-----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, AsNP1UT+CY6jLp7tixlPHoPvMehhrE1BOwT3jblLbTGBoa2oj0r+ALDYoBADLpQL t5V+a5Y4/6HaKmS4r2J56A== 0000916641-01-501726.txt : 20020412 0000916641-01-501726.hdr.sgml : 20020412 ACCESSION NUMBER: 0000916641-01-501726 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 20011130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMITHFIELD FOODS INC CENTRAL INDEX KEY: 0000091388 STANDARD INDUSTRIAL CLASSIFICATION: MEAT PACKING PLANTS [2011] IRS NUMBER: 520845861 STATE OF INCORPORATION: VA FISCAL YEAR END: 0427 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-74306 FILM NUMBER: 1804304 BUSINESS ADDRESS: STREET 1: 200 COMMERCE STREET STREET 2: 999 WATERSIDE DRIVE CITY: SMITHFIELD STATE: VA ZIP: 23430 BUSINESS PHONE: 7573653000 MAIL ADDRESS: STREET 1: 900 DOMINION TOWER STREET 2: 999 WATERSIDE DRIVE CITY: NORFOLK STATE: VA ZIP: 23510 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY EQUITIES CORP DATE OF NAME CHANGE: 19710221 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY REAL ESTATE TRUST DATE OF NAME CHANGE: 19661113 S-4 1 ds4.txt FORM S-4 As Filed with the Securities and Exchange Commission on November 30, 2001 Registration No. _____________ ________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ______________ Smithfield Foods, Inc. (Exact name of registrant as specified in its charter) Virginia 2011 52-0845861 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification incorporation or organization) Classification Code Number) Number)
________________________ 200 Commerce Street Smithfield, Virginia 23430 (757) 365-3000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ________________________ Michael H. Cole, Secretary and Associate General Counsel 200 Commerce Street Smithfield, Virginia 23430 (757) 365-3030 (Name, address, including zip code, and telephone number, including area code, of agent for service) ______________ Copies to: Jane Whitt Sellers, Esq. McGuireWoods LLP One James Center 901 East Cary Street Richmond, Virginia 23219 (804) 775-1000 ______________ Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [_] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [_]
CALCULATION OF REGISTRATION FEE =================================================================================================================================== Title of each class of Amount to be Registered Proposed maximum offering, Proposed maximum aggregate Amount of Securities to be registered price per share to be offering price Registration registered /(1)/ fee - ----------------------------------------------------------------------------------------------------------------------------------- 8% Senior Notes, Series B, $300,000,000 100% $300,000,000 $75,000 due 2009 ====================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(f) promulgated under the Securities Act of 1933, as amended. THE REGISTRANT HEREBY AMENDS 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 SEC, ACTING PURSUANT TO SAID SECTION 8(a) MAY DETERMINE. 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. PROSPECTUS SUBJECT TO COMPLETION, DATED NOVEMBER 30, 2001 Smithfield Foods, Inc. OFFER TO EXCHANGE UP TO $300,000,000 OF ITS 8% SENIOR NOTES, SERIES B, DUE 2009 FOR ANY AND ALL OF ITS OUTSTANDING $300,000,000 8% SENIOR NOTES, SERIES A, DUE 2009 _______________________________________________ THE EXCHANGE OFFER . We will exchange all senior notes that are validly tendered and not validly withdrawn for an equal principal amount of exchange notes that are freely tradable. . You may withdraw tenders of senior notes at any time prior to the expiration of the exchange offer. . The exchange offer expires at 5:00 p.m., New York City time, on ________________ ____, 2002. We do not currently intend to extend the expiration date. THE EXCHANGE NOTES . The terms of the exchange notes to be issued in the exchange offer are substantially identical to the senior notes, except that the exchange notes will be freely tradable. . The exchange notes will mature on October 15, 2009. . Interest on the exchange notes will be payable semi-annually on April 15 and October 15 of each year, commencing on April 15, 2002. _______________________________________________ YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 18 OF THIS PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is ______________ ____, 2001 TABLE OF CONTENTS
Page ---- Special Note Regarding Forward-Looking Statements........................ 4 Where You Can Find More Information...................................... 4 Incorporation of Certain Documents By Reference.......................... 5 Summary.................................................................. 6 Risk Factors............................................................. 18 Use of Proceeds.......................................................... 25 Ratio of Earnings to Fixed Charges....................................... 25 Capitalization........................................................... 26 Selected Historical Consolidated Financial Data.......................... 27 Management's Discussion and Analysis of Financial Condition and Results of Operations................................................... 30 Description of Other Indebtedness........................................ 39 Business................................................................. 44 Management............................................................... 59 Principal Shareholders................................................... 60 Related Party Transactions............................................... 61 The Exchange Offer....................................................... 64 Description of Notes..................................................... 80 Plan of Distribution..................................................... 123 Legal Matters............................................................ 124 Independent Public Accountants........................................... 124 Index to Financial Statements............................................ F-1
________________________ SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains "forward-looking" statements within the meaning of the federal securities laws. The forward-looking statements include statements concerning our outlook for the future, as well as other statements of beliefs, future plans and strategies or anticipated events, and similar expressions concerning matters that are not historical facts. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, the statements. These risks and uncertainties include the ability to make effective acquisitions and successfully integrate newly acquired businesses into existing operations, the availability and prices of live hogs, raw materials and supplies, livestock disease, live hog production costs, product pricing, the competitive environment and related market conditions, operating efficiencies, access to capital, the cost of compliance with environmental and health standards, adverse results from on-going litigation and actions of domestic and foreign governments and other risks and uncertainties described under "Risk Factors" or in other documents we file with the Securities and Exchange Commission and incorporate by reference into this prospectus. WHERE YOU CAN FIND MORE INFORMATION We are subject to the informational reporting requirements of the Exchange Act, and, in accordance with the Exchange Act, we file reports, proxy statements and other information with the Securities and Exchange Commission. Such 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 SEC's Regional Offices in New York (233 Broadway, New York, New York 10279), and Chicago (Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661). Copies of these materials may be obtained from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the SEC maintains a site on the World Wide Web at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The SEC allows us to "incorporate by reference" the information we file with them, which means that we can disclose important information to you be referring you to those documents. The information incorporated by reference is considered to be part of this prospectus and later information that we file with the SEC will automatically update or supersede this information. We incorporate by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act, as amended, after the date of this prospectus and prior to the termination of the exchange offer: . Annual Report on Form 10-K for the fiscal year ended April 29, 2001; . Quarterly Report on Form 10-Q and 10-Q/A for the 13 weeks ended July 29, 2001; and . Current Report on Form 8-K filed October 19, 2001. You may request a copy of these filings, at no cost, by writing or telephoning us at the following address: Corporate Secretary, Smithfield Foods, Inc., 200 Commerce Street, Smithfield, Virginia 23430, telephone number (757) 365-3000. SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in, or incorporated by reference into, this prospectus. All references to fiscal year in this prospectus refer to the fiscal year ending on the Sunday closest to April 30 of each year (e.g., "fiscal year 2001"Y is the fiscal year ending on April 29, 2001). THE COMPANY We are the largest hog producer and pork processor in the world. We conduct our business through two groups, the Meat Processing Group and the Hog Production Group, each comprised of a number of subsidiaries. Our Meat Processing Group produces both fresh pork and a full complement of processed meats including ham, bacon, sausage, hot dogs and luncheon meats. We have operations in the United States, Canada, Poland, France and Mexico. Approximately 21% of our annual sales are generated from operations outside of the United States, of which sales from Canada account for approximately 60% of these international sales. Our products are marketed nationwide under numerous brand names including Smithfield Premium, John Morrell, Gwaltney, Patrick Cudahy, Kretschmar, Rath, Valleydale, Ember Farms, Lykes, Great, Esskay and Smithfield Lean Generation Pork. In addition, we manufacture products under private labels for the retail and foodservice trade. Our Hog Production Group raises approximately 12 million hogs annually, representing approximately 12% of the U.S. hog production market and three times the production of our nearest competitor. Our hog production operations are primarily based in the southeastern and midwestern United States. We transfer a majority of the hogs we produce to our own processing facilities and sell the remainder under long-term contracts to other processors. We consider our Meat Processing Group and Hog Production Group to be countercyclical to each other. Generally, pork processors make more money when hog prices are low and processing margins decline when hog prices are high. We believe the combination of the operations of these two industry segments offers a competitive advantage and, over time, should achieve more stable results than those of less vertically integrated competitors. For the 52 week period ended July 29, 2001, we had sales of $6.1 billion and EBITDA (as defined in this prospectus) of $525.0 million. Over the last 10 fiscal years, sales and EBITDA have grown at a compound annual growth rate of 21% and 29%, respectively, due to a combination of internal growth and strategic acquisitions. Business Strategy Our business is based on four basic strategies: . Vertical Integration. We, principally through the acquisitions of Carroll's Foods of Virginia, Inc. and Murphy Farms in fiscal years 1999 and 2000, have increased our vertical integration into hog production from 8% to 60%. We produce hogs through a 6 combination of company-owned and contract production operations in addition to long-term partnerships and strategic alliances. We believe that vertical integration provides a number of competitive advantages, including substantial economies of scale from high volume hog production, increased control over raw material quality and consistency, and operational, logistical and transportation efficiencies due to the close proximity of our hog production operations to our processing facilities. We intend to position ourselves to maximize the benefits of vertical integration. . Advanced Genetics. Since May 1991, we have made extensive use of our exclusive United States franchise rights from the National Pig Development Company, or NPD, relating to genetic lines of specialized breeding stock. These hogs are among the leanest hogs commercially available, and enable us to market highly differentiated pork products. Since introducing a herd of 2,000 sows in 1990, we have increased the number of NPD sows to 385,000, or approximately 55% of our total sow inventory. Over the next five years we intend to further expand production of NPD sows. We believe that the leanness and increased meat yields of these hogs will continue to increase the overall quality and consistency of our fresh pork and processed meats. . Strategic Acquisitions. Over the last decade, we have made several significant acquisitions that have increased production capacity, provided vertical integration, expanded our geographic reach into new markets, both domestically and internationally, and created a portfolio of highly recognized regional brands. Recently, we have taken steps to expand our business into beef processing. To that end, we recently acquired Moyer Packing Company, the ninth largest U.S. beef processor, providing us with the opportunity to expand our geographic reach into the northeastern United States and offer a broader range of complementary products. In addition, during the second quarter of our current fiscal year, we completed the acquisition of Packerland Holdings, Inc., the fifth largest U.S., beef processor with its principal operations in the northern Midwest and the Southwest. During the quarter we also completed the acquisition of Stadler's Country Hams, Inc., a producer of country hams, and a 75% interest in RMH Foods, Inc., a company specializing in pre-cooked pork and beef entrees under the Quick-n-Easy/TM/ brand. On November 1, 2001 we announced an agreement in principle to acquire beef packer American Foods Group, Inc., the nation's tenth largest beef packer. Going forward, we will continue to look to grow through strategic acquisitions both domestically and internationally. . Value-Added and Branded Products. We believe that significant earnings growth will occur through focused efforts to market value-added and branded products. In this regard, we have embarked on a strategy of increasing brand awareness by marketing branded fresh pork and further processed fresh pork cuts into value-added and case-ready products for sale to retailers and consumers. In addition, we introduced a new line of fresh pork products under the Smithfield Lean Generation Pork brand name approximately six years ago. These products, using only raw materials from the NPD hog, are marketed nationwide to selected retailers and institutional food customers. Since their introduction, sales of Smithfield Lean Generation Pork products have grown to more than 100 million pounds annually. The success of this and other branded pork programs provides us with increased name recognition among retailers and consumers, which we believe facilitates our sale of other processed meat products such as ham, bacon, sausage and hot dogs. 7 RECENT DEVELOPMENTS On November 20, 2001, we announced that our net income rose 36% to $60.5 million, or $.56 per diluted share, for the second quarter ended October 28, 2001 compared with $44.6 million, or $.40 per diluted share, for the comparable prior year period. Net income for the first six months of fiscal 2002 totaled $117.4 million, or $1.10 per diluted share compared to $89.1 million, or $.81 per diluted share in the first half of fiscal 2001. Results in the current year included two unusual items, the net result of which added $1.2 million after-tax to net income, or $.01 per diluted share. In the first quarter, we reported a gain on the sale of IBP stock of $4.2 million after tax, or $.04 per diluted share, largely offset by a loss of $3.0 million, after-tax, or $.03 per diluted share, incurred as a result of a fire at a Circle Four farm in Utah. At the beginning of the current fiscal year, we adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). In accordance with the provisions of SFAS 142, we discontinued the periodic amortization of goodwill but are now required to annually review recorded goodwill for potential impairment. Had SFAS 142 been effective in the previous fiscal year, net income and fully diluted earnings per share would have been $46.7 million, or $.42 per diluted share, and $93.4 million, or $.85 per diluted share, for the second quarter and six month period in the prior year, respectively. During the second quarter our vertical integration strategy produced strong earnings gains in both our Meat Processing Group and Hog Production Group. The Meat Processing Group operating profits increased 20% to $38.8 million from $32.4 million while the Hog Production Group operating profits grew 36% to $99.0 million from $72.7 million. Last year's Hog Production Group results included a pretax gain of $7.0 million for insurance settlements for losses incurred at hog production facilities related to Hurricane Floyd. Sales rose 17% in the quarter to $1.7 billion from $1.4 billion a year ago, reflecting higher pricing in the Meat Processing Group and sales of recently acquired companies. The Meat Processing Group achieved higher margins as a result of a favorable fresh meat environment, strong domestic demand and higher Japanese exports. Volumes in the Meat Processing Group, excluding by-products, increased 10% with total fresh pork and processed meat volumes up two percent and fresh beef volumes of the recently acquired Moyer Packing Company adding eight percent. In addition to the added processed meats volumes of acquired businesses, our base processed meats business improved on retail distribution gains in the quarter. Sales of newly-acquired companies contributed to first half sales growth of 16% to $3.3 billion from $2.9 billion. In the first half of fiscal 2002, the Meat Processing Group posted operating earnings of $38.3 million versus $24.6 million in the prior year, a 56% increase. The Hog Production Group operating earnings grew 19% in the first six months to $218.7 million from $183.9 million a year ago. International operations continued to improve and, overall, were profitable versus a loss in the first half of last year. On November 1, 2001, we announced an agreement in principle to acquire American Foods Group, Inc., the nation's tenth largest beef processor. For the fiscal year ended June 30, 2001, American Foods had sales of $581 million. It has a daily processing capacity of 1,900 head and recently built two new case- ready production facilities in Cincinnati, Ohio and Green Bay, Wisconsin. Its headquarters are in Green Bay, near our recently acquired Packerland facility. Terms of the agreement in principle call for us to acquire 100% of the outstanding shares of American Foods in exchange for cash and the assumption of debt. We expect to complete the 8 transaction during the third quarter of fiscal 2002, though a definitive agreement has not yet been reached and is subject to due diligence. On October 25, 2001, we completed the acquisition of Packerland Holdings, Inc., the fifth largest beef processor in the United States. For the fiscal year ended December 30, 2000, Packerland had $1.4 billion in net sales. We acquired 100% of the outstanding capital shares of Packerland in exchange for approximately 6.3 million shares of our common stock and the assumption of approximately $118 million in debt and other liabilities. Based in Green Bay, Wisconsin, Packerland currently has a daily processing capacity of 6,150 head and represents approximately 5% of U.S. beef industry capacity. Packerland is one of the premier Holstein steer and cow operations in the U.S. Richard Vesta, president and chief executive officer of Packerland with 30 years of industry experience, will be continuing in that capacity under our ownership. Packerland has 4,000 employees and plants in Green Bay, Wisconsin; Plainwell, Michigan; Tolleson, Arizona and Gering, Nebraska. Also during the second quarter of our current fiscal year we completed the acquisition of Stadler's Country Hams, Inc. and a 75% interest in RMH Foods, Inc. Stadler's is a producer of country hams based in Elon College, North Carolina. RMH Foods, based in Morton, Illinois, specializes in pre-cooked pork and beef entrees under the Quick-n-Easy/TM/ brand. These acquisitions were valued at $20 million in the aggregate. On August 29, 2001, our shareholders approved an amendment to our articles of incorporation to provide for an increase in the authorized shares of common stock to 200 million from 100 million at our annual meeting of shareholders. Upon the approval of the increase in authorized shares, our board of directors declared a two-for-one stock split in the form of a 100% stock dividend on our common stock. The stock dividend was distributed on September 14, 2001 to the record holders of our stock on September 6, 2001. All share and per share information in this prospectus has been restated to reflect the stock dividend. On August 8, 2001, we offered to acquire all of the common shares of Schneider Corporation, a food processing company headquartered in Kitchener, Ontario, that we did not already own for approximately 2.8 million shares of our common stock. At that time, we already owned approximately 63% of the outstanding shares of Schneider. As a result of the offer, we came to own approximately 99% of the outstanding shares of Schneider. In early November 2001, we completed our acquisition and now own 100% of the Schneider shares. On July 30, 2001, we completed the acquisition of The Smithfield Companies, Inc. for approximately $18 million. The Smithfield Companies, Inc., headquartered in Portsmouth, Virginia, is a producer of hams and other specialty food products with annual sales of approximately $20 million. On October 17, 2001, our board of directors approved some changes in our management, including the promotion of C. Larry Pope to the office of President and Chief Operating Officer. Joseph W. Luter, III remains our Chairman of the Board and Chief Executive Officer. See ''Management'' for additional information. 9 THE EXCHANGE OFFER On October 23, 2001, we completed the private offering of the senior notes. References to notes in this prospectus are references to both the senior notes and the exchange notes. We entered into an exchange and registration rights agreement with the initial purchasers in the private offering in which we agreed to deliver to you this prospectus and we agreed to complete the exchange offer within 180 days after the date of original issuance of the senior notes. In the exchange offer, you are entitled to exchange your senior notes for exchange notes which are identical in all material respects to the senior notes except that: . the exchange notes have been registered under the Securities Act of 1993, as amended; . the exchange notes are not entitled to registration rights under the registration rights agreement; and . certain contingent interest rate provisions are no longer applicable. The Exchange Offer............... We are offering to exchange up to $300,000,000 aggregate principal amount of our 8% Senior Notes, Series B, due 2009 (which we call the exchange notes) for a like aggregate principal amount of our outstanding 8% Senior Notes, Series A, due 2009 (which we call the senior notes). Senior notes may only be exchanged in integral multiples of $1,000. Resales.......................... Based on an interpretation by the staff of the SEC set forth in no-action letters issued to third parties, we believe that the exchange notes issued pursuant to the exchange offer in exchange for senior notes may be offered for resale, resold and otherwise transferred by you (unless you are an "affiliate" of ours 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 you are acquiring the exchange notes in the ordinary course of your business and that you have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of the exchange notes. Each participating broker-dealer that receives exchange notes for its own account pursuant to the exchange offer in exchange for senior notes that were acquired as a result of market-making or other trading activity must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. See "Plan of Distribution." Any holder of senior notes who: . is an affiliate of ours; . does not acquire exchange notes in the ordinary course of 10 its business; or . tenders in the exchange offer with the intention to participate, or for the purpose of participating, in a distribution of exchange notes cannot rely on the position of the staff of the SEC enunciated in the no-action letters and, in the absence of an exemption, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of the exchange notes. Expiration Date; Withdrawal of Tenders.......................... The exchange offer will expire at 5:00 p.m., New York City time, on , 2002, or such later date and time to which we extend the expiration date. A tender of senior notes pursuant to the exchange offer may be withdrawn at any time prior to the expiration date. Any senior notes not accepted for exchange for any reason will be returned without expense to the tendering holder promptly after the expiration or termination of the exchange offer. Procedures for Tendering Senior Notes..................... If you wish to accept the exchange offer, you must complete, sign and date the accompanying letter of transmittal, or a facsimile of the letter of transmittal, according to the instructions contained in this prospectus and the letter of transmittal. You must also mail or otherwise deliver the letter of transmittal, or a facsimile of the letter of transmittal, together with the senior notes and any other required documents, to the exchange agent at the address set forth on the cover page of the letter of transmittal. If you hold senior notes through The Depository Trust Company, DTC, and wish to participate in the exchange offer, you must comply with the Automated Tender Offer Program procedures of DTC, by which you will agree to be bound by the letter of transmittal. By signing, or agreeing to be bound by, the letter of transmittal, you will represent to us that, among other things: . any exchange notes that you receive will be acquired in the ordinary course of your business; . you have no arrangement or understanding with any person or entity to participate in a distribution of the exchange notes; . if you are a broker-dealer that will receive exchange notes for your own account in exchange for senior notes that were acquired as a result of market-making activities, that you will deliver a prospectus, as required by law, in connection with any resale of such exchange notes; and . you are not an "affiliate," as defined in Rule 405 of the 11 Securities Act, of ours or, if you are an affiliate, you will comply with any applicable registration and prospectus delivery requirements of the Securities Act. Special Procedures for Beneficial Owners................ If you are a beneficial owner of senior notes which are not registered in your name, and you wish to tender such senior notes in the exchange offer, you should contact the registered holder promptly and instruct such registered holder to tender on your behalf. If you wish to tender on your own behalf, you must, prior to completing and executing the letter of transmittal and delivering your senior notes, either make appropriate arrangements to register ownership of the senior notes in your name or obtain a properly completed bond power from the registered holder. Guaranteed Delivery Procedures... If you wish to tender your senior notes and your senior notes are not immediately available or you cannot deliver your senior notes, the letter of transmittal or any other documents required by the letter of transmittal or comply with the applicable procedures under DTC's Automated Tender Offer Program prior to the expiration date, you must tender your senior notes according to the guaranteed delivery procedures set forth in this prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures." Conditions to the Exchange Offer................... The exchange offer is subject to customary conditions, which we may waive. Please read the section captioned "The Exchange Offer - Conditions to the Exchange Offer" of this prospectus for more information regarding the conditions to the exchange offer. Effect on Holders of Senior Notes..................... As a result of the making and consummation of the exchange offer, we will have fulfilled a covenant contained in the registration rights agreement and, accordingly, there will be no increase in the interest rate on the senior notes under the circumstances described in the registration rights agreement. If you are a holder of senior notes and you do not tender your senior notes in the exchange offer, you will continue to be entitled to all the rights and limitations applicable to the senior notes in the indenture, except as noted above. To the extent that the senior notes are tendered and accepted in the exchange offer, the trading market for senior notes could be adversely affected. 12 Consequences of Failure to Exchange......................... All untendered senior notes will continue to be subject to the restrictions on transfer provided for in the senior notes and in the indenture. In general, the senior 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. Other than in connection with the exchange offer, we do not currently anticipate that we will register the senior notes under the Securities Act. Exchange Agent................... Suntrust Bank is the exchange agent for the exchange offer. The address and telephone number of the exchange agent are set forth in the section captioned "Exchange Offer -- Exchange Agent" of this prospectus. Use of Proceeds.................. We will not receive any cash proceeds from the exchange offer. 13 TERMS OF THE EXCHANGE NOTES The exchange offer applies to $300,000,000 aggregate principal amount of the exchange notes. The form and terms of the exchange notes are the same as the form and terms of the senior notes except that the exchange notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer. The exchange notes will evidence the same debt as the senior notes and will be entitled to the benefits of the indenture. See "Description of Notes." Issuer.................. Smithfield Foods, Inc. Notes Offered........... $300,000,000 aggregate principal of 8% Senior Notes, Series B, due 2009. Maturity................ October 15, 2009. Interest................ Annual rate: 8%. Interest Payment Dates.. October 15 and April 15 of each year, commencing on April 15, 2002. Change of Control....... Upon the occurrence of a change of control, you will have the right to require us to purchase all or a portion of your exchange notes at a price equal to 101% of the principal amount together with accrued and unpaid interest, if any, to the date of purchase. Ranking................. The exchange notes will be senior unsecured obligation and will rank equally in right of payment to all of our existing and future unsecured and unsubordinated indebtedness and senior to our existing and future subordinated indebtedness, including our senior subordinated notes. The exchange notes will be effectively subordinated to all of our existing and future senior secured indebtedness to the extent of the value of the assets securing that indebtedness. As of July 29, 2001, our aggregate principal amount of indebtedness, including capital lease obligations, was approximately $1,301.5 million, of which $1,114.9 million was senior secured indebtedness. The exchange notes will not be guaranteed by any of our subsidiaries and will be subordinated to all of the obligations and liabilities of our subsidiaries. As of July 29, 2001, the aggregate principal amount of indebtedness of our subsidiaries was approximately $199.6 million, excluding capital lease obligations and guarantees of the senior secured notes and our $650.0 million revolving credit facility (the ''U.S. Revolver''). 14 Covenants............... We will issue the exchange notes under an indenture with SunTrust Bank, as trustee. SunTrust Bank also serves as the trustee under the indenture relating to our 7 5/8% Senior Subordinated Notes due 2008. The indenture will, among other things, limit our ability and the ability of our subsidiaries to: . borrow money; . incur liens; . pay dividends on stock, redeem stock or redeem subordinated debt; . make investments; . sell assets or sell capital stock of restricted subsidiaries; . enter into agreements that restrict dividends from subsidiaries; . enter into sale and leaseback transactions; . guarantee indebtedness; . merge or consolidate; and . enter into affiliate transactions. If the notes are assigned an investment grade rating from Standard and Poor's Ratings Services (at least BBB-) and Moody's Investors Service, Inc. (at least Baa3), so long as no default or event of default has occurred and is continuing, our obligation to comply with these covenants will ''fall-away,'' even if the notes are subsequently downgraded. The ''fall-away,'' however, will not affect our obligation to comply with the covenant relating to liens, sale and leaseback transactions, and mergers and consolidations. Liquidity............... The exchange notes are new securities and there is currently no established market for the exchange notes. The exchange notes generally will be freely transferable but will also be new securities for which there will not initially be a market. Accordingly, there can be no assurance as to the development or liquidity of any market for the exchange notes. The exchange notes are expected to be eligible for trading in the PORTAL market. We do not intend to apply for a listing of the exchange notes on any securities exchange or an automated dealer quotation system.
