% backup withholding tax and certain information reporting will not apply to such payments with respect to which either the requisite certification, as described above, has been received or an exemption has otherwise been established; provided that neither the Company nor its payment agent has 101 107 actual knowledge that the Holder is a United States person or that the conditions of any other exemption are not in fact satisfied. Under temporary Treasury regulations, these information reporting and backup withholding requirements will apply, however, to the gross proceeds paid to a Non-United States Holder on the disposition of the Notes by or through a United States office of a United States or foreign broker, unless the Holder certifies to the broker under penalties of perjury as to its name, address and status as a foreign person or the Holder otherwise establishes an exemption. Information reporting requirements, but not backup withholding, will also apply to a payment of the proceeds of a disposition of the Notes by or through a foreign office of a United States broker or foreign brokers with certain types of relationships to the United States unless such broker has documentary evidence in its file that the Holder of the Notes is not a United States person, and such broker has no actual knowledge to the contrary, or the Holder establishes an exception. Neither information reporting nor backup withholding generally will apply to a payment of the proceeds of a disposition of the Notes by or through a foreign office of a foreign broker not subject to the preceding sentence. Recently, the Treasury Department has issued proposed regulations regarding the withholding and information reporting rules discussed above. In general, the proposed regulations do not alter the substantive withholding and information reporting requirements but unify current certification procedures and forms and clarify reliance standards. If finalized in their current form, the proposed regulations would generally be effective for payments made after December 31, 1997, subject to certain transition rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against the Non-United States Holder's United States federal income tax liability, provided that the required information is furnished to the IRS. THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES FOR UNITED STATES AND NON-UNITED STATES HOLDERS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER OF THE OLD NOTES AND EACH PROSPECTIVE HOLDER AND, SUBSEQUENT TO THE EXCHANGE OFFER, EACH HOLDER, OF EXCHANGE NOTES SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO SUCH HOLDER OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE EXCHANGE NOTES INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS. PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transaction, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commission or concessions received by any such person may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter", within the meaning of the Securities Act. 102 108 The Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer, other than commissions or concessions of any broker-dealer, and will indemnify the holders of the Notes (including any broker-dealers) against certain liabilities including liabilities under the Securities Act. LEGAL MATTERS Certain legal matters in connection with the Exchange Notes will be passed upon for the Company by Andrews & Kurth L.L.P., Houston, Texas. EXPERTS The consolidated financial statements of Imperial Holly at September 30, 1997 and at March 31, 1997 and 1996 and for the six-month transition period ended September 30, 1997 and for each of the three years in the period ended March 31, 1997, included in this Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such Firm given upon their authority as experts in accounting and auditing. The consolidated financial statements of Savannah Foods included in this Prospectus have been audited by Price Waterhouse LLP, independent accountants and Arthur Andersen LLP, independent accountants, to the extent and for the periods indicated in their reports herein. AVAILABLE INFORMATION The Company has filed with the SEC a registration statement (the "Registration Statement") under the Securities Act on Form S-4 with respect to the Exchange Notes offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits thereto, certain parts of which are omitted in accordance with the rules and regulations of the SEC. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved. The Registration Statement and any amendments thereto, including exhibits filed or incorporated by reference as a part thereof, are available for inspection and copying at the SEC's offices as described below. The Company is subject to the information requirements of the Exchange Act, and in accordance therewith files periodic reports, proxy statements and other information with the SEC. Reports, proxy statements and other information may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the regional offices of the SEC located at 7 World Trade Center, 13th Floor, New York, New York 10048 and Suite 1400, Northwestern Atrium Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material may also be obtained at prescribed rates by writing to the SEC, Public Reference Section, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and such information may also be inspected at the offices of the American Stock Exchange, 86 Trinity Place Broad Street, New York, New York 10006. The SEC maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. Such reports, proxy and information statements and other information may be found on the SEC's Web site address, http://www.sec.gov. 103 109 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company incorporates herein by reference the following documents previously filed by the Company pursuant to the Exchange Act: (a) Transition Report of Imperial Holly on Form 10-K for the transition period ended September 30, 1997; (b) Current Report of Imperial Holly on Form 8-K dated October 17, 1997, as amended on Form 8-K/A on December 8, 1997; and (c) Current Report of the Company on Form 8-K dated December 22, 1997, as amended on Form 8-K/A dated January 13, 1998. All other documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to termination of the offering made hereby shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. ANY PERSON RECEIVING A COPY OF THIS PROSPECTUS MAY OBTAIN WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, A COPY OF ANY OF THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN, EXCEPT FOR THE EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). REQUESTS SHOULD BE ADDRESSED TO CORPORATE SECRETARY, IMPERIAL HOLLY CORPORATION, ONE IMPERIAL SQUARE, SUITE 200, 8016 HIGHWAY 90-A, SUGAR LAND, TEXAS 77478. 104 110 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Consolidated Financial Statements of Imperial Holly Corporation and Subsidiaries Independent Auditors' Report.............................. F-2 Consolidated Balance Sheets as of September 30, 1997 and March 31, 1997 and 1996................................ F-3 Consolidated Statements of Income for the Six Months Ended September 30, 1997 and 1996 and the Years Ended March 31, 1997, 1996 and 1995................................ F-4 Consolidated Statements of Changes in Shareholders' Equity for the Six Months Ended September 30, 1997, and the Years Ended March 31, 1997, March 31, 1996 and March 31, 1995............................................... F-5 Consolidated Statements of Cash Flow for the Six Months Ended September 30, 1997 and 1996 and the Years Ended March 31, 1997, 1996 and 1995.......................... F-6 Notes to Consolidated Financial Statements................ F-7 Consolidated Financial Statements of Savannah Foods & Industries, Inc. Report of Independent Public Accountants.................. F-19 Report of Independent Accountants......................... F-20 Consolidated Balance Sheets as of September 28, 1997 and September 29, 1996..................................... F-21 Consolidated Statements of Operations for the Fiscal Years Ended September 28, 1997, September 29, 1996 and October 1, 1995........................................ F-22 Consolidated Statements of Changes in Stockholders' Equity for the Fiscal Years Ended September 28, 1997, September 29, 1996 and October 1, 1995................. F-23 Consolidated Statements of Cash Flows for the Fiscal Years Ended September 28, 1997, September 29, 1996 and October 1, 1995........................................ F-24 Notes to Consolidated Financial Statements................ F-25
F-1 111 INDEPENDENT AUDITORS' REPORT Imperial Holly Corporation: We have audited the accompanying consolidated financial statements of Imperial Holly Corporation and subsidiaries (the "Company") at September 30, 1997 and March 31, 1997 and 1996 and the related consolidated statements of income, cash flows and changes in shareholders' equity for the six month transition period ended September 30, 1997 and for each of the three years in the period ended March 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Imperial Holly Corporation and subsidiaries at September 30, 1997 and March 31, 1997 and 1996, and the results of their operations and their cash flows for the six-month transition period ended September 30, 1997 and for each of the three years in the period ended March 31, 1997 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Houston, Texas November 21, 1997 F-2 112 IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
MARCH 31, SEPTEMBER 30, -------------------- 1997 1997 1996 ------------- -------- -------- (IN THOUSANDS OF DOLLARS) CURRENT ASSETS: Cash and temporary investments......................... $ 9,354 $ 7,719 $ 1,930 Marketable securities.................................. 55,883 48,963 37,373 Accounts receivable -- trade........................... 62,158 52,157 37,251 Income tax receivable.................................. -- 3,400 1,485 Inventories: Finished products................................... 92,815 119,206 61,702 Raw and in-process materials........................ 17,623 12,428 15,929 Supplies............................................ 16,937 16,392 12,124 Manufacturing costs prior to production................ 22,357 20,888 12,476 Prepaid expenses....................................... 5,448 3,994 3,260 -------- -------- -------- Total current assets........................... 282,575 285,147 183,530 NOTES RECEIVABLE......................................... 1,285 1,168 1,195 OTHER INVESTMENTS........................................ 14,646 11,949 6,702 PROPERTY, PLANT AND EQUIPMENT -- Net..................... 154,751 146,402 124,103 OTHER ASSETS............................................. 4,362 5,267 9,789 -------- -------- -------- TOTAL.......................................... $457,619 $449,933 $325,319 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable -- trade.............................. $ 53,923 $ 42,492 $ 37,937 Short-term borrowings.................................. 43,091 62,470 31,839 Current maturities of long-term debt................... 1,173 1,017 8 Deferred income taxes -- net........................... 24,327 16,256 8,248 Other current liabilities.............................. 29,659 29,006 23,772 -------- -------- -------- Total current liabilities...................... 152,173 151,241 101,804 -------- -------- -------- LONG-TERM DEBT -- Net of current maturities.............. 81,304 90,619 89,800 DEFERRED INCOME TAXES -- Net............................. 21,236 21,453 21,320 DEFERRED EMPLOYEE BENEFITS AND OTHER CREDITS............. 9,947 9,664 1,352 COMMITMENTS AND CONTINGENCIES (Note 10) SHAREHOLDERS' 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.......................................... 83,707 82,620 32,276 Retained earnings...................................... 90,870 81,347 69,829 Unrealized securities gains -- net of income taxes..... 18,382 12,989 8,938 -------- -------- -------- Total shareholders' equity..................... 192,959 176,956 111,043 -------- -------- -------- TOTAL.......................................... $457,619 $449,933 $325,319 ======== ======== ========
See notes to consolidated financial statements. F-3 113 IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, ------------------------- --------------------------------------- 1997 1996 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) NET SALES............................ $ 406,682 $ 393,955 $ 752,595 $ 616,450 $ 586,925 ----------- ----------- ----------- ----------- ----------- COSTS AND EXPENSES: Cost of sales...................... 348,869 341,157 651,677 550,782 520,996 Selling, general and administrative................... 30,668 29,057 57,722 53,193 54,591 Depreciation and amortization...... 6,786 7,293 14,773 12,681 13,429 Restructuring charges (Note 11).... -- -- -- 2,225 -- ----------- ----------- ----------- ----------- ----------- Total....................... 386,323 377,507 724,172 618,881 589,016 ----------- ----------- ----------- ----------- ----------- OPERATING INCOME (LOSS).............. 20,359 16,448 28,423 (2,431) (2,091) INTEREST EXPENSE -- Net.............. (5,301) (6,337) (12,430) (11,207) (11,426) REALIZED SECURITIES GAINS -- Net..... 11 394 426 5,389 1,649 OTHER INCOME -- Net.................. 724 652 1,269 3,173 3,219 ----------- ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM................. 15,793 11,157 17,688 (5,076) (8,649) PROVISION (CREDIT) FOR INCOME TAXES.............................. 5,842 4,080 6,170 (1,858) (3,284) ----------- ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM............................... 9,951 7,077 11,518 (3,218) (5,365) EXTRAORDINARY ITEM -- Net of tax of $325 (Note 6)...................... -- -- -- 604 -- ----------- ----------- ----------- ----------- ----------- NET INCOME (LOSS).................... $ 9,951 $ 7,077 $ 11,518 $ (2,614) $ (5,365) =========== =========== =========== =========== =========== EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Income (loss) before extraordinary item............................. $ 0.70 $ 0.64 $ 0.92 $ (0.31) $ (0.52) Extraordinary item -- Net.......... -- -- -- 0.06 -- ----------- ----------- ----------- ----------- ----------- Net income (loss).................. $ 0.70 $ 0.64 $ 0.92 $ (0.25) $ (0.52) =========== =========== =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING........................ 14,247,193 11,009,476 12,576,489 10,300,487 10,266,229 =========== =========== =========== =========== ===========
See notes to consolidated financial statements. F-4 114 IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK UNREALIZED PENSION -------------------- RETAINED SECURITIES LIABILITY SHARES AMOUNT EARNINGS GAINS ADJUSTMENT TOTAL ---------- ------- -------- ---------- ---------- -------- (IN THOUSANDS OF DOLLARS) BALANCE, APRIL 1, 1994............. 10,252,959 $31,780 $79,862 $ 3,804 $(709) $114,737 Net loss......................... -- -- (5,365) -- -- (5,365) Cash dividend ($.16 per share)... -- -- (1,643) -- -- (1,643) Exercise of stock options........ 7,582 66 -- -- -- 66 Employee stock purchase plan..... 22,904 200 -- -- -- 200 Change in unrealized securities gains -- net................... -- -- -- 1,831 -- 1,831 Pension liability adjustment..... -- -- -- -- 151 151 ---------- ------- ------- ------- ----- -------- BALANCE, MARCH 31, 1995............ 10,283,445 32,046 72,854 5,635 (558) 109,977 Net loss......................... -- -- (2,614) -- -- (2,614) Cash dividends ($.04 per share)......................... -- -- (411) -- -- (411) Exercise of stock options........ 11,445 85 -- -- -- 85 Employee stock purchase plan..... 17,617 145 -- -- -- 145 Change in unrealized securities gains -- net................... -- -- -- 3,303 -- 3,303 Pension liability adjustment..... -- -- -- -- 558 558 ---------- ------- ------- ------- ----- -------- BALANCE, MARCH 31, 1996............ 10,312,507 32,276 69,829 8,938 0 111,043 Net income....................... -- -- 11,518 -- -- 11,518 Exercise of stock options........ 14,411 147 -- -- -- 147 Employee stock purchase plan..... 9,517 115 -- -- -- 115 Nonemployee director compensation plan........................... 21,760 301 -- -- -- 301 Private placement of common stock.......................... 3,800,000 49,781 -- -- -- 49,781 Change in unrealized securities gains -- net................... -- -- -- 4,051 -- 4,051 ---------- ------- ------- ------- ----- -------- BALANCE, MARCH 31, 1997............ 14,158,195 82,620 81,347 12,989 0 176,956 Net income....................... -- -- 9,951 -- -- 9,951 Cash dividend ($0.03 per share)......................... -- -- (428) -- -- (428) Exercise of stock options........ 8,547 53 -- -- -- 53 Employee stock purchase and compensation plans............. 92,373 733 -- -- -- 733 Nonemployee director compensation plan........................... 24,660 301 -- -- -- 301 Change in unrealized securities gains -- net................... -- -- -- 5,393 -- 5,393 ---------- ------- ------- ------- ----- -------- BALANCE, SEPTEMBER 30, 1997........ 14,283,775 $83,707 $90,870 $18,382 $ 0 $192,959 ========== ======= ======= ======= ===== ========
See notes to consolidated financial statements. F-5 115 IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW
SIX MONTHS ENDED SEPTEMBER 30, YEAR ENDED MARCH 31, ---------------------- ------------------------------- 1997 1996 1997 1996 1995 -------- ----------- -------- --------- -------- (UNAUDITED) (IN THOUSANDS OF DOLLARS) OPERATING ACTIVITIES: Net income (loss).................... $ 9,951 $ 7,077 $ 11,518 $ (2,614) $ (5,365) Adjustments for noncash and nonoperating items: Extraordinary item -- net......... -- -- -- (604) -- Depreciation...................... 6,786 7,293 14,773 12,681 13,429 Deferred income tax provision..... 5,155 3,633 5,760 (1,737) (3,294) Other............................. 369 185 1,164 (5,203) (2,021) Working capital changes (excluding working capital acquired in the Spreckels acquisition): Receivables....................... (6,601) (19,725) (10,172) (502) 5,380 Inventory......................... 20,651 (2,373) (22,564) 45,408 8,914 Deferred and prepaid costs........ (2,923) (546) (1,105) 627 1,814 Accounts payable.................. 11,431 (6,536) (6,997) (6,819) 989 Other liabilities................. 1,011 2,054 (1,285) (3,361) 2,358 -------- -------- -------- --------- -------- Operating cash flow.................. 45,830 (8,938) (8,908) 37,876 22,204 -------- -------- -------- --------- -------- INVESTING ACTIVITIES: Acquisition of Spreckels............. -- (36,175) (36,287) -- -- Capital expenditures................. (15,214) (5,345) (12,322) (8,890) (7,850) Investment in marketable securities........................ (5,395) (3,908) (7,044) (6,537) (6,675) Proceeds from sale or maturity of marketable securities............. 6,798 1,612 2,139 14,974 4,344 Proceeds from sale of fixed assets... 205 35 109 1,478 5,915 Other investments.................... (3,007) -- (2,872) (741) 245 Other................................ 350 (857) 4,207 864 131 -------- -------- -------- --------- -------- Investing cash flow.................. (16,263) (44,638) (52,070) 1,148 (3,890) -------- -------- -------- --------- -------- FINANCING ACTIVITIES: Private placement of common stock.... -- 49,781 49,781 -- -- Short-term borrowings: Bank borrowings -- net............ 34,391 48,322 4,180 (5,431) (15,721) CCC borrowings -- advances........ -- 35,079 93,014 153,143 76,307 CCC borrowings -- repayments...... (53,770) (74,960) (79,125) (176,965) (76,280) Repayment of long-term debt.......... (9,159) (806) (1,595) (9,324) (67) Dividends paid....................... (428) -- -- (411) (1,643) Stock option proceeds and other...... 1,034 372 512 208 221 -------- -------- -------- --------- -------- Financing cash flow.................. (27,932) 57,788 66,767 (38,780) (17,183) -------- -------- -------- --------- -------- INCREASE IN CASH AND TEMPORARY INVESTMENTS.......................... 1,635 4,212 5,789 244 1,131 CASH AND TEMPORARY INVESTMENTS, BEGINNING OF YEAR.................... 7,719 1,930 1,930 1,686 555 -------- -------- -------- --------- -------- CASH AND TEMPORARY INVESTMENTS, END OF YEAR................................. $ 9,354 $ 6,142 $ 7,719 $ 1,930 $ 1,686 ======== ======== ======== ========= ========
See notes to consolidated financial statements. F-6 116 IMPERIAL HOLLY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997, MARCH 31, 1997, 1996 AND 1995 1. ACCOUNTING POLICIES The Company -- The consolidated financial statements include the accounts of Imperial Holly Corporation and its majority owned subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated. The Company operates in one domestic business segment -- the production and sale of refined sugar and related products. 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 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, most of which commence October 1 and extend for up to one year. The Company 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 match refined sugar sales contracted for future delivery with the purchase or pricing of raw cane sugar when feasible. Additionally, the Company utilizes a participatory sugar beet 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 generally accepted accounting principles 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. Change in Fiscal Year -- In October 1997, the Company changed its fiscal year end from March 31 to September 30. As used herein, the terms fiscal 1997, fiscal 1996 and fiscal 1995 refer to the twelve months ended March 31, 1997, 1996 and 1995, respectively. 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 component of 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. If only the FIFO cost method had been used, inventories would have been higher by $18.9 million at September 30, 1997, $19.2 million at March 31, 1997 and $12.9 million at March 31, 1996. Reductions in inventory quantities in the six month period ended September 30, 1997 and fiscal 1996 and 1995 resulted in liquidations of LIFO inventory layers carried at costs prevailing in prior years. The effect of these liquidations was to increase net income by about $468,000 ($0.03 per share) in the six month period ended September 30, 1997, $1,385,000 ($0.13 per share) in fiscal 1996 and decrease net income by about $114,000 ($0.01 per share) in fiscal 1995. 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 growers) during the grower F-7 117 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. Manufacturing Costs Prior to Production -- Certain manufacturing costs incurred between processing periods which are necessary to prepare the factory for the next processing campaign are deferred and allocated to the cost of sugar produced in the subsequent campaign. 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. 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 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. Earnings Per Share -- The computation of earnings per share is based on the weighted average number of shares outstanding. Shares of common stock issuable under stock options have not been included in the computation of earnings per share as their effect would be insignificant. Pending Accounting Pronouncements -- In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128"). This new standard requires dual presentation of basic and diluted earnings per share ("EPS") on the face of the earnings statement and requires a reconciliation of the numerators and denominators of basic and diluted EPS calculations. This statement will be effective for both interim and annual periods ending after December 15, 1997. The Company's current EPS calculation conforms to basic EPS. Diluted EPS as defined by SFAS No. 128 is not expected to be materially different from basic EPS. Recently, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", and Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information". These statements, which are effective for the Company's fiscal year ending September 30, 1999, establish additional disclosure requirements but do not affect the measurement of results of operation. Management is evaluating what, if any, additional disclosures may be required when these statements are implemented. 2. ACQUISITIONS On September 12, 1997, the Company entered into an Agreement and Plan of Merger with Savannah Foods and Industries, Inc., a Georgia based producer and marketer of sugar and related products ("Savannah Foods"), wherein it agreed to acquire Savannah Foods in a two step transaction. The Company completed the first step on October 17, 1997, when it accepted for payment pursuant to a tender offer shares representing 50.1% of Savannah Foods outstanding common stock for aggregate consideration of $292 million cash (the "Equity Tender"). In the second step, expected to be completed in December 1997, Savannah Foods will be F-8 118 merged with a subsidiary of the Company (the "Merger"); Savannah Foods will survive the Merger as a wholly-owned subsidiary of the Company. In consideration for the Merger, Savannah Foods stockholders will receive $78.6 million cash and 9.2 million to 12.0 million shares of the Company's common stock, depending on the market value of the Company's common stock prior to the Merger. To finance the Equity Tender, finance a tender offer for the Company's 8 3/8% Senior Notes due 1999 (The "Debt Tender") and replace the Company's existing credit facilities, the Company obtained a credit facility, (the "Tender Credit Facility") from an affiliate of Lehman Brothers, Inc. ("Lehman"), consisting of a $292 million term loan and a $210 million revolving credit facility. The Tender Credit Facility is secured by substantially all of the Company's assets and matures on the earlier of the date of the Merger or January 15, 1998. The Company has a financing commitment letter from Lehman to provide funds for the cash portion of the Merger and to refinance the Tender Credit Facility under one of two options: a) senior secured term loans aggregating $255 million, a $200 million senior secured revolving credit facility and $250 million senior subordinated notes offering; or b) $505 million senior secured term loans and a $200 million senior secured revolving credit facility. The financing provided by Lehman is expected to contain various restrictions and covenants that may limit the Company's ability to incur additional debt, make capital expenditures or pay dividends. The acquisition will be accounted for as a purchase and Savannah Foods' results of operations will be included in the Company's consolidated financial statements commencing October 17, 1997. Purchased intangibles, which include brand related intangibles and the excess of purchase price over the book value of net assets acquired ("goodwill"), are estimated to total $288 million and will be amortized over 40 years. Unaudited, summarized pro forma operating results as if the acquisition and related financing transactions had occurred on April 1, 1996, and assuming the maximum number of shares of the Company's common stock had been issued, are as follows (in thousands of dollars, except per share amounts):
SIX MONTHS ENDED TWELVE MONTHS SEPTEMBER 30, ENDED 1997 MARCH 31, 1997 ------------- -------------- Net sales.............................................. $1,018,911 $1,923,324 Operating income....................................... 54,189 68,980 Income before extraordinary item....................... 17,158 6,736 Income before extraordinary item per share of common stock...................................... $ 0.64 $ 0.27
On April 19, 1996, the Company acquired all of the outstanding capital stock of Spreckels Sugar Company, Inc. and Limestone Products Company, Inc. (collectively "Spreckels"), a California based beet sugar processor for $35.3 million. The acquisition was accounted for as a purchase and Spreckels' results of operations are included in these consolidated financial statements commencing April 19, 1996. 3. INVESTMENTS Marketable securities consisted of the following (in thousands of dollars):
SEPTEMBER 30, 1997 -------------------------------------- GROSS UNREALIZED FAIR HOLDING AMORTIZED MARKET ---------------- COST VALUE GAINS LOSSES --------- ------- ------- ------ US Government securities due 1997 through 1998......................................... $ 7,646 $ 7,643 $ 8 $ (11) Common stocks.................................. 19,957 48,240 28,283 -- ------- ------- ------- ------ Total................................ $27,603 $55,883 $28,291 $ (11) ======= ======= ======= ======
F-9 119
MARCH 31, 1997 -------------------------------------- GROSS UNREALIZED FAIR HOLDING AMORTIZED MARKET ---------------- COST VALUE GAINS LOSSES --------- ------- ------- ------ US Government securities....................... $ 9,226 $ 9,222 $ 8 $ (12) Common stocks.................................. 19,755 39,741 20,085 (99) ------- ------- ------- ------ Total................................ $28,981 $48,963 $20,093 $ (111) ======= ======= ======= ======
MARCH 31, 1996 -------------------------------------- GROSS UNREALIZED FAIR HOLDING AMORTIZED MARKET ---------------- COST VALUE GAINS LOSSES --------- ------- ------- ------ US Government securities....................... $ 4,881 $ 4,937 $ 56 $ -- Common stocks.................................. 18,740 32,436 13,696 -- ------- ------- ------- ------ Total................................ $23,621 $37,373 $13,752 $ -- ======= ======= ======= ======
Realized securities gains are reported net of realized losses of $28,000, $2,000, and $106,000 in fiscal years 1997, 1996 and 1995, respectively. There were no realized securities losses during the six months ended September 30, 1997. Marketable securities with a market value of $13.5 million at September 30, 1997 were pledged to secure certain insurance and other obligations. Other investments include the Company's royalty interest in a coal seam methane gas project, which is accounted for at amortized cost and its investment in a limited partnership which is constructing a beet sugar factory in Washington state which is accounted for on the equity method. 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at September 30, 1997 consisted of the following (in thousands of dollars):
MARCH 3L, SEPTEMBER 30, -------------------- 1997 1997 1996 ------------- -------- -------- Land............................................. $ 20,167 $ 19,949 $ 13,682 Buildings, machinery and equipment............... 273,536 271,002 251,949 Construction in progress......................... 14,572 5,440 2,094 -------- -------- -------- Total.................................. 308,275 296,391 267,725 Less accumulated depreciation.................... 153,524 149,989 143,622 -------- -------- -------- Property, Plant and Equipment -- Net............. $154,751 $146,402 $124,103 ======== ======== ========
5. SHORT-TERM BORROWINGS At September 30, 1997, the Company had working capital financing available from domestic banks under a $110,000,000 unsecured revolving credit line which provided for interest on advances at floating or negotiated rates and required commitment fees. The Company also has short-term borrowing facilities available from banks on an uncommitted basis aggregating $55,000,000 at September 30, 1997; interest on these borrowings was on a negotiated rate basis. These credit facilities were replaced in October 1997 by the Tender Credit Facility discussed in Note 2. Additionally, in the past the Company has borrowed short-term from the Commodity Credit Corporation ("CCC") under the USDA's price support loan program. CCC borrowings are secured by refined beet sugar inventory and are recourse or nonrecourse to the Company depending upon certain regulatory conditions. F-10 120 Outstanding borrowings were as follows (in thousands of dollars):
MARCH 3L, SEPTEMBER 30, ------------------ 1997 1997 1996 ------------- ------- ------- Commodity Credit Corporation....................... $ -- $53,770 $27,319 Bank working capital financing..................... 43,091 8,700 4,520 ------- ------- ------- Total.................................... $43,091 $62,470 $31,839 ======= ======= ======= Weighted Average Interest Rate..................... 6.89% 6.70% 5.36% ======= ======= =======
6. LONG-TERM DEBT Long-term debt was as follows (in thousands of dollars):
MARCH 31, SEPTEMBER 30, ------------------ 1997 1997 1996 ------------- ------- ------- 8 3/8% senior notes................................ $81,172 $89,468 $89,800 Other, principally equipment capital leases........ 1,305 2,168 8 ------- ------- ------- Total long-term debt............................... 82,477 91,636 89,808 Less current maturities............................ 1,173 1,017 8 ------- ------- ------- Long-term debt, net................................ $81,304 $90,619 $89,800 ======= ======= =======
The Company's 8 3/8% Senior Notes due 1999 do not require principal payments prior to maturity. In connection with the Debt Tender discussed in Note 2, Senior Notes with a principal amount of $75,371,000 were purchased in October 1997, and the indenture relating to the Senior Notes was amended to, among other things, remove restrictions on the Company's ability to create liens on certain properties. The Company will report as an extraordinary item for the quarter ending December 31, 1997 a loss of $1,967,000 on such purchase. In fiscal 1996, the Company purchased and retired a portion of the Senior Notes for amounts less than book value, and the Company reported such difference, net of tax, as an extraordinary item. The Company had an interest rate swap agreement which expired in October 1996; income (loss) on such swap was ($3,000) in fiscal 1997, $289,000 in fiscal 1996, and $643,000 in fiscal 1995 and is reported in interest expense-net. Cash paid for interest on short and long-term debt was $6,987,787 for the six month period ended September 30, 1997, $11,949,000, $12,228,000, and $11,463,000 for the fiscal years ended March 31, 1997, 1996 and 1995 respectively. Interest capitalized as part of the cost of constructing assets was $272,000 for the six months ended September 30, 1997. Such amount was not significant in fiscal 1997, 1996 or 1995. 7. 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):
SIX MONTHS ENDED YEAR ENDED MARCH 31, SEPTEMBER 30, ----------------------------- 1997 1997 1996 1995 ------------- ------- ------- ------- Federal: Current............................... $ -- $ 20 $ 109 $ (36) Tax benefit of operating loss carryforward....................... 1,551 (1,762) (1,452) (1,636) Deferred.............................. 3,604 7,522 (285) (1,658) State................................... 687 390 95 46 ------ ------- ------- ------- Total................................. $5,842 $ 6,170 $(1,533) $(3,284) ====== ======= ======= =======
F-11 121 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):
SEPTEMBER 30, 1997 -------------------------------- ASSETS LIABILITIES TOTAL ------- ----------- -------- Current: Marketable securities valuation differences............... $ -- $ (9,899) $ (9,899) Inventory valuation differences, principally purchase accounting............................................. -- (12,230) (12,230) Manufacturing costs prior to production deducted currently.............................................. -- (10,168) (10,168) Accruals not currently deductible......................... 2,272 -- 2,272 Alternate minimum tax differences......................... 903 -- 903 Operating loss carryforward (expiring in 2010, 2011 and 2012).................................................. 3,332 -- 3,332 Other..................................................... 1,463 -- 1,463 ------- -------- -------- Total current..................................... 7,970 (32,297) (24,327) ------- -------- -------- Noncurrent: Depreciation differences, including purchase accounting... -- (22,329) (22,329) Pension cost differences.................................. 480 -- 480 Accruals not currently deductible......................... 1,052 -- 1,052 Other..................................................... 694 (1,133) (439) ------- -------- -------- Total noncurrent.................................. 2,226 (23,462) (21,236) ------- -------- -------- Total............................................. $10,196 $(55,759) $(45,563) ======= ======== ========
MARCH 31, ----------------------------------------------------------------------- 1997 1996 -------------------------------- ------------------------------------ ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL ------- ----------- -------- ----------- ----------- -------- Current: Marketable securities valuation differences..... -- $ (6,994) $ (6,994) -- $ (4,813) $ (4,813) Inventory valuation differences, principally purchase accounting....... -- (12,324) (12,324) -- (6,320) (6,320) Manufacturing costs prior to production deducted currently................. -- (7,311) (7,311) -- (4,366) (4,366) Accruals not currently deductible................ $ 2,446 -- 2,446 $2,081 -- 2,081 Alternate minimum tax differences............... 903 -- 903 903 -- 903 Operating loss carryforward.............. 5,919 -- 5,919 3,172 -- 3,172 Other........................ 1,105 -- 1,105 1,135 (40) 1,095 ------- -------- -------- ------ -------- -------- Total current........ 10,373 (26,629) (16,256) 7,291 (15,539) (8,248) ------- -------- -------- ------ -------- -------- Noncurrent: Depreciation differences, including purchase accounting................ -- (22,160) (22,160) -- (18,443) (18,443) Pension cost differences..... 1,153 -- 1,153 -- (1,711) (1,711) Accruals not currently deductible................ 658 -- 658 154 -- 154 Other........................ -- (1,104) (1,104) -- (1,320) (1,320) ------- -------- -------- ------ -------- -------- Total noncurrent..... 1,811 (23,264) (21,453) 154 (21,474) (21,320) ------- -------- -------- ------ -------- -------- Total................ $12,184 $(49,893) $(37,709) $7,445 $(37,013) $(29,568) ======= ======== ======== ====== ======== ========
F-12 122 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. The reasons for the differences from the statutory rate are as follows (in thousands of dollars):
SIX MONTHS ENDED YEAR ENDED MARCH 31, SEPTEMBER 30, -------------------------- 1997 1997 1996 1995 ------------- ------ ------- ------- Income taxes computed at the statutory federal rate.............................. $5,527 $6,191 $(1,451) $(3,027) Nontaxable interest and dividends........... (121) (217) (251) (299) State income taxes........................ 447 253 62 30 Foreign sales corporation................. (30) (60) (59) (68) Other..................................... 19 3 166 80 ------ ------ ------- ------- Total.................................. $5,842 $6,170 $(1,533) $(3,284) ====== ====== ======= =======
Income taxes paid were $1,937,000 in the six months ended September 30, 1997 and $2,300,000 in fiscal 1997 and $213,000 in fiscal 1996; income tax refunds received were $3,778,000 in 1995. 8. EMPLOYEE BENEFITS Retirement Plans -- 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. The aggregate net periodic pension cost for these plans included the following components (in thousands of dollars):
MARCH 31, SEPTEMBER 30, ------------------------------- 1997 1997 1996 1995 ------------- -------- -------- ------- Company-sponsored plans: Service cost for benefits earned during the period................. $ 1,359 $ 2,756 $ 2,089 $ 2,128 Interest cost on projected benefit obligation........................ 2,927 5,883 2,653 2,348 Actual return on plan assets......... (20,145) (15,675) (10,141) (4,439) Net amortization and deferral........ 16,839 10,355 8,377 3,254 -------- -------- -------- ------- Net periodic pension cost -- Company- sponsored plans................... 980 3,319 2,978 3,291 Industry-wide plan for certain unionized employees............... 212 432 438 459 -------- -------- -------- ------- Total pension cost........... $ 1,192 $ 3,751 $ 3,416 $ 3,750 ======== ======== ======== =======
F-13 123 The funded status of the Company-sponsored plans was as follows (in thousands of dollars):
SEPTEMBER 30, 1997 ---------------------------------- PLANS FOR WHICH PLANS FOR WHICH ACCUMULATED ASSETS EXCEED BENEFITS ACCUMULATED EXCEED ASSETS BENEFITS --------------- --------------- Actuarial present value of projected benefit obligations: Accumulated benefit obligations: Vested............................................ $1,666 $ 65,352 Nonvested......................................... 19 5,071 ------ -------- Total accumulated benefit obligations........ 1,685 70,423 Effect of projected future salary increases............ 341 10,430 ------ -------- Projected benefit obligations........................ 2,026 80,853 Plan assets at fair value (primarily listed stocks and bonds)............................................... -- 104,153 ------ -------- Projected benefit obligations over (under) plan assets............................................... 2,026 (23,300) Prior service cost of plan amendments.................. (893) (3,136) Unrecognized net gains (losses): Arising at transition date........................... (518) 176 Arising subsequent to transition date................ 154 30,165 Adjustment for additional liability.................... 916 -- ------ -------- Accrued pension cost................................... $1,685 $ 3,905 ====== ======== Assumptions used: Current discount rate for plan liabilities........... 7.5% 7.5% Projected annual rate of increase in compensation levels............................................ 5.0% 5.0% Assumed long-term return on plan assets.............. 8.0% 8.0%
MARCH 31, --------------------------------------------------------------------- 1997 1996 --------------------------------- --------------------------------- PLANS FOR WHICH PLANS FOR WHICH PLANS FOR WHICH PLANS FOR WHICH ACCUMULATED ASSETS EXCEED ACCUMULATED ASSETS EXCEED BENEFITS ACCUMULATED BENEFITS ACCUMULATED EXCEED ASSETS BENEFITS EXCEED ASSETS BENEFITS --------------- --------------- --------------- --------------- Actuarial present value of projected benefit obligations: Accumulated benefit obligations: Vested................................. $27,039 $37,458 $ 9,055 $17,832 Nonvested.............................. 1,210 1,049 668 433 ------- ------- ------- ------- Total accumulated benefit obligations..................... 28,249 38,507 9,723 18,265 Effect of projected future salary increases................................ 1,219 8,279 715 8,434 ------- ------- ------- ------- Projected benefit obligations............ 29,468 46,786 10,438 26,699 Plan assets at fair value (primarily listed stocks and bonds)........................ 25,649 60,850 6,889 31,888 ------- ------- ------- ------- Projected benefit obligations over (under) plan assets.............................. 3,819 (14,064) 3,549 (5,189) Prior service cost of plan amendments...... (2,651) (1,628) (2,118) 22 Unrecognized net gains (losses): Arising at transition date............... (675) 215 (989) 293 Arising subsequent to transition date.... 2,793 16,902 (175) 3,108 Adjustment for additional liability........ 1,671 -- 2,567 -- ------- ------- ------- ------- Accrued (prepaid) pension cost............. $ 4,957 $ 1,425 $ 2,834 $(1,766) ======= ======= ======= ======= Assumptions used: Current discount rate for plan liabilities............................ 8.0% 8.0% 7.5% 7.5% Projected annual rate of increase in compensation levels.................... 5.0% 5.0% 5.5% 5.5% Assumed long-term return on plan assets................................. 8.0% 8.0% 8.0% 8.0%
F-14 124 401(k) Plans -- Substantially all of the Company's nonbargaining unit employees may elect to defer up to 15% of their annual compensation in the Company's 401(k) Tax Deferred Savings Plan. The Company may make discretionary matching contributions of up to 38% of the first $2,500 contributed by an employee. The Company also provides 401(k) plans for certain bargaining unit groups which allow participating employees to defer up to 15% of their annual compensation. The amounts charged to expense for these plans were not significant. Employee Stock Purchase Plan -- In July 1993, the shareholders approved an amended and restated employee stock purchase plan and reserved 1,000,000 shares of common stock. The plan provides 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 the discount on shares purchased under the latter alternative were not significant. 9. SHAREHOLDERS' EQUITY The Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") in fiscal 1997. As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS No. 123"), the Company measures compensation cost using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The Company's reported net income and earnings per share would have been reduced had compensation cost for the Company's stock-based compensation plans been determined using the fair value method of accounting as set forth in SFAS No. 123. For purposes of estimating the fair value disclosures below, the fair value of each stock option has been estimated on the grant date with a Black-Scholes option-pricing model using the following weighted-average assumptions: expected volatility of 38%; risk-free interest rate of 7.06%; and expected lives of 10 years. The effects of using the fair value method of accounting on net income and earnings per share are indicated in the pro forma amounts below:
SIX MONTHS YEARS ENDING MARCH 31, ENDED ---------------------- 9/30/97 1997 1996 ---------- -------- -------- Income (loss) before extraordinary item As reported.................. $9,951 $11,518 $(3,218) Pro forma.................... 9,839 11,351 (3,260) Net income (loss) As reported.................. $9,951 $11,518 $(2,614) Pro forma.................... 9,839 11,351 (2,656) Earnings Per Share: Income (loss) before extraordinary item As reported.................. $ 0.70 $ 0.92 $ (0.31) Pro forma 0.69 0.90 (0.32) Net income As reported.................. $ 0.70 $ 0.92 $ (0.25) Pro forma.................... 0.69 0.90 (0.26)
Shareholder Rights Plan -- In 1989, the Board of Directors declared a dividend of one Right for each outstanding share of the Company's common stock. Certain terms of the rights were amended in January 1995. Each of the Rights, which are currently attached to the common stock, entitle the holder to purchase two three-hundredths of a share of a new series of Junior Participating Preferred Stock (95,225 in total as of September 30, 1997) at a price of $60 (subject to adjustment). The Rights are not exercisable until the earlier of ten days after the public announcement that a person or group has acquired 15% or more (25% or more for persons who were 10% shareholders on January 27, 1995) of the Company's outstanding common stock (an "Acquiring Person") or ten business days after the commencement of a tender offer to acquire such an interest. Under certain circumstances, the Rights, other than the Rights held by the Acquiring Person, will become exercisable for common stock of the Company (or an acquirer) with a market value equal to two F-15 125 times the exercise price of the Right. The Rights are redeemable, at 2/3 cents per Right, at any time prior to a person becoming an Acquiring Person. The Rights expire on September 25, 1999. Stock Sale -- On August 29, 1996, the Company completed the private placement of 3,800,000 shares of the Company's common stock to Greencore Group plc ("Greencore"), an Irish sugar and agricultural products company, for net proceeds of $49.8 million. In July, the Board of Directors took action under the Shareholder Rights Plan to increase the ownership percentage that would trigger the plan with respect to Greencore to 30% during the term of the Investor Agreement between Greencore and the Company (not more than 5 years). Thereafter, the trigger level would be increased to 35%, until such time as Greencore's investment falls below 15%, at which time the trigger level becomes 15%. During the term of the Investor Agreement, Greencore will have the right to designate two nominees for election as directors of the Company, and will be required to vote for the director nominees recommended by the Board of Directors. During the term of the Investor Agreement, Greencore is also subject to restrictions relative to certain actions regarding the Company. Stock Incentive Plan -- The shareholders have approved the Imperial Holly Corporation Stock Incentive Plan, and have reserved for issuance 1,062,500 shares of common stock. The Board of Directors has proposed an amendment to be voted upon at the 1998 Annual Meeting of Shareholders, which would increase the number of shares reserved under the Plan by 2,500,000. The plan provides 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. Stock options have an exercise price equal to the fair market value of the shares of common stock at date of grant, become exercisable in annual increments for up to five years commencing one year after date of grant, and expire not more than ten years from date of grant. Stock option activity in the plan was as follows:
SIX MONTHS ENDED SEPTEMBER 30, 1997 ------------------------- WEIGHTED- AVERAGE EXERCISE PRICE OPTIONS PER SHARE ------- -------------- Beginning Balance........................................... 614,327 $10.39 Granted..................................................... 9,000 11.33 Expired..................................................... (30,800) 12.84 Exercised................................................... (9,632) 6.99 ------- Balance, September 30....................................... 582,895 $10.33 ======= Exercisable as of September 30.............................. 367,020 $10.31 =======
YEAR ENDED MARCH 31, ------------------------------------------------------------------------------ 1997 1996 1995 ------------------------ ------------------------ ------------------------ WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS PER SHARE ------- -------------- ------- -------------- ------- -------------- Beginning Balance...... 528,589 $10.03 510,733 $10.67 494,815 $10.68 Granted................ 141,700 12.90 94,000 7.84 24,500 9.18 Expired................ (41,551) 15.22 (66,199) 12.33 (1,000) 8.69 Exercised.............. (14,411) 7.97 (9,945) 6.67 (7,582) 6.74 ------- ------- ------- Balance, March 31...... 614,327 $10.39 528,589 $10.03 510,733 $10.67 ======= ======= ======= Exercisable as of March 31................... 364,964 $10.23 330,964 $11.05 331,609 $11.58 ======= ======= =======
F-16 126 Options outstanding at September 30, 1997 consisted of the following:
EXERCISABLE OPTIONS ---------------------------- WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE RANGE OF EXERCISE NUMBER OF EXERCISE PRICE REMAINING NUMBER OF EXERCISE PRICE PRICES PER SHARE OPTIONS PER SHARE CONTRACTUAL LIFE OPTIONS PER SHARE ----------------- --------- ---------------- ---------------- --------- ---------------- $6.44-$8.87 356,370 $ 7.87 5.4 years 238,745 $ 7.72 $9.75-$12.25 21,000 10.79 8.5 years 5,250 10.11 $13.19-$16.83 205,525 14.55 6.2 years 123,025 15.35
Certain stock options listed above were granted with SARs. The SARs provide that, in lieu of the exercise of options, the optionee may receive cash or shares of stock with a fair market value equal to the amount by which the fair market value on exercise date of the stock subject to the option exceeds the option price. No SARs have been exercised and, at September 30, 1997, options outstanding with SARs attached totaled 49,795 shares, all of which were exercisable. Nonemployee Director Stock Option Plan -- The shareholders have approved the Nonemployee Director Stock Option Plan and have reserved 30,000 shares of common stock for issuance. The plan provides for the automatic granting to each nonemployee director of options to purchase 1,500 shares of common stock at a price equal to 50% of the fair market value at date of grant. The options become exercisable upon the completion of three years of service as a director, and expire over a two year period from the date first exercisable. Stock option activity in the plan was as follows:
SIX MONTHS ENDED YEAR ENDED MARCH 31 SEPTEMBER 30, --------------------------------------------------------------- 1997 1997 1996 1995 ------------------- ------------------- ------------------- ------------------- PRICE PRICE PRICE PRICE OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS PER SHARE OPTIONS PER SHARE ------- --------- ------- --------- ------- --------- ------- --------- Beginning Balance.... 4,500 $6.53 3,000 $5.88 5,250 $6.93 6,000 $7.17 Granted.............. -- -- 1,500 7.84 -- -- Expired.............. -- -- -- (750) 8.84 (750) 8.84 Exercised............ (2,250) 5.50 -- (1,500) 8.09 -- ------ ----- ------ ----- Balance, March 31.... 2,250 $7.56 4,500 $6.53 3,000 5.88 5,250 $6.93 ====== ===== ====== ===== Exercisable as of March 31........... 750 $7.00 3,000 $5.88 -- 2,250 $8.34 ====== ===== ====== =====
Options outstanding at September 30, 1997 have a range of exercise prices of $4.75 to $7.84, and weighted-average remaining contractual life of 2.0 years. Nonemployee Director Compensation Plan -- In fiscal 1997, the shareholders approved the Nonemployee Director Compensation Plan which provides for the annual award of common stock to directors in lieu of their cash retainer. In the six months ended September 30, 1997 and in fiscal 1997, 21,760 shares of common stock each were awarded pursuant to this plan. 10. 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 has $4.6 million of standby letters of credit issued by banks to secure certain insurance obligations. The Company has a contingent commitment to advance additional amounts to a limited partnership which is constructing a beet sugar factory in Washington state of up to $1.7 million, depending upon final construction costs. F-17 127 The Company leases certain facilities and equipment under cancelable and noncancelable operating leases. Total rental expenses for all operating leases amounted to $3,571,000 for the six month period ended September 30, 1997, and $5,788,000, $4,343,000, and $3,519,000 in fiscal 1997, 1996 and 1995, respectively. The aggregate future minimum lease commitments under noncancelable operating leases at September 30, 1997 are summarized as follows (in thousands of dollars):
FISCAL YEAR ENDING OPERATING SEPTEMBER 30, LEASES - ------------------ --------- 1998................................................................... $3,124 1999................................................................... 2,360 2000................................................................... 1,638 2001................................................................... 1,190 2002................................................................... 751 After 2002............................................................. 660
The aggregate future minimum amount to be received under sub-leases was $3,113,000 at September 30, 1997. 11. SUPPLEMENTARY INCOME STATEMENT INFORMATION In fiscal 1996 the Company recorded a charge of $1,750,000 related to the announced closure of its Hamilton City California beet processing facility in early fiscal 1997, including $650,000 related to the layoff of approximately 68 employees. Through September 30, 1997, substantially all of such amount had been paid. Additionally, in fiscal 1996, the Company recorded a charge of $475,000 related to costs in connection with a work force reduction. By March 31, 1997 substantially all of that amount had been incurred in connection with the termination of 47 individuals. Other income -- net includes interest and dividends totaling $1,184,000 for the six months ended September 30, 1997, and $1,792,000, $1,820,000, and $1,456,000 for fiscal 1997, 1996 and 1995, respectively. Amounts charged to expense for research and development were $824,000 for the six months ended September 30, 1997, and $1,445,000, $1,670,000, and $2,084,000 for fiscal 1997, 1996 and 1995, respectively. 12. PARENT COMPANY (ONLY) INFORMATION Condensed financial information for Imperial Holly Corporation (Parent Company Only) was as follows (in thousands of dollars):
SIX MONTHS ENDED YEAR ENDED MARCH 31, SEPTEMBER 30, ------------------------------ INCOME STATEMENT DATA 1997 1997 1996 1995 --------------------- ------------- -------- -------- -------- Net sales......................................... $153,139 $308,896 $251,278 $238,236 Operating income(loss)............................ 3,366 11,817 (8,710) (7,714) Equity in the undistributed earnings of subsidiaries.................................... 8,324 3,726 (698) (1,014) Income (loss) before extraordinary items.......... 9,951 11,518 (3,218) (5,365)
AS OF ----------------------------------- MARCH 31, SEPTEMBER 30, ------------------- BALANCE SHEET DATA 1997 1997 1996 ------------------ ------------- -------- -------- Current assets.............................................. $ 92,205 $ 85,691 $ 73,471 Property, plant and equipment, net.......................... 34,272 29,338 25,758 Investment in and advances to subsidiaries, at equity....... 212,813 185,598 118,562 Total assets................................................ 352,078 310,922 226,880 Current liabilities......................................... 63,960 33,724 19,991 Long-term debt, net......................................... 81,172 89,468 89,800 Shareholders' equity........................................ 192,959 176,956 111,043
F-18 128 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Savannah Foods & Industries, Inc. We have audited the accompanying consolidated balance sheet of Savannah Foods & Industries, Inc. and Subsidiaries as of September 28, 1997, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year then ended. 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Savannah Foods & Industries, Inc. and Subsidiaries as of September 28, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Atlanta, Georgia November 17, 1997 F-19 129 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Savannah Foods & Industries, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Savannah Foods & Industries, Inc. and its subsidiaries at September 29, 1996, and the results of their operations and their cash flows for each of the two fiscal years then ended, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of Savannah Foods & Industries, Inc. for any period subsequent to September 29, 1996. PRICE WATERHOUSE LLP Atlanta, Georgia November 18, 1996 F-20 130 SAVANNAH FOODS & INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT FOR SHARES AND PER SHARE AMOUNTS) ASSETS
SEPTEMBER 28, SEPTEMBER 29, 1997 1996 ------------- ------------- Current assets: Cash and cash equivalents................................. $ 14,677 $ 15,300 Accounts receivable....................................... 68,635 76,109 Inventories (net of LIFO reserve of $9,949 in 1997 and $8,018 in 1996) (Note 4)............................... 90,908 83,929 Other current assets...................................... 6,175 5,214 -------- -------- Total current assets.............................. 180,395 180,552 Property, plant and equipment (Note 5)...................... 179,993 186,546 Other assets................................................ 38,683 31,163 -------- -------- $399,071 $398,261 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term borrowings (Note 6)............................ $ -- $ 7,500 Current portion of long-term debt (Note 6)................ 7,824 2,170 Trade accounts payable.................................... 55,756 52,701 Other liabilities and accrued expenses.................... 23,644 23,575 -------- -------- Total current liabilities......................... 87,224 85,946 -------- -------- Long-term debt (Note 6)..................................... 26,100 59,754 -------- -------- Deferred employee benefits.................................. 69,058 78,834 -------- -------- Stockholders' equity (Note 11): Common stock $.25 par value; $.55 stated value; 64,000,000 shares authorized; 31,306,800 shares issued............ 17,365 17,365 Capital in excess of stated value......................... 43,639 31,764 Retained earnings......................................... 221,949 193,524 Treasury stock, at cost (2,568,604 shares)................ (15,849) (15,849) Minimum pension liability adjustment...................... -- (14,038) Stock held by benefit trust, at market (2,500,000 shares)................................................ (46,875) (35,000) Other..................................................... (3,540) (4,039) -------- -------- Total stockholders' equity........................ 216,689 173,727 -------- -------- Commitments and contingencies (Note 12)..................... -- -- -------- -------- $399,071 $398,261 ======== ========
(The accompanying notes are an integral part of the consolidated financial statements.) F-21 131 SAVANNAH FOODS & INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT FOR SHARES AND PER SHARE AMOUNTS)
FISCAL YEAR ENDED --------------------------------------------- SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1, 1997 1996 1995 ------------- ------------- ----------- Net sales......................................... $ 1,191,839 $ 1,146,332 $ 1,098,544 ----------- ----------- ----------- Operating expenses: Cost of sales and operating expenses............ 1,037,502 1,028,218 1,002,679 Selling, general and administrative expenses.... 59,850 54,667 55,866 Depreciation and amortization................... 23,435 27,994 28,314 Impairment of long-lived assets (Note 3)........ -- 10,280 -- Other costs (Notes 2, 13)....................... 13,394 3,374 4,284 ----------- ----------- ----------- 1,134,181 1,124,533 1,091,143 ----------- ----------- ----------- Income from operations............................ 57,658 21,799 7,401 ----------- ----------- ----------- Other income and (expenses): Interest and other investment income............ 874 847 1,258 Interest expense................................ (6,850) (12,355) (14,847) Other (expense) income.......................... (465) (610) 110 ----------- ----------- ----------- (6,441) (12,118) (13,479) ----------- ----------- ----------- Income (loss) before income taxes and extraordinary item.............................. 51,217 9,681 (6,078) Provision for (benefit from) income taxes (Note 7).............................................. 19,136 2,738 (2,585) ----------- ----------- ----------- Income (loss) before extraordinary item........... 32,081 6,943 (3,493) Extraordinary item, net of tax (Note 6)........... (376) (971) -- ----------- ----------- ----------- Net income (loss)................................. $ 31,705 $ 5,972 $ (3,493) =========== =========== =========== Per share: Income (loss) before extraordinary item......... $ 1.22 $ 0.27 $ (0.13) Extraordinary item (Note 6)..................... (0.01) (0.04) -- ----------- ----------- ----------- Net income (loss)............................... $ 1.21 $ 0.23 $ (0.13) =========== =========== =========== Dividends....................................... $ 0.125 $ 0.10 $ 0.32 =========== =========== =========== Weighted average shares outstanding............... 26,238,196 26,238,196 26,238,196 =========== =========== ===========
(The accompanying notes are an integral part of the consolidated financial statements.) F-22 132 SAVANNAH FOODS & INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS)
CAPITAL IN MINIMUM EXCESS OF PENSION STOCK HELD COMMON STATED RETAINED TREASURY LIABILITY BY BENEFIT STOCK VALUE EARNINGS STOCK ADJUSTMENT TRUST OTHER TOTAL ------- ---------- -------- -------- ---------- ---------- ------- -------- Balance at October 2, 1994........ $17,365 $12,190 $202,065 $(31,275) $ (8,210) $ -- $(3,961) $188,174 Net loss........................ (3,493) (3,493) Cash dividends declared......... (8,396) (8,396) Increase in minimum pension liability adjustment.......... (6,632) (6,632) Increase in cumulative translation adjustment........ (425) (425) Decrease in note receivable from employee stock ownership plan.......................... 421 421 ------- ------- -------- -------- -------- -------- ------- -------- Balance at October 1, 1995........ 17,365 12,190 190,176 (31,275) (14,842) -- (3,965) 169,649 Net income...................... 5,972 5,972 Cash dividends declared......... (2,624) (2,624) Decrease in minimum pension liability adjustment.......... 804 804 Establish benefit trust with treasury stock (Note 11)...... 11,449 15,426 (26,875) -- Increase in fair market value of stock held by benefit trust (Note 11)..................... 8,125 (8,125) -- Increase in cumulative translation adjustment........ (74) (74) ------- ------- -------- -------- -------- -------- ------- -------- Balance at September 29, 1996..... 17,365 31,764 193,524 (15,849) (14,038) (35,000) (4,039) 173,727 Net income...................... 31,705 31,705 Cash dividends declared......... (3,280) (3,280) Increase in fair market value of stock held by benefit trust (Note 11)..................... 11,875 (11,875) -- Decrease in minimum pension liability adjustment.......... 14,038 14,038 Decrease in cumulative translation adjustment........ 499 499 ------- ------- -------- -------- -------- -------- ------- -------- Balance at September 28, 1997..... $17,365 $43,639 $221,949 $(15,849) $ -- $(46,875) $(3,540) $216,689 ======= ======= ======== ======== ======== ======== ======= ========
(The accompanying notes are an integral part of the consolidated financial statements.) F-23 133 SAVANNAH FOODS & INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FISCAL YEAR ENDED -------------------------------------------- SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1, 1997 1996 1995 ------------- ------------- ---------- Cash flows from operations: Net income (loss).................................... $ 31,705 $ 5,972 $ (3,493) Adjustments to reconcile net income (loss) to net cash provided by operations -- Depreciation and amortization..................... 23,435 27,994 28,314 Impairment of long-lived assets (Note 3).......... -- 10,280 -- Extraordinary item, net of tax, related to financing activities............................ 376 971 -- Provision for deferred income taxes............... 9,410 (5,173) (207) Net loss on disposal of assets.................... 110 2,595 674 Decreases (increases) in working capital -- Accounts receivable............................. 7,474 (9,118) 8,785 Inventories..................................... (6,979) 20,565 (17,781) Other current assets............................ (3,985) 7,924 (6,952) Trade accounts payable.......................... 3,055 (10,558) 6,306 Other liabilities and accrued expenses.......... (904) 1,110 (777) Funding of deferred employee benefits in excess of expense accrual................................. (11,241) -- -- Other............................................. 892 (2,713) 1,122 -------- -------- -------- Cash provided by operations............................ 53,348 49,849 15,991 -------- -------- -------- Cash flows from investing activities: Additions to property, plant and equipment........... (15,664) (7,916) (16,303) Proceeds from sale of property, plant and equipment......................................... 960 2,538 784 Sale of investments.................................. -- 13,869 3,615 Business sales and (acquisitions).................... -- 12,500 (7,050) Use of escrowed industrial revenue bond funds for additions to property, plant and equipment........ -- 3,253 -- Other................................................ -- (182) (2,182) -------- -------- -------- Cash (used for) provided by investing activities....... (14,704) 24,062 (21,136) -------- -------- -------- Cash flows from financing activities: (Decrease) increase in short-term borrowings......... (7,500) (14,800) 22,300 Payments of long-term debt........................... (28,000) (51,240) (28,703) Debt prepayment charge, net of tax................... (376) (971) -- Liquidation of unused industrial revenue bond escrow balances.......................................... -- -- 5,742 Dividends paid....................................... (3,280) (3,280) (11,282) Other................................................ (111) 106 226 -------- -------- -------- Cash used for financing activities..................... (39,267) (70,185) (11,717) -------- -------- -------- Cash flows for year.................................... (623) 3,726 (16,862) Cash and cash equivalents, beginning of year........... 15,300 11,574 28,436 -------- -------- -------- Cash and cash equivalents, end of year................. $ 14,677 $ 15,300 $ 11,574 ======== ======== ========
(The accompanying notes are an integral part of the consolidated financial statements.) F-24 134 SAVANNAH FOODS & INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Nature of operations -- The Company is engaged in the production, marketing and distribution of food products, primarily refined sugar. The Company produces a complete line of bulk and liquid sugars, packaged sugar, sugar envelopes and sugar products, including edible molasses and liquid animal feeds. The Company also packages and distributes other products such as custom made plastic cutlery meal kits, salt, pepper, artificial sweetener, non-dairy creamer and certain other products which complement its sugar business. Industrial and grocery markets served by the Company are the southeastern, midwestern and eastern parts of the United States, as well as Louisiana and Texas. Products for the foodservice market are distributed throughout the United States. The Company has one primary business segment -- Sugar Products. Fiscal year -- The Company's fiscal year ends on the Sunday closest to September 30. Fiscal 1997, 1996 and 1995 each included 52 weeks. Principles of consolidation -- The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Business entities in which the Company owns 50% or less are accounted for using the equity method. Cash and cash equivalents -- Cash and cash equivalents include all investments purchased with an original maturity of 90 days or less which have virtually no risk of loss of the principal value of the investment. Inventories -- Inventories are valued at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for sugar, packaging materials, and certain other items. Costs for maintenance parts and other non-sugar products are determined using the first-in, first-out (FIFO) and moving average methods. Futures transactions and interest rate swaps -- The Company uses futures contracts to manage its inventory and fuel positions, both to set pricing and to reduce the Company's exposure to price fluctuations. It also uses interest rate hedges to fix interest rates on current and anticipated borrowings to reduce exposure to interest rate fluctuations. Under existing accounting literature, these activities are accounted for as hedging activities. To qualify as a hedge the item to be hedged must expose the Company to inventory pricing or interest rate risk and the related contract must reduce that exposure and be designated by the Company as a hedge. To hedge expected transactions, the significant characteristics and expected terms of such transactions must be identified and it must be probable that the transaction will occur. Gains and losses on futures contracts, including gains and losses upon termination of the contract, are matched to inventory purchases and are included in the carrying value of inventory and charged or credited to cost of sales as such inventory is sold or used in production. The net cash paid or received on interest rate hedges is included in interest expense. Gains or losses on the termination of hedges are deferred and recognized in interest over the period covered by the interest rate hedge. If derivative transactions do not meet the criteria for hedges, the Company recognizes unrealized gains or losses as they occur. If a hedged transaction no longer exists or a hedged anticipated transaction is deemed no longer probable to occur, cumulative gains and losses on the hedge are recognized immediately in income and subsequent changes in fair market value of the derivative transaction are recognized in the period the change occurs. Amortization of intangibles -- The Company has intangible assets included in "Other assets" aggregating $7,637,000 and $9,529,000 at September 28, 1997 and September 29, 1996, respectively. Goodwill of $4,974,000 at September 28, 1997, and $5,378,000 at September 29, 1996, is being amortized over fifteen years on a straight-line basis, and other intangible assets are being amortized over five years on a straight-line F-25 135 SAVANNAH FOODS & INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) basis. Amortization expense was $2,288,000, $2,341,000 and $2,169,000 for fiscal 1997, 1996 and 1995, respectively. When factors indicate that goodwill should be evaluated for impairment, the Company uses an estimate of the related operation's discounted cash flows over the remaining life of goodwill in measuring whether or not the goodwill is recoverable. Property, plant and equipment -- Property, plant and equipment is valued at cost, less accumulated depreciation and amortization. For financial reporting purposes, depreciation is computed on the straight-line method over the estimated useful lives of the assets. In general, buildings are depreciated over 20 years, machinery and equipment over 3 to 15 years and leasehold improvements over 10 years. Accrued expenses related to beet operations -- The Company's beet processing plants are generally operated from October through February and then, from March through September, are repaired for the next processing cycle. As sugar is processed from October through February, the Company accrues estimated repair costs and other costs to be incurred in March through September and includes such costs in inventory and, as the sugar is sold, in cost of sales. In contrast, certain other sugarbeet processors capitalize such costs and include them as prepaid expenses related to the next processing cycle. Fair value of financial instruments -- For cash, cash equivalents, accounts receivable, trade accounts payable, other liabilities and accrued expenses and short-term borrowings, the carrying amounts approximate fair value because of the short maturities of these instruments. Revenue recognition -- The Company recognizes revenue as product is shipped. Stock options -- The Company measures stock-based compensation expense using the intrinsic value approach of Accounting Principles Board Opinion No. 25. Pro forma disclosures required by Statement of Financial Accounting Standards No. 123 -- Accounting for Stock-Based Compensation are included in Note 10. Use of estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications -- Certain prior year amounts have been reclassified to conform to the current year presentation. NOTE 2 -- PENDING MERGER OF THE COMPANY: On September 12, 1997, the Company entered into the Merger Agreement providing for the acquisition of the Company by Imperial Holly. Imperial Holly is a sugar refiner and beet processor headquartered in Sugar Land, Texas. Pursuant to the Merger Agreement, a wholly-owned subsidiary of Imperial Holly ("IHK Sub") initiated a cash tender offer on September 18, 1997 for 50.1% of the Company's outstanding Common Stock at a price of $20.25 per share. The tender offer was closed on October 16, 1997, resulting, on October 24, 1997, in the funding of the acquisition of 14,397,836 shares, or 50.1%, of the Company's Common Stock and a change in control of the Company. Pursuant to the Merger Agreement, IHK Sub will be merged with and into the Company, with the Company surviving as a wholly-owned subsidiary of Imperial Holly (the "Merger"). Upon consummation of the Merger, the remaining shares of Company Common Stock will be exchanged for cash and common stock of Imperial Holly so that the aggregate number of shares of the Company's Common Stock to be converted into Imperial Holly common stock will be equal to 30% of all outstanding shares of the Company's Common Stock prior to the time of the cash tender offer. The Merger is expected to close in December 1997. F-26 136 SAVANNAH FOODS & INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Prior to entering into the Merger Agreement with Imperial Holly, the Company, on July 14, 1997, entered into a merger agreement with Flo-Sun Incorporated ("Flo-Sun"), a Florida based raw sugar producer and refiner. On August 25, 1997, Imperial Holly submitted a proposal to acquire the Company, and after negotiations between the Company and the two parties, the Company's Board of Directors approved the Merger Agreement with Imperial Holly. In accordance with the Flo-Sun merger agreement, the Company paid Flo-Sun a $5,000,000 termination fee and reimbursed Flo-Sun $3,000,000 for expenses in connection with the proposed merger. This $8,000,000 along with the Company's legal fees and other expenses related to the proposed Flo-Sun merger comprise the majority of the $13,394,000 of merger expenses summarized in Note 13. NOTE 3 -- IMPAIRMENT LOSS: In the fourth quarter of fiscal 1996, the Company recorded a non-cash impairment loss of $10,280,000 ($6,476,000, or $.25 per share, net of tax) related to a write-down of the property, plant and equipment of the Company's Fremont, Ohio beet sugar facility. A decision was made in 1996 not to run the Fremont facility during fiscal 1997 due to the lack of a viable supply of sugarbeets and beet molasses. As a result, the projected future cash flows from this facility are less than the carrying value of the assets; therefore, an impairment loss has been recognized. The impaired assets include buildings and machinery and equipment used to manufacture, ship, and store refined sugar and its by-products. These assets were written down to their fair value based on the salvage value of the assets. The recognition of this impairment was in accordance with the provisions of Statement of Financial Accounting Standards No. 121 -- Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and is not materially different than the amount that would have been recognized under the Company's previous policies. As of September 28, 1997 the Company does not plan on operating the Fremont facility during fiscal 1998. NOTE 4 -- INVENTORIES: A summary of inventories by method of pricing and class is as follows:
SEPTEMBER 28, SEPTEMBER 29, 1997 1996 ------------- ------------- (IN THOUSANDS) Last-in, first-out.......................................... $55,713 $35,311 First-in, first-out......................................... 7,501 9,682 Moving average.............................................. 27,694 29,462 Specific identification..................................... -- 9,474 ------- ------- $90,908 $83,929 ======= ======= Raw materials and work-in-process........................... $30,720 $17,693 Packaging materials, parts and supplies..................... 16,912 20,713 Finished goods.............................................. 43,276 36,049 Payments related to future inventory purchases.............. -- 9,474 ------- ------- $90,908 $83,929 ======= =======
The replacement cost of inventories exceeded reported cost by approximately $10,246,000 at September 28, 1997 and $8,233,000 at September 29, 1996. F-27 137 SAVANNAH FOODS & INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is summarized as follows:
SEPTEMBER 28, SEPTEMBER 29, 1997 1996 ------------- ------------- (IN THOUSANDS) Land...................................................... $ 7,769 $ 7,498 Buildings................................................. 93,081 89,194 Machinery and equipment................................... 314,482 305,717 Leasehold improvements.................................... 1,202 1,201 Projects-in-process....................................... 9,833 3,119 --------- --------- 426,367 406,729 Less -- Accumulated depreciation and amortization............... (246,374) (220,183) --------- --------- $ 179,993 $ 186,546 ========= =========
Repairs and maintenance expense was $26,460,000, $31,699,000 and $35,241,000 for fiscal 1997, 1996 and 1995, respectively. NOTE 6 -- LONG-TERM DEBT, CREDIT ARRANGEMENTS AND LEASES: Long-term debt is summarized as follows:
SEPTEMBER 28, SEPTEMBER 29, 1997 1996 ------------- ------------- (IN THOUSANDS) Senior Notes -- Series A at 8.35% of $19,941 and Series B at 7.15% of $5,059...................................... $ -- $25,000 Notes payable to banks related to the ESOP................ 9,815 9,815 Industrial revenue bonds.................................. 22,500 22,500 Other long-term debt...................................... 1,609 4,609 ------- ------- 33,924 61,924 Less -- Current portion................................... (7,824) (2,170) ------- ------- $26,100 $59,754 ======= =======
The Company elected to prepay $25,000,000 of the Senior Notes in 1997. The Company incurred $376,000 (net of $236,000 income tax benefits), or $.01 per share, of related prepayment penalties which are reflected as an extraordinary item in the Consolidated Statement of Operations. The Company prepaid $35,000,000 of the Senior Notes in 1996 and incurred $971,000 (net of $570,000 income tax benefits), or $.04 per share, of related prepayment penalties. At September 28, 1997, the Company had $9,815,000 in notes payable related to the Employee Stock Ownership Plan (ESOP) and $22,500,000 of industrial revenue bonds. These notes and bonds carry tax-advantaged variable rates of interest equal to approximately 5.59% in 1997. The ESOP loans are payable as follows: $6,215,000 in fiscal 1998 and $3,600,000 payable in fiscal 1999 through fiscal 2001. The $22,500,000 industrial revenue bonds are payable as follows: $4,500,000 in 2000; $4,500,000 in 2001; $6,000,000 in $1,000,000 annual installments in 2002 through 2007; $3,500,000 in 2004; $2,500,000 in $500,000 installments from 2001 through 2005; and $1,500,000 due in 2017. These bonds are secured by financing statements on project-related equipment, the cost of which approximates the bond amounts. F-28 138 SAVANNAH FOODS & INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On April 1, 1996, the Company entered into a $120,000,000 revolving credit facility which expires on January 1, 2000, and automatically extends by one year on each anniversary date of the agreement. On October 16, 1997, the Company reduced the amount of this revolving credit facility from $120,000,000 to $60,000,000 and amended the expiration date to a date not later than January 31, 1998. In general, this facility enables the Company to borrow funds at LIBOR plus 1/2% to 3/4%, depending upon achievement of specified financial targets. The Company pays an annualized facility fee of 1/10% and an annualized fee of 1/10% of the unused portion of the facility. As of September 28, 1997 the Company was in compliance with all of its debt covenants. Short-term borrowings, including borrowings under the Company's revolving credit facilities which were for temporary working capital needs, are summarized as follows:
FISCAL YEAR ENDED ------------------------------------------ SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1, 1997 1996 1995 ------------- ------------- ---------- (IN THOUSANDS) Daily average outstanding borrowings.............. $ 5,789 $39,004 $31,373 Daily weighted average interest rate.............. 5.79% 5.66% 6.29% Maximum borrowings................................ $45,000 $71,980 $68,500 Amount outstanding at year-end.................... $ -- $ 7,500 $22,300
The Company uses interest rate exchange agreements, more commonly called interest rate swaps, to manage its interest rate exposure. Swaps were entered into to fix the interest rate on variable debt at rates which the Company considered attractive at the time the agreements were consummated. When the Company entered into these agreements, it compared its anticipated interest costs to other long-term borrowing sources such as private placements and other fixed rate borrowing options. The notional amounts of swaps outstanding at September 28, 1997 and September 29, 1996 were $30,000,000. The fixed rates of interest for swaps outstanding during fiscal 1997 and 1996 were 8.83% and 8.66%, respectively. These swaps expire from December 1997 to February 1998. The effective fixed rate of swapped debt instruments during fiscal 1997 and 1996 was 7.53% and 7.76%, respectively. Accordingly, the Company has realized its desired objectives in the use of these financing instruments. If the Company had canceled these agreements as of September 28, 1997, it would have been required to pay the counter-parties to the agreements an aggregate amount of $188,047. The Company has also entered into forward swap agreements for periods ranging from 1998 to 2004 which fix the rate on the following debt: $20,000,000 in 1998-1999, $30,000,000 in 2000, $50,000,000 in 2001, $90,000,000 in 2002 and $80,000,000 in 2003-2004. The Company entered into these agreements to fix the rate on variable rated debt intended to be borrowed during this time period. The swaps require the Company to pay fixed rates ranging from 6.5% to 7.0% against 90 day LIBOR. These transactions were entered into to protect the Company against interest rate increases and to fix future interest rates at rates the Company considers attractive. If the Company had canceled these agreements as of September 28, 1997, it would have been required to pay an aggregate amount of $187,794. Interest expense was $6,850,000 in fiscal 1997, $12,355,000 in fiscal 1996, and $14,847,000 in fiscal 1995. Cash payments of interest were $6,138,000 in fiscal 1997, $12,945,000 in fiscal 1996, and $13,620,000 in fiscal 1995. Annual maturities of long-term debt each year for the next five fiscal years are $7,824,000 in 1998, $500,000 in 1999, $5,000,000 in 2000, $7,600,000 in 2001, $1,500,000 in 2002, and $11,500,000 in subsequent years through 2017. Lease expense related to operating leases aggregated $2,098,000, $2,081,000, and $1,552,000 in fiscal 1997, 1996 and 1995, respectively. Lease commitments on operating leases exceeding one year for fiscal 1998, 1999, 2000, 2001 and 2002 are $1,255,000, $1,156,000, $1,124,000, $504,000 and $504,000, respectively. F-29 139 SAVANNAH FOODS & INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7 -- INCOME TAXES: Pre-tax income for all years presented was taxed exclusively in the United States. The provision for (benefit from) income taxes is comprised of the following:
FISCAL YEAR ENDED ------------------------------------------- SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1, 1997 1996 1995 ------------- -------------- ---------- (IN THOUSANDS) Current federal.................................. $ 7,990 $ 6,092 $(1,515) Current state.................................... 1,500 1,249 (863) Deferred federal................................. 8,564 (4,357) (271) Deferred state................................... 846 (816) 64 ------- ------- ------- Provision for (benefit from) income taxes........ $18,900 $ 2,168 $(2,585) ======= ======= ======= Tax effect of change in: Minimum pension liability adjustment........... $ 8,607 $ 507 $(4,716) Cumulative translation adjustment.............. 306 (45) (261) ------- ------- ------- $ 8,913 $ 462 $(4,977) ======= ======= =======
Cash payments for income taxes amounted to $19,837,000, $537,000 and $6,637,000 for fiscal 1997, 1996 and 1995, respectively. Deferred income tax assets (liabilities) are comprised of the following:
SEPTEMBER 28, SEPTEMBER 29, 1997 1996 ------------- ------------- (IN THOUSANDS) Loss on impairment of long-lived assets................... $ 3,906 $ 3,906 Depreciation.............................................. (23,916) (21,658) Other postretirement benefits............................. 12,928 12,565 Accrued pension liability................................. (5,407) 8,796 Deferred compensation..................................... 8,968 7,743 Tax benefit purchases..................................... -- (1,143) Other non-current......................................... 3,133 4,009 -------- -------- Total net non-current (liability) asset................... (388) 14,218 -------- -------- Other accrued expenses.................................... 885 2,288 Inventory................................................. (2,078) (243) Other current............................................. 609 980 -------- -------- Total net current (liability) asset....................... (584) 3,025 -------- -------- Net deferred (liability) asset............................ $ ( 972) $ 17,243 ======== ========
F-30 140 SAVANNAH FOODS & INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation between the provision for (benefit from) income taxes and the amount computed by applying the U. S. federal income tax rate to income before income taxes and extraordinary item is as follows:
FISCAL YEAR ENDED -------------------------------------------- SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1, 1997 1996 1995 ------------- ------------- ---------- (IN THOUSANDS) Computed "expected" tax expenses (benefit)..... $17,712 $3,292 $(2,127) Increases (reductions) in taxes resulting from: State income taxes, net of federal income tax benefit................................... 1,524 224 280 Tax-free income earned....................... (756) (221) (120) Tax rate benefit of NOL carryback............ -- (600) -- Merger costs................................. 177 -- -- Other........................................ 479 43 (618) ------- ------ ------- 19,136 2,738 (2,585) Extraordinary item............................. (236) (570) -- ------- ------ ------- Provision for (benefit from) income taxes...... $18,900 $2,168 $(2,585) ======= ====== =======
NOTE 8 -- PENSION PLANS: Substantially all employees and retirees of the Company are covered by noncontributory defined benefit pension plans. The Company also provides supplemental pension benefits to certain retired employees. The supplemental pension benefits are determined annually by the Board of Directors. The Company's largest defined benefit plan provides employees a retirement benefit based on a percentage of their final three year average pay. Effective July 1, 1996, this percentage of final pay was modified, and provisions to reduce pension benefits for early retirement were incorporated into this plan. These modifications, along with some other minor changes, reduced the "projected benefit obligation" at September 29, 1996 by $3,009,000. Benefits under the noncontributory defined benefit pension plans for bargaining employees are primarily based on years of service. The Company's contribution policy for all pension plans is to contribute at least the minimum amount required by the Employee Retirement Income Security Act. At September 28, 1997, the assets of these plans are invested primarily in commingled institutional stock and bond funds and cash equivalents. F-31 141 SAVANNAH FOODS & INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth the status of the Company's qualified defined benefit pension plans and the pertinent assumptions used in computing this information as of the end of each respective year:
SEPTEMBER 28, SEPTEMBER 29, 1997 1996 ------------- ------------- (IN THOUSANDS) Actuarial present value of benefit obligation based on current compensation: Vested.................................................... $ (90,985) $ (80,235) Nonvested................................................. (1,580) (6,216) --------- --------- Accumulated benefit obligation.............................. (92,565) (86,451) Increase in present value of benefit obligation to reflect projected compensation increases.......................... (9,371) (4,846) --------- --------- Projected benefit obligation................................ (101,936) (91,297) Plan assets at fair value................................... 100,537 72,533 --------- --------- Projected benefit obligation in excess of plan assets....... (1,399) (18,764) Unrecognized prior service cost............................. (162) (193) Unrecognized net loss....................................... 26,990 29,810 Unrecognized net asset at transition........................ (230) (1,276) Adjustment required to recognize minimum liability.......... -- (23,495) --------- --------- Pension asset included in "Other assets" and pension (liability) included in "Deferred employee benefits"...... $ 25,199 $ (13,918) ========= ========= Actuarial assumptions: Discount rate............................................. 7.5% 7.5% Projected salary increases................................ 4.5% 4.5%
Pension expense and the assumed rate of return on plan assets used to calculate it are summarized as follows:
FISCAL YEAR ENDED -------------------------------------------- SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1, 1997 1996 1995 ------------- ------------- ---------- (IN THOUSANDS) Costs related to services provided by employees during the year.............................. $ 2,104 $ 2,070 $ 2,250 Interest cost on projected benefit obligation................................... 6,846 6,874 6,601 Actual gain on plan assets..................... (17,023) (5,939) (6,390) Net amortization and deferrals................. 10,689 659 437 -------- ------- ------- Pension expense related to defined benefit plans........................................ 2,616 3,664 2,898 Supplemental pension benefits.................. 217 205 190 -------- ------- ------- Total pension expense................ $ 2,833 $ 3,869 $ 3,088 ======== ======= ======= Actuarial assumption: Expected long-term rate of return on plan assets.................................... 9.5% 9.5% 9.5%
F-32 142 SAVANNAH FOODS & INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company has an unqualified Supplemental Executive Retirement Plan (SERP) which it amended in 1996 by freezing the years of credited service for participants as of June 30, 1996. This modification reduced the "projected benefit obligation" at September 29, 1996 by $3,689,000. The actuarially determined expense related to the SERP is summarized as follows:
FISCAL YEAR ENDED -------------------------------------------- SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1, 1997 1996 1995 ------------- ------------- ---------- (IN THOUSANDS) Costs related to services provided by employees during the year.............................. $ -- $ 316 $ 283 Interest cost on projected benefit obligation................................... 908 928 912 Net amortization and deferrals................. 136 203 169 Net curtailment gain........................... -- (189) -- ------ ------ ------ Total pension expense related to SERP plan..... $1,044 $1,258 $1,364 ====== ====== ======
The table below summarizes the status of the SERP plan and the pertinent assumptions used in computing this information at the end of each respective year:
SEPTEMBER 28, SEPTEMBER 29, 1997 1996 ------------- ------------- (IN THOUSANDS) Actuarial present value of benefit obligation based on current compensation: Vested................................................... $ (9,659) $ (7,770) Nonvested................................................ (61) (648) -------- -------- Accumulated benefit obligation............................. (9,720) (8,418) Increase in present value of benefit obligation to reflect projected compensation increases......................... (3,544) (2,613) -------- -------- Projected benefit obligation............................... (13,264) (11,031) Unrecognized prior service cost............................ -- -- Unrecognized net loss...................................... 2,666 700 Adjustment required to recognize minimum liability......... -- (273) -------- -------- Pension liability included in "Deferred employee benefits"................................................ $(10,598) $(10,604) ======== ======== Actuarial assumptions: Discount rate............................................ 7.5% 7.5% Projected salary increases............................... 4.5% 4.5%
In accordance with the provisions of Statement of Financial Accounting Standards No. 87 -- Employers' Accounting for Pensions, the Company has recorded an additional minimum liability at September 29, 1996 representing the excess of the accumulated benefit obligation over the fair value of plan assets and accrued (prepaid) pension expense for its pension and SERP plans. The additional liability has been offset by an intangible asset which is included in "Other assets" to the extent of previously unrecognized prior service cost. Amounts in excess of previously unrecognized prior service cost are recorded net of the related deferred tax benefit as a reduction of stockholders' equity of $14,038,000 at September 29, 1996. As a result of significant funding and improved asset performance during fiscal 1997, the Company was not required to record an additional minimum pension liability at September 28, 1997. F-33 143 SAVANNAH FOODS & INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 9 -- OTHER RETIREMENT AND BENEFIT PLANS: The Company has a deferred compensation program, which it modified in 1996. The modification, effective June 30, 1996, terminated all additional employee deferrals and reduced the guaranteed rate of interest paid on amounts deferred by active nonemployee directors to 8% initially, and then to the prime rate in effect on each January 1. This program allowed directors and certain management employees to defer all or a portion of their compensation and earn a guaranteed interest rate on the deferred amounts. In effect, such amounts deferred are unsecured loans to the Company. The deferred salaries and interest at the market rate are accrued as incurred. Interest above the market rate is accrued over the vesting period. The interest expense related to the Company's deferral plan was $2,529,000 in 1997, $2,523,000 in 1996, and $2,320,000 in 1995. In addition to the above deferred compensation program for directors and certain management employees, the Company maintains two stock-based deferred compensation programs for non-employee directors. See Note 10 -- Stock-Based Compensation for an explanation of these programs. The Company has included in "Deferred employee benefits" $23,661,000 at September 28, 1997 and $20,524,000 at September 29, 1996 to reflect its liability under its deferred compensation programs. As of September 28, 1997, payments required to be made to participants in these programs for the next five fiscal years are approximately $1,510,000 in 1998, $1,607,000 in 1999, $1,939,000 in 2000, $2,921,000 in 2001 and $2,323,000 in 2002. Subsequent to September 28, 1997, Imperial Holly purchased 50.1% of the Company's Common Stock. As a result, the "change in control" provisions of the nonemployee directors deferred compensation programs were implemented. These provisions allow the nonemployee directors the option of electing to receive immediate payment of their vested balances in these programs. After these elections were made, payments required to be made to participants in these programs for the next five fiscal years are approximately $7,707,000 in 1998, $1,607,000 in 1999, $1,930,000 in 2000, $2,029,000 in 2001 and $2,058,000 in 2002. The Company sponsors 401(k) plans in which substantially all non-bargaining employees and certain bargaining unit employees are eligible to participate. These plans allow eligible employees to save a portion of their salary on a pre-tax basis. The Company makes monthly contributions to these plans which aggregated $416,000 in 1997, $449,000 in 1996, and $437,000 in 1995. The Company also sponsors an Employee Stock Ownership Plan (ESOP). Substantially all non-bargaining employees participate and receive shares in their account at the discretion of the Board of Directors. Expenses related to this plan have been immaterial in 1997, 1996, and 1995. Under the terms of the Company's short-term incentive compensation program, $5,635,000 was accrued in "Other liabilities and accrued expenses" at September 28, 1997. The Company also sponsors benefit plans that provide postretirement health care and life insurance benefits to certain employees who meet the applicable eligibility requirements. The cost of postretirement health care and life insurance benefits is summarized as follows:
FISCAL YEAR ENDED ------------------------------------------ SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1, 1997 1996 1995 ------------- ------------- ---------- (IN THOUSANDS) Costs related to services provided by employees during the year................................ $ 430 $ 520 $ 476 Interest cost on accumulated benefit obligation..................................... 2,370 2,408 2,447 ------ ------ ------ Total postretirement benefit expense............. $2,800 $2,928 $2,923 ====== ====== ======
F-34 144 SAVANNAH FOODS & INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The actuarial and recorded liabilities for these postretirement benefits, none of which have been funded, and the pertinent assumptions used to compute this information are as follows:
SEPTEMBER 28, SEPTEMBER 29, 1997 1996 ------------- ------------- (IN THOUSANDS) Accumulated postretirement benefit obligation: Retirees................................................. $(23,513) $(20,594) Active participants...................................... (5,961) (11,865) -------- -------- Accumulated benefit obligation............................. (29,474) (32,459) Unrecognized net gain...................................... (5,325) (1,329) -------- -------- Accrued postretirement benefit obligation included in "Deferred employee benefits"............................. $(34,799) $(33,788) ======== ======== Actuarial assumptions: Discount rate............................................ 7.5% 7.5% Health care cost trend rate -- Fiscal 1997 -- 1999................................... 7.5% 7.5% Fiscal 2000 -- 2004................................... 6.0% 6.0% Thereafter............................................ 5.0% 5.0%
Increasing the health care cost trend rate assumption by one percentage point would have increased the accumulated postretirement benefit obligation as of September 28, 1997 by approximately $1,597,000 and would have increased postretirement benefit expense by approximately $221,000 in fiscal 1997. NOTE 10 -- STOCK-BASED COMPENSATION: The Company has four stock-based compensation plans which are described below. On December 16, 1996, the Board of Directors adopted the 1996 Equity Incentive Plan and granted options for employees to purchase 187,558 shares of Common Stock. The options granted vested over a three-year period. Under the terms of the Merger Agreement with Imperial Holly, the 187,558 options became vested, and employees holding these options will, in general, receive cash for the difference between $20.25 and their exercise price of $13.94, and the options and the plan will be canceled. The cost related to this plan was $43,000 in fiscal 1997. In fiscal 1996 the Company had entered into an agreement which granted the Company's Chairman of the Board an option to purchase 100,000 shares of Common Stock. This option was surrendered back to the Company in 1997 unexercised and there are no continuing rights under this option. To make accounting estimates to calculate the fair value of the above options at the date of grant using the Black-Scholes option pricing model, the Company assumed a dividend yield of 1.0%, expected volatility of 36.5%, a risk free interest rate of 6.2%, and an expected life of 5 years. If compensation costs for options had been recorded based on the fair value of the options at the date of grant, such costs, and reported net income, would have changed by insignificant amounts. The Company maintains two share unit plans for the non-employee members of its Board of Directors ("Outside Directors"). One plan relates to the modification of prior deferred compensation agreements and the other relates to annual retainers paid to the Directors after June 30, 1996. Effective June 30, 1996, the existing deferred compensation agreements with all active Outside Directors were modified to reduce the guaranteed interest rate to 8%, and then to the prime rate in effect on each January 1. The effect of this modification is estimated to have reduced the present value, as of June 30, 1996, F-35 145 SAVANNAH FOODS & INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of the payments which ultimately will be paid to the Outside Directors under the related deferred compensation agreements by $2,600,000. As consideration for the reduction in the interest rate credited on the Outside Directors' deferred compensation, a Supplemental Share Unit Plan was established for these Directors. This plan granted 111,619 share units (a share unit is the equivalent of one share of Company Common Stock) to these Directors at an $11.00 per share unit price. At the $11.00 per share unit price these share units had a value of $1,228,000 compared to the $2,600,000 reduced value of the deferred compensation agreements. The value of each share unit fluctuates based on the highest daily closing price of the Company's Common Stock during the preceding twelve-month period. Dividend equivalents are reinvested in additional share units. Under the terms of the Merger Agreement with Imperial Holly Corporation, these share units were valued at $20.25 and the Outside Directors have the option to receive cash upon consummation of the Merger, or to defer the cash value of such share units and to receive interest at the prime rate. The Board of Directors adopted a Non-Employee Directors' Compensation Plan as of July 1, 1996. Under this plan, the annual compensation paid to the Directors as a retainer was set at 1,820 share units per year for 5 1/2 years. Each Director vests in 455 share units on the last day of each calendar quarter, as long as the Director remains on the Board of Directors. Under this plan, 110,110 share units were granted which covered the 5 1/2 year term of the Plan. In fiscal 1997, 8,645 shares were forfeited. In fiscal 1996 and fiscal 1997, respectively, 5,005 and 19,110 share units vested. Under the terms of the Plan, when Imperial Holly successfully tendered for 50.1% of the outstanding shares of the Company, 69,615 share units, which would have been received through the 5 1/2 year Plan term, became vested. All vested share units were valued at $20.25 and the Outside Directors have the option to receive cash upon consummation of the Merger, or to defer the cash value of such share units and to receive interest at the prime rate. The expense related to the two share unit plans for the Outside Directors was $951,000 in fiscal 1997 and $1,633,000 in fiscal 1996. NOTE 11 -- STOCKHOLDERS' EQUITY AND BENEFIT TRUST: The Certificate of Incorporation of the Company, as amended, authorizes a class of preferred stock to consist of up to 1,000,000 shares of $.50 par value stock. The Board of Directors can determine the characteristics of the preferred stock without further stockholder approval. During fiscal 1996, the Company established a Benefit Trust (the "Trust") with 2,500,000 shares of treasury stock. The purpose of this Trust was to enhance the Company's financial flexibility to provide funds to satisfy its obligations under various employee benefit plans and agreements. The employee benefits payable from the Trust are primarily included in the $69,058,000 "Deferred employee benefits" liability. Shares held by the Trust are not considered outstanding for earnings per share calculations until they are sold, but are considered outstanding for shareholder voting purposes. The shares are voted based upon the voting results of the shares held in the Company's Employee Stock Ownership Plan. To record this transaction, the Company reduced "Treasury stock" by the average cost of these shares to the Company, or $15,426,000, and the fair market value of the stock was recorded as "Stock held by benefit trust" to reflect a note payable to the Company for the market value of the 2,500,000 shares of stock. "Capital in excess of stated value" was increased for the difference of $11,449,000 between the cost of the shares and their fair value. Each quarter, "Stock held by benefit trust" is adjusted to the fair market value of the shares held in the Trust, and an adjustment for the same amount is made to "Capital in excess of stated value". At September 28, 1997, the market value of the stock was $18.75 per share. F-36 146 SAVANNAH FOODS & INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Once the tender offer and Merger with Imperial Holly is completed as discussed in Note 2, the Benefit Trust will have received an estimated $38,415,000 and 921,000 shares of Imperial Holly Corporation common stock. Under the terms of the Trust, as amended, the cash received from the tender offer was used to repay to the Company the note payable due for the shares, plus accrued interest, aggregating $27,621,000. The balance of the cash will be used to purchase common stock of Imperial Holly. This purchased stock, along with the 921,000 shares of Imperial Holly common stock received in the Merger, can only be used to either make, or to reimburse Imperial Holly for, payments due to Savannah Foods employees and retirees for liabilities under deferred compensation plans aggregating $23,661,000 and under supplemental executive retirement plans aggregating $10,598,000 at September 28, 1997. NOTE 12 -- COMMITMENTS AND CONTINGENCIES: The Company has contracted for the purchase of a substantial portion of its future raw sugar requirements. Prices to be paid for raw sugar under these contracts are based in some cases on market prices during the anticipated delivery month. In other cases prices are fixed and, in these instances, the Company generally obtains commitments from its customers to buy the sugar prior to fixing the price, or enters into futures transactions to hedge the commitment. The Company is exposed to loss in the event of non-performance by the other party to the interest rate swap agreements discussed in Note 6. However, the Company does not anticipate non-performance by the counter-parties to the transactions. As of the end of fiscal 1997, the Company has resolved substantially all of the claims by the United States Customs Service (Customs) in the Company's favor. Customs had alleged that drawback claims prepared by the Company for certain export shipments of sugar during the years 1984 to 1988 were technically and/or substantively deficient and that the Company, therefore, was not entitled to amounts previously received under these drawback claims. The Company disputed Customs' findings and has been vigorously protesting this matter with Customs. The Company has employment agreements with certain senior management which contain "change in control" provisions. The Company could be required to pay up to $5,900,000 to these employees as a result of Imperial Holly's purchase of 50.1% of the Company's Common Stock. F-37 147 SAVANNAH FOODS & INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 13 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED): Unaudited quarterly financial information for fiscal 1997 and 1996 is as follows:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS) FISCAL 1997 Net sales..................................... $303,121 $276,489 $303,546 $308,683 Gross profit.................................. 37,652 36,355 40,446 39,884 Other costs................................... -- -- -- (13,394) Income from operations........................ 16,408 16,354 19,681 5,215 Income before extraordinary item.............. 9,148 8,829 11,402 2,702 Per share................................... .35 .34 .43 .10 Net income.................................... 9,148 8,829 11,026 2,702 Per share................................... .35 .34 .42 .10 FISCAL 1996 Net sales..................................... $304,409 $250,804 $287,462 $303,657 Gross profit.................................. 27,937 24,951 31,151 34,075 Impairment loss............................... -- -- -- (10,280) Other costs................................... 1,525 (3,800) -- (1,099) Income from operations........................ 8,550 162 10,906 2,181 Income (loss) before extraordinary item....... 3,543 (2,043) 4,726 717 Per share................................ .14 (.08) .18 .03 Net income (loss)............................. 3,543 (2,043) 4,028 444 Per share................................... .14 (.08) .15 .02
"Other costs" included above and in the Consolidated Statements of Operations include the following:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS) FISCAL 1997 Merger related costs: Termination fee and expenses.................. $ -- $ -- $ -- $ (8,000) Legal and administrative expenses............. -- -- -- (3,894) Cost of workforce reduction................... -- -- -- (1,500) -------- -------- -------- -------- Other costs................................... $ -- $ -- $ -- $(13,394) ======== ======== ======== ======== FISCAL 1996 Net gain (loss) on asset disposals............ $ 1,525 $ (3,800) $ -- $ (376) Cost of workforce reduction................... -- -- -- (723) -------- -------- -------- -------- Other costs................................... $ 1,525 $ (3,800) $ -- $ (1,099) ======== ======== ======== ========
F-38 148 =============================================================================== ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE AGENT AS FOLLOWS: By Mail.: THE BANK OF NEW YORK Tender and Exchange Department P. O. Box 11248 Church Street Station New York, NY 10286-1248 By Overnight Courier or Hand Delivery: THE BANK OF NEW YORK Tender and Exchange Department 101 Barclay Street Receive & Deliver Window New York, NY 10286 By Facsimile Transmission: (for Eligible Institutions only) (212) 815-6213 Attention: Confirm by Telephone: (212) 507-9357 (Originals of all documents submitted by facsimile should be sent promptly by hand, overnight delivery, or registered or certified mail.) --------------------- NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE INITIAL PURCHASERS OR ANY OF THEIR RESPECTIVE AFFILIATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL. OR A SOLICITATION TO BUY, THE NOTES IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. =============================================================================== =============================================================================== $250,000,000 EXCHANGE OFFER IMPERIAL HOLLY CORPORATION 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A ------------------------ PROSPECTUS ------------------------ TABLE OF CONTENTS
Prospectus Summary.......................... 1 Disclosure Regarding Forward-Looking Statements................................ 12 Risk Factors................................ 12 The Exchange Offer.......................... 19 Use of Proceeds............................. 28 Capitalization.............................. 28 Pro Forma Financial Statements.............. 29 Selected Historical Consolidated Financial Information............................... 35 Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 37 Business.................................... 43 Board of Directors and Management........... 54 Certain Relationships and Related Transactions.............................. 58 Ownership of Common Stock................... 59 Description of the Transactions............. 61 Description of Indebtedness................. 61 Description of the Notes.................... 64 Plan of Distribution........................ 102 Legal Matters............................... 103 Experts..................................... 103 Available Information....................... 103 Incorporation of Certain Documents by Reference................................. 104 Index to Financial Statements............... F-1
, 1998 =============================================================================== 149 PART II ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS The Company's Articles of Incorporation provide that a director will not be liable to the corporation or its stockholders for monetary damages for an act or omission in such director's capacity as director, except in the case of: (i) breach of such director's duty of loyalty to the corporation or its stockholders, (ii) an act or omission not in good faith or that involves intentional misconduct or a knowing violation of the law, (iii) a transaction from which the director received an improper benefit, (iv) an act or omission for which the liability of a director is expressly provided for by statute or (v) an act related to an unlawful stock repurchase or payment of a dividend. The Company's Bylaws provide that the corporation will indemnify, and advance expenses (including court costs and attorney's fees) to, any officer, director, employee or agent to the fullest extent permitted by applicable law at the time of the adoption of the the Company's Bylaws and such greater extent as applicable law may thereafter permit. Under the Texas Business Corporation Act (the "TBCA"), directors, officers, employees or agents are entitled to indemnification against expenses (including attorneys' fees) whenever they successfully defend legal proceedings brought against them by reason of the fact that they hold such a position with the corporation. In addition, with respect to actions not brought by or in the right of the corporation, indemnification is permitted under the TBCA for expenses (including attorneys' fees), judgments, fines, penalties and reasonable settlement if it is determined that the person seeking indemnification acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation or its shareholders and, with respect to criminal proceedings he or she had no reasonable cause to believe that his or her conduct was unlawful. With respect to actions brought by or in the right of the corporation, indemnification is permitted under the TBCA for expenses (including attorneys' fees) and reasonable settlements, if it is determined that the person seeking indemnification acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation or its shareholders; provided, indemnification is not permitted if the person is found liable to the corporation, unless the court in which the court or suit was brought has determined that indemnification is fair and reasonable in view of all the circumstances of the case. Under an insurance policy maintained by the Company, the directors and officers of the Company are insured within the limits and subject to the limitations of the policy, against certain expenses in connection with the defense of certain claims, actions, suits or proceedings and certain liabilities which might be imposed as a result of such claims, action, suits or proceedings, which may be brought against them by reason of being or having been such directors and officers. ITEM 21. EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- *2(a) -- Agreement and Plan of Merger, dated September 12, 1997, among Imperial Holly Corporation, IHK Merger Sub Corporation and Savannah Foods & Industries, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-4 (Registration No. 333-40445) (the "Savannah S-4")). *3(a) -- Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3(b) to the Company's Registration Statement on Form S-4 (Registration No. 33-20959)). *3(b) -- Articles of Amendment to Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990 (File No. 1- 10307)).
II-1 150
EXHIBIT NUMBER DESCRIPTION ------- ----------- *3(c) -- By-Laws of the Company (incorporated by reference to Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended March 31, 1989 (File No. 0-16674) (the "1989 Form 10-K")). +4(a)(1) -- Amended and Restated Credit Agreement, dated as of December 22, 1997, among Imperial Holly Corporation, as Borrower, the Several Lenders from time to time Parties thereto, Lehman Brothers, Inc., as Arranger, Lehman Brothers Commercial Paper, Inc., as Syndication Agent and Harris Trust and Savings Bank, as Administrative and Collateral Agent. +4(a)(2) -- Amended and Restated Guarantee and Collateral Agreement, dated as of December 22, 1997, made by Imperial Holly Corporation and certain of its Subsidiaries in favor of Harris Trust and Savings Bank, as Collateral Agent. +4(b) -- Indenture dated as of December 22, 1997 between the Company, certain subsidiaries of the Company and The Bank of New York, as Trustee, relating to the Company's 9 3/4% Senior Subordinated Notes due 2007 (including form of 9 3/4% Senior Subordinated Note due 2007 and form of Subsidiary Guarantee). *4(c) -- Indenture dated as of October 15, 1992 by and between the Company and Texas Commerce Bank National Association, as Trustee, relating to the Company's 8 3/8% Senior Notes due 1999 (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992 (File 1-10307)). +5(a) -- Opinion of Andrews & Kurth L.L.P. as to the legality of the securities being registered. *10(a) -- Imperial Holly Corporation Stock Incentive Plan (as amended and restated effective May 1, 1997) (incorporated by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year ended March 31, 1997 (File No. 1-10307) (the "1997 Form 10-K")). *10(b) -- Specimen of the Company's Employment Agreement for certain of its officers (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990 (File No. 1-10307) (the "September 1990 Form 10-Q")). *10(b)(2) -- Specimen of the Company's Amendment to Employment Agreement for certain of its officers (incorporated by reference to Exhibit 10(c)(2) to the 1994 Form 10-K). *10(b)(3) -- Schedule of Employment Agreements (incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 (File No. 1-10307) (the "September 1994 Form 10-Q")). *10(c) -- Specimen of the Company's Severance Pay Agreements for certain of its officers (incorporated by reference to Exhibit 10.2 to the September 1990 Form 10-Q). *10(d)(1) -- Imperial Holly Corporation Salary Continuation Plan (as amended and restated effective August 1, 1994) (incorporated by reference to Exhibit 10(b)(1) to the September 1994 Form 10-Q). *10(d)(2) -- Specimen of the Company's Salary Continuation Agreement (Fully Vested) (incorporated by reference to Exhibit 10(b)(2) to the September 1994 Form 10-Q). *10(d)(3) -- Specimen of the Company's Salary Continuation Agreement (Graduated Vesting) (incorporated by reference to Exhibit 10(b)(3) to the September 1994 Form 10-Q).
II-2 151
EXHIBIT NUMBER DESCRIPTION ------- ----------- *10(d)(4) -- Schedule of Salary Continuation Agreements (incorporated by reference to Exhibit 10(d)(4) to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 (File No. 1-10307) (the "1996 Form 10-K")). *10(e)(1) -- Imperial Holly Corporation Benefit Restoration Plan (as amended and restated effective August 1, 1994) (incorporated by reference to Exhibit 10(c)(1) to the September 1994 Form 10-Q). *10(e)(2) -- Specimen of the Company's Benefit Restoration Agreement (Fully Vested) (incorporated by reference to Exhibit 10(c)(2) to the September 1994 Form 10-Q). *10(e)(3) -- Specimen of the Company's Benefit Restoration Agreement (Graduated Vesting) (incorporated by reference to Exhibit 10(c)(3) to the September 1994 Form 10-Q). *10(e)(4) -- Schedule of Benefit Restoration Agreements (incorporated by reference to Exhibit 10(e)(4) to the 1996 Form 10-K). *10(f)(1) -- Imperial Holly Corporation Executive Benefits Trust (incorporated by reference to Exhibit 10.5 to the September 1990 Form 10-Q). *10(f)(2) -- First Amendment to the Company's Executive Benefits Trust dated June 4, 1991 (incorporated by reference to Exhibit 10(g)(2) to the 1994 Form 10-K). *10(g) -- Imperial Holly Corporation 1989 Nonemployee Director Stock Option Plan (incorporated by reference to Exhibit A to the Company's Proxy Statement dated June 16, 1989 for the 1989 Annual Meeting of Shareholders, File No. 0-16674). *10(h) -- Imperial Holly Corporation Retirement Plan For Nonemployee Directors (incorporated by reference to Exhibit 10(j) to the 1994 Form 10-K). *10(i)(1) -- Specimen of the Company's Change of Control Agreement (incorporated by reference to Exhibit 10(d)(1) to the September 1994 Form 10-Q). *10(i)(2) -- Schedule of Change of Control Agreements (incorporated by reference to Exhibit 10(i)(2) to the 1997 Form 10-K). *10(j) -- Independent Consultant Agreement between I. H. Kempner III and the Company (incorporated by reference to Exhibit 10(k) to the 1996 Form 10-K). *10(k) -- Specimen of the Company's Restricted Stock Agreement with certain of its officers (incorporated by reference to Exhibit 10(k) to the 1997 Form 10-K). *10(l) -- Schedule of Restricted Stock Agreements (incorporated by reference to Exhibit 10(l) to the 1997 Form 10-K). *10(m) -- Agreement of Limited Partnership of ChartCo Terminal, L.P. (incorporated by reference to Exhibit 10(j) to the 1990 Form 10-K). *11 -- Computation of Income Per Common Share (incorporated by reference to Exhibit 11 to the Company's Transition Report on Form 10-K for the six months ended September 30, 1997). +21 -- Subsidiaries of the Company. +23.1 -- Consent of Deloitte & Touche LLP, Independent Auditors. +23.2 -- Consent of Arthur Andersen LLP, Independent Public Accountants. +23.3 -- Consent of Price Waterhouse LLP, Independent Accountants. +23.4 -- Consent of Andrews & Kurth L.L.P. (included in opinion filed as Exhibit 5(a)). +99(a) -- Form of Letter of Transmittal. +99(b) -- Form of Notice of Guaranteed Delivery.