52 Weeks 13 Weeks Fiscal Year Ended Ended Ended ------------------------------------------------- July 29, July 29, April 29, April 30, May 2, May 3, April 27, 2001 2001 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- ---- ---- Ratio of earnings to fixed charges........... 4.0x 4.9x 3.7x 2.4x 3.8x 3.2x 2.8x
In evaluating an investment in the exchange notes, prospective investors should carefully consider, along with the other information set forth in this prospectus, the specific factors set forth under ''Risk Factors'' for risks involved with an investment in the exchange notes. 15 SUMMARY CONSOLIDATED CONDENSED FINANCIAL INFORMATION The following table sets forth our summary consolidated condensed historical financial data which should be read in conjunction with and is qualified in its entirety by reference to the audited consolidated financial statements, the unaudited consolidated financial statements and the related notes included elsewhere in, and incorporated by reference into, this prospectus. The summary consolidated condensed financial data for the 52 week period ended July 29, 2001 and the 13 week periods ended July 29, 2001 and July 30, 2000 have been derived from unaudited consolidated financial statements. In the opinion of management, the unaudited information reflects all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of the results for those periods. Results for the 52 weeks and 13 weeks ended July 29, 2001 are not necessarily indicative of the results to be expected for the full fiscal year. The summary consolidated condensed financial data for the fiscal years ended April 29, 2001, April 30, 2000 and May 2, 1999 and have been derived from our financial statements which have been audited by Arthur Andersen LLP.
52 Weeks Ended 13 Weeks Ended Fiscal Year Ended ----- -------------- ----------------- July 29, July 29, July 30 April 29, April 30, May 2, 2001 2001 2000 2001 2000 1999 ---- ---- ---- ---- ---- ---- (in thousands) Income Statement Data: Sales.............................. $6,115,013 $1,636,412 $1,421,326 $5,899,927 $5,150,469 $3,774,989 Gross profit....................... 974,921 255,418 229,400 948,903 694,066 539,575 Selling, general and Administrative expenses........... 463,339 116,219 103,845 450,965 390,634 295,610 Depreciation expense............... 125,888 31,707 30,655 124,836 109,893 63,524 Interest expense................... 85,222 19,636 23,388 88,974 71,944 40,521 Minority interests................. 7,653 1,578 (246) 5,829 1,608 (3,518) Nonrecurring gain (1).............. (86,027) (7,008) -- (79,019) -- -- Income before income taxes......... 378,846 93,286 71,758 357,318 119,987 143,438 Net income......................... 235,848 56,904 44,569 223,513 75,112 94,884 Other Data: EBITDA (2)......................... $ 524,957 $ 144,265 $ 129,043 $ 509,735 $ 310,895 $ 252,525 EBITDA margin (3).................. 8.6% 8.8% 9.1% 8.6% 6.0% 6.7% Capital expenditures............... $ 139,748 $ 26,134 $ 30,506 $ 144,120 $ 100,383 $ 95,447 Ratio of EBITDA to interest Expense........................... 6.2x 7.3x 5.5x 5.7x 4.3x 6.2x Ratio of net debt to EBITDA (4)........................ 2.4x 8.6x 10.0x 2.4x 4.0x 2.6x Ratio of earnings to fixed charges (5)....................... 4.0x 4.9x 3.5x 3.7x 2.4x 3.8x Amortization expense............... $ 13,616 $ 1,644 $ 3,242 $ 15,214 $ 9,071 $ 5,042 Balance Sheet Data (end of period): Cash............................... $ 61,192 $ 61,192 $ 46,157 $ 56,532 $ 49,882 $ 30,590 Working capital (6)................ 288,687 288,687 580,656 635,413 609,857 215,865 Total debt (including capital lease obligations)................ 1,301,511 1,301,511 1,334,654 1,261,317 1,301,199 683,969 Shareholders' equity............... 1,094,168 1,094,168 932,797 1,053,132 902,909 542,246 Operating Data: Fresh meat sales (pounds).......... 2,869,719 693,010 635,091 2,811,800 2,786,400 2,687,412 Processed meat sales (pounds).......................... 2,231,352 549,205 515,553 2,197,700 2,192,100 1,606,021 Total hogs processed............... 20,450 4,598 4,724 20,576 20,367 19,093
16 NOTES TO SUMMARY CONSOLIDATED CONDENSED FINANCIAL INFORMATION (1) Reflects nonrecurring gains of $86.0 million for the 52 weeks ended July 29, 2001, $7.0 million for the 13 weeks ended July 29, 2001 and $79.0 million for the fiscal year ended April 29, 2001 on the sale of shares of IBP, inc. common stock. (2) "EBITDA" represents income from continuing operations before interest expense, income taxes, depreciation and amortization, the nonrecurring gains described in note (1), $7.5 million of expenses incurred related to the attempted merger with IBP for the 52 weeks ended July 29, 2001 and the fiscal year ended April 29, 2001, a $5.1 million gain on the sale of a plant for the 52 weeks ended July 29, 2001 and the fiscal year ended April 29, 2001 and a $5.0 million loss resulting from a fire at a Circle Four farm in Utah for the 52 weeks and 13 weeks ended July 29, 2001. We have included EBITDA in Other Data because it is used by some investors as a measure of an issuer's ability to service debt. EBITDA should not be considered as an alternative to operating earnings, net income or net cash provided by operating activities (or any other measure of performance determined in accordance with generally accepted accounting principles) or as a measure of our ability to meet our cash needs. Schneider and its subsidiaries and Animex S.A. are parties to debt agreements that limit the amount of dividends and assets they may transfer to us. EBITDA includes $40.8 million and $29.0 million, respectively, of combined EBITDA of Schneider and Animex for the fiscal years ended April 29, 2001 and April 30, 2000 and $44.1 million, $8.5 million and $5.2 million, respectively, for the 52 weeks ended July 29, 2001 and the 13 weeks ended July 29, 2001 and July 30, 2000. (3) Represents EBITDA as a percentage of sales. (4) Net debt represents total debt plus capital lease obligations less cash. (5) For the purpose of computing the ratios of earnings to fixed charges, earnings represent income before taxes, the nonrecurring gain described in note (1), the expenses related to our attempted merger with IBP and the gain on the sale of a plant, described in note (2) plus fixed charges (excluding capitalized interest). Fixed charges include interest on indebtedness (including capitalized interest), amortization of deferred debt issuance costs and an estimate of the interest portion of fixed rent expense. (6) During the first quarter of fiscal 2002, our U.S. Revolver became classified as a current portion of long term debt, and our working capital reflected a decrease of $438.0 million, which was the amount outstanding under our U.S. Revolver as of July 29, 2001. We have begun the process to refinance this facility and expect to complete the refinancing during the third quarter of fiscal 2002. 17 RISK FACTORS In evaluating an investment in the exchange notes, prospective investors should carefully consider the following risk factors, as well as the other information set forth in this prospectus: The cyclical nature of the North American pork processing markets may adversely affect our business, the results of our operations or our financial conditions. Our results of operations and financial condition are largely dependent upon the cost and supply of hogs and the selling prices for many of our products, both of which are determined by constantly changing market forces of supply and demand over which we have little or no control. The North American pork processing markets are highly competitive, with major and regional companies competing in each market. The market prices for pork products are highly cyclical, being characterized by periods of supply and demand imbalance and sensitivity to changes in industry capacity. Furthermore, some structural factors accentuate this cyclicality, including the following: . substantial capital investment and high fixed costs required to manufacture pork products efficiently; . the significant exit costs associated with capacity reductions; and . competition from producers of other meats and protein sources, especially beef, chicken and fish. In addition, the supply and market price of live hogs to be processed is dependent upon a variety of factors over which we have little or no control. These factors include, among other factors, the following: . fluctuations in the size of herds maintained by North American hog suppliers; . environmental and conservation regulations; economic conditions; . the relative cost of feed for hogs; . weather; and . livestock diseases. In addition, severe price swings in raw materials, and the resultant impact on the prices we charge for our products, have at times had, and may in the future have, material adverse effects on our results of operations. We cannot assure that all or part of any increased costs experienced by us can be passed along to consumers of our products directly or in a timely manner. 18 We are subject to the general risks affecting the food industry and specific risks relating to animal health. The food products manufacturing industry is subject to the risks posed by the following: . adverse changes in general economic conditions; . food spoilage or food contamination; . evolving consumer preferences and nutritional and health-related concerns; . federal, state and local food processing controls; . consumer product liability claims; . product tampering; and . possible unavailability and expense of liability insurance. In addition, we are subject to risks relating to our ability to maintain animal health and control diseases. If our livestock is affected by disease, we may be required to destroy infected livestock, which could adversely affect our production or our ability to sell or export our products. Adverse publicity concerning any disease or health concern could also cause customers to lose confidence in the safety and quality of our food products. Although there have been no reported cases of either foot and mouth disease or mad cow disease in the United States, these health concerns have had an adverse effect on the livestock industry in Europe and South America and we cannot assure that livestock diseases will not affect our business. Our numerous acquisitions in recent years, and any future acquisitions, may adversely affect our business, the results of our operations or our financial conditions. We have made numerous acquisitions in recent years, and as part of our business strategy, we regularly review and seek new acquisitions. These acquisitions could include very large transactions. Acquisitions involve a number of risks and present financial, managerial and operational challenges, including: . diversion of management attention from existing businesses; . difficulty with integration of personnel and financial and other systems; . increased expenses, including compensation expenses resulting from newly hired employees; . assumption of unknown liabilities; . potential disputes with the sellers of acquired businesses, technologies, services or products; and . adverse effects on reported operating results due to the amortization of goodwill associated with acquisitions. We could also experience financial or other setbacks if any of the businesses that we have acquired or may acquire in the future have problems of which we are not aware. In addition, as a result of future acquisitions we may further increase our leverage. 19 Our net sales and profitability could be adversely affected by the deterioration in the financial condition of one or more of our major customers. Some customers are material to our business and operations. Our ten largest customers represented approximately 21% of net sales for the fiscal year 2001. We do not have long-term purchase agreements (other than to third-party hog customers) or other contractual assurance as to future sales to these major customers. In addition, continued consolidation within the retail industry has resulted in an increasingly concentrated retail base. To the extent this consolidation continues to occur, our net sales and profitability may be increasingly sensitive to a deterioration in the financial condition of or other adverse developments in our relationship with one or more customers. In addition, as a result of consolidation in the retail food industry, and the entry of mass merchants such as Wal-Mart into that market, our customers are able to exert increasing pressure on us with respect to pricing, product quality and new product introductions. We are subject to governmental regulations and noncompliance with these regulations by us could adversely affect our business, the results of our operations or our financial conditions. Our operations are subject to extensive regulation by the United States Food and Drug Administration, the United States Department of Agriculture and other state and local authorities regarding the processing, packaging, storage, distribution, advertising and labeling of our products, including food safety standards. Our manufacturing facilities and products are subject to constant inspection by federal, state and local authorities. We believe that we are currently in compliance with all material governmental laws and regulations and maintain all material permits and licenses relating to our operations. Nevertheless, we cannot assure that we are in compliance with these laws and regulations or that we will be able to comply with any future laws and regulations. Our failure to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions. These penalties could be severe enough to have a significant negative impact on us. Compliance with environmental regulations may result in significant costs and failure to comply with environmental regulations may result in civil as well as criminal penalties, liability for damages and negative publicity. Our past and present business operations and our past and present ownership and operation of real property are subject to extensive and increasingly stringent federal, state and local laws and regulations pertaining to the discharge of materials into the environment and the handling and disposition of wastes (including solid and hazardous wastes) or otherwise relating to protection of the environment. Failure to comply can have serious consequences for us. These consequences include criminal as well as civil penalties, liability for damages, and negative publicity. Many requirements applicable to us may be enforced by citizen groups as well as governmental authorities. Compliance with these laws and regulations and future changes to them is material to our business. We have incurred and will continue to incur significant capital 20 and operating expenditures to comply with these laws and regulations. We cannot assure that additional environmental issues will not require currently unanticipated investigation, assessment or expenditures, or that requirements applicable to us will not be altered in ways that will require us to incur significant additional costs. In addition, some of our facilities have been in operation for many years. During that time, we and previous owners of these facilities have generated and disposed of wastes that are or may be considered hazardous. Discovery of previously unknown contamination of property underlying or in the vicinity of our present or former properties or manufacturing facilities and/or waste disposal sites could require us to incur material unforeseen expenses. Occurrences of any of these events may have a material adverse affect on our financial condition. A description of some environmental litigation and proceedings involving us appears beginning on page 54. We are subject to many risks relating to our international operations that could have a material adverse affect on our business, the results of our operations or our financial conditions. International sales accounted for approximately 21% of our sales for the fiscal year 2001. International sales are subject to risks related to general economic conditions, imposition of tariffs, quotas, trade barriers and other restrictions. We are also subject to risks relating to enforcement of remedies in foreign jurisdictions, compliance with applicable foreign laws, and other economic and political uncertainties. Furthermore, we conduct foreign operations in Canada, France and Poland. These foreign operations are subject to the risks described above as well as risks related to fluctuations in currency values, translation of foreign currencies into U.S. dollars, foreign currency exchange controls, compliance with foreign laws and other economic or political uncertainties. In addition, we are engaged in joint ventures in Mexico and Brazil. Our investment in these joint ventures are also subject to these risks. As of July 29, 2001, approximately 22% of our long-lived assets were associated with our foreign operations. We are highly leveraged. Our substantial indebtedness will severely limit cash flow available for our operations and could adversely affect our ability to service debt or obtain additional financing if necessary. We currently have a significant amount of outstanding indebtedness and, subsequent to the October 2001 offering of the senior notes, we will remain significantly leveraged. As of July 29, 2001, on a pro forma basis after giving effect to this offering and the application of the net proceeds from that offering, our indebtedness would have been $1,306.5 million, our availability under the U.S. Revolver would have been $507.0 million and our net availability (excluding $17.6 million of outstanding letters of credit) under the U.S. Revolver would have been $489.4 million. In addition, our international credit facilities for our Canadian and Polish subsidiaries provided us approximately an additional $117.3 million of availability, exclusive of outstanding letters of credit, as of July 29, 2001. The degree to which we are leveraged could have important consequences to us, including: . increased vulnerability to adverse general economic, industry and competitive conditions, . impaired ability to obtain additional financing for future working capital, capital expenditures, acquisitions, general corporate purposes or other purposes, and 21 . dedication of a significant portion of our cash flow from operations to the payment of principal and interest on indebtedness, reducing the funds available for operations and future business opportunities. The indenture relating to the notes permits us to incur additional debt, including debt ranking equally to the notes, subject to some limitations. In addition, the terms of our debt agreements include some covenants that could limit our operating and financial flexibility. Our ability to make scheduled payments of principal or interest on, or refinance, our indebtedness depends on our future business performance, which is subject to economic, financial, competitive and other factors that are beyond our control. Our ability to meet our obligations under our indebtedness depends on the earnings and cash flows of our subsidiaries and the ability of our subsidiaries to pay dividends or advance or repay funds to us. Because we are a holding company that conducts our operations through subsidiaries, our ability to meet our obligations under our indebtedness depends on the earnings and cash flows of our subsidiaries and the ability of our subsidiaries to pay dividends or advance or repay funds to us. Our ability to meet our obligations under our indebtedness includes our ability to meet our obligations relating to the exchange notes. In addition, any of our rights to participate in the assets of any of our subsidiaries upon a liquidation or reorganization of any of our subsidiaries will be subject to the prior claims of that subsidiary's creditors (except to the extent we may ourselves be a creditor of that subsidiary). This includes that subsidiary's trade creditors and our creditors who have obtained guarantees from the subsidiary. As a result, the notes will be structurally subordinated to the obligations and liabilities of all of our subsidiaries. As of July 29, 2001, on a pro forma basis after giving effect to the October 2001 offering of the senior notes and the application of the net proceeds from that offering, the aggregate accrued liabilities and obligations of our subsidiaries would have been $1,789.8 million. If the notes receive an "investment grade" rating then we will no longer be subject to most of the covenants in the indenture. If at any time the notes receive an "investment grade" rating from Standard & Poor's Ratings Service and Moody's Investors Service, Inc., then, subject to certain additional conditions, we will no longer be subject to most of the covenants set forth in the indenture governing the notes. If most of the covenants have ceased to apply to us as a result of achieving those ratings, those covenants will not be restored, even if the notes are later rated below investment grade by either or both of the rating agencies. The covenants in our outstanding indebtedness impose restrictions that may limit our operating and financial flexibility. Our various debt agreements contain financial covenants that require the maintenance of certain levels and ratios for working capital, net worth, current ratio, fixed charges, capital 22 expenditures and among other restrictions, limit additional borrowings, the acquisition, disposition and leasing of assets and payment of dividends to shareholders. Our ability to comply with the covenants and restrictions contained in our debt agreements may in the future be affected by events beyond our control, including then prevailing economic, financial and industry conditions. The breach of any of these covenants or restrictions could result in a default that would permit our senior lenders to declare all amounts borrowed, together with accrued and unpaid interest, to be due and payable under our debt agreements. In addition, in the event of a breach, the commitments of the relevant senior lenders to make further extensions of credit under the international credit facilities and the U.S. Revolver could be terminated. If there is an acceleration of our senior debt obligations, then the holders of our senior subordinated notes may also declare those debt obligations to be due and payable. If we were unable to repay our indebtedness to our senior secured lenders, these lenders could proceed against the collateral securing that indebtedness. In the event of a bankruptcy or similar proceeding, our assets will be available to satisfy the obligations under any secured debt before any payments are made on the notes. Because the notes will be unsecured, they will effectively besubordinated to secured debt to the extent of the value of the assets securing the secured debt. In the event of a bankruptcy or similar proceeding in which we are involved, our assets that serve as collateral will be available to satisfy the obligations under any secured debt before any payments are made on the notes. As of July 29, 2001, on a pro forma basis after giving effect to the October 2001 offering of the senior notes and the application of the net proceeds from that offering, we would have had outstanding approximately $819.9 million of secured debt. There are limitations relating to changes of control and such limitations may discourage or make more difficult a sale or takeover of us. Upon a change of control, we will be required to offer to purchase all of the outstanding notes, as well as the outstanding senior subordinated notes and the senior secured notes. Such offers to purchase must be at a price equal to 101% (100% in the case of the senior secured notes) of the principal amount outstanding on the date of repurchase plus accrued and unpaid interest to the date of repurchase. The change of control purchase feature may in some circumstances discourage or make more difficult a sale or takeover of us. In particular, a change of control may also cause an acceleration of, or require an offer to repurchase under, the international credit facilities, the U.S. Revolver, the senior secured notes, the senior subordinated notes and some of our other indebtedness, as well as the debt of our subsidiaries. The inability to repay that indebtedness, if accelerated, and to purchase all tendered notes, senior subordinated notes and senior secured notes would constitute an event of default under our indenture. We cannot assure that we will have funds available to repurchase the notes, the senior subordinated notes and the senior secured notes upon the occurrence of a change of control, or to repay the international credit facilities or U.S. Revolver. In addition, future debt we 23 incur may limit our ability to repurchase the exchange notes upon a change of control or require us to offer to redeem that debt upon a change of control. Moreover, the exercise by the holders of the notes of their repurchase right could cause a default under that debt, even if the change of control does not cause a default due to the financial effect on us of that purchase. Holders who fail to exchange their senior notes will continue to be subject to restrictions on transfer. If you do not exchange your senior notes for exchange notes in the exchange offer, you will continue to be subject to the restrictions on transfer of your senior notes described in the legend on the certificates of those notes. The restrictions on transfer of your senior notes arise because we issued the senior notes under exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, you may only offer or sell the senior notes if they are registered under the Securities Act and applicable state securities laws, or offered and sold under an exemption from these requirements. We do not plan to register the senior notes under the Securities Act. An active public market for the exchange notes may not develop. The exchange notes will generally be freely transferable but will be new securities for which there will not initially be a market. Accordingly, there can be no assurance as to the development or liquidity of any market for the exchange notes. We do not intend to apply for a listing of the exchange notes on any securities exchange or on any automated dealer quotation system. The exchange offer will not be conditioned upon any minimum or maximum aggregate principal amount of senior notes being tendered for exchange. No assurance can be given as to the liquidity of the trading market for the exchange notes, or, in the case of non-exchanging holders of senior notes, the trading market for the senior notes following the exchange offer. The liquidity of, and trading market for, 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. 24 USE OF PROCEEDS We will not receive any cash proceeds from the exchange offer. Any senior notes that are properly tendered and exchanged pursuant to the exchange offer will be retired and cancelled. We used the net proceeds from the issuance of the senior notes, after deducting underwriting discounts, fees and expenses, to repay indebtedness under our U.S. Revolver. At July 29, 2001, this revolving credit facility bore interest at 4.57%. The repayment of amounts under this revolving credit facility did not reduce the lenders' commitments under it. We expect to use the availability under this facility, together with internal funds, for additional capital expenditures and general corporate purposes, including expansion of our processed meats business and strategic acquisitions. RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth the ratio of earnings to fixed charges for each of the last five fiscal years and for the three month period ended July 29, 2001.
Fiscal Years Ended ------------------ 52 Weeks 13 Weeks Ended Ended July 29, July 29, April 29, April 30, May 2, May 3, April 27, 2001 2001 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- ---- ---- Ratio of earnings to fixed charges 4.0x 4.9x 3.7x 2.4x 3.8x 3.2x 2.8x
For the purpose of computing the ratios of earnings to fixed charges, earnings represent income before taxes and reflects a nonrecurring charge of $12.6 million for the fiscal year ended May 3, 1998 related to civil penalties in an environmental case and nonrecurring gains of $79.0 million for the fiscal year ended April 29, 2001, $7.0 million for the 13 weeks ended July 29, 2001, and $86.0 million for the 52 weeks ended July 29, 2001 on the sale of shares of IBP, inc common stock and a $5.1 million gain on the sale of a plant for the fiscal year ended April 29, 2001 and the 52 weeks ended July 29, 2001, net of expenses of $7.5 million incurred related to the attempted merger with IBP, inc for the fiscal year ended April 29, 2001 and the 52 weeks ended July 29, 2001, and a $5.0 million loss resulting from a fire at a Circle Four farm in Utah for the 13 weeks and 52 weeks ended July 29, 2001 plus fixed charges (excluding capitalized interest). Fixed charges include interest on indebtedness (including capitalized interest), amortization of deferred debt issuance costs and an estimate of the interest portion of fixed rent expense. 25 CAPITALIZATION The following table sets forth (i) our actual capitalization as of July 29, 2001, and (ii) our capitalization as adjusted to give effect to the offering of the senior notes and the application of the proceeds of such offering as described under "Use of Proceeds." This table should be read in conjunction with "Summary Consolidated Condensed Financial Information," "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and unaudited consolidated financial statements and the related notes included elsewhere in, and incorporated by reference into, this prospectus.
As of July 29, 2001 ----------------------------------- As Actual Adjusted ---------------- ----------------- (In millions) Cash and cash equivalents......................................... $ 61.2 $ 61.2 ======== ======== U.S. Revolver (a)................................................. $ 438.0 $ 143.0 International Facilities (b)...................................... 28.1 28.1 Notes payable..................................................... 6.9 6.9 Current portion of long-term debt and capital lease obligations... 60.3 60.3 Long-term debt and capital lease obligations: Smithfield Senior Secured Notes................................. 422.2 422.2 Other subsidiary debt obligations............................... 141.2 141.2 8% Senior Notes, Series A, due 2009............................. -- 300.0 7 5/8% Senior Subordinated Notes due 2008....................... 185.1 185.1 Capital lease obligations....................................... 19.7 19.7 -------- -------- Total debt (including capital lease obligations).................. 1,301.5 1,306.5 -------- -------- Total shareholders' equity........................................ 1,094.2 1,094.2 -------- -------- Total capitalization.............................................. $2,395.7 $2,400.7 ======== ========
_____________ (a) The U.S. Revolver is a $650.0 million revolving credit facility maturing on July 15, 2002. The commitments under the U.S. Revolver are subject to a borrowing base limitation. As of July 29, 2001, after giving effect to this offering and the application of the net proceeds of this offering, we would have had outstanding borrowings of $143.0 million and availability of $489.4 million under the U.S. Revolver (excluding $17.6 million of outstanding letters of credit). The amount outstanding under the U.S. Revolver fluctuates throughout the year depending on our working capital needs. (b) Our consolidated Canadian operations maintain credit facilities of C$115.0 million maturing on various dates from March 2002 to January 2003, and our consolidated Polish operations maintain a US$100.0 million-equivalent credit facility maturing in June 2006. As of July 29, 2001, we had outstanding borrowings of approximately US$17.3 million under the Canadian credit facilities and approximately US$10.8 million under Polish notes which were refinanced under the Polish credit facility in the second quarter of fiscal 2002. 26 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA The following table sets forth our selected historical consolidated financial data and other data which should be read in conjunction with and is qualified in its entirety by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and unaudited consolidated financial statements and the related notes included elsewhere in, and incorporated by reference into, this prospectus. The selected historical consolidated financial data for the 52 week period ended July 29, 2001 and the 13 week periods ended July 29, 2001 and July 30, 2000 have been derived from unaudited consolidated financial statements. In the opinion of management, the unaudited information reflects all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of the results for those periods. Results for the 52 weeks and 13 weeks ended July 29, 2001 are not necessarily indicative of the results to be expected for the full fiscal year. The selected consolidated financial data for the fiscal years ended April 29, 2001, April 30, 2000, May 2, 1999, May 3, 1998 and April 27, 1997 have been derived from our financial statements which have been audited by Arthur Andersen LLP.