II-3 152 - --------------- * Indicates exhibit previously filed with the Commission and incorporated by reference. + Indicates filed herewith. FINANCIAL STATEMENT SCHEDULES None. ITEM 22. UNDERTAKINGS The undersigned Registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (b) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-4 153 The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15 (d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10 (b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-5 154 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrants set forth below have duly caused this Registration Statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Sugar Land, State of Texas on the day of January, 1998. IMPERIAL HOLLY CORPORATION SAVANNAH FOODS & INDUSTRIES, INC. BIOMASS CORPORATION DIXIE CRYSTALS BRANDS, INC. DIXIE CRYSTALS FOODSERVICE, INC. KING PACKAGING COMPANY, INC. FOOD CARRIER, INC. MICHIGAN SUGAR COMPANY GREAT LAKES SUGAR COMPANY SAVANNAH FOODS INDUSTRIAL, INC. PHOENIX PACKAGING CORPORATION SAVANNAH INVESTMENT COMPANY SAVANNAH SUGAR REFINING CORPORATION HOLLY SUGAR CORPORATION FORT BEND UTILITIES COMPANY HOLLY NORTHWEST COMPANY By: ---------------------------------------- William F. Schwer Senior Vice President IMPERIAL SWEETENER DISTRIBUTORS, INC. By: ---------------------------------------- William F. Schwer Vice President CROWN EXPRESS, INC. LIMESTONE PRODUCTS COMPANY, INC. By: ---------------------------------------- William F. Schwer Vice President II-6 155 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James C. Kempner, H.P. Mechler, and William F. Schwer and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign, execute and file this registration statement under the Securities Act and any and all amendments (including, without limitation, post-effective amendments and any amendment or amendments or additional registration statement filed pursuant to Rule 462 under the Securities Act increasing the amount of securities for which registration is being sought) to this registration statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, to sign any and all applications, registration statements, notices or other documents necessary or advisable to comply with the applicable state security laws, and to file the same, together with other documents in connection therewith, with the appropriate state securities authorities, granting unto said attorney-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intends and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE --------- ----- ---- IMPERIAL HOLLY CORPORATION President, Chief Executive January 23, 1998 - ----------------------------------------------------- Officer, Chief Financial Officer James C. Kempner and Director (Principal Executive and Financial Officer) Vice President -- Accounting January 23, 1998 - ----------------------------------------------------- (Principal Accounting Officer) H.P. Mechler Director January 23, 1998 - ----------------------------------------------------- John D. Curtin, Jr. Director January 23, 1998 - ----------------------------------------------------- David J. Dilger Director January 23, 1998 - ----------------------------------------------------- Edward O. Gaylord Director January 23, 1998 - ----------------------------------------------------- Gerald Grinstein Director January 23, 1998 - ----------------------------------------------------- Ann O. Hamilton Director January 23, 1998 - ----------------------------------------------------- Robert L. Harrison
II-7 156
SIGNATURE TITLE DATE --------- ----- ---- Director January 23, 1998 - ----------------------------------------------------- Harris L. Kempner, Jr. Director January 23, 1998 - ----------------------------------------------------- I. H. Kempner, III Director January 23, 1998 - ----------------------------------------------------- H. E. Lentz Director January 23, 1998 - ----------------------------------------------------- Kevin C. O'Sullivan Director January 23, 1998 - ----------------------------------------------------- Fayez Sarofim Director January 23, 1998 - ----------------------------------------------------- William F. Sprague III Director January 23, 1998 - ----------------------------------------------------- Daniel K. Thorne SAVANNAH FOODS & INDUSTRIES, INC. Chairman of the Board, Chief January 23, 1998 - ----------------------------------------------------- Financial Officer and Director James C. Kempner (Principal Executive, Financial and Accounting Officer) Director January 23, 1998 - ----------------------------------------------------- Peter C. Carrothers Director January 23, 1998 - ----------------------------------------------------- Douglas W. Ehrenkranz Director January 23, 1998 - ----------------------------------------------------- Roger W. Hill Director January 23, 1998 - ----------------------------------------------------- Karen L. Mercer Director January 23, 1998 - ----------------------------------------------------- John A. Richmond Director January 23, 1998 - ----------------------------------------------------- William F. Schwer
II-8 157
SIGNATURE TITLE DATE --------- ----- ---- Director January 23, 1998 - ----------------------------------------------------- William W. Sprague, III BIOMASS CORPORATION Chairman of the Board and January 23, 1998 - ----------------------------------------------------- Treasurer (Principal Executive, James C. Kempner Financial and Accounting Officer) Director January 23, 1998 - ----------------------------------------------------- Benjamin A. Oxnard, Jr. Director January 23, 1998 - ----------------------------------------------------- William W. Sprague, III DIXIE CRYSTALS BRANDS, INC. Chairman of the Board and January 23, 1998 - ----------------------------------------------------- Treasurer (Principal Executive, James C. Kempner Financial and Accounting Officer) Director January 23, 1998 - ----------------------------------------------------- David H. Roche Director January 23, 1998 - ----------------------------------------------------- James M. Kelley Director January 23, 1998 - ----------------------------------------------------- William W. Sprague, III Director January 23, 1998 - ----------------------------------------------------- Benjamin A. Oxnard, Jr. DIXIE CRYSTALS FOODSERVICE, INC. Chairman of the Board and January 23, 1998 - ----------------------------------------------------- Treasurer (Principal Executive, James C. Kempner Financial and Accounting Officer) Director January 23, 1998 - ----------------------------------------------------- David H. Roche Director January 23, 1998 - ----------------------------------------------------- James M. Kelley
II-9 158
SIGNATURE TITLE DATE --------- ----- ---- Director January 23, 1998 - ----------------------------------------------------- William W. Sprague, III Director January 23, 1998 - ----------------------------------------------------- Benjamin A. Oxnard, Jr. KING PACKAGING COMPANY, INC. Chairman of the Board and January 23, 1998 - ----------------------------------------------------- Treasurer (Principal Executive, James C. Kempner Financial and Accounting Officer) Director January 23, 1998 - ----------------------------------------------------- David H. Roche Director January 23, 1998 - ----------------------------------------------------- James M. Kelley Director January 23, 1998 - ----------------------------------------------------- William W. Sprague, III Director January 23, 1998 - ----------------------------------------------------- Benjamin A. Oxnard, Jr. FOOD CARRIER, INC. Chairman of the Board (Principal January 23, 1998 - ----------------------------------------------------- Executive Officer) James C. Kempner Treasurer and Director (Principal January 23, 1998 - ----------------------------------------------------- Financial and Accounting Robert Hickox Officer) Director January 23, 1998 - ----------------------------------------------------- Benjamin A. Oxnard, Jr. Director January 23, 1998 - ----------------------------------------------------- Edward H. Millard, Jr. MICHIGAN SUGAR COMPANY Chairman of the Board (Principal January 23, 1998 - ----------------------------------------------------- Executive Officer) James C. Kempner
II-10 159
SIGNATURE TITLE DATE --------- ----- ---- Treasurer and Director (Principal January 23, 1998 - ----------------------------------------------------- Financial and Accounting David H. Roche Officer) Director January 23, 1998 - ----------------------------------------------------- William W. Sprague, III Director January 23, 1998 - ----------------------------------------------------- Gregory H. Smith Director January 23, 1998 - ----------------------------------------------------- Mark S. Flegenheimer GREAT LAKES SUGAR COMPANY Chairman of the Board (Principal January 23, 1998 - ----------------------------------------------------- Executive Officer) James C. Kempner Treasurer and Director (Principal January 23, 1998 - ----------------------------------------------------- Financial and Accounting David H. Roche Officer) Director January 23, 1998 - ----------------------------------------------------- William W. Sprague, III Director January 23, 1998 - ----------------------------------------------------- Gregory H. Smith Director January 23, 1998 - ----------------------------------------------------- Mark S. Flegenheimer SAVANNAH FOODS INDUSTRIAL, INC. Chairman of the Board (Principal January 23, 1998 - ----------------------------------------------------- Executive Officer) James C. Kempner Treasurer (Principal Financial and January 23, 1998 - ----------------------------------------------------- Accounting Officer) Katrina Wigren Director January 23, 1998 - ----------------------------------------------------- William W. Sprague, III Director January 23, 1998 - ----------------------------------------------------- David H. Roche
II-11 160
SIGNATURE TITLE DATE --------- ----- ---- Director January 23, 1998 - ----------------------------------------------------- James M. Kelley PHOENIX PACKAGING CORPORATION Chairman of the Board and January 23, 1998 - ----------------------------------------------------- Treasurer (Principal Executive, James C. Kempner Financial and Accounting Officer) Director January 23, 1998 - ----------------------------------------------------- David H. Roche Director January 23, 1998 - ----------------------------------------------------- Benjamin A. Oxnard, Jr. Director January 23, 1998 - ----------------------------------------------------- Gregory H. Smith SAVANNAH INVESTMENT COMPANY Chairman of the Board (Principal January 23, 1998 - ----------------------------------------------------- Executive Officer) James C. Kempner Treasurer (Principal Financial and January 23, 1998 - ----------------------------------------------------- Accounting Officer) John P. Garniewski Director January 23, 1998 - ----------------------------------------------------- Doug Hutchins Director January 23, 1998 - ----------------------------------------------------- Peter C. Fulweiler Director January 23, 1998 - ----------------------------------------------------- Carl Boland Director January 23, 1998 - ----------------------------------------------------- Gregory H. Smith Director January 23, 1998 - ----------------------------------------------------- Arthur Dana
II-12 161
SIGNATURE TITLE DATE --------- ----- ---- SAVANNAH SUGAR REFINING CORPORATION Chairman of the Board and January 23, 1998 - ----------------------------------------------------- Treasurer (Principal Executive, James C. Kempner Financial and Accounting Officer) Director January 23, 1998 - ----------------------------------------------------- Benjamin A. Oxnard, Jr. Director January 23, 1998 - ----------------------------------------------------- William W. Sprague, III Director January 23, 1998 - ----------------------------------------------------- Gregory H. Smith HOLLY SUGAR CORPORATION President, Chief Executive Officer January 23, 1998 - ----------------------------------------------------- and Director (Principal Roger W. Hill Executive Officer) Treasurer (Principal Financial and January 23, 1998 - ----------------------------------------------------- Accounting Officer) Karen L. Mercer Chairman of the Board and Director January 23, 1998 - ----------------------------------------------------- James C. Kempner Senior Vice President, General January 23, 1998 - ----------------------------------------------------- Counsel, Corporate Secretary and William F. Schwer Director Director January 23, 1998 - ----------------------------------------------------- John A. Richmond IMPERIAL SWEETENER DISTRIBUTION, INC. President, Chief Executive Officer January 23, 1998 - ----------------------------------------------------- and Director (Principal James C. Kempner Executive Officer) Treasurer (Principal Financial and January 23, 1998 - ----------------------------------------------------- Accounting Officer) Karen L. Mercer
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SIGNATURE TITLE DATE --------- ----- ---- Director January 23, 1998 - ----------------------------------------------------- Peter C. Carrothers Secretary and Director January 23, 1998 - ----------------------------------------------------- Roy E. Henderson FORT BEND UTILITIES COMPANY President, Chief Executive Officer January 23, 1998 - ----------------------------------------------------- and Director (Principal James C. Kempner Executive Officer) Treasurer (Principal Financial and January 23, 1998 - ----------------------------------------------------- Accounting Officer) Karen L. Mercer Secretary and Director January 23, 1998 - ----------------------------------------------------- Roy E. Henderson Director January 23, 1998 - ----------------------------------------------------- I. H. Kempner, III LIMESTONE PRODUCTS COMPANY President and Director (Principal January 23, 1998 - ----------------------------------------------------- Executive Officer) William F. Schwer Treasurer (Principal Financial and January 23, 1998 - ----------------------------------------------------- Accounting Officer) Karen L. Mercer Vice President and Director January 23, 1998 - ----------------------------------------------------- Robert A. Strickland Director January 23, 1998 - ----------------------------------------------------- John A. Richmond HOLLY NORTHWEST COMPANY President and Director (Principal January 23, 1998 - ----------------------------------------------------- Executive Officer) Roger W. Hill Treasurer (Principal Financial and January 23, 1998 - ----------------------------------------------------- Accounting Officer) Alan Lebsock Director January 23, 1998 - ----------------------------------------------------- James C. Kempner
II-14 163
SIGNATURE TITLE DATE --------- ----- ---- Director January 23, 1998 - ----------------------------------------------------- William F. Schwer CROWN EXPRESS, INC. President and Director (Principal January 23, 1998 - ----------------------------------------------------- Executive Officer) William F. Schwer Vice President, Treasurer and January 23, 1998 - ----------------------------------------------------- Director (Principal Financial Peter C. Carrothers and Accounting Officer) Secretary and Director January 23, 1998 - ----------------------------------------------------- Roy E. Henderson
II-15 164 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- *2(a) -- Agreement and Plan of Merger, dated September 12, 1997, among Imperial Holly Corporation, IHK Merger Sub Corporation and Savannah Foods & Industries, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-4 (Registration No. 333-40445) (the "Savannah S-4")). *3(a) -- Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3(b) to the Company's Registration Statement on Form S-4 (Registration No. 33-20959)). *3(b) -- Articles of Amendment to Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990 (File No. 1- 10307)). *3(c) -- By-Laws of the Company (incorporated by reference to Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended March 31, 1989 (File No. 0-16674) (the "1989 Form 10-K")). +4(a)(1) -- Amended and Restated Credit Agreement, dated as of December 22, 1997, among Imperial Holly Corporation, as Borrower, the Several Lenders from time to time Parties thereto, Lehman Brothers, Inc., as Arranger, Lehman Brothers Commercial Paper, Inc., as Syndication Agent and Harris Trust and Savings Bank, as Administrative and Collateral Agent. +4(a)(2) -- Amended and Restated Guarantee and Collateral Agreement, dated as of December 22, 1997, made by Imperial Holly Corporation and certain of its Subsidiaries in favor of Harris Trust and Savings Bank, as Collateral Agent. +4(b) -- Indenture dated as of December 22, 1997 between the Company, certain subsidiaries of the Company and The Bank of New York, as Trustee, relating to the Company's 9 3/4% Senior Subordinated Notes due 2007 (including form of 9 3/4% Senior Subordinated Note due 2007 and form of Subsidiary Guarantee). *4(c) -- Indenture dated as of October 15, 1992 by and between the Company and Texas Commerce Bank National Association, as Trustee, relating to the Company's 8 3/8% Senior Notes due 1999 (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992 (File 1-10307)). +5(a) -- Opinion of Andrews & Kurth L.L.P. as to the legality of the securities being registered. *10(a) -- Imperial Holly Corporation Stock Incentive Plan (as amended and restated effective May 1, 1997) (incorporated by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year ended March 31, 1997 (File No. 1-10307) (the "1997 Form 10-K")). *10(b) -- Specimen of the Company's Employment Agreement for certain of its officers (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990 (File No. 1-10307) (the "September 1990 Form 10-Q")). *10(b)(2) -- Specimen of the Company's Amendment to Employment Agreement for certain of its officers (incorporated by reference to Exhibit 10(c)(2) to the 1994 Form 10-K).
165
EXHIBIT NUMBER DESCRIPTION ------- ----------- *10(b)(3) -- Schedule of Employment Agreements (incorporated by reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 (File No. 1-10307) (the "September 1994 Form 10-Q")). *10(c) -- Specimen of the Company's Severance Pay Agreements for certain of its officers (incorporated by reference to Exhibit 10.2 to the September 1990 Form 10-Q). *10(d)(1) -- Imperial Holly Corporation Salary Continuation Plan (as amended and restated effective August 1, 1994) (incorporated by reference to Exhibit 10(b)(1) to the September 1994 Form 10-Q). *10(d)(2) -- Specimen of the Company's Salary Continuation Agreement (Fully Vested) (incorporated by reference to Exhibit 10(b)(2) to the September 1994 Form 10-Q). *10(d)(3) -- Specimen of the Company's Salary Continuation Agreement (Graduated Vesting) (incorporated by reference to Exhibit 10(b)(3) to the September 1994 Form 10-Q). *10(d)(4) -- Schedule of Salary Continuation Agreements (incorporated by reference to Exhibit 10(d)(4) to the Company's Annual Report on Form 10-K for the year ended March 31, 1996 (File No. 1-10307) (the "1996 Form 10-K")). *10(e)(1) -- Imperial Holly Corporation Benefit Restoration Plan (as amended and restated effective August 1, 1994) (incorporated by reference to Exhibit 10(c)(1) to the September 1994 Form 10-Q). *10(e)(2) -- Specimen of the Company's Benefit Restoration Agreement (Fully Vested) (incorporated by reference to Exhibit 10(c)(2) to the September 1994 Form 10-Q). *10(e)(3) -- Specimen of the Company's Benefit Restoration Agreement (Graduated Vesting) (incorporated by reference to Exhibit 10(c)(3) to the September 1994 Form 10-Q). *10(e)(4) -- Schedule of Benefit Restoration Agreements (incorporated by reference to Exhibit 10(e)(4) to the 1996 Form 10-K). *10(f)(1) -- Imperial Holly Corporation Executive Benefits Trust (incorporated by reference to Exhibit 10.5 to the September 1990 Form 10-Q). *10(f)(2) -- First Amendment to the Company's Executive Benefits Trust dated June 4, 1991 (incorporated by reference to Exhibit 10(g)(2) to the 1994 Form 10-K). *10(g) -- Imperial Holly Corporation 1989 Nonemployee Director Stock Option Plan (incorporated by reference to Exhibit A to the Company's Proxy Statement dated June 16, 1989 for the 1989 Annual Meeting of Shareholders, File No. 0-16674). *10(h) -- Imperial Holly Corporation Retirement Plan For Nonemployee Directors (incorporated by reference to Exhibit 10(j) to the 1994 Form 10-K). *10(i)(1) -- Specimen of the Company's Change of Control Agreement (incorporated by reference to Exhibit 10(d)(1) to the September 1994 Form 10-Q). *10(i)(2) -- Schedule of Change of Control Agreements (incorporated by reference to Exhibit 10(i)(2) to the 1997 Form 10-K). *10(j) -- Independent Consultant Agreement between I. H. Kempner III and the Company (incorporated by reference to Exhibit 10(k) to the 1996 Form 10-K). *10(k) -- Specimen of the Company's Restricted Stock Agreement with certain of its officers (incorporated by reference to Exhibit 10(k) to the 1997 Form 10-K).
166
EXHIBIT NUMBER DESCRIPTION - ------------------------ ------------------------------------------------------------------------------------------ *10(l) -- Schedule of Restricted Stock Agreements (incorporated by reference to Exhibit 10(l) to the 1997 Form 10-K). *10(m) -- Agreement of Limited Partnership of ChartCo Terminal, L.P. (incorporated by reference to Exhibit 10(j) to the 1990 Form 10-K). *11 -- Computation of Income Per Common Share (incorporated by reference to Exhibit 11 to the Company's Transition Report on Form 10-K for the six months ended September 30, 1997). +21 -- Subsidiaries of the Company. +23.1 -- Consent of Deloitte & Touche LLP, Independent Auditors. +23.2 -- Consent of Arthur Andersen LLP, Independent Public Accountants. +23.3 -- Consent of Price Waterhouse LLP, Independent Accountants. +23.4 -- Consent of Andrews & Kurth L.L.P. (included in opinion filed as Exhibit 5(a)). +99(a) -- Form of Letter of Transmittal. +99(b) -- Form of Notice of Guaranteed Delivery.
- --------------- * Indicates exhibit previously filed with the Commission and incorporated by reference. + Indicates filed herewith. EX-4.A1 2 CREDIT AGREEMENT - DATED 12/22/97 1 EXHIBIT 4(a)(i) EXECUTION COPY ================================================================================ $455,000,000 AMENDED AND RESTATED CREDIT AGREEMENT among IMPERIAL HOLLY CORPORATION, as Borrower, The Several Lenders from Time to Time Parties Hereto, LEHMAN BROTHERS INC., as Arranger LEHMAN COMMERCIAL PAPER INC., as Syndication Agent and HARRIS TRUST AND SAVINGS BANK, as Administrative Agent and Collateral Agent Dated as of December 22, 1997 ================================================================================ 2 TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . 2 1.1 Defined Terms . . . . . . . . . . . . . . . . . . . 2 1.2 Other Definitional Provisions . . . . . . . . . . . 28 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS . . . . . . . . . 28 2.1 Term Loan Commitments . . . . . . . . . . . . . . . 28 2.2 Procedure for Term Loan Borrowing . . . . . . . . . 28 2.3 Repayment of Term Loans . . . . . . . . . . . . . . 29 2.4 Revolving Credit Commitments . . . . . . . . . . . 30 2.5 Procedure for Revolving Credit Borrowing . . . . . 31 2.6 Swing Line Commitment . . . . . . . . . . . . . . . 31 2.7 Procedure for Swing Line Borrowing; Refunding of Swing Line Loans . . . . . . . . . . . . . . . . 32 2.8 Repayment of Loans; Evidence of Debt . . . . . . . 33 2.9 Commitment Fees, etc. . . . . . . . . . . . . . . 34 2.10 Termination or Reduction of Revolving Credit Commitments . . . . . . . . . . . . . . . . . . 34 2.11 Optional Prepayments . . . . . . . . . . . . . . . 35 2.12 Mandatory Prepayments and Commitment Reductions . 35 2.13 Conversion and Continuation Options . . . . . . . 36 2.14 Minimum Amounts and Maximum Number of Eurodollar Tranches . . . . . . . . . . . . . . . . . . . . 37 2.15 Interest Rates and Payment Dates . . . . . . . . . 37 2.16 Computation of Interest and Fees . . . . . . . . . 38 2.17 Inability to Determine Interest Rate . . . . . . . 38 2.18 Pro Rata Treatment and Payments . . . . . . . . . 39 2.19 Requirements of Law . . . . . . . . . . . . . . . 41 2.20 Taxes . . . . . . . . . . . . . . . . . . . . . . 42 2.21 Indemnity . . . . . . . . . . . . . . . . . . . . 44 2.22 Change of Lending Office; Claims Certificate . . . 44 2.23 Margin Regulations . . . . . . . . . . . . . . . . 45 2.24 Illegality . . . . . . . . . . . . . . . . . . . . 46 SECTION 3. LETTERS OF CREDIT . . . . . . . . . . . . . . . . 46 3.1 L/C Commitment . . . . . . . . . . . . . . . . . . 46 3.2 Procedure for Issuance of Letter of Credit . . . . 47 3.3 Commissions, Fees and Other Charges . . . . . . . . 47 3.4 L/C Participations . . . . . . . . . . . . . . . . 47 3.5 Reimbursement Obligation of the Borrower . . . . . 48 3.6 Obligations Absolute . . . . . . . . . . . . . . . 49 3.7 Letter of Credit Payments . . . . . . . . . . . . . 49 3.8 Reductions and Reinstatements . . . . . . . . . . . 49 3.9 Documents and Reports . . . . . . . . . . . . . . . 49 3.10 Amendments . . . . . . . . . . . . . . . . . . . . 49 3.11 Applications . . . . . . . . . . . . . . . . . . . 50
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Page ---- SECTION 4. REPRESENTATIONS AND WARRANTIES 4.1 Financial Condition . . . . . . . . . . . . . . . . 50 4.2 No Change . . . . . . . . . . . . . . . . . . . . . 51 4.3 Corporate Existence; Compliance with Law . . . . . 51 4.4 Corporate Power; Authorization; Enforceable Obligations . . . . . . . . . . . . . . . . . . 52 4.5 No Legal Bar . . . . . . . . . . . . . . . . . . . 52 4.6 No Material Litigation . . . . . . . . . . . . . . 52 4.7 No Default . . . . . . . . . . . . . . . . . . . . 52 4.8 Ownership of Property; Liens . . . . . . . . . . . 52 4.9 Intellectual Property . . . . . . . . . . . . . . . 53 4.10 Taxes . . . . . . . . . . . . . . . . . . . . . . 53 4.11 Federal Regulations . . . . . . . . . . . . . . . 53 4.13 Investment Company Act; Other Regulations . . . . 54 4.14 Subsidiaries . . . . . . . . . . . . . . . . . . . 54 4.15 Use of Proceeds . . . . . . . . . . . . . . . . . 54 4.16 Environmental Matters . . . . . . . . . . . . . . 54 4.17 Accuracy of Information, etc . . . . . . . . . . . 55 4.18 Security Documents . . . . . . . . . . . . . . . . 55 4.19 Solvency . . . . . . . . . . . . . . . . . . . . . 56 4.20 Regulation H . . . . . . . . . . . . . . . . . . . 56 SECTION 5. CONDITIONS PRECEDENT . . . . . . . . . . . . . . 56 5.1 Conditions to Initial Extension of Credit . . . . . 56 5.2 Conditions to Each Extension of Credit . . . . . . 61 5.3 Conditions to Issuance of Bond Letters of Credit . 61 SECTION 6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . 62 6.1 Financial Statements . . . . . . . . . . . . . . . 62 6.2 Certificates; Other Information . . . . . . . . . . 63 6.3 Payment of Obligations . . . . . . . . . . . . . . 64 6.4 Conduct of Business and Maintenance of Existence, etc. . . . . . . . . . . . . . . . . . . . . . 64 6.5 Maintenance of Property; Insurance . . . . . . . . 64 6.6 Inspection of Property; Books and Records; Discussions . . . . . . . . . . . . . . . . . . 65 6.7 Notices . . . . . . . . . . . . . . . . . . . . . . 65 6.8 Environmental Laws . . . . . . . . . . . . . . . . 66 6.9 Interest Rate Protection . . . . . . . . . . . . . 67 6.10 Additional Collateral, etc . . . . . . . . . . . . 67 SECTION 7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . 69 7.1 Financial Condition Covenants . . . . . . . . . . . 69 7.2 Limitation on Indebtedness . . . . . . . . . . . . 71 7.3 Limitation on Liens . . . . . . . . . . . . . . . . 72 7.4 Limitation on Fundamental Changes . . . . . . . . . 74 7.5 Limitation on Sale of Assets . . . . . . . . . . . 74 7.6 Limitation on Dividends . . . . . . . . . . . . . . 75 7.7 Limitation on Capital Expenditures . . . . . . . . 75 7.8 Limitation on Investments, Loans and Advances . . . 75 7.9 Limitation on Optional Payments and Modifications of Debt Instruments, etc. . . . . . . . . . . . 76
-ii- 4 Page 7.10 Limitation on Transactions with Affiliates . . . . 77 7.11 Limitation on Sales and Leasebacks . . . . . . . . 77 7.12 Limitation on Changes in Fiscal Periods . . . . . 77 7.13 Limitation on Negative Pledge Clauses . . . . . . 77 7.14 Limitation on Restrictions on Subsidiary Distributions . . . . . . . . . . . . . . . . . 78 7.15 Limitation on Lines of Business . . . . . . . . . 78 SECTION 8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . 78 SECTION 9. THE AGENTS . . . . . . . . . . . . . . . . . . . 82 9.1 Appointment . . . . . . . . . . . . . . . . . . . . 82 9.2 Delegation of Duties . . . . . . . . . . . . . . . 82 9.3 Exculpatory Provisions . . . . . . . . . . . . . . 82 9.4 Reliance by Administrative Agent . . . . . . . . . 82 9.5 Notice of Default . . . . . . . . . . . . . . . . . 83 9.6 Non-Reliance on Agents and Other Lenders . . . . . 83 9.7 Indemnification . . . . . . . . . . . . . . . . . . 84 9.8 Agent in Its Individual Capacity . . . . . . . . . 84 9.9 Successor Administrative Agent . . . . . . . . . . 85 9.10 Authorization to Release Liens . . . . . . . . . . 85 9.11 The Arranger . . . . . . . . . . . . . . . . . . . 86 SECTION 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . 86 10.1 Amendments and Waivers . . . . . . . . . . . . . . 86 10.2 Notices . . . . . . . . . . . . . . . . . . . . . 87 10.3 No Waiver; Cumulative Remedies . . . . . . . . . . 87 10.4 Survival of Representations and Warranties . . . . 88 10.5 Payment of Expenses . . . . . . . . . . . . . . . 88 10.6 Successors and Assigns; Participations and Assignments . . . . . . . . . . . . . . . . . . 88 10.7 Adjustments; Setoff . . . . . . . . . . . . . . . 91 10.8 Counterparts . . . . . . . . . . . . . . . . . . . 92 10.9 Severability . . . . . . . . . . . . . . . . . . . 92 10.10 Integration . . . . . . . . . . . . . . . . . . . 92 10.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . 92 10.12 Submission To Jurisdiction; Waivers . . . . . . . 92 10.13 Acknowledgements . . . . . . . . . . . . . . . . 93 10.14 WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . 93 10.15 Confidentiality . . . . . . . . . . . . . . . . . 93 -iii- 5 ANNEXES: A Pricing Grid SCHEDULES: 1.1A Commitments 1.1B Mortgaged Property 1.1C Non-Guarantor Subsidiaries 4.14 Subsidiaries 4.18(a) UCC Filing Jurisdictions 4.18(b) Mortgage Filing Jurisdictions 4.20 Real Property Located in Flood Zone 5.1(c) Sources and Use of Funds 7.2(e) Existing Indebtedness 7.3(g) Existing Liens 7.8(j) Extensions of Credit EXHIBITS: A Form of Guarantee and Collateral Agreement B Form of Compliance Certificate C Form of Closing Certificate D Form of Mortgage E Form of Assignment and Acceptance F-1 Form of Legal Opinion of Andrews & Kurth L.L.P. F-2 Form of Legal Opinion of Borrower's General Counsel F-3 Form of Legal Opinion of Hunter, MacLean, Exley & Dunn, P.C. 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 Prepayment Option Notice J-1 Form of Notice of Borrowing (Drawings) J-2 Form of Notice of Borrowing (Conversions) J-3 Form of Notice of Borrowing (Continuations) -iv- 6 AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 22, 1997, among IMPERIAL HOLLY CORPORATION, a Texas corporation (the "Borrower"), the several banks and other financial institutions or entities from time to time parties to this Agreement (the "Lenders"), LEHMAN BROTHERS INC., as arranger (in such capacity, the "Arranger"), LEHMAN COMMERCIAL PAPER INC., as syndication agent (in such capacity, the "Syndication Agent"), 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"). W I T N E S S E T H: WHEREAS, IHK Merger Sub Corporation, a Delaware corporation ("IHK Merger Sub"), a wholly owned subsidiary of the Borrower, made an offer (the "Tender Offer") to purchase a number of the outstanding shares (the "Shares") of common stock equal to 14,397,836 which represented approximately 50.1% of the Shares outstanding at the date of such purchase, par value $0.25, of Savannah Foods & Industries, Inc., a Delaware corporation (the "Target"), pursuant to an Offer to Purchase dated September 18, 1997 (the "Offer to Purchase") at a price of $20.25 per Share; WHEREAS, the Offer to Purchase was made pursuant to an Agreement and Plan of Merger, dated as of September 12, 1997 (including the schedules thereto, the "Merger Agreement"), among the Borrower, IHK Merger Sub and Target, which provides that (i) as soon as practicable after the purchase of Shares (the "Tender Offer Purchase") pursuant to the Offer to Purchase (subject to certain conditions), each of the Borrower and the Target acting through its respective Board of Directors shall give notice of, and convene a special meeting of, its respective stockholders for the purpose of (in the case of Target) approving and adopting the Merger Agreement and the Merger or (in the case of the Borrower) approving the issuance of shares of common stock of the Borrower in the Merger and subject to such stockholder approvals, IHK Merger Sub will be merged with and into the Target (the "Merger"), with the Target surviving as a wholly owned subsidiary of the Borrower; (ii) at the effective time of the Merger, each of the Shares (other than Shares held by the Borrower, IHK Merger Sub or any of their subsidiaries or in the treasury of the Target, all of which will be canceled, and Shares held by Target stockholders who perfect their appraisal rights under Delaware law) will be converted into the right to receive a combination of cash consideration and shares of common stock, without par value, of the Borrower pursuant to the proration and stock price determination procedures set forth in the Merger Agreement and the Offer to Purchase such that the aggregate cash consideration paid for Shares pursuant to the Tender Offer Purchase and the Merger equals approximately 70% of the total such consideration so paid; WHEREAS, (i) in order to provide the financing for the Tender Offer Purchase, the repayment of up to approximately $136,000,000 in existing indebtedness of the Borrower and certain related expenses, and to provide for the Borrower's working capital needs pending 7 2 the Merger, the Borrower entered into a $505,000,000 Credit Agreement, dated as of October 17, 1997, among the Borrower, the lenders party thereto, Lehman Brothers Inc., as arranger, Lehman Commercial Paper Inc., as syndication agent and administrative agent and Harris Trust and Savings Bank, as collateral agent (the "Tender Facilities"), comprised of a term loan facility of $295,000,000 and a revolving credit facility of $210,000,000 and (ii) in order to provide a portion of the financing for the Merger and certain related expenses, the refinancing of certain indebtedness of Target, the repayment of amounts owing under the Tender Facilities and to provide financing for future working capital and other general corporate purposes, the Borrower will require at the time of the Merger financing comprised of (A) senior credit facilities made available pursuant to this Agreement of $455,000,000 comprised of term loan facilities aggregating $255,000,000 and a $200,000,000 revolving credit facility and (B) $250,000,000 in proceeds of unsecured senior subordinated notes issued by the Borrower (as more fully defined herein, the "Senior Subordinated Notes"); WHEREAS, after giving effect to the Merger, Target will be a wholly owned subsidiary of the Borrower; and WHEREAS, the Lenders are willing to make the senior tender and revolving credit facilities referred to above available upon and subject to the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the agreements hereinafter set forth, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 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 Capital Expenditure Amount" for any period or four consecutive fiscal quarters shall mean the excess of (i) the aggregate amount actually paid by the Borrower and its Subsidiaries in cash during such period on account of Capital Expenditures over (ii) in the case of any such period ending on or before (A) March 31, 1998, $30,000,000, (B) June 30, 1998, $35,000,000, (C) September 30, 1998, $30,000,000, (D) December 31, 1998, $25,000,000, (E) March 31, 1999, $10,000,000, (G) June 30, 1999, $5,000,000 or (H) thereafter, zero. "Adjusted Consolidated Working Capital": at any date, the excess of (i) all amounts which would, in conformity with GAAP, be attributable to and reflected as accounts receivable, inventory and deferred costs on a consolidated balance sheet of the Borrower and its Subsidiaries at such date, over (ii) the sum of (A) all amounts which would, in conformity with GAAP, be attributable to and reflected as accounts payable on a consolidated balance sheet of the Borrower and its Subsidiaries and (B) the aggregate principal amount of all Indebtedness consisting of Revolving Credit Loans, 8 3 Swing Line Loans or Indebtedness of the Borrower and its Subsidiaries incurred pursuant to Section 7.2(k) on such date. "Adjusted Revolving Credit Commitment": as to any Lender at any time, (a) the amount of such Lender's Revolving Credit Commitment less (b) such Lender's Revolving Credit Percentage of the aggregate principal amount of Indebtedness of the Borrower and its Subsidiaries incurred pursuant to Section 7.2(k) at such time. "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 Syndication Agent, the Administrative Agent and the Collateral Agent. "Agreement": this Credit Agreement, as amended, supplemented or otherwise modified from time to time. "Applicable Margin": for each Type of Loan, the rate per annum set forth under the relevant column heading below:
Base Rate Eurodollar Loans Loans --------- ---------- Revolving Credit Loans and Swing Line Loans 0.75% 1.75% Tranche A Term Loans 0.75% 1.75% Tranche B Term Loans 1.00% 2.00%
; provided, that on and after the first Adjustment Date occurring at least six months after the Merger, the Applicable Margin with respect to Revolving Credit Loans, Swing Line Loans, Tranche A Term Loans and Tranche B Term Loans will be determined based on the Consolidated Total Leverage Ratio in effect from time to time, as set forth in the Pricing Grid. "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. 9 4 "Arranger": as defined in the preamble hereto. "Asset Sale": any Disposition of Property or series of related Dispositions of Property (excluding any such Disposition permitted by clause (a), (b), (c) or (d) 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. "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 Indebtedness incurred pursuant to Section 7.2(k) shall be deemed to be zero. "Base Rate": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Reference Lender as its prime rate in effect at its principal office in Chicago, Illinois (the Prime Rate not being intended to be the lowest rate of interest charged by the Reference Lender in connection with extensions of credit to debtors); "Base CD Rate" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is one and the denominator of which is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate; and "Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 9:00 A.M., Chicago time, on such day (or, if such day shall not be a Business Day, on the next 10 5 preceding Business Day) by the Reference Lender from three New York City negotiable certificate of deposit dealers of recognized standing selected by it. Any change in the Base Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. "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 Company'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 Date": any Business Day specified by the Borrower as a date on which the Borrower requests the relevant Lenders to make Loans hereunder. "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 11 6 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 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 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 12 7 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. "C/D Assessment Rate": for any day as applied to any Base Rate Loan, the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation (the "FDIC") classified as well-capitalized and within supervisory subgroup "B" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. Section 327.4 (or any successor provision) to the FDIC (or any successor) for the FDIC's (or such successor's) insuring time deposits at offices of such institution in the United States. "C/D Reserve Percentage": for any day as applied to any Base Rate Loan, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board, for determining the maximum reserve requirement for a Depositary Institution (as defined in Regulation D of the Board as in effect from time to time) in respect of new non-personal time deposits in Dollars having a maturity of 30 days or more. "Closing Date": the date on which the conditions precedent set forth in Section 5.1 shall have been satisfied, which date occurred on December 22, 1997. "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 sum of the Tranche A Term Loan Commitment, the Tranche B Term Loan Commitment and the Revolving Credit Commitment of such Lender. "Commitment Fee Rate": 3/8 of 1% per annum; provided, that on and after the first Adjustment Date occurring at least six months after the Merger, the Commitment Fee Rate will be determined based on the Consolidated Total Leverage Ratio in effect from time to time, as set forth in the Pricing Grid. "Commitment Letter Date": September 10, 1997, the date of the commitment letter executed by the Borrower and the Syndication Agent in respect of the credit facilities provided for herein (as amended on September 18, 1997). "Commonly Controlled Entity": an entity, whether or not incorporated, which is under common control with the Borrower within the meaning of Section 4001 of 13 8 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. "Confidential Information Memorandum": the Confidential Information Memorandum dated November, 1997 and furnished to the Lenders. "Consolidated Current Assets": at any date, all amounts (other than cash and Cash Equivalents) which would, in conformity with GAAP, be set forth opposite the caption "total current assets" (or any like caption) 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 set forth opposite the caption "total current liabilities" (or any like caption) on a consolidated balance sheet of the Borrower and its Subsidiaries at such date, but excluding (a) the current portion of any Funded Debt of the Borrower and its Subsidiaries and (b) without duplication of clause (a) above, all Indebtedness consisting of Revolving Credit Loans or Swing Line Loans to the extent otherwise included therein. "Consolidated EBITDA": for any period, Consolidated Net Income for such period plus, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income tax expense, (b) interest expense, amortization or writeoff of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with Indebtedness (including the Loans), (c) depreciation and amortization expense, (d) amortization of intangibles (including, but not limited to, goodwill) and organization costs, (e) any extraordinary, unusual or non-recurring expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, losses on sales of assets outside of the ordinary course of business) and (f) any other non-cash charges other than amounts expensed during such period attributable to Capitalized Refurbishment Expenditures, and minus, to the extent included in the statement of such Consolidated Net Income for such period, the sum of (a) interest income, (b) any extraordinary, unusual or non-recurring income or gains (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, gains on the sales of assets outside of the ordinary course of business but excluding, for any period, up to $5,000,000 in gain from sales during such four quarter period of the Borrower's portfolio of marketable securities) and (c) any other non-cash income, all as determined on a consolidated basis. "Consolidated Fixed Charges": for any period, the sum (without duplication) of (a) Consolidated Interest Expense for such period, (b) provision for cash income taxes 14 9 made by the Borrower or any of its Subsidiaries on a consolidated basis in respect of such period, (c) cash payments made 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 the repayment of principal outstanding under the Tender Facilities at the final maturity thereof and (d) dividends paid 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 for such period less the Adjusted Capital Expenditure Amount 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 such period. "Consolidated Interest Expense": for any period, 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). "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 accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries, (b) 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 (c) 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 unrealized gains or losses on marketable securities held by the Borrower or its Subsidiaries. "Consolidated Senior Debt": all Consolidated Total Debt other than Subordinated Debt. 15 10 "Consolidated Senior Leverage Ratio": as of the last day of any period of four consecutive fiscal quarters, the ratio of (a) Consolidated Senior Debt on such day to (b) Consolidated EBITDA for such period; provided that for purposes of calculating Consolidated EBITDA of the Borrower and its Subsidiaries for any period, the Consolidated EBITDA of any Person acquired by the Borrower or its Subsidiaries during such period shall be included on a pro forma basis for such period (assuming the consummation of each such acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred on the first day of such period) if the consolidated balance sheet of such acquired Person and its consolidated Subsidiaries as at the end of the period preceding the acquisition of such Person and the related consolidated statements of income and stockholders' equity and of cash flows for the period in respect of which Consolidated EBITDA is to be calculated (i) have been previously provided to the Agents and the Lenders and (ii) either (A) have been reported on without a qualification arising out of the scope of the audit by independent certified public accountants of nationally recognized standing or (B) have been found acceptable by the Agents; provided, further that for purposes of calculating Consolidated EBITDA of the Borrower and its Subsidiaries for any period, the Consolidated EBITDA of any Person sold or otherwise disposed of by the Borrower or its Subsidiaries during such period shall be excluded on a pro forma basis for such period (assuming the consummation of each such sale or other disposition occurred on the first day of such period). "Consolidated Tangible Assets": with respect to any Person as of any date, the amount which, in accordance with GAAP, would be set forth under the caption "Total Assets" (or any like caption) on a consolidated balance sheet of such Person and its Subsidiaries, less all intangible assets, including, without limitation, goodwill, organization costs, patents, trademarks, copyrights, franchises and research and development costs. "Consolidated Total Debt": at any date, the sum of (a) the aggregate principal amount of all Funded Debt of the Borrower and its Subsidiaries at such date minus (b) the excess of (i) the aggregate principal amount of all Revolving Credit Loans, Swing Line Loans and Indebtedness incurred pursuant to Section 7.2(k) outstanding at such date over (ii) the lowest amount described in the foregoing clause (i) to be outstanding during any consecutive 30 days occurring within the 12 months ending on such date, all determined on a consolidated basis in accordance with GAAP; provided that for the purposes of calculating Consolidated Total Leverage Ratio for its use in determining the Applicable Margin and the Commitment Fee Rate in the Pricing Grid, "Consolidated Total Debt" shall mean, at any date, the aggregate principal amount of all Funded Debt of the Borrower and its Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP. "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; provided that for purposes of calculating 16 11 Consolidated EBITDA of the Borrower and its Subsidiaries for any period, the Consolidated EBITDA of any Person acquired by the Borrower or its Subsidiaries during such period shall be included on a pro forma basis for such period (assuming the consummation of each such acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred on the first day of such period) if the consolidated balance sheet of such acquired Person and its consolidated Subsidiaries as at the end of the period preceding the acquisition of such Person and the related consolidated statements of income and stockholders' equity and of cash flows for the period in respect of which Consolidated EBITDA is to be calculated (i) have been previously provided to the Agents and the Lenders and (ii) either (A) have been reported on without a qualification arising out of the scope of the audit by independent certified public accountants of nationally recognized standing or (B) have been found acceptable by the Agents; provided, further that for purposes of calculating Consolidated EBITDA of the Borrower and its Subsidiaries for any period, the Consolidated EBITDA of any Person sold or otherwise disposed of by the Borrower or its Subsidiaries during such period shall be excluded on a pro forma basis for such period (assuming the consummation of each such sale or other disposition occurred on the first day of such period). "Consolidated Working Capital": at any date, the excess of Consolidated Current Assets 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 Merger 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. "Control Agreement": the Amended and Restated Control Agreement, dated as of the date hereof, among Harris Trust and Savings Bank, as securities intermediary, the Collateral Agent and the Borrower, as the same may be amended, supplemented or otherwise modified from time to time. "Debt Tender Offer": the Offer to Purchase and Consent Solicitation Statement, dated September 18, 1997, in respect of the Senior Notes. "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. 17 12 "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. "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 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 18 13 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 (excluding the principal amount of Indebtedness incurred in connection with such expenditures and any such expenditures financed with the proceeds of any Recovery Reinvestment Deferred Amount), (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 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 19 14 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. "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. "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 (i) matures more than one year from the date of its creation or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year from such date or (ii) arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date, including, without limitation, all current maturities and current sinking fund payments in respect of such Indebtedness whether or not required to be paid within one year from the date of its creation and, in the case of the Borrower, Indebtedness in respect of the Loans, provided that, notwithstanding the foregoing, all Indebtedness incurred pursuant to Section 7.2(k) shall be included in Funded Debt. "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. 20 15 "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 and 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). "Guarantee and Collateral Agreement": the Amended and Restated 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 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 21 16 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. "H-S-R Act": the Hart-Scott-Rodino Antitrust Improvement Act of 1976 as amended. "IHK Merger Sub": as defined in the recitals hereto. "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 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 22 17 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. "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 March, June, September and December 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 of three months or less, the last day of such Interest Period, (c) 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 (d) 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. "Interest Period": as to any Eurodollar Loan, (a) 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 (b) 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 23 18 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": $75,000,000. "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, 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. "Lenders": as defined in the preamble hereto. "Letters of Credit": as defined in Section 3.1(a). 24 19 "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 Syndication Letter, 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 such Lender's Commitment then constitutes of the aggregate Commitments (or, at any time after the Closing Date, 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 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. "Margin Stock": as defined in Regulation U. "Margin Stock Collateral": all Margin Stock of the Borrower and its Subsidiaries by which the Loans are secured pursuant to the Security Documents or are deemed "indirectly secured" within the meaning of Regulation U. "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, the Target and their respective 25 20 Subsidiaries taken as a whole, (b) the consummation of the Merger or (c) 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. "Merger": as defined in the recitals hereto. "Merger Agreement": as defined in the recitals hereto. "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. "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, substantially in the form of Exhibit D (with such changes thereto as shall be advisable under the law of the jurisdiction in which such mortgage or deed of trust is to be recorded), as the same may be amended, supplemented or otherwise modified from time to time. "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 26 21 payable 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. "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. "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 Interest Rate Protection Agreements, 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. "Offered Rate Loan": a Swing Line Loan which bears interest as provided in Section 2.15(c) hereof. "Offer to Purchase": as defined in the recitals hereto. 27 22 "Other Collateral": all assets of the Borrower and its Subsidiaries (other than Margin Stock) by which the Loans are secured pursuant to the Security Documents or are deemed "indirectly secured" within the meaning of Regulation U. "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). "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. "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. "Pricing Grid": the pricing grid attached hereto as Annex A. "Pro Forma Balance Sheets": as defined in Section 4.1(a). "Projections": as defined in Section 6.2(c). "Properties": as defined in Section 4.16. "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. "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. "Recovery Reinvestment Deferred Amount": with respect to any Recovery Reinvestment Event, the aggregate Net Cash Proceeds received by the Borrower or any of its Subsidiaries in connection therewith which are not applied to prepay the Term 28 23 Loans or reduce the Revolving Credit Commitments pursuant to Section 2.12(b) as a result of the delivery of a Recovery Reinvestment Notice. "Recovery Reinvestment Event": any Recovery Event in respect of which the Borrower has delivered a Recovery Reinvestment Notice. "Recovery Reinvestment Notice": a written notice executed by a Responsible Officer stating that no Event of Default has occurred and is continuing and that the Borrower (directly or indirectly through a Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of a Recovery Event to acquire or construct assets to replace the assets to which such Recovery Event relates and that such acquisition or construction shall commence within six months of the Recovery Reinvestment Event. "Recovery Reinvestment Prepayment Amount": with respect to any Recovery Reinvestment Event, the Recovery Reinvestment Deferred Amount relating thereto less any amount (i) expended prior to the relevant Recovery Reinvestment Prepayment Date to acquire or construct the replacement assets relating thereto or (ii) to the extent not so expended, committed prior to the relevant Recovery Reinvestment Prepayment Date to the commencement (occurring no later than the relevant Recovery Reinvestment Prepayment Date) of the acquisition or construction of the replacement assets related thereto. "Recovery Reinvestment Prepayment Date": with respect to any Recovery Reinvestment Event, the earlier of (a) the date occurring six months after such Recovery Reinvestment Event and (b) the date on which the Borrower shall have determined not to, or shall have otherwise ceased to, acquire or construct assets to replace the assets to which the Recovery Reinvestment Event relates with all or any portion of the relevant Recovery Reinvestment Deferred Amount. "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 G": Regulation G of the Board as in effect from time to time. "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. 29 24 "Reimbursement Obligation": the obligation of the Borrower to reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of Credit. "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. Section 2615. "Required L/C Participants": the Majority Revolving Credit Facility Lenders. "Required Lenders": the holders of more than 50% of (a) until the Closing Date, the Commitments and (b) thereafter, the sum of (i) the aggregate unpaid principal amount of the Term Loans and (ii) 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 $200,000,000. "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. 30 25 "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": December 31, 2002. "SEC": the Securities and Exchange Commission (or successors thereto or an analogous Governmental Authority). "Security Documents": the collective reference to the Guarantee and Collateral Agreement, the Mortgages, the Control Agreement 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 Note Indenture": the Indenture, dated as of October 15, 1992, between the Borrower and Texas Commerce Bank National Association, as trustee (as the same may be amended, supplemented or otherwise modified from time to time), pursuant to which the Senior Notes were issued. "Senior Notes": the 8-3/8% Senior Notes Due October 15, 1999, issued by the Borrower. "Senior Subordinated Note Indenture": the Indenture entered into by the Borrower and certain of its Subsidiaries in connection with the issuance of the Senior Subordinated Notes, together with all instruments and other agreements entered into by the Borrower or such Subsidiaries in connection therewith, as the same may be amended, supplemented or otherwise modified from time to time in accordance with Section 7.9. 31 26 "Senior Subordinated Notes": the subordinated notes of the Borrower issued on the Closing Date pursuant to the Senior Subordinated Note Indenture. "Shares": as defined in the recitals hereto. "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. "Specified Change of Control": a "Change of Control" as defined in the Senior Subordinated Note Indenture. "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 and shall not include the Target or its Subsidiaries. "Subsidiary Guarantor": each Subsidiary of the Borrower (other than any Excluded Foreign Subsidiary or any Subsidiary listed on Schedule 1.1C (subject to the provisions of the proviso to Section 6.10(c))) that guarantees the Obligations pursuant to the Guarantee and Collateral Agreement. 32 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 $25,000,000. "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. "Target": as defined in the recitals hereto. "Tender Facilities": as defined in the recitals hereto. "Tender Offer": as defined in the recitals hereto. "Tender Offer Purchase": as defined in the recitals hereto. "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. "Tranche A Term Loan Commitment": as to any Lender, the obligation of such Lender, if any, to make a Tranche A Term Loan to the Borrower hereunder in a principal amount not to exceed the amount set forth under the heading "Tranche A Term Loan Commitment" opposite such Lender's name on Schedule 1.1A. The original aggregate amount of the Tranche A Term Loan Commitments is $150,000,000. "Tranche A Term Loan Lender": each Lender which has a Tranche A Term Loan Commitment or which has made a Tranche A Term Loan. "Tranche A Term Loan Percentage": as to any Tranche A Term Loan Lender at any time, the percentage which such Lender's Tranche A Term Loan Commitment then constitutes of the aggregate Tranche A Term Loan Commitments (or, at any time after 33 28 the Closing Date, 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. "Tranche B Term Loan Commitment": as to any Tranche B Term Loan Lender, the obligation of such Lender, if any, to make a Tranche B Term Loan to the Borrower hereunder in a principal amount not to exceed the amount set forth under the heading "Tranche B Term Loan Commitment" opposite such Lender's name on Schedule 1.1A. The original aggregate amount of the Tranche B Term Loan Commitments is $105,000,000. "Tranche B Term Loan Lender": each Lender which has a Tranche B Term Loan Commitment or which has made a Tranche B Term Loan. "Tranche B Term Loan Percentage": as to any Tranche B Term Loan Lender at any time, the percentage which such Lender's Tranche B Term Loan Commitment then constitutes of the aggregate Tranche B Term Loan Commitments (or, at any time after the Closing Date, 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). "Transaction Documentation": collectively, the Merger Agreement, the Offer to Purchase (including all documents and materials filed with the SEC in connection therewith), the Senior Subordinated Note Indenture and all documentation executed in connection with the Debt Tender Offer and the other transactions contemplated thereby, in each case, including all schedules, exhibits, certificates, documents and agreements entered into, executed or delivered in connection therewith, and as each such agreement, filing, schedule, exhibit, certificate or document may be amended, supplemented or otherwise modified from time to time in accordance with Section 7.9. "Transferee": as defined in Section 10.15. "Type": as to any Loan, its nature as a Base Rate Loan or a Eurodollar Loan. "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. "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. 34 29 "Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is a Wholly Owned Subsidiary of the Borrower. 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 2.1 Term Loan Commitments. Subject to the terms and conditions hereof, (a) each Tranche A Term Loan Lender severally agrees to make a term loan (a "Tranche A Term Loan") to the Borrower on the Closing Date in the amount of the Tranche A Term Loan Commitment of such Lender and (b) each Tranche B Term Loan Lender severally agrees to make a term loan (a "Tranche B Term Loan") to the Borrower on the Closing Date in the amount of the Tranche B Term Loan Commitment of such Lender. 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. 2.2 Procedure for Term Loan Borrowing. The Borrower shall give the Administrative Agent irrevocable Notice of Borrowing (which notice must be received by the Administrative Agent prior to 9:00 A.M., Chicago time, one Business Day prior to the anticipated Closing Date, in the case of Base Rate Loans, and three Business Days prior to the anticipated Closing Date, in the case of Eurodollar Loans) requesting that the Term Loan Lenders make the Term Loans on the Closing Date and specifying the amount to be borrowed. The Term Loans made on the Closing Date shall initially be Base Rate Loans or Eurodollar Loans (provided that the Borrower hereby agrees that its agreement under Section 2.17 of the Tender Facilities shall constitute its agreement with respect to all the Lenders and all Loans hereunder on the Closing Date). Upon receipt of such notice the Administrative Agent shall promptly notify each Term Loan Lender thereof. Not later than 11:00 A.M., Chicago time, on the Closing Date each Term Loan Lender shall make available to the Administrative Agent at the Funding Office an amount in immediately available funds equal to the Term Loan or 35 30 Term Loans to be made by such Lender. The Administrative Agent shall make available to the Borrower with the aggregate of the amounts made available to the Administrative Agent by the Term Loan Lenders in immediately available funds not later than 1:00 P.M., Chicago time, on the Closing Date. 2.3 Repayment of Term Loans. (a) The Tranche A Term Loan of each Tranche A Term Loan Lender shall mature in 24 consecutive quarterly installments, commencing on March 31, 1998, 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 ----------- ---------------- March 31, 1998 $1,375,000 June 30, 1998 1,375,000 September 30, 1998 1,375,000 December 31, 1998 1,375,000 March 31, 1999 1,750,000 June 30, 1999 1,750,000 September 30, 1999 1,750,000 December 31, 1999 1,750,000 March 31, 2000 1,750,000 June 30, 2000 1,750,000 September 30, 2000 1,750,000 December 31, 2000 1,750,000 March 31, 2001 2,250,000 June 30, 2001 2,250,000 September 30, 2001 2,250,000 December 31, 2001 2,250,000 March 31, 2002 2,250,000 June 30, 2002 2,250,000 September 30, 2002 2,250,000 December 31, 2002 77,250,000 March 31, 2003 9,375,000 June 30, 2003 9,375,000 September 30, 2003 9,375,000 December 31, 2003 9,375,000
(b) The Tranche B Term Loan of each Tranche B Lender shall mature in 32 consecutive quarterly installments, commencing on March 31, 1998, 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: 36 31
Installment Principal Amount ----------- ---------------- March 31, 1998 $25,000 June 30, 1998 25,000 September 30, 1998 25,000 December 31, 1998 25,000 March 31, 1999 25,000 June 30, 1999 25,000 September 30, 1999 25,000 December 31, 1999 25,000 March 31, 2000 25,000 June 30, 2000 25,000 September 30, 2000 25,000 December 31, 2000 25,000 March 31, 2001 25,000 June 30, 2001 25,000 September 30, 2001 25,000 December 31, 2001 25,000 March 31, 2002 25,000 June 30, 2002 25,000 September 30, 2002 25,000 December 31, 2002 25,000 March 31, 2003 25,000 June 30, 2003 25,000 September 30, 2003 25,000 December 31, 2003 25,000 March 31, 2004 13,050,000 June 30, 2004 13,050,000 September 30, 2004 13,050,000 December 31, 2004 13,050,000 March 31, 2005 13,050,000 June 30, 2005 13,050,000 September 30, 2005 13,050,000 December 31, 2005 13,050,000