52 Weeks 13 Weeks Ended Ended Fiscal Year Ended ----- ----- ----------------- July 29, July 29, July 30, April 29, April 30, May 2, May 3, April 27, 2001 2001 2000 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- ---- ---- ---- Income Statement Data: Sales.................... $6,115,013 $1,636,412 $1,421,326 $5,899,927 $5,150,469 $3,774,989 $3,867,442 $3,870,611 Cost of sales............ 5,140,092 1,380,994 1,191,926 4,951,024 4,456,403 3,235,414 3,479,629 3,546,816 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Gross profit............. 974,921 255,418 229,400 948,903 694,066 539,575 387,813 323,795 Selling, general and administrative expenses................ 463,339 116,219 103,845 450,965 390,634 295,610 219,861 191,225 Depreciation expense..... 125,888 31,707 30,655 124,836 109,893 63,524 42,300 35,825 Interest expense......... 85,222 19,636 23,388 88,974 71,944 40,521 31,891 26,211 Minority interests....... 7,653 1,578 (246) 5,829 1,608 (3,518) 199 2,857 Nonrecurring charge (gain) (1).............. (86,027) (7,008) -- (79,019) -- -- 12,600 -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income before income taxes................... 378,846 93,286 71,758 357,318 119,987 143,438 80,962 67,677 Income taxes............. 142,998 36,382 27,189 133,805 44,875 48,554 27,562 22,740 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income............... $ 235,848 $ 56,904 $ 44,569 $ 223,513 $ 75,112 $ 94,884 $ 53,400 $ 44,937 ========== ========== ========== ========== ========== ========== ========== ========== Other Data: EBITDA (2)............... $ 524,957 $ 144,265 $ 129,043 $ 509,735 $ 310,895 $ 252,525 $ 158,725 $ 132,945 EBITDA margin (3)........ 8.6% 8.8% 9.1% 8.6% 6.0% 6.7% 4.1% 3.4% Capital expenditures..... $ 139,748 $ 26,134 $ 30,506 $ 144,120 $ 100,383 $ 95,447 $ 92,913 $ 69,147 Ratio of EBITDA to interest expense........ 6.2x 7.3x 5.5x 5.7x 4.3x 6.2x 5.0x 5.1x Ratio of net debt to EBITDA (4).............. 2.4x 8.6x 10.0x 2.4x 4.0x 2.6x 2.2x 2.6x Ratio of earnings to fixed charges (5)....... 4.0x 4.9x 3.5x 3.7x 2.4x 3.8x 3.2x 2.8x Amortization expense..... $ 13,616 $ 1,644 $ 3,242 $ 15,214 $ 9,071 $ 5,042 $ 3,572 $ 3,232 Balance Sheet Data: Working capital (6)...... $ 288,687 $ 288,687 $ 580,656 $ 635,413 $ 609,857 $ 215,865 $ 259,188 $ 164,312 Total assets............. 3,358,417 3,358,417 3,182,792 3,250,888 3,129,613 1,771,614 1,083,645 995,254 Total debt (including capital lease obligations)............ 1,301,511 1,301,511 1,334,654 1,261,317 1,301,199 683,969 415,783 373,786 Shareholders' equity..... 1,094,168 1,094,168 932,797 1,053,132 902,909 542,246 361,010 307,486 Operating Data: Fresh meat sales (pounds)................ 2,869,719 693,010 635,091 2,811,800 2,786,400 2,687,412 2,539,221 2,320,477 Processed meat sales (pounds)................ 2,231,352 549,205 515,553 2,197,700 2,192,100 1,606,021 1,370,232 1,218,835 Total hogs processed..... 20,450 4,598 4,724 20,576 20,367 19,093 17,952 16,869
27 NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA (1) Reflects nonrecurring gains of $86.0 million for the 52 weeks ended July 29, 2001, $7.0 million for the 13 weeks ended July 29, 2001 and $79.0 million for the fiscal year ended April 29, 2001 on the sale of shares of IBP, inc. common stock and a nonrecurring charge of $12.6 million for the fiscal year ended May 3, 1998 related to civil penalties in an environmental case. (2) "EBITDA" represents income from continuing operations before interest expense, income taxes, depreciation and amortization, the nonrecurring charge and gains described in note (1), $7.5 million of expenses incurred related to the attempted merger with IBP for the 52 weeks ended July 29, 2001and the fiscal year ended April 29, 2001, a $5.1 million gain on the sale of a plant for the 52 weeks ended July 29, 2001and the fiscal year ended April 29, 2001 and a $5.0 million loss resulting from a fire at a Circle Four farm in Utah for the 52 weeks and 13 weeks and ended July 29, 2001. We have included EBITDA in Other Data because it is used by some investors as a measure of an issuer's ability to service debt. EBITDA should not be considered as an alternative to operating earnings, net income or net cash provided by operating activities (or any other measure of performance determined in accordance with generally accepted accounting principles) or as a measure of our ability to meet our cash needs. Schneider and its subsidiaries and Animex are parties to debt agreements that limit the amount of dividends and assets they may transfer to us. EBITDA includes $40.8 million and $29.0 million, respectively, of combined EBITDA of Schneider and Animex for the fiscal years ended April 29, 2001 and April 30, 2000 and $44.1 million, $8.5 million and $5.2 million, respectively, for the 52 weeks ended July 29, 2001 and the 13 weeks ended July 29, 2001 and July 30, 2000. (3) Represents EBITDA as a percentage of sales. (4) Net debt represents total debt plus capital lease obligations less cash. (5) For the purpose of computing the ratios of earnings to fixed charges, earnings represent income before taxes, the nonrecurring charge and gain described in note (1), the expenses related to our attempted merger with IBP, the gain on the sale of a plant and the fire loss, described in note (2) plus fixed charges (excluding capitalized interest). Fixed charges include interest on indebtedness (including capitalized interest), amortization of deferred debt issuance costs and an estimate of the interest portion of fixed rent expense. (6) During the first quarter of fiscal 2002, our U.S. Revolver became classified as a current portion of long term debt, and our working capital reflected a decrease of $438.0 million, which was the amount outstanding under our U.S. Revolver as of July 29, 2001. We have begun the process to refinance this facility and expect to complete the refinancing during the third quarter of fiscal 2002. 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected Historical Consolidated Financial Data" and the Consolidated Financial Statements (including the related notes) included elsewhere in, and incorporated by reference into, this prospectus. General During the fiscal year 2001 and the first quarter of fiscal year 2002, we were comprised of a Meat Processing Group and a Hog Production Group. At July 29, 2001, the Meat Processing Group consisted primarily of seven wholly owned domestic meat processing subsidiaries and four international meat processing entities. The Hog Production Group consisted primarily of three hog production operations located in the United States and joint ventures outside the United States. Acquisitions Several acquisitions affect the comparability of results of operations for the 13 weeks ended July 29, 2001, the 13 weeks ended July 30, 2000 and for fiscal years 2001, 2000 and 1999. The base business refers to our operating companies not affected by acquisitions during the periods of comparison. In June 2001, we completed the acquisition of Moyer for approximately $90 million and the assumption of debt. Moyer is a beef processor with annual sales of approximately $600 million. In July 2001, we completed the acquisition of substantially all of the assets and business of Gorges/Quik-to-Fix Foods for approximately $31 million. Quik-to- Fix is a producer, marketer and distributor of value-added beef, pork and poultry products for the retail and food service industry with annual sales of approximately $140 million. In the third quarter of fiscal 2001, Schneider increased its investment in Saskatchewan-based Mitchell's Gourmet Foods to 54%, requiring us to consolidate their accounts and to discontinue using the equity method of accounting for this investment. The impact of including Mitchell's Gourmet Foods in the consolidated condensed balance sheet as of April 29, 2001 was to increase total assets $87.3 million and long-term debt $10.4 million. For the fiscal year ended October 2000, Mitchell's Gourmet Foods had annual sales of approximately $190 million. In January of fiscal 2000, we completed the acquisition of Murphy Farms and its affiliated companies for 22.1 million shares of our common stock (subject to post-closing adjustments) and the assumption of approximately $203 million in debt, plus other liabilities. Murphy Farms is a hog producer with approximately 345,000 sows that produce approximately 6.1 million market hogs annually. 30 In May of fiscal 2000, we completed the acquisition of Carroll's Foods and its affiliated companies and partnership interests for 8.7 million shares of our common stock and the assumption of approximately $231 million in debt, plus other liabilities. Carroll's Foods' U.S. hog production operations include approximately 180,000 sows which produce approximately 3.5 million market hogs annually. The acquisition also included Carroll's Foods' 50% interest in Tar Heel Turkey Hatchery, 100% of Carroll's Foods' turkey grow-out operations, Carroll's Foods' 49% interest in Carolina Turkeys and hog production interests in Brazil and Mexico. In August of fiscal 2000, we acquired the capital stock of Societe Financiere de Gestion et de Participation S.A., a private-label processed meats manufacturer in France. Prior to the acquisition, Societe Financiere had annual sales of approximately $100 million. In November of fiscal 1999, we acquired 63% of the total equity of Schneider, in exchange for approximately 5.1 million Exchangeable Shares of Smithfield Canada Limited, our wholly owned subsidiary. On August 8, 2001, we offered to buy the remainder of Schneider that we do not already own, which would result in Schneider becoming our indirect wholly owned subsidiary. Schneider produces and markets fresh pork and a full line of processed meats and is the second largest meat processing company in Canada. Prior to the acquisition, Schneider had annual sales of approximately $550 million. In April of fiscal 1999, we acquired a 67% interest in Animex, a major meat and poultry processing company in Poland. During fiscal 2000, we increased our ownership in Animex to 85% of total equity. Prior to the acquisition, Animex had annual sales of approximately $400 million. In September of fiscal 1999, we acquired all of the capital stock of Societe Bretonne de Salaisons, one of the largest private-label manufacturers of ham, pork shoulder and bacon products in France. Prior to the acquisition, Societe Bretonne had annual sales of approximately $100 million. In June of fiscal 1999, we increased our ownership in the Circle Four hog production operation from 37% to 84%, requiring us to consolidate the accounts of Circle Four and to discontinue using the equity method of accounting. Prior to June of fiscal 1999, Circle Four was accounted for using the equity method of accounting. As a result of the acquisition of Carroll's Foods in May of fiscal 2000, Circle Four became our wholly owned subsidiary. In October of fiscal 1999, we acquired all of the assets and business of North Side Foods Corp., a major domestic supplier of precooked sausage to McDonald's Corporation. Prior to the acquisition, North Side had annual sales of approximately $60 million. Each of these acquisitions was accounted for using the purchase method of accounting and, accordingly, the accompanying financial statements include the results of operations from the dates of acquisition. 31 Results of Operations Consolidated 13 Weeks Ended July 29, 2001 Compared to 13 Weeks Ended July 30, 2000 Sales in the 13 weeks ended July 29, 2001 increased by $215.1 million, or 15.1%, from the comparable prior year period. The increases in sales reflected a 9.2% increase in unit selling prices in the Meat Processing Group and the incremental sales of acquired businesses. Gross profit in the 13 weeks ended July 29, 2001 increased $26.0 million, or 11.3%, from the comparable prior year period. The current year gross profit increases are primarily the result of higher live hog prices and increased hog production in the Hog Production Group and better margins in the Meat Processing Group. Higher profit margins in the Meat Processing Group are the result of a more favorable product mix and an increased focus on margin improvement. Selling, general and administrative expenses in the 13 weeks ended July 29, 2001 increased $12.4 million, or 11.9%, primarily on a $5.0 million loss incurred as a result of a fire at a Circle Four farm in Utah, an increase in marketing and promotional costs for branded fresh and processed meats and the inclusion of expenses of acquired businesses. These increases were partially offset by a $2.3 million reduction in amortization expense of acquired goodwill and other intangible assets in connection with the adoption of Statement of Financial Accounting Standards No. 142. Depreciation expense in the 13 weeks ended July 29, 2001 increased $1.1 million, or 3.4%, from the comparable prior year period. The increases are primarily due to the inclusion of depreciation expense of acquired businesses. Interest expense decreased $3.8 million, or 16.0%, from the comparable prior year period. The decrease in interest expense is primarily due to the decrease in average interest rates. In the first quarter of 2002, we sold 2.9 million shares of IBP common stock resulting in a nonrecurring, pretax gain of $7.0 million. The effective income tax rate for the 13 weeks ended July 29, 2001 increased to 39.0% as compared with 37.9% last year on higher effective rates of foreign operations. We had a valuation allowance of $20.5 million related to income tax assets as of July 29, 2001 primarily related to losses in foreign jurisdictions for which no tax benefit was recognized. Reflecting the foregoing factors, net income increased to $56.9 million, or $.53 per diluted share, in the 13 weeks ended July 29, 2001 up from net income of $44.6 million, or $.40 per diluted share in the 13 weeks ended July 30, 2000. Excluding the after-tax gain on the sale of IBP common stock, and the after-tax loss incurred as a result of a fire at a Circle Four farm in Utah, net income increased to $55.7 million, or $.52 per diluted share for the 13 weeks ended July 29, 2001. 32 Fiscal 2001 Compared to Fiscal 2000 Sales in fiscal 2001 increased by $749.5 million, or 14.6%. The increase in sales reflected a 12.0% increase in unit selling prices in the Meat Processing Group and the incremental sales of businesses acquired in fiscal 2001 and 2000. See the following sections for comments on sales changes by business segment. Gross profit in fiscal 2001 increased $254.8 million, or 36.7%, primarily the result of the inclusion of Murphy Farms, sharply improved margins in the Hog Production Group due to higher live hog prices and higher margins in the Meat Processing Group. Higher Meat Processing Group margins are the result of more favorable product mix and increased focus on margin improvement. Selling, general and administrative expenses increased $60.3 million, or 15.4%, primarily on the inclusion of selling, general and administrative expenses of acquired businesses, increased promotion of processed meats, expenses related to the attempted merger with IBP, inc. and expenses on the subsequent sale of the common stock of IBP. Also in fiscal 2001, we recognized a $5.1 million gain on the sale of a plant in Canada that is reported in selling, general and administrative expenses. Depreciation expense increased $14.9 million, or 13.6%, in fiscal 2001 compared to fiscal 2000, primarily related to the inclusion of the depreciation expense of acquired businesses and increased depreciation expense in the existing business reflecting capital expenditures to increase processed meats, case-ready and other value-added fresh pork capacities. Interest expense increased $17.0 million, or 23.7%, in fiscal 2001 compared to fiscal 2000. The increase is primarily due to the inclusion of interest expense on assumed debt of acquired businesses, additional borrowings associated with our investment in the common stock of IBP and the share repurchase program, partially offset by lower average borrowing costs. In fiscal 2001, we sold 8.2 million shares of IBP common stock resulting in a nonrecurring, pretax gain of $79.0 million. The effective income tax rate was 37.4% for fiscal 2001 and 2000. We had a valuation allowance of $20.2 million and $5.3 million related to income tax assets as of April 29, 2001 and April 30, 2000, respectively, primarily related to losses in foreign jurisdictions for which no tax benefit was recognized. Reflecting the factors previously discussed, net income increased to $223.5 million, or $2.03 per diluted share, in fiscal 2001 up from $75.1 million, or $.76 per diluted share, in fiscal 2000. Excluding the gain on the sale of IBP common stock and the plant in Canada, net of related expenses and income taxes, net income increased to $174.9 million, or $1.59 per diluted share. Earnings per diluted share was also affected by the issuance of shares in connection with the acquisition of Murphy Farms in fiscal 2000 and the retirement of shares under our share repurchase program in fiscal 2001 and 2000. 33 Fiscal 2000 Compared to Fiscal 1999 Sales in fiscal 2000 increased $1.4 billion, or 36.4%, from fiscal 1999. The increase in sales was primarily attributable to the incremental sales of businesses acquired in fiscal 2000 and 1999 and an increase in both average unit selling prices and processed meats volume in the base business. See the following sections for comments on sales changes by business segment. Gross profit in fiscal 2000 increased $154.5 million, or 28.6%, primarily the result of the inclusion of acquired businesses in the Hog Production Group where margins improved sharply due to higher live hog prices which were partially offset by expenses related to the implementation of food safety programs at our facilities in the Meat Processing Group and lost production due to the aftereffects of Hurricane Floyd. Fiscal 2000 margins were also favorably impacted by commodity hedging gains in the Hog Production Group. Excluding acquisitions, gross profit in the base business, which was more heavily weighted to the Meat Processing Group, declined as a result of the same higher live hog prices which reduced fresh pork and processed meats margins. Selling, general and administrative expenses increased $95.0 million, or 32.1%, primarily on the inclusion of selling, general and administrative expenses of acquired businesses. In the base business, costs increased primarily due to higher advertising and promotion expenses to market branded fresh pork and processed meats. Depreciation expense increased $46.4 million, or 73.0%, in fiscal 2000 compared to fiscal 1999 primarily related to the inclusion of the depreciation expense of acquired businesses and increased depreciation expense in the base business on processed meats expansion and information systems projects. Interest expense increased $31.4 million, or 77.5%, in fiscal 2000 compared to fiscal 1999 reflecting the inclusion of the interest expense on assumed debt of the acquired businesses, the cost of borrowings to finance additional investments and higher interest rates. The effective income tax rate for fiscal 2000 increased to 37.4% compared to 33.9% in fiscal 1999 primarily on the inclusion of foreign earnings which are taxed at higher rates. We had a valuation allowance of $5.3 million related to income tax assets as of April 30, 2000 primarily related to losses in foreign jurisdictions for which no tax benefit was recognized. At May 2, 1999, we had no valuation allowances for deferred tax assets. Reflecting the factors previously discussed, net income decreased to $75.1 million, or $.76 per diluted share, in fiscal 2000 down from $94.9 million, or $1.16 per diluted share, in fiscal 1999. Earnings per diluted share was also affected by the issuance of shares in connection with business acquisitions and the retirement of shares under our share repurchase program in fiscal 2000. 34 Meat Processing Group 13 Weeks Ended July 29, 2001 Compared to 13 Weeks Ended July 30, 2000 Sales in the Meat Processing Group increased $211.4 million, or 15.9%, in the 13 weeks ended July 29, 2001, from the comparable prior year period on a 9.2% increase in unit selling prices and a 7.9% increase in fresh and processed meats sales volume. The sales tonnage increase is related to the inclusion of sales of acquired businesses, partially offset by the sale of a Canadian fresh pork plant. In the base business, fresh meat volumes increased 2.9% over the 13 week period while processed meats volume decreased 2.0%. The Meat Processing Group had an operating loss in the 13 weeks ended July 29, 2001 of $0.5 million compared to an operating loss of $7.8 million in the comparable prior year period. This improvement is due to higher margins in both fresh and processed meats, despite higher cost of raw materials (live hogs). Fresh meat margins increased resulting from the continued emphasis on the branded, value-added and case-ready categories. Increased processed meat margins reflected higher pricing and improved product mix. Fiscal 2001 Compared to Fiscal 2000 Meat Processing Group sales in fiscal 2001 increased $600.6 million, or 12.0%, on a significant increase in unit selling prices and the inclusion of the sales of businesses acquired. The unit selling price increase was primarily attributable to higher live hog costs and a greater proportion of branded and value-added fresh pork in the sales mix. In fiscal 2001, fresh pork volume increased 2.2%, primarily on branded fresh pork and case-ready while processed meats volume remained relatively flat. Sales volume of other products (primarily by-products) decreased 5.5%. Excluding acquired businesses, sales volume decreased 2.1%, the result of a 3.9% decrease in processed meats volume partially offset by a 0.8% increase in fresh pork volume. Sales volume decreases in processed meats in the base business reflect the elimination of lower margin business due in part to plant closures in Poland and the U.S. These decreases were partially offset by the inclusion of the sales volume of Mitchell's Gourmet Foods and Societe Financiere. Operating profit in the Meat Processing Group increased to $135.2 million in fiscal 2001 from $122.9 million, the result of sharply higher margins on processed meats partially offset by lower margins on fresh pork. Margins in processed meats reflected better pricing, lower production costs and improved product mix. Fresh pork margins were down, largely the result of higher live hog costs which were partially offset by an improved product mix resulting from the growth in the branded, value-added and case-ready categories. Meat Processing Group operating profit also increased due to a $5.1 million gain on the sale of a plant in Canada and the incremental operating profit from acquired businesses. Fiscal 2000 Compared to Fiscal 1999 Meat Processing Group sales in fiscal 2000 increased $1.3 billion, or 33.6%, from fiscal 1999. The increase in sales was primarily attributable to the incremental sales from businesses 35 acquired in fiscal 2000 and 1999 and an increase in both average unit selling prices and processed meats volume in the base business. For fiscal 2000, processed meats and fresh pork volume increased 36.5% and 3.7%, respectively, on incremental volume of acquired businesses. In addition, unit selling prices increased 14.0% due to higher live hog costs and a greater proportion of value- added processed meats in the sales mix. Excluding acquired businesses, processed meats volume increased 6.0% which was offset by a 6.2% decrease in fresh pork volume. Fresh pork volume decreased as we reduced processing levels as a result of sharply lower fresh pork margins compared with the prior year. Operating profit in the Meat Processing Group decreased to $122.9 million in fiscal 2000 from $253.8, the result of sharply lower margins on fresh pork partially offset by the incremental operating profit generated in acquired businesses. In addition, increased spending in the base business on the market expansion of fresh pork and processed meats brands, the implementation of food safety programs at our facilities and lost production due to the aftereffects of Hurricane Floyd also contributed to lower operating profit. Hog Production Group 13 Weeks Ended July 29, 2001 Compared to 13 Weeks Ended July 30, 2000 Hog Production Group sales increased 11.4% in the 13 weeks ended July 29, 2001 from the comparable prior year period. This increase is the result of a 7.9% increase in unit selling prices for hogs and a 3.2% increase in production. Most Hog Production Group sales represent intersegment sales to the Meat Processing Group and, therefore, are eliminated in our condensed statements of income. Operating profit in the 13 weeks ended July 29, 2001 at the Hog Production Group improved to $119.7 million from $111.2 million, for the comparable prior year period. Operating profit improved on higher live hog prices, increased volume and lower raising costs, partially offset by the impact of unfavorable commodity hedging contracts and a loss incurred as a result of a fire at a Circle Four farm in Utah. Fiscal 2001 Compared to Fiscal 2000 Hog Production Group sales increased sharply in fiscal 2001 to $1.2 billion from $735.3 million due to the inclusion of a full year of the sales of Murphy Farms compared to only four months in fiscal 2000. Hog Production Group sales also benefited from a 10.5% increase in live hog prices in the base business. With the acquisition of Murphy Farms in fiscal 2000, hogs sold in fiscal 2001 increased to 11.8 million from 7.7 million in the comparable period in fiscal 2000. Intersegment sales to the Meat Processing Group are eliminated in the Consolidated Statements of Income. Operating profit in the Hog Production Group improved to $281.3 million compared to $99.6 million in fiscal 2000 primarily as a result of sharply higher live hog prices, relatively stable grain costs and increased volume from the Murphy Farms acquisition. In addition, the Hog 36 Production Group realized cost savings on production efficiencies between the hog production units and the Meat Processing Group plants. Fiscal 2000 Compared to Fiscal 1999 Hog Production Group sales increased sharply in fiscal 2000 compared to fiscal 1999 as a result of the inclusion of the sales of Murphy Farms and Carroll's Foods and a 27.9% increase in live hog prices. With the acquisition of Carroll's Foods and Murphy Farms, hogs sold in fiscal 2000 more than doubled in the comparable period in fiscal 1999. Operating profit in the Hog Production Group improved to $99.6 million compared to a loss of $46.1 million in fiscal 1999 primarily as a result of a sharp increase in hog prices from their historic lows in fiscal 1999 and the impact of selling significantly more hogs at substantially better margins in the current year. The operating profit was partially offset by the aftereffects of Hurricane Floyd on the hog production operations on the East Coast of the U.S. In addition, operating profit benefited from favorable commodity hedging contracts. Liquidity and Capital Resources The pork processing industry is characterized by high sales tonnage and rapid turnover of inventories and accounts receivable. Because of the rapid turnover rate, we consider our pork processing inventories and accounts receivable highly liquid and readily convertible into cash. Borrowings under our credit facilities are used to finance increases in the levels of inventories and accounts receivable resulting from seasonal and other market-related fluctuations in raw material costs. The demand for seasonal borrowings usually peaks in early November when inventories are at their highest levels, and borrowings are repaid in January when the related accounts receivable are collected. Cash provided by operations totaled $91.3 million for the 13 weeks ended July 29, 2001 compared to $59.9 million in the same period last year. This increase is due to higher earnings, a gain on the sale of IBP common stock, and a reduction in working capital commitments compared to the same period last year. Cash provided by operations increased to $218.3 million for fiscal 2001 from $125.2 million in fiscal 2000. This increase is primarily attributed to the impact of sharply higher earnings, net of a gain on the sale of IBP common stock. Cash used in operating assets and liabilities was $56.4 million in fiscal 2001 compared to $79.5 million in fiscal 2000 primarily due to less cash deposited for commodity hedging commitments. Cash used in investing activities increased to $93.0 million for the 13 weeks ended July 29, 2001 compared to $76.0 million for the comparable prior period. The increase is primarily due to our acquisitions of Moyer and Quik-to- Fix, partially offset by the proceeds from the sale of IBP common stock. Capital expenditures in the current period totaled $26.1 million primarily related to fresh and processed meat expansion projects and plant improvements. As of July 29, 2001, we 37 had definitive commitments of $108.2 million for capital expenditures primarily for processed meat expansion, production efficiencies and additional hog production facilities in Utah. In fiscal 2001, cash used in investing activities was $59.8 million compared to $192.3 million in fiscal 2000. The decrease is primarily due to proceeds from the sale of IBP common stock less the cost of shares purchased during fiscal 2001 compared to the cost of IBP shares purchased in fiscal 2000. Capital expenditures totaled $144.1 million related to fresh pork and processed meats expansion projects and plant improvements. During fiscal 2001, we invested $29.7 million in business acquisitions, primarily Mitchell's Gourmet Foods. In addition, we had proceeds of $38.9 million during fiscal 2001 from the sale of property, plant and equipment primarily the result of the sale of a plant in Canada. Financing activities provided cash of $6.8 million in the 13 weeks ended July 29, 2001 compared to $12.5 million for the prior year. We increased our borrowings on our U.S. Revolver $31.0 million to fund net investment activity and to repurchase 1.1 million shares of our common stock. As of July 29, 2001, 12.3 million shares of our common stock have been repurchased under a 16.0 million share repurchase program. Financing activities used $152.4 million in fiscal 2001 as funds provided by operations and the sale of IBP common stock were used to repay long-term debt and capital lease obligations as well as repurchase 5.3 million shares of our common stock. The U.S. Revolver is scheduled to expire in July 2002. We have begun the process to refinance this facility and expect to complete the refinancing during the third quarter of fiscal 2002. At July 29, 2001 the outstanding balance on this facility of $438.0 million was included in the current portion of long-term debt and capital lease obligations on the consolidated condensed balance sheet. Subsequent Events On October 25, 2001, we completed the acquisition of Packerland in exchange for approximately 6.3 million shares of our common stock plus the assumption of approximately $118 million of debt and other liabilities. Packerland is the fifth largest beef processor in the U.S. with a daily processing capacity of 6,150 head. Packerland had net sales of $1.4 billion for the fiscal year ended December 30, 2000. Risk Management Substantially all of our products are produced from commodity-based raw materials, corn and soybean meal in the Hog Production Group and live hogs in the Meat Processing Group. The cost of corn and soybean meal (the principal feed ingredients for hogs) and live hogs are subject to wide fluctuations due to unpredictable factors such as weather conditions, economic conditions, government regulation and other unforeseen circumstances. We utilize futures and option contracts for live hogs and grains to manage hog production margins when management 38 determines the conditions are appropriate for these hedges. The particular hedging methods employed and the time periods for the contracts depend on a number of factors, including the availability of adequate contracts for the respective periods for the hedge. We attempt to closely match the commodity contract expiration periods with the dates for product sale and delivery. The pricing of our fresh pork and processed meats is monitored and adjusted upward and downward in reaction to changes in the cost of the underlying raw materials. The unpredictability of the raw material costs limits our ability to forward price fresh pork and processed meat products without the use of commodity contracts through a program of price-risk management. We use price-risk management techniques to enhance our ability to engage in forward sales contracts, where prices for future deliveries are fixed, by purchasing (or selling) commodity contracts for future periods to reduce or eliminate the effect of fluctuations in future raw material costs on the profitability of the related sales. While this may tend to limit our ability to participate in gains from favorable commodity price fluctuations, it also tends to reduce the risk of loss from adverse changes in raw material prices. As of April 29, 2001, we had a deferred loss of $20.8 million compared to a deferred loss on outstanding futures contracts of $41.3 million at April 30, 2000. As of April 29, 2001 and April 30, 2000, we had open futures contracts with contract values of $251.4 million and $711.7 million, respectively. As of April 29, 2001 and April 30, 2000, we had deposits with brokers for outstanding futures contracts of $23.3 million and $45.1 million, respectively, included in prepaid expenses and other current assets. For open futures contracts, we use a sensitivity analysis technique to evaluate the effect that changes in the market value of commodities will have on these commodity derivative instruments. As of April 29, 2001, the potential change in fair value of open futures contracts, assuming a 10% change in the underlying commodity price, was $14.7 million. DESCRIPTION OF OTHER INDEBTEDNESS As of July 29, 2001 and April 29, 2001, we had outstanding the following other indebtedness (excluding capital lease obligations):
July 29, April 29, 2001 2001 -------- -------- (in millions) U.S. Revolver............................................... $ 438.0 $ 407.0 International Facilities.................................... 28.1 35.5 Smithfield Senior Secured Notes............................. 455.2 459.7 Other Subsidiary Debt....................................... 171.6 149.3 7 5/8% Senior Subordinated Notes due 2008................... 185.1 185.1 -------- -------- Total debt................................................ 1,278.0 1,236.6 -------- -------- Less amounts classified as current maturities............... (529.5) (111.1) -------- -------- Total long-term debt...................................... $ 748.5 $1,125.5 ======== ========
As of April 29, 2001, our debt obligations had the following maturities over the next five years:
Fiscal Year Amount ----------- ------ (in millions) 2002.................................................. $ 111.1 2003.................................................. 494.5 2004.................................................. 111.0 2005.................................................. 50.7 2006.................................................. 47.1
39 U.S. Revolver We currently have the U.S. Revolver with a group of banks, including The Chase Manhattan Bank, an affiliate of an initial purchaser of the senior notes, as administrative agent, that provides for up to $650.0 million of committed revolving credit borrowings through July 15, 2002, secured by inventory and receivables. As of July 29, 2001, outstanding borrowings were $438.0 million under the U.S. Revolver and were classified as a current portion of long-term debt. The average interest rate applicable to borrowings under this credit facility was 7.179% during fiscal 2001 and 4.857% during the 13 weeks ended July 29, 2001. The credit facility is scheduled to expire in July 2002. We have begun the process to refinance this facility and expect to complete the refinancing during the third quarter of fiscal 2002. The commitments under the U.S. Revolver are subject to a requirement that the sum of the indebtedness under the U.S. Revolver and indebtedness pari passu with the indebtedness under the U.S. Revolver and the indebtedness under hedging agreements cannot exceed the borrowing base calculated on the basis of our inventory and receivables. The U.S. Revolver contains financial covenants that require the maintenance of levels/ratios for consolidated current ratio, consolidated working capital, consolidated leverage ratio, consolidated tangible net worth and consolidated interest coverage ratio. In addition, the U.S. Revolver imposes restrictions on indebtedness, liens, fundamental changes (e.g., mergers, sales of assets, etc., joint ventures and lines of business), investments, loans, advances, guarantees and acquisitions, hedging agreements, restricted payments, transactions with affiliates, restrictive agreements and sales and leaseback transactions. See "-- Recent Waivers" for information concerning a potential covenant violation under the U.S. Revolver for which we have obtained waivers until December 7, 2001. The borrowings under the U.S. Revolver are guaranteed by some of our existing and future subsidiaries, the assets of which are included in the calculation of our borrowing base. International Facilities Our foreign subsidiaries had a total of $28.1 million outstanding under the International Facilities at July 29, 2001: $17.3 million at our Canadian operations and $10.8 million at our Polish operations. The International Facilities are classified as notes payable in our consolidated balance sheets. Some of the credit facilities of Schneider were refinanced during the first quarter of fiscal year 2002 with a new revolving credit facility with Canadian Imperial Bank of Commerce, Bank of Montreal and The Bank of Nova Scotia, which provides for up to C$85.0 million of committed borrowings. In addition, a total of C$30.0 million of committed credit facilities is available to various majority-owned, consolidated subsidiaries of Schneider. The new Schneider credit facility contains financial covenants that require the maintenance of levels/ratios for funded debt/EBITDA ratio, interest coverage ratio, current ratio and consolidated shareholders' equity. In addition, this credit facility imposes restrictions on dispositions of assets, amalgamation and merger and fundamental change. Some of the credit facilities of Animex were also refinanced during the first quarter of fiscal year 2002 with a new credit facility with Rabobank Polska S.A., as arranger, agent, security 40 agent and pledge administrator, which provides for up to US$100.0 million- equivalent of committed credit, secured by all Animex assets including receivables, inventory, real estate, plant and equipment. The commitments under the new credit facility are subject to a requirement that the sum of the indebtedness under this credit facility and indebtedness pari passu with the indebtedness under this credit facility cannot exceed the borrowing base calculated on the basis of Animex's inventory and receivables. This credit facility contains financial covenants that require the maintenance of levels/ratios for net worth, current ratio and security coverage ratio. In addition, this credit facility imposes restrictions on indebtedness, loans and guarantees, disposals of assets and changes in the nature of Animex's business and mergers. Smithfield Senior Secured Notes We privately placed senior secured notes with a group of institutional investors in June 1996, which are guaranteed by some of our subsidiaries and secured by various real and personal property. This placement consisted of $9.9 million of seven-year 8.41% notes, $40.0 million of four-year 8.34% notes, $9.0 million of four-year 9.80% notes, $9.3 million of six-year 10.75% notes, $100.0 million of seven-year 8.52% notes, $14.0 million of seven-year 9.85% notes and $14.8 million of five-year 8.41% notes (the "Series B-H Notes"). We restated the Series B-H Notes dated as of October 1999 and privately placed our second placement, consisting of $100.0 million of ten-year 7.89% notes, $50.0 million of ten-year variable rate notes, $50.0 million of ten-year 8.44% notes and $25.0 million of ten-year LIBOR rate notes (the "Series I-L Notes"). The Series I-L Notes were also guaranteed by some of our subsidiaries and secured by various real and personal property. In June 2000, we privately placed $100.0 million of senior secured notes with a group of institutional investors, which are also guaranteed by some of our subsidiaries and secured by various real and personal property. The placement consisted of $75.0 million of six-year 8.25% notes and $25.0 million of two-year LIBOR rate notes (the "Series M-N Notes," and together with the Series I-L Notes and the Series B-H Notes, the "Senior Secured Notes)". The interest on all of the Senior Secured Notes is payable quarterly. We may at any time prepay the principal amount of the Senior Secured Notes in part or in whole. Upon a change of control, the holders may require us to repurchase them at a price equal to 100% of their principal amount, together with a make-whole amount and accrued and unpaid interest. The Senior Secured Notes contain financial covenants that require the maintenance of levels and/or ratios regarding current ratio, consolidated working capital, funded debt, fixed charges coverage and consolidated tangible net worth. In addition, the Senior Secured Notes impose restrictions on restricted payments and investments, restrictions on dividends, liens, mergers and acquisitions, transfers of property and subsidiary stock, entering new lines of business, transactions with affiliates and guarantees. See "-- Recent Waivers" for information concerning a potential covenant violation under the Senior Secured Notes for which we have obtained waivers until December 7, 2001. 7 5/8% Senior Subordinated Notes due 2008 In February 1998, we issued $200.0 million of 7 5/8% Senior Subordinated Notes due 2008. Interest on the Senior Subordinated Notes is payable in semi- annual installments and the notes 41 mature on February 15, 2008. The Senior Subordinated Notes are unsecured and subordinated to all future and existing senior indebtedness. The Senior Subordinated Notes are not guaranteed by any of our subsidiaries. We cannot redeem the Senior Subordinated Notes at our option, but the holders, upon a change of control, may require us to repurchase them at a price equal to 101% of their principal amount, together with accrued and unpaid interest. The Senior Subordinated Notes impose restrictions on indebtedness, layering, restricted payments, agreements that restrict distributions from restricted subsidiaries, sales of assets, transactions with affiliates, sales or issuances of capital stock of restricted subsidiaries, liens and future guarantees. Other Subsidiary Debt Various subsidiaries also have entered into other debt agreements. As of July 29, 2001, there was approximately $171.6 million outstanding under these agreements. The principal debt agreements in this group are the following: Our subsidiaries in France, Smithfield France SAS, Financiere des Pins, Societe Bretonne de Salaisons and Societe Financiere de Gestion et de Participation, have credit agreements with various French banks. The aggregate outstanding borrowings for all our French subsidiaries were approximately $33.4 million under these term credit agreements as of July 29, 2001. Most of these credit agreements impose restrictions on authorized capital, guarantees, dispositions of assets and lines of business. Prior to our acquisition, Schneider also issued two series of debentures. The principal amount of these debentures is approximately $17.5 million. The debentures contain financial covenants that require the maintenance of a specified current ratio and consolidated shareholders' equity. In addition, the debentures impose restrictions on liens, guarantees, dividends, redemptions of preference shares, dispositions of indebtedness of subsidiaries, dispositions of shares of subsidiaries, sales of assets and amalgamations or mergers. Schneider is negotiating the issuance of a third debenture in the amount of C$65.0 million, which may close before the date that the notes are issued. Schneider's term credit agreements that were refinanced under the new revolving credit facility discussed above totaled approximately $24.3 million as of July 29, 2001. Schneider's consolidated subsidiaries also have debt agreements under which approximately $18.6 million was outstanding as of July 29, 2001. Prior to our acquisition, Animex entered into various debt agreements under which approximately $12.0 million was outstanding as of July 29, 2001. Outstanding debt under Animex's term credit agreements that we refinanced under the new US$100.0 million-equivalent commitment discussed above totaled approximately $31.5 million as of July 29, 2001. Smithfield-Carroll's Farms and Carroll's Foods of Virginia, Inc. currently have a series of term loans with Colonial Farm Credit, ACA under which outstanding borrowings were $7.7 million as of July 29, 2001. The amounts outstanding under these loans mature at various dates through 2003. This credit facility imposes restrictions on reorganization, name change, acquisition, disposition of assets and merger, and funded debt. 42 Prior to our acquisition in the first quarter of fiscal 2002, Moyer entered into various debt agreements under which approximately $17.4 million was outstanding as of July 29, 2001, including $10.5 million of term loans and $6.9 million of notes payable. The notes payable were repaid in the second quarter of fiscal 2002. Packerland also had various debt agreements prior to our acquisition in the second quarter of fiscal 2002. At closing, approximately, $118 million was outstanding under these debt agreements. Recent Waivers There are provisions in the U.S. Revolver and the Senior Secured Notes that restrict the extent to which our subsidiaries may enter into loan agreements that prohibit the payment of dividends or the making of loans or transferring of property to us or to other subsidiaries. Some of the covenants contained in our subsidiaries' loan agreements may violate these provisions of the U. S. Revolver and the Senior Secured Notes. The subsidiary loan agreements involved are a loan agreement under which one of Schneider's subsidiaries may borrow amounts up to C$30 million and the pre-acquisition Animex loan agreements. We have obtained waivers from the lenders under the U.S. Revolver and the Senior Secured Notes that waive any default which may exist under the terms of their agreements as a result of these subsidiary loan agreements until December 7, 2001. We believe the waivers are for a sufficient period of time to allow us and the subsidiaries involved to negotiate modifications to the subsidiary loan agreements or to repay the amounts due under those subsidiary loan agreements and to terminate any remaining commitments under them. Before the waivers have expired, we intend to take the following actions with regard to the subsidiary loan agreements causing the defaults: . reach agreement with the lenders under the subsidiary loan agreements to modify those agreements to remove the provisions that would cause a default; . repay all of the obligations, and terminate any related commitments, under the subsidiary loan agreements; . reach agreement with the lenders under the U.S. Revolver and the Senior Secured Notes or, in the case of the U.S. Revolver, the lenders under any replacement facility, to modify the provisions in those loan agreements such that there will be no default; . effect a combination of these solutions, the result of which is that all such defaults have been cured; or . cure the defaults in some other way. 43 BUSINESS General We are the largest hog producer and pork processor in the world. We conduct our business through two groups, the Meat Processing Group and the Hog Production Group, each comprised of a number of subsidiaries. Meat Processing Group. The Meat Processing Group produces domestically and internationally a wide variety of fresh pork and processed meat products and markets them nationwide and to over 25 foreign markets, including Canada, Poland, France, Japan and Mexico. In addition, in June 2001 we acquired Moyer, the ninth largest beef processor in the United States. The Meat Processing Group currently consists primarily of seven domestic processing subsidiaries and four international meat processing entities. All these subsidiaries are wholly owned except as indicated below. Collectively, these subsidiaries currently operate over 45 processing plants.
Subsidiary Headquarters Fiscal 2001 Sales ---------- ------------ ----------------- The Smithfield Packing Company, Incorporated/(1)/................................. Smithfield, Virginia $ 1,808 million John Morrell & Co.................................. Cincinnati, Ohio $ 1,618 million Schneider Corporation (63%-owned)/(3)/............. Kitchener, Ontario, Canada $ 776 million Moyer Packing Company.............................. Souderton, Pennsylvania $ 600 million/(2)/ Gwaltney of Smithfield, Ltd........................ Smithfield, Virginia $ 590 million Animex S.A. (85%-owned)............................ Warsaw, Poland $ 312 million Patrick Cudahy Incorporated........................ Cudahy, Wisconsin $ 23 million Quik-to-Fix Foods, Inc............................. Dallas, Texas $ 140 million/(2)/ Societe Financiere de Gestion et de Participation S.A............................................... Quimper and Lyon, France $ 110 million Societe Bretonne de Salaisons S.A.................. Lampaul Guimiliau, France $ 93 million North Side Foods Corp.............................. Arnold, Pennsylvania $ 81 million
(1) For reporting purposes, the sales of The Smithfield Packing Company, Incorporated include the sales of Lykes Meat Group, Inc. (2) Estimated annualized sales (3) In fiscal 2002, our ownership of Schneider Corporation increased to 100%. Hog Production Group. To complement our processing operations, we have vertically integrated into hog production through our Hog Production Group, which currently provides the Meat Processing Group with approximately 50% of its domestic live hog requirements. In order to more strategically align the hog production group, we recently reorganized under a subsidiary named Murphy-Brown LLC which owns and manages the following three wholly owned subsidiaries.
Subsidiary Principal Locations Number of Sows ---------- ------------------- -------------- Murphy Farms, LLC.......................... North Carolina, Missouri, Oklahoma, 345,000 Illinois, South Dakota and Texas Carroll's Foods, LLC....................... North Carolina and Virginia 180,000 Brown's of Carolina, LLC................... North Carolina, Utah, Colorado 170,000 and South Carolina
44 Business Strategy Our business is based on four basic strategies: . Vertical Integration. We, principally through the acquisitions of Carroll's Foods of Virginia, Inc. and Murphy Farms in fiscal years 1999 and 2000, have increased our vertical integration into hog production from 8% to 60%. We produce hogs through a combination of company-owned and contract production operations in addition to long- term partnerships and strategic alliances. We believe that vertical integration provides a number of competitive advantages, including substantial economies of scale from high volume hog production, increased control over raw material quality and consistency, and operational, logistical and transportation efficiencies due to the close proximity of our hog production operations to our processing facilities. We intend to position ourselves to maximize the benefits of vertical integration. . Advanced Genetics. Since May 1991, we have made extensive use of our exclusive United States franchise rights from the National Pig Development Company, or NPD, relating to genetic lines of specialized breeding stock. These hogs are among the leanest hogs commercially available, and enable us to market highly differentiated pork products. Since introducing a herd of 2,000 sows in 1990, we have increased the number of NPD sows to 385,000, or approximately 55% of our total sow inventory. Over the next five years we intend to further expand production of NPD sows. We believe that the leanness and increased meat yields of these hogs will continue to increase the overall quality and consistency of our fresh pork and processed meats. . Strategic Acquisitions. Over the last decade, we have made several significant acquisitions that have increased production capacity, provided vertical integration, expanded our geographic reach into new markets, both domestically and internationally, and created a portfolio of highly recognized regional brands. Recently, we have taken steps to expand our business into beef processing. To that end, we recently acquired Moyer Packing Company, the ninth largest U.S. beef processor, providing us with the opportunity to expand our geographic reach into the northeastern United States and offer a broader range of complementary products. In addition, during the second quarter of our current fiscal year, we completed the acquisition of Packerland Holdings, Inc., the fifth largest U.S., beef processor with its principal operations in the northern Midwest and the Southwest. During the quarter we also completed the acquisition of Stadler's Country Hams, Inc., a producer of country hams, and a 75% interest in RMH Foods, Inc., a company specializing in pre-cooked pork and beef entrees under the Quick-n-Easy(TM) brand. On November 1, 2001 we announced an agreement in principle to acquire beef packer American Foods Group, Inc., the nation's tenth largest beef packer. Going forward, we will continue to look to grow through strategic acquisitions both domestically and internationally. . Value-Added and Branded Products. We believe that significant earnings growth will occur through focused efforts to market value-added and branded products. In this regard, we have embarked on a strategy of increasing brand awareness by marketing branded fresh pork and further processed fresh pork cuts into value-added and case-ready products for sale to retailers and consumers. In addition, we introduced a new line of fresh pork products under the Smithfield Lean Generation Pork brand name approximately six years ago. These products, using only raw materials from the NPD hog, are marketed nationwide to selected retailers and institutional food customers. 45 Since their introduction, sales of Smithfield Lean Generation Pork products have grown to more than 100 million pounds annually. The success of this and other branded pork programs provides us with increased name recognition among retailers and consumers, which we believe facilitates our sale of other processed meat products such as ham, bacon, sausage and hot dogs. Historical Expansion and Acquisitions Since 1975, when current management assumed control, we have made several acquisitions that have increased production capacity, provided vertical integration and expanded both our geographic reach and our portfolio of recognized brands. We have also announced expansion into the beef processing business to provide a broader range of products. United States Meat Processing Acquisitions. In fiscal 1982, we acquired Gwaltney of Smithfield, then Smithfield Packing's principal Mid-Atlantic competitor. This acquisition doubled our sales and production capacity and added several popular lines of branded products along with a highly efficient hot dog and luncheon meats production facility. The proximity of Gwaltney of Smithfield to Smithfield Packing allowed for synergies and cost savings in manufacturing, purchasing, engineering and transportation. This combination set the stage for a series of acquisitions of smaller regional processors with widely recognized brands, including Patrick Cudahy, Esskay, Mash's and Valleydale. In December 1995, we acquired John Morrell, a major Midwestern pork processor with primary markets in the Midwest, Northeast and western United States. This acquisition changed our character from a large multi-regional pork processor to one with national distribution. It also doubled our sales and production capacity, added several popular lines of branded processed meat products along with four efficient processing facilities and more than doubled our international sales. We believe that John Morrell's strength in smoked sausage, hot dogs, luncheon meats, bacon and smoked hams complements the strong smoked meats, hot dog and bacon business of our Eastern operations. The acquisition of John Morrell also presented substantial opportunities for cost savings in the areas of processing, marketing, purchasing and distribution. In November 1996, we acquired the assets and businesses of the Lykes Meat Group. Lykes is a pork processor with primary markets in the South and Southeast. Lykes produces branded processed meats, including bacon, hot dogs and breakfast and dinner sausages under the Lykes and Sunnyland brands. In October 1998, we acquired all of the assets and business of North Side, a major domestic supplier of precooked sausage to McDonald's Corporation. In June 2001, we completed the acquisition of 50% of the outstanding common shares of Pinnacle Foods, a Pottsdown, Pennsylvania-based producer of pre- priced, pre-packaged case-ready products. 46 In July 2001, we completed the acquisition of The Smithfield Companies, Inc. The Smithfield Companies, Inc. produces hams and other specialty food products. Also in July 2001, we completed the acquisition of substantially all of the assets and business of Gorges/Quik-to-Fix Foods, a leading producer, marketer, and distributor of value-added beef, pork and poultry products for the retail and food service industry. Also during the second quarter of our current fiscal year we completed the acquisition of Stadler's Country Hams, Inc. and a 75% interest in RMH Foods, Inc.. Stadler's is a producer of country hams based in Elon College, North Carolina. RMH Foods, based in Morton, Illinois, specializes in pre-cooked pork and beef entrees under the Quick-n-Easy/TM/ brand. These acquisitions were valued at $20 million in the aggregate. International Meat Processing Acquisitions. In September 1998, we acquired all of the capital stock of Societe Bretonne de Salaisons, one of the largest private-label manufacturers of ham, pork shoulder and bacon products in France. On August 8, 2001, we offered to acquire all of the common shares of Schneider Corporation, a food processing company headquartered in Kitchener, Ontario, that we did not already own for approximately 2.8 million shares of our common stock. At that time, we already owned approximately 63% of the outstanding shares of Schneider. As a result of the offer, we came to own approximately 99% of the outstanding shares of Schneider. In early November 2001, we completed our acquisition and now own 100% of the Schneider shares. Between September 1998 and June 1999, we acquired an 85% stake in Animex, the largest meat and poultry processing company in Poland. Animex produces a very broad line of fresh and processed meats and poultry. In August 1999, we acquired the capital stock of Societe Financiere de Gestion et de Participation, a private-label processed meats manufacturer in France. In September 1999, we acquired a 50% stake in a joint venture called Agroindustrial del Noroeste S. de R.L. de C.V., a Mexican meat processing and hog production venture. Hog Production Acquisitions. In January 1999, we acquired a 12,000 sow operation in Colorado to supply hogs to John Morrell. In May 1999, we acquired Carroll's Foods and related companies and assets, including approximately 180,000 sows. Carroll's Foods was a longtime hog production partner of ours. Through a 49%-owned joint venture, Carroll's Foods is also among the nation's largest turkey processors. In January 2000, we acquired Murphy Farms and related companies and assets, including approximately 345,000 sows. Murphy Farms was a longtime hog production partner of ours. 47 Recent Beef Processing Initiatives. In November 2000, we made an offer to acquire all of the outstanding shares of IBP, the largest beef processor in the United States. Subsequently, IBP entered into an agreement to be acquired by Tyson Foods, Inc. and we sold the shares of IBP that we had previously purchased. In June 2001, we acquired all of the outstanding shares of Moyer, the ninth largest beef processor in the United States. On October 25, 2001, we completed the acquisition of Packerland Holdings, Inc., the fifth largest beef processor in the United States. On November 1, 2001, we announced an agreement in principle to acquire beef packer American Foods Group, Inc., the nation's tenth largest beef processor. Meat Processing Group The Meat Processing Group derives its revenue from fresh pork and processed meats. The following table shows for the fiscal periods indicated the percentages of Meat Processing Group revenues derived from fresh pork, processed meats and other products.
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Ended Ended Ended Ended Ended April 29, April 30, May 2, May 3, April 27, 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Processed Meats.................. 50% 50% 46% 40% 37% Fresh Pork....................... 46% 44% 49% 56% 59% Other Products................... 4% 6% 5% 4% 4% ---- ---- ---- ---- ---- 100% 100% 100% 100% 100% ==== ==== ==== ==== ====
The increase in processed meats since fiscal 1997 reflects our acquisitions of higher margin processing operations and, prior to fiscal 2000, the impact of lower fresh pork prices. United States Processing Operations Fresh Pork Products. We are the largest fresh pork processor in the world, producing in fiscal 2001 approximately 2.8 billion pounds of which 2.5 billion pounds are produced in the United States. The Meat Processing Group's domestic operations process hogs at five plants (three in the Southeast and two in the Midwest), with a current aggregate slaughter capacity of 78,300 hogs per day. A substantial portion of the Meat Processing Group's fresh pork is sold to retail customers as unprocessed, trimmed cuts such as loins (including roasts and chops), butts, picnics and ribs. The Meat Processing Group also sells hams, bellies and trimmings to other further processors. The Meat Processing Group is putting greater emphasis on the sale of value-added, higher margin fresh pork products, such as loins, butts and ribs. In addition, our Hog Production Group provides the Meat Processing Group with raw material of much higher quality than that generally available through open market purchases. 48 We are marketing on a national basis an extensive product line of leaner fresh pork cuts (including boneless loins, shoulder cuts, chops, ribs and processed and cubed pork) under the Smithfield Lean Generation Pork brand to selected retail chains and institutional foodservice customers. Several of our subsidiaries have also developed a case-ready pork program designed to supply supermarket chains with pre-packaged, weighed, labeled and pre-priced fresh pork ready for immediate sale to the consumer. Management believes that these initiatives, over time, will result in greater brand identification and higher margins for our fresh pork products. For the 52 weeks ended July 29, 2001, our case-ready volumes reached 88 million pounds, and we expect case-ready volumes to reach 100 million pounds in fiscal 2002. We have increased capacity by opening four new case-ready facilities, one located in the North, two in the South and another in the Midwest. For more information on our lean pork products, see the discussion of NPD pork in ''Hog Production Group'' below. Processed Meats Products. We manufacture a wide variety of processed meats, including smoked and boiled hams, bacon, sausage, hot dogs (pork, beef and chicken), deli and luncheon meats and specialty products such as pepperoni and dry salami. Through the 52 weeks ended July 29, 2001, our U.S. operations produced 1.5 billion pounds of processed meat products. We market our domestic processed meat products under labels that include Smithfield Premium, Gwaltney, Patrick Cudahy and John Morrell, as well as Dinner Bell, Ember Farms, Esskay, Great, Kretschmar, Lykes, Patrick's Pride, Rath and Valleydale. We also sell a substantial quantity of processed meats as private-label products. We believe we are one of the largest producers of smoked hams and picnics in the United States. In recent years, as consumers have become more health conscious, we have broadened our product line to include leaner fresh pork products as well as fat- free, lower fat and lower salt processed meats. We also market a lower-fat line of value-priced luncheon meats, smoked sausage and hot dogs, as well as fat-free hot dogs, fat-free deli hams and 40-percent-lower-fat bacon. Management believes that leaner pork products combined with the industry's efforts to heighten public awareness of pork as an attractive protein source have led to increased consumer demand. Raw Materials. The Meat Processing Group's primary raw material is live hogs. Historically, hog prices have been subject to substantial fluctuations. In addition, hog prices tend to rise seasonally as hog supplies decrease during the hot summer months and tend to decline as supplies increase during the fall. This is due to lower farrowing performance during the winter months and slower animal growth rates during the hot summer months. Hog supplies, and consequently prices, are also affected by factors such as corn and soybean meal prices, weather and farmers' access to capital. The Meat Processing Group purchases almost 50% of its domestic live hog requirements from the Hog Production Group. In addition, we have established multi-year agreements with Maxwell Foods, Inc. and Prestage Farms, Inc. which provide us with a stable supply of high-quality hogs at market-indexed prices. These producers supply approximately 14% of the hogs that we currently process. 49 The Meat Processing Group also purchases hogs on a daily basis at Southeastern and Midwestern processing plants, at company-owned buying stations in three Southeastern and five Midwestern states and from Canadian sources. We also purchase fresh pork from other meat processors to supplement our processing requirements. Additional purchases include raw beef, poultry and other meat products to add to our sausage, hot dogs and luncheon meats. Those meat products and other materials and supplies, including seasonings, smoking and curing agents, sausage casings and packaging materials are readily available from numerous sources at competitive prices. Customers and Marketing. The Meat Processing Group has significant market presence nationwide, and strong market positions in the Mid-Atlantic, Southeast, South and Midwest. Our fundamental marketing strategy is to sell large quantities of value-priced processed meat products as well as fresh pork to national and regional supermarket chains, wholesale distributors, the foodservice industry (fast food, restaurant and hotel chains, hospitals and other institutional customers) and export markets. Management believes that this marketing approach reaches the largest number of value-conscious consumers without requiring large advertising and promotional campaigns. We use both in- house salespersons as well as independent commission brokers to sell our products. In fiscal 2001, we sold our products to more than 3,500 customers, none of whom accounted for as much as 10% of our revenues. We have no significant or seasonally variable backlog because most customers prefer to order products shortly before shipment, and therefore, do not enter into formal long-term contracts. Management believes that registered trademarks have been important to the success of our branded fresh pork processed meats products. In a number of markets, our brands are among the leaders in selected product categories. The Meat Processing Group in recent years has emphasized growth in export sales. Through the 52 weeks ended July 29, 2001, export sales comprised approximately 5% of our total sales. We provide Japanese markets with a line of branded fresh pork products, as well as other chilled and frozen unbranded fresh pork products. In connection with export sales to Japan, we maintain a distributorship arrangement with Sumitomo Corporation of America. We currently have export sales to Mexico and to more than two dozen other foreign countries. We expect continued growth in our export sales for the foreseeable future. Export sales are subject to factors beyond our control, such as tariffs, exchange rate fluctuations and changes in governmental policies. We conduct all of our export sales in U.S. dollars and therefore bear no currency exchange risk. Our processed meats business is somewhat seasonal in that, traditionally, the periods of higher sales for hams are the holiday seasons such as Thanksgiving, Christmas and Easter, and the periods of higher sales of smoked sausage, hot dogs and luncheon meats are the summer months. We typically build substantial inventories of hams in anticipation of our seasonal holiday business. We use recognized price risk management and hedging techniques to enhance sales and to reduce the effect of adverse price changes on our profitability. Our price risk management and hedging activities currently are utilized in the areas of forward sales, hog production margin management, procurement of raw materials (ham and bacon) for seasonal demand peaks, 50 inventory hedging, hog contracting and truck fleet fuel purchases. For further information see " Management's Discussion and Analysis of Financial Condition and Results of Operations." Trademarks. We own and use numerous marks. These marks are our registered trademarks or are otherwise subject to protection under applicable intellectual property laws. We consider these marks and the accompanying goodwill and customer recognition valuable and material to our business. Distribution. The Meat Processing Group uses a private fleet of leased tractors and trailers and independent common carriers to distribute both fresh pork and processed meats to its customers, as well as to move raw material between plants for further processing. We coordinate deliveries and use backhauling to reduce overall transportation costs. We distribute our products directly from some of our plants and from leased distribution centers in California, Connecticut, Indiana, Kansas, Missouri, North Carolina and Texas. We also operate distribution centers adjacent to our plants in Bladen County, North Carolina, and Sioux Falls, South Dakota. Competition. The protein industry generally, and the pork processing industry in particular, is highly competitive. Our products compete with a large number of other protein sources, including beef, chicken, turkey and seafood, but our principal competition comes from other pork processors. Management believes that the principal competitive factors in the pork processing industry are price, quality, product distribution and brand loyalty. Some of our competitors are larger, have correspondingly greater financial and other resources and enjoy wider recognition for their branded products. Some of these competitors are also more diverse than we are. To the extent that their other operations generate profits, these companies may be able to subsidize their pork processing operations for a time. International Processing Operations In fiscal 1999, the Meat Processing Group made its first international acquisitions by acquiring operations in Canada, Poland and France. In fiscal 2000, we made another acquisition in France and entered into a joint venture in Mexico. These acquisitions reflect our heightened emphasis on expansion into international markets. Schneider. In November 1998, we acquired a 63% stake in Schneider. In August 2001, we offered to acquire the remaining interest in Schneider for approximately 2.8 million shares of our common stock. On August 8, 2001, we offered to acquire all of the common shares of Schneider Corporation, a food processing company headquartered in Kitchener, Ontario, that we did not already own for approximately 2.8 million shares of our common stock. In early November 2001, we completed our acquisition and now own 100% of the Schneider shares. Schneider, based in Kitchener, Ontario, is one of Canada's largest producers of premium quality food products, with brands including Schneiders and Fleetwood. Schneider has annual production volume of approximately 650 million pounds and manages its various subsidiaries and joint ventures through two operating groups, consumer foods and agribusiness. The consumer foods 51 group, comprised of the processed meat and grocery operations, produces more than 1,000 products, including hams, sausage, wieners, bacon, luncheon meats, specialty meats and savory bakery products for sale through traditional grocery stores, delicatessens and foodservice establishments. Schneider has consumer foods operations in Kitchener, Ayr, St. Mary's, Guelph, Port Perry and Mississauga, Ontario; Surry, British Columbia; Saskatoon, Saskatchewan; and St.- Anselme, Quebec. In addition, Schneider participates in the consumer foods sector through joint ventures with the Prince Group of Drummondville, Quebec; Cappola Food of Toronto, Ontario; National Meats of Toronto; and Luigino's of Duluth, Minnesota. The agribusiness group, comprised of the fresh pork and live poultry operations, focuses on identifying and meeting the needs of retail, foodservice and export customers. Schneider markets its products in the poultry sector under the Schneiders brand and private labels to retail and foodservice customers. The pork processing plant in Winnipeg, Manitoba, previously owned by Schneiders, was sold in fiscal 2001 and customers of that facility are being serviced from other facilities. Animex. Between September 1998 and June 1999, we acquired an 85% stake in Animex, the largest meat and poultry processing company in Poland. Animex produces a very broad line of fresh and processed meats and poultry products, with approximately 375 million pounds of annual volume. Animex's brands include Krakus and Pek. Animex operates seven plants, four for red meat and three for poultry, located across Poland. We plan to expand Animex's network of distribution centers to include several additional areas in Poland. Societe Bretonne de Salaisons. In September 1998, we acquired Societe Bretonne de Salaisons, one of the largest private-label manufacturers of ham, pork shoulder and bacon products in France. It has annual production volume of approximately 70 million pounds. Societe Financiere de Gestion et de Participation. In August 1999, we acquired the capital stock of Societe Financiere de Gestion et de Participation, a private-label processed meats manufacturer in France. It has annual production volume of approximately 60 million pounds. Agroindustrial del Noroeste. We have a 50% interest in a joint venture, Agroindustrial del Noroeste with two Mexican partners. It has annual production volume of approximately 100 million pounds. Hog Production Group General. As a complement to our hog processing operations, we have vertically integrated into hog production through Brown's, Carroll's Foods and Murphy Farms, which operate numerous hog production facilities with approximately 695,000 sows producing about 11.8 million market hogs annually. The Meat Processing Group obtains approximately 50% of the live hogs it currently processes from the Hog Production Group. Including adjusting for sales to unrelated parties, we believe we are 60% vertically integrated. The profitability of hog production is directly related to the market price of live hogs and the cost of corn and soybean meal. The Hog Production Group generates higher profits when hog prices are high and corn and soybean meal prices are low, and lower profits (or losses) when hog prices are low and corn and soybean meal prices are high. Management believes that the Hog Production Group furthers our 52 strategic initiative of vertical integration and reduces our exposure to fluctuations in profitability historically experienced by the pork processing industry. In May 1991, we acquired from NPD, a British company, exclusive United States franchise rights relating to genetic lines of specialized breeding stock. The Hog Production Group makes extensive use of these genetic lines, with approximately 385,000 NPD breeding sows. In addition, we have sub-licensed some of these rights to some of our strategic hog production partners. All NPD hogs produced under these sub-licenses are supplied to us. We believe the hogs produced by these genetic lines are the leanest hogs commercially available and enable us to market highly differentiated pork products. Management believes that the leanness and increased meat yields of these hogs will, over time, improve our profitability with respect to both fresh pork and processed meat. Through the 52 weeks ended July 29, 2001, we processed 4.5 million NPD hogs. Hog Production Operations. The Hog Production Group is the world's largest hog producer. This Group uses advanced management techniques to produce premium quality hogs on a large scale as a low cost producer. We develop breeding stock, optimize diets for our hogs at each stage of the growth process, process feed for our hogs and design and build hog confinement facilities. We believe our economies of scale and production methods, together with our use of the advanced NPD genetics in approximately 47% of our breeding sows, make us a low cost producer. The Hog Production Group uses a three-site production process consisting of sow, nursery and finishing sites. Production of market hogs begins in a facility known as a sow site. The Group's average commercial sow site is designed to house approximately 2,400 sows. The sow's purpose is to conceive, give birth to and nurse piglets which will be raised to become market hogs. Approximately 18 days after birth, the piglets are separated from the sows and transported to a separate nursery site. At each nursery site, the piglets are fed a closely monitored diet and grow to approximately 45 pounds, a process which takes approximately seven weeks. Once the hogs reach the desired weight, the Hog Production Group transports them to a finishing site where they are maintained and fed until reaching a market weight of approximately 250 pounds, a process which takes approximately 20 weeks. When the hogs reach market weight, they are transported to the Meat Processing Group's plants or sold to unrelated third parties. The Hog Production Group also utilizes independent farmers and their facilities to raise hogs produced from the Group's breeding stock. Under multi- year contracts, the farmer provides the initial facility investment, labor and front line management in exchange for a service fee. This contract farming is utilized primarily in the nursery and finishing stages where animal growth, feed and survival rates are most critical and are easily adapted to an incentive- based contract payment. Currently, approximately 76% of the Hog Production Group's market hogs come from contract farms. As of July 2001, the Hog Production Group operated numerous hog production facilities, primarily in North Carolina, Utah and Virginia with additional hog production facilities in Colorado, South Carolina, Illinois, Texas and Oklahoma. Except for some expansion activity in 53 Utah and Colorado, the Hog Production Group's farm sites are mature operations with static production volume. Nutrient Management and Other Environmental Issues. All of the Hog Production Group's hog production facilities have been designed to meet or exceed all applicable zoning and other government regulations. These regulations require, among other things, maintenance of separation distances between farms and nearby residences, schools, churches, public use areas and businesses, rivers, streams and wells and adherence to required construction standards. Hog production facilities generate significant quantities of manure, which must be managed properly to protect public health and the environment. We believe that the best technology currently available for the management of swine manure is the lagoon and sprayfield system. This system utilizes earthen lagoons to treat the manure before it is applied to agricultural fields by spray application. The nitrogen and phosphorus in the treated manure serve as a crop fertilizer. Lagoon and sprayfield systems require permits under state, and in some instances, federal law. The permits impose standards and conditions on the design and operation of the systems to ensure that they protect public health and the environment. The Hog Production Group follows a number of other protocols to minimize the impact of its operations to the environment, including: ongoing employee training regarding environmental controls; walk-around inspections at all sites by trained personnel; formal emergency response plans that are regularly updated; and collaborations with manufacturers regarding testing and developing new equipment. Environmental Stewardship On July 25, 2000, in furtherance of our continued commitment to responsible environmental stewardship, Smithfood Foods, Inc. and our North Carolina-based hog production companies entered into an agreement designed to enhance water quality in the State of North Carolina through a series of initiatives to be undertaken by Smithfield while protecting our access to swine operations in North Carolina. These initiatives emphasize operations of our hog production subsidiaries in the State of North Carolina, particularly areas devastated by hurricanes in the fall of 1999. Under one of these initiatives, we have identified those farms owned by, or under contract to, operating subsidiaries with buildings or lagoons located in the flood plain, and have provided assistance to some of our independent contract growers to implement measures to protect water quality should these structures experience flooding in the future. We are also working with our hog production and other operating subsidiaries to develop and implement formal environmental management systems. We intend to develop and implement these systems throughout our company over the next few years, with initial focus on our North Carolina hog production operations. We believe that the environmental management systems developed by our hog production operations will, when fully implemented, be a model program, not only in the pork production industry, but among agribusinesses nationally. In April 2001, Carroll's Foods was recognized as the first livestock operation in the United States to receive the ISO 14001 certification for its environmental management system. ISO 14001 is a standard published by the International Organization for Standardization, which establishes a coordinated framework of 54 controls to manage environmental protection within an organization. To obtain ISO 14001 certification, an organization must meet a rigorous and comprehensive set of requirements and criteria developed by experts from all over the world and submit to independent audits by third parties. We plan for Murphy Farms and Brown's each to receive ISO 14001 certification by the end of 2001. Under the North Carolina agreement, we agreed to undertake a series of immediate measures to address concerns over the potential environmental impact of the current system of anaerobic lagoons and spray fields. In July 2000, we assumed a leadership role in the development of environmentally superior swine waste management technologies by committing $15.0 million toward an intensive technology development program. We and our North Carolina hog production subsidiaries have also committed to assist in the preservation of wetlands and other natural areas in eastern North Carolina. We have committed up to $2.0 million a year for 25 years to the State of North Carolina to advance this initiative and to promote similar environmental enhancement activities. Our environmental stewardship initiatives are proceeding under the oversight of our Environmental Compliance Committee, which was established by the Board of Directors in January 2000. Members of this committee include, among others, our General Counsel, Vice President-Engineering, and senior officers from our principal operating subsidiaries. Our initiatives under the North Carolina agreement are also overseen by the Attorney General of North Carolina. Regulation Regulation Generally. Like other participants in the meat processing industry, we are subject to various laws and regulations administered by federal, state and other government entities, including the Environmental Protection Agency and corresponding state agencies as well as the United States Department of Agriculture, the United States Food and Drug Administration and the United States Occupational Safety and Health Administration. Management believes that we presently are in compliance with all these laws and regulations in all material respects, and that continued compliance with these standards will not have a material adverse effect on our financial position or results of operations. In addition, the EPA has proposed to extensively modify its regulations governing confined animal feeding operations. These proposed modifications are scheduled to be finalized by December 2002 and could have a significant impact on our hog production operations. We are committed to responsible environmental stewardship in our operations, as discussed in "Business--Environmental Stewardship." We from time to time receive notices from regulatory authorities and others asserting that we are not in compliance with some laws and regulations. In some instances, litigation ensues, including the matters discussed below. Although the suits below remain pending and relief, if granted, would be costly, we believe that their ultimate resolution will not have a material adverse effect on our financial position or annual results of operations. 55 EPA Suit. In United States of America v. Smithfield Foods, Inc. et al., the United States District Court for the Eastern District of Virginia imposed a $12.6 million civil penalty on us and our Smithfield Packing and Gwaltney subsidiaries for Clean Water Act violations at our Smithfield, Virginia processing plants. We recorded a nonrecurring charge of $12.6 million during fiscal 1998 with respect to this penalty. In September 1999, the United States Court of Appeals for the Fourth Circuit affirmed the District Court's determination of liability but remanded the penalty determination to the District Court with instructions to recalculate the civil penalty solely to correct a 4% error made by the government's expert. In May 2000, we filed a certiorari petition seeking review of the Fourth Circuit's ruling by the United States Supreme Court. Our certiorari petition was denied, and we satisfied the judgment. Water Keeper Alliance Inc. Litigation. The Water Keeper Alliance Inc., an environmental activist group from New York, has recently filed or caused to be filed a series of lawsuits against us and our subsidiaries and properties, as described below. In June 2000, Neuse River Foundation, Richard J. Dove, d/b/a The Neuse Riverkeeper, D. Boulton Baldridge, d/b/a The Cape Fear Riverkeeper, New River Foundation, Inc., Tom Mattison, d/b/a The New Riverkeeper and The Water Keeper Alliance filed a lawsuit in the General Court of Justice, Superior Court Division of the State of North Carolina against Smithfield Foods, Inc., Carroll's Foods, Inc., Brown's of Carolina, Inc., Murphy Farms, Inc., Wendell H. Murphy, Sr., Wendell H. Murphy, Jr., and Joseph W. Luter, III. The lawsuit alleged, among other things, claims based on negligence, trespass, strict liability and unfair trade practices related to the operation of swine waste lagoons and sprayfields in North Carolina. The lawsuit sought numerous and costly remedies, including injunctive relief to end all use of hog waste lagoons in North Carolina, unspecified but costly remediation efforts and other damages. On March 27, 2001, the Superior Court granted our motion and dismissed the lawsuit. The plaintiffs noted their appeal on April 11, 2001. In February 2001, Thomas E. Jones and twelve other individuals filed a lawsuit in the North Carolina General Court of Justice, Superior Court Division, Wake County, against Smithfield Foods, Inc., three of its subsidiaries, Wendell H. Murphy, Sr., Wendell H. Murphy, Jr., and Joseph W. Luter, III, referred to as the "Jones Suit." The Jones Suit alleged, among other things, claims based on negligence, trespass, strict liability and unfair trade practices related to the operation of swine waste lagoons and sprayfields in North Carolina. The lawsuit sought numerous and costly remedies, including injunctive relief to end all use of hog waste lagoons in North Carolina, unspecified but costly remediation efforts and other damages. On March 27, 2001, the Superior Court granted our motion and dismissed the lawsuit. The plaintiffs noted their appeal on April 11, 2001. Also in February 2001, Water Keeper Alliance Inc., Thomas E. Jones d/b/a Neuse Riverkeeper, and Neuse River Foundation filed two lawsuits in the United States District Court for the Eastern District of North Carolina against one of our subsidiaries, and two of that subsidiary's hog production facilities in North Carolina, referred to as the "Citizens Suits." Smithfield Foods, Inc. is named as a defendant in one of the suits, and the plaintiffs have served an amended notice of intent to join Smithfield Foods, Inc. as a defendant in the other suit. The Citizens Suits allege, among other things, violations of various environmental laws at each facility and the failure to obtain federal permits at each facility. The lawsuits seek remediation costs, injunctive relief and 56 substantial civil penalties. We and our subsidiaries moved to dismiss each of these lawsuits. The motions were denied, as was our subsequent motion for their reconsideration. The Company has also received notices from several organizations, including the Water Keeper Alliance, of their intent to file additional lawsuits against us under various federal environmental statutes regulating water quality, air quality and management of solid waste. These threatened lawsuits may seek civil penalties, injunctive, relief and remediation costs. However, we are unable to determine whether any of these notices will result in suit being filed. In March 2001, Eugene C. Anderson and other individuals filed what purports to be a class action in the United States District Court for the Middle District of Florida, Tampa Division, against us and Joseph W. Luter, III, referred to as the "Anderson Suit." The Anderson Suit purports to allege violations of various laws, including the Racketeer Influenced and Corrupt Organizations Act, based on our alleged failure to comply with environmental laws. The complaint seeks treble damages that are unspecified. The plaintiffs filed an amended complaint on May 1, 2001. We have moved to dismiss the Anderson Suit. Plaintiffs have moved for class certification, which we have opposed. There has been no ruling on plaintiffs' certification motion. We believe that the Anderson Suit is baseless and without merit and we intend to defend the suit vigorously. We have investigated the allegations made in the Citizens Suits and believe that the outcome of these lawsuits will not have a material adverse effect on our financial condition or results of operations. We believe that all of the litigation described above represents the agenda of special advocacy groups including the Water Keeper Alliance Inc. The plaintiffs in these cases have stated that federal and state environmental agencies have declined to bring any of these suits and, indeed, have criticized these agencies. Legal Proceedings In April 2000, Smithfield Foods, Inc. and one of its subsidiaries were named as defendants, along with IBP, in a civil action filed in the United States District Court for the Middle District of Georgia. The case was filed by four named plaintiffs on behalf of a putative nationwide class of hog producers who from 1994 to the present produced and sold finished hogs to the defendants on a spot, auction or cash market basis. The plaintiffs contend that the defendants violated the Packers and Stockyards Act of 1921 by reason of the defendants' engaging in various captive supply arrangements for the procurement of hogs for processing. We moved the Georgia court to dismiss the case for lack of jurisdiction or in the alternative transfer it to the Eastern District of Virginia, where we are headquartered. On March 30, 2001, the Georgia court granted our motion to transfer. On May 11, 2001, we filed a motion to dismiss the case, arguing that the alleged captive supply arrangements do not violate the Act and are consistent with similar vertical integration in the poultry industry. The Eastern District of Virginia court denied our motion to dismiss by order dated September 19, 2001. However, in light of the issues raised by that motion regarding the scope of the Act, the Court required the parties to comply with a schedule for a focused discovery plan relating to the allegation that captive supply hog procurement practices violate the Act and required prompt briefing on a motion for summary 57 judgment by the defendants. The hearing on the summary judgment motion was November 21, 2001 and the court stated its intention to rule in our favor. We expect a written order to this effect in the near future. Employees As of July 29, 2001, the Meat Processing Group had approximately 32,500 employees, approximately 13,750 of whom are covered by collective bargaining agreements expiring between January 15, 2002 and July 1, 2006, and the Hog Production Group had approximately 4,000 employees, none of whom are covered by collective bargaining agreements. A replacement for one collective bargaining agreement that expired October 31, 2001 is still being negotiated. While we believe that our relationship with our employees is satisfactory, we are involved in several proceedings on appeal to the National Labor Relations Board concerning two meat processing facilities. In one proceeding before the National Labor Relations Board, an administrative law judge has directed that a bargaining order be entered against us. The outcome of these appeals may determine whether approximately 1,800 employees will be union represented or whether new representation elections will be conducted to determine this issue. 58 MANAGEMENT Our Executive Officers and Directors Our executive officers and directors are set forth below.
Years in Name Age Meat Industry Positions with us and Other Information ----- --- ------------- --------------------------------------- Joseph W. Luter, III............... 62 32 Director; Chairman of the Board and Chief Executive Officer C. Larry Pope...................... 46 20 President and Chief Operating Officer Joseph W. Luter, IV................ 36 10 Executive Vice President Richard J. M. Poulson.............. 62 2 Executive Vice President and General Counsel Daniel G. Stevens.................. 42 3 Vice President and Chief Financial Officer Jerry H. Godwin.................... 54 7 President of Murphy-Brown LLC Lewis R. Little.................... 57 37 President of Smithfield Packing Joseph B. Sebring.................. 54 26 President of John Morrell Richard V. Vesta................... 54 30 President of Packerland Robert L. Burrus, Jr............... 66 -- Director; Chairman of the law firm of McGuireWoods LLP, Richmond, Virginia Carol T. Crawford.................. 58 -- Director; Private investor and former Commissioner of the U.S. International Trade Commission Ray A. Goldberg.................... 74 -- Director; Moffett Professor of Agriculture and Business, Emeritus, Harvard Business School George E. Hamilton, Jr............. 85 63 Director; Retired President and Chief Operating Officer of Smithfield Packing Wendell H. Murphy.................. 62 38 Director; Former Chairman of the Board and Chief Executive Officer of Murphy Farms William H. Prestage................ 66 33 Director; Chairman of the Board, President and Chief Executive Officer of Prestage Farms, Inc. /(1)/, Clinton, North Carolina, a hog and turkey producer John T. Schwieters................. 61 -- Director; Vice Chairman of Perseus L.L.C., a merchant bank and private equity fund management company Melvin O. Wright................... 72 -- Director; Advisor to PrimeCorp Finance, a Paris merchant bank
__________________________ (1) As discussed elsewhere in this prospectus, this producer is a party to various hog supply contracts and/or hog production arrangements with us. For further information, see "Related Party Transactions." 59 PRINCIPAL SHAREHOLDERS The following table sets forth some information concerning (i) the share ownership of each person known to us to be the beneficial owner of more than five percent of the outstanding shares of our Common Stock and (ii) the share ownership of our Common Stock by all Directors and executive officers as a group, in each case as of July 12, 2001.
Amount and Nature of Beneficial Ownership Name and Address of (Number of Shares Percent Beneficial Owner Beneficially Owned of Class - ------------------- --------------------- -------- Joseph W. Luter, III..................................................... 6,237,886 (1) 5.9% Smithfield Foods, Inc 200 Commerce Street Smithfield, VA 23430 Wendell H. Murphy, some family members and a related entity.............. 19,581,012 (2) 18.8% Post Office Box 280 Rose Hill, NC 28458 Directors and Executive Officers as a group.............................. 26,951,798 (3) 25.9%
_____________ (1) Includes 400,000 shares which Mr. Luter has the right to acquire pursuant to the exercise of presently exercisable stock options. (2) In connection with our purchase of Murphy Farms, Inc. and affiliated corporations in January 2000, Wendell H. Murray, a director, and family members listed below entered into a shareholders agreement with us pursuant to which the Murphy family members agreed to restrictions relating to, among other things, the voting and disposition of their shares of common stock. For purposes of the reporting requirements of the Exchange Act, these arrangements may cause the Murphy family members to be deemed to constitute a group. Previously, the Murphy family members expressly disclaimed the existence of a group; however, they recently expressly elected to be considered as a group. As of June 30, 2001, Wendell H. Murphy holds 5,289,732 shares directly and 567,150 shares indirectly; Harry D. Murphy holds 2,924,844 shares directly and 321,630 shares indirectly; Joyce M. Norman holds 1,800,984 shares directly and 205,124 shares indirectly; Wendell H. Murphy, Jr. holds 3,432,676 shares directly and 390,966 shares indirectly; Wendy Murphy Crumpler holds 1,008,274 shares directly and 114,838 shares indirectly; Stratton K. Murphy holds 1,162,176 shares directly and 168,590 shares indirectly; Marc D. Murphy holds 1,162,176 shares directly and 168,590 shares indirectly; and Angela Brown holds 554,150 shares directly and 63,112 shares indirectly. The indirect ownership of the Murphy family members reflects their respective interests in 2,000,000 shares held in escrow in connection with our purchase of Murphy Farms. The Murphy family members are entitled to receive the shares held in escrow but they do not currently have voting power or dispositive power over those shares. The amount shown in the table includes 246,000 shares owned by a limited liability company, Murfam Enterprises, LLC, of which the Murphy family members are the sole owners and may therefore be deemed to share voting power and dispositive power with respect to those shares. The amount shown in the table does not include an additional number of shares (currently estimated at 446,872) that the Murphy family members are expected to become entitled to receive from us as the result of a post- closing purchase price adjustment in connection with the purchase of Murphy Farms. (3) Includes 710,000 shares subject to presently exercisable stock options. 60 RELATED PARTY TRANSACTIONS In May, 1999, we purchased Carroll's Foods and some related companies and assets for 8,676,548 shares of common stock. As a result of this transaction, the former shareholders of Carroll's Foods (Carroll M. Baggett, James O. Matthews and Jeffrey S. Matthews) became the beneficial owners, in the aggregate, of 13,112,000 shares of our common stock, which amount includes shares of common stock previously held by Carroll's Foods or its affiliates. In August 1999, we repurchased 1,000,000 of these shares based on the prevailing market price at that time. In connection with the acquisition, we entered into a registration rights agreement and a shareholders agreement with the former Carroll's Foods shareholders. Under the registration rights agreement, each of the former Carroll's Foods shareholders is entitled for a period of seven years to have us register public resales of 1,000,000 or more shares of common stock, subject to customary terms and conditions, on demand. The agreement also provides for customary piggyback registration rights. We are not required under the registration rights agreement to file or maintain a "shelf registration" with respect to these shares. William H. Prestage, one of our directors, is the chairman of the board, president and chief executive office of Prestage Farms, Inc., a hog and turkey producer located in Clinton, North Carolina. We have a market-indexed multi-year purchase agreement with Prestage Farms which obligates us to purchase hogs produced by Prestage Farms in Virginia, North Carolina and South Carolina. Pursuant to the purchase agreement, we purchased $157,510,000 of live hogs from Prestage Farms in fiscal 2001. We believe that the prices paid under the purchase agreement with Prestage Farms are equivalent to market. In January 2000, we purchased Murphy Farms and some affiliated corporations for 22,108,792 shares of common stock (subject to post-closing adjustment). As a result of this transaction, the former shareholders of Murphy Farms (Wendell H. Murphy, a director, Harry D. Murphy, Joyce M. Norman, Wendell H. Murphy, Jr., Wendy Murphy Crumpler, Stratton K. Murphy, Marc D. Murphy and Angela Brown) became the beneficial owners in the aggregate of 24,042,792 shares of our common stock, which amount includes shares of common stock previously held by Murphy Farms, these shareholders and their affiliates. In connection with the acquisition, we entered into a registration rights agreement and a shareholders agreement with the former Murphy Farms shareholders. Under the registration rights agreement, each of the former Murphy Farms shareholders is entitled for a period of five years to have us register public resales of 1,000,000 or more shares of common stock, subject to customary terms and conditions, on demand. The agreement also provides for customary piggyback registration rights. We are not required under the registration rights agreement to file or maintain a "shelf registration" with respect to these shares. Under the shareholders agreement, each of the former Murphy Farms shareholders agreed for five years not to (i) initiate any solicitation of proxies from our shareholders or participate in any election contest or in any proposal made under Rule 14(a)-8 of the Exchange Act; (ii) oppose, or participate in any group opposing any management proposals presented at a shareholders meeting, or vote against any of these proposals; or (iii) acquire or substantially affect our control, or seek to do so. Under this agreement, these shareholders also agreed not to sell or otherwise transfer shares of common stock aggregating 5% or more of the then outstanding common stock to any one person or group. These shareholders further agreed not to sell or transfer within any 12-month period or make any other agreement or arrangement 61 of transfer with respect to 10% or more of the shares of common stock, issued to any shareholder in connection with the acquisition of Murphy Farms. Wendell H. Murphy, one of our directors, holds a 35% interest in Murfam Enterprises, LLC and a 1% interest in DM Farms of Rose Hill, LLC. Some other former shareholders of Murphy Farms hold the remaining membership interests in Murfam Enterprises and DM Farms. Murfam Enterprises and DM Farms own some farms that produce hogs under the contract and sell feed ingredients to Murphy Farms. From January 2000 through the end of fiscal year 2001, we made payments totaling $3,769,872 to Murfam Enterprises for the production of hogs and feed ingredients and received payments totaling $1,448,569 from Murfam Enterprises for reimbursement of associated farm and other support costs. From January 2000 through the end of fiscal year 2001, we made payments of $29,030,975 to DM Farms for the production of hogs and received payments of $18,257,996 from DM Farms for reimbursement of associated farm and support costs. We believe that the terms of the foregoing arrangements were no less favorable to us than if entered into with unaffiliated parties. In May 2001, Mr. Prestage purchased a 51% interest in Stoecker Farms, Inc., a hog producer located in Ames, Iowa. An individual who is an employee of Murphy-Brown LLC owns the remaining 49% of Stoecker Farms. Mr. Prestage has an option to acquire the remaining 49% of Stoecker Farms, which is exercisable until November 2001. Murphy Farms and Stoecker Farms are parties to several contracts, including (i) a feeder pig purchase agreement expiring in 2010 (which may be extended to 2012 at Murphy Farms' option) under which Stoecker Farms purchases its requirements of feeder pigs from Murphy Farms, (ii) a service agreement (terminable by Stoecker Farms on 60 days' notice) under which Murphy Farms provides the services of some personnel to Stoecker Farms, and (iii) a non-exclusive feed purchase agreement. In addition, Murphy holds a note from, and provides some trade terms under the Stoecker Farms agreements to, Stoecker Farms. The obligations of Stoecker Farms to Murphy Farms under the note were incurred in connection with the sale of some assets by Murphy Farms to Stoecker Farms prior to our acquisition of Murphy Farms in January 2000. Stoecker Farms' obligations to Murphy Farms are secured by liens on substantially all the assets of Stoecker Farms. We believe that the terms of the Stoecker Farms agreements are no less favorable to us than market. We estimate that during fiscal 2001, Stoecker Farms made payments of approximately $184,200,000 to Murphy Farms under the Stoecker Farms agreements. Business volumes at approximately this level are expected to continue, based on equivalent hog prices, while the Stoecker Farms agreements are in effect. The aggregate amount outstanding from Stoecker Farms under the note and under the feeder pig purchase agreement was approximately $48,700,000 at the end of fiscal year 2001. The largest amount outstanding during the fiscal year was approximately $74,800,000. The rate of interest under the note is 8% per annum. Under the feeder pig purchase agreement, Stoecker Farms pays Murphy Farms for feeder pigs only after Stoecker Farms receives payment from its customer for them. No interest is accrued during this period. 62 In September 9, 1998, we made loans aggregating $9,444,000 to our employees including Messrs. Luter and Pope. The loans were made to facilitate the employees' payment of the purchase price and taxes upon the exercise of stock options granted under our 1984 Stock Option Plan. The options, which would have expired in 1999, covered an aggregate of 2,520,000 shares. The loans bore interest payable quarterly at a rate of 8% per annum. Each employee's loan was secured by a pledge to us of shares acquired upon exercise of the options. Mr. Luter repaid his loan in full in the amount of $7,546,154 on July 7, 2000, by delivery of 524,950 shares of our common stock at a price of $14.38 per share. On that date, the market closed with a price of $14.4688 per share of our common stock. Mr. Pope repaid his loan principal and accrued interest in full in the amount of $306,000 on August 31, 2000. In March 14, 2001, we purchased 1,000,000 shares of our common stock from Mr. Luter at a purchase price of $15.75 per share. On that date, the market closed with a price of $15.88 per share of our common stock. 63 THE EXCHANGE OFFER General We hereby offer, upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal (which together constitute the exchange offer), to exchange up to $300,000,000 aggregate principal amount of exchange notes for a like aggregate principal amount of the senior notes. For the exchange offer to be effected the senior notes must be properly tendered on or prior to the date the exchange offer expires and the senior notes cannot have been properly withdrawn. The exchange offer is being made with respect to all of the senior notes. As of the date of this prospectus, the aggregate principal amount of the senior notes is $300,000,000. This prospectus, together with the letter of transmittal, is first being sent on or about ____________, 2001, to all registered holders of the senior notes. Our obligation to accept senior notes for exchange is subject to certain conditions set forth under "Conditions to the Exchange Offer" below. We currently expect that each of the conditions will be satisfied and that no waivers will be necessary. Purpose of the Exchange Offer The senior notes were issued on October 23, 2001 in a transaction exempt from the registration requirements of the Securities Act. Accordingly, the senior notes may not be reoffered, resold, or otherwise transferred unless registered under the Securities Act or any applicable securities law or unless an applicable exemption from the registration and prospectus delivery requirements of the Securities Act is available. In connection with the sale of the senior notes, we agreed to file with the SEC on or before 90 days after the issuance of the senior notes a registration statement registering the exchange notes to be offered in exchange for the senior notes. We also agreed that the notes to be registered, known as the exchange notes, would contain the same terms as the senior notes, except as is otherwise set forth in this prospectus. Under the exchange and registration rights agreement, we are obligated to use our reasonable best efforts to cause the exchange offer registration statement to be declared effective under the Securities Act within 150 days after the date of issuance of the senior notes. As soon as practicable after the effectiveness of the exchange offer registration statement, we will offer to the holders of transfer restricted securities, as defined below, who are not prohibited by any law or policy of the SEC from participating in the exchange offer, the opportunity to exchange their transfer restricted securities for the exchange notes offered in connection with this prospectus, that are identical in all material respects to the senior notes, except that these exchange notes will not contain transfer restrictions and will be registered under the Securities Act. We will keep the exchange offer open for not less than 30 days, or longer if required by applicable law, after the date on which notice of the exchange offer is mailed to the holders of the senior notes. 64 If . we are not permitted to effect the exchange offer as contemplated by this prospectus because of any change in law or applicable interpretations of the law by the staff of the SEC; . for any other reason the exchange offer is not consummated within 180 days after the date of issuance of the notes; . any initial purchaser so requests with respect to notes held by the initial purchaser that are not eligible to be exchanged for exchange notes in the exchange offer; . any applicable law or interpretations do not permit any holder of notes to participate in the exchange offer; or . any holder of notes that participates in the exchange offer does not receive freely transferable exchange notes in exchange for tendered notes, then we will file as promptly as practicable, but in no event more than 75 days after so required or requested, with the SEC, which we refer to as the shelf filing date, a shelf registration statement to cover resales of transfer restricted securities by those holders who satisfy various conditions relating to the provision of information in connection with the shelf registration statement. For purposes of the above, "transfer restricted securities" means each senior note, until the earliest to occur of: . the date on which that senior note has been exchanged for a freely transferable exchange note in the exchange offer; . the date on which that senior note has been effectively registered under the Securities Act and disposed of in accordance with the shelf registration statement; or . the date on which that senior note is distributed to the public pursuant to Rule 144 under the Securities Act or may be sold under Rule 144(k) under the Securities Act. We will use our reasonable best efforts to have the exchange offer registration statement or, if applicable, the shelf registration statement, declared effective by the SEC as promptly as practicable after it is filed. Unless the exchange offer will not be permitted by policy of the SEC, we will commence the exchange offer and will use our reasonable best efforts to consummate it as promptly as practicable, but in any event before 180 days after the date of issuance of the senior notes. If applicable, we will use our reasonable best efforts to keep the shelf registration statement effective for a period ending on the earlier of two years after the date of issuance of the senior notes or the date all transfer restricted securities become eligible for resale without volume restrictions under Rule 144 under the Securities Act. We will be deemed not to have used our reasonable best efforts to keep the shelf registration statement effective during the requisite period if we voluntarily take any action that would result 65 in holders of transfer restricted securities covered by the shelf registration statement not being able to offer and sell those transfer restricted securities during that period, unless this action is required by applicable law. The foregoing will not apply to actions taken by us in good faith and for valid business reasons (not including avoidance of our obligations under the exchange and registration rights agreement), including, without limitation the acquisition or divestiture of assets, so long as we within 30 days thereafter comply with the requirements of the exchange and registration rights agreement. Any period during which we fail to keep the shelf registration statement effective and usable for offers and sales of transfer restricted securities is referred to as a "suspension period." A suspension period would commence on and include the date that we give notice that the shelf registration statement is no longer effective or the prospectus included in this shelf registration statement is no longer usable for offers and sales of transfer restricted securities. The suspension period would end on the date when each holder of transfer restricted securities covered by the shelf registration statement either receives the copies of a supplemented or amended prospectus or is advised in writing by us that use of the prospectus may be resumed. If one or more suspension periods occur, the two-year time period referenced above would be extended by the aggregate of the number of days included in each suspension period. If any of the following events occur, each of which we refer to as a registration default: . the exchange offer registration statement is not filed with the SEC on or before 90 days after the date of issuance of the senior notes or the shelf registration statement is not filed with the SEC on or before the shelf filing date; . the exchange offer registration statement is not declared effective within 150 days after the date of issuance of the senior notes or the shelf registration statement is not declared effective within 150 days after the shelf filing date; . the exchange offer is not consummated on or before 180 days after the date of issuance of the senior notes; or . the shelf registration statement is filed and declared effective within 150 days after the shelf filing date but thereafter ceases to be effective, at any time that we are obligated to maintain its effectiveness, without being succeeded within 75 days by an additional registration statement being filed and declared effective, we will be obligated to pay additional interest to each holder of transfer restricted securities, during the period of one or more registration defaults, in an amount equal to $0.192 per week per $1,000 principal amount of the senior notes constituting transfer restricted securities held by the holder until the applicable registration statement is filed, the exchange offer registration statement is declared effective and the exchange offer is consummated, or the shelf registration statement is declared effective or again becomes effective, as the case may be. All accrued additional interest will be paid to holders in the same manner as interest payments on the senior notes on semi-annual payment dates that correspond to interest payment dates for the senior notes. Additional interest only accrues during a registration default. 66 The exchange and registration rights agreement also provides that we will: . make available, for a period of 90 days after the consummation of the exchange offer, a prospectus meeting the requirements of the Securities Act to any broker-dealer for use in connection with any resale of any exchange notes received in exchange for senior notes that were acquired as a result of market-making activities or other trading activities; and . pay all expenses incident to the exchange offer, including the expense of one counsel to the holders of the senior notes, and will indemnify holders of the senior notes, including any broker-dealer, against some liabilities, including liabilities under the Securities Act. A broker-dealer that delivers a prospectus to purchasers in connection with resales of the exchange notes will be subject to some of the civil liability provisions under the Securities Act and will be bound by the provisions of the exchange and registration rights agreement, including indemnification rights and obligations. Resale of Exchange Notes Each holder of senior notes who wishes to exchange its senior notes for exchange notes in the exchange offer will be required to make representations, including representations that: . any exchange notes to be received by it will be acquired in the ordinary course of its business; . it has no arrangement or understanding with any person to participate in the distribution of the exchange notes; and . it is not an "affiliate," as defined in Rule 405 under the Securities Act, of ours, or if it is an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the holder is not a broker-dealer, it will be required to represent that it is not engaged in, and does not intend to engage in, the distribution of the exchange notes. If the holder is a broker-dealer that will receive exchange notes for its own account in exchange for senior notes that were acquired as a result of market-making activities or other trading activities, it will be required to acknowledge that it will deliver a prospectus in connection with any resale of its exchange notes. Holders of the senior notes will be required to make representations to us, as described above, in order to participate in the exchange offer. They will also be required to deliver information to be used in connection with the shelf registration statement in order to have their senior notes included in the shelf registration statement and benefit from the provisions regarding additional interest set forth in the preceding paragraphs. A holder who sells senior notes pursuant to the shelf registration statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to some of the civil liability provisions under the Securities Act in connection with these sales 67 and will be bound by the provisions of the exchange and registration rights agreement that are applicable to a holder, including indemnification obligations. For so long as the senior notes are outstanding, we will continue to provide to holders of the senior notes and to the prospective purchaser of the senior notes the information with respect to us required by Rule 144A(d)(4) under the Securities Act. Terms of the Exchange Subject to the terms and conditions set forth in this prospectus and the letter of transmittal we will accept for exchange any senior notes properly tendered and not properly withdrawn prior to the expiration date. We will issue $1,000 principal amount of exchange notes in exchange for each $1,000 principal amount of senior notes surrendered upon the exchange offer. Senior notes may be tendered only in integral multiples of $1,000. The form and terms of the exchange notes will be substantially identical to the forms and terms of the senior notes except that the exchange notes: . will be registered under the Securities Act; . will not bear legends restricting their transfer; and . will not provide for any additional interest upon our failure to fulfill our obligation under the registration rights agreement to file, and cause to be effective, a registration statement. The exchange notes will evidence the same debt as the senior notes. The exchange notes will be issued under and entitled to the benefits of the same indenture that authorized the issuance of the senior notes. Consequently, both series will be treated as a single class of debt securities under the indenture. For a description of the indenture, see "Description of the Exchange Notes" below. The exchange offer is not conditioned upon any minimum aggregate principal amount of senior notes being tendered or accepted for exchange. As of the date of this prospectus, $300 million aggregate principal amount of the senior notes are outstanding. This prospectus and the letter of transmittal are being sent to all registered holders of senior notes. There will be no fixed record date for determining registered holders of senior notes entitled to participate in the exchange offer. We intend to conduct the exchange offer in accordance with the provisions of the exchange and registration rights agreement, the applicable requirements of the Securities Act and the Exchange Act and the rules and regulations of the SEC. Senior notes that are not tendered for exchange in the exchange offer will remain outstanding and continue to accrue interest and will be entitled to the rights and benefits such holders have under the indenture relating to the senior notes and the registration rights agreement. We will be deemed to have accepted for exchange properly tendered senior notes when we have given oral or written notice of the acceptance to the exchange agent. The exchange agent will act as agent for the tendering holders for the purposes of receiving the exchange notes from 68 us and delivering the exchange notes to such holders. Subject to the terms of the registration rights agreement. We expressly reserve the right to amend or terminate the exchange offer, and not to accept for exchange any senior notes not previously accepted for exchange, upon the occurrence of any of the conditions specified below under the caption "Conditions to the Exchange Offer." Tendering holders of the senior notes 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 the senior notes pursuant to the exchange offer. Interest on each exchange note issued pursuant to the exchange offer will accrue from the last interest payment date to which interest was paid on the senior notes surrendered in the exchange offer. If no interest has been paid on the senior notes from the date of original issue of the senior notes, then interest will accrue from the date of original issue of the senior notes. Expiration Date; Extensions; Termination; Amendments The exchange offer will expire at 5:00 p.m., New York City time on _____, 2002, unless in our sole discretion, we extend it. In order to extend the exchange offer, we will notify the exchange agent orally or in writing of any extension. We will notify the registered holders of senior notes of the extension no later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date. We reserve the right, in our sole discretion: . to delay accepting for exchange any of the senior notes; . to extend the exchange offer or to terminate the exchange offer and to refuse to accept senior notes not previously accepted if any of the conditions set forth below under "Conditions to the Exchange Offer" have not been satisfied, by giving oral or written notice of such delay, extension or termination to the exchange agent; or . subject to the terms of the exchange and registration rights agreement, 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 to the registered holders of the senior notes. If we amend the exchange offer in a manner that we determine to constitute a material change, we will promptly disclose such amendment in a manner reasonably calculated to inform the holders of the senior notes of such amendment. Without limiting the manner in which we may choose to make public announcements of any delay in acceptance, extension, termination or amendment of the exchange offer, we shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to a financial news service. 69 How to Tender Only a holder of senior notes may tender such senior 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 of the letter of transmittal; have the signature on the letter of transmittal guaranteed if the letter of transmittal so requires; and mail or deliver such letter of transmittal or facsimile to the exchange agent prior to the expiration date; . comply with the guaranteed delivery procedures described below; or . the holder must comply with the DTC's Automated Tender Offer Program procedures described below. In addition, either: . the exchange agent must receive the senior notes along with the letter of transmittal; or . the exchange agent must receive, prior to the expiration date, a timely confirmation of book-entry transfer of such senior notes into the exchange agent's account at DTC according to the procedure for book- entry transfer described below or a properly transmitted agent's message; or . the holder must comply with the guaranteed delivery procedures described below. To be tendered effectively, the exchange agent must receive any physical delivery of the letter of transmittal and other required documents at the address set forth below under "Exchange Agent" prior to the expiration date. The tender by a holder that is not withdrawn prior to the expiration date will constitute an agreement between such holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal. The method of delivery of the senior notes, the letter of transmittal and all other required documents to the exchange agent is at the holder's election and risk. Rather than mail these items, we recommend that holders use an overnight or hand delivery service. In all cases, holders should allow sufficient time to assure delivery to the exchange agent before the expiration date. Holders should not send the letter of transmittal or senior notes to us. Holders may request their respective brokers, dealers, commercial banks, trust companies or other nominees to effect the above transactions for them. Any beneficial owner whose senior notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct it to tender on the owner's behalf. If such beneficial owner wishes to tender on its own behalf, it must, prior to completing and executing the letter of transmittal and delivering its senior notes, either: . make appropriate arrangements to register ownership of the senior notes in such owner's name; or . obtain a properly completed bond power from the registered holder of the senior notes. 70 The transfer of registered ownership may take considerable time and may not be completed prior to the expiration date. Signatures on a letter of transmittal or a notice of withdrawal described below 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 another "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act, unless the senior notes tendered pursuant thereto are tendered: . by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal; or . for the account of an eligible guarantor institution. If the letter of transmittal is signed by a person other than the registered holder of any senior notes listed on the senior notes, such senior notes must be endorsed or accompanied by a properly completed bond power. The bond power must be signed by the registered holder as the registered holder's name appears on the senior notes and an eligible guarantor institution must guarantee the signature on the bond power. If the letter of transmittal or any senior notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing. Unless waived by us, they should also submit evidence satisfactory to us of their authority to deliver the letter of transmittal. The exchange agent and DTC have confirmed that any financial institution that is a participant in DTC's system may use DTC's Automated Tender Offer Program to tender. Participants in the program may, instead of physically completing and signing the letter of transmittal and delivering it to the exchange agent, transmit their acceptance of the exchange offer electronically. They may do so by causing DTC to transfer the senior notes to the exchange agent in accordance with its procedures for transfer. DTC will then send an agent's message to the exchange agent. The term "agent's message" means a message transmitted by DTC, received by the exchange agent and forming part of the book- entry confirmation, to the effect that: . DTC has received an express acknowledgment from a participant in its Automated Tender Offer Program that it is tendering senior notes that are the subject of such book-entry confirmation; . such participant has received and agrees to be bound by the terms of the letter of transmittal, or, in the case of an agent's message relating to guaranteed delivery, that such participant has received and agrees to be bound by the applicable notice of guaranteed delivery; and . the agreement may be enforced against such participant. 