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. 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 with the terms and conditions hereof. The Revolving 37 32 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) The Borrower shall repay all outstanding Revolving Credit Loans on the Revolving Credit Termination Date. 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 11:00 A.M., Chicago time, (a) three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or (b) one Business Day prior to 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, $100,000 or a whole multiple thereof (or, if the then aggregate Available Revolving Credit Commitments are less than $100,000, 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 which are Base Rate Loans or Offered Rate Loans 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 12:00 Noon, 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. 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 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 38 33 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 or Offered Rate Loans only. (b) The Borrower shall repay all outstanding Swing Line Loans on the Revolving Credit Termination Date. 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 and 11:00 A.M., Chicago time, in the case of Offered 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), on one Business Day's notice given by the Swing Line Lender no later than 11:00 A.M., 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 9:00 A.M., Chicago time, one Business Day after 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. (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 39 34 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. 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 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 such Swing Line Lender 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 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. 40 35 (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 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. 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 Syndication Agent the fees in the amounts and on the dates from time to time agreed to in writing by the Borrower and the Syndication Agent. (c) 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. 41 36 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. 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. Partial prepayments of Swing Line Loans shall be in an aggregate principal amount of $100,000 or a whole multiple thereof. 2.12 Mandatory Prepayments and Commitment Reductions. (a) Unless the Required Lenders shall otherwise agree, if any Capital Stock shall be issued, or Indebtedness incurred, by the Borrower or any of its Subsidiaries (excluding any Indebtedness incurred in accordance with Section 7.2), an amount equal to 100% of the Net Cash Proceeds thereof shall be applied on the date of such issuance or incurrence toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.12(d). (b) Unless the Required Lenders shall otherwise agree, if on any date the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or Recovery Event then, except, in the case of a Recovery Event for which a Recovery Reinvestment Notice shall be delivered in respect thereof, 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) on each Recovery Reinvestment Prepayment Date, an amount equal to the Recovery Reinvestment Prepayment Amount with respect to the relevant Recovery Reinvestment Event shall be applied toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.12(d) and (ii) the Net Cash Proceeds of the sale or other disposition by the Borrower of marketable securities owned 42 37 by it shall not be required to be applied to prepayments pursuant to this Section 2.12(b) to the extent that such Net Cash Proceeds are applied reasonably promptly to the reinvestment by the Borrower in other marketable securities of the same general type and quality and such replacement securities are pledged pursuant to the Guarantee and Collateral Agreement and the Control Agreement. (c) Unless the Required Lenders shall otherwise agree, if, for any fiscal year of the Borrower commencing with the fiscal year ending September 30, 1998, there shall be Excess Cash Flow, the Borrower shall, on the relevant Excess Cash Flow Application Date, apply 75% 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), 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) Amounts to be applied in connection with prepayments and Commitment reductions made pursuant to Section 2.12 shall be applied, first, to the prepayment of the Term Loans in the order set forth in Section 2.18(b) and, second, to reduce permanently the Revolving Credit Commitments. 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. 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 43 38 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. 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. 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) Each Offered Rate Loan shall bear interest (computed on the basis of a year of 365/366 days and actual days elapsed) on the unpaid principal amount thereof from the date such Offered Rate Loan is made until the last day of the Interest Period applicable thereto and at maturity (whether by acceleration or otherwise) at the rate per annum quoted to the Borrower by the Swing Line Lender for the Interest Period applicable thereto, payable on the last day of each Interest Period and at maturity (whether by acceleration or otherwise); provided, however that the Borrower understands and agrees that the Swing Line Lender has no obligation to quote rates or to make any such Offered Rate Loan and may refuse to make any such Offered Rate Loan after receiving a request therefor from the Borrower; provided, 44 39 further that if an Event of Default has occurred and is continuing, the Offered Rate Loans will automatically be converted to Base Rate Loans. The Borrower acknowledges and agrees that the interest rate quoted by the Swing Line Lender for any Offered Rate Loan may not be the best or lowest rate offered to other customers of the Swing Line Lender and may not be the same rate offered to other customers of the Swing Line Lender for loans of similar amounts and maturities, but is the rate at which the Swing Line Lender in its sole discretion is willing to make such Loan to the Borrower for the specified amount and maturity. (d) (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% (or, in the case of any such other amounts that do not relate to a particular Facility, the Base Rate plus 4%), 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). (e) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (d) of this Section 2.15 shall be payable from time to time on demand. 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. (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). 45 40 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. 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 (except as otherwise provided in Section 2.18(d)). The amount of each principal prepayment of the Term Loans 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 principal amount thereof. 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 46 41 respective outstanding principal amounts of the Revolving Credit Loans then held by the Revolving Credit Lenders. (d) Notwithstanding anything to the contrary in Sections 2.11, 2.12 or 2.18, so long as any Tranche A Term Loans are outstanding, each Tranche B Term Loan Lender may, at its option, irrevocably decline any mandatory prepayment applicable to the Tranche B Term Loans of such Lender; accordingly, with respect to the amount of any mandatory prepayment described in Section 2.12 that is allocated to Tranche B Term Loans (such amounts, the "Tranche B Prepayment Amount"), at any time when Tranche A Term Loans remain outstanding, the Borrower will, in the case of any mandatory prepayment required to be made pursuant to Section 2.12, in lieu of applying such amount to the prepayment of Tranche B Term Loans, as provided in Section 2.12(d), on the date specified in Section 2.12 for such prepayment, give the Administrative Agent telephonic notice (promptly confirmed in writing) requesting that the Administrative Agent prepare and provide to each Tranche B Term Loan Lender a notice (each, a "Prepayment Option Notice") as described below. As promptly as practicable after receiving such notice from the Borrower, the Administrative Agent will send to each Tranche B Lender a Prepayment Option Notice, which shall be in the form of Exhibit I, and shall include an offer by the Borrower to prepay on the date (each a "Prepayment Date") that is 10 Business Days after the date of the Prepayment Option Notice, the relevant Tranche B Term Loans of such Lender by an amount equal to the portion of the Tranche B Prepayment Amount indicated in such Lender's Prepayment Option Notice as being applicable to such Lender's Tranche B Term Loans. On the Prepayment Date, (i) the Borrower shall pay to the Administrative Agent the aggregate amount necessary to prepay that portion of the outstanding relevant Term Loans in respect of which Tranche B Term Loan Lenders have accepted prepayment as described above (such Lenders, the "Accepting Lenders"), and such amount shall be applied to reduce the Tranche B Repayment Amounts with respect to each Accepting Lender, (ii) the Borrower shall pay to the Administrative Agent an amount equal to 50% of the portion of the Tranche B Prepayment Amount not accepted by the Accepting Lenders, and such amount shall be applied to the prepayment of the Tranche A Term Loans, and (iii) the Borrower shall be entitled to retain the remaining 50% of the portion of the Tranche B Prepayment Amount not accepted by the Accepting Lenders. Each Term Loan Lender other than an Accepting Lender shall receive its portion of any mandatory prepayment as set forth in Sections 2.12 and 2.18. (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 promptly upon receipt in like funds as received. 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 47 42 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(e) 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 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. 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); 48 43 (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 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. 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 49 44 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). (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 1001 or Form 4224, 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 50 45 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. 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 51 46 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. 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. (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. 2.23 Margin Regulations. (a) The Loans made by each Lender shall at all times be treated for purposes of Regulation G and Regulation U as two separate extensions of credit (the "A Credit" and the "B Credit" of such Lender and, collectively, the "A Credits" and the "B Credits"), as follows: (i) the aggregate amount of the A Credit of such Lender shall be an amount equal to such Lender's pro rata share (based on the amount of its Loan Percentage) of the maximum loan value (as determined in accordance with Regulation G and Regulation U), of all Margin Stock Collateral; and 52 47 (ii) the aggregate amount of the B Credit of such Lender shall be an amount equal to such Lender's pro rata share (based on the amount of its Loan Percentage) of all Loans outstanding hereunder minus such Lender's A Credit. In the event that any Margin Stock Collateral is acquired or sold, the amount of the A Credit of such Lender shall be adjusted (if necessary), including, to the extent necessary, by prepayment, to an amount equal to such Lender's pro rata share (based on the amount of its Loan Percentage) of the maximum loan value (determined in accordance with Regulation G and Regulation U) as of the date of such acquisition or sale) of the Margin Stock Collateral immediately after giving effect to such acquisition or sale. Nothing contained in this subsection 2.23(a) shall be deemed to permit any sale of Margin Stock Collateral in violation of any other provisions of this Agreement. (b) Each Lender will maintain its records to identify the A Credit of such Lender and the B Credit of such Lender, and, solely for the purposes of complying with Regulation G and Regulation U, the A and B Credits shall be treated as separate extensions of credit. Each Lender hereby represents and warrants that the loan value of the Other Collateral is sufficient for such Lender to lend its pro rata share of the B Credit. (c) The benefits of the direct and indirect security in Margin Stock Collateral created by any provisions of this Agreement and the other Loan Documents shall be allocated first to the benefit and security of the payment of the principal of and interest on the A Credits of the Lenders and of all other amounts payable by the Borrower under this Agreement in connection with the A Credits (collectively, the "A Credit Amounts") and second, only after the payment in full of the A Credit Amounts, to the benefit and security of the payment of the principal of and interest on the B Credits of the Lenders and of all other amounts payable by the Borrower under this Agreement in connection with the B Credits (collectively, the "B Credit Amounts"). The benefits of the direct and indirect security in Other Collateral created by any provisions of this Agreement and the other Loan Documents, shall be allocated first to the benefit and security of the payment of the B Credit Amounts and second, only after the payment in full of the B Credit Amounts, to the benefit and security of the payment of the A Credit Amounts. (d) The Borrower shall furnish to each Lender at the time of each acquisition and sale of Margin Stock Collateral such information and documents as the Administrative Agent or such Lender may require to determine the A and B Credits, and at any time and from time to time, such other information and documents as the Administrative Agent or such Lender may reasonably require to determine compliance with Regulation U or Regulation G, as applicable. (e) Each Lender shall be responsible for its own compliance with and administration of the provisions of this Section 2.23 and Regulation G and Regulation U, and the Agents shall have no responsibility for any determinations or allocations made or to be made by any Lender as required by such provisions. 53 48 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 3. LETTERS OF CREDIT 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). (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. 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 54 49 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). 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, shared ratably among the Revolving Credit Lenders and payable quarterly in arrears on each L/C Fee Payment Date after the issuance date. (b) 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 or charged by the Issuing Lender in issuing, negotiating, effecting payment under, amending or otherwise administering any Letter of Credit. 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 55 50 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. 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 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. 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 56 51 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. 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. 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, 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. 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. 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. 57 52 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: 4.1 Financial Condition. (a) Unaudited pro forma consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at September 30, 1997 (including the notes thereto) (the "Pro Forma Balance Sheet"), copies of which have heretofore been furnished to each Lender, have been prepared giving effect (as if such events had occurred on such date) to (i) the consummation of the Merger, (ii) the Loans to be made and the Senior Subordinated Notes to be issued on the Closing Date and the use of proceeds thereof, (iii) the other transactions contemplated hereby and (iv) the payment of fees and expenses in connection with the foregoing. The Pro Forma Balance Sheet has been prepared based on the best information available to the Borrower as of the date of delivery thereof, and presents fairly on a pro forma basis the estimated financial position of Borrower and its consolidated Subsidiaries as at September 30, 1997, assuming that the events specified in the preceding sentence had actually occurred at such date and 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 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. (b) The audited consolidated balance sheets of the Borrower as at March 31, 1995, March 31, 1996 and March 31, 1997, and the related consolidated statements of income and of cash flows for the fiscal years ended on such dates, reported on by and accompanied by an unqualified report from Deloitte & Touche LLP, 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 respective fiscal years then ended. The unaudited consolidated balance sheet of the Borrower as at September 30, 1997, and the related unaudited consolidated statements of income and cash flows for the six-month period ended on such date, present fairly the consolidated financial condition of the Borrower as at such dates, and the consolidated results of its operations and its consolidated cash flows for the six-month period then ended (including all adjustments consisting only of normal recurring accruals necessary for fair presentation of such interim periods). 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 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, 58 53 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 paragraph (b). During the period from March 31, 1997 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 to any Person other than a Wholly Owned Subsidiary Guarantor. (c) The audited consolidated balance sheets of the Target as at October 2, 1994, October 1, 1995 and September 29, 1996 and the related consolidated statements of income and of cash flows for the fiscal years ended on such dates, reported on by and accompanied by an unqualified report from Price Waterhouse LLP, present fairly the consolidated financial condition of the Target as at such dates, and the consolidated results of its operations and its consolidated cash flows for the respective fiscal years then ended. 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 involved (except as approved by the aforementioned firm of accountants and disclosed therein). The Target 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 paragraph (c). During the period from September 30, 1996 to and including the date hereof there has been no Disposition by the Target or its Subsidiaries of any material part of its business or Property. 4.2 No Change. Since March 31, 1997 there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect. 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. 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 59 54 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 Merger 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 party thereto. This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each Loan Party 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 the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 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. 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. 4.7 No Default. Neither the Borrower nor any of its Subsidiaries is in default under or with respect to (i) any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect or (ii) the Tender Facilities. No Default or Event of Default has occurred and is continuing. 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. 60 55 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. 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 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. 4.11 Federal Regulations. Assuming compliance by the Lenders with Section 2.23 and the accuracy of the representations in Section 2.23(b), no part of the proceeds of any Loans will be used for any purpose which violates the provisions of Regulations G, T, U or X of the Board. 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. 4.13 Investment Company Act; Other Regulations. No Loan Party is an "investment company", or a company "controlled" by an "investment company", within the 61 56 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. 4.14 Subsidiaries. The Subsidiaries listed on Schedule 4.14 constitute all the Subsidiaries of the Borrower at the date hereof. 4.15 Use of Proceeds. (a) The proceeds of the Term Loans shall be used (i) to refinance a portion of the borrowings of the Borrower under the Tender Facilities, (ii) to refinance certain indebtedness of Target outstanding after the Merger, (iii) to finance the remaining cash consideration to be paid on the Closing Date pursuant to the Merger Agreement to stockholders of Target and (iv) to finance the payment of the fees and expenses of the Merger and the Tender Offer and the transactions contemplated thereby. (b) The proceeds of the Revolving Credit Loans and the Swing Line Loans shall be used (i) to refinance a portion of the borrowings of the Borrower under the Tender Facilities 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. 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 re-use 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. 62 57 (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 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. 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. 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. In the case of the Pledged Stock described in the Guarantee and Collateral 63 58 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 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 mortgagees title insurance policy delivered to the Administrative Agent in accordance with Section 5.1(n)(iii) herein. 4.19 Solvency. Each Loan Party is, and after giving effect to the Merger 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. 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. 4.21 Senior Indebtedness. The Obligations constitute "Senior Indebtedness" of the Borrower under and as defined in the Senior Subordinated Note Indenture. The obligations of each Subsidiary Guarantor under the Guarantee and Collateral Agreement constitute "Guarantor Senior Indebtedness" of such Subsidiary Guarantor under and as defined in the Senior Subordinated Note Indenture. SECTION 5. CONDITIONS PRECEDENT 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: 64 59 (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 Mortgages, 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) the Control Agreement, executed and delivered by a duly authorized officer of each party thereto. (b) Public Filings. The documents and materials filed publicly by the Borrower, IHK Merger Sub and Target in connection with the Tender Offer and the Merger shall have been furnished to the Administrative Agent and the Syndication Agent and shall be reasonably satisfactory in form and substance to the Syndication Agent. (c) Merger; etc. The following transactions shall have been consummated, in each case, on terms and conditions reasonably satisfactory to the Syndication Agent: (i) The Merger shall have been, or shall be concurrently, consummated pursuant to the Merger Agreement and all required stockholder approval to effect the Merger shall have been obtained; and the Merger Agreement shall have remained in full force and effect and shall not have been amended, supplemented, waived or otherwise modified in any material respect without the prior written consent of the Syndication Agent; (ii) The sources and uses of funds for the Tender Offer and the Merger shall be as set forth on Schedule 5.1(c); and (iii) The Borrower shall have issued and sold $250,000,000 in aggregate principal amount of the Senior Subordinated Notes on terms and conditions satisfactory to the Syndication Agent. (d) Tender Facilities. (i) The Tender Facilities shall have closed and the conditions thereto shall have been satisfied or waived. (ii) No default or event of default under the Tender Facilities shall have occurred and be continuing. (iii) On the Closing Date, all obligations of the Borrower under the Tender Facilities shall have been refinanced with the proceeds of the Facility and the Senior Subordinated Notes. (e) Fees. The Lenders, the Syndication Agent 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. 65 60 (f) Approvals. All governmental (including compliance with the H-S-R Act in respect of the Merger), stockholder and third party approvals (including debtholders', landlords' and other consents) reasonably necessary in connection with the Tender Offer, the Merger, the financing contemplated hereby and the continuing operations of the Borrower and its Subsidiaries after the Merger shall have been obtained and be in full force and effect, and all applicable waiting periods shall have expired or been extended without any action being taken or threatened by any Governmental Authority which would restrain, prevent or otherwise impose adverse conditions on Tender Offer or the Merger. (g) Proceedings. There shall exist no judgment, order, injunction or other restraint which would prevent or delay the consummation of, or impose materially adverse conditions upon, the Tender Offer or the Merger, and there shall exist no claim, action, suit, investigation, litigation or proceeding (including, without limitation, shareholder or derivative litigation) pending or threatened in any court or before any arbitrator or governmental instrumentality which relates to the Tender Offer or the Merger which has any reasonable likelihood of having a material adverse effect on (i) the financial condition, operations, business or properties of either the Borrower or the Target and their respective subsidiaries taken as a whole, (ii) the Tender Offer, the Merger, or the financing thereof or (iii) the rights and remedies of the Administrative Agent, the Syndication Agent or the Lenders under the Loan Documents or on the ability of the Borrower and its subsidiaries to perform their respective obligations thereunder. (h) Marketable Securities. The Syndication Agent shall be reasonably satisfied that the Borrower's portfolio of marketable securities shall have remained substantially equivalent (other than changes resulting from changes in market value thereof) to that previously described in writing to the Syndication Agent prior to the Commitment Letter Date. (i) Regulations of Board. The Lenders shall be satisfied that the Merger and the financing thereof comply with Regulation G, T, U and X of the Board. Each Lender shall have received a duly completed and executed Form G-3 or Form FR U-1, as applicable, of the Board, demonstrating such compliance. (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 Andrews & Kurth L.L.P., counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit F-1; 66 61 (ii) the legal opinion of William Schwer, general counsel of the Borrower and its Subsidiaries, substantially in the form of Exhibit F-2; (iii) to the extent consented to by the relevant counsel, each legal opinion, if any, delivered in connection with the Merger Agreement, accompanied by a reliance letter in favor of the Lenders; (iv) the legal opinion of local counsel in each of California, Florida, Georgia, Louisiana, Michigan, Missouri, Montana, Ohio and Wyoming and of such other special and local counsel as may be required by the Syndication Agent; and (v) the legal opinion of Hunter, MacLean, Exley & Dunn, P.C., substantially in the form of Exhibit F-3. Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Syndication Agent may reasonably require. (l) 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 executed transfer form in blank satisfactory to the Syndication Agent) by the pledgor thereof. The Borrower shall have pledged 100% of the Shares of the Target pursuant to the Guarantee and Collateral Agreement. (m) 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. The Syndication Agent shall have received the results of a recent lien, tax and judgment search in each of the jurisdictions and offices where assets of each of the Borrower, Target and their subsidiaries are located or recorded, and such search shall reveal no material liens on any of their assets except for liens permitted by this Agreement or liens to be discharged substantially concurrently with the Closing Date. (n) Mortgages, etc. (i) The Syndication Agent shall have received a Mortgage with respect to each Mortgaged Property, executed and delivered by a duly authorized officer of each party thereto. 67 62 (ii) If requested by the Syndication 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 Syndication Agent, dated a date satisfactory to the Syndication Agent and the Title Insurance Company by an independent professional licensed land surveyor satisfactory to the Syndication 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) 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 Syndication Agent; (B) be issued at ordinary rates; (C) insure that the Mortgage insured thereby 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 Syndication Agent may reasonably request and (G) be issued by title companies satisfactory to the Syndication Agent (including any such title companies acting as co-insurers or reinsurers, at the option of the Syndication Agent). The Syndication 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. (iv) If requested by the Syndication 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 68 63 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 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. (v) 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 5.1(n)(iii) and a copy of all other material documents affecting the Mortgaged Properties. (vi) The Lenders shall have received environmental information with respect to the real property owned or leased by the Borrower or its Subsidiaries satisfactory to the Syndication Agent. (o) 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. The Syndication Agent shall be reasonably satisfied that satisfactory insurance relating to the Borrower, Target and their Subsidiaries shall be in place after the Merger. (p) Indebtedness, Liens or Preferred Stock. Neither the Borrower nor its Subsidiaries shall have any outstanding Indebtedness, Liens or preferred Capital Stock after giving effect to the Merger other than such Indebtedness, Liens or preferred Capital Stock permitted by Sections 7.2 and 7.3. 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. 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. 69 64 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: (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: 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 without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Deloitte & Touche LLP or other independent certified public accountants of nationally recognized standing; and (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 70 65 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); 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). 6.2 Certificates; Other Information. Furnish to each Agent and each Lender, or, in the case of clause (g), 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) and (b), (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 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); (c) as soon as available, and in any event no later than 60 days after the end of each fiscal year of the Borrower, a detailed consolidated budget for the following fiscal year (including a projected consolidated balance sheet of the Borrower and its Subsidiaries as of the end of the following fiscal year, and the related consolidated statements of projected cash flow, projected changes in financial position and projected income), and, as soon as available, significant revisions, if any, of such budget and projections with respect to such fiscal year (collectively, the "Projections"), which 71 66 Projections shall in each case be accompanied by a certificate of a Responsible Officer stating that such Projections are based on reasonable estimates, information and assumptions and that such Responsible Officer has no reason to believe that such Projections are incorrect or misleading in any material respect; (d) within 50 days after the end of each fiscal quarter of the Borrower, a narrative discussion and analysis of the financial condition and results of operations of the Borrower and its Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, as compared to the comparable periods of the previous year; (e) no later than 10 Business Days prior to the effectiveness thereof, copies of substantially final drafts of any proposed material amendment, supplement, waiver or other modification with respect to the Senior Subordinated Note Indenture or the Merger Agreement; (f) 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 financial statements and reports which the Borrower may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; and (g) promptly, such additional financial and other information as any Agent or any Lender may from time to time reasonably request through the Administrative Agent. 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. 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 72 67 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. 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. 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, Borrower will pay for all such examinations; prior thereto the examining Lender will pay for same. 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 73 68 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. 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, and (y) in any case, such non-compliance, 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 Syndication 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 74 69 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 Syndication 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 Syndication Agent shall have the right, but shall not have any duty, to obtain any such report. (d) Promptly upon the Syndication Agent's request if there has occurred or the Syndication Agent reasonably anticipates an Event of Default, permit an environmental consultant whom the Syndication 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 Syndication 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 Syndication Agent shall have the right, but shall not have any duty, to request and/or obtain such environmental assessment. 6.9 Interest Rate Protection. In the case of the Borrower, within 60 days after the Closing Date, enter into Interest Rate Protection Agreements to the extent necessary to provide that at least 50% of the aggregate principal amount of the Senior Subordinated Notes and the Term Loans is subject to either a fixed interest rate or interest rate protection for a period of not less than three years, which Interest Rate Protection Agreements shall have terms and conditions reasonably satisfactory to the Syndication Agent. 6.10 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 and (y) any Property subject to a Lien expressly permitted by Section 7.3(g)) 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. 75 70 (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 Agents 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. (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 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. Notwithstanding the foregoing, the provisions of this Section 6.10(c) shall not apply to (i) Holly Finance Company and HSC Export Corporation, (ii) Pioneer Trading Corporation, Michigan Sugar (Canada Ltd.) and Refined Sugar Trading Institute so long as the aggregate value of the total assets of such entities is not in excess of $1,000,000 and (iii) Savannah 76 71 International Company, Savannah Packaging Company, Savannah Total Invert Company and Savannah Molasses & Specialties Company so long as each such entity has no assets or liabilities. (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) Within 30 days after the Closing Date, the Borrower shall (i) cause to be released any Liens in favor of those secured parties described on Schedule 7.3(g) that are letter of credit issuers securing Indebtedness of the Borrower and its Subsidiaries described on Schedule 7.2(e) in respect of the Bonds, pursuant to documentation in form and substance satisfactory to the Administrative Agent, (ii) take all actions as the Administrative Agent reasonably deems necessary or advisable in order to cause the release of such Liens and (iii) take all such actions described in Section 6.10(b) with respect to the properties originally subject to such Liens. 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: 7.1 Financial Condition Covenants. (a) 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 (or, if less, the number of full fiscal quarters subsequent to the Closing Date) ending with any fiscal quarter set forth below to exceed the ratio set forth below opposite such fiscal quarter: 77 72
Consolidated Total Fiscal Quarter Leverage Ratio -------------- -------------- March 31, 1998 5.40 to 1.00 June 30, 1998 5.40 to 1.00 September 30, 1998 5.40 to 1.00 December 31, 1998 5.20 to 1.00 March 31, 1999 5.00 to 1.00 June 30, 1999 5.00 to 1.00 September 30, 1999 5.00 to 1.00 December 31, 1999 4.75 to 1.00 March 31, 2000 4.75 to 1.00 June 30, 2000 4.75 to 1.00 September 30, 2000 4.75 to 1.00 December 31, 2000 4.50 to 1.00 March 31, 2001 4.50 to 1.00 June 30, 2001 4.50 to 1.00 September 30, 2001 4.50 to 1.00 December 31, 2001 4.00 to 1.00 Thereafter 4.00 to 1.00
(b) Consolidated Senior Leverage Ratio. Permit the Consolidated Senior Leverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower (or, if less, the number of full fiscal quarters subsequent to the Closing Date) ending with any fiscal quarter set forth below to exceed the ratio set forth below opposite such fiscal quarter:
Consolidated Senior Fiscal Quarter Leverage Ratio -------------- -------------- March 31, 1998 3.00 to 1.00 June 30, 1998 3.00 to 1.00 September 30, 1998 3.00 to 1.00 December 31, 1998 2.75 to 1.00 March 31, 1999 2.75 to 1.00 June 30, 1999 2.75 to 1.00 September 30, 1999 2.75 to 1.00 December 31, 1999 2.50 to 1.00 March 31, 2000 2.50 to 1.00 June 30, 2000 2.50 to 1.00 September 30, 2000 2.50 to 1.00 December 31, 2000 2.25 to 1.00 March 31, 2001 2.25 to 1.00 June 30, 2001 2.25 to 1.00 September 30, 2001 2.25 to 1.00 December 31, 2001 2.00 to 1.00 Thereafter 2.00 to 1.00
78 73 (c) Consolidated Interest Coverage Ratio. Permit the Consolidated Interest Coverage Ratio for any period of four consecutive fiscal quarters of the Borrower (or, if less, the number of full fiscal quarters subsequent to the Closing Date) 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 -------------- --------------------- March 31, 1998 2.00 to 1.00 June 30, 1998 2.00 to 1.00 September 30, 1998 2.00 to 1.00 December 31, 1998 2.00 to 1.00 March 31, 1999 2.00 to 1.00 June 30, 1999 2.00 to 1.00 September 30, 1999 2.00 to 1.00 December 31, 1999 2.00 to 1.00 March 31, 2000 2.00 to 1.00 June 30, 2000 2.00 to 1.00 September 30, 2000 2.00 to 1.00 December 31, 2000 2.30 to 1.00 March 31, 2001 2.30 to 1.00 June 30, 2001 2.30 to 1.00 September 30, 2001 2.30 to 1.00 December 31, 2001 2.30 to 1.00 March 31, 2002 2.30 to 1.00 June 30, 2002 2.30 to 1.00 September 30, 2002 2.30 to 1.00 December 31, 2002 2.50 to 1.00 Thereafter 2.50 to 1.00
(d) Consolidated Fixed Charge Coverage Ratio. Permit the Consolidated Fixed Charge Coverage Ratio for any period of four consecutive fiscal quarters of the Borrower (or, if less, the number of full fiscal quarters subsequent to the Closing Date) to be less than 1.00 to 1.00. (e) Adjusted Consolidated Working Capital. Permit Adjusted Consolidated Working Capital to be less than $250,000,000 on the last day of any fiscal quarter of the Borrower. (f) Maintenance of Net Worth. Permit Consolidated Net Worth as of the last day of any fiscal quarter of the Borrower to be less than the sum of (i) $300,000,000 and (ii) an amount equal to the aggregate of 80% of Consolidated Net Income for each fiscal quarter of 79 74 the Borrower commencing after the Closing Date for which Consolidated Net Income is positive. 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(g) in an aggregate principal amount not to exceed, when added to the Capital Lease Obligations permitted under paragraph (d) of this Section 7.2, $30,000,000 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, $30,000,000 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 entered into to protect the Borrower or any of its Subsidiaries against fluctuations in interest rates and not for speculative purposes; (h) other Indebtedness (contingent or direct) not to exceed $6,000,000 outstanding at any one time in respect of letters of credit issued for the account of the Borrower or any of its Subsidiaries in the conduct of their business in the ordinary course and any Guarantee Obligations thereof; (i) Indebtedness of the Borrower under the remaining Senior Notes outstanding upon the consummation of the Debt Tender Offer in an aggregate principal amount not to exceed $6,000,000 at any time outstanding; (j) 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; (k) Indebtedness of the Borrower and its Subsidiaries to Commodity Credit Corporation in an aggregate principal amount not to exceed the lesser of (i) 80 75 $50,000,000 and (ii) 80% of the fair market value of the Property securing such Indebtedness pursuant to Section 7.3(f) at any one time outstanding; (l) Indebtedness of Holly Finance Company not to exceed $15,000,000 in aggregate principal amount outstanding at any time; (m) other unsecured Indebtedness not to exceed $10,000,000 in aggregate principal amount outstanding at any time; and (n) (i) Indebtedness of the Borrower in respect of the Senior Subordinated Notes in an aggregate principal amount not to exceed $250,000,000 and (ii) Guarantee Obligations of any Subsidiary Guarantor in respect of such Indebtedness; provided that such Guarantee Obligations are subordinated to the same extent as the obligations of the Borrower in respect of the Senior Subordinated Notes. 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(k); provided that (i) such Indebtedness provides no recourse to the Borrower and any of its Subsidiaries and (ii) such Liens do not at any 81 76 time encumber any Property other than the specific sugar or sugar-related products financed by such Indebtedness; (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; (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 on Cash Equivalents to secure letter of credit reimbursement obligations permitted under Section 7.2(h) in an aggregate amount not to exceed $6,000,000; (m) Liens securing Indebtedness of Holly Finance Company permitted under subsection 7.2(k) on notes payable to Holly Finance Company in respect of loans made by it in the ordinary course of its business to growers; (n) additional Liens securing obligations in an aggregate amount not to exceed $5,000,000; and (o) 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. 7.4 Limitation on Fundamental Changes. Enter into any merger, 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 82 77 Wholly Owned Subsidiary Guarantor shall be the continuing or surviving corporation); and (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. 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: (a) the Disposition of surplus, obsolete or worn out 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 non-operating 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) $10,000,000 in any year and (ii) $50,000,000 in the aggregate on a cumulative basis after the Closing Date; (f) Disposition of the real property, improvements and equipment associated with the non operating facilities at Hamilton City, California and Santa Barbara, California; (g) the sale or issuance of any Subsidiary's Capital Stock to the Borrower or any Wholly Owned Subsidiary Guarantor; (h) the sale or other disposition of any portion of the Borrower's portfolio of marketable securities; provided that the proceeds of such sale are applied as set forth in Section 2.12(b); and (i) additional Dispositions not to exceed $5,000,000 in the aggregate on a cumulative basis after the Closing Date. 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 83 78 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 (a) any Subsidiary may make Restricted Payments to the Borrower or any Wholly Owned Subsidiary Guarantor and (b) so long as no Event of Default has occurred and is continuing, the Borrower may continue to pay dividends on its common stock in accordance with past practice and in amounts per share not in excess of recent such amounts. 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 or Capitalized Refurbishment Expenditure, except (i) Capitalized Refurbishment Expenditures of the Borrower and its Subsidiaries in the ordinary course of business not to exceed $50,000,000 in any fiscal year and (ii) other Capital Expenditures of the Borrower and its Subsidiaries in the ordinary course of business not to exceed (A) $60,000,000 in the fiscal year ending September 30, 1998, or (b) $45,000,000 in any fiscal year thereafter; provided that any portion of the amount specified in clause (ii) for any fiscal year that is not expended in such fiscal year may be carried over to increase the amount of Capital Expenditures permitted under clause (ii) for the immediately succeeding fiscal year. 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) the Merger; (f) 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; (g) investments and reinvestments in the Borrower's portfolio of marketable securities in the ordinary course of business; 84 79 (h) Loans by Holly Finance Company or Holly Sugar Corporation in the ordinary course of business not to exceed $15,000,000 in the aggregate outstanding at any time; (i) investments made by the Borrower or any of its Subsidiaries with the proceeds of any Recovery Reinvestment Deferred Amount; (j) advances, loans, extensions of credit existing on the date hereof and listed on Schedule 7.8(j); (k) investments by the Borrower or any of its Subsidiaries constituting contributions of amounts the fair market value of which at the time of the making thereof does not exceed, in the aggregate, an amount equal to 5% of Consolidated Tangible Assets as reflected in the financial statements most recently delivered pursuant to Section 6.1(a) or (b) prior to such time (with the fair market value of each such investment being measured at the time made and without giving effect to subsequent changes in value); provided that such investments are in joint venture arrangements of the Borrower or any of its Subsidiaries with entities that are raw material suppliers or that are related to the primary business of the Borrower; (l) 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 $3,000,000; and (m) any other loans or investments not otherwise permitted under this Section 7.8 having an aggregate amount at any time not in excess of $10,000,000 (determined at any time as the aggregate initial amount of such investment or loan less returns or repayments of such investments at or prior to such time). 7.9 Limitation on Optional Payments and Modifications of Debt Instruments, etc. (a) Make or offer to make any payment, prepayment, repurchase or redemption of or otherwise defease or segregate funds with respect to the Senior Subordinated Notes (other than scheduled interest payments required to be made in cash), (b) amend, modify, waive or otherwise change, or consent or agree to any material amendment, modification, waiver or other change to, any of the terms of the Senior Subordinated Notes (other than any such amendment, modification, waiver or other change which (i) would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or extend the date for payment of interest thereon and (ii) does not involve the payment of a consent fee), (c) designate any Indebtedness as "Designated Senior Indebtedness" for the purposes of the Senior Subordinated Note Indenture (other than the Indebtedness incurred under this Agreement) or (d) 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; provided, however, that this Section 7.9 shall not prohibit the Borrower or any of its Affiliates from acquiring, from time to time, any of the Senior Notes which remain 85 80 outstanding following consummation or expiration of the Debt Tender Offer in accordance with the terms thereof and with the terms of the Senior Note Indenture. 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. Notwithstanding the foregoing, the Tender Offer and the Merger may be consummated. 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. 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 Syndication 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 Syndication Agent) after giving effect thereto as if such change were not made. The Lenders hereby authorize the Syndication Agent and the Administrative Agent to enter into such amendments to effect such modifications, if any, in accordance with the provisions of this subsection. 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, 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) and (c) the Senior Subordinated Note Indenture. 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 86 81 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 restriction existing under the Senior Subordinated Note Indenture and (iii) 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. 7.15 Limitation on Lines of Business. Enter into any business, either directly or through any Subsidiary, except for (a) those businesses in which the Borrower or any of its Subsidiaries are engaged on the date of this Agreement and (b) businesses reasonably related thereto, the revenues of which do not exceed 10% of the Borrower's consolidated gross revenues. SECTION 8. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (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 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 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 87 82 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 (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 88 83 (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 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; (ii) the board of directors of the Borrower shall cease to consist of a majority of Continuing Directors; or (iii) a Specified Change of Control shall occur; or 89 84 (l) The Senior Subordinated Notes or the guarantees thereof shall cease, for any reason, to be validly subordinated to the Obligations or the obligations of the Subsidiary Guarantors under the Guarantee and Collateral Agreement, as the case may be, as provided in the Senior Subordinated Note Indenture, or any Loan Party, any Affiliate of any Loan Party, the trustee in respect of the Senior Subordinated Notes or the holders of at least 25% in aggregate principal amount of the Senior Subordinated Notes shall so assert; 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 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 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 90 85 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. 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. 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 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. 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 91 86 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. 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 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. 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 92 87 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. 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 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. 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 93 88 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. 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 Syndication Agent or the Collateral Agent, as the case may be, may, at any time, by notice to the Lenders and the Administrative Agent, resign as Syndication Agent or Collateral Agent (as applicable), 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 Syndication Agent, 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 Syndication 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 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. 9.10 Authorization to Release Liens. The Administrative Agent is 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. 94 89 9.11 The Arranger. The Arranger, in its capacity as such, shall have no duties or responsibilities, and shall incur no liability, under this Agreement and the other Loan Documents. SECTION 10. MISCELLANEOUS 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 party to the relevant Loan Document may, or (with the written consent of the Required Lenders) the Syndication Agent, the Administrative Agent and each Loan Party 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 definition of Required 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, release all or substantially all of the Collateral 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 Section 2.6 or 2.7 without the written consent of the Swing Line Lender; (vii) amend, modify or waive any provision of Section 3 without the written consent of the Issuing Lender; or (viii) amend, modify or waive any provision of Section 2.18(d) without the written consent of the Majority Facility Lenders of the Tranche B Term Loans; provided, further, notwithstanding the provisions set forth above, no Lender consent shall be required in connection with the release 95 90 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. 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 Syndication Agent, 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 Holly Corporation One Imperial Square, Suite 200 8016 Highway 90-A Sugar Land, Texas 77478 Attention: Karen Mercer Telecopy: (281) 490-9895 Telephone: (281) 490-9506 The Syndication Agent: Lehman Commercial Paper Inc. 3 World Financial Center New York, New York 10285 Attention: Michele Swanson Telecopy: (212) 528-0819 Telephone: (212) 526-0330 The Collateral Agent and Harris Trust and Savings Bank the Administrative Agent: 111 West Monroe Street Chicago, Illinois 60690 Attention: Agribusiness Division Telecopy: (312) 765-8095 Telephone: (312) 461-2744
provided that any notice, request or demand to or upon any Agent or the Lenders shall not be effective until received. 96 91 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. 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. 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 (except for any costs or expenses specifically excluded in the commitment letter executed by the Borrower and the Syndication Agent in respect of the credit facilities provided for herein) 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 of proceeds of the Loans or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Borrower 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 97 92 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. 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. (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 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. 98 93 (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 Syndication 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 Agents (which, in each case, shall not be unreasonably withheld or delayed) (provided that no such consent need be obtained for assignments involving the Syndication Agent or its Affiliates), to an additional 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, the Syndication Agent 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 $5,000,000 (other than in the case of an assignment of all of a Lender's interests under this Agreement), unless otherwise agreed by the Borrower, the Syndication Agent 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 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 99 94 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 Syndication 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 Syndication 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. 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 100 95 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. 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. 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 such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 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. 101 96 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. 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. 10.13 Acknowledgements. 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; (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 102 97 (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. 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. 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, (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, (d) upon the request or demand of any Governmental Authority having jurisdiction over the 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 such 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. 103 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 HOLLY CORPORATION By: ------------------------------------ Name: Title: 104 HARRIS TRUST AND SAVINGS BANK, as Administrative Agent, Collateral Agent, Issuing Lender and as a Lender By: ------------------------------------ Name: Title: 105 LEHMAN COMMERCIAL PAPER INC., as Syndication Agent and as a Lender By: ------------------------------------ Name: Title: 106 WACHOVIA BANK, N.A. By: ------------------------------------ Name: Title: 107 UNION BANK OF CALIFORNIA, N.A. By: ------------------------------------ Name: Title: 108 COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "RABOBANK NEDERLAND" NEW YORK BRANCH By: ------------------------------------ Name: Title: 109 WELLS FARGO BANK (TEXAS), N.A. By: ------------------------------------ Name: Title: 110 CREDIT AGRICOLE INDOSUEZ By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: 111 FBS AG CREDIT, INC. By: ------------------------------------ Name: Title: 112 THE BANK OF NEW YORK By: ------------------------------------ Name: Title: 113 THE FROST NATIONAL BANK By: ------------------------------------ Name: Title: 114 ST. PAUL BANK FOR COOPERATIVES By: ------------------------------------ Name: Title: 115 ING HIGH INCOME PRINCIPAL PRESENTATION FUND HOLDINGS, LDC c/o ING CAPITAL ADVISORS, INC. By: ------------------------------------ Name: Title: 116 111 PRIME INCOME TRUST By: ------------------------------------ Name: Title: 117 PILGRIM AMERICA PRIME RATE TRUST By: ------------------------------------ Name: Title: 118 METROPOLITAN LIFE INSURANCE COMPANY By: ------------------------------------ Name: Title: 119 MERRILL LYNCH SENIOR FLOATING RATE FUND By: Merrill Lynch Asset Management, L.P., as Investment Advisor By: ------------------------------------ Name: Title: 120 THE TRAVELERS INSURANCE COMPANY By: ------------------------------------ Name: Title: 121 PEOPLES SECURITY LIFE INSURANCE COMPANY By: ------------------------------------ Name: Title: 122 GCB INVESTMENT PORTFOLIO By: ------------------------------------ Name: Title: 123 Annex A PRICING GRID FOR REVOLVING CREDIT LOANS, SWING LINE LOANS, TRANCHE A TERM LOANS AND COMMITMENT FEES
- --------------------------------------------------------------------------------------------------------- Consolidated Total Applicable Margin Applicable Margin for Commitment Fee Rate Leverage Ratio for Eurodollar Loans Base Rate Loans - --------------------------------------------------------------------------------------------------------- Greater than or equal 2.00% 1.00% 0.375% to 4.00 to 1.00 - --------------------------------------------------------------------------------------------------------- Less than 4.00 to 1.00 1.75% 0.75% 0.375% but greater than or equal to 3.50 to 1.00 - --------------------------------------------------------------------------------------------------------- Less than 3.50 to 1.00 1.50% 0.50% 0.375% but greater than or equal to 3.00 to 1.00 - --------------------------------------------------------------------------------------------------------- Less than 3.00 to 1.00 1.25% 0.25% 0.250% - ---------------------------------------------------------------------------------------------------------
PRICING GRID FOR TRANCHE B TERM LOANS
- --------------------------------------------------------------------------------------------------------- Consolidated Total Leverage Applicable Margin Applicable Margin for Base Ratio for Eurodollar Loans Rate Loans - --------------------------------------------------------------------------------------------------------- Greater than or equal to 3.00 2.00% 1.00% to 1.00 - --------------------------------------------------------------------------------------------------------- Less than 3.00 to 1.00 1.75% 0.75% - ---------------------------------------------------------------------------------------------------------
Changes in the Applicable Margin with respect to Tranche A Term Loans, Tranche B Term Loans, Revolving Credit Loans, Swing Line Loans or in the Commitment Fee Rate resulting from changes in the Consolidated Total Leverage Ratio shall become effective on the date (the "Adjustment Date") on which financial statements are delivered to the Lenders pursuant to Section 6.1 (but in any event not later than the 50th day after the end of each of the first three quarterly periods of each fiscal year or the 100th day after the end of each fiscal year, as the case may be) and shall remain in effect until the next change to be effected pursuant to this paragraph. If any financial statements referred to above are not delivered within the time periods specified above, then, until such financial statements are delivered, the Consolidated Total Leverage Ratio as at the end of the fiscal period that would have been covered thereby shall for the purposes of this definition be deemed to be greater than 4.00 to 1.00. In addition, 124 3 at all times while an Event of Default shall have occurred and be continuing, the Consolidated Total Leverage Ratio shall for the purposes of this definition be deemed to be greater than 4.00 to 1.00. Each determination of the Consolidated Total Leverage Ratio pursuant to this definition shall be made with respect to the period of four consecutive fiscal quarters of the Borrower ending at the end of the period covered by the relevant financial statements. 125 SCHEDULES 1.1A COMMITMENTS: LENDING OFFICES AND ADDRESSES
Commitments ----------- Name of Lender and Revolving Tranche A Tranche B Information for Notices Credit Term Loan Term Loan ------ --------- ---------
126 SCHEDULE 1.1B MORTGAGED PROPERTY 127 SCHEDULE 4.4 CONSENTS, AUTHORIZATIONS, FILINGS AND NOTICES 128 SCHEDULE 4.14 SUBSIDIARIES 129 SCHEDULE 4.18(a) UCC FILING JURISDICTIONS 130 SCHEDULE 4.18(b) MORTGAGE FILING JURISDICTIONS 131 SCHEDULE 7.2(e) EXISTING INDEBTEDNESS 132 SCHEDULE 7.3(f) EXISTING LIENS EX-4.A2 3 GUARANTEE AND COLLATERAL AGREEMENT-DATED 12/22/97 1 EXHIBIT 4(a)(2) ================================================================================ AMENDED AND RESTATED GUARANTEE AND COLLATERAL AGREEMENT made by IMPERIAL HOLLY CORPORATION and certain of its Subsidiaries in favor of HARRIS TRUST AND SAVINGS BANK, as Collateral Agent Dated as of December 22, 1997 ================================================================================ 2 TABLE OF CONTENTS
Page ---- SECTION 1. DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 2. GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.1 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.2 Right of Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.3 No Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.4 Amendments, etc. with respect to the Borrower Obligations . . . . . . . . . . . . . . . . . . . . . . . 6 2.5 Guarantee Absolute and Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.6 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.7 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 3. GRANT OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 4. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.1 Representations in Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.2 Title; No Other Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.3 Perfected First Priority Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.4 Chief Executive Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.5 Inventory and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.6 Pledged Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.7 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.8 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.9 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 5. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.1 Covenants in Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.2 Delivery of Instruments and Chattel Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.3 Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.4 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.5 Maintenance of Perfected Security Interest; Further Documentation . . . . . . . . . . . . . . . . . . . 12 5.6 Changes in Locations, Name, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.8 Pledged Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.9 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.10 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.11 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 6. REMEDIAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 6.1 Certain Matters Relating to Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 6.2 Communications with Obligors; Grantors Remain Liable . . . . . . . . . . . . . . . . . . . . . . . . . 16 6.3 Pledged Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.4 Proceeds to be Turned Over To Collateral Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 6.5 Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.6 Code and Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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Page ---- 6.7 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.8 Waiver; Deficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 7. THE COLLATERAL AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 7.1 Collateral Agent's Appointment as Attorney-in-Fact, etc . . . . . . . . . . . . . . . . . . . . . . . . 20 7.2 Duty of Collateral Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 7.3 Execution of Financing Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.4 Authority of Collateral Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 8. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 8.1 Amendments in Writing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 8.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 8.3 No Waiver by Course of Conduct; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 22 8.4 Enforcement Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 8.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 8.6 Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 8.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 8.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 8.9 Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 8.10 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 8.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 8.12 Submission To Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 8.13 Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 8.14 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 8.15 Additional Grantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 8.16 Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ii 4 AMENDED AND RESTATED GUARANTEE AND COLLATERAL AGREEMENT AMENDED AND RESTATED GUARANTEE AND COLLATERAL AGREEMENT, dated as of December 22, 1997, made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the "Grantors"), in favor of Harris Trust and Savings Bank, an Illinois banking corporation, as collateral agent (in such capacity, the "Collateral Agent") for the Agents and the banks and other financial institutions (the "Lenders") from time to time parties to the Amended and Restated Credit Agreement, dated as of December 22, 1997 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Imperial Holly Corporation (the "Borrower"), the 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. W I T N E S S E T H: WHEREAS, certain of the parties hereto are parties to that certain Guarantee and Collateral Agreement, dated as of October 17, 1997 (as amended, supplemented or otherwise modified prior to the date hereof, the "Existing Guarantee and Collateral Agreement"); WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make extensions of credit to the Borrower upon the terms and subject to the conditions set forth therein; WHEREAS, the Borrower is a member of an affiliated group of companies that includes each other Grantor; WHEREAS, the proceeds of the extensions of credit under the Credit Agreement will be used in part to enable the Borrower to make valuable transfers to one or more of the other Grantors in connection with the operation of their respective businesses; WHEREAS, the Borrower and the other Grantors are engaged in related businesses, and each Grantor will derive substantial direct and indirect benefit from the making of the extensions of credit under the Credit Agreement; and WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective extensions of credit to the Borrower under the Credit Agreement that the Grantors shall have amended and restated the Existing Guarantee and Collateral Agreement as set forth herein; NOW, THEREFORE, in consideration of the premises and to induce the Agents and the Lenders to amend and restate the Existing Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrower thereunder, each Grantor hereby agrees with the Collateral Agent, for the ratable benefit of the Lenders, to amend and restate the Existing Guarantee and Collateral Agreement to read in its entirety as follows: SECTION 1. DEFINED TERMS 1.1 Definitions. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement, and the following terms which are defined in the Uniform Commercial Code in effect in the State of New 5 2 York on the date hereof are used herein as so defined: Accounts, Chattel Paper, Documents, Equipment, Farm Products, Instruments and Inventory. (b) The following terms shall have the following meanings: "Agreement": this Guarantee and Collateral Agreement, as the same may be amended, amended and restated, supplemented or otherwise modified from time to time. "Borrower Obligations": the collective reference to the unpaid principal of and interest on the Loans and Reimbursement Obligations and all other obligations and liabilities of the Borrower (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of the Loans and Reimbursement Obligations and interest accruing at the then applicable rate provided in the Credit Agreement 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) to any Agent or any Lender (or, in the case of any Hedge Agreement referred to below, 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, the Credit Agreement, this Agreement, the other Loan Documents, any Letter of Credit or any Hedge Agreement entered into by the Borrower with any Lender (or any Affiliate of any Lender) or any other document made, delivered or given in connection therewith, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Agents or to the Lenders that are required to be paid by the Borrower pursuant to the terms of any of the foregoing agreements). "Collateral": as defined in Section 3. "Collateral Account": any collateral account established by the Collateral Agent as provided in Section 6.1 or 6.4. "Contracts": to the extent assignment thereof is not expressly prohibited by applicable law or prohibited by such contract or agreement, all contracts and agreements to which any Grantor is a party or under which any Grantor is a beneficiary or has rights, in each case, as the same may be amended, supplemented or otherwise modified from time to time, including, without limitation, (i) all rights of any Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (ii) all rights of any Grantor to damages arising thereunder and (iii) all rights of any Grantor to perform and to exercise all remedies thereunder. "Copyrights": (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished (including, without limitation, those listed in Schedule 6), all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, and (ii) the right to obtain all renewals thereof. 6 3 "Copyright Licenses": any written agreement naming any Grantor as licensor or licensee (including, without limitation, those listed in Schedule 6), granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright. "General Intangibles": all "general intangibles" as such term is defined in Section 9-106 of the Uniform Commercial Code in effect in the State of New York on the date hereof and, in any event, including, without limitation, with respect to any Grantor, all contracts, agreements, instruments and indentures in any form, and portions thereof, to which such Grantor is a party or under which such Grantor has any right, title or interest or to which such Grantor or any property of such Grantor is subject, as the same may from time to time be amended, supplemented or otherwise modified, including, without limitation, (i) all rights of such Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (ii) all rights of such Grantor to damages arising thereunder and (iii) all rights of such Grantor to perform and to exercise all remedies thereunder, in each case to the extent the grant by such Grantor of a security interest pursuant to this Agreement in its right, title and interest in such contract, agreement, instrument or indenture is not prohibited by applicable law or prohibited by such contract, agreement, instrument or indenture without the consent of any other party thereto, would not give any other party to such contract, agreement, instrument or indenture the right to terminate its obligations thereunder, or is permitted with consent if all necessary consents to such grant of a security interest have been obtained from the other parties thereto (it being understood that the foregoing shall not be deemed to obligate such Grantor to obtain such consents); provided, that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any Receivable or any money or other amounts due or to become due under any such contract, agreement, instrument or indenture. "Guarantor Obligations": with respect to any Guarantor, the collective reference to (i) the Borrower Obligations and (ii) all obligations and liabilities of such Guarantor which may arise under or in connection with this Agreement or any other Loan Document to which such Guarantor is a party, in each case whether on account of guarantee obligations, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Agents or to the Lenders that are required to be paid by such Guarantor pursuant to the terms of this Agreement or any other Loan Document). "Guarantors": the collective reference to each Grantor other than the Borrower. "Hedge Agreements": as to any Person, all interest rate swaps, caps or collar agreements or similar arrangements entered into by such Person providing for protection against fluctuations in interest rates or currency exchange rates or the exchange of nominal interest obligations, either generally or under specific contingencies. "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, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks and the Trademark Licenses, 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. 7 4 "Intercompany Note": any promissory note evidencing loans made by any Grantor to the Borrower or any of its Subsidiaries. "Investment Property": as defined in Section 9-115 of the Uniform Commercial Code in effect in the State of New York on the date hereof, excluding the items set forth on Schedule 8 hereto. "Issuers": the collective reference to each issuer of a Pledged Security. "New York UCC": the Uniform Commercial Code as from time to time in effect in the State of New York. "Obligations": (i) in the case of the Borrower, the Borrower Obligations, and (ii) in the case of each Guarantor, its Guarantor Obligations. "Patents": (i) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof and all goodwill associated therewith, including, without limitation, any of the foregoing referred to in Schedule 6, (ii) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, including, without limitation, any of the foregoing referred to in Schedule 6, and (iii) all rights to obtain any reissues or extensions of the foregoing. "Patent License": all agreements, whether written or oral, providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent, including, without limitation, any of the foregoing referred to in Schedule 6. "Pledged Notes": all promissory notes listed on Schedule 2, all Intercompany Notes at any time issued to any Grantor and all other promissory notes issued to or held by any Grantor (other than promissory notes issued in connection with extensions of trade credit by any Grantor in the ordinary course of business). "Pledged Securities": the collective reference to the Pledged Notes and the Pledged Stock. "Pledged Stock": the shares of Capital Stock listed on Schedule 2, together with any other shares, stock certificates, options or rights of any nature whatsoever in respect of the Capital Stock of any Person that may be issued or granted to, or held by, any Grantor while this Agreement is in effect. "Proceeds": all "proceeds" as such term is defined in Section 9-306(1) of the Uniform Commercial Code in effect in the State of New York on the date hereof and, in any event, shall include, without limitation, all dividends or other income from the Pledged Securities, collections thereon or distributions or payments with respect thereto. "Receivable": any right to payment for goods sold or leased or for services rendered, whether or not such right is evidenced by an Instrument or Chattel Paper and whether or not it has been earned by performance (including, without limitation, any Account). "Securities Act": the Securities Act of 1933, as amended. 8 5 "Trademarks": (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, including, without limitation, any of the foregoing referred to in Schedule 6, and (ii) the right to obtain all renewals thereof. "Trademark License": any agreement, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark, including, without limitation, any of the foregoing referred to in Schedule 6. 1.2 Other Definitional Provisions. (a) The words "hereof," "herein", "hereto" 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 and Schedule references are to this Agreement unless otherwise specified. (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (c) Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor's Collateral or the relevant part thereof. SECTION 2. GUARANTEE 2.1 Guarantee. (a) Each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantees to the Collateral Agent, for the ratable benefit of the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Borrower when due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations. (b) Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 2.2). (c) Each Guarantor agrees that the Borrower Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of any Agent or any Lender hereunder. (d) The guarantee contained in this Section 2 shall remain in full force and effect until all the Borrower Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by payment in full, no Letter of Credit shall be outstanding and the Commitments shall be terminated, notwithstanding that from time to time during the term of the Credit Agreement the Borrower may be free from any Borrower Obligations. 9 6 (e) No payment made by the Borrower, any of the Guarantors, any other guarantor or any other Person or received or collected by any Agent or any Lender from the Borrower, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Borrower Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of the Borrower Obligations or any payment received or collected from such Guarantor in respect of the Borrower Obligations), remain liable for the Borrower Obligations up to the maximum liability of such Guarantor hereunder until the Borrower Obligations are paid in full, no Letter of Credit shall be outstanding and the Commitments are terminated. 2.2 Right of Contribution. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of any Guarantor to the Agents and the Lenders, and each Guarantor shall remain liable to the Agents and the Lenders for the full amount guaranteed by such Guarantor hereunder. 2.3 No Subrogation. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by any Agent or any Lender, no Guarantor shall be entitled to be subrogated to any of the rights of any Agent or any Lender against the Borrower or any other Guarantor or any collateral security or guarantee or right of offset held by any Agent or any Lender for the payment of the Borrower Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Agents and the Lenders by the Borrower on account of the Borrower Obligations are paid in full, no Letter of Credit shall be outstanding and the Commitments are terminated. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Borrower Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Agents and the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Collateral Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Collateral Agent, if required), to be applied against the Borrower Obligations, whether matured or unmatured, in such order as the Credit Agreement shall prescribe. 2.4 Amendments, etc. with respect to the Borrower Obligations. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Borrower Obligations made by any Agent or any Lender may be rescinded by such Agent or such Lender and any of the Borrower Obligations continued, and the Borrower Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by any Agent or any Lender, and the Credit Agreement and the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Agents (or the Required Lenders or all Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by any Agent or any Lender for the payment of the Borrower Obligations may be sold, exchanged, waived, surrendered or released. Neither any Agent nor any Lender shall as a condition to 10 7 any Guarantor's liability hereunder have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Borrower Obligations or for the guarantee contained in this Section 2 or any property subject thereto. 2.5 Guarantee Absolute and Unconditional. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Borrower Obligations and notice of or proof of reliance by any Agent or any Lender upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Borrower Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Borrower and any of the Guarantors, on the one hand, and the Agents and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Borrower or any of the Guarantors with respect to the Borrower Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of the Credit Agreement or any other Loan Document, any of the Borrower Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by any Agent or any Lender, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Borrower or any other Person against any Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Borrower or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Borrower for the Borrower Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, any Agent or any Lender may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against the Borrower, any other Guarantor or any other Person or against any collateral security or guarantee for the Borrower Obligations or any right of offset with respect thereto, and any failure by any Agent or any Lender to make any such demand, to pursue such other rights or remedies or to collect any payments from the Borrower, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Borrower, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of any Agent or any Lender against any Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 2.6 Reinstatement. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Borrower Obligations is rescinded or must otherwise be restored or returned by any Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. 2.7 Payments. Each Guarantor hereby guarantees that payments hereunder will be paid to the Administrative Agent without set-off or counterclaim in Dollars at the office of the Administrative Agent specified in the Credit Agreement. 11 8 SECTION 3. GRANT OF SECURITY INTEREST Each Grantor hereby assigns and transfers to the Collateral Agent, and hereby grants to the Collateral Agent, for the ratable benefit of the Lenders, a security interest in, all of the following property now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the "Collateral"), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of such Grantor's Obligations,: (a) all Accounts; (b) all Chattel Paper; (c) all Contracts; (d) all Documents; (e) all Equipment; (f) all General Intangibles; (g) all Instruments; (h) all Intellectual Property; (i) all Inventory; (j) all Investment Property; (k) all Pledged Securities; (l) all Farm Products; (m) all books and records pertaining to the Collateral; and (n) to the extent not otherwise included, all Proceeds, investment securities and products of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing. SECTION 4. REPRESENTATIONS AND WARRANTIES To induce the Agents and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrower thereunder, each Grantor hereby represents and warrants to each Agent and each Lender that: 4.1 Representations in Credit Agreement. In the case of each Guarantor, the representations and warranties set forth in Section 4 of the Credit Agreement as they relate to such Guarantor or to the Loan Documents to which such Guarantor is a party, each of which is hereby 12 9 incorporated herein by reference, are true and correct, and each Agent and each Lender shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Borrower's knowledge shall, for the purposes of this Section 4.1, be deemed to be a reference to such Guarantor's knowledge. 4.2 Title; No Other Liens. Except for the security interest granted to the Collateral Agent for the ratable benefit of the Lenders pursuant to this Agreement and the other Liens permitted to exist on the Collateral by the Credit Agreement, such Grantor owns each item of the Collateral free and clear of any and all Liens or claims of others or, with respect to Collateral acquired after the date hereof, such Grantor will own each item of the Collateral free and clear of any and all Liens and claims of others. No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Collateral Agent, for the ratable benefit of the Lenders, pursuant to this Agreement or as are permitted by the Credit Agreement. 4.3 Perfected First Priority Liens. The security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified on Schedule 3 (which, in the case of all filings and other documents referred to on said Schedule, have been delivered to the Collateral Agent in completed and duly executed form) will constitute valid perfected security interests in all of the Collateral in favor of the Collateral Agent, for the ratable benefit of the Lenders, as collateral security for such Grantor's Obligations, enforceable in accordance with the terms hereof against all creditors of such Grantor and any Persons purporting to purchase any Collateral from such Grantor to the extent such liens can be perfected under domestic law and (b) are prior to all other Liens on the Collateral in existence on the date hereof except for (i) unrecorded Liens permitted by the Credit Agreement which have priority over the Liens on the Collateral by operation of law and (ii) Liens described on Schedule 7. 4.4 Chief Executive Office. On the date hereof, such Grantor's jurisdiction of organization and the location of such Grantor's chief executive office or sole place of business are specified on Schedule 4. 4.5 Inventory and Equipment. On the date hereof, the Inventory, the Farm Products and the Equipment (other than mobile goods) are kept at the locations listed on Schedule 5. 4.6 Pledged Securities. (a) The shares of Pledged Stock pledged by such Grantor hereunder constitute all the issued and outstanding shares of all classes of the Capital Stock of each Issuer owned by such Grantor. (b) All the shares of the Pledged Stock have been duly and validly issued and are fully paid and nonassessable. (c) Each of the Pledged Notes constitutes the legal, valid and binding obligation of the obligor with respect thereto, enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (d) Such Grantor is the record and beneficial owner of, and has good and marketable title to, the Pledged Securities pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other Person, except the security interest created by this Agreement. 13 10 4.7 Receivables. (a) No amount payable to such Grantor under or in connection with any Receivable is evidenced by any Instrument or Chattel Paper which has not been delivered to the Collateral Agent and for which delivery thereof has been requested by the Collateral Agent. (b) None of the obligors on any Receivables having an aggregate value of $1,000,000 is a Governmental Authority. (c) The amounts represented by such Grantor to the Lenders from time to time as owing to such Grantor in respect of the Receivables will at such times be substantially accurate. 4.8 Contracts. (a) No consent of any party (other than such Grantor) to any Contract is required, or purports to be required, in connection with the execution, delivery and performance of this Agreement. (b) Each Contract is in full force and effect and constitutes a valid and legally enforceable obligation of the parties thereto, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (c) No consent or authorization of, filing with or other act by or in respect of any Governmental Authority is required in connection with the execution, delivery, performance, validity or enforceability of any of the Contracts by any party thereto other than those which have been duly obtained, made or performed, are in full force and effect and do not subject the scope of any such Contract to any material adverse limitation, either specific or general in nature. (d) Neither such Grantor nor (to the best of such Grantor's knowledge) any of the other parties to the Contracts is in default in the performance or observance of any of the terms thereof in any manner that, in the aggregate, could reasonably be expected to have a Material Adverse Effect. (e) The right, title and interest of such Grantor in, to and under the Contracts are not subject to any defenses, offsets, counterclaims or claims that, in the aggregate, could reasonably be expected to have a Material Adverse Effect. (f) Such Grantor has delivered, made available or will upon request make available to the Collateral Agent a complete and correct copy of each Contract, including all amendments, supplements and other modifications thereto. (g) No amount payable to such Grantor under or in connection with any Contract is evidenced by any Instrument or Chattel Paper which has not been delivered to the Collateral Agent and for which delivery thereof has been requested by the Collateral Agent. (h) None of the parties to any Contract which has generated Receivables in excess of that referenced in Section 4.7 is a Governmental Authority. 4.9 Intellectual Property. (a) Schedule 6 lists all Intellectual Property owned by such Grantor in its own name on the date hereof. 14 11 (b) On the date hereof, all material Intellectual Property is valid, subsisting, unexpired and enforceable, has not been abandoned and, to Grantor's knowledge, does not infringe the intellectual property rights of any other Person. (c) Except as set forth in Schedule 6, on the date hereof, none of the Intellectual Property is the subject of any licensing or franchise agreement pursuant to which such Grantor is the licensor or franchisor. (d) No holding, decision or judgment has been rendered by any Governmental Authority which would limit, cancel or question the validity of, or such Grantor's rights in, any Intellectual Property in any respect that could reasonably be expected to have a Material Adverse Effect. (e) No action or proceeding is pending, or, to the knowledge of such Grantor, threatened, on the date hereof (i) seeking to limit, cancel or question the validity of any Intellectual Property or such Grantor's ownership interest therein, or (ii) which, if adversely determined, would have a material adverse effect on the value of any Intellectual Property. SECTION 5. COVENANTS Each Grantor covenants and agrees with the Agents and the Lenders that, from and after the date of this Agreement until the Obligations shall have been paid in full, and no Letter of Credit shall be outstanding and the Commitments shall have terminated: 5.1 Covenants in Credit Agreement. In the case of each Guarantor, such Guarantor shall take, or shall refrain from taking, as the case may be, each action that is necessary to be taken or not taken, as the case may be, so that no Default or Event of Default is caused by the failure to take such action or to refrain from taking such action by such Guarantor or any of its Subsidiaries. 5.2 Delivery of Instruments and Chattel Paper. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel Paper, upon the request of the Collateral Agent, shall be immediately delivered to the Collateral Agent, duly indorsed in a manner satisfactory to the Collateral Agent, to be held as Collateral pursuant to this Agreement. 5.3 Maintenance of Insurance. (a) Such Grantor will maintain, with financially sound and reputable companies, insurance policies as is customary in its business (i) insuring the Inventory and Equipment against loss by fire, explosion, theft and such other casualties as may be reasonably satisfactory to the Collateral Agent and (ii) to the extent requested by the Collateral Agent, insuring such Grantor, the Agents and the Lenders against liability for personal injury and property damage relating to such Inventory and Equipment, such policies to be in such form and amounts and having such coverage as is customary in Grantor's business. (b) All such insurance shall (i) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days after receipt by the Collateral Agent of written notice thereof, (ii) name the Collateral Agent as insured party or loss payee and (iii) if reasonably requested by the Collateral Agent, include a breach of warranty clause. 15 12 (c) The Borrower shall deliver to the Collateral Agent and the Lenders a report of a reputable insurance broker with respect to such insurance from time to time as reasonably requested by the Collateral Agent. 5.4 Payment of Obligations. Such Grantor will pay and discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge need be paid if the amount or validity thereof is currently being contested in good faith by appropriate proceedings, reserves in conformity with GAAP with respect thereto have been provided on the books of such Grantor and such proceedings could not reasonably be expected to result in the sale, forfeiture or loss of any material portion of the Collateral or any interest therein. 5.5 Maintenance of Perfected Security Interest; Further Documentation. (a) Such Grantor shall maintain the security interest created by this Agreement as a perfected security interest having at least the priority described in Section 4.3 and shall defend such security interest against the claims and demands of all Persons whomsoever. (b) Such Grantor will furnish to the Collateral Agent and the Lenders from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Collateral Agent may reasonably request, all in reasonable detail. (c) At any time and from time to time, upon the written request of the Collateral Agent, and at the sole expense of such Grantor, such Grantor will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as the Collateral Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby. 5.6 Changes in Locations, Name, etc. Such Grantor will not, except upon 15 days' prior written notice to the Collateral Agent and delivery to the Collateral Agent of (a) all additional executed financing statements and other documents reasonably requested by the Collateral Agent to maintain the validity, perfection and priority of the security interests provided for herein and (b) if applicable, a written supplement to Schedule 5 showing any additional location at which Inventory, Equipment or Farm Products shall be kept: (i) permit any portion with an aggregate value in excess of $1,000,000 of the Inventory, Equipment or Farm Products to be kept at a location other than those listed on Schedule 5; (ii) change the location of its chief executive office or sole place of business from that referred to in Section 4.4; or (iii) change its name, identity or corporate structure to such an extent that any financing statement filed by the Collateral Agent in connection with this Agreement would become misleading. 16 13 5.7 Notices. Such Grantor will, promptly after acquiring knowledge thereof, advise the Agents and the Lenders promptly, in reasonable detail, of: (a) any Lien (other than security interests created hereby or Liens permitted under the Credit Agreement) on any of the Collateral which would adversely affect the ability of the Collateral Agent to exercise any of its remedies hereunder; and (b) of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the security interests created hereby. 5.8 Pledged Securities. (a) If such Grantor shall become entitled to receive or shall receive any stock certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the Capital Stock of any Issuer, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares of the Pledged Stock, or otherwise in respect thereof, such Grantor shall accept the same as the agent of the Agents and the Lenders, hold the same in trust for the Agents and the Lenders and deliver the same forthwith to the Collateral Agent in the exact form received, duly indorsed by such Grantor to the Collateral Agent, if required, together with an undated stock power covering such certificate duly executed in blank by such Grantor and with, if the Collateral Agent so requests, signature guaranteed, to be held by the Collateral Agent, subject to the terms hereof, as additional collateral security for the Obligations. Any sums paid upon or in respect of the Pledged Securities upon the liquidation or dissolution of any Issuer shall, promptly but in no event later than ten days unless the prior consent of the Collateral Agent is obtained, be paid over to the Collateral Agent to be held by it hereunder as additional collateral security for the Obligations, and in case any distribution of capital shall be made on or in respect of the Pledged Securities or any property shall be distributed upon or with respect to the Pledged Securities pursuant to the recapitalization or reclassification of the capital of any Issuer or pursuant to the reorganization thereof, the property so distributed shall, unless otherwise subject to a perfected security interest in favor of the Collateral Agent, be delivered, promptly but in not event later than ten days unless the prior consent of the Collateral Agent is obtained, to the Collateral Agent to be held by it hereunder as additional collateral security for the Obligations. If any sums of money or property so paid or distributed in respect of the Pledged Securities shall be received by such Grantor, such Grantor shall, until such money or property is paid or delivered to the Collateral Agent, hold such money or property in trust for the Lenders, segregated from other funds of such Grantor, as additional collateral security for the Obligations. (b) Without the prior written consent of the Administrative Agent and Syndication Agent, such Grantor will not (i) vote to enable, or take any other action to permit, any Issuer to issue any stock or other equity securities of any nature or to issue any other securities convertible into or granting the right to purchase or exchange for any stock or other equity securities of any nature of any Issuer, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Pledged Securities or Proceeds thereof (except pursuant to a transaction expressly permitted by the Credit Agreement), (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Pledged Securities or Proceeds thereof, or any interest therein, except for the security interests created by this Agreement or (iv) enter into any agreement or undertaking restricting the right or ability of such Grantor or the Collateral Agent to sell, assign or transfer any of the Pledged Securities or Proceeds thereof. 17 14 (c) In the case of each Grantor which is an Issuer, such Issuer agrees that (i) it will be bound by the terms of this Agreement relating to the Pledged Securities issued by it and will comply with such terms insofar as such terms are applicable to it, (ii) it will notify the Collateral Agent promptly in writing of the occurrence of any of the events described in Section 5.8(a) with respect to the Pledged Securities issued by it and (iii) the terms of Sections 6.3(c) and 6.7 shall apply to it, mutatis mutandis, with respect to all actions that may be required of it pursuant to Section 6.3(c) or 6.7 with respect to the Pledged Securities issued by it. 5.9 Receivables. (a) Other than in the ordinary course of business consistent with its past practice, such Grantor will not (i) grant any extension of the time of payment of any material portion of the Receivables, (ii) compromise or settle any material portion of the Receivables for less than the full amount thereof, (iii) release, wholly or partially, any Person liable for the payment of any material portion of the Receivables, (iv) allow any credit or discount whatsoever on any material portion of the Receivables or (v) amend, supplement or modify any Receivable in any manner that could adversely affect the value thereof. (b) Such Grantor will deliver to the Collateral Agent a copy of each material demand, notice or document received by it that questions or calls into doubt the validity or enforceability of more than 5% of the aggregate amount of the then outstanding Receivables. 5.10 Contracts. (a) Except to the extent that could not reasonably be expected to have a Material Adverse Effect, such Grantor will perform and comply in all material respects with all its obligations under the Contracts. (b) Such Grantor will not amend, modify, terminate or waive any provision of any Contract in any manner which could reasonably be expected to materially adversely affect the value of such Contract as Collateral. (c) Such Grantor will exercise promptly and diligently each and every material right which it may have under each Contract (other than any right of termination). (d) Such Grantor will deliver to the Collateral Agent a copy of each material demand, notice or document received by it relating in any way to any Contract that questions the validity or enforceability of such Contract. 5.11 Intellectual Property. (a) Except to the extent that could not reasonably be expected to have a Material Adverse Effect, such Grantor (either itself or through licensees) will (i) continue to use each material Trademark on each and every trademark class of goods applicable to its current line as reflected in its current catalogs, brochures and price lists in order to maintain such Trademark in full force free from any claim of abandonment for non-use, (ii) maintain as in the past the quality of products and services offered under such Trademark, (iii) use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable Requirements of Law, (iv) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Collateral Agent, for the ratable benefit of the Lenders, shall obtain a perfected security interest in such mark pursuant to this Agreement, and (v) not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark may become invalidated or impaired in any way. 18 15 (b) Except to the extent that could not reasonably be expected to have a Material Adverse Effect, such Grantor (either itself or through licensees) will not do any act, or omit to do any act, whereby any material Patent may become forfeited, abandoned or dedicated to the public. (c) Except to the extent that could not reasonably be expected to have a Material Adverse Effect, such Grantor (either itself or through licensees) (i) will employ each material Copyright and (ii) will not (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any material portion of the Copyrights may become invalidated or otherwise impaired. Such Grantor will not (either itself or through licensees) do any act whereby any material portion of the Copyrights may fall into the public domain. (d) Except to the extent that could not reasonably be expected to have a Material Adverse Effect, such Grantor (either itself or through licensees) will not do any act that knowingly uses any material Intellectual Property to infringe the intellectual property rights of any other Person. (e) Such Grantor will notify the Agents and the Lenders immediately if it knows, or has reason to know, that any application or registration relating to any material Intellectual Property may become forfeited, abandoned or dedicated to the public, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding such Grantor's ownership of, or the validity of, any material Intellectual Property or such Grantor's right to register the same or to own and maintain the same. (f) Whenever such Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, such Grantor shall report such filing to the Collateral Agent within five Business Days after the last day of the fiscal quarter in which such filing occurs. Upon request of the Collateral Agent, such Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents, and papers as the Collateral Agent may request to evidence the Agents' and the Lenders' security interest in any Copyright, Patent or Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby. (g) Such Grantor will take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the material Intellectual Property, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability. (h) In the event that any material Intellectual Property is infringed, misappropriated or diluted by a third party, such Grantor shall (i) take such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property and (ii) if such Intellectual Property is of material economic value, promptly notify the Collateral Agent after it learns thereof and sue for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution. 19 16 SECTION 6. REMEDIAL PROVISIONS 6.1 Certain Matters Relating to Receivables. (a) The Collateral Agent shall have the right to make test verifications of the Receivables in any manner and through any medium that it reasonably considers advisable, and each Grantor shall furnish all such assistance and information as the Collateral Agent may require in connection with such test verifications. At any time and from time to time, upon the Collateral Agent's request and at the expense of the relevant Grantor, such Grantor shall cause independent public accountants or others satisfactory to the Collateral Agent to furnish to the Collateral Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Receivables. (b) The Collateral Agent hereby authorizes each Grantor to collect such Grantor's Receivables, subject to the Collateral Agent's direction and control, and the Collateral Agent may curtail or terminate said authority by written notice at any time after the occurrence and during the continuance of an Event of Default. If required by written notice by the Collateral Agent at any time after the occurrence and during the continuance of an Event of Default, any payments of Receivables, when collected by any Grantor, (i) shall be forthwith (and, in any event, within two Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Collateral Agent if required, in a Collateral Account maintained under the sole dominion and control of the Collateral Agent, subject to withdrawal by the Collateral Agent for the account of the Lenders only as provided in Section 6.5, and (ii) until so turned over, shall be held by such Grantor in trust for the Agents and the Lenders, segregated from other funds of such Grantor. Each such deposit of Proceeds of Receivables shall be accompanied by a report identifying in reasonable detail the nature and source of the payments included in the deposit. (c) At the Collateral Agent's request, each Grantor shall deliver or make available to the Collateral Agent all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Receivables, including, without limitation, all original orders, invoices and shipping receipts. 6.2 Communications with Obligors; Grantors Remain Liable. (a) The Collateral Agent in its own name or in the name of others may at any time after the occurrence and during the continuance of an Event of Default communicate with obligors under the Receivables and parties to the Contracts to verify with them to the Collateral Agent's satisfaction the existence, amount and terms of any Receivables or Contracts. (b) Upon the request of the Collateral Agent at any time after the occurrence and during the continuance of an Event of Default, each Grantor shall notify obligors on the Receivables and parties to the Contracts that the Receivables and the Contracts have been assigned to the Collateral Agent for the ratable benefit of the Lenders and that payments in respect thereof shall be made directly to the Collateral Agent. (c) Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each of the Receivables and Contracts to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto. Neither any Agent nor any Lender shall have any obligation or liability under any Receivable (or any agreement giving rise thereto) or Contract by reason of or arising out of this Agreement or the receipt by any Agent or any Lender of any payment relating thereto, nor shall any Agent or any Lender be obligated in any manner to perform any of the obligations of any Grantor under or pursuant to any Receivable (or any agreement giving rise thereto) or Contract, to make any 20 17 payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party thereunder, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. 6.3 Pledged Stock. (a) Unless an Event of Default shall have occurred and be continuing and the Collateral Agent shall have given notice to the relevant Grantor of the Collateral Agent's intent to exercise its corresponding rights pursuant to Section 6.3(b), each Grantor shall be permitted to receive all cash dividends paid in respect of the Pledged Stock and all payments made in respect of the Pledged Notes, in each case paid in the normal course of business of the relevant Issuer and consistent with past practice, to the extent permitted in the Credit Agreement, and to exercise all voting and corporate rights with respect to the Pledged Securities; provided, however, that no vote shall be cast which would result in any violation of any provision of the Credit Agreement, this Agreement or any other Loan Document. (b) If an Event of Default shall occur and be continuing and the Collateral Agent shall give notice of its intent to exercise such rights to the relevant Grantor or Grantors, (i) the Collateral Agent shall have the right to receive any and all cash dividends, payments or other Proceeds paid in respect of the Pledged Securities and make application thereof to the Obligations in such order as the Collateral Agent may determine, and (ii) any or all of the Pledged Securities shall be registered in the name of the Collateral Agent or its nominee, and the Collateral Agent or its nominee may thereafter exercise (x) all voting, corporate and other rights pertaining to such Pledged Securities at any meeting of shareholders of the relevant Issuer or Issuers or otherwise and (y) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Pledged Securities as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Pledged Securities upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of any Issuer, or upon the exercise by any Grantor or the Collateral Agent of any right, privilege or option pertaining to such Pledged Securities, and in connection therewith, the right to deposit and deliver any and all of the Pledged Securities with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Collateral Agent may determine), all without liability except to account for property actually received by it, but the Collateral Agent shall have no duty to any Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. (c) Each Grantor hereby authorizes and instructs each Issuer of any Pledged Securities pledged by such Grantor hereunder to (i) comply with any instruction received by it from the Collateral Agent in writing that (x) states that an Event of Default has occurred and is continuing and (y) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Grantor, and each Grantor agrees that each Issuer shall be fully protected in so complying, and (ii) unless otherwise expressly permitted hereby, pay any dividends or other payments with respect to the Pledged Securities directly to the Collateral Agent. 6.4 Proceeds to be Turned Over To Collateral Agent. In addition to the rights of the Agents and the Lenders specified in Section 6.1 with respect to payments of Receivables, if an Event of Default shall occur and be continuing, and the written notice required by Section 6.1 shall have been delivered by the Collateral Agent, all Proceeds received by any Grantor after such notice consisting of cash, checks and other near-cash items shall be held by such Grantor in trust for the Agents and the Lenders, segregated from other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to the Collateral Agent in the exact form received by such Grantor 21 18 (duly indorsed by such Grantor to the Collateral Agent, if required). All Proceeds received by the Collateral Agent hereunder shall be held by the Collateral Agent in a Collateral Account maintained under its sole dominion and control. All Proceeds while held by the Collateral Agent in a Collateral Account (or by such Grantor in trust for the Agents and the Lenders) shall continue to be held as collateral security for all the Obligations and shall not constitute payment thereof until applied as provided in Section 6.5. 6.5 Application of Proceeds. At such intervals as may be agreed upon by the Borrower and the Collateral Agent, or, if an Event of Default shall have occurred and be continuing, at any time at the Collateral Agent's and Syndication Agent's election, the Collateral Agent may apply all or any part of Proceeds constituting Collateral, whether or not held in any Collateral Account, and any proceeds of the guarantee set forth in Section 2, in payment of the Obligations in the following order: First, to pay incurred and unpaid fees and expenses of the Agents under the Loan Documents; Second, to the Administrative Agent, for application by it towards payment of amounts then due and owing and remaining unpaid in respect of the Obligations, pro rata among the Lenders according to the amounts of the Obligations then due and owing and remaining unpaid to the Lenders; Third, to the Administrative Agent, for application by it towards prepayment of the Obligations, pro rataamong the Lenders according to the amounts of the Obligations then held by the Lenders; and Fourth, any balance of such Proceeds remaining after the Obligations shall have been paid in full, no Letters of Credit shall be outstanding and the Commitments shall have terminated shall be paid over to the Borrower or to whomsoever may be lawfully entitled to receive the same. 6.6 Code and Other Remedies. If an Event of Default shall occur and be continuing, the Collateral Agent, on behalf of the Lenders, may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the New York UCC or any other applicable law. Without limiting the generality of the foregoing, the Collateral Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required in the Credit Agreement, herein or any other Loan Document or required by law referred to below) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of any Agent or any Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Any Agent or any Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity 22 19 is hereby waived and released. Each Grantor further agrees, at the Collateral Agent's request, to assemble the Collateral and make it available to the Collateral Agent at places which the Collateral Agent shall reasonably select, whether at such Grantor's premises or elsewhere. The Collateral Agent shall apply the net proceeds of any action taken by it pursuant to this Section 6.6, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Agents and the Lenders hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in such order as the Collateral Agent may elect, and only after such application and after the payment by the Collateral Agent of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the New York UCC, need the Collateral Agent account for the surplus, if any, to any Grantor. To the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against any Agent or any Lender arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. 6.7 Registration Rights. (a) If the Collateral Agent shall determine to exercise its right to sell any or all of the Pledged Stock pursuant to Section 6.6, and if in the opinion of the Collateral Agent it is necessary or advisable to have the Pledged Stock, or that portion thereof to be sold, registered under the provisions of the Securities Act, the relevant Grantor will cause the Issuer thereof to (i) execute and deliver, and cause the directors and officers of such Issuer to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts as may be, in the opinion of the Collateral Agent, necessary or advisable to register the Pledged Stock, or that portion thereof to be sold, under the provisions of the Securities Act, (ii) use its best efforts to cause the registration statement relating thereto to become effective and to remain effective for a period of one year from the date of the first public offering of the Pledged Stock, or that portion thereof to be sold, and (iii) make all amendments thereto and/or to the related prospectus which, in the opinion of the Collateral Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto. Each Grantor agrees to cause such Issuer to comply with the provisions of the securities or "Blue Sky" laws of any and all jurisdictions which the Collateral Agent shall designate and to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of Section 11(a) of the Securities Act. (b) Each Grantor recognizes that the Collateral Agent may be unable to effect a public sale of any or all the Pledged Stock, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Collateral Agent shall be under no obligation to delay a sale of any of the Pledged Stock for the period of time necessary to permit the Issuer thereof to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such Issuer would agree to do so. (c) Each Grantor agrees to use its reasonable commercial efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of all or any portion of the Pledged Stock pursuant to this Section 6.7 valid and binding and in compliance with any and all other 23 20 applicable Requirements of Law. Each Grantor further agrees that a breach of any of the covenants contained in this Section 6.7 will cause irreparable injury to the Agents and the Lenders, that the Agents and the Lenders have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 6.7 shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred under the Credit Agreement. 6.8 Waiver; Deficiency. Each Grantor waives and agrees not to assert any rights or privileges which it may acquire under Section 9-112 of the New York UCC. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay its Obligations and the fees and disbursements of any attorneys employed by the any Agent or any Lender to collect such deficiency. SECTION 7. THE COLLATERAL AGENT 7.1 Collateral Agent's Appointment as Attorney-in-Fact, etc. (a) Each Grantor hereby irrevocably constitutes and appoints the Collateral Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, upon the occurrence and during the continuance of an Event of Default to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives the Collateral Agent the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do any or all of the following upon the occurrence and during the continuance of an Event of Default: (i) in the name of such Grantor or its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Receivable or Contract or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Collateral Agent for the purpose of collecting any and all such moneys due under any Receivable or Contract or with respect to any other Collateral whenever payable; (ii) in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Collateral Agent may request to evidence the Agents' and the Lenders' security interest in such Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby; (iii) pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, effect any repairs or any insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof; (iv) execute, in connection with any sale provided for in Section 6.6 or 6.7, any indorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and 24 21 (v) (1) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Collateral Agent or as the Collateral Agent shall direct; (2) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (3) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (5) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (6) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Collateral Agent may deem appropriate; (7) assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent or Trademark pertains), throughout the world for such term or terms, on such conditions, and in such manner, as the Collateral Agent shall in its sole discretion determine; and (8) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Collateral Agent were the absolute owner thereof for all purposes, and do, at the Collateral Agent's option and such Grantor's expense, at any time, or from time to time, all acts and things which the Collateral Agent deems necessary to protect, preserve or realize upon the Collateral and the Collateral Agent's and the Lenders' security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do. Anything in this Section 7.1(a) to the contrary notwithstanding, the Collateral Agent agrees that it will not exercise any rights under the power of attorney provided for in this Section 7.1(a) unless an Event of Default shall have occurred and be continuing. (b) If any Grantor fails to perform or comply with any of its agreements contained herein, the Collateral Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. (c) The expenses of the Collateral Agent incurred in connection with actions undertaken as provided in this Section 7.1, together with interest thereon at a rate per annum equal to the rate per annum at which interest would then be payable on past due Revolving Credit Loans that are Base Rate Loans under the Credit Agreement, from the date of written demand by the Collateral Agent to the relevant Grantor after payment by the Collateral Agent to the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Collateral Agent on demand. (d) Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. 7.2 Duty of Collateral Agent. The Collateral Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the New York UCC or otherwise, shall be to deal with it in the same manner as the Collateral Agent deals with similar property for its own account. Neither the Collateral Agent, any Agent, any Lender nor any of their respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under 25 22 any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Collateral Agent, the Agents and the Lenders hereunder are solely to protect the Collateral Agent's, the Agents' and the Lenders' interests in the Collateral and shall not impose any duty upon the Collateral Agent, any Agent or any Lender to exercise any such powers. The Agents and the Lenders shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. 7.3 Execution of Financing Statements. Pursuant to Section 9-402 of the New York UCC and any other applicable law, each Grantor authorizes the Collateral Agent to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral without the signature of such Grantor in such form and in such offices as the Collateral Agent reasonably determines appropriate to perfect the security interests of the Collateral Agent under this Agreement. A photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction. 7.4 Authority of Collateral Agent. Each Grantor acknowledges that the rights and responsibilities of the Collateral Agent under this Agreement with respect to any action taken by the Collateral Agent or the exercise or non-exercise by the Collateral Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Collateral Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Collateral Agent and the Grantors, the Collateral Agent shall be conclusively presumed to be acting as agent for the Lenders with full and valid authority so to act or refrain from acting, and no Grantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority. SECTION 8. MISCELLANEOUS 8.1 Amendments in Writing. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except in accordance with subsection 10.1 of the Credit Agreement. 8.2 Notices. All notices, requests and demands to or upon the Collateral Agent or any Grantor hereunder shall be effected in the manner provided for in subsection 10.2 of the Credit Agreement; provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 1. 8.3 No Waiver by Course of Conduct; Cumulative Remedies. Neither any Agent nor any Lender shall by any act (except by a written instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. No failure to exercise, nor any delay in exercising, on the part of any Agent or any Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or 26 23 privilege. A waiver by any Agent or any Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which such Agent or such Lender would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 8.4 Enforcement Expenses; Indemnification. (a) Each Guarantor agrees to pay or reimburse each Lender and each Agent for all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Agreement and the other Loan Documents to which such Guarantor is a party, including, without limitation, the fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel) to each Lender and of counsel to each Agent. (b) Each Guarantor agrees to pay, and to save the Agents and the Lenders harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. (c) Each Guarantor agrees to pay, and to save the Agents and the Lenders harmless from, any and all 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 to the extent the Borrower would be required to do so pursuant to subsection 10.5 of the Credit Agreement. (d) The agreements in this Section 8.4 shall survive repayment of the Obligations and all other amounts payable under the Credit Agreement and the other Loan Documents. 8.5 Successors and Assigns. This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of the Agents and the Lenders and their successors and assigns; provided that no Grantor may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the Collateral Agent. 8.6 Set-Off. Each Grantor hereby irrevocably authorizes each Agent and each Lender at any time and from time to time while an Event of Default pursuant to subsection 8(a) of the Credit Agreement shall have occurred and be continuing, without notice to such Grantor or any other Grantor, any such notice being expressly waived by each Grantor, to set-off and appropriate and apply 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 Agent or such Lender to or for the credit or the account of such Grantor, or any part thereof in such amounts as such Agent or such Lender may elect, against and on account of the obligations and liabilities of such Grantor to such Agent or such Lender hereunder and claims of every nature and description of such Agent or such Lender against such Grantor, in any currency, whether arising hereunder, under the Credit Agreement, any other Loan Document or otherwise, as such Agent or such Lender may elect, whether or not any Agent or any Lender has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. Each Agent and each Lender shall notify such Grantor promptly of any such set-off and the application made by such Agent or such Lender of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Agent and each Lender under this Section 27 24 8.6 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Agent or such Lender may have. 8.7 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. 8.8 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 such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.9 Section Headings. The Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 8.10 Integration. This Agreement and the other Loan Documents represent the agreement of the Grantors, the Collateral Agent, the Agents and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by any Agent or any Lender relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Loan Documents. 8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 8.12 Submission To Jurisdiction; Waivers. Each Grantor 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 such Grantor at its address referred to in Section 8.2 or at such other address of which the Collateral 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 28 25 (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 any special, exemplary, punitive or consequential damages. 8.13 Acknowledgements. Each Grantor hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party; (b) neither any Agent nor any Lender has any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Grantors, on the one hand, and the Agents and Lenders, 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 Grantors and the Lenders. 8.14 WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 8.15 Additional Grantors. Each Subsidiary of the Borrower that is required to become a party to this Agreement pursuant to Section 6.10 of the Credit Agreement shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of an Assumption Agreement in the form of Annex 1 hereto. 8.16 Releases. (a) At such time as the Loans, the Reimbursement Obligations and the other Obligations shall have been paid in full, the Commitments have been terminated and no Letters of Credit shall be outstanding, the Collateral shall be released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Collateral Agent and each Grantor hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Grantors. At the request and sole expense of any Grantor following any such termination, the Collateral Agent shall deliver to such Grantor any Collateral held by the Collateral Agent hereunder, and execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination. (b) If any of the Collateral shall be sold, transferred or otherwise disposed of by any Grantor in a transaction permitted by the Credit Agreement, then the Collateral Agent, at the request and sole expense of such Grantor, shall execute and deliver to such Grantor all releases or other documents reasonably necessary or desirable for the release of the Liens created hereby on such Collateral. At the request and sole expense of the Borrower, a Subsidiary Guarantor shall be released from its obligations hereunder in the event that all the Capital Stock of such Subsidiary Guarantor shall be sold, transferred or otherwise disposed of in a transaction permitted by the Credit Agreement; provided that the Borrower shall have delivered to the Collateral Agent, at least ten Business Days prior to the date of the proposed release, a written request for release identifying the relevant Subsidiary Guarantor and the terms of the sale or other disposition in reasonable detail, including the 29 26 price thereof and any expenses in connection therewith, together with a certification by the Borrower stating that such transaction is in compliance with the Credit Agreement and the other Loan Documents. 30 IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee and Collateral Agreement to be duly executed and delivered as of the date first above written. IMPERIAL HOLLY CORPORATION By: /s/ KAREN O. MERCER ----------------------------- Title: Vice President SAVANNAH FOODS & INDUSTRIES, INC. By: /s/ W.F. SCHWER ----------------------------- Title: Senior Vice President HOLLY SUGAR CORPORATION By: /s/ W.F. SCHWER ----------------------------- Title: Senior Vice President HOLLY NORTHWEST COMPANY By: /s/ W.F. SCHWER ----------------------------- Title: Vice President FORT BEND UTILITIES COMPANY By: /s/ W.F. SCHWER ----------------------------- Title: Vice President 31 IMPERIAL SWEETENER DISTRIBUTORS, INC. By: /s/ W.F. SCHWER --------------------------------- Title: Vice President CROWN EXPRESS INC. By: /s/ W.F. SCHWER --------------------------------- Title: President LIMESTONE PRODUCTS COMPANY, INC. By: /s/ W.F. SCHWER --------------------------------- Title: President BIOMASS CORPORATION By: /s/ W.F. SCHWER --------------------------------- Title: Senior Vice President DIXIE CRYSTALS BRANDS, INC. By: /s/ W.F. SCHWER --------------------------------- Title: Senior Vice President DIXIE CRYSTALS FOODSERVICE, INC. By: /s/ W.F. SCHWER --------------------------------- Title: Senior Vice President 32 KING PACKAGING COMPANY, INC. By: /s/ W.F. SCHWER --------------------------------- Title: Senior Vice President FOOD CARRIER, INC. By: /s/ W.F. SCHWER --------------------------------- Title: Senior Vice President MICHIGAN SUGAR COMPANY By: /s/ W.F. SCHWER --------------------------------- Title: Senior Vice President GREAT LAKES SUGAR COMPANY By: /s/ W.F. SCHWER --------------------------------- Title: Senior Vice President SAVANNAH FOODS INDUSTRIAL, INC. By: /s/ W.F. SCHWER --------------------------------- Title: Senior Vice President PHOENIX PACKAGING CORPORATION By: /s/ W.F. SCHWER --------------------------------- Title: Senior Vice President 33 SAVANNAH INVESTMENT COMPANY By: /s/ W.F. SCHWER --------------------------------- Title: Senior Vice President SAVANNAH SUGAR REFINING CORPORATION By: /s/ W.F. SCHWER --------------------------------- Title: Senior Vice President Accepted and Agreed: HARRIS TRUST AND SAVINGS BANK, as Collateral Agent By: /s/ SHARRY L. BURKE -------------------------- Title: VP 34 ACKNOWLEDGEMENT AND CONSENT The undersigned hereby acknowledges receipt of a copy of the Amended and Restated Guarantee and Collateral Agreement dated as of December 22, 1997 (the "Agreement"), made by the Grantors parties thereto for the benefit of Harris Trust and Savings Bank, as Collateral Agent. The undersigned agrees for the benefit of the Agents and the Lenders as follows: 1. The undersigned will be bound by the terms of the Agreement and will comply with such terms insofar as such terms are applicable to the undersigned. 2. The undersigned will notify the Collateral Agent promptly in writing of the occurrence of any of the events described in Section 5.8(a) of the Agreement. 3. The terms of Sections 6.3(a) and 6.7 of the Agreement shall apply to it, mutatis mutandis, with respect to all actions that may be required of it pursuant to Section 6.3(a) or 6.7 of the Agreement. HSC EXPORT CORPORATION By /s/ W.F. SCHWER ------------------------------- Title Vice President ---------------------------- Address for Notices: One Imperial Square, Suite 200 8016 Highway 90-A Sugar Land, Texas 77478 Fax: (281)490-9895 35 ACKNOWLEDGEMENT AND CONSENT The undersigned hereby acknowledges receipt of a copy of the Amended and Restated Guarantee and Collateral Agreement dated as of December 22, 1997 (the "Agreement"), made by the Grantors parties thereto for the benefit of Harris Trust and Savings Bank, as Collateral Agent. The undersigned agrees for the benefit of the Agents and the Lenders as follows: 1. The undersigned will be bound by the terms of the Agreement and will comply with such terms insofar as such terms are applicable to the undersigned. 2. The undersigned will notify the Collateral Agent promptly in writing of the occurrence of any of the events described in Section 5.8(a) of the Agreement. 3. The terms of Sections 6.3(a) and 6.7 of the Agreement shall apply to it, mutatis mutandis, with respect to all actions that may be required of it pursuant to Section 6.3(a) or 6.7 of the Agreement. HOLLY FINANCE COMPANY By /s/ W.F. SCHWER --------------------------------- Title Senior Vice President ------------------------------ Address for Notices: One Imperial Square, Suite 200 8016 Highway 90-A Sugar Land, Texas 77478 Fax: (281)490-9895 36 Annex 1 to Guarantee and Collateral Agreement ASSUMPTION AGREEMENT, dated as of ________________, 199_, made by ______________________________, a ______________ corporation (the "Additional Grantor"), in favor of Harris Trust and Savings Bank, as collateral agent (in such capacity, the "Collateral Agent") for the Agents and the banks and other financial institutions (the "Lenders") parties to the Credit Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in such Credit Agreement. W I T N E S S E T H : WHEREAS, Imperial Holly Corporation (the "Borrower"), the Lenders and the Agents have entered into an Amended and Restated Credit Agreement, dated as of December 22, 1997 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"); WHEREAS, in connection with the Credit Agreement, the Borrower and certain of its Affiliates (other than the Additional Grantor) have entered into the Amended and Restated Guarantee and Collateral Agreement, dated as of December 22, 1997 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Guarantee and Collateral Agreement") in favor of the Collateral Agent for the benefit of the Lenders; WHEREAS, the Credit Agreement requires the Additional Grantor to become a party to the Guarantee and Collateral Agreement; and WHEREAS, the Additional Grantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee and Collateral Agreement; NOW, THEREFORE, IT IS AGREED: 1. Guarantee and Collateral Agreement. By executing and delivering this Assumption Agreement, the Additional Grantor, as provided in Section 8.15 of the Guarantee and Collateral Agreement, hereby becomes a party to the Guarantee and Collateral Agreement as a Grantor thereunder with the same force and effect as if originally named therein as a Grantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Grantor thereunder. The information set forth in Annex 1-A hereto is hereby added to the information set forth in Schedules ____________* to the Guarantee and Collateral Agreement. The Additional Grantor hereby represents and warrants that each of the representations and warranties contained in Section 4 of the Guarantee and Collateral Agreement is true and correct on and as the date hereof (after giving effect to this Assumption Agreement) as if made on and as of such date. 2. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. - ----------------- * Refer to each Schedule which needs to be supplemented. 37 2 IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written. [ADDITIONAL GRANTOR] By: -------------------------------------- Name: Title: 38 Annex 2 to Guarantee and Collateral Agreement FORM OF AMENDED AND RESTATED CONTROL AGREEMENT AMENDED AND RESTATED CONTROL AGREEMENT, dated as of December 22, 1997, among HARRIS TRUST AND SAVINGS BANK, as securities intermediary (in such capacity, the "Intermediary"), HARRIS TRUST AND SAVINGS BANK, as collateral agent for the Lenders and Agents under the Credit Agreement referred to below (in such capacity, the "Collateral Agent") and IMPERIAL HOLLY CORPORATION, a Texas corporation (the "Pledgor") ; W I T N E S S E T H : WHEREAS, the parties hereto are parties to that certain Control Agreement, dated as of October 17, 1997 (as amended, supplemented or otherwise modified prior to the date hereof, the "Existing Control Agreement"); WHEREAS, the Pledgor is a party to the Amended and Restated Credit Agreement, dated as of December 22, 1997 (as amended, supplemented, restated or otherwise modified from time to time, the "Credit Agreement"), among the Pledgor, the Lenders parties thereto, Harris Trust and Savings Bank, as Administrative Agent and Collateral Agent, Lehman Brothers Inc., as Arranger and Lehman Commercial Paper Inc., as Syndication Agent; WHEREAS, the Pledgor is a party to the Amended and Restated Guarantee and Collateral Agreement, dated as of December 22, 1997 (as amended, supplemented, restated or otherwise modified from time to time, the "Pledge Agreement"), in favor of the Collateral Agent (unless otherwise defined herein or the context otherwise requires, all capitalized terms used herein shall have the meanings assigned thereto in the Credit Agreement or the Pledge Agreement, as the case may be); AND WHEREAS, the Lenders are willing to make extensions of credit under the Credit Agreement upon satisfaction of the conditions, among others, that the Collateral Agent obtain a perfected first priority security interest in the Pledged Securities Collateral (as defined herein) and that the Pledgor shall have amended and restated the Existing Control Agreement as set forth herein; NOW, THEREFORE, the parties hereto hereby agree to amend and restate the Existing Control Agreement in its entirety as follows: 1. The parties hereto acknowledge that (a) Intermediary maintains securities account number 2158079 (the "Account") for the Pledgor in which are held or to which are credited investment property of the Pledgor and (b) the Pledgor has granted a security interest to the Collateral Agent in the Pledgor's investment property (within the meaning of Section 9-115 of the Uniform Commercial Code as in effect in the State of New York (the "New York UCC")), including the Account and all of the Pledgor's security entitlements (within the meaning of Section 8-102 of the New York UCC) with respect to the Intermediary other than those securities specified on Schedule 9 to the Pledge Agreement, now existing or hereafter arising (the Account and such security entitlements, collectively, the "Investment Collateral"). The parties hereto agree that each item of property (whether investment property, financial asset, security, instrument or cash) credited to the Account shall be treated as a "financial asset" within the meaning of Section 8-102 of the New York UCC. 39 2 2. The Pledgor hereby irrevocably directs the Intermediary to, and the Intermediary agrees it will, comply with entitlement orders (within the meaning of Section 8-102 of the New York UCC) from the Collateral Agent with respect to the Investment Collateral without further consent by the Pledgor. In furtherance of, and without limiting the effectiveness of the foregoing, the Intermediary will comply with orders from the Collateral Agent directing the Intermediary to hold, transfer or dispose of the Investment Collateral (and any financial asset (within the meaning of Section 8-102 of the New York UCC) subject to any security entitlement included therein), or any part thereof, as the Collateral Agent may from time to time specify, in each case without obtaining consent from the Pledgor in respect thereof, provided that, unless the Collateral Agent has notified the Intermediary otherwise, the Intermediary may comply with requests to purchase securities with the proceeds and dividends arising from the Investment Collateral and to sell financial assets subject to any security entitlement included in the Investment Collateral, so long as (i) with respect to any such request resulting in proceeds or investment property (as defined above) arising from or received as consideration, or in exchange or substitution, such proceeds or investment property (as defined above) remain in a securities account with the Intermediary subject to a securities entitlement included in the Investment Collateral and subject to the foregoing provisions of this paragraph 2, and (ii) the Pledgor does not withdraw any investment property from the Account. The Intermediary agrees that will not comply with any entitlement order originated by the Pledgor (i) that would require Intermediary to make a free delivery of any cash or other investment property to the Pledgor or any other person or (ii) that is received by the Intermediary after notice by to comply exclusively with entitlement orders from the Collateral Agent until such notice is expressly revoked by the Collateral Agent. 3. The Intermediary waives all rights of offset and bank liens afforded it by law, agreement or otherwise against any of the Investment Collateral, any proceeds thereof, and any funds and amounts deposited by the Pledgor with it in connection therewith. Each of the Pledgor and the Intermediary further agree that it will not enter into any agreement with any third party other than the Collateral Agent that provides or has the effect of allowing or requiring the Intermediary to comply with entitlement orders originated by such third party. 4. The Intermediary represents and warrants to the Collateral Agent, each Agent, each Lender and the Pledgor that (a) it has full power and authority to enter into this Control Agreement and perform its obligations hereunder; (b) the execution, delivery and performance of this Control Agreement by the Intermediary has been duly authorized by all necessary corporate action; and (c) this Control Agreement is the legal, valid and binding obligation of the Intermediary, enforceable against the Intermediary in accordance with its terms. 5. The Intermediary and the Pledgor agree that the Intermediary's "jurisdiction", within the meaning of Section 8-110(b) of the New York UCC, is the State of New York. 6. By its execution hereof in the space provided below, the Pledgor hereby (a) agrees to and authorizes the applicable provisions hereof and (b) agrees to indemnify and hold free and harmless each of the Intermediary, the Lenders, the Agents and the Collateral Agent from and against any and all actions, losses, costs, liabilities and damages in connection with or arising out of or relating to, with respect to the Intermediary, this Control Agreement, the Pledge Agreement and the Credit Agreement, and, with respect to the Collateral Agent, the Collateral Agent's obligations hereunder or performance hereof, in each case, other than arising out of the gross negligence or willful misconduct of the indemnified person. The indemnification obligation set forth in this paragraph shall survive termination of this Control Agreement, the Credit Agreement and the Pledge Agreement. 40 3 7. (a) The duties and obligations of the Intermediary hereunder shall be determined solely by the express provisions of this Control Agreement, and the Intermediary shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Control Agreement, and no implied covenants or obligations shall be read into this Control Agreement against the Intermediary. If the Credit Agreement or the Pledge Agreement as in effect on the date hereof is amended, supplemented, restated or otherwise modified in a manner which affects the rights and obligations of the Intermediary hereunder, the Intermediary's rights and obligations hereunder shall not be so affected without the Intermediary's prior consent. (b) The Intermediary assumes no responsibility or liability for and makes no representations as to the validity or sufficiency of this Control Agreement (other than as specified in paragraph 4 above), the Credit Agreement or the Pledge Agreement, including with respect to the sufficiency of such agreements to perfect the security interest in the Investment Collateral under the Pledge Agreement. 8. The Pledgor shall pay the reasonable out-of-pocket expenses and reasonable administrative fees of the Intermediary in connection with the Intermediary's obligations pursuant to this Control Agreement, including the reasonable fees and disbursements of counsel. 9. This Control Agreement may be amended, modified or supplemented only pursuant to a written instrument executed by all parties. THIS CONTROL AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING, WITHOUT LIMITATION, FOR THE PURPOSES OF SECTION 8- 110(E)(1) OF THE NEW YORK UCC. 41 4 IN WITNESS WHEREOF, each of the undersigned has caused this Control Agreement to be duly executed and delivered as of the date first written above. HARRIS TRUST AND SAVINGS BANK, as Intermediary By: -------------------------------- Title: HARRIS TRUST AND SAVINGS BANK, as Collateral Agent By: -------------------------------- Title: IMPERIAL HOLLY CORPORATION, as Pledgor By: -------------------------------- Title: EX-4.B 4 INDENTURE - DATED 12/22/97 1 ================================================================================ IMPERIAL HOLLY CORPORATION Issuer 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007 INDENTURE Dated as of December 22, 1997 The Bank of New York Trustee ================================================================================ 2 CROSS-REFERENCE TABLE
Trust Indenture Act Section Indenture Section 310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.03 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.03 313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06 (b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06, 7.07 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06, 12.02 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06 314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.02 (a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.05 (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.05 (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 316 (a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
N.A. means not applicable. __________________________________ This Cross-Reference Table is not part of this Indenture. 3 TABLE OF CONTENTS
Page ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.02. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 1.03. Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . 16 Section 1.04. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE 2 THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 2.02. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 2.04. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 2.05. Holder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 2.06. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 2.07. Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 2.08. Outstanding Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 2.09. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 2.10. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 2.13. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE 3 REDEMPTION AND PREPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 3.01. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 3.02. Selection of Notes to be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 3.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 3.04. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 3.05. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 3.06. Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 3.07. Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 3.08. Mandatory Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 3.09. Offer to Purchase by Application of Excess Proceeds . . . . . . . . . . . . . . . . . . . 32 Section 3.10. Special Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE 4 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 4.01. Payment of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 4.02. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 4.03. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 4.04. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 4.05. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 4.06. Waiver of Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 4.07. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 4.08. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock. . . . . . . . . . . . . . . . 38 Section 4.10. Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
-i- 4 Section 4.11. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 4.12. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 4.13. Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 4.14. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 4.15. Offer to Repurchase upon Change of Control . . . . . . . . . . . . . . . . . . . . . . . 42 Section 4.16. No Senior Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 4.17. Limitation on Issuance and Sales of Capital Stock of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 4.18. Subsidiary Guarantees of Certain Indebtedness . . . . . . . . . . . . . . . . . . . . . . 44 Section 4.19. Payments for Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 4.20. Deposit of Proceeds with Trustee Pending Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 ARTICLE 5 SUCCESSORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 5.01. Merger, Consolidation, or Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 5.02. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE 6 DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 6.05. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 6.06. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 6.07. Rights of Holders of Notes to Receive Payment . . . . . . . . . . . . . . . . . . . . . . 48 Section 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE 7 TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 7.03. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 7.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 7.06. Reports by Trustee to Holders of the Notes . . . . . . . . . . . . . . . . . . . . . . . 51 Section 7.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 7 09. Successor Trustee by Merger, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 7.11. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . 53 ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . 53 Section 8.02. Legal Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 8.03 Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 8.04. Conditions to Legal or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . 54 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
-ii- 5 Section 8.06. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 8.07. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 9.01. Without Consent of Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 9.02. With Consent of Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 9.03. Compliance with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 9.04. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 9.05. Notation on or Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 9.06. Trustee to Sign Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 ARTICLE 10 SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 10.01. Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 10.02. Liquidation; Dissolution; Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 10.03. Default on Designated Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 10.04. Acceleration of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 10.05. Notice by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 10.06. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 10.07. Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 10.08. Subordination May Not Be Impaired by Company . . . . . . . . . . . . . . . . . . . . . . 61 Section 10.09. Distribution or Notice to Representative . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 10.10. Rights of Trustee and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 10.11. Authorization to Effect Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 10.12. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 10.13. Continued Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 10.14. Cumulative Rights; No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 10.15. Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 ARTICLE 11 GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 11.01. Subsidiary Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 11.02. Execution and Delivery of Subsidiary Guarantee . . . . . . . . . . . . . . . . . . . . . 63 Section 11.03. Guarantors May Consolidate, Etc., on Certain Terms . . . . . . . . . . . . . . . . . . . 63 Section 11.04. Releases Following Release Under All Indebtedness or Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 11.05. Limitation on Guarantor Liability; Contribution . . . . . . . . . . . . . . . . . . . . . 64 Section 11.06. Trustee to Include Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 11.07. Subordination of Subsidiary Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . 65 ARTICLE 12 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 12.01. Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 12.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 12.03. Communication by Holders of Notes with Other Holders of Notes . . . . . . . . . . . . . . 66 Section 12.04. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . 66 Section 12.05. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . 66 Section 12.06. Rules by Trustee and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 12.08. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 12.09. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . 67 Section 12.10. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
-iii- 6 Section 12.11. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 12.12. Counterpart Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 12.13. Table of Contents, Headings, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
-iv- 7 EXHIBITS Exhibit A FORM OF NOTE Exhibit B FORM OF CERTIFICATE OF TRANSFER Exhibit C FORM OF CERTIFICATE OF EXCHANGE Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Exhibit E FORM OF SUBSIDIARY GUARANTEE Exhibit F FORM OF SUPPLEMENTAL INDENTURE
-v- 8 INDENTURE dated as of December 22, 1997 between Imperial Holly Corporation, a Texas corporation (the "Company"), the subsidiaries of the Company listed on the signature pages hereof (the "Guarantors"), and The Bank of New York, a New York banking corporation, as trustee (the "Trustee"). The Company, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 9 3/4% Senior Subordinated Notes due 2007 (the "Initial Notes") and the 9 3/4% Senior Subordinated Notes due 2007 issued in the Exchange Offer (the "Exchange Notes" and, together with the Initial Notes, the "Notes"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Adjusted Net Assets" of a Guarantor at any date means the lesser of the amount by which (i) the fair value of the property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date), but excluding liabilities under its Guarantee, of such Guarantor at such date and (ii) the present fair salable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any Subsidiary of such Guarantor in respect of the obligations of such Subsidiary under such Subsidiary Guarantee), excluding debt in respect of such Subsidiary Guarantee, as they become absolute and matured. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depository, Euroclear and Cedel that apply to such transfer or exchange. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of a sale and leaseback) other than in the ordinary course of business consistent with past practices (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by Sections 4.15 and 5.01, respectively, hereof and not by the provisions of Section 4.10 hereof, and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $2,000,000 or (b) for Net Proceeds in excess of $2,000,000. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Restricted Subsidiary of the Company or by a Restricted Subsidiary of the Company to the 9 Company or to a Restricted Subsidiary of the Company, (ii) an issuance or sale of Equity Interests by a Restricted Subsidiary of the Company to the Company or to another Restricted Subsidiary of the Company, (iii) (A) a Permitted Investment or (B) a Restricted Payment that is permitted by Section 4.07 hereof and (iv) the sale or other disposition of any portion of the Marketable Securities Portfolio that is reinvested in the Marketable Securities Portfolio within three days after the consummation of such sale or disposition, will not be deemed to be Asset Sales. "Bankruptcy Code" means Title 11, U.S. Code, as amended, or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of the Board of Directors. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participation, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit and Eurodollar time deposits with maturities of not more than one year from the date of acquisition, bankers' acceptances with maturities of not more than one year from the date of acquisition and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500,000,000 and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Ratings Group with maturities of not more than one year from the date of acquisition. "CCC Loans" means loans made to the Company and its Restricted Subsidiaries to finance their acquisition of sugar under loan programs extended by the Commodity Credit Corporation for which recourse is limited to the acquired sugar. "Cedel" means Cedel Bank, societe anonyme. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group") together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of the Indenture) unless immediately following such sale, lease, exchange or other transfer in compliance with the Indenture such assets are owned, directly or indirectly, by the Company or a Wholly Owned Subsidiary of the Company, (ii) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of the Indenture); (iii) the acquisition in one or more transactions, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of Voting Securities of the Company by (x) any Person or Group that either (A) beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, at least 50% or more of the Company's then outstanding voting securities entitled to vote on a regular basis for the board of directors of the Company) or (B) otherwise has the ability to elect, directly or indirectly, a majority of the members of the Company's board of directors, including, without limitation, by the acquisition of revocable proxies for the election of directors; or (iv) the first day on which a majority -2- 10 of the members of the Company's board of directors are not Continuing Directors. Notwithstanding clause (iii) above, the acquisition in one or more transactions, of beneficial ownership of up to 65% of the Company's then outstanding Voting Securities by a Person or Group consisting of the Permitted Holders shall not constitute a Change of Control (unless directly or indirectly (x) such acquisition has a reasonable likelihood or a purpose of causing such Voting Securities to be or (y) following such acquisition, such Voting Securities are (A) held of record by less than 300 persons or (B) neither listed on any national securities exchange nor authorized to be quoted on an inter-dealer quotation system of any registered national securities association. "Collateral" means (i) the Collateral Account, (ii) the Special Redemption Amount and all other cash or Cash Equivalents deposited in the Collateral Account from time to time pursuant to Section 4.20 hereof, (iii) all rights and privileges of the Company with respect to the Collateral Account and such cash and Cash Equivalents, (iv) all dividends, interest and other payments and distributions made on or with respect to such Cash Equivalents or the Collateral Account and (v) all proceeds of any of the foregoing. "Commodity Hedging Obligations" means, with respect to any Person, the net payment Obligations of such Person under agreements or arrangements designed to protect such Person against fluctuations in the price of (i) natural gas, heating fuels, electricity and other sources of energy or power used in the Company's sugar refining or processing operations or (ii) or refined or raw sugar, in either case in connection with the conduct of its business and not for speculative purposes and consistent with past practices. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) an amount equal to any extraordinary, unusual or non-recurring expenses, or losses (including, whether or not otherwise includable as a separate item in the statement of Consolidated Net Income for such period, losses on sales of assets outside of the ordinary course of business) plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non- cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation and amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation and amortization were deducted in computing such Consolidated Net Income, minus (v) non-cash items increasing such Consolidated Net Income for such period, in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Restricted Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in same proportion) that the Net Income of such Restricted Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Restricted Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Restricted Subsidiary or its stockholders. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries (for such period, on a consolidated basis, determined in accordance with GAAP); provided that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Restricted Subsidiary, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or -3- 11 any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Restricted Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of the Indenture in the book value of any asset owned by such Person or a consolidated Restricted Subsidiary of such Person, (y) all investments as of such date in unconsolidated Restricted Subsidiaries and in Persons that are not Restricted Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Consolidated Tangible Assets" means, with respect to any Person as of any date, the amount which, in accordance with GAAP, would be set forth under the caption "Total Assets" (or any like caption) on a consolidated balance sheet of such Person and its Restricted Subsidiaries, less all intangible assets, including, without limitation, goodwill, organization costs, patents, trademarks, copyrights, franchises and research and development costs. "Continuing Director" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of this Indenture or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Facility" means, with respect to the Company or any Restricted Subsidiary, one or more debt facilities (including, without limitation, the Senior Credit Facility) or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, other borrowings (including term loans), receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Custodian" means any receiver, trustee, assignee, liquidator, sequester or similar official under the Bankruptcy Code. "date of the Indenture" means the date on which the Notes of the first series of Notes issued under the Indenture are first issued and delivered. "Default" means any event that is or with the passage of time or the giving of notice (or both) would be an Event of Default. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, in the form of Exhibit A-1 hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depository" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depository with respect to the Notes, and any and all successors thereto appointed as depository hereunder and having become such pursuant to the applicable provision of this Indenture. -4- 12 "Designated Senior Debt" means (i) any Indebtedness outstanding under the Senior Credit Facility and (ii) any other Senior Debt permitted hereunder the principal amount of which is $25,000,000 or more and that has been designated by the Company as "Designated Senior Debt." "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature, except to the extent that such Capital Stock is solely redeemable with, or solely exchangeable for, any Capital Stock of such Person that is not Disqualified Stock. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means any primary offering of the Voting Stock (other than Disqualified Stock) of the Company; provided, however, that the proceeds net of any underwriting discount and commission and other expenses to the Company from any such offering shall be at least $25,000,000. "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear system. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means notes registered under the Securities Act that are issued under Section 2.06 hereof in exchange for the Notes pursuant to the Exchange Offer. "Exchange Offer" has the meaning set forth in the Registration Rights Agreement. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Existing Indebtedness" means up to $41,310,000 in aggregate principal amount of Indebtedness of the Company and its Restricted Subsidiaries (other than Indebtedness under the Senior Credit Facility and the Notes) in existence on the date of the Indenture, until such amounts are repaid. "Financial Hedging Obligations" means, with respect to any Person, the net payment Obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates in connection with the conduct of its business and not for speculative purposes and consistent with past practices. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit borrowings under any Credit Facility) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, (ii) -5- 13 the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period, (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv) the product of (a) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock), times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, the statements and pronouncements of the Financial Accounting Standards Board and such other statements by such other entities as have been approved by a significant segment of the accounting profession, which are applicable at the date of determination. "Global Note Legend" means the legend set forth in Section 2.06(g)(ii) hereof, which is required to be placed on all Global Notes issued under this Indenture. "Global Notes" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, in the form of Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv), 2.06(d)(iv) or 2.06(f) hereof. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantees or obligations the fall faith and credit of the United States is pledged. "guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof or pledging assets to secure), of all or any part of any Indebtedness. "Guarantors" means (i) each of (a) Biomass Corporation; (b) Dixie Crystals Brands, Inc.; (c) Dixie Crystals Foodservice, Inc.; (d) King Packaging Company, Inc.; (e) Food Carrier, Inc.; (f) Michigan Sugar Company; (g) Great Lakes Sugar Company; (h) Savannah Foods Industrial, Inc.; (i) Phoenix Packaging Corporation; (j) Savannah Sugar Refining Corporation; (k) Holly Sugar Corporation; (l) Imperial Sweetener Distributors, Inc.; (m) Fort Bend Utilities Company; (n) Limestone Products Company; (o) Holly Northwest Company; (p) Crown Express Inc.; (q) Savannah Foods & Industries, Inc., and (r) Savannah Investment Company, (ii) each of the Company's Restricted Subsidiaries which becomes a guarantor of the Notes pursuant to the covenant described above under Section 4.18 hereof and (iii) each of the Company's Restricted Subsidiaries executing a supplemental indenture in which such Restricted Subsidiary agrees to be bound by the terms of the Indenture; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective Subsidiary Guarantee is released in accordance with the terms thereof. "Hedging Obligations" means, with respect to any Person, collectively, Commodity Hedging Obligations of such Person and Financial Hedging Obligations of such Person. -6- 14 "Holder" means a Person in whose name a Note is registered. "IAI Global Note" means the Global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depository or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Financial Hedging Obligations or Commodity Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the guarantee by such Person of any Indebtedness of any other Person, and any liability, whether or not contingent, whether or not it appears on the balance sheet of such Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness that does not require current payments of interest, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Indenture" means this Indenture, as amended or supplemented from time to time. "Independent Financial Advisor" means a nationally recognized accounting, appraisal or investment banking firm that is, in the reasonable judgment of the Board of Directors, qualified to perform the task for which such firm has been engaged hereunder and disinterested and independent with respect to the Company and its Affiliates; provided, that providing accounting, appraisal or investment banking services to the Company or any of its Affiliates or having an employee, officer or other representative serving as a member of the Board of Directors of the Company or any of its Affiliates will not disqualify any firm from being an Independent Financial Advisor. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Intellectual Property" means patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other Obligations), advances or capital contributions (excluding commission, travel and entertainment, moving, and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any of its Restricted Subsidiaries sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a direct or indirect Subsidiary of the Company, the Company, or such Restricted Subsidiary, as the case may be, shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the fourth paragraph of Section 4.07 hereof. "Issue Date" means the date on which the Initial Notes are first issued and delivered. -7- 15 "Legal Holiday" a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "Letter of Transmittal" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in any asset and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Liquidated Damages" means all liquidated damages then owing pursuant to Section 5 of the Registration Rights Agreement. "Marketable Securities" means publicly traded debt and equity securities of a type consistent with those held in the Marketable Securities Portfolio on the date of the Indenture. "Marketable Securities Portfolio" means publicly traded debt and equity securities maintained in the portfolio of the Company and its Restricted Subsidiaries, having an aggregate fair market value on the date of the Indenture not to exceed $60,000,000. "Merger" means the merger of IHK Merger Sub Corporation with and into the Company with the Company being the surviving entity pursuant to the Merger Agreement. "Merger Agreement" means the Agreement and Plan of Merger, dated as of September 12, 1997, among Imperial Holly Corporation, IHK Merger Sub Corporation and Savannah Foods & Industries, Inc. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "Net Proceeds" means the aggregate cash proceeds or Cash Equivalents received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting, investment banking and brokers fees, and sales and underwriting commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness (other than Indebtedness under any Credit Facility) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Indebtedness" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries, (a) provides any guarantee or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable (as a guarantor or otherwise), (ii) the incurrence of which will not result in any recourse against any of the assets of the Company or its Restricted Subsidiaries, and (iii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare -8- 16 pursuant to the express terms governing such Indebtedness a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. "Non-U.S. Person" means a person who is not a U.S. Person. "Note Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Notes" has the meaning assigned to it in the preamble to this Indenture. "Obligations" means any principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company or its Restricted Subsidiaries whether or not a claim for post-filing interest is allowed in such proceeding), penalties, fees, charges, expenses, indemnifications, reimbursement obligations, damages (including Liquidated Damages), guarantees (including the Subsidiary Guarantees) and other liabilities or amounts payable under the documentation governing any Indebtedness or in respect thereof. "Offering" means the offering of the Initial Notes by the Company. "Offering Memorandum" means the Offering Memorandum of the Company dated December 17, 1997 with respect to the Offering. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 12.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to the Company or any Subsidiary of the Company. "Participant" means, with respect to DTC, Euroclear or Cedel, a Person who has an account with DTC, Euroclear or Cedel, respectively (and, with respect to DTC, shall include Euroclear and Cedel). "Participating Broker-Dealer" has the meaning set forth in the Registration Rights Agreement. "Permitted Business" means the lines of business conducted by the Company on the date hereof and any businesses reasonably related or incidental thereto or which is a reasonable extension thereof. "Permitted Holders" means the descendants of H. Kempner, a Galveston entrepreneur who died in 1894, or trusts controlled by or for the benefit of the descendants of H. Kempner. "Permitted Investments" means (a) any Investment in the Company or in a Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents or deposit accounts maintained in the ordinary course of business consistent with past practices; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (i) such Person becomes a Restricted Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; and (d) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (f) any Investment received in settlement of debts, claims or disputes owed to the Company or any Restricted Subsidiary of the Company that arose out of transactions in the ordinary course of business; -9- 17 (g) any Investment received in connection with or as a result of a bankruptcy, workout or reorganization of any Person; (h) advances and extensions of credit in the nature of accounts receivable arising from the sale or lease of goods or services or the licensing of property in the ordinary course of business; (i) other Investments by the Company or any Restricted Subsidiary of the Company in any Person having an aggregate fair market value (measured as of the date each such Investment is made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (i) (net of returns of capital, dividend and interest paid on Investments and sales, liquidations, and redemptions of Investments), not to exceed $10,000,000; (j) Investments in the form of intercompany Indebtedness or Guarantees of Indebtedness of a Restricted Subsidiary of the Company permitted under clauses (v) and (xi) of Section 4.07 hereof; (k) Investments arising in connection with Financial Hedging Obligations or Commodity Hedging Obligations that are incurred in the ordinary course of business for the purpose of fixing or hedging currency, commodity or interest rate risk (including with respect to any floating rate Indebtedness that is permitted by the terms of the Indenture to be outstanding) in connection with the conduct of the business of the Company and its Subsidiaries and not for speculative purposes and consistent with past practices; (1) any Investment in the Marketable Securities Portfolio existing as of the date of the Indenture and future purchases of and reinvestment in Marketable Securities from the proceeds (net of taxes, commissions and other costs and expenses) of dividends and interest and other distributions from and in respect of the Marketable Securities Portfolio and sales and other transfers of Marketable Securities in the Marketable Securities Portfolio; and (m) any Investments by the Company or any Restricted Subsidiary of the Company in Unrestricted Subsidiaries or Permitted Joint Ventures made after the date of the Indenture having an aggregate fair market value, when taken together with all other Investments made pursuant to this clause (m) (net of returns of capital, dividends and interest paid on Investments and sales, liquidations and redemptions of Investments) not exceeding in the aggregate 5% of the Consolidated Tangible Assets of the Company as of the last day of the most recent full fiscal quarter ending immediately prior to the date of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value). "Permitted Joint Venture" means any corporation, limited liability company, joint venture, partnership or other business entity designated by the Board of Directors, and until designation by the Board of Directors to the contrary, (i) which is engaged in a Permitted Business and (ii) of which 50% or less of the Capital Stock with voting power under ordinary circumstances to elect directors (or Persons having similar or corresponding powers and responsibilities) is at the time owned (beneficially, directly or indirectly) by the Company and its Restricted Subsidiaries. Any such designation or designation to the contrary shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "Permitted Junior Securities" means (i) Equity Interests in the Company or any Guarantor which, to the extent received by any Holder in connection with any bankruptcy, reorganization, insolvency or similar proceeding in which any Equity Interests are also exchanged for or distributed in respect of Senior Debt, are either common equity securities or are subordinated to all such Equity Interests so exchanged or distributed to substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to the Indenture, and (ii) debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to the Indenture. "Permitted Liens" means (i) Liens on assets of the Company or its Restricted Subsidiaries that secure Senior Debt permitted by the terms of the Indenture to be incurred; (ii) Liens in favor of the Company or any Guarantor; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company; (iv) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (v) Liens existing on the date of the Indenture and any extensions or renewals thereof, provided that such extension or renewal of such Liens does not extend to or cover any other property or assets of the Company or any Restricted Subsidiary; (vi) statutory Liens (other than any Lien imposed by ERISA) or landlords and carriers', warehouseman's, mechanics', suppliers', materialmen's, repairmen's or other like Liens arising in the ordinary course of business; (vii) Liens for taxes, assessments, government charges or claims not yet due and payable or which are being contested -10- 18 in good faith by appropriate proceedings promptly instituted and diligently conducted and if a reserve or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made therefor; (viii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (ix) Liens created or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, government contracts, performance and return-of-money bonds and other obligations of a like nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (x) easements, rights-of-way, restrictions and other similar charges or encumbrances not interfering in any material respect with the business of the Company or any Restricted Subsidiary incurred in the ordinary course of business; (xi) any attachment or judgment Lien, unless the judgment it secures shall not, within 60 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 60 days after the expiration of any such stay; (xii) any other Liens imposed by operation of law which do not materially affect the Company's or any Guarantor's ability to perform its obligations under the Notes, the Subsidiary Guarantees and the Indenture; (xiii) rights of banks to set off deposits against debts owed to said bank; (xiv) Liens upon specific items of inventory or other goods and proceeds of the Company or its Restricted Subsidiaries securing the Company's or any Restricted Subsidiary's obligations in respect of bankers' acceptances issued or created for the account of any such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (xv) Liens securing reimbursement obligations with respect to letters of credit which encumber documents and other property relating to such letters of credit and the products and proceeds thereof entered into in the ordinary course of business consistent with past practices; (xvi) Liens securing Indebtedness that is pari passu in right of payment with the Notes, provided that the Notes are equally and ratably secured; (xvii) Liens to secure any Permitted Refinancing Indebtedness incurred to refinance any Indebtedness secured by any Lien referred to in the foregoing clauses (i), (iii), (iv), (v) and (xvi), provided, however, that such new Lien shall be limited to all or part of the same property that secured the original Lien (provided that such Liens may extend to after-acquired property, including any assets or Capital Stock of any subsequently formed or acquired Subsidiary, if such original Lien included such property or assets as collateral), (xviii) Liens to secure Indebtedness (including Capital Lease Obligations) permitted clause (vi) of the second paragraph of Section 4.09 hereof covering only the assets acquired with such Indebtedness, together with any additions and accessions thereto and replacements, substitutions and proceeds (including insurance proceeds) thereof; (xix) Liens in favor of customs and revenue authorities to secure payment of customs duties in connection with the importation of goods in the ordinary course of business and other similar Liens arising in the ordinary course of business, (xx) leases or subleases granted to third Persons in ordinary course of business consistent with past practices not interfering with the ordinary course of business of the Company or its Restricted Subsidiaries; (xxi) deposits made in the ordinary course of business to secure liability to insurance carriers, and Liens on the proceeds of insurance granted to insurance carriers solely to secure the payment of financed premiums; (xxii) Liens in favor of a trustee under any indenture securing amounts due to the trustee in connection with its services under such indenture; (xxiii) Liens under licensing agreements for use of intellectual property entered into in the ordinary course of business; (xxiv) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $10,000,000 at any one time outstanding and that (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Restricted Subsidiary; and (xxv) any attachment or judgment Lien not constituting an Event of Default under Section 6.01(f) hereof. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued and unpaid interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, -11- 19 renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or a Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, limited liability company, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock" means any Capital Stock of a Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such Person over the holders of the other Capital Stock issued by such Person. "Private Placement Legend" means the legend set forth in Section 2.06(g)(i) hereof to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "Proceeding" means any voluntary or involuntary insolvency, bankruptcy, receivership, custodianship, liquidation, dissolution, reorganization, assignment for the benefit of creditors, appointment of a custodian, receiver, trustee or other officer with similar powers or any other proceeding for the liquidation, dissolution or other winding up of a Person (including, without limitation, any such proceeding under Bankruptcy Code). "Purchase Agreement" means the Purchase Agreement dated December 17, 1997 among the Company, the Guarantors and the Initial Purchasers (as defined therein). "QIB" means a "qualified institution buyer" as defined in Rule 144A. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of December 22, 1997, by and among the Company and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Note" means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as appropriate. "Regulation S Permanent Global Note" means a permanent global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depository or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the Restricted Period. "Regulation S Temporary Global Note" means a temporary global Note in the form of Exhibit A-2 hereto bearing the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depository or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. "Representative" means the administrative agent under the Senior Credit Facility or its successor thereunder or any other agent or representative on behalf of the holders of Designated Senior Debt. "Responsible Officer," when used with respect to the Trustee, means any officer, including, without limitation, any vice president, assistant vice president, assistant treasurer or secretary within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to particular corporate trust matter, any other officer or employee to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend. -12- 20 "Restricted Global Note" means a Global Note bearing the Private Placement Legend. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Period" means the 40-day restricted period as defined in Regulation S. "Restricted Subsidiary" of a Person means any Subsidiary of the referenced Person that is not an Unrestricted Subsidiary; provided that, on the date of the Indenture, all Subsidiaries of the Company (other than Holly Finance Company) shall be Restricted Subsidiaries of the Company. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 144A Global Note" means the Global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with and registered in the name of the Depository or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated under the Securities Act. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Credit Facility" means that certain Senior Credit Facility, dated as of December 22, 1997, by and among the Company, Lehman Brothers, as Arranger, Lehman Brothers Commercial Paper Inc. (as Syndication Agent), and Harris Trust and Savings Bank (as Administrative Agent and Collateral Agent) providing for up to $255,000,000 of term loan borrowings and $200,000,000 of revolving credit borrowings and letters of credit in each case, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith and in each case as amended, modified, renewed, restated, refunded, replaced or refinanced from time to time and any agreement (and related documents) governing Indebtedness incurred to refund or refinance credit extensions and commitments then outstanding or permitted to be outstanding under such Senior Credit Facility or a successor Credit Facility, whether by the same or any other lender or group of lenders. The Company shall promptly notify the Trustee of any other lender or group of lenders. The Company shall promptly notify the Trustee of any such refunding or refinancing of the existing Senior Credit Facility. "Senior Debt" means (i) indebtedness of the Company or any Guarantor for money borrowed and all obligations, whether direct or indirect, under guarantees, letters of credit, foreign currency or interest rate swaps, foreign exchange contracts, caps, collars, options, hedges or other agreements or arrangements designed to protect against fluctuations in currency values or interest rates, other extensions of credit, expenses, fees, reimbursements, indemnities and all other amounts (including interest at the contract rate accruing on or after the filing of any petition in bankruptcy or reorganization relating to the Company or any Guarantor whether or not a claim for post-filing interest is allowed in such proceeding) owed by the Company or any Guarantor under, or with respect to, the Senior Credit Facility or any other Credit Facility, (ii) the principal of and premium, if any, and accrued and unpaid interest, whether existing on the date hereof or hereafter incurred, in respect of (A) indebtedness of the Company or any Guarantor for money borrowed, (B) guarantees by the Company or any Guarantor of indebtedness for money borrowed by any other person, (C) indebtedness evidenced by notes, debentures, bonds, or other instruments of indebtedness for the payment of which the Company or any Guarantor is responsible or liable, by guarantees or otherwise, (D) obligations of the Company or any Guarantor for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (E) obligations of the Company or any Guarantor under any agreement to lease, or any lease of, any real or personal property which, in accordance with GAAP, is classified on the Company's or any Guarantor's consolidated balance sheet as a liability, and (F) obligations of the Company or any Guarantor under interest rate swaps, caps, collars, -13- 21 options and similar arrangements and commodity or foreign currency hedges and (iii) modifications, renewals, extensions, replacements, refinancings and refundings of any such indebtedness, obligations or guarantees, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is expressly provided that such indebtedness, obligations or guarantees, or such modifications, renewals, extensions, replacements, refinancings or refundings thereof, are not superior in right of payment to the Notes; provided that Senior Debt will not be deemed to include (a) any obligation of the Company or any Guarantor to any Subsidiary or other Affiliate, (b) any liability for federal, state, local or other taxes owed or owing by the Company or any Guarantor, (c) any accounts payable or other liability to trade creditors, (d) any Indebtedness, guarantee or obligation of the Company or any Guarantor which is expressly subordinate or junior by its terms in right of payment to any other Indebtedness, guarantee or obligation of the Company or any Guarantor, (e) that portion of any Indebtedness incurred in violation of Section 4.07 hereof (other than Indebtedness incurred under a Credit Facility if prior to the incurrence thereof or, in the case of contingent obligations such as letters of credit pursuant to which such Indebtedness is incurred, prior to the issuance thereof or agreement to extend credit in respect thereof, the Company has certified to the lenders under such Credit Facility that the such incurrence or extension of credit does not violate such covenant) or (f) Indebtedness of the Company or any Guarantor which is classified as non-recourse in accordance with GAAP or any unsecured claim arising in respect thereof by reason of the application of section 1111(b)(1) of the Bankruptcy Code. "Shelf Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the Indenture. "Special Redemption Date" means February 2, 1998. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subordinated Obligations" means any Indebtedness of the Company which is expressly subordinated or junior in right of payment to the Notes. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or an entity described in clause (i) and related to such Person or (b) the only general partners of which are such Person or of one or more entities described in clause (i) and related to such Person (or any combination thereof). "Subsidiary Guarantee" means the guarantee of the Notes by each of the Guarantors pursuant to Article 11 of the Indenture and in the form of guarantee endorsed on the form of Note attached as Exhibit A to the Indenture and any additional guarantee of the Notes to be executed by any Restricted Subsidiary of the Company pursuant to Section 4.18 hereof. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Definitive Note" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. -14- 22 "Unrestricted Global Note" means a permanent global Note in the form of Exhibit A-1 attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depository, representing a series of Notes that do not bear the Private Placement Legend. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) that is designated by the Board of Directors as an Unrestricted Subsidiary and (ii) and each of its Subsidiaries at the time of designation and thereafter, (a) have no Indebtedness other than Non- Recourse Indebtedness; (b) are not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained, in light of all the circumstances, at the time from Persons who are not Affiliates of the Company; (c) are Persons with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or preserve such Persons' financial condition or to cause such Persons to achieve any specified levels of operating results; (d) have not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries and (e) do not own any Capital Stock of or own or hold any Lien on any property of, the Company or any Restricted Subsidiary of the Company. "U.S. Person" means a U.S. person as defined in Rule 902(o) under the Securities Act. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Subsidiary" means a Subsidiary, 100% of the outstanding Capital Stock and other Equity Interests of which is directly or indirectly owned by the Company. Section 1.02. Other Definitions.
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . . . . . . . . . 4.11 "Merger Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20 "Asset Sale Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.09 "Change of Control Offer" . . . . . . . . . . . . . . . . . . . . . . . . . 4.15 "Change of Control Payment" . . . . . . . . . . . . . . . . . . . . . . . . 4.15 "Change of Control Payment Date" . . . . . . . . . . . . . . . . . . . . . 4.15 "Collateral Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20 "Collateral Funds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20 "Covenant Defeasance" . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.03 "DTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03 "Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01 "Excess Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10 "Funding Guarantor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05 "incur" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.09 "Legal Defeasance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.02 "Net Offering Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . 4.20
-15- 23
Defined in Term Section "Offer Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.09 "Offer Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.09 "Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03 "Payment Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01 "Permitted Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.09 "Purchase Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.09 "Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03 "Restricted Payments" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.07 "Special Redemption" . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.01 "Special Redemption Amount" . . . . . . . . . . . . . . . . . . . . . . . . 4.20
Section 1.03. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes means the Company and any successor obligor upon the Notes. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. Section 1.04. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. -16- 24 ARTICLE 2 THE NOTES Section 2.01. Form and Dating. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. Subject to Section 4.18, the Notes may bear notations of Subsidiary Guarantees. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. Notes issued in global form shall be substantially in the form of Exhibit A-1 or A-2 attached hereto (including the Global Note Legend and the "Schedule of Exchanges in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A-1 attached hereto (but without the Global Note Legend and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee, the Depository or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Temporary Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depository, and registered in the name of the nominee of the Depository for credit to the accounts of designated agents holding on behalf of Euroclear or Cedel Bank, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Restricted Period shall be terminated upon the receipt by the Trustee of (i) a written certificate from the Depository, together with copies of certificates from Euroclear and Cedel Bank certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note or an IAI Global Note bearing a Private Placement Legend, all as contemplated by Section 2.06(b) hereof), and (ii) an Officers' Certificate from the Company. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note shall be exchanged for beneficial interests in Regulation S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depository or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes that are held by members of, or Participants, in DTC through Euroclear or Cedel Bank. -17- 25 Section 2.02. Execution and Authentication. Two Officers shall sign the Notes for the Company by manual or facsimile signature. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by two Officers, authenticate Notes for original issue on the Issue Date up to $250,000,000 aggregate principal amount of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed $350,000,000 except as provided in Section 2.07 hereof. Additional amounts may be issued after the Issue Date in one or more series from time to time subject to the limitations set forth under Section 4.09 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. Section 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency within the City and State of New York where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall promptly notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depository with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes. Section 2.04. Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal or Liquidated Damages, if any, or interest on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. -18- 26 Section 2.05. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall provide to a Responsible Officer of the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA Section 312(a). Section 2.06. Transfer and Exchange. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depository to a nominee of the Depository, by a nominee of the Depository to the Depository or to another nominee of the Depository, or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depository that it is unwilling or unable to continue to act as Depository for the Global Notes or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depository is not appointed by the Company within 90 days after the date of such notice from the Depository or (ii) the Company in its sole discretion notifies the Trustee in writing that it elects to cause issuance of the Notes in certificated form; provided that in no event shall the Regulation S Temporary Global Note be exchanged by the Company for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act. Upon the occurrence of either of the preceding events in (i) or (ii) above, Definitive Notes shall be issued in such names as the Depository shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.11 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to Section 2.07 or 2.11 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depository, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs as applicable: (i) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period transfers of beneficial interests in the Temporary Regulation S Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred only to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(i). (ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests (other than a transfer of a beneficial interest in a Global Note to a Person who takes delivery thereof in the form of a beneficial interest in the same Global Note), the transferor of such beneficial interest must deliver to the Registrar (A) (1) a written order from a Participant or an Indirect Participant given to the Depository in accordance with the Applicable Procedures directing the Depository to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B) (1) a written order from a Participant or an Indirect Participant given to the Depository in -19- 27 accordance with the Applicable Procedures directing the Depository to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depository to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above; provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act. Upon an Exchange Offer by the Company in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture, the Notes and otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof. (iii) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of clause (ii) above and the Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in Item (1) thereof; (B) if the transferee will take delivery in the form of the Regulation S Temporary Global Note or the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in Item (2) thereof; or (C) if the transferee will take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications and certificates and Opinion of Counsel required by Item (3) thereof, if applicable. (iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in the Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of clause (ii) above and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in Item (1)(a) thereof; -20- 28 (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in Item (4) thereof; and (3) in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (c) Transfer or Exchange of Beneficial Interests for Definitive Notes. (i) If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in Item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (3)(a) thereof; (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by Item (3) thereof, if applicable; (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (3)(b) thereof; or (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (3)(c) thereof, -21- 29 the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and make available for delivery to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depository and the Participant or Indirect Participant. The Trustee shall make available for delivery such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be (A) exchanged for a Definitive Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(c)(3)(B) under the Securities Act or (B) transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to the conditions set forth in clause (A) above or unless the transfer is pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (iii) Notwithstanding 2.06(c)(i) hereof, a holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in Item (1)(b) thereof; (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit B hereto, including the certifications in Item (4) thereof; and (3) in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Company, to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act. (iv) If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be -22- 30 reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and make available for delivery to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iv) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depository and the Participant or Indirect Participant. The Trustee shall make available for delivery such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iv) shall not bear the Private Placement Legend. A beneficial interest in an Unrestricted Global Note cannot be exchanged for a Definitive Note bearing the Private Placement Legend or transferred to a Person who takes delivery thereof in the form of a Definitive Note bearing the Private Placement Legend. (d) Transfer and Exchange of Definitive Notes for Beneficial Interests. (i) If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in Item (2)(b) thereof; (B) if such Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (1) thereof, (C) if such Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (2) thereof; (D) if such Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (3)(a) thereof, (E) if such Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by Item (3) thereof, if applicable; (F) if such Definitive Note is being transferred to the Company or any of its subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (3)(b) thereof; or (G) if such Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in Item (3)(c) thereof, the Trustee shall cancel the Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of subparagraph (A) above, the appropriate Restricted Global Note and, in the case of subparagraph (B) above, the 144A Global Note, and, in the case of subparagraph (C) above, the Regulation S Global Note, and in all other cases, the IAI Global Note. -23- 31 (ii) A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in Item (1)(c) thereof; (2) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in Item (4) thereof; and (3) in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act, that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act, and such Definitive Notes are being exchanged or transferred in compliance with any applicable blue sky securities laws of any State of the United States. Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. (iii) A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. (iv) If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of beneficial interests transferred pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above. (e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in -24- 32 writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, pursuant to the provisions of this Section 2.06(e). (i) Restricted Definitive Notes may be transferred to and registered in the name of Persons who take delivery thereof if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in Item (1) thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in Item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by Item (3) thereof, if applicable. (ii) Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in Item (1)(b) thereof; (2) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in Item (4) thereof; and (3) in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act, that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act, and such Restricted Definitive Note is being exchanged or transferred in compliance with any applicable blue sky securities laws of any State of the United States. (iii) A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request for such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder -25- 33 thereof. Unrestricted Definitive Notes cannot be exchanged for or transferred to Persons who take delivery thereof in the form of a Restricted Definitive Note. (f) Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of (A) an authentication order in accordance with Section 2.02 hereof and (B) an Opinion of Counsel opining as to the enforceability of the Exchange Notes and the guarantees thereof, the Trustee shall authenticate (i) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes tendered for acceptance by persons that are not (x) broker-dealers, (y) Persons participating in the distribution of the Exchange Notes or (z) Persons who are affiliates (as defined in Rule 144) of the Company and accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer. Concurrent with the issuance of such Notes, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall authenticate and make available for delivery to the Persons designated by the Holders of Definitive Notes so accepted Definitive Notes in the appropriate principal amount. (g) Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (i) Private Placement Legend. (A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT, OF 1933 AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER: REPRESENTS THAT (1) IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1),(2),(3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT TO (A) THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A -26- 34 TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES," AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT." (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraph (b)(iv), (c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) of this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (ii) Global Note Legend. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITORY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO ARTICLE 2 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITORY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY." (iii) Regulation S Temporary Global Note Legend. The Regulation S Temporary Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON." (h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note, by the Trustee, the Note Custodian or the Depository at the direction of the Trustee, to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note, by the Trustee, the Note Custodian or by the Depository at the direction of the Trustee, to reflect such increase. (i) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon the Company's order or at the Registrar's request. (ii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar -27- 35 governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 4.10, 4.15 and 9.05 hereof). (iii) The Registrar shall not be required to register the transfer or exchange of any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture and the Subsidiary Guarantees, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (viii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a transfer or exchange may be submitted by facsimile. Section 2.07. Replacement Notes. If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.08. Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. -28- 36 If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.09. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Responsible Officer of the Trustee actually knows are so owned shall be so disregarded. Section 2.10. Temporary Notes. Until Definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes upon a written order of the Company signed by two Officers of the Company. Temporary Notes shall be substantially in the form of Definitive Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. Section 2.11. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall return such canceled Notes to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall promptly notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. Section 2.13. CUSIP Numbers. The Company in issuing the Notes may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the -29- 37 Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. ARTICLE 3 REDEMPTION AND PREPAYMENT Section 3.01. Notices to Trustee. If (x) the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date and (y) the Company redeems Notes pursuant to the redemption provisions of Section 3.10 hereof (a "Special Redemption"), it shall furnish, subject to Section 3.03 hereof, to the Trustee at least two days before notice of the Special Redemption is to be mailed to the Holders (unless a shorter notice period shall be satisfactory to the Trustee, as evidenced in writing signed on behalf of the Trustee), in each such case an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. Section 3.02. Selection of Notes to be Redeemed. If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption shall be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate; provided that no Notes of $1,000 or less shall be redeemed in part. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than [20] nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. Section 3.03. Notice of Redemption. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date (other than in connection with a Special Redemption), the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. In the event of a Special Redemption, at least three Business Days before a Special Redemption other than on the Special Redemption Date, the Company shall mail or cause to be mailed a notice of redemption by first class mail, postage prepaid, to each Holder, with a copy to the Trustee. In the event of a Special Redemption on the Special Redemption Date the Company shall provide the Trustee with notice on or prior to 9:30 a.m. New York City time on the Business Day immediately preceding the Special Redemption Date to effect such Special Redemption; provided that failure to provide any such notice of a Special Redemption shall not affect the Company's right to effect a Special Redemption on the Special Redemption Date, or the amount of the Company's obligation on the Notes. The notice shall identify the Notes (including CUSIP numbers) to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; -30- 38 (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 30 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.05. Deposit of Redemption Price. No later than 10:00 a.m. New York City Time on the redemption date (other than in connection with a Special Redemption), the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest and Liquidated Damages, if any, on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest and Liquidated Damages, if any, on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph and from and after the Special Redemption Date or such earlier date of a Special Redemption in accordance with Sections 3.03 and 3.10 hereof, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest and Liquidated Damages, if any, shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. Section 3.06. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. Section 3.07. Optional Redemption. (a) Except as set forth in clause (b) of this Section 3.07 and Section 3.10 hereof, the Notes shall not be redeemable at the Company's option prior to December 15, 2002. Thereafter, the Notes will be subject to redemption at any time at the option of the Company in whole or in part, at the redemption prices (expressed as -31- 39 percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on December 15 of the years indicated below:
YEAR PERCENTAGE 2002 . . . . . . . . . . . . . . . . 104.875% 2003 . . . . . . . . . . . . . . . . 103.250% 2004 . . . . . . . . . . . . . . . . 101.625% 2005 and thereafter . . . . . . . . . 100.000%
(b) Notwithstanding the foregoing, at any time before December 15, 2000, the Company may on any one or more occasions redeem up to an aggregate of 35% of the principal amount of Notes outstanding at a redemption price of 109.75% of the principal amount thereof, plus accrued and unpaid interest, if any, and Liquidated Damages, if any, thereon, to the redemption date, with the net cash proceeds of any Equity Offering; provided that at least 65% of the aggregate principal amount of Notes outstanding on the date of the Indenture remain outstanding immediately after each occurrence of such redemption; and provided, further, that each such redemption shall occur within 60 days of the date of the closing of such Equity Offering. (c) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. Section 3.08. Mandatory Redemption. Except as set forth under Sections 3.09, 3.10, 4.10 and 4.15 hereof, the Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. Section 3.09. Offer to Purchase by Application of Excess Proceeds. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest and Liquidated Damages, if any, shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest or Liquidated Damages shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; -32- 40 (c) that any Note not tendered or accepted for payment shall continue to accrete or accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a depository, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the depository or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders and holders of any other Indebtedness (including the Seller Note) entitled to participate in such Asset Sale Offer, if any, exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (i) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to, the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depository or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company shall authenticate and make available for delivery such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. Section 3.10. Special Redemption. If the Merger has not been consummated prior to the Special Redemption Date, all outstanding Notes shall be redeemed by the Company on the Special Redemption Date at a redemption price equal to 101% of the principal thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption. The Company may redeem all outstanding Notes at any time on or prior to the Special Redemption Date if the Merger has not been consummated and the Merger Agreement has been terminated on or prior to such time, on or prior to such date at a -33- 41 redemption price equal to 101% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption. ARTICLE 4 COVENANTS Section 4.01. Payment of Notes. The Company shall pay or cause to be paid the principal of, premium, if any, and interest and Liquidated Damages, if any, on the Notes on the dates and in the manner provided in the Notes. Principal, interest and Liquidated Damages, if any, shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. New York City Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal and interest then due. The Company shall pay all Liquidated Damages, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. The Company shall pay interest (including post-petition interest in any proceeding under the Bankruptcy Code) on overdue principal at the rate borne on the Notes to the extent lawful; it shall pay interest (including post- petition interest in any proceeding under the Bankruptcy Code) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof. Section 4.03. Reports. (a) Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company shall furnish to each of the Holders of Notes within the time periods specified in the SEC's rules and regulations, beginning with annual financial information for the year ended December 31, 1997, (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were required to file such financial information, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and any consolidated Subsidiaries and, with respect to the annual information only, reports thereon by the Company's independent public accountants (which shall be firm(s) of established national reputation) and (ii) all information that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports. All such information and reports shall be delivered to the Holders of Notes on or prior to the dates on which such filings would have been required to be made had the Company been subject to the rules and regulations -34- 42 of the SEC. All such information and reports shall be filed with the SEC on or prior to the dates on which such filings would have been required to be made had the Company been subject to the rules and regulations of the SEC. In addition, whether or not required by the rules and regulations of the SEC, the Company shall file a copy of all such information and reports with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. The Company shall at all times comply with TIA Section 314(a). (b) For so long as any Notes remain outstanding, the Company shall furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. (c) Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). Section 4.04. Compliance Certificate. (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03(a) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any future knowledge of any such violation. (c) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.05. Taxes. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, charges, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. Section 4.06. Waiver of Stay, Extension and Usury Laws. Each of the Company and the Subsidiaries covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any -35- 43 stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and each of the Company and the Subsidiaries (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. Section 4.07. Restricted Payments. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire or retire for value (including without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company (other than any such Equity Interests owned by a Wholly Owned Subsidiary of the Company); (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes, except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof; (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company or any of its Restricted Subsidiaries after the date of the Indenture (excluding Restricted Payments permitted by clauses (ii), (iii), (iv), (v), (vii), (viii) or (ix) of the next succeeding paragraph), is less than the sum of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter immediately following the date of the Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company from the issue or sale, in either case, since the date of the Indenture of (A) Equity Interests of the Company (other than Disqualified Stock), or (B) Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible or exchangeable debt securities) sold to a Restricted Subsidiary of the Company and other than Disqualified Stock or debt securities that have been converted or exchanged into Disqualified Stock), plus (iii) in case any Unrestricted Subsidiary has been redesignated a Restricted Subsidiary pursuant to the terms of the Indenture or has been merged, consolidated or amalgamated with or into, or transfers or conveys assets to or is liquidated into, the Company or a Restricted Subsidiary and provided that no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof, the lesser of (A) the book value (determined in accordance with GAAP) at the date of such redesignation, combination or transfer of the aggregate Investments made by the Company and its Restricted Subsidiaries in such Unrestricted Subsidiary (or of the assets transferred or conveyed, as applicable) and (B) the fair market value of such Investment in such Unrestricted Subsidiary at the time of such redesignation, combination or transfer (or of the assets transferred or conveyed, as applicable), in each case as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive and evidenced by a resolution of such Board and, -36- 44 in each case, after deducting any Indebtedness associated with the Unrestricted Subsidiary so designated or combined or with the assets so transferred or conveyed, plus (iv) to the extent not already included in Consolidated Net Income for such period, without duplication, any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment, plus (v) $10,000,000. The foregoing provisions shall not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (ii) the redemption, repurchase, retirement, defeasance, or other acquisition of any Indebtedness which is subordinated to the Notes or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of, Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of Indebtedness which is subordinated to the Notes with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any dividend or distribution by a Restricted Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis;(v) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any employee or director of the Company (or any of its Subsidiaries), or any former employee or director of the Company (or any of its Subsidiaries) issued pursuant to any management equity plan or stock option plan or any other management or employee benefit plan, agreement or trust; provided, however, that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests pursuant to this clause (v) shall not exceed $1,000,000 in any twelve-month period; (vi) other Restricted Payments not to exceed $10,000,000 in the aggregate; (vii) repurchases of Equity Interests deemed to occur upon the cashless exercise of stock options; (viii) payments in accordance with the terms of the Merger Agreement; and (ix) reasonable and customary directors' fees to the members of the Company's Board of Directors, provided that such fees are consistent with past practice, provided, further, that, with respect to clauses (ii), (iii), (v), (vi), (vii), (viii) and (ix) above, no Default or Event of Default shall have occurred and be continuing immediately after such transaction. In determining whether any Restricted Payment is permitted by the foregoing covenant, the Company may allocate or reallocate all or any portion of such Restricted Payment among the clauses (i) through (ix) of the preceding paragraph or among such clauses and the first paragraph of this covenant including clauses (a), (b) and (c), provided that at the time of such allocation or reallocation, all such Restricted Payments, or allocated portions thereof, would be permitted under the various provisions of the foregoing covenant. The amount of all Restricted Payments (other than cash) shall be the fair market value (as determined by the Board of Directors of the Company and as evidenced by a resolution of the Board of Directors of the Company set forth in an Officers' Certificate delivered to the Trustee) on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment, such determination to be based upon an opinion or appraisal by an Independent Financial Advisor if the fair market value of any Restricted Payment is greater than $10,000,000. Not later than (i) the end of any calendar quarter in which any Restricted Payment is made or (ii) the making of a Restricted Payment which, when added to the sum of all previous Restricted Payments made in a calendar quarter, would cause the aggregate of all Restricted Payments made in such quarter to exceed $5,000,000, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this covenant were computed, which calculations may be based upon the Company's latest available financial statements. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (i) immediately after giving effect to such designation, the Company is able to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09, (ii) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing and (iii) the Company certifies that such designation complies with this covenant. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of -37- 45 the resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. For purposes of making the determination as to whether such designation would cause a Default or Event of Default, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of this covenant. All such outstanding Investments will be deemed to constitute Investments in an amount equal to the greatest of (i) the net book value (determined in accordance with GAAP) of such Investments at the time of such designation, (ii) the fair market value of such Investments at the time of such designation and (iii) the original fair market value of such Investments at the time they were made. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors of the Company giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred as of such date. Section 4.08. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of the Company or the Company to (i)(x) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (y) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) the Indenture, the Notes, Existing Indebtedness and the Senior Credit Facility as in effect on the date of the Indenture, (b) applicable law, (c) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except with respect to Indebtedness incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person or such Person's subsidiaries, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred, (d) restrictions of the nature described in clause (iii) above by reason of customary non-assignment provisions in contracts, agreements, and leases entered into in the ordinary course of business and consistent with past practices, (e) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, (f) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition, (g) agreements relating to secured Indebtedness otherwise permitted to be incurred pursuant to Sections 4.09 and 4.12 hereof that limit the right of the debtor to dispose of assets securing such Indebtedness, ((h) Permitted Refinancing Indebtedness in respect of Indebtedness referred to in clause (a), (c) and (e) of this paragraph, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Company shall not issue any Disqualified Stock and shall not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, -38- 46 however, that the Company or any Guarantor may incur Indebtedness (including Acquired Debt) or the Company may issue shares of Disqualified Stock if the Company's Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.25 to 1, during the period from the date of the Indenture until the second anniversary of the date of the Indenture, and, thereafter, 2.50 to 1, in each case determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. The provisions of the first paragraph of this covenant shall not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes and the Subsidiary Guarantees; (ii) the incurrence by the Company or its Restricted Subsidiaries of Indebtedness and letters of credit pursuant to the Senior Credit Facility (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company or its Restricted Subsidiaries thereunder) in an aggregate principal amount not to exceed $455,000,000, less the sum of (A) the aggregate amount of all proceeds of Assets Sales that have been applied since the date of the Indenture to permanently reduce the outstanding amount of such Indebtedness pursuant to Section 4.10 hereof; plus (B) Indebtedness incurred and outstanding pursuant to clause (ix) below; (iii) the incurrence by the Company or any of its Restricted Subsidiaries of Existing Indebtedness; (iv) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, Indebtedness that was permitted by the Indenture to be incurred; (v) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided, however, that (i) if the Company or any Guarantor is the obligor on such Indebtedness, such Indebtedness is expressly subordinate to the payment in full of all Obligations with respect to the Notes and (ii) (A) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (vi) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace Indebtedness incurred pursuant to this clause (vi), not to exceed $20,000,000 at any time outstanding. (vii) the incurrence by the Company or any of its Restricted Subsidiaries of obligations in the ordinary course of business under (A) trade letters of credit which are to be repaid in full not more than one year after the date on which such Indebtedness is originally incurred to finance the purchase of goods by the Company or a Restricted Subsidiary of the Company; (B) standby letters of credit issued for the purpose of supporting (1) workers' compensation liabilities of the Company or any of its Restricted Subsidiaries, or (2) performance, payment, deposit or surety obligations of the -39- 47 Company or any of its Restricted Subsidiaries; and (C) bid, advance payment and performance bonds and surety bonds, and refinancings thereof; (viii) the incurrence by the Company or any of its Restricted Subsidiaries of Financial Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk (including with respect to any floating rate Indebtedness that is permitted by the terms of the Indenture to be outstanding; and) and Commodity Hedging Obligations in connection with the conduct of their respective businesses and not for speculative purposes and otherwise consistent with past practices; (ix) the incurrence by the Company or any Restricted Subsidiary of CCC Loans in an aggregate principal amount outstanding not to exceed the lesser (A) $200,000,000; and (B) the undrawn portion of the revolving credit facility and unused letter of credit facility available under the Senior Credit Facility would be permitted to be incurred pursuant to clause (ii) above; (x) Indebtedness arising from agreements of the Company or any Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred in connection with the disposition of any business, assets or a Restricted Subsidiary of the Company, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Restricted Subsidiary of the Company for the purposes of financing such acquisition; provided, however, that (A) such Indebtedness is not reflected on the balance sheet of the Company or any of its Restricted Subsidiaries (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (A)) and (B) the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds including noncash proceeds (the fair market value of such noncash proceeds being measured at the time received and without giving effect to any subsequent changes in value) actually received by the Company and its Restricted Subsidiaries in connection with such disposition; (xi) the guarantee by the Company or any of the Guarantors of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this covenant; provided, that the Guarantee of any Indebtedness of a Restricted Subsidiary of the Company that is not or is no longer a Guarantor shall be deemed a Restricted Investment at the time of such guarantee or at the time such Restricted Subsidiary's Guarantor status terminates in an amount equal to the maximum principal amount so guaranteed, for so long as, and to the extent that, such guarantee remains outstanding; (xii) the issuance by a Restricted Subsidiary of the Company of preferred stock to the Company or to any of its Restricted Subsidiaries; provided, however, that any subsequent event or issuance or transfer of any Equity Interests that results in the owner of such preferred stock ceasing to be the Company or any of its Restricted Subsidiaries or any subsequent transfer of such preferred stock to a Person, other than the Company or one of its Restricted Subsidiaries, shall be deemed to be an issuance of preferred stock by such Subsidiary that was not permitted by this clause (xii); and (xiii) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness (in addition to Indebtedness permitted by any other clause of this paragraph) in an aggregate principal amount (or accreted value, as applicable) at any time outstanding not to exceed $25,000,000. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xiii) above or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant and such item of Indebtedness shall be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph hereof. Accrual of interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes of this covenant. -40- 48 Section 4.10. Asset Sales. The Company will not, and will not permit any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (which shall be determined in good faith by the Company's Board of Directors) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration (other than the consideration received in the disposition of the real property, improvements and equipment associated with Holly Sugar Corporation's non-operating facilities at Hamilton City, California and Santa Barbara, California) therefor received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents; provided that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet), of the Company or any Restricted Subsidiary of the Company (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Subsidiary Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability and (y) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are immediately converted by the Company or such Restricted Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision and provided, further, that any Asset Sale pursuant to a condemnation, appropriation or other similar taking, including by deed in lieu of condemnation, or pursuant to the foreclosure or other enforcement of a Permitted Lien or exercise by the related lienholder of rights with respect thereto, including by deed or assignment in lieu of foreclosure shall not be required to satisfy the conditions set forth in clauses (i) and (ii) of this paragraph. Within 270 days after the receipt of any Net Proceeds from an Asset Sale, the Company or such Restricted Subsidiary, as the case may be, may apply such Net Proceeds, at its option, (a) to permanently repay Senior Debt (and to correspondingly permanently reduce the commitments with respect thereto in the case of revolving borrowings), (b) to acquire a controlling interest in another business or all or substantially all of the assets of a business, engaged in a Permitted Business, provided that the Company or such Restricted Subsidiary will have complied with clause (b) or (c) if, within 270 days of such Asset Sale, the Company or such Restricted Subsidiary shall have commenced and not completed or abandoned an investment in compliance with clause (b) or (c) and such Investment is substantially completed within 90 days after the first anniversary of such Asset Sale, or (c) to acquire other long term assets to be used in a Permitted Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Indebtedness under any Credit Facility or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph shall be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10,000,000, the Company shall be required to make an offer to all Holders of Notes and other Indebtedness that ranks by its terms pari passu in right of payment with the Notes and the terms of which contain substantially similar requirements with respect to the application of net proceeds from asset sales as are contained in the Indenture (an "Asset Sale Offer") to purchase on a pro rata basis the maximum principal amount of Notes, that is an integral multiple of $1,000, that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes and other such Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. Section 4.11. Transactions with Affiliates. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make any payment to, or sell, lease, transfer or otherwise dispose of any properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of any such Person (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (a) with respect to any Affiliate -41- 49 Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $1,000,000, a resolution of its Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above, (b) with respect to any Affiliate Transaction or series of related Affiliate Transaction involving aggregate consideration in excess of $5,000,000, a resolution of its Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of its Board of Directors, and (c) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10,000,000, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an Independent Financial Advisor; provided that none of the following shall be deemed to be Affiliate Transactions: (1) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary, as the case may be, (2) transactions between or among the Company and/or its Restricted Subsidiaries, (3) Restricted Payments that are permitted by Sections 4.07 hereof, (4) fees and compensation paid to members of the Board of Directors of the Company and of its Restricted Subsidiaries in their capacity as such, to the extent such fees and compensation are reasonable and customary, (5) advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business and consistent with past practices, (6) maintenance in the ordinary course of business of customary benefit programs or arrangements for employees, officers or directors, including vacation plans, health and life insurance plans, deferred compensation plans and retirement or savings plans and similar plans; (7) payments in accordance with the terms of the Merger Agreement; and (8) fees and compensation paid to, and indemnity provided on behalf of, officers, directors or employees of the Company or any of its Restricted Subsidiaries, as determined by the Board of Directors of the Company or of any such Restricted Subsidiary, to the extent such fees and compensation are reasonable and customary as determined by the Board of Directors of the Company or such Restricted Subsidiary. Section 4.12. Liens. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind securing Indebtedness or trade payables (other than Permitted Liens) upon any of their property or assets, now owned or hereafter acquired, unless all payments due under this Indenture and the Notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligations are no longer secured by a Lien. Section 4.13. Business Activities. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, engage in any line of business other than a Permitted Business, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. Section 4.14. Corporate Existence. Subject to Articles 5 and 11 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Restricted Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Restricted Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Restricted Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Restricted Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.15. Offer to Repurchase upon Change of Control. (a) Upon the occurrence of a Change of Control, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of -42- 50 the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, thereon, if any, to the purchase date (the "Change of Control Payment"). Within 10 days following any Change of Control, the Company will mail a notice to each Holder stating: (i) the description of the transaction or transactions that constitute the Change of Control and that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes tendered will be accepted for payment; (ii) the purchase price and the purchase date, which shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (iii) that any Note not tendered will continue to accrue interest and Liquidated Damages, if any; (iv) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (v) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes as a result of a Change of Control. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note shall be in a principal amount of $1,000 or an integral multiple thereof. Prior to complying with the provisions of this Section 4.15 but in any event within 90 days following a Change of Control, the Company shall either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this covenant. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (c) The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth herein applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. Section 4.16. No Senior Subordinated Debt. Notwithstanding any other provision hereof, (i) the Company shall not incur, create, issue, assume, guarantee or otherwise become liable directly or indirectly for any Indebtedness (including Acquired Debt) that is expressly subordinate or junior in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes, and (ii) no Guarantor shall incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness (including Acquired Debt) that is expressly subordinate or junior in right of payment to any Senior Debt of a Guarantor and senior in any respect in right of payment to the Subsidiary Guarantees, it being understood that Indebtedness will not be considered senior to other Indebtedness solely by reason of being secured. -43- 51 Section 4.17. Limitation on Issuance and Sales of Capital Stock of Subsidiaries. The Company (i) will not, and will not permit any Restricted Subsidiary of the Company to, transfer, convey, sell or otherwise dispose of any Capital Stock of any Restricted Subsidiary of the Company to any Person (other than the Company or a Wholly Owned Subsidiary of the Company), unless (a) such transfer, conveyance, sale, lease or other disposition is of all the Capital Stock of such Restricted Subsidiary and (b) the net proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 4.10 hereof and (ii) shall not permit any Restricted Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors' qualifying shares) to any Person other than to the Company or a Wholly Owned Subsidiary of the Company. Section 4.18. Subsidiary Guarantees of Certain Indebtedness. No Subsidiary of the Company may guarantee any Indebtedness of the Company, unless such Subsidiary (i) executes a supplemental indenture in form and substance satisfactory to the Trustee providing that such Subsidiary shall become a Guarantor under the Indenture and evidencing such Subsidiary Guarantee of the Notes in accordance with Article 11 hereof, such Subsidiary Guarantee to be a senior subordinated unsecured obligation of such Restricted Subsidiary and (ii) delivers an opinion of counsel to the effect, inter alia, that such supplemental indenture has been duly authorized and executed by such Subsidiary. Neither the Company nor any Guarantor shall be required to make a notation on the Notes to reflect any such subsequent Subsidiary Guarantee. Nothing in this Section 4.18 shall be construed to permit any Restricted Subsidiary of the Company to incur Indebtedness otherwise prohibited by Section 4.09 hereof. Section 4.19. Payments for Consent. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture, the Subsidiary Guarantees or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Section 4.20. Deposit of Proceeds with Trustee Pending Consummation of the Merger. (a) If the Merger has not been consummated by the close of business on the Issue Date, the Company shall deposit, at or prior to such time, with the Trustee as hereinafter provided the net proceeds from the issuance of the Notes (the "Net Offering Proceeds") and such other amount as, when added to the Net Offering Proceeds, equals $252,500,000 plus an amount equal to the interest that would accrue on $250,000,000 from the Issue Date to the Special Redemption Date at an interest rate of 9 3/4% per annum (the "Special Redemption Amount") in the Collateral Account described in Section 4.20(c). If the Merger has been consummated by the close of business on the Issue Date, this Section 4.20 shall be of no further force or effect, and shall be deemed to be deleted for all purposes from this Indenture. (b) In order to secure the full and punctual payment and performance of the Company's obligation, subject to Section 4.20(d), to redeem the Notes upon a Special Redemption, the Company hereby grants to the Trustee, for the benefit of the Holders, a continuing security interest in and to the Collateral, whether now owned or existing or hereafter acquired or arising. (c) If the Merger is not completed on the Issue Date, at all times until the earliest to occur of (i) receipt by the Trustee of (x) an Officers' Certificate stating that the Merger is to be consummated on a date specified therein which shall be on or before February 1, 1998 (the "Merger Date") on terms and conditions at least as favorable to the Company considered as a whole, as the terms and conditions described in the Offering Memorandum and in the Purchase Agreement relating to the Notes in all material respects of the Purchase Agreement) and requesting the Trustee to release the Collateral to the order of the Company for application in connection with the Merger and (y) an Opinion of Counsel to the effect that the condition precedent described in the preceding clause (x) has been satisfied, (ii) receipt -44- 52 by the Trustee of notice from the Company pursuant to Section 3.03 hereof to effect a Special Redemption, and (iii) the Special Redemption Date, there shall be maintained with the Trustee a securities account established for such purpose (the "Collateral Account"), which account shall be under the sole dominion and control of the Trustee. Amounts on deposit in the Collateral Account shall be invested and reinvested in Cash Equivalents from time to time in accordance with applicable law as directed by the Company with such investment held in the Collateral Account. Any income received with respect to the balance from time to time standing to the credit of the Collateral Account, including any interest or capital gains on Cash Equivalents, shall so long as no Default or Event of Default shall have occurred and be continuing, be distributed to the Company, as and when instructed by the Company, so long as the balance thereof is at all times at least equal to the Special Redemption Amount. The Trustee shall not be liable or accountable for any losses resulting without negligence on the part of the Trustee from the sale or depreciation in the market value of any investment of amounts on deposit in the Collateral Account. Subject to Article 7 hereof, the Trustee solely in its individual capacity hereby waives any rights it may have in such individual capacity to the Collateral Account and all funds and investments therein including, without limitation, any such rights arising through any counterclaim, defense, recoupment, charge, lien or right of set-off. (d) Upon notice from the Company to the Trustee pursuant to Section 4.20(c)(i) above, the security interests in the Collateral shall terminate as of the Merger Date and all funds in the Collateral Account (the "Collateral Funds") shall be released as of the Merger Date by wire transfer of immediately available funds to the Company to an account previously designated by it. Upon notice from the Company to the Trustee pursuant to subsection (c)(ii) above, the Trustee shall apply Collateral Funds to fund the Special Redemption, the security interests in the Collateral shall terminate as of the date of such application and the Trustee shall pay any amount in the Collateral Account in excess of the amount needed to fund the Special Redemption to the Company. Upon receipt of a notice pursuant to Section 4.20(a)(1) or (ii) above, the Trustee shall execute, deliver or acknowledge any necessary or property instruments of termination or release, to evidence the release of any Collateral permitted to by released pursuant to this Section 4.20. TIA Section 314(d) shall not apply to the release of Collateral pursuant to this provision if such release occurs prior to the filing of the Exchange Offer Registration Statement pursuant to the Registration Rights Agreement, after which time this sentence shall be deemed deleted from this Indenture. (e) The Parties intend that the Trustee shall have "control" of the Collateral Account within the meaning of Article 8 of the Uniform Commercial Code as in effect in the State of New York on the Issue Date, and shall not release Collateral Funds except as provided in this Section 4.20. ARTICLE 5 SUCCESSORS Section 5.01. Merger, Consolidation, or Sale of Assets. The Indenture will provide that the Company will not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately before and after such transaction no Default or Event of Default shall have occurred; and (iv) except in the case of a merger of the Company with or into a Wholly Owned Subsidiary, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning -45- 53 of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09. Section 5.02. Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein. ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default. An "Event of Default" occurs if: (a) the Company defaults in the payment when due of interest on, or Liquidated Damages with respect to, the Notes and such default continues for a period of 30 days (whether or not prohibited by Article 10 hereof); (b) the Company defaults in the payment when due of principal of or premium, if any, on the Notes (whether or not prohibited by Article 10 hereof); (c) the Company fails to comply with any of the provisions of Sections 4.07, 4.09, 4.10, 4.15 or 5.01 hereof; (d) the Company or any of its Restricted Subsidiaries fails to observe or perform any other covenant, representation, warranty or other agreement in this Indenture or the Notes for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding; (e) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the Issue Date, which default (a) is caused by a failure to pay principal of such Indebtedness at final maturity prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates without duplication $10,000,000 or more and such default shall not have been cured or acceleration rescinded within five Business Days after such occurrence; (f) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Significant Subsidiaries and such judgment or judgments remain unpaid or undischarged for a period (during which execution shall not be effectively stayed) of 60 days, provided that the aggregate of all such unpaid or undischarged judgments exceeds $5,000,000 (excluding amounts covered by insurance); -46- 54 (g) the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, when taken together, would constitute a Significant Subsidiary pursuant to or within the meaning of the Bankruptcy Code: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; (h) a court of competent jurisdiction enters an order or decree under the Bankruptcy Code that: (i) is for relief against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, when taken together, would constitute a Significant Subsidiary, in an involuntary case; (ii) appoints a Custodian of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, when taken together, would constitute a Significant Subsidiary, or for all or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, when taken together, would constitute a Significant Subsidiary; or (iii) orders the liquidation of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, when taken together, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days; or (i) except as permitted herein, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee (other than by reason of the termination of this Indenture or the release of any such Subsidiary Guarantee in accordance with this Indenture). Section 6.02. Acceleration. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Upon any such declaration, the Notes shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (g) or (h) of Section 6.01 hereof occurs with respect to the Company or any Significant Subsidiary, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of at least a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or Liquidated Damages that has become due solely because of the acceleration) have been cured or waived. Section 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, interest and Liquidated Damages, if any, on the Notes or to enforce the performance of any provision of the Notes or this Indenture. -47- 55 The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04. Waiver of Past Defaults. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of interest or Liquidated Damages, if any, on, or the principal of, the Notes including in connection with an offer to purchase; provided, however, that the Holders of a majority in aggregate principal amount of then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration, to the extent permitted by applicable law. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05. Control by Majority. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. Section 6.06. Limitation on Suits. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note has previously given to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense to be incurred in compliance with such request; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. Section 6.07. Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Liquidated Damages, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. -48- 56 Section 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(a) or (b) hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Liquidated Damages, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09. Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense, and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Liquidated Damages, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Liquidated Damages, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. Section 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the cost of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, -49- 57 a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7 TRUSTEE Section 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) The Trustee need perform only those duties that are specifically set forth in this Indenture and the TIA and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee. To the extent of any conflict between the duties of the Trustee hereunder and under the TIA, the TIA shall control. (ii) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.02. Rights of Trustee. (a) The Trustee may conclusively rely upon any document (whether in its original or facsimile form) believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. -50- 58 (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities (including fees and expenses of its agents and counsel) that might be incurred by it in compliance with such request or direction. Section 7.03. Individual Rights of Trustee. The Trustee, any Paying Agent, any authenticating agent or registrar in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.05. Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is actually known to a Responsible Officer of the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, or interest or Liquidated Damages, if any, on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.06. Reports by Trustee to Holders of the Notes. Within 60 days after each November 15 beginning with the November 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). -51- 59 A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange or delisted therefrom. Section 7.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time such compensation for its acceptance of this Indenture and services hereunder as the parties shall agree from time to time. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify each of the Trustee and any predecessor Trustee against any and all losses, liabilities, claims, damages or expenses (including taxes other than taxes based upon the income or gross receipts of the Trustee) incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability, claim, damage or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under the Bankruptcy Code. The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. Section 7.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof, (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under the Bankruptcy Code; (c) a custodian or public officer takes charge of the Trustee or its property; or -52- 60 (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may, at the expense of the Company, petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10 hereof, such Holder of a Note may, at the expense of the Company, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. Section 7 09. Successor Trustee by Merger, Etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). Section 7.11. Preferential Collection of Claims Against Company. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. -53- 61 Section 8.02. Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance") except for (i) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest and Liquidated Damages, if any, on such Notes when such payments are due from the trust referred to below, (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of this Indenture. For this purpose, Legal Defeasance means that the Company or the Guarantors shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest and Liquidated Damages, if any, on such Notes when such payments are due, (b) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. Section 8.03 Covenant Defeasance. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.03, 4.04, 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19 and 4.20 hereof, Article 5 hereof and Section 11.03 hereof with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(c) through 6.01(g) hereof and 6.01(j) hereof shall not constitute Events of Default. Section 8.04. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay -54- 62 the principal of, premium, if any, and interest and Liquidated Damages on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Section 6.01(h) or 6.01(i) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, the Senior Credit Facility or any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that on the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest and Liquidated Damages, if any, but such money need not be segregated from other funds except to the extent required by law. -55- 63 The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.06. Repayment to Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest and Liquidated Damages, if any, on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest and Liquidated Damages, if any, has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a secured creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 8.07. Reinstatement. If the Trustee or Paying Agent is unable to apply any U.S. dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest and Liquidated Damages, if any, on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01. Without Consent of Holders of Notes. Notwithstanding Section 9.02 hereof, the Company and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; -56- 64 (c) to provide for the assumption of the Company's obligations to the Holders of the Notes in the case of a merger, consolidation or sale of assets of the Company pursuant to Article 5 hereof or of any Guarantor pursuant to Article 11 hereof or to add any Person as a Guarantor hereunder; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Note; or (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties, liabilities or immunities under this Indenture or otherwise. Section 9.02. With Consent of Holders of Notes. Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including Sections 3.09, 4.10 and 4.15 hereof) and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a tender offer or exchange offer for the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest and Liquidated Damages, if any, on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Without the consent of at least 75% in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for such Notes), no waiver or amendment to this Indenture may make any change in the provisions of Section 4.20 hereof or Article 10 hereof that adversely affects the rights of any Holder of Notes. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by a Responsible Officer of the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture affects the Trustee's own rights, duties, liabilities or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a nonconsenting Holder): -57- 65 (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver of any provision of this Indenture, the Notes or any Subsidiary Guarantee; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive in any manner that adversely affects the rights of any Holder of Notes any of the provisions with respect to the redemption of the Notes except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof and the related definitions; (c) reduce the rate of or change the time for payment of interest, including default interest, or Liquidated Damages, if any, on any Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest and Liquidated Damages, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; (f) make any change that adversely affects the rights of any Holder of Notes in the provisions of this Indenture relating to waivers of past Defaults or make any change to the rights of Holders of Notes to receive payments of principal of or interest and Liquidated Damages, if any, on the Notes; (g) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions; or (h) waive a redemption payment with respect to any Note (other than a payment required by Sections 3.09, 4.10 and 4.15 hereof). Section 9.03. Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. Section 9.04. Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.05. Notation on or Exchange of Notes. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company, in exchange for all Notes, may issue and the Trustee shall authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. Section 9.06. Trustee to Sign Amendments, Etc. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The -58- 66 Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties, liabilities or immunities under this Indenture or otherwise. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. ARTICLE 10 SUBORDINATION Section 10.01. Agreement to Subordinate. The Company agrees, and each Holder by accepting a Note agrees, that the payment of principal of, premium, if any, and interest and Liquidated Damages, if any, on the Notes is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full, in cash or Cash Equivalents, of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt. Section 10.02. Liquidation; Dissolution; Bankruptcy. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, in an assignment for the benefit of creditors or any marshaling of the Company's assets and liabilities: (1) the holders of Senior Debt shall be entitled to receive payment in full, in cash or Cash Equivalents, of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt (whether or not an allowable claim)) before Holders of the Notes shall be entitled to receive any payment with respect to the Notes (except that Holders may receive and retain (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Article 8 hereof; provided that at the tie of its creation such trust does not violate the Senior Credit Facility); and (2) until all Obligations with respect to Senior Debt (as provided in subsection (1) above) are paid in full, in cash or Cash Equivalents, any distribution to which Holders would be entitled but for this Article 10 shall be made to the holders of Senior Debt (except that Holders of Notes may receive and retain (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Article 8 hereof; provided that at the tie of its creation such trust does not violate the Senior Credit Facility), as their interests may appear. Section 10.03. Default on Designated Senior Debt. The Company may not make any payment upon or in respect of or distribution to the Trustee or any Holder in respect of Obligations with respect to the Notes and may not acquire from the Trustee or any Holder any Notes for cash or property (other than (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Article 8 hereof; provided that at the tie of its creation such trust does not violate the Senior Credit Facility) until all principal and other Obligations with respect to the Senior Debt have been paid in full in cash or Cash Equivalents if: (i) a default in the payment of the principal of, premium, if any, or interest and Liquidated Damages, if any, on Designated Senior Debt occurs and is continuing beyond any applicable grace period in the agreement, indenture or other document governing such Designated Senior Debt; or (ii) a default, other than a payment default, on Designated Senior Debt occurs and is continuing that then permits holders of the Designated Senior Debt as to which such default relates to -59- 67 accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from a Person who may give it pursuant to Section 10.10 hereof, which notice states it is a Payment Blockage Notice under this Indenture. The Company may and shall resume payments on and distributions in respect of the Notes and may acquire them upon: (1) in the case of a payment default, the date on which the default is cured or waived, and (2) in the case of a default referred to in Section 10.03(ii) hereof, the earlier of (a) the date on which such nonpayment default is cured or (b) 179 days after notice is received if the maturity of such Designated Senior Debt has not been accelerated, if this Article 10 otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. If the Trustee receives any such Payment Blockage Notice, no subsequent Payment Blockage Notice shall commence or be effective for purposes of this Section unless and until (i) 360 days shall have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (ii) all scheduled payments of principal, premium, if any, and interest and Liquidated Damages, if any, on the Notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been waived for a period of not less than 90 days. Section 10.04. Acceleration of Notes. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. Section 10.05. Notice by Company. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 10, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article 10. Section 10.06. Subrogation. After all Senior Debt is paid in full in cash or Cash Equivalents and until the Notes are paid in full, Holders of Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders of Notes have been applied to the payment of Senior Debt. A distribution made under this Article 10 to holders of Senior Debt that otherwise would have been made to Holders of Notes is not, as between the Company and Holders, a payment by the Company on the Notes. Section 10.07. Relative Rights. This Article 10 defines the relative rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture shall: (1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest and Liquidated Damages, if any, on the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt; or -60- 68 (3) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article 10 to pay principal of or interest and Liquidated Damages, if any, on a Note on the due date, the failure after any applicable grace period has elapsed is still a Default or Event of Default. Section 10.08. Subordination May Not Be Impaired by Company. No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. Section 10.09. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of any Senior Debt, the distribution may be made and the notice given to the Representative of such Senior Debt. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. Section 10.10. Rights of Trustee and Paying Agent. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless a Responsible Officer of the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article 10. Only the Company or a Representative of the holders of any Designated Senior Debt may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. Section 10.11. Authorization to Effect Subordination. Each Holder of Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the Representative is hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. Section 10.12. Amendments. The provisions of this Article 10 shall not be amended or modified without the written consent of the respective Representatives under the Senior Credit Facility and all other Designated Senior Debt. -61- 69 Section 10.13. Continued Effectiveness. The terms of this Indenture, the subordination effected hereby, and the rights and other obligations of the Holders of the Notes of the holders of Senior Debt arising hereunder, shall not be affected, modified or impaired in any manner or to any extent by: (i) any amendment or modification of or supplement to any Credit Facility (to the extent not prohibited by this Indenture); (ii) the validity and enforceability of any of such documents; or (iii) any exercise or non-exercise of any right, power or remedy under or in respect of the Senior Debt or the Obligations evidenced by the Notes or any of the instruments or documents referred to in clause (i) above. Each Holder of Notes hereby acknowledges that the provisions of this Indenture are intended to be enforceable at all times, whether before the commencement of, in connection with or premised on the occurrence of a Proceeding. Section 10.14. Cumulative Rights; No Waivers. Subject to Section 10.13 hereof, each and every right, remedy and power granted to any Representative of any Senior Debt hereunder shall be cumulative and in addition to any other right, remedy or power specifically granted herein, in the related Senior Debt or now or hereafter existing in equity, at law, by virtue of statute or otherwise, and may be exercised by any Representative of any Senior Debt or the holders of any Senior Debt, from time to time, concurrently or independently and as often and in such order as such any Representative or the holders of Senior Debt may deem expedient (subject to the limits provided in Section 10.03 hereof with respect to payment blockages). Any failure or delay on the part of any Representative of Senior Debt or the holders of Senior Debt in exercising any such right, remedy or power, or abandonment or discontinuance of steps to enforce the same, shall not operate as a waiver thereof or affect the rights of such any Representative or the holders of Senior Debt thereafter to exercise the same, and any single or partial exercise of any such right, remedy or power shall not preclude any other or further exercise thereof or the exercise of any other right, remedy or power, and no such failure, delay, abandonment or single or partial exercise of the rights of any Representative of Senior Debt or the holders of Senior Debt hereunder shall be deemed to establish a custom or course of dealing or performance among the parties hereto. Section 10.15. Trustee. Any Representative of Senior Debt shall be entitled to send any notices required or permitted to be delivered to the Holders of the Notes to the Trustee on behalf of such holders and any such notice so delivered to the Trustee shall be deemed to have been delivered to all Holders of Notes. ARTICLE 11 GUARANTEES Section 11.01. Subsidiary Guarantees. Subject to Section 11.05 hereof, each of the Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, the Notes and the Obligations of the Company hereunder and thereunder, that: (a) the principal of, premium, if any, interest and Liquidated Damages, if any, on the Notes will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal, premium, if any (to the extent permitted by law), interest on any interest, if any, and Liquidated Damages, if any, on the Notes, and all other payment Obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full and performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other Obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration, redemption or otherwise. Failing payment when so due of any amount so guaranteed or any performance so guaranteed for whatever reason the Guarantors will be jointly and severally obligated to pay the same immediately. An Event of Default under this Indenture or the Notes shall constitute an event of default under the Subsidiary Guarantees, and shall entitle the Holders to accelerate the Obligations of the Guarantors hereunder in the same manner and to the same extent as the Obligations of the Company. The Guarantors hereby agree that their Obligations hereunder shall be unconditional, irrespective of the validity or -62- 70 enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Subsidiary Guarantee will not be discharged except by complete performance of the Obligations contained in the Notes and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any Note Custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by the Company or any Guarantor to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that it shall not be entitled to, and hereby waives, any right to exercise any right of subrogation in relation to the Holders in respect of any Obligations guaranteed hereby, except as provided under Section 11.05 hereof. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of its Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed thereby, and (y) in the event of any declaration of acceleration of such Obligations as provided in Article 6 hereof, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantor for the purpose of its Subsidiary Guarantee. The Guarantors shall have the right to seek contribution from any non-paying Guarantor pursuant to Section 11.05 after the Notes and the Obligations hereunder shall have been paid in full of the Holders under the Subsidiary Guarantees. Section 11.02. Execution and Delivery of Subsidiary Guarantee. To evidence its Subsidiary Guarantee set forth in Section 11.01 hereof, each Guarantor hereby agrees that a notation of such Subsidiary Guarantee substantially in the form of Exhibit E hereto shall be endorsed by manual or facsimile signature by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture shall be executed on behalf of such Guarantor, by manual or facsimile signature, by an Officer of such Guarantor. Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in Section 11.01 hereof shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee. If an officer whose signature is on this Indenture or on the Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth in this Indenture on behalf of the Guarantors. Section 11.03. Guarantors May Consolidate, Etc., on Certain Terms. (a) Except as set forth in Articles 4 and 5 hereof, nothing contained in this Indenture shall prohibit a merger between a Guarantor and another Guarantor or a merger between a Guarantor and the Company. (b) No Guarantor shall consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) or sell all or substantially all of its assets to, another corporation, Person or entity whether or not affiliated with such Guarantor unless, subject to the following paragraph, the Person formed by or surviving any such merger or consolidation, or to which such sale of assets shall have been made (if other than such Guarantor) assumes all the Obligations of such Guarantor, pursuant to a supplemental indenture substantially in the form of Exhibit F hereto, under this Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; (iii) such Guarantor, or any Person formed by or surviving any such consolidation or merger, would have Consolidated Net Worth (immediately after giving effect to such transaction) equal to or greater than the Consolidated Net Worth of such Guarantor immediately preceding the transaction; and (iv) except in the case of the merger of a -63- 71 Guarantor with or into another Guarantor or the Company, the Company would be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such transaction, to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof. Notwithstanding the foregoing paragraph, (i) any Guarantor may consolidate with, merger into or transfer all or a part of its properties and assets to the Company or any other Guarantor and (ii) any Guarantor may merge with a Wholly Owned Subsidiary of the Company that has no significant assets or liabilities and was incorporated solely for purpose of reincorporating such Guarantor in another State of the United States; provided that such merged entity continues to be a Guarantor. (c) In the case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and substantially in the form of Exhibit F hereto, of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor Person shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All of the Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof. Section 11.04. Releases Following Release Under All Indebtedness or Sale of Assets. In the event of (i) the release by the lenders under all Indebtedness of the Company of all guarantees of a Guarantor and all Liens on the property and assets of such Guarantor relating to such Indebtedness, or (ii) a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor in compliance with the Indenture to any entity that is not the Company or a Subsidiary, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the capital stock of such Guarantor), or the Person acquiring the property (in the event of such a sale or other disposition of all of the assets of such Guarantor), will be released and relieved of any obligations under its Subsidiary Guarantee; provided, however, that any such termination shall occur only to the extent that all obligations of such Guarantor under such Indebtedness and all of its guarantees of, and under all of its pledges of assets or other security interests which secure, Indebtedness of the Company shall also terminate upon such release, sale or transfer and, in the event of any sale or other disposition, that the Net Proceeds of such sale or other disposition are applied in accordance with Section 4.10 hereof. Upon delivery by the Company to the Trustee of an Officers' Certificate to the effect of the foregoing, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its Obligation under its Subsidiary Guarantee. Any Guarantor not released from its Obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of, premium, if any, interest and Liquidated Damages, if any, on the Notes and for the other Obligations of such Guarantor under this Indenture as provided in this Article 11. Section 11.05. Limitation on Guarantor Liability; Contribution. For purposes hereof, each Guarantor's liability shall be limited to the lesser of (i) the aggregate amount of the Obligations of the Company under the Notes and this Indenture and (ii) the amount, if any, which would not have (A) rendered such Guarantor "insolvent" (as such term is defined in the Bankruptcy Code and in the Debtor and Creditor Law of the State of New York) or (B) left such Guarantor with unreasonably small capital at the time its Subsidiary Guarantee of the Notes was entered into; provided that, it will be a presumption in any lawsuit or other proceeding in which a Guarantor is a party that the amount guaranteed pursuant to the Subsidiary Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of such Guarantor, or debtor in possession or trustee in bankruptcy of the Guarantor, otherwise proves in such a lawsuit that the aggregate liability of the Guarantor is the amount set forth in clause (ii) above. In making any determination as to solvency or sufficiency of capital of a Guarantor in accordance with the previous sentence, the right of such Guarantor to contribution from other Guarantors as set forth below, and any other rights such Guarantor may have, contractual or otherwise, shall be taken into account. -64- 72 In order to provide for just and equitable contribution among the Guarantors, the Guarantors agree, inter se, that in the event any payment or distribution is made by any Guarantor (a "Funding Guarantor") under its Subsidiary Guarantee, such Funding Guarantor shall be entitled to a contribution from all other Guarantors in a pro rata amount based on the Adjusted Net Assets of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Company's obligations with respect to the Notes or any other Guarantor's Obligations with respect to its Subsidiary Guarantee. Section 11.06. Trustee to Include Paying Agent. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article 11 shall in each case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully and for all intents and purposes as if such Paying Agent were named in this Article 11 in place of the Trustee. Section 11.07. Subordination of Subsidiary Guarantee. The obligations of each Guarantor under its Subsidiary Guarantee pursuant to this Article 11 shall be junior and subordinated to the prior payment in full of all Senior Debt of such Guarantor, and the amounts for which the Guarantors will be liable under the guarantees issued from time to time with respect to Senior Debt, on the same basis as the Notes are junior and subordinated to Senior Debt. For the purposes of the foregoing sentence, the Trustee and the Holders of Notes shall have the right to receive and/or retain payments by any of the Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including Article 10 hereof. Each Holder of a Note by its acceptance thereof (a) agrees to and shall be bound by the provisions of this Section 11.07, (b) authorizes and directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee its attorney-in-fact for any and all such purposes. Consistent with the subordination of the Subsidiary Guarantees, for purposes of any applicable fraudulent transfer or similar laws, Indebtedness incurred under any Credit Facility will be deemed to have been incurred prior to the incurrence by any Guarantor of its liability under its Subsidiary Guarantee. ARTICLE 12 MISCELLANEOUS Section 12.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. Section 12.02. Notices. Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company: Imperial Holly Corporation One Imperial Square, Suite 200 8016 Highway 90-A Sugar Land, Texas 77478 Telecopier No.: (281) 490-9895 Attention: Secretary -65- 73 If to the Trustee: The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Telecopier No.: 212-815-5915 Attention: Corporate Trust Trustee Administration The Company or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back ; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 12.03. Communication by Holders of Notes with Other Holders of Notes. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). Section 12.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. Section 12.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: -66- 74 (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. Section 12.06. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders. No past, present or future director, officer, employee, incorporator, partner, member or stockholder of the Company or any Guarantor, or of any member, partner or stockholder of any such entity, as such, shall have any liability for any obligations of the Company under the Notes, this Indenture or the Guarantors, under the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Section 12.08. Governing Law. THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF, SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES. Section 12.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 12.10. Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. Section 12.11. Severability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 12.12. Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 12.13. Table of Contents, Headings, Etc. -67- 75 The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures Page(s) Follow] -68- 76 SIGNATURES Dated as of December 22, 1997 Issuer: IMPERIAL HOLLY CORPORATION By: ------------------------------------------------ Name: Title: Guarantors: SAVANNAH FOODS & INDUSTRIES, INC. By: ------------------------------------------------ Name: Title: BIOMASS CORPORATION By: ------------------------------------------------ Name: Title: DIXIE CRYSTALS BRANDS, INC. By: ------------------------------------------------ Name: Title: -69- 77 DIXIE CRYSTALS FOODSERVICE, INC. By: ----------------------------------------------- Name: Title: KING PACKAGING COMPANY, INC. By: ----------------------------------------------- Name: Title: FOOD CARRIER, INC. By: ----------------------------------------------- Name: Title: MICHIGAN SUGAR COMPANY By: ---------------------------------------------- Name: Title: GREAT LAKES SUGAR COMPANY By: ---------------------------------------------- Name: Title: -70- 78 SAVANNAH FOODS INDUSTRIAL, INC. By: --------------------------------------------- Name: Title: PHOENIX PACKAGING CORPORATION By: --------------------------------------------- Name: Title: SAVANNAH INVESTMENT COMPANY By: --------------------------------------------- Name: Title: SAVANNAH SUGAR REFINING CORPORATION By: --------------------------------------------- Name: Title: HOLLY SUGAR CORPORATION By: --------------------------------------------- Name: Title: -71- 79 IMPERIAL SWEETENER DISTRIBUTORS, INC. By: ----------------------------------------------- Name: Title: FORT BEND UTILITIES, COMPANY By: ----------------------------------------------- Name: Title: LIMESTONE PRODUCTS COMPANY By: ----------------------------------------------- Name: Title: HOLLY NORTHWEST COMPANY By: ----------------------------------------------- Name: Title: CROWN EXPRESS INC. By: ----------------------------------------------- Name: Title: -72- 80 Trustee: THE BANK OF NEW YORK By: ----------------------------------------------- Name: Title: -73- 81 EXHIBIT A-1 (Face of Note) ================================================================================ CUSIP/CINS --------- 9 3/4% Senior Subordinated Notes due 2007 No. ------ $ ------ IMPERIAL HOLLY CORPORATION promises to pay to -------------------- or registered assigns, the principal sum of ------------------------- Dollars on December 15, 2007. Interest Payment Dates: June 15 and December 15 Record Dates: June 1 and December 1 IMPERIAL HOLLY CORPORATION By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: This is one of the [Global] Notes referred to in the within-mentioned Indenture: THE BANK OF NEW YORK as Trustee By: Dated: ------------------------------- -------------------------- ================================================================================ A1-1 82 (Back of Note) 9 3/4% Senior Subordinated Notes due 2007 [Insert the Global Note Legend, if applicable, pursuant to the provisions of the Indenture] [Insert the Private Placement Legend, if applicable, pursuant to the provisions of the Indenture] Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. Interest. Imperial Holly Corporation, a Texas corporation (the "Company"), promises to pay interest on the principal amount of this Note at 9 3/4% per annum, from December 15, 1997 until maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages semi-annually in arrears on June 15 and December 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be June 15, 1998. The Company shall pay interest (including post-petition interest in any proceeding under the Bankruptcy Code) on overdue principal and premium, if any, from time to time on demand at the rateborne on the Notes; it shall pay interest (including post-petition interest in any proceeding under the Bankruptcy Code) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the June 1 or December 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or agency of the Company maintained for such purpose within the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. Paying Agent and Registrar. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. Indenture, Subordination. The Company issued the Notes under an Indenture dated as of December 22, 1997 ("Indenture") between the Company, Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are obligations of the Company limited to $350,000,000 in aggregate principal amount, $250,000,000 of which will be issued in the Offering. The Notes are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Senior Debt, whether Outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. The Subsidiary Guarantees in respect of the Notes will be subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Senior Debt of each Guarantor, whether outstanding on the date of A1-2 83 the Indenture or thereafter created, incurred assumed or guaranteed. Each Holder by its acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on its behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee its attorney-in-fact for such purposes. 5. Optional Redemption. (a) Except as set forth in subparagraph (b) of this paragraph 5 and paragraph 8 below, the Notes shall not be redeemable at the Company's option prior to December 15, 2002. Thereafter, the Notes will be subject to redemption at any time at the option of the Company in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on December 15 of the years indicated below: YEAR PERCENTAGE 2002 . . . . . . . . . . . . . . . . 104.875% 2003 . . . . . . . . . . . . . . . . 103.250% 2004 . . . . . . . . . . . . . . . . 101.625% 2005 and thereafter . . . . . . . . . 100.000% (b) Notwithstanding the foregoing, at any time prior to December 15, 2000, the Company may on any one or more occasions redeem an aggregate of up to 35% of the original aggregate principal amount of Notes at a redemption price of 109.75% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date, with the net cash proceeds of any Equity Offering; provided that at least 65% of the original aggregate principal amount of Notes originally issued on the Issue Date remain outstanding immediately after each occurrence of such redemption; and provided, further, that each such redemption shall occur within 60 days of the date of the closing of such Equity Offering. 6. Mandatory Redemption. Except as set forth in paragraphs 7 and 8 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. Repurchase at Option of Holder. (a) Upon the occurrence of a Change of Control, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as by the Indenture. (b) If the Company or a Restricted Subsidiary consummates any Asset Sales and the aggregate amount of Excess Proceeds exceeds $10,000,000, the Company shall commence an offer to all Holders of Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture (after complying with any applicable asset sale offer requirements of any Senior Debt and pro rata in proportion to outstanding Indebtedness that is pari passu with the Notes that require asset sale offers) to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Restricted Subsidiary) may use such deficiency for general corporate purposes including payment of Subordinated Obligations. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. A1-3 84 8. Special Redemption. If the Merger has not been consummated prior to the Special Redemption Date, all outstanding Notes shall be redeemed by the Company on the Special Redemption Date at a redemption price equal to 101% of the principal thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption. The Company may redeem all outstanding Notes at any time on or prior to the Special Redemption Date if the Merger has not been consummated, and the Company believes in good faith that the consummation of the Merger prior to the Special Redemption Date is not reasonably possible, on terms and conditions at least as favorable to the Company, considered as a whole, as the terms and conditions described in the Offering Memorandum, on or prior to such date at a redemption price equal to 101% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption. 9. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 10. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 11. Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes. 12. Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation or to add any Person as a Guarantor, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA. 13. Defaults and Remedies. Events of Default include: (a) default in the payment when due of interest on, or Liquidated Damages with respect to, the Notes and such default continues for a period of 30 days (whether or not prohibited by Article 10 of the Indenture); (b) default in the payment when due of principal of or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise (whether or not prohibited by Article 10 of the Indenture); (c) failure by the Company to comply with any of the provisions of Section 5.01 of the Indenture; (d) failure by the Company or any of its Restricted Subsidiaries to comply with any of the provisions of Section 4.07, 4.09, 4.10 or 4.15 of the Indenture; (e) failure by the Company or any of its Restricted Subsidiaries to observe or perform any other covenant, representation, warranty or other agreement in the Indenture or the Notes for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding; (f) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the Issue Date (a) is caused by a failure to pay principal of such Indebtedness at final maturity prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates without duplication $10,000,000 or more and such default shall not have been cured or acceleration rescinded within five A1-4 85 Business Days after such occurrences; (g) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Significant Subsidiaries and such judgment or judgments remain unpaid or undischarged for a period (during which execution shall not be effectively stayed) of 60 days, provided that the aggregate of all such unpaid or undischarged judgments exceeds $5,000,000 (excluding amounts covered by insurance); (h) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries; or (i) except as permitted in the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 14. Trustee Dealings with Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 15. No Recourse Against Others. A director, officer, employee, incorporator, partner, member or stockholder, of the Company or any Subsidiary of the Company or any Guarantor, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 16. Authentication. This Note shall not be valid until authenticated by the manual signature of a Responsible Officer of the Trustee or an authenticating agent. 17. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 18. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement dated as of December 22, 1997, between the Company and the parties named on the signature pages thereof (the "Registration Rights Agreement"). 19. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. A1-5 86 The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Imperial Holly Corporation One Imperial Square, Suite 200 8016 Highway 90-A Sugar Land, Texas 77478 Telecopier No.: (281) 490-9895 Attention: Secretary A1-6 87 Assignment Form To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - ------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint -------------------------------------------------------- to transfer this Note on the books of the Company. The agent may substitute another to act for him. - ------------------------------------------------------------------------------- Date: ------------------ Your Signature: ---------------------------- (Sign exactly as your name appears on the face of this Note) SIGNATURE GUARANTEE ------------------------------------------- Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A1-7 88 Opinion of Holder to Elect Purchase If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $ ----------- Date: -------------- Your Signature: --------------------------- (Sign exactly as your name appears on the face of the Note) Tax Identification No.: ------------------- SIGNATURE GUARANTEE ------------------------------------------------ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A1-8 89 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE* The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
Principal Amount of Signature of Amount of increase this Global Note authorized Amount of decrease in following such signatory of in Principal Amount Principal Amount of decrease Trustee or Note Date of Exchange of this Global Note this Global Note (or increase) Custodian - -------------------------------------------------------------------------------------------------------------
- ------------------------------------------ This should be included only if the Note is issued in global form. A1-9 90 EXHIBIT A-2 (Face of Regulation S Temporary Global Note) =============================================================================== CUSIP/CINS ---------- 9 3/4% Senior Subordinated Notes due 2007 No. -------- $ ---------- IMPERIAL HOLLY CORPORATION promises to pay to ------------------- or registered assigns, the principal sum of ------------------------- Dollars on December 15, 2007. Interest Payment Dates: June 15 and December 15 Record Dates: June 1 and December 1 IMPERIAL HOLLY CORPORATION By: -------------------------------------- Name: Title: By: -------------------------------------- Name: Title: This is one of the [Global] Notes referred to in the within-mentioned Indenture: BANK OF NEW YORK as Trustee By: Dated: ------------------------------- -------------------- ================================================================================ A2-1 91 (Back of Regulation S Temporary Global Note) 9 3/4% Senior Subordinated Notes due 2007 THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE NOTE EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION PROVIDED BY RULE 144A UNDER THE SECURITIES ACT. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (1) ABOVE. Capitalized terms used herein shall have the meanings assigned to them in the indenture referred to below unless otherwise indicated. 1. Interest. Imperial Holly Corporation, a Texas corporation (the "Company"), promises to pay interest on the principal amount of this Note at 9 3/4% per annum from December 15, 1997 until maturity and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages semi-annually in arrears on June 15 and December 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note A2-2 92 is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be June 15, 1998. The Company shall pay interest (including postpetition interest in any proceeding under the Bankruptcy Code) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under the Bankruptcy Code) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Until this Regulation S Temporary Global Note is exchanged for one or more Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Notes under the Indenture. 2. Method of Payment. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on the June 1 or December 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or agency of the Company maintained for such purpose within the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. Paying Agent and Registrar. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. 4. Indenture; Subordination. The Company issued the Notes under an Indenture dated as of December 22, 1997 ("Indenture") between the Company, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are obligations of the Company limited to $350,000,000 in aggregate principal amount, $250,000,000 of which will be issued in the Offering. The Notes are subordinated in right of payment, in the manner and to the extend set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Senior Debt, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. The Subsidiary Guarantees in respect of the Notes will be subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Senior Debt of each Guarantor, whether outstanding on the date of the Indenture or thereafter created, incurred assumed or guaranteed. Each Holder by its acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on its behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee its attorney-in-fact for such purposes. 5. Optional Redemption. (a) Except as set forth in subparagraph (b) of this paragraph 5 and paragraph 8 below, the Notes shall not be redeemable at the Company's option prior to December 15, 2002. Thereafter, the Notes will be subject to redemption at any time at the option of the Company in whole or in part, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the A2-3 93 applicable redemption date, if redeemed during the twelve-month period beginning on December 15 of the years indicated below:
YEAR PERCENTAGE 2002 . . . . . . . . . . . . . 104.875% 2003 . . . . . . . . . . . . . 103.250% 2004/ . . . . . . . . . . . . . 101.625% 2005 and thereafter . . . . . . 100.000%
(b) Notwithstanding the foregoing, at any time prior to December 15, 2000, the Company may on any one or more occasions redeem an aggregate of up to 35% of the original aggregate principal amount of Notes at a redemption price of 109.75% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the redemption date, with the net cash proceeds of any Equity Offering; provided that at least 65% of the original aggregate principal amount of Notes originally issued on the Issue Date remain outstanding immediately after each occurrence of such redemption; and provided, further, that each such redemption shall occur within 60 days of the date of the closing of such Equity Offering. 6. Mandatory Redemption. Except as set forth in paragraphs 7 and 8 below, the Company shall not be required to make mandatory redemption payments with respect to the Notes. 7. Repurchase at Option of Holder. (a) Upon the occurrence of a Change of Control, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company shall mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as by the Indenture. (b) If the Company or a Restricted Subsidiary consummates any Asset Sales and the aggregate amount of Excess Proceeds exceeds $10,000,000, the Company shall commence an offer to all Holders of Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture (after complying with any applicable asset sale offer requirements of any Senior Debt and pro rata in proportion to outstanding Indebtedness that is pari passu with the Notes that require asset sales offers) to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Restricted Subsidiary) may use such deficiency for general corporate purposes including payment of Subordinated Obligations. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. Special Redemption. If the Merger has not been consummated prior to the Special Redemption Date, all outstanding Notes shall be redeemed by the Company on the Special Redemption Date at a redemption price equal to 101% of the principal thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption. The Company may redeem all outstanding Notes at any time on or prior to the Special Redemption Date if the Merger has not been consummated, and the Company believes in good faith that the consummation of the Merger prior to the Special Redemption Date is not reasonably possible on terms and conditions at least as favorable to the Company, considered as a whole, as the terms and conditions described in the Offering Memorandum, on or prior to A2-4 94 such date at a redemption price equal to 101% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption. 9. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date (other than in connection with a Special Redemption) to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 10. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. This Regulation S Temporary Global Note is exchangeable in whole or in part for one or more Global Notes only (i) on or after the termination of the 40-day restricted period (as defined in Regulation S) and (ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary Global Note for one or more Global Notes, the Trustee shall cancel this Regulation S Temporary Global Note. 11. Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes. 12. Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes. Without the consent of any Holder of a Note, the Indenture or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of the Notes in case of a merger or consolidation or to add any Person as a Guarantor, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA. 13. Defaults and Remedies. Events of Default include: (a) default in the payment when due of interest on, or Liquidated Damages with respect to, the Notes and such default continues for a period of 30 days (whether or not prohibited by Article 10 of the Indenture); (b) default in the payment when due of principal of or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise (whether or not prohibited by Article 10 of the Indenture); (c) failure by the Company to comply with any of the provisions of Section 5.01 of the Indenture; (d) failure by the Company or any of its Restricted Subsidiaries to comply with any of the provisions of Sections 4.07, 4.09, 4.10 or 4.15 of the Indenture; (e) failure by the Company or any of its Restricted Subsidiaries to observe or perform any other covenant, representation, warranty or other agreement in the Indenture or the Notes for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding; (f) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the Issue Date (a) is caused by a failure to pay principal of such Indebtedness at final maturity prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under A2-5 95 which there has been a Payment Default or the maturity of which has been so accelerated, aggregates without duplication $10,000,000 or more and such default shall not have been cured or acceleration rescinded within five Business Days after such occurrences; (g) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Significant Subsidiaries and such judgment or judgments remain undischarged for a period (during which execution shall not be effectively stayed) of 60 days, provided that the aggregate of all such unpaid or undischarged judgments exceeds $5,000,000 (excluding amounts covered by insurance); (h) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries; or (i) except as permitted in the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 14. Trustee Dealings with Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 15. No Recourse Against Others. A director, officer, employee, incorporator, partner, member or stockholder, of the Company or any Subsidiary of the Company or any Guarantor, as such, shall not have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 16. Authentication. This Note shall not be valid until authenticated by the manual signature of a Responsible Officer of the Trustee or an authenticating agent. 17. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 18. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement dated as of December 22, 1997, between the Company and the parties named on the signature pages thereof (the "Registration Rights Agreement"). 19. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. A2-6 96 The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Imperial Holly Corporation One Imperial Square, Suite 200 8016 Highway 90-A Sugar Land, Texas 77478. Telecopier No.: (281) 490-9895 Attention: Secretary A2-7 97 Assignment Form To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint _______________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. _______________________________________________________________________________ Date: -------------- Your Signature: ----------------------------------- (Sign exactly as your name appears on the face of this Note) SIGNATURE GUARANTEE ___________________________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A2-8 98 Opinion of Holder to Elect Purchase If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $__________ Date: ---------------------- Your Signature: ----------------------------- (Sign exactly as your name appears on the face of the Note) Tax Identification No.: --------------------- SIGNATURE GUARANTEE ---------------------------------------------- Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A2-9 99 SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE The following exchanges of a part of this Regulation S Temporary Global Note for an interest in another Global Note, or of other Restricted Global Notes for an interest in this Regulation S Temporary Global Note, have been made:
Principal Amount of Signature of Amount of increase this Global Note authorized Amount of decrease in following such signatory of in Principal Amount Principal Amount of decrease Trustee or Note Date of Exchange of this Global Note this Global Note (or increase) Custodian - ------------------------------------------------------------------------------------------------------------
A2-10 100 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Imperial Holly Corporation One Imperial Square, Suite 200 8016 Highway 90-A Sugar Land, Texas 77478 Attention: Secretary The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 1028 6 Attention: Corporate Trust Trustee Administration Re: 9 3/4% Senior Subordinated Notes due 2007 Reference is hereby made to the Indenture, dated as of December 22, 1997 (the "Indenture"), between Imperial Holly Corporation, as issuer (the "Company"), the Company's subsidiaries listed on the signature pages thereof (collectively, as the "Guarantors") and The Bank of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ____________________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such in such Note[s] specified in Annex A hereto, in the principal amount of $__________ in such Note[s] or interests (the "Transfer"), to ____________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act and (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Restricted B-1 101 Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note, the Temporary Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [ ] such Transfer is being effected to the Company or a subsidiary thereof; or (c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) [ ] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) if such Transfer is in respect of a principal amount of Notes at the time of transfer of less than $250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act. 4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE. (a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain B-2 102 compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. --------------------------------------- [Insert Name of Transferor] By: --------------------------------------- Name: Title: Dated: ----------------- B-3 103 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP __________), or (ii) [ ] Regulation S Global Note (CUSIP _________), or (iii) [ ] IAI Global Note (CUSIP __________); or (b) [ ] a Restricted Definitive Note. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP __________), or (ii) [ ] Regulation S Global Note (CUSIP __________), or (iii) [ ] IAI Global Note (CUSIP __________); or (iv) [ ] Unrestricted Global Note (CUSIP __________); or (b) [ ] a Restricted Definitive Note. (c) [ ] an Unrestricted Definitive Note, in accordance with the terms of the Indenture. B-4 104 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE Imperial Holly Corporation One Imperial Square, Suite 200 8016 Highway 90-A Sugar Land, Texas 77478 Attention: Secretary The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 1028 6 Attention: Corporate Trust Trustee Administration Re: 9 3/4% Senior Subordinated Notes due 2007 (CUSIP __________) Reference is hereby made to the Indenture, dated as of December 22, 1997 (the "Indenture"), between Imperial Holly Corporation as issuer (the "Company"), the Company's subsidiaries listed on the signature pages thereof (collectively, as the "Guarantors"), and The Bank of New York as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ____________________ (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $__________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. EXCHANGE OF RESTRICTED DERIVATIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for a beneficiary interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions C-1 105 applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE] [ ] 144A Global Note, [ ] Regulation S Global Note, [ ] IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. ----------------------------------------- [Insert Name of Owner) By: ----------------------------------------- Name: Title: Dated:_______________, _____ C-2 106 EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Imperial Holly Corporation One Imperial Square, Suite 200 8016 Highway 90-A Sugar Land, Texas 77478 Attention: Secretary The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Attention: Corporate Trust Trustee Administration Re: 9 3/4% Senior Subordinated Notes due 2007 Reference is hereby made to the Indenture, dated as of December 22, 1997 (the "Indenture"), between Imperial Holly Corporation, as issuer (the "Company"), the Company's subsidiaries listed on the signature pages thereof (collectively, as the "Guarantors") and The Bank of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $__________ aggregate principal amount of: (a) [ ] a beneficial interest in a Global Note, or (b) [ ] a Definitive Note, we confirm that: 1. we are an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the "Securities Act"), or an entity in which all of the equity owners are accredited investors within the meaning of Rule (501)(a)(1), (2), (3) or (7) under the Securities Act (an "institutional accredited investor"); 2. (i)(A) any purchase of the Notes by us will be for our own account or for the account of one or more other institutional accredited investors or as fiduciary for the account of one or more trusts, each of which is an "accredited investor" within the meaning of Rule 501(a)(7) under the Securities Act and for each of which we exercise sole investment discretion or (B) we are a "bank," within the meaning of Section 3(a)(2) of the Securities Act, or a "savings and loan association" or other institution described in Section 3(a)(5)(A) of the Securities Act that is acquiring Notes as fiduciary for the account of one or more institutions for which we exercise sole investment discretion; 3. in the event that we purchase any Notes, we will acquire Notes having a minimum purchase price of not less than $250,000 for our own account and for each separate account for which we are acting; 4. we have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of purchasing Notes; 5. we are not acquiring the Notes with a view to any distribution thereof in a transaction that would violate the Securities Act or the securities laws of any State of the United States or any other applicable jurisdictions, provided that the disposition of our property and the property of any accounts for which we are acting as fiduciary shall remain at all times within our control; D-1 107 6. we have received a copy of the Offering Memorandum relating to the offering of the Notes and acknowledge that we have had access to such financial and other information, and have been afforded the opportunity to ask such questions of representatives of the Company and receive answers thereto, as we deem necessary in connection with our decision to purchase the Notes; and 7. (vii)(a) we are not an employee benefit plan or other arrangement that is subject to the Employee Retirement Income Security Act of 1974, as amended, or Section 4975 of the Internal Revenue Code of 1986, as amended, or an entity whose underlying assets include assets of such a plan or arrangement (pursuant to 29 C.F.R. Section 2510.3-101 or otherwise), and we are not purchasing (and will not hold) the Notes on behalf of, or with the assets of, any such plan, arrangement or entity; or (b) our purchase and holding of the Notes are completely covered by the full exemptive relief provided by U.S. Department of Labor Prohibited Transaction Class Exemption 96-23, 95-60, 91-38, 90-1 or 84-14. We understand that the Notes are being offered in a transaction not involving any public offering with the United States within the meaning of the Securities Act and that the Notes have not been registered under the Securities Act, and we agree, on our own behalf, and on behalf of each account for which we acquire any Notes, that if in the future we decide to resell or otherwise transfer such Notes, such Notes may be resold or otherwise transferred only (i) to the Company or any subsidiary thereof, or (ii) inside the United States to a person who is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in a transaction meeting the requirements of Rule 144A, or (iii) inside the United States to an institutional accredited investor or a person that is not a U.S. Person that, prior to such transfer, furnishes to the trustee for such Notes a signed letter containing certain representations and agreements relating to the restrictions on transfer of such Notes (the form of which letter can be obtained from such trustee), or (iv) outside the United States in a transaction meeting the requirements of Rule 904 under the Securities Act, or (v) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if applicable) or in accordance with another exemption from the registration requirements of the Securities Act, or (vi) pursuant to an effective registration statement under the Securities Act and, in each case, in accordance with any applicable securities laws of any State or any other applicable jurisdiction and in accordance with the legends set forth on the Notes. We further agree to provide any person purchasing any of the Notes other than pursuant to clause (vi) above from us a notice advising such purchaser that resales of such securities are restricted as stated herein. We understand that the registrar and transfer agent for the Notes will not be required to accept for registration of transfer any Notes, except upon presentation of evidence satisfactory to the Company that the foregoing restrictions on transfer have been complied with. We further understand that any Notes will be in the form of definitive physical certificates and that such certificates will bear a legend reflecting the substance of this paragraph. THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or, official inquiry with respect to the matters covered hereby. -------------------------------------------- [Insert Name of Accredited Investor] By: ----------------------------------------- Name: Title: Dated: ---------------, ----- D-2 108 EXHIBIT E FORM OF SUBSIDIARY GUARANTEE Subject to Section 11.05 of the Indenture, each Guarantor hereby, jointly and severally, unconditionally guarantees on a senior subordinated basis to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, the Notes and the Obligations of the Company under the Notes or under the Indenture, that: (a) the principal of, premium, if any, interest and Liquidated Damages, if any, on the Notes will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration, redemption or otherwise, and interest on overdue principal, premium, if any, (to the extent permitted by law) interest on any interest, if any, and Liquidated Damages, if any, on the Notes and all other payment Obligations of the Company to the Holders or the Trustee under the Indenture or under the Notes will be promptly paid in full and performed, all in accordance with the terms thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other payment Obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration, redemption or otherwise. Failing payment when so due of any amount so guaranteed or any performance so guaranteed for whatever reason. the Guarantors will be jointly and severally obligated to pay the same immediately. The obligations of the Guarantors to the Holders and to the Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture, and reference is hereby made to such Indenture for the precise terms of this Subsidiary Guarantee. The terms of Article 11 of the Indenture are incorporated herein by reference. This Subsidiary Guarantee is subject to release as and to the extent provided in Section 11.04 of the Indenture. The obligations of each Guarantor to the Holders and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly subordinated in right of payment to the prior payment in full in cash or Cash Equivalents of all Senior Debt of such Guarantor, to the extent and in the manner set forth in the Indenture. This is a continuing Subsidiary Guarantee and shall remain in full force and effect and shall be binding upon each Guarantor and its respective successors and assigns to the extent set forth in the Indenture until full and final payment of all of the Company's Obligations under the Notes and the Indenture and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This is a Subsidiary Guarantee of payment and not a guarantee of collection. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Subsidiary Guarantee will not be discharged except by complete performance of the Obligations contained in the Notes and the Indenture. This Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Subsidiary Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. For purposes hereof, each Guarantor's liability shall be limited to the lesser of (i) the aggregate amount of the Obligations of the Company under the Notes and the Indenture and (ii) the amount, if any, which would not have (A) rendered such Guarantor "insolvent" (as such term is defined in the Bankruptcy Code and in the Debtor and Creditor Law of the State of New York) or (B) left such Guarantor with unreasonably small capital at the time its Subsidiary Guarantee of the Notes was entered into; provided that, it will be a presumption in any lawsuit or other proceeding in which a Guarantor is a party that the amount guaranteed pursuant to the Subsidiary Guarantee is the amount set forth in clause (i) above unless any creditor, or representative of creditors of such Guarantor, or debtor in possession or trustee in bankruptcy of such Guarantor, or proves in such a lawsuit that the aggregate liability of the Guarantor is limited to the amount set forth in clause (ii) above. The Indenture provides that, in making any determination as to the solvency or sufficiency of capital of a Guarantor in accordance with the previous sentence, the right of such Guarantors to E-1 109 contribution from other Guarantors as set forth in the Indentures and any other rights such Guarantors may have, contractual or otherwise, shall be taken into account. Capitalized terms used herein have the same meanings given in the Indenture unless otherwise indicated. Dated: [NEW GUARANTOR] By: -------------------------------------------- Name: Title: By: -------------------------------------------- Name: Title: By: -------------------------------------------- Name: Title: By: -------------------------------------------- Name: Title: E-2 110 EXHIBIT F FORM OF SUPPLEMENTAL INDENTURE SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of _______________, _____ among Imperial Holly Corporation, a Texas corporation (the "Company"), the subsidiaries of the Company listed on the signatures pages thereof (collectively, the "Guarantors"), [New Guarantor] (the "New Guarantor"), an affiliate of the Company and The Bank of New York, as trustee under the indenture referred to below (the "Trustee"). Capitalized terms used herein and not defined herein shall have the meaning ascribed to them in the Indenture (as defined below). W I T N E S S E T H WHEREAS, the Company and the Guarantors have heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of December 22, 1997, providing for the issuance of an aggregate principal amount of $250,000,000 of 9 3/4% Senior Subordinated Notes due 2007 (the "Notes"); WHEREAS, Article 11 of the Indenture provides that under certain circumstances the Company may or must cause certain of its subsidiaries to execute and deliver to the Trustee a supplemental indenture pursuant to which such subsidiaries shall unconditionally guarantee all of the Company's Obligations under the Notes pursuant to a Subsidiary Guarantee on the terms and conditions set forth herein; and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, the New Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO GUARANTEE. The New Guarantor hereby agrees, jointly and severally with all other Guarantors, to guarantee the Company's Obligations under the Notes and the Indenture on the terms and subject to the conditions set forth in Article 11 of the Indenture and to be bound by all other applicable provisions of the Indenture. 3. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator, partner, member, shareholder or agent of any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. 4. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE. 5. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 6. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. 7. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the correctness of the recitals of fact contained herein, all of which recitals are made solely by the New Guarantor. F-1 111 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: IMPERIAL HOLLY CORPORATION By: -------------------------------------------- Name: Title: [NEW GUARANTOR] By: -------------------------------------------- Name: Title: By: -------------------------------------------- Name: Title: By: -------------------------------------------- Name: Title: BANK OF NEW YORK as Trustee By: -------------------------------------------- Name: Title: F-2 EX-5.A 5 OPINION OF ANDREWS & KRUTH LLP 1 EXHIBIT 5(A) January 23, 1998 Board of Directors Imperial Holly Corporation One Imperial Square, Suite 200 8016 Highway 90-A Sugar Land, Texas 77478 Gentlemen: We have acted as counsel to Imperial Holly Corporation, a Texas corporation (the "Company"), in connection with the Company's Registration Statement on Form S-4 (the "Registration Statement") relating to the registration under the Securities Act of 1933, as amended (the "Securities Act"), of the offer by the Company to exchange up to $250,000,000 aggregate principal amount of its 9 3/4% Senior Subordinated Notes Due 2007, Series A (the "Exchange Notes") for its existing 9 3/4% Senior Subordinated Notes Due 2007 (the "Old Notes"). The Exchange Notes are proposed to be issued in accordance with the provisions of the Indenture, dated as of December 22, 1997, between the Company and The Bank of New York, as Trustee (the "Indenture"). As the basis for the opinions expressed below, we have examined the Registration Statement, the Prospectus contained therein, the Indenture, which is filed as an exhibit to the Registration Statement, and such statutes, regulations, corporate records and documents, certificates of corporate and public officials and other instruments as we have deemed necessary or advisable for the purposes of this opinion. In such examination, we have assumed (i) that the signatures on all documents that we have examined are genuine, (ii) the authenticity of all documents submitted to us as originals, and (iii) the conformity with the original documents of all documents submitted to us as copies. Based upon the foregoing and having due regard for such legal considerations as we deem relevant, we are of the opinion that the Exchange Notes, (a) when exchanged in the manner described in the Registration Statement, (b) when duly executed, authenticated, issued and delivered in accordance with the terms of the Indenture, (c) when the Indenture has been duly qualified under the Trust Indenture Act of 1939, as amended, and (d) when applicable provisions of "blue sky" laws have been complied with, will be legally issued and constitute binding obligations of the Company, enforceable against the Company in accordance with their terms and the terms of the Indenture. 2 Imperial Holly Corporation January 23, 1998 Page 2 The opinion expressed above with respect to the Exchange Notes may be limited by applicable bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfer), reorganization, moratorium and other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). Such opinion is also subject to the qualification that the remedy of specific performance and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which proceedings may be brought. This opinion is limited in all respects to the laws of the States of New York and Texas, and the laws of the United States of America insofar as such laws are applicable. We hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the use of the firm name under the heading "Legal Matters" in the Registration Statement. Very truly yours, /s/ Andrews & Kurth L.L.P. EX-21 6 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 SUBSIDIARIES OF IMPERIAL HOLLY CORPORATION
STATE OR OTHER NAME OF SUBSIDIARY JURISDICTION OF AND NAME UNDER INCORPORATION WHICH IT CONDUCTS BUSINESS OF ORGANIZATION -------------------------- --------------- Savannah Foods & Industries Delaware Biomass Corporation Delaware Dixie Crystals Brand, Inc. Delaware Dixie Crystals Foodservice, Inc. Delaware King Packaging Company, Inc. Georgia Food Carrier, Inc. Georgia Michigan Sugar Company Michigan Great Lakes Sugar Company Ohio Savannah Foods Industrial, Inc. Delaware Phoenix Packing Corporation Delaware Savannah Sugar Refining Corporation Georgia Savannah Investment Company Delaware Holly Northwest Company Nevada Holly Sugar Corporation New York Fort Bend Utilities Company Texas Imperial Sweetener Distributors, Inc. Texas Limestone Products Company Delaware Crown Express, Inc. Texas
EX-23.1 7 CONSENT OF DELOITTE & TOUCHE LLP 1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the inclusion by reference in this Registration Statement of Imperial Holly Corporation on Form S-4 of our report dated November 21, 1997, appearing in the Form 10-K of Imperial Holly Corporation for the six-month transition period ended September 30, 1997, and to the use of our report dated November 21, 1997 appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the headings "Experts" in such Prospectus. Deloitte & Touche LLP Houston, Texas January 23, 1998 EX-23.2 8 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated November 17, 1997 relating to the financial statements of Savannah Foods & Industries, Inc. (and to all references to our Firm) included or made a part of this Registration Statement on Form S-4 of Imperial Holly Corporation. Arthur Andersen LLP Atlanta, GA January 23, 1998 EX-23.3 9 CONSENT OF PRICE WATERHOUSE LLP, 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-4 of Imperial Holly Corporation of our report dated November 18, 1996 relating to the financial statements of Savannah Foods & Industries, Inc. which appears in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. Price Waterhouse LLP Atlanta, Georgia January 23, 1998 EX-99.A 10 FORM OF LETTER OF TRANSMITTAL 1 EXHIBIT 99(a) IMPERIAL HOLLY CORPORATION LETTER OF TRANSMITTAL FOR TENDER OF ALL OUTSTANDING 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007 IN EXCHANGE FOR 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 PURSUANT TO THE PROSPECTUS DATED ____________, 1998 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ______________, 1998, UNLESS THE EXCHANGE OFFER IS EXTENDED. TO: THE BANK OF NEW YORK (THE "EXCHANGE AGENT") By Mail: By Facsimile Transmission: By Hand or Overnight Courier The Bank of New York (for Eligible Institutions Only) The Bank of New York Tender and Exchange Department (212) 815-6213 Tender and Exchange Department P.O. Box 11248 101 Barclay Street Church Street Station Receive & Deliver Window New York, NY 10286-1248 For Information or Confirmation by Telephone: New York, NY 10286 (212) 507-9357
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OR TRANSMISSION TO A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES, IS AT THE RISK OF THE HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. The undersigned acknowledges that he or she has received the Prospectus, dated ___________, 1998 (the "Prospectus") of Imperial Holly Corporation, a Texas Corporation (the "Company") and this Letter of Transmittal and the instructions hereto (the "Letter of Transmittal"), which together constitute the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of its 9 3/4% Senior Subordinated Notes due 2007, Series A (the "Exchange Notes") that have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which the Prospectus is a part, for each $1,000 principal amount of its outstanding 9 3/4% Senior Subordinated Notes due 2007, (the "Old Notes"), of which $250,00,000 aggregate principal amount is outstanding, upon the terms and subject to the conditions set forth in the Prospectus. The term "Expiration Date" shall mean 5:00 p.m., New York City time, on ___________, 1998, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term shall mean the latest date and time to which the Exchange Offer is extended by the Company. Capitalized terms used but not defined herein have the meaning given to them in the Prospectus. This Letter of Transmittal is to be used either if (i) certificates representing Old Notes are to be physically delivered to the Exchange Agent herewith by Holders, (ii) tender of Old Notes is m be made by book-entry transfer to an account maintained by the Exchange Agent at The Depository Trust Company ("DTC"), pursuant to the procedures 2 set forth in "The Exchange Offer--Procedures for Tendering" in the Prospectus by any financial institution that is a participant in DTC and whose name appears on a security position listing as the owner of Old Notes or (iii) tender of Old Notes is to be made according to the guaranteed delivery procedures set forth in the Prospectus under "The Exchange Offer--Guaranteed Delivery Procedures."Delivery of this Letter of Transmittal and any other required documents must be made to the Exchange Agent. Delivery of documents to DTC does not constitute delivery to the Exchange Agent. The term "Holder" as used herein means any person in whose name Old Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered holder. All Holders of Old Notes who wish to tender their Old Notes must, prior to the Expiration Date: (1) complete, sip, and deliver this Letter of Transmittal, or a facsimile thereof, to the Exchange Agent, in person or to the address set forth above; and (2) tender (and not withdraw) his or her Old Notes or, if a tender of Old Notes is to be made by book-entry transfer to the account maintained by the Exchange Agent at DTC, confirm such book-entry transfer (a "Book- Entry Confirmation"), in each case in accordance with the procedures for tendering described in the Instructions to this Letter of Transmittal. Holders of Old Notes whose certificates are not immediately available, or who are unable to deliver their certificates or Book-Entry Confirmation and all other documents required by this Letter of Transmittal to be delivered to the Exchange Agent on or prior to the Expiration Date, must tender their Old Notes according to the guaranteed delivery procedures set forth under the caption "The Exchange Offer-- Guaranteed Delivery Procedures" in the Prospectus. (See Instruction 2.) Upon the terms and subject to the conditions of the Exchange Offer, the acceptance for exchange of the Old Notes validly tendered and not withdrawn and the issuance of the Exchange Notes will be made promptly following the Expiration Date. For the purposes of the Exchange Offer, the Company shall be deemed to have accepted for exchange validly tendered Old Notes when, as and if the Company has given written notice thereof to the Exchange Agent. The undersigned has completed, executed and delivered this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. Holders who wish to tender their Old Notes must complete this Letter of Transmittal in its entirety. PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY BEFORE CHECKING any BOX BELOW. THE INSTRUCTIONS INCLUDED IN THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS, THIS LETTER OF TRANSMITTAL AND THE NOTICE OF GUARANTEED DELIVERY MAY BE DIRECTED TO THE EXCHANGE AGENT. SEE INSTRUCTION 12 HEREIN. HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR OLD NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY AND COMPLY WITH ALL OF ITS TERMS. List below the Old Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, the Certificate Numbers and Principal Amounts should be listed on a separate signed schedule, attached hereto. The minimum permitted tender is $ 1,000 in principal amount of 9 3/4% Senior Subordinated Notes due 2007. All other tenders must be in integral multiples of $1,000. -2- 3 DESCRIPTION OF 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007 BOX I
============================================================================================================= Name(s) and Address(es) of Registered Holder(s) * (Please fill in, if blank) - ------------------------------------------------------------------------------------------------------------- (A) (B) Aggregate Principal Amount Tendered Certificate Number(s) (if less than all)** --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- -------------------------------------------- Total Principal Amount of Old Notes Tendered =============================================================================================================
* Need not be completed by book-entry holders ** Need not be completed by Holders who wish to tender with respect to all Old Notes listed. -3- 4 PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
BOX II BOX III - ----------------------------------------------------- ----------------------------------------------------- SPECIAL REGISTRATION INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS SEE INSTRUCTIONS 4, 5 AND 6) (SEE INSTRUCTIONS 4, 5 AND 6) To be completed ONLY if certificates for To be completed ONLY if certificates for Old Notes in a principal amount not tendered, or Old Notes in a principal amount not tendered, or Exchange Notes issued in exchange for Old Notes Exchange Notes issued in exchange for Old Notes accepted for exchange, are to be issued in the name accepted for exchange, are to be delivered to of someone other than the undersigned. someone other than the undersigned. Issue certificates to: Issue certificates to: Name . . . . . . . . . . . . . . . . . . . . . . . Name . . . . . . . . . . . . . . . . . . . . . . (PLEASE PRINT) (PLEASE PRINT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (PLEASE PRINT) (PLEASE PRINT) Address . . . . . . . . . . . . . . . . . . . . . . Address . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (INCLUDING ZIP CODE) (INCLUDING ZIP CODE) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) - ----------------------------------------------------- -----------------------------------------------------
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATE(S) FOR OLD NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF SUCH OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS) OR, IF GUARANTEED DELIVERY PROCEDURES ARE TO BE COMPLIED WITH, A NOTICE OF GUARANTEED DELIVERY, MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. [ ] CHECK HERE IF OLD NOTES ARE BEING DELIVERED BY DTC TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution [ ] The Depository Trust Company ----------------------------- Account Number --------------------------------------------- Transaction Code Number ------------------------------------ Holders whose Old Notes are not immediately available or who cannot deliver their Old Notes and all other documents required hereby to the Exchange Agent on or prior to the Expiration Date may tender their Old Notes according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures."(See Instruction 2.) -4- 5 [ ] CHECK HERE IF OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of tendering Holder(s) ------------------------------------------- Date of Execution of Notice of Guaranteed Delivery ----------------------- Name of Institution which Guaranteed Delivery ---------------------------- Transaction Code Number -------------------------------------------------- [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: -------------------------------------------------------------------- Address: ----------------------------------------------------------------- If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Subject to the terms and conditions of the Exchange Offer, the undersigned hereby tenders to Imperial Holly Corporation (the "Company") the principal amount of Old Notes indicated above. Subject to and effective upon the acceptance for exchange of the principal amount of Old Notes tendered hereby in accordance with this Letter of Transmittal, the undersigned sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to the Old Notes tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company and as Trustee and Registrar under the Indenture for the Old Notes and the Exchange Notes) with respect to the tendered Old Notes with full power of substitution (such power of attorney being deemed an irrevocable power coupled with an interest), subject only to the right of withdrawal described in the Prospectus, to (i) deliver certificates for such Old Notes to the Company or transfer ownership of such Old Notes on the account books maintained by DTC, together, in either such case, with all accompanying evidences of transfer and authenticity to, or upon the order of, the Company and (ii) present such Old Notes for transfer on the books of the Company and receive all benefits and otherwise exercise all rights of beneficial ownership of such Old Notes, all in accordance with the terms of the Exchange Offer. The undersigned acknowledges that the Exchange Offer is being made in reliance upon interpretative advice given by the staff of the Securities and Exchange Commission to third parties in connection with transactions similar to the Exchange Offer, so that the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may -5- 6 be offered for resale, resold and otherwise transferred by holders thereof (other than a broker-dealer who purchased such Old Notes directly from the Company for resale pursuant to Rule 144A or any other available exemption under the Securities Act or a person that is an "affiliate" of the Company or any Guarantor within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such Exchange Notes. The undersigned agrees that acceptance of any tendered Old Notes by the Company and the issuance of Exchange Notes in exchange therefor shall constitute performance in full by the Company of its obligations under the Registration Rights Agreement, (as defined in the Prospectus) and that, upon the issuance of the Exchange Notes, the Company will have no further obligations or liabilities thereunder (except in certain limited circumstances). The undersigned represents and warrants that (i) the Exchange Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary course of business of the person receiving Exchange Notes (which shall be the undersigned unless otherwise indicated in the box entitled "Special Delivery Instructions" above) (the "Recipient"), (ii) neither the undersigned nor the Recipient (if different) is engaged in, intends to engage in or has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes, and (iii) neither the undersigned nor the Recipient (if different) is an "affiliate" of the Company or any Guarantor as defined in Rule 405 under the Securities Act. If the undersigned is not a broker-dealer, the undersigned further represents that it is not engaged in, and does not intend to engage in, a distribution of the Exchange Notes. If the undersigned is a broker- dealer, the undersigned further (x) represents that it acquired Old Notes for the undersigned's own account as a result of market making activities or other trading activities, (y) represents that it has not entered into any arrangement or understanding with the Company or any "affiliate" of the Company (within the meaning of Rule 405 under the Securities Act) to distribute the Exchange Notes to be received in the Exchange Offer and (z) acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act (for which purposes delivery of the Prospectus, as the same may be hereafter supplemented or amended, shall be sufficient) in connection with any resale of Exchange Notes received in the Exchange Offer. Such a broker-dealer will not be deemed, solely by reason of such acknowledgment and prospectus delivery, to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned understands and agrees that the Company reserves the right not to accept tendered Old Notes from any tendering holder if the Company determines, in its sole and absolute discretion, that such acceptance could result in a violation of applicable securities laws. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, exchange, assign and transfer the Old Notes tendered hereby and to acquire Exchange Notes issuable upon the exchange of such tendered Old Notes, and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned also warrants that it will, upon request, execute and deliver any additional documents deemed to be necessary or desirable by the Exchange Agent or the Company in order to complete the exchange, assignment and transfer of tendered Old Notes or transfer of ownership of such Old Notes on the account books maintained by a book- entry transfer facility. The undersigned understands and acknowledges that the Company reserves the right in its sole discretion to purchase or make offers for any Old Notes that remain outstanding subsequent to the Expiration Date or, as set forth in the Prospectus under the caption "The Exchange Offer--Procedures for Tendering,"to terminate the Exchange Offer and, to the extent permitted by applicable law, purchase Old Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. The undersigned understands that the Company may accept the undersigned's tender by delivering written notice of acceptance to the Exchange Agent, at which time the undersigned's right to withdraw such tender will terminate. For purposes of the Exchange Offer, the Company shall be deemed to have accepted validly tendered Old Notes when, -6- 7 as and if the Company has given oral (which shall be confirmed in writing) or written notice thereof to the Exchange Agent. The undersigned understands that the first interest payment following the Expiration Date will include unpaid interest on the Old Notes accrued through the date of issuance of the Exchange Notes. The undersigned understands that tenders of Old Notes pursuant to the procedures described under the caption "The Exchange Offer--Procedures for Tendering" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. The undersigned acknowledges that the Exchange Offer is subject to the more detailed terms set forth in the Prospectus and, in case of any conflict between the terms of the Prospectus and this Letter of Transmittal, the Prospectus shall prevail. If any tendered Old Notes are not accepted for exchange pursuant to the Exchange Offer for any reason, certificates for any such unaccepted Old Notes will be returned (except as noted below with respect to tenders through DTC, at the Company's cost and expense, to the undersigned at the address shown below or at a different address as may be indicated herein under "Special Delivery Instructions" as promptly as practicable after the Expiration Date. All authority conferred or agreed to be conferred by this Letter of Transmittal shall survive the death, incapacity or dissolution of the undersigned, and every obligation of the undersigned under this Letter of Transmittal shall be binding upon the undersigned's heirs, personal representatives, successors and assigns. This tender may be withdrawn only in accordance with the procedures set forth in this Letter of Transmittal. By acceptance of the Exchange Offer, each broker-dealer that receives Exchange Notes pursuant to the Exchange Offer hereby acknowledges and agrees that upon the receipt of notice by the Company of the happening of any event which makes any statement in the Prospectus untrue in any material respect or which requires the making of any changes in the Prospectus in order to make the statements therein not misleading (which notice the Company agrees to deliver promptly to such broker-dealer), such broker-dealer will suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented prospectus to such broker-dealer. Unless otherwise indicated under "Special Registration Instructions,"please issue the certificates representing the Exchange Notes issued in exchange for the Old Notes accepted for exchange and return any certificates for Old Notes not tendered or not exchanged, in the name(s) of the undersigned (or, in either such event in the case of Old Notes tendered by DTC, by credit to the account at DTC. Similarly, unless otherwise indicated under "Special Delivery Instructions,"please send the certificates representing the Exchange Notes issued in exchange for the Old Notes accepted for exchange and any certificates for Old Notes not tendered or not exchanged (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s), unless, in either event, tender is being made through DTC. In the event that both "Special Registration Instructions" and "Special Delivery Instructions" are completed, please issue the certificates representing the Exchange Notes issued in exchange for the Old Notes accepted for exchange in the name(s) of, and return any certificates for Old Notes not tendered or not exchanged to, the person(s) so indicated. The undersigned understands that the Company has no obligations pursuant to the "Special Registration Instructions" or "Special Delivery Instructions" to transfer any Old Notes from the name of the registered Holder(s) thereof if the Company does not accept for exchange any of the Old Notes so tendered. Holders who wish to tender the Old Notes and (i) whose Old Notes are not immediately available or (ii) who cannot deliver their Old Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date, may tender their Old Notes according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction I regarding the completion of the Letter of Transmittal. -7- 8 PLEASE SIGN HERE WHETHER OR NOT OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY AND WHETHER OR NOT TENDER IS TO BE MADE PURSUANT TO THE GUARANTEED DELIVERY PROCEDURES This Letter of Transmittal must be signed by the registered holder(s) as their name(s) appear on the Old Notes or, if tendered by a participant in DTC, exactly as such participant's name appears on a security listing as the owner of Old Notes, or by person(s) authorized to become registered holder(s) by a properly completed bond power from the registered holder(s), a copy of which must be transmitted with this Letter of Transmittal. If Old Notes to which this Letter of Transmittal relate are held of record by two or more joint holders, then all such holders must sign this Letter of Transmittal. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, then such person must (i) set forth his or her full title below and (h) unless waived by the Company, submit evidence satisfactory to the Company of such person's authority so to act. (See Instruction 4.) X Date ------------------------------------ ---------------------------------- X Date ------------------------------------ ---------------------------------- Signature(s) of Holder(s) of Authorized Signatory Name(s): Address: ----------------------------- ------------------------------ ----------------------------- ------------------------------ (Please Print) (including Zip Code) Capacity: Area Code and Telephone Number: ------------------------ ------- Social Security No.: ------------- PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN -8- 9 BOX IV ================================================================================ SIGNATURE GUARANTEE (SEE INSTRUCTION 1) CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION - -------------------------------------------------------------------------------- (Name of Eligible Institution Guaranteeing Signatures) - -------------------------------------------------------------------------------- (Address (including zip code) and Telephone Number (including area code) of Firm) - -------------------------------------------------------------------------------- (Authorized Signature) - -------------------------------------------------------------------------------- (Printed Name) - -------------------------------------------------------------------------------- (Title) Date: ------------------ ================================================================================ INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. Guarantee of Signatures. Signatures on this Letter of Transmittal need not be guaranteed if (a) this Letter of Transmittal is signed by the registered holder(s) of the Old Notes tendered herewith and such holder(s) have not completed the box set forth herein entitled "Special Registration Instructions" or the box entitled "Special Delivery Instructions" or (b) such Old Notes are tendered for the account of an Eligible Institution. (See Instruction 6.) Otherwise, all signatures on this Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States (an "Eligible Institution"). All signatures on bond powers and endorsements on certificates must also be guaranteed by an Eligible Institution. 2. Delivery of this Letter of Transmittal and Old Notes. Certificates for all physically delivered Old Notes or confirmation of any book-entry transfer to the Exchange Agent at DTC of Old Notes tendered by book-entry transfer, as well as, in each case (including cases where tender is affected by book-entry transfer), a properly completed and duly executed copy of this Letter of Transmittal or facsimile hereof and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. The method of delivery of the tendered Old Notes, this Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the Holder and the delivery will be deemed made only when actually received by the Exchange Agent. If Old Notes are sent by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery. No Letter of Transmittal or Old Notes should be sent to the Company. -9- 10 The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Depositary for purposes of the Exchange Offer within two business days after receipt of this Prospectus, and any financial institution that is a participant in the Depositary may make book-entry delivery of Old Notes by causing the Depositary to transfer such Old Notes into the Exchange Agent's account at the Depositary in accordance with the Depositary's procedures for transfer. However, although delivery of Old Notes may be effected through book-entry transfer at the Depositary, the Letter of Transmittal, with any required signature guarantees or an Agent's Message (as defined below) in connection with a book-entry transfer and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at the address specified on the cover page of the Letter of Transmittal on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. A Holder may tender Old Notes that are held through the Depositary by transmitting its acceptance through the Depositary's Automatic Tender Offer Program, for which the transaction will be eligible, and the Depositary will then edit and verify the acceptance and send an Agent's Message to the Exchange Agent for its acceptance. The term "Agent's Message" means a message transmitted by the Depositary to, and received by, the Exchange Agent and forming part of the Book-Entry Confirmation, which states that the Depositary has received an express acknowledgment from each participant in the Depositary tendering the Old Notes and that such participant has received the Letter of Transmittal and agrees to be bound by the terms of the Letter of Transmittal and the Company may enforce such agreement against such participant. Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available, or (ii) who cannot deliver their Old Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date or comply with book-entry transfer procedures on a timely basis must tender their Old Notes according to the guaranteed delivery procedures set forth in the Prospectus. See "Exchange Offer--Guaranteed Delivery Procedures." Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) prior to the Expiration Date, the Exchange Agent must have received from the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, overnight courier, mail or hand delivery) setting forth the name and address of the Holder of the Old Notes, the certificate number or numbers of such Old Notes and the principal amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, this Letter of Transmittal (or facsimile hereof) together with the certificate(s) representing the Old Notes and any other required documents will be deposited by the Eligible Institution with the Exchange Agent; and (iii) such properly completed and executed Letter of Transmittal (or facsimile hereof), as well as all other documents required by this Letter of Transmittal and the certificate(s) representing all tendered Old Notes in proper form for transfer (or a confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at DTC), must be received by the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date, all in the manner provided in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." Any Holder who wishes to tender his Old Notes pursuant to the guaranteed delivery procedures described above must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., New York City time, on the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who wish to tender their Old Notes according to the guaranteed delivery procedures set forth above. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Old Notes, and withdrawal of tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding. All tendering holders, by execution of this Letter of Transmittal (or facsimile thereof), shall waive any right to receive notice of the acceptance of the Old Notes for exchange. The Company reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any irregularities or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in this Letter of Transmittal) shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Old Notes, nor shall any of them incur any liability -10- 11 for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured to the Company's satisfaction or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering Holders pursuant to the Company's determination, unless otherwise provided in this Letter of Transmittal as soon as practicable following the Expiration Date. The Exchange Agent has no fiduciary duties to the Holders with respect to the Exchange Offer and is acting solely on the basis of directions of the Company. 3. Inadequate Space. If the space provided is inadequate, the certificate numbers and/or the number of Old Notes should be listed on a separate signed schedule attached hereto. 4. Tender by Holder. Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer. Any beneficial owner of Old Notes who is not the registered Holder and who wishes to tender should arrange with such registered holder to execute and deliver this Letter of Transmittal on such beneficial owner's behalf or must, prior to completing and executing this Letter of Transmittal and delivering his Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such beneficial owner's name or obtain a properly completed bond power from the registered holder or properly endorsed certificates representing such Old Notes. 5. Partial Tenders; Withdrawals. Tenders of Old Notes will be accepted only in integral multiples of $ 1,000. If less than the entire principal amount of any Old Notes is tendered, the tendering Holder should fill in the principal amount tendered in the third column of the box entitled "Description of 9 3/4% Senior Subordinated Notes due 2007" above. The entire principal amount of any Old Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of all Old Notes is not tendered, then Old Notes for the principal amount of Old Notes not tendered and a certificate or certificates representing Exchange Notes issued in exchange for any Old Notes accepted will be sent to the Holder at his or her registered address, unless a different address is provided in the "Special Delivery Instructions" box above on this Letter of Transmittal or unless tender is made through DTC, promptly after the Old Notes are accepted for exchange. Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the certificate number or numbers and principal amount of such Old Notes, or, in the case of Old Notes transferred by book-entry transfer the name and number of the account at DTC to be credited), (iii) be signed by the Depositor in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Registrar with respect to the Old Notes register the transfer of such Old Notes into the name of the person withdrawing the tender and (iv) specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes which have been tendered but which are not accepted for exchange by the Company will be returned to the Holder thereof without cost to such Holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described in the Prospectus under "The Exchange Offer--Procedures for Tendering" at any time prior to the Expiration Date. 6. Signatures on the Letter of Transmittal; Bond Powers and Endorsements. If this Letter of Transmittal (or facsimile hereof) is signed by the registered holder(s) of the Old Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the Old Note without alteration, enlargement or any change whatsoever. -11- 12 If any of the Old Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If a number of Old Notes registered in different names are tendered, it will be necessary to complete, sign and submit as many copies of this Letter of Transmittal as there are different registrations of Old Notes. If this Letter of Transmittal (or facsimile hereof) is signed by the registered Holder or Holders (which term, for the Purposes described herein, shall include a book-entry transfer facility whose name appears on a security listing as the owner of the Old Notes) of Old Notes tendered and the certificate or certificates for Exchange Notes issued in exchange therefor is to be issued (or any untendered principal amount of Old Notes to be reissued) to the registered Holder, then such Holder need not and should not endorse any tendered Old Notes, nor provide a separate bond power. In any other case, such Holder must either properly endorse the Old Notes tendered or transmit a properly completed separate bond power with this Letter of Transmittal with the signatures on the endorsement or bond power guaranteed by an Eligible Institution. If this Letter of Transmittal (or facsimile hereof) is signed by a person other than the registered Holder or Holders of any Old Notes listed, such Old Notes must be endorsed or accompanied by appropriate bond powers in each case signed as the name of the registered Holder or Holders appears on the Old Notes. If this Letter of Transmittal (or facsimile hereof) or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, or officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority so to act must be submitted with this Letter of Transmittal. Endorsements on Old Notes or signatures on bond powers required by this Instruction 6 must be guaranteed by an Eligible Institution. 7. Special Registration and Delivery Instructions. Tendering Holders should indicate, in the applicable box or boxes, the name and address to which Exchange Notes or substitute Old Notes for principal amounts not tendered or not accepted for exchange are to be issued or sent, if different from the name and address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. 8. Backup Federal Income Tax Withholding and Substitute Form W-9. Under the federal income tax laws, payments that may be made by the Company on account of Exchange Notes issued pursuant to the Exchange Offer may be subject to backup withholding at the rate of 31%. In order to avoid such backup withholding, each tendering holder should complete and sign the Substitute Form W-9 included in this Letter of Transmittal and either (a) provide the correct taxpayer identification number ("TIN") and certify, under penalties of perjury, that the TIN provided is correct and that (i) the holder has not been notified by the Internal Revenue Service (the "IRS") that the holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the IRS has notified the holder that the holder is no longer subject to backup withholding; or (b) provide an adequate basis for exemption. If the tendering holder has not been issued a TIN and has applied for one, or intends to apply for one in the near future, such holder should write "Applied For" in the space provided for the TIN in Part I of the Substitute Form W-9, sign and date the Substitute Form W-9 and sign the Certificate of Payee Awaiting Taxpayer Identification Number. If "Applied For" is written in Part 1, the Company (or the Paying Agent under the Indenture governing the Exchange Notes) shall retain 31% of payments made to the tendering holder during the sixty-day period following the date of the Substitute Form W-9. If the Holder furnishes the Exchange Agent or the Company with its TIN within sixty days after the date of the Substitute Form W-9, the Company (or the Paying Agent) shall remit such amounts retained during the sixty-day period to the Holder and no further amounts shall be retained or withheld from payments made to the Holder thereafter. If, however, the Holder has not provided the Exchange Agent or the Company with its TIN within such sixty-day period, the Company (or the Paying Agent) shall remit such previously retained amounts to the IRS as backup withholding. In general, if a Holder is an individual, the TIN is the Social Security number of such individual. If the Exchange Agent -12- 13 or the Company are not provided with the correct TIN, the Holder may be subject to a $50 penalty imposed by the Internal Revenue Service. Certain Holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such Holder must submit a statement (generally, IRS Form W-8), signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Exchange Agent. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if Old Notes are registered in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. Failure to complete the Substitute Form W-9 will not, by itself, cause Old Notes to be deemed invalidly tendered, but may require the Company (or the Paying Agent) to withhold 31% of the amount of any payments made on account of the Exchange Notes. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the IRS. 9. Transfer Taxes. The Company will pay all transfer taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates representing Exchange Notes or Old Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered in the name of, any person other than the registered holder of the Old Notes tendered hereby, or if tendered Old Notes are registered in the name of a person other than the person signing this Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or on any other persons) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering Holder. See the Prospectus under "The Exchange Offer--Solicitation of Tenders; Fees and Expenses." Except as provided in this Instruction 9, it will not be necessary for transfer tax stamps to be affixed to the Old Notes listed in this Letter of Transmittal. 10. Waiver of Conditions. The Company reserves the right, in their sole discretion, to amend, waive or modify specified conditions in the Exchange Offer in the case of any Old Notes tendered. 11. Mutilated, Lost, Stolen or Destroyed Old Notes. Any tendering Holder whose Old Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated herein for further instructions. 12. Requests for Assistance or Additional Copies. Requests for assistance and requests for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address specified in the Prospectus. Holder may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. -13- 14 (DO NOT WRITE IN SPACE BELOW) CERTIFICATE SURRENDERED OLD NOTES TENDERED OLD NOTES ACCEPTED --------------------- --------------------- ---------------------- --------------------- --------------------- ---------------------- Date Received Accepted by Checked by ------------------ ---------- ----------- Delivery Prepared by Checked by Date ----------- ------------ ----------------
IMPORTANT TAX INFORMATION Under federal income tax laws, a Holder whose tendered Old Notes are accepted for payment is required to provide the Exchange Agent (as payer) with such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a basis for exemption from backup withholding. If such Holder is an individual, the TIN is his social security number. If the Exchange Agent is not provided with the correct TIN, a $50 penalty may be imposed by the Internal Revenue Service, and payments made pursuant to the Exchange Offer may be subject to backup withholding. Certain Holders (including, among others, all corporations and certain foreign persons) are not subject to these backup withholding and reporting requirements. Exempt Holders should indicate their exempt status on Substitute Form W-9. A foreign person may qualify as an exempt recipient by submitting to the Exchange Agent a properly completed Internal Revenue Service Form W-8, signed under penalties of perjury, attesting to that Holder's exempt status. A Form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. If backup withholding applies, the Exchange Agent is required to withhold 20% of any payments made to the Holder or other payee. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments made with respect to the Exchange Offer, the Holder is required to provide the Exchange Agent with either: (i) the Holder's correct TIN by completing the form below, certifying that the TIN provided on Substitute Form W-9 is correct (or that such Holder is awaiting a TIN) and that (A) the Holder has been notified by the Internal Revenue Service that the Holder is subject to backup withholding as a result of failure to report all interest or dividends or (B) the internal Revenue Service has notified the Holder that the Holder is no longer subject to backup withholding or (ii) an adequate basis for exemption. WHAT NUMBER TO GIVE THE EXCHANGE AGENT The Holder is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the registered Holder of the Old Notes. If the Old Notes are held in more than one name or are held not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. -14- 15 - ------------------------------------------------------------------------------- CERTIFICATION OF PAYEE AWAITING TAXPAYER INDEMNIFICATION NUMBER I certify, under penalties of perjury, that a Taxpayer Identification Number has not been issued to me, and that I mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center of Social Security Administration Office (or I intend to mail or deliver an application in the near future). I understand that if I do not provide a Taxpayer Identification Number to the payer, 31% of all payments made to me on account of the Exchange Notes shall be retained until I provide a Taxpayer Identification Number to the payer and that, if I do not provide my Taxpayer Identification Number within sixty days, such retained amounts shall be remitted to the Internal Revenue Service as backup withholding and 31% of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a Taxpayer Identification Number. SIGNATURE --------------------------------- DATE --------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE EXCHANGE NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. - ------------------------------------------------------------------------------- -15- 16 TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 5) PAYER'S NAME: IMPERIAL HOLLY CORPORATION =================================================================================================================================== SUBSTITUTE PART 1 -- TAXPAYER IDENTIFICATION NUMBER (TIN) SOCIAL SECURITY NUMBER FORM W-9 ENTER YOUR TIN IN THE APPROPRIATE BOX. FOR ------------------------------- INDIVIDUALS, THIS IS YOUR SOCIAL SECURITY NUMBER (SSN). OR DEPARTMENT OF THE TREASURY FOR SOLE PROPRIETORS, SEE THE INSTRUCTIONS IN THE INTERNAL REVENUE SERVICE ENCLOSED GUIDELINES. FOR OTHER ENTITIES, IT IS YOUR EMPLOYEE IDENTIFICATION NUMBER EMPLOYER IDENTIFICATION NUMBER (EIN). IF YOU DO NOT REQUEST FOR TAXPAYER HAVE A NUMBER, SEE HOW TO GET A TIN IN THE ENCLOSED ------------------------------- IDENTIFICATION NUMBER GUIDELINES. AND CERTIFICATION NOTE: IF THE ACCOUNT IS IN MORE THAN ONE NAME, SEE THE CHART ON PAGE 2 OF THE ENCLOSED GUIDELINES ON WHOSE NUMBER TO ENTER. ======================================================================================================= PART II -- FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING (See Part II instructions in the enclosed Guidelines.) =================================================================================================================================== PART III -- CERTIFICATION--UNDER PENALTIES - ------------------------------------------------------------------------------------------------------------------------------------ OF PERJURY, I CERTIFY THAT: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Signature Date , 1998 ---------------------------------------------------------------------- -------------------------------------- ===================================================================================================================================
CERTIFICATION INSTRUCTIONS.--You must cross out item 2 above if you have been notified by the IRS that you are currently subject to backup withholding because of under reporting interest or dividends on your tax return. For real estate transactions, item 2 does not apply. For mortgage interest paid, the acquisition or abandonment of secured property, cancellation of debt, contributions to an individual retirement arrangement (IRA), and generally payments other than interest and dividends, you are not required to sign the Certification, but you must provide your correct TIN. -16- EX-99.B 11 FORM OF NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99(b) NOTICE OF GUARANTEED DELIVERY FOR 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007 OF IMPERIAL HOLLY CORPORATION As set forth in the Prospectus dated _____________, 1999 (the "Prospectus") of Imperial Holly Corporation (the "Company") and in the Letter of Transmittal (the "Letter of Transmittal"), this form or a form substantially equivalent to this form must be used to accept the Exchange Offer (as defined below) if the certificates for the outstanding 9 3/4% Senior Subordinated Notes due 2007 (the "Old Notes") of the Company and all other documents required by the Letter of Transmittal cannot be delivered to the Exchange Agent by the expiration of the Exchange Offer or compliance with book- entry transfer procedures cannot be effected on a timely basis. Such form may be delivered by hand or transmitted by facsimile transmission, telex or mail to the Exchange Agent no later than the Expiration Date, and must include a signature guarantee by an Eligible Institution as set forth below. Capitalized terms used herein but not defined herein have the meanings ascribed thereto in the Prospectus. TO: THE BANK OF NEW YORK (THE "EXCHANGE AGENT")
By Mail: By Facsimile Transmission: By Hand or Overnight Courier: The Bank of New York (for Eligible Institutions Only) The Bank of New York Tender and Exchange Department (212) 815-6213 Tender and Exchange Department P.O. Box 11248 101 Barclay Street Church Street Station Receive & Deliver Window New York, NY 10286-1248 For Information or Confirmation by Telephone: New York, NY 10286 (212) 507-9357
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES, IS AT THE RISK OF THE HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. THE INSTRUCTIONS ACCOMPANYING THE LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS NOTICE OF GUARANTEED DELIVERY IS COMPLETED. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instruction thereto, such signatures must appear in the applicable space provided on the Letter of Transmittal for Guarantee of Signature(s). 2 Ladies and Gentlemen: The undersigned acknowledges receipt of the Prospectus and the related Letter of Transmittal which describes the Company's offer (the "Exchange Offer") to exchange $1,000 in principal amount of a new series of 9 3/4% Senior Subordinated Notes due 2007, Series A (the "Exchange Notes") for each $1,000 in principal amount of the Old Notes. The undersigned hereby tenders to the Company the aggregate principal amount of Old Notes set forth below on the terms and conditions set forth in the Prospectus and the related Letter of Transmittal pursuant to the guaranteed delivery procedure set forth in the "The Exchange Offer--Guaranteed Delivery Procedures" section in the Prospectus and the accompanying Letter of Transmittal. The undersigned understands that no withdrawal of a tender of Old Notes may be made on or after the Expiration Date. The undersigned understands that for a withdrawal of a tender of Old Notes to be effective, a written notice of withdrawal that complies with the requirements of the Exchange Offer must be timely received by the Exchange Agent at one of its addresses specified on the cover of this Notice of Guaranteed Delivery prior to the Expiration Date. The undersigned understands that the exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of (i) such Old Notes (or Book-Entry Confirmation of the transfer of such Old Notes into the Exchange Agent's account at The Depository Trust Company (the "Depositary" or "DTC")) and (ii) a Letter of Transmittal (or facsimile thereof) with respect to such Old Notes, properly completed and duly executed, with any required signature guarantees, this Notice of Guaranteed Delivery and any other documents required by the Letter of Transmittal or a properly transmitted Agent's Message. The term "Agent's Message" means a message transmitted by the Depositary to, and received by, the Exchange Agent and forming part of the confirmation of a book-entry transfer, which states that the Depositary has received an express acknowledgment from each participant in the Depositary tendering the Old Notes and that such participant has received the Letter of Transmittal and agrees to be bound by the terms of the Letter of Transmittal and the Company may enforce such agreement against such participant. All authority conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall not be affected by, and shall survive, the death or incapacity of the undersigned, and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, executors, administrators, trustees in bankruptcy, personal and legal representatives, successors and assigns of the undersigned. -2- 3 PLEASE SIGN AND COMPLETE Signature(s) of Registered Name(s) of Registered Holder(s) Owner(s) or Authorized Signatory: ----------------------- ----------------------------------- - --------------------------------- ----------------------------------- - --------------------------------- ----------------------------------- Principal Amount of Old Notes Tendered: Address: --------------------------- - --------------------------------- ----------------------------------- Certificate No(s) of Old Notes (if available): Area Code and Telephone No.: - --------------------------------- If Old Notes will be delivered by book-entry transfer at The Depository Trust Company, insert - --------------------------------- Depository Account No.: ------------ Date: ---------------------------- This Notice of Guaranteed Delivery must be signed by the registered Holder(s) of Old Notes exactly as its (their) name(s) appear on certificates for Old Notes or on a security position listing as the owner of Old Notes, or by person(s) authorized to become registered Holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information. PLEASE PRINT NAME(S) AND ADDRESS(ES) Name(s): ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- Capacity: ----------------------------------------------------------------- Address(es): ----------------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL. -3- 4 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or a correspondent in the United States, or otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby (a) represents that each holder of Old Notes on whose behalf this tender is being made "own(s)" the Old Notes covered hereby within the meaning of Rule l3d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (b) represents that such tender of Old Notes complies with Rule 14e-4 of the Exchange Act and (c) guarantees that, within three New York Stock Exchange trading days from the expiration date of the Exchange Offer, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof), together with certificates representing the Old Notes covered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Old Notes into the Exchange Agent's account at The Depository Trust Company, pursuant to the procedure for book- entry transfer set forth in the Prospectus) and required documents will be deposited by the undersigned with the Exchange Agent. The undersigned acknowledges that it must deliver the Letter of Transmittal and Old Notes tendered hereby to the Exchange Agent within the time period set forth above and that failure to do so could result in financial loss to the undersigned. Name of Firm: ------------------------ ------------------------------- Authorized Signature Address: Name: ----------------------------- -------------------------- Title: - ------------------------------------- ------------------------- Area Code and Telephone No.: Date: --------- -------------------------- -4- -----END PRIVACY-ENHANCED MESSAGE-----