71 We will determine in our sole discretion all questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered senior notes and withdrawal of tendered senior notes. Our determination will be final and binding. We reserve the absolute right to reject any senior notes not properly tendered or any senior notes the acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular senior notes. 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 senior notes must be cured within such time as we shall determine. Although we intend to notify holders of defects or irregularities with respect to tenders of senior notes neither we, the exchange agent nor any other person will incur any liability for failure to give such satisfaction. Tenders of senior notes will not be deemed made until such defects or irregularities have been cured or waived. Any senior 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 to the exchange agent without cost to the tendering holder, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date. In all cases, we will issue exchange notes for senior notes that we have accepted for exchange under the exchange offer only after the exchange agent timely receives: . senior notes or a timely book-entry confirmation of such senior notes into the exchange agent's account at DTC; and . a properly completed and duly executed letter of transmittal and all other required documents or a properly transmitted agent's message. By signing the letter of transmittal, each tendering holder of senior notes will represent to us that, among other things: . any exchange notes that the holder receives will be acquired in the ordinary course of its business; . the holder has no arrangement or understanding with any person or entity to participate in the distribution of the exchange notes; . if the holder is not a broker-dealer, that it is not engaged in and does not intend to engage in the distribution of the exchange notes; . the holder is not an initial purchaser, that has, or is reasonably likely to have an unsold allotment of the senior notes from the initial issuance of the senior notes; . if the holder is a broker-dealer that will receive exchange notes for its own account in exchange for senior notes that were acquired as a result of market-making activities, that it will deliver a prospectus, as required by law, in connection with any resale of such exchange notes; and . the holder is not an "affiliate," as defined in Rule 405 of the Securities Act, of ours or, if the holder is an affiliate, it will comply with any applicable registration and prospectus delivery requirements of the Securities Act. 72 Book-Entry Transfer The exchange agent will make a request to establish an account with respect to the senior notes at DTC for purposes of the exchange offer promptly after the date of this prospectus; and any financial institution participating in DTC's system may make book-entry delivery of senior notes by causing DTC to transfer such senior notes into the exchange agent's account at DTC in accordance with DTC's procedures for transfer. Holders of senior notes who are unable to deliver confirmation of the book-entry tender of their senior notes into the exchange agent's account at DTC or all other documents required by the letter of transmittal to the exchange agent on or prior to the expiration date must tender their senior notes according to the guaranteed delivery procedures described below. Guaranteed Delivery Procedures Holders wishing to tender their senior notes but whose senior notes are not immediately available or who cannot deliver their senior notes, the letter of transmittal or any other required documents to the exchange agent or comply with the applicable procedures under DTC's Automated Tender Offer Program prior to the expiration date may tender if: . the tender is made through an eligible guarantor institution; . prior to the expiration date, the exchange agent receives from such eligible guarantor institution either a properly completed and duly executed notice of guaranteed delivery (by facsimile transmission, mail or hand delivery) or a properly transmitted agent's message and notice of guaranteed delivery: . setting forth the name and address of the holder, the registered number(s) of such senior notes and the principal amount of senior notes tendered; . stating that the tender is being made; and . guaranteeing that, within three (3) New York Stock Exchange trading days after the expiration date, the letter of transmittal, or a facsimile of the letter of transmittal, together with the senior notes or a book-entry confirmation, and any other documents required by the letter of transmittal will be deposited by the eligible guarantor institution with the exchange agent; and . the exchange agent receives such properly completed and executed letter of transmittal, or a facsimile of the letter of transmittal, as well as all tendered senior notes in proper form for transfer or a book-entry confirmation, and all other documents required by the letter of transmittal, within three (3) New York Stock Exchange 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 senior notes according to the guaranteed delivery procedures set forth above. 73 Withdrawal Rights Except as otherwise provided in this prospectus, holders of senior notes may withdraw their tenders at any time prior to the expiration date. For a withdrawal to be effective: . the exchange agent must receive a written notice, which may be by facsimile transmission or letter, of withdrawal at one of the addresses set forth below under "Exchange Agent;" or . holders must comply with the appropriate procedures of DTC's Automated Tender Offer Program system. Any such notice of withdrawal must: . specify the name of the person who tendered the senior notes to be withdrawn; . identify the senior notes to be withdrawn (including the principal amount of such senior notes); and . where certificates for senior notes have been transmitted, specify the name in which such senior notes were registered, if different from that of the withdrawing holder. If certificates for senior notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates, the withdrawing holder must also submit: . the serial numbers of the particular certificates to be withdrawn; and . a signed notice of withdrawal with signatures guaranteed by an eligible guarantor institution unless such holder is an eligible guarantor institution. If senior notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn senior notes and otherwise comply with the procedures of such facility. We will determine all questions as to the validity, form and eligibility, including time of receipt, of such notices, and our determination shall be final and binding on all parties. We will deem any senior notes so withdrawn not to have been validity tendered for purposes of the exchange offer. Any senior notes that have been tendered for exchange but that are not exchanged for any reason will be returned to their holder without cost to the holder, or, in the case of senior notes tendered by book-entry transfer into the exchange agent's account at DTC according to the procedures described above, such senior notes will be credited to an account maintained with DTC for senior notes, as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn senior notes may be retendered by following one of the procedures described under "How to Tender" above at any time on or prior to the expiration date. 74 Conditions to the Exchange Offer Despite any other term of the exchange offer, we will not be required to accept for exchange, or exchange any exchange notes for, any senior notes, and we may terminate the exchange offer as provided in this prospectus before accepting any senior notes for exchange if in our reasonable judgment: . the exchange notes to be received will not be tradeable by the holder, without restriction under the Securities Act, the Exchange Act and without material restrictions under the blue sky or securities laws of substantially all of the states of the United States; . the exchange offer, or the making of any exchange by a holder of senior notes, would violate applicable law or any applicable interpretation of the staff of the SEC; or . any action or proceeding has been instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer that, in our judgment, would reasonably be expected to impair our ability to proceed with the exchange offer. In addition, we will not be obligated to accept for exchange the senior notes of any holder that has not made to us: . the representations described under "Purpose of the Exchange Offer," "How to Tender" and "Plan of Distribution" and . such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to make available to us an appropriate form for registration of the exchange notes under the Securities Act. We expressly reserve the right, at any time or at various times, to extend the period of time during which the exchange offer is open. Consequently, it may delay acceptance of any senior notes by giving oral or written notice of such extension to their holders. During any such extensions, all senior notes previously tendered will remain subject to the exchange offer, and we may accept them for exchange. We will return any senior notes that we do not accept for exchange for any reason without expense to the tendering holder as promptly as practicable after the expiration or termination of the exchange offer. We expressly reserve the right to amend or terminate the exchange offer, and to reject for exchange any senior notes not previously accepted for exchange, upon the occurrence of any of the conditions of the exchange offer specified above. We will give oral or written notice of any extension, amendment, non- acceptance or termination to the holders of the senior notes as promptly as practicable. In the case of any extension, such notice will be issued no later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date. These conditions are for our sole benefit and we may assert them regardless of the circumstances that may give rise to them or waive them in whole or in part at any or at various times in our sole discretion. If we fail at any time to exercise any of the foregoing rights, this failure will not constitute a waiver of such right. Each such right will be deemed an ongoing right that we may assert at any time or at various times. 75 In addition, we will not accept for exchange any senior notes tendered, and will not issue exchange notes in exchange for any such senior notes, if at such time any stop order will be threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture under the Trust Indenture Act of 1939. Exchange Agent SunTrust Bank has been appointed as the exchange agent for the exchange offer. All executed letters of transmittal should be directed to the exchange agent at the address set forth below. Questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery should be directed to the exchange agent addressed as follows: By Facsimile: By Registered or Certified Mail: By Hand/Overnight Delivery: (404) 588-7335 SunTrust Bank SunTrust Bank Corporate Trust Depart. (mc008) Corporate Trust Depart. (mc008) 25 Park Place, 24/th/ Floor 25 Park Place, 24/th/ Floor Atlanta, Georgia 30303-2900 Atlanta, Georgia 30303-2900 Attention: Jack Ellerin Attention: Jack Ellerin
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL. Fees and Expenses We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, we may make additional solicitation by telegraph, telephone or in person by our officers and regular employees and those of our affiliates. We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to broker-dealers or others soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for services and reimburse it for its related reasonable out-of-pocket expenses. We will pay the cash expenses to be incurred in connection with the exchange offer. The expenses are estimated in the aggregate to be approximately $300,000. They include: . SEC registration fees; . fees and expenses of the exchange agent and trustee; . accounting and legal fees and printing costs; and . related fees and expenses. 76 Transfer Taxes We will pay all transfer taxes, if any, applicable to the exchange of senior notes under the exchange offer. The tendering holder, however, will be required to pay any transfer taxes (whether imposed on the registered holder or any other person) if: . certificates representing senior notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the senior notes tendered; . tendered senior notes are registered in the name of any person other than the person signing the letter of transmittal; or . a transfer tax is imposed for any reason other than the exchange of senior notes under the exchange offer. If satisfactory evidence of payment of such taxes is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed to that tendering holder. Consequences of Failure to Exchange Holders of senior notes who do not exchange their senior notes for exchange notes under the exchange offer will remain subject to the restrictions on transfer of the senior notes: . as set forth in the legend printed on the senior notes as a consequence of the issuance of the senior notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws; and . otherwise set forth in the offering memorandum distributed in connection with the private offering of the senior notes. In general, you may not offer or sell the senior notes unless they are registered under the Securities Act or the offer or sale is exempt from registration under the Securities Act and applicable state securities laws. Except as required by the registration rights agreement, we do not intend to register resales of the senior notes under the Securities Act. Based on interpretations of the SEC staff, exchange notes issued pursuant to the exchange offer may be offered for resale, resold or otherwise transferred by their holders, other than any such holder that is our "affiliate" 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 the holders acquired the exchange notes in the ordinary course of the holders' business and the holders have no arrangement or understanding with respect to the distribution of the exchange notes to be acquired in the exchange offer. Any holder who tenders in the exchange offer for the purpose of participating in a distribution of the exchange notes: . cannot rely on the applicable interpretations of the SEC; and . must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. 77 Accounting Treatment We will record the exchange notes at the same carrying value as the senior notes, as reflected in our accounting records on the date of the exchange. Accordingly, we will not recognize any gain or loss for accounting purposes. The expenses of the exchange offer will be amortized over the term of the exchange notes. Solicitation of Tenders No person has been authorized to give any information or to make any representations in connection with the exchange offer other than those contained in this prospectus. If such information or representations are given or made they should not be relied upon as though authorized by us. Neither the delivery of this prospectus nor any exchange made based on this Prospectus will create any implication that there has been no change in our affairs since the dates of the information provided by this prospectus. The exchange offer is not being made to (nor will tenders be accepted from or on behalf of) holders of senior notes in any jurisdiction in which the making of the exchange offer or the acceptance of the exchange offer would not be in compliance with the laws of such jurisdiction. However, we may, at our discretion, take such action as we may deem necessary to make the exchange offer in any such jurisdiction and extend the exchange offer to holders of senior notes in such jurisdiction. In any jurisdiction which the securities laws or blue sky laws require the exchange offer to be made by a licensed broker or dealer, the exchange offer is being made on our behalf by one or more registered brokers or dealers and they are licensed under the laws of such jurisdiction. Federal Income Tax Consequences The exchange of the senior notes for the exchange notes in the exchange offer should not constitute an exchange for federal income tax purposes. Consequently, (i) no gain or loss should be realized by a U.S. Holder upon receipt of the exchange notes; (ii) the holding period of the exchange notes should include the holding period of the senior notes exchanged therefor; and (iii) the adjusted tax basis of the exchange notes should be the same as the adjusted tax basis of the senior notes exchanged therefor immediately before the exchange. Even if the exchange of senior notes for the exchange notes were treated as an exchange, however, such an exchange should constitute a tax-free recapitalization for federal income tax purposes. Accordingly, the exchange notes should have the same issue price as the senior notes and a U.S. Holder should have the same adjusted basis and holding period in the exchange note as it had in the senior notes immediately before the exchange. As used in this prospectus, the term "U.S. Holder" means a person who is, for United States federal income tax purposes, (i) a citizen or resident of the United States; (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision of the United States; or (iii) an estate or trust the income of which is subject to United States federal income taxation regardless of its source. Holders of senior notes who are not U.S. Holders are urged to consult their own advisors regarding the tax consequences to them of an exchange of senior notes for exchange notes. 78 Other Participation in the exchange offer is voluntary, and you should carefully consider whether to accept. You are urged to consult your financial and tax advisors in making your own decision on what action to take. We may in the future seek to acquire untendered senior notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. We have no present plans to acquire any senior notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any untendered senior notes. 79 DESCRIPTION OF NOTES The exchange notes will be issued under the indenture, dated as of October 23, 2001, between SunTrust Bank, the trustee, and us. A copy of the indenture is filed with the SEC as an exhibit to the registration statement of which this prospectus is a part and is available upon request at our address set forth under the heading "Incorporation of Certain Documents By Reference." This is the same indenture under which the senior notes were issued. SunTrust Bank also serves as the trustee under the indenture relating to our 1998 Notes. The following description is only a summary of the provisions of the indenture. This summary is qualified in its entirety by reference to all the provisions of the indenture, including the definitions of terms used in the indenture and those terms made part of the indenture by reference to the Trust Indenture Act of 1939. Upon the issuance of the exchange notes or, if we file the shelf registration statement described on page 65 of this prospectus, upon the effectiveness of the shelf registration statement, the indenture will be subject to and governed by the Trust Indenture Act. You will find the definitions of capitalized terms used in this description at the end of this section under the heading "Certain Definitions." For purposes of this description, references to the "Company," "we," "our" and "us" refer to Smithfield Foods, Inc. and not to its subsidiaries. References to "Notes" refers to both the senior notes and the exchange notes. General Principal of, premium, if any, and interest on the exchange notes will be payable, and the Notes may be exchanged or transferred, at our office for that purpose in the Borough of Manhattan, The City of New York. Initially the office of exchange or transfer will be the office of the Trustee, located at 88 Pine Street, 19th Floor, New York, NY 10005. Alternatively, at our option, payment of interest may be made by check mailed to the address of the registered holders of the Notes as such address appears in the Note Register. We will pay principal of, premium, if any, and interest on, Notes in global form registered in the name of or held by The Depositary Trust Company or its nominee in immediately available funds to The Depositary Trust Company or its nominee, as the case may be, as the registered holder of such global note. The Notes will be our general unsecured, senior obligations, ranking equally in right of payment to any of our future senior indebtedness. The Notes will be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge will be made for any registration of transfer or exchange of Notes, but we may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection with the transfer. The exchange notes are new securities and there is currently no established market for the exchange notes. The exchange notes generally will be freely transferable but will also be new securities for which there will not initially be a market. Accordingly, there can be no assurance 80 as to the development or liquidity of any market for the exchange notes. The exchange notes are expected to be eligible for trading in the PORTAL market. We do not intend to apply for a listing of the exchange notes on any securities exchange or an automated dealer quotation system. Terms of the Notes The Notes will initially be limited to $300,000,000 aggregate principal amount, and will mature on October 15, 2009. The indenture permits us to issue an unlimited amount of Notes, subject to compliance with the terms of the covenants described under "Certain Covenants--Limitation on Indebtedness." Each Note will bear interest at a rate per annum shown on the front cover of this prospectus from the date of issuance, or from the most recent date to which interest has been paid or provided for, payable semiannually on October 15 and April 15 of each year, beginning April 15, 2002 to Holders of record at the close of business on the October 1 or April 1 immediately before the interest payment date. No Sinking Fund or Redemption The Notes will not be redeemable at the option of the Company and will not be entitled to the benefit of any sinking fund. Ranking The Notes will be our general unsecured obligations that rank senior in right of payment to all existing and future Indebtedness that is expressly subordinated in right of payment to the Notes. The Notes will rank equally in right of payment with all of our existing and future liabilities that are not so subordinated. In the event of our bankruptcy, liquidation, reorganization or other winding up or upon a default in payment with respect to, or the acceleration of, any Indebtedness under the Revolving Credit Facility, the Senior Secured Notes or other Secured Indebtedness, our assets that secure Secured Indebtedness will be available to pay obligations on the Notes only after all Indebtedness under such Revolving Credit Facility, the Senior Secured Notes and other Secured Indebtedness has been repaid in full from such assets. We advise you that there may not be sufficient assets remaining to pay amounts due on any or all the Notes then outstanding. The Notes are not guaranteed by our subsidiaries. As a result, the Notes are structurally junior to the obligations and liabilities of our subsidiaries. As of July 29, 2001, the aggregate principal amount of our indebtedness, including capital lease obligations, was approximately $1,301.5 million, of which $1,114.9 million was senior secured indebtedness. As of July 29, 2001, the aggregate principal amount of indebtedness of our subsidiaries was approximately $199.6 million, excluding capital lease obligations and guarantees of the Revolving Credit Facility and the Senior Secured Notes. Change of Control 81 Upon the occurrence of any of the following events (each, a "Change of Control"), each Holder will have the right to require us to repurchase all or any part of the Holder's Notes at a purchase price in cash equal to 101% of the principal amount of the Holder's Notes, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date): (i) any sale, transfer or other conveyance, whether direct or indirect, of all or substantially all of the fair market value of our assets on a consolidated basis, in one transaction or a series of related transactions, to any Person or Persons other than us or one or more of our Restricted Subsidiaries; (ii) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire within one year), directly or indirectly, of more than 50% of our Voting Stock (or our successor by merger, consolidation or purchase of all or substantially all of our assets); (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by our shareholders was approved by a vote of a majority of our directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or (iv) the adoption of a plan relating to our liquidation or dissolution. In the event that at the time of such Change of Control the terms of any Indebtedness restrict or prohibit the repurchase of Notes pursuant to this covenant, then the indenture requires that prior to the mailing of the notice to Holders provided for in the immediately following paragraph but in any event within 30 days following any Change of Control, we shall either (i) repay in full all Indebtedness or offer to repay in full all such Indebtedness and repay the Indebtedness of each lender who has accepted such offer or (ii) obtain the requisite consent under the agreements governing such Indebtedness to permit the repurchase of the Notes as provided for in the immediately following paragraph. We will first comply with the covenant in the preceding sentence before we will be required to make the Change of Control Offer or to purchase the Notes pursuant to the provisions described in this prospectus; provided that such compliance will not extend the time periods set forth in the indenture for us to make an offer to repurchase the Notes in connection with a Change of Control. Within 30 days following any Change of Control, we shall mail a notice (the "Change of Control Offer") to each Holder with a copy to the Trustee stating: (1) that a Change of Control has occurred and that such Holder has the right to require us to purchase such Holder's Notes at a 82 purchase price in cash equal to 101% of the principal amount of the Holder's Notes, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on a record date to receive interest on the relevant interest payment date); (2) the circumstances and relevant facts and financial information regarding such Change of Control; (3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Change of Control Payment Date"); (4) that any Note not tendered will continue to accrue interest pursuant to its terms; (5) that, unless we default in the payment of the purchase price, any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on and after the Change of Control Payment Date; and (6) the instructions determined by us, consistent with this covenant, that a Holder must follow in order to have its Notes purchased or to cancel such order of purchase. On or before the Change of Control Payment Date, we shall: (i) accept for payment Notes or portions of the Notes tendered pursuant to the Change of Control Offer; (ii) deposit with the paying agent money sufficient to pay the purchase price of all Notes or portions of the Notes so accepted; and (iii) deliver, or cause to be delivered, to the Trustee, all Notes or portions of the Notes so accepted together with an Officers' Certificate specifying the Notes or portions of the Notes accepted for payment by us. The paying agent shall promptly mail, to the Holders of Notes so accepted, payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples of $1,000. We will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of the "Change of Control" covenant of the indenture, the Trustee shall act as paying agent. We will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, we will comply with the applicable securities laws and regulations and will not be deemed to have breached our indenture obligations under this covenant by virtue of our compliance with applicable securities laws and regulations. The Change of Control purchase feature is a result of negotiations between us and the initial purchasers of the senior notes. We have no present plans to engage in a transaction involving a Change of Control, although it is possible that we would decide to do so in the future. Subject to the limitations discussed below, we could, in the future, enter into certain transactions, including acquisitions, refinancings or recapitalizations, that would not constitute a Change of Control under the indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect our capital structure or credit ratings. If we are unable to repay all of our indebtedness that would prohibit repurchase of the Notes or are unable to obtain the consents of the holders of indebtedness, if any, of our outstanding at the time of a Change of Control whose consent would be so required to permit the repurchase of Notes, then we will have breached the "Change of Control" covenant of the indenture. This breach will constitute an Event of Default under the indenture if it continues for a period of 30 83 consecutive days after written notice is given to us by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes outstanding. In addition, our failure to repurchase Notes at the conclusion of the Change of Control Offer will constitute an Event of Default without any waiting period or notice requirements. The occurrence of a Change of Control would constitute a default under the Revolving Credit Facility. In addition, certain events that may constitute a Change of Control under the Revolving Credit Facility and cause a default thereunder may not constitute a Change of Control under the indenture. Furthermore, we are required upon the occurrence of certain change of control events (including but not limited to, certain events which would constitute a Change of Control) to make an offer to repurchase the 1998 Notes and the Senior Secured Notes. Future Indebtedness of us and our Subsidiaries may contain prohibitions on certain events which would constitute a Change of Control or require such Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise by the Holders of their right to require us to repurchase the Notes or of the 1998 Notes could cause a default under agreements evidencing such Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on us. Finally, our ability to pay cash to the Holders upon a repurchase may be limited by our then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases of either of the Notes or of any indebtedness outstanding that would prohibit such a Note repurchase. The definition of "Change of Control" (see clause (i) of such definition) includes a disposition of all or substantially all of our property and assets and the property and assets of our Subsidiaries. With respect to the disposition of property or assets, the phrase "all or substantially all" as used in the indenture varies according to the facts and circumstances of the subject transaction, has no clearly established meaning under New York law and is subject to judicial interpretation. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of "all or substantially all" of the property or assets of a Person, and therefore it may be unclear as to whether a Change of Control has occurred and whether we are required to make an offer to repurchase the Notes as described above. None of the provisions of the indenture relating to a purchase of the Notes upon a Change of Control is waivable by our Board of Directors. Without the consent of each affected Noteholder, after the mailing of the notice of a Change of Control Offer, no amendment of the indenture may, directly or indirectly, affect our obligation to consummate a Change of Control Offer or waive any default in the performance of the provisions of the indenture relating to a purchase of the Notes upon a Change of Control or modify any of the provisions of the definitions with respect to any such offer. Certain Covenants The indenture contains covenants including, among others, the following: Limitation on Indebtedness. (a) We will not, and will not permit any Restricted Subsidiary to, Incur any Indebtedness (including Acquired Indebtedness); provided, however, that we and 84 our Restricted Subsidiaries may Incur Indebtedness if on the date of the Incurrence of such Indebtedness the Consolidated Coverage Ratio would be equal to or greater than 2.00:1.00. (b) Notwithstanding the foregoing paragraph (a), we and our Restricted Subsidiaries, as set forth below, may Incur the following Indebtedness: (i) (A) Our Indebtedness Incurred pursuant to the Revolving Credit Facility and (B) the Incurrence by a Receivables Entity of Indebtedness in a Qualified Receivables Transaction that is nonrecourse to us or any Subsidiary of ours (except for Standard Securitization Undertakings) in an aggregate principal amount for Indebtedness Incurred under clauses (A) and (B) since the date of the 1998 Indenture and outstanding at any one time, not to exceed the greater of (x) $400.0 million, less the aggregate amount of all repayments of principal actually made under the Revolving Credit Facility since the 1998 Issue Date with Net Available Cash from Asset Dispositions pursuant to clause (a)(iii)(A) of the covenant described under "--Limitation on Sales of Asset Sales" and (y) the Borrowing Base; (ii) the incurrence by us of Indebtedness represented by the Notes; (iii) Indebtedness (A) of ours to any Wholly Owned Subsidiary and (B) of any Restricted Subsidiary to us or any other Wholly Owned Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock or any other event that results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any other subsequent transfer of any such Indebtedness (except to the Company or a Wholly Owned Subsidiary) will be deemed, in each case, an Incurrence of Indebtedness by us or such Restricted Subsidiary, as the case may be; (iv) any Indebtedness (other than the Indebtedness described in clauses (i) or (iii) above) outstanding on the date of the 1998 Indenture, including the 1998 Notes and the Senior Secured Notes then in existence and the Guarantees related thereto, and any Refinancing Indebtedness Incurred in respect of any Indebtedness described in this clause (iv) or paragraph (a); (v) Indebtedness represented by the Subsidiary Guarantees and Guarantees of Indebtedness Incurred pursuant to clause (i) above; (vi) Indebtedness in respect of performance, surety or appeal bonds provided in the ordinary course of business; (vii) Indebtedness under Hedging Obligations; provided, however, that such Hedging Obligations are entered into for bona fide hedging purposes by us or any Restricted Subsidiary in the ordinary course of business; (viii) Indebtedness (in addition to Indebtedness described in clauses (i), (iii) and (iv)) of us or any Restricted Subsidiary attributable to Capitalized Lease Obligations, or Incurred to finance the acquisition, construction or improvement of fixed or capital assets, or constituting Attributable Debt in respect of Sale/Leaseback Transactions, in an aggregate 85 principal amount at any time outstanding, since the date of the 1998 Indenture, not in excess of $50.0 million; (ix) Indebtedness of a Restricted Subsidiary issued and outstanding on or prior to the date on which such Restricted Subsidiary was acquired by us (other than Indebtedness Incurred (A) as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by us or (B) otherwise in connection with, or in contemplation of, such acquisition) and any Refinancing Indebtedness with respect thereto; provided, however, that on the date of any such acquisition of a Restricted Subsidiary, we shall have been able to Incur at least an additional $1.00 of Indebtedness under paragraph (a) above after giving effect to such acquisition; and (x) Indebtedness (in addition to Indebtedness described in clauses (i)- (ix)) in a principal amount which, when taken together with the principal amount of all other Indebtedness Incurred pursuant to this clause (x) since the date of the 1998 Indenture and then outstanding, will not in the aggregate exceed $50.0 million. (c) Notwithstanding the foregoing, we will not Incur any Indebtedness pursuant to the foregoing paragraph (b) if the proceeds of the Indebtedness are used, directly or indirectly, to refinance any Subordinated Indebtedness unless such Indebtedness (i) will be subordinated to the Notes to at least the same extent as such Subordinated Indebtedness and (ii) will not mature prior to the Stated Maturity of the Indebtedness to be refinanced or refunded, and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded. (d) We will not permit any Unrestricted Subsidiary to Incur any Indebtedness other than Non-Recourse Indebtedness; provided, however, if any such Indebtedness ceases to be Non-Recourse Indebtedness, such event shall be deemed to constitute an Incurrence of Indebtedness by us or a Restricted Subsidiary. (e) No Subsidiary Guarantor will incur any Indebtedness if the proceeds of the Indebtedness are used, directly or indirectly, to refinance any Guarantor Subordinated Indebtedness of such Subsidiary Guarantor unless such Indebtedness will be subordinated to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee to at least the same extent as such Guarantor Subordinated Indebtedness. (f) For purposes of determining compliance with this "Limitation on Indebtedness" covenant, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in the above clauses, we, in our sole discretion, shall classify such item of Indebtedness at the time of Incurrence and only be required to include the amount and type of such Indebtedness in one of such clauses. (g) For purposes of determining compliance with any U.S. dollar-denominated restriction on the Incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness 86 denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was Incurred, in the case of term Indebtedness, or first committed, in the case of revolving credit Indebtedness; provided that if such Indebtedness is Incurred to refinance other Indebtedness denominated in a foreign currency, and such refinancing would cause the applicable U.S. dollar-dominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such U.S. dollar-dominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed the principal amount of such Indebtedness being refinanced. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that we may Incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in the exchange rate of currencies. The principal amount of any Indebtedness incurred to refinance other Indebtedness, if Incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such Refinancing Indebtedness is denominated that is in effect on the date of such refinancing. Limitation on Restricted Payments. (a) We will not, and will not permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving the Company) except (x) dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and (y) dividends or distributions payable to us or any of our Subsidiaries (and, if such Subsidiary is not directly or indirectly owned 100% by us, to our other stockholders on a pro rata basis), (ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company or any Restricted Subsidiary held by Persons other than us or any of our Subsidiaries, (iii) purchase, repurchase, redeem, prepay interest, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Indebtedness or Guarantor Subordinated Indebtedness (other than the purchase, repurchase or other acquisition of Subordinated Indebtedness or Guarantor Subordinated Indebtedness purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, repurchase or acquisition) or (iv) make any Restricted Investment in any Person (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment referred to in clauses (i) through (iv) being referred to as a "Restricted Payment") if at the time we or such Restricted Subsidiary make such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result from the above actions); (2) we could not Incur at least an additional $1.00 of Indebtedness under paragraph (a) of the covenant described under "--Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments (the amount so expended, if other than in cash, to be determined in good faith by our Board of Directors, whose determination shall be conclusive and evidenced by a resolution of our 87 Board of Directors) declared or made subsequent to the date of the 1998 Indenture would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) commencing on the 1998 Issue Date to the end of the most recent fiscal quarter ending prior to the date of such Restricted Payment as to which financial results are available (but in no event ending more than 135 days prior to the date of such Restricted Payment) (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds received by us from the issuance or sale of our Capital Stock (other than Disqualified Stock) or other cash capital contributions subsequent to the 1998 Issue Date (other than an issuance or sale to a Subsidiary of ours and other than an issuance or sale to an employee stock ownership plan or other trust established by us or any of our Subsidiaries for the benefit of their employees to the extent the purchase by such plan or trust is financed by Indebtedness of such plan or trust and for which we or any Restricted Subsidiary are the lender or are liable as guarantor or otherwise); (C) the sum of (i) the amount by which our Indebtedness is reduced on our balance sheet upon the conversion or exchange (other than by a Subsidiary of ours) subsequent to the 1998 Issue Date, of any our Indebtedness or our Restricted Subsidiaries convertible or exchangeable for our Capital Stock (other than Disqualified Stock) (less the amount of any cash or other property (other than Capital Stock) distributed by us upon such conversion or exchange) and (ii) the aggregate Net Cash Proceeds received by us (less any contingent amounts that we may be required to refund or return) upon the conversion or exchange (other than by a Subsidiary of ours) subsequent to the 1998 Issue Date of any our Indebtedness or our Restricted Subsidiaries convertible or exchangeable for Capital Stock (other than Disqualified Stock); (D) the amount equal to the net reduction in Investments since the 1998 Issue Date in Unrestricted Subsidiaries resulting from (i) repayments of loans or advances or other transfers of assets to us or any Restricted Subsidiary from Unrestricted Subsidiaries or (ii) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investment") not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by us or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount was treated as a Restricted Payment (and, with respect to clauses (i) and (ii), without duplication of any amounts included in Consolidated Net Income); and (E) to the extent that any Restricted Investment that was made after the 1998 Issue Date is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the net proceeds of such sale, liquidation or repayment and (B) the net book value of such Restricted Investment. 88 (b) So long as there is no Default or Event of Default continuing, the provisions of the foregoing paragraph (a) will not prohibit: (i) any purchase, defeasance or redemption of our Capital Stock or Subordinated Indebtedness made by exchange for, or out of the proceeds of the substantially concurrent sale of, our Capital Stock (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of ours or an employee stock ownership plan or other trust established by us or any of our Subsidiaries for the benefit of their employees to the extent the purchase by such plan or trust is financed by Indebtedness by such plan or trust and for which we or any Restricted Subsidiary are the lender or are liable as a guarantor or otherwise); provided, however, that (A) such purchase, defeasance or redemption shall be excluded in subsequent calculations of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale of Capital Stock shall be excluded in calculations under clause (3)(B) of paragraph (a); (ii) any purchase, defeasance or redemption of Subordinated Indebtedness made by exchange for, or out of the proceeds of the substantially concurrent sale of, our Subordinated Indebtedness that is Refinancing Indebtedness; provided, however, that (A) such Indebtedness is subordinated to the Notes at least to the same extent as such Subordinated Indebtedness so purchased or redeemed and (B) such purchase, defeasance or redemption shall be excluded in subsequent calculations of the amount of Restricted Payments; (iii) the repurchase, redemption or other acquisition or retirement for value of our Subordinated Indebtedness or Guarantor Subordinated Indebtedness of any of our Restricted Subsidiaries pursuant to a change of "control" or "asset sale" covenant set forth in the indenture pursuant to which the same is issued and such "change of control" and "asset sale" covenants are substantially identical in all material respects to the comparable provisions included in the indenture; provided that such repurchase, redemption or other acquisition or retirement for value shall only be permitted if all of the terms and conditions in such provisions have been complied with and such repurchases, redemptions or other acquisitions or retirements for value are made in accordance with such indenture pursuant to which the same is issued and provided further that we have repurchased all Notes required to be repurchased by us pursuant to the terms and conditions described under the caption "Change of Control" or "Certain Covenants--Limitation on Asset Sales," as the case may be, prior to the repurchase, redemption or other acquisition or retirement for value of such Subordinated Indebtedness or Guarantor Subordinated Indebtedness pursuant to the "change of control" or "asset sale" covenant included in such indenture; provided that such repurchase, redemption or other acquisition shall be excluded in subsequent calculations of the amount of Restricted Payments; (iv) dividends paid within 60 days after the date of declaration of such dividend if at such date of declaration such dividend would have complied with paragraph (a); provided, however, that such dividend shall be included in subsequent calculations of the amount of Restricted Payments; (v) any repurchase of an Equity Interest deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options; or 89 (vi) Permitted Employee Payments in an aggregate amount not in excess of $5.0 million since the 1998 Issue Date; provided, however, that such payments shall be included in the calculation of Restricted Payments. Limitation on Sale/Leaseback Transactions. We will not, and will not permit any of our Restricted Subsidiaries to, enter into any Sale/Leaseback Transaction unless: (1) we or such Restricted Subsidiary, as the case may be, receive consideration at the time of such Sale/Leaseback Transaction at least equal to the fair market value (as evidenced by a resolution of the Board of Directors of the Company) of the property subject to such transaction; (2) we or such Restricted Subsidiary could have Incurred Indebtedness in an amount equal to the Attributable Indebtedness in respect of such Sale/Leaseback Transaction pursuant to the covenant described under "-- Limitation on Indebtedness"; (3) we or such Restricted Subsidiary would be permitted to create a Lien on the property subject to such Sale/Leaseback Transaction without securing the Notes by the covenant described under "--Limitation on Liens"; and (4) the Sale/Leaseback Transaction is treated as an Asset Disposition and all of the conditions of the indenture described under "--Limitation on Sale of Assets" (including the provisions concerning the application of Net Available Cash) are satisfied with respect to such Sale/Leaseback Transaction, treating all of the consideration received in such Sale/Leaseback Transaction as Net Available Cash for purposes of such covenant. Limitation on Restrictions on Distributions from Restricted Subsidiaries. We will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to us or any other Restricted Subsidiary, (ii) make any loans or advances to us or any other Restricted Subsidiary or (iii) transfer any of its property or assets to us or any other Restricted Subsidiary, except: (1) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the 1998 Issue Date, including pursuant to the indenture, the Revolving Credit Facility and the Senior Secured Notes then in existence; (2) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary prior to the date on which such Restricted Subsidiary was acquired by us (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by us) and outstanding on such date; 90 (3) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement effecting a refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (1) or (2) of this covenant or this clause (3) or contained in any amendment to an agreement referred to in clause (1) or (2) of this covenant or this clause (3); provided, however, that the encumbrances and restrictions contained in any such refinancing agreement or amendment are no less favorable to the Holders of the Notes taken as a whole than the original encumbrances and restrictions contained in such agreements; (4) in the case of clause (iii) above, any encumbrance or restriction (A) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract, (B) by virtue of any transfer of, agreement to transfer, option or right with respect to, any of our property or assets or any Restricted Subsidiary not otherwise prohibited by the indenture, (C) contained in security agreements securing Indebtedness of a Restricted Subsidiary to the extent such encumbrance or restrictions restrict the transfer of the property subject to such security agreements and (D) ordinary course provisions restricting the assignability of contracts; (5) any restriction with respect to us or a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or our assets or the assets of such Restricted Subsidiary pending the closing of such sale or disposition; (6) restrictions created in connection with a Qualified Receivables Transaction that, in the good faith determination of the Board of Directors, are necessary to effect such Qualified Receivables Transaction; provided that such restrictions apply only to such Receivables Entity; and (7) any restriction by operation of applicable law. Limitation on Sales of Assets. (a) We will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless (i) we or such Restricted Subsidiary receive consideration (including by way of relief from, or by any other Person assuming sole responsibility for, any liabilities, contingent or otherwise) at the time of such Asset Disposition at least equal to the fair market value of the shares and assets subject to such Asset Disposition (as determined in good faith by our management, or if such Asset Disposition involves consideration in excess of $20.0 million, by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee), (ii) at least 75% of the consideration received by us or such Restricted Subsidiary is in the form of cash and/or Cash Equivalents (except such requirement of cash and/or Cash Equivalents shall not apply to any property, plant, equipment or other facility closed and designated as unused, idle or obsolete by either Senior Management or by resolution of the Board of Directors, and in either case set forth in an Officers' Certificate delivered to the Trustee) and (iii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by us (or such Restricted Subsidiary, as the case may be) as follows: 91 (A) first, to the extent we or such Restricted Subsidiary elects (or is required by the terms of any Indebtedness), to prepay, repay or purchase Indebtedness (other than Disqualified Stock or Subordinated Indebtedness) (and to correspondingly reduce commitments with respect thereto) within 365 days after the date of such Asset Disposition; (B) second, to the extent of the balance of Net Available Cash after application in accordance with clause (A), to the extent we or such Restricted Subsidiary elects, to reinvest in Additional Assets (including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by us or another Restricted Subsidiary) within 365 days from the date of such Asset Disposition; (C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to purchase Notes and Pari Passu Indebtedness with similar asset sale provisions, pro rata at 100% of the tendered principal amount thereof (or 100% of the accreted value of such other Pari Passu Indebtedness so tendered, if such Pari Passu Indebtedness was offered at a discount) plus accrued and unpaid interest, if any, thereon to the purchase date and (D) fourth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C) above, to fund (to the extent consistent with any other applicable provision of the indenture or the 1998 Indenture) any corporate purpose; provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) or (C) above, we or such Restricted Subsidiary will retire such Indebtedness and will cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this covenant, we and the Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with this covenant except to the extent that the aggregate Net Available Cash from all Asset Dispositions that is not yet applied in accordance with this covenant exceeds $10.0 million. For the purposes of this covenant, the following are deemed to be cash: (x) the assumption of our Indebtedness (other than our Disqualified Stock or Subordinated Indebtedness) or any Restricted Subsidiary and our release or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition and (y) securities received by us or any Restricted Subsidiary from the transferee that are converted within 30 days by us or such Restricted Subsidiary into cash. Upon the completion of the application of the Net Available Cash from any Asset Disposition pursuant to this paragraph (a) above, the amount of Net Available Cash attributable to such Asset Disposition shall be deemed to be zero. (b) In the event of an Asset Disposition that requires the purchase of Notes pursuant to clause (a)(iii)(C), we will be required to apply such Excess Proceeds (as defined below) to the repayment of the Notes and any other Pari Passu Indebtedness outstanding with similar provisions requiring us to make an offer to purchase such Indebtedness with the proceeds from any Asset Disposition as follows: (A) we will make an offer to purchase (an "Offer") within ten days of such time from all holders of the Notes in accordance with the procedures set forth in the indenture in the maximum principal amount (expressed as a multiple of $1,000) of Notes that may be purchased out of an amount (the "Note Amount") equal to the product of such Excess Proceeds multiplied by a fraction, the numerator of which is the outstanding principal amount of the Notes and the denominator of which is the sum of the outstanding principal amount of the Notes and such Pari Passu Indebtedness and (B) to the extent required by such Pari Passu 92 Indebtedness to permanently reduce the principal amount of such Pari Passu Indebtedness, we will make an offer to purchase or otherwise repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer") in an amount equal to the excess of the Excess Proceeds over the Note Amount at a purchase price of 100% of their principal amount plus accrued and unpaid interest (or 100% of the accreted value of such Pari Passu Indebtedness, if such Pari Passu Indebtedness was offered at a discount) to the purchase date in accordance with the procedures (including prorating in the event of oversubscription) set forth in the indenture with respect to the Offer and in the documentation governing such Pari Passu Indebtedness with respect to the Pari Passu Offer. If the aggregate purchase price of the Notes tendered pursuant to the Offer and Pari Passu Offer is less than the Excess Proceeds, the remaining Excess Proceeds will be available to us for use in accordance with clause (a)(iii)(D) above. We shall not be required to make an Offer for Notes pursuant to this covenant if the Net Available Cash available therefor (after application of the proceeds as provided in clauses (a)(iii)(A) and (a)(iii)(B) above) ("Excess Proceeds") is less than $10.0 million (which lesser amounts shall be carried forward for purposes of determining whether an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). (c) We will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, we will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this paragraph (c) by virtue of the applicable securities laws and regulations. Limitation on Transactions with Affiliates. (a) We will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or conduct any transaction or series of transactions (including the purchase, sale, lease or exchange of any property or assets or the rendering of any service or the making of any Investment) with any Affiliate of ours (an "Affiliate Transaction") on terms (i) that are less favorable to us or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's length dealings with a Person who is not an Affiliate and (ii) that, in the event such Affiliate Transaction involves an aggregate amount in excess of $10.0 million, are not in writing and have not been approved or negotiated and entered into on behalf of us or such Restricted Subsidiary by Senior Management acting pursuant to authorizing resolutions adopted by a majority of the members of the Board of Directors or by a majority of the members of the Board of Directors having no personal stake in such Affiliate Transaction (and such majority or majorities, as the case may be, determines that such Affiliate Transaction satisfies the criteria in (i) above). In addition, any Affiliate Transaction involving aggregate payments or other transfers by us and our Restricted Subsidiaries in excess of $20.0 million will also require an opinion from an independent investment banking firm or appraiser, as appropriate, of national prominence, to the effect that the terms of such transaction are either (i) no less favorable to us or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's length dealings with a Person who is not an Affiliate or (ii) fair to us or such Restricted Subsidiary, as the case may be, from a financial point of view. 93 (b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any Restricted Payment or Permitted Investment permitted to be paid pursuant to the covenant described under "--Limitation on Restricted Payments," (ii) the performance of our or Restricted Subsidiary's obligations under any collective bargaining agreement, employee benefit plan, related trust agreement or any other similar arrangement heretofore or hereafter entered into in the ordinary course of business, (iii) payment of reasonable fees and compensation to employees, officers or directors as determined in good faith by our Board of Directors or Senior Management (including indemnification to the fullest extent permitted by applicable law, directors' and officers' insurance and similar arrangements, employment contracts, non-competition and confidentiality agreements and similar instruments or payments) entered into in the ordinary course of business, (iv) maintenance in the ordinary course of business of reasonable benefit programs or arrangements for employees, officers or directors, including vacation plans, health and life insurance plans, SERPs, split-dollar life insurance plans, deferred compensation plans, and retirement or savings plans and similar plans as determined in good faith by our Board of Directors or Senior Management, (v) any transaction between us and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries, (vi) transactions effected as part of a Qualified Receivables Transaction, (vii) any issuance by us of Capital Stock (other than Disqualified Stock) or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans to the extent reasonable, as determined in good faith by our Board of Directors in the ordinary course of business, and loans or advances to employees in the ordinary course of our business or our Restricted Subsidiaries consistent with past practices, (viii) transactions with customers, suppliers, or purchasers or sellers of goods or services, in each case, in the ordinary course of business and otherwise in compliance with the terms of the indenture which are fair to us or the Restricted Subsidiaries or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated third party, in the reasonable determination of our Board of Directors or Senior Management, and (ix) any agreement as in effect on the 1998 Issue Date or any amendment to any such agreement (so long as any such amendment is not disadvantageous to the holders of the Notes in any material respect). Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries. We (i) will not, and will not permit any Restricted Subsidiary to, transfer, convey, lease, sell or otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary to any Person (other than to us or a Wholly Owned Subsidiary), and (ii) will not permit any Restricted Subsidiary, directly or indirectly, to issue or sell any shares of its Capital Stock (other than directors' qualifying shares) to any Person (other than to us or a Wholly Owned Subsidiary); provided, however, that (i) we are permitted to sell all the Capital Stock of a Restricted Subsidiary as long as we are in compliance with the terms of the covenant described under "--Limitation on Sales of Assets" and (ii) we are permitted to sell less than all of the Capital Stock of a Restricted Subsidiary if (A) immediately after giving effect to such sale such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect to such sale would have been permitted to be made under "--Limitation on Restricted Payments" covenant if made on the date of such issuance or sale and (B) we are in compliance with the terms of the covenant described under "--Limitation on Sales of Assets." 94 Limitation on Liens. We will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist any Lien (other than Permitted Liens) that secures obligations under any Indebtedness on any of our assets or property or such Restricted Subsidiary, including any Guarantee of such Restricted Subsidiary, or any income or profits from any such asset or property, or assign or convey any right to receive income from any such asset or property, unless the Notes are equally and ratably secured with the obligations so secured (or senior to, in the event the Lien relates to Subordinated Indebtedness) or until such time as such obligations are no longer secured by a Lien. The indenture will provide that no Subsidiary Guarantor will directly or indirectly create, incur, assume or suffer to exist any Lien (other than Permitted Liens) that secures obligations under any Indebtedness of such Subsidiary Guarantor on any asset or property of such Subsidiary Guarantor or any income or profits from any such asset or property, or assign or convey any right to receive income from any such asset or property, unless the Subsidiary Guarantee of such Subsidiary Guarantor is equally and ratably secured with the obligations so secured (or senior to, in the event the Lien relates to Guarantor Subordinated Indebtedness) or until such time as such obligations are no longer secured by a Lien. Notwithstanding the foregoing, Liens on assets transferred to a Receivables Entity or on assets of a Receivables Entity incurred in connection with a Qualified Receivables Transaction will not require such equal and ratable security. SEC Reports. Notwithstanding that we may not remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, we will file (if then permitted to do so) with the SEC and provide (whether or not so filed with the SEC) the Trustee and Noteholders and prospective Noteholders (upon request) within 15 days of the date of filing with the SEC or, if not filed, on the date that such reports would be required to be filed with the SEC if we were a reporting company, with the annual reports and the information, documents and other reports, which are specified in Sections 13 and 15(d) of the Exchange Act; provided, however, that we shall provide one copy of the exhibits of the foregoing to the Trustee and shall (upon request) provide additional copies of such exhibits to any Noteholder or prospective Noteholder. We also will comply with the other provisions of (S)314(a) of the Trust Indenture Act. Future Subsidiary Guarantors. (a) The indenture will provide that we will not permit any Restricted Subsidiary to Guarantee the payment of any of our Indebtedness or any Indebtedness of any other Restricted Subsidiary unless (i) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to the indenture providing for a Guarantee of payment of the Notes by such Restricted Subsidiary (a "Subsidiary Guarantee") except that with respect to a guarantee of our Indebtedness if such Indebtedness is by its express terms subordinated in right of payment to the Notes, any such Guarantee of such Restricted Subsidiary with respect to such Indebtedness shall be subordinated in right of payment to such Restricted Subsidiary's Subsidiary Guarantee with respect to the Notes substantially to the same extent as such Indebtedness is subordinated to the Notes; (ii) such Restricted Subsidiary waives and will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against us or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Subsidiary Guarantee; and (iii) 95 such Restricted Subsidiary shall deliver to the Trustee an Opinion of Counsel to the effect that (A) such Subsidiary Guarantee has been duly executed and authorized and (B) such Subsidiary Guarantee constitutes a valid, binding and enforceable obligation of such Restricted Subsidiary, except insofar as enforcement of the obligation may be limited by bankruptcy, insolvency or similar laws (including, without limitation, all laws relating to fraudulent transfers) and except insofar as enforcement of the obligation is subject to general principles of equity; provided that this paragraph (a) shall not become applicable to any Guarantee of any Restricted Subsidiary (x) that (A) existed at the time such Person became a Restricted Subsidiary of ours and (B) was not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary of ours or (y) that Guarantees the payment of our obligations or any Restricted Subsidiary under the Revolving Credit Facility or the Senior Secured Notes or Indebtedness with similar terms (other than interest rates and maturity), provisions and covenants as the Senior Secured Notes and such Indebtedness is secured by a Lien Incurred exclusively under clause (18) of the definition of Permitted Liens and the principal amount of such Indebtedness in the aggregate does not exceed 15% of Total Assets and any refunding, refinancing or replacement of Total Assets, in whole or in part; provided that such Indebtedness incurred under this clause (y) and any refunding, refinancing or replacement (1) does not constitute Subordinated Indebtedness and (2) is not incurred pursuant to a registered offering of securities under the Securities Act or a private placement of securities (including under Rule 144A) pursuant to an exemption from the registration requirements of the Securities Act, which private placement provides for registration rights under the Securities Act (any guarantee excluded by operations of this clause (2) being an "Excluded Guarantee"). (b) Notwithstanding the foregoing and the other provisions of the indenture, any Subsidiary Guarantee by a Restricted Subsidiary shall provide by its terms that it shall be automatically and unconditionally released and discharged upon (i) any sale, exchange or transfer, to any Person not an Affiliate of ours, of all of our Capital Stock in, or all or substantially all the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the indenture), (ii) the release or discharge of the guarantee which resulted in the creation of such Note Guarantee, except a discharge or release by or as a result of payment under such guarantee or (iii) such Restricted Subsidiary is designated an Unrestricted Subsidiary of ours in accordance with the terms of the indenture by our Board of Directors. Limitation on Lines of Business. We will not, and will not permit any Restricted Subsidiary to, engage in any business other than a Related Business. Effectiveness of Covenants The covenants described under "--Limitation on Indebtedness," "-- Limitation on Restricted Payments," "--Limitation on Restrictions on Distributions from Restricted Subsidiaries," "--Limitation on Sales of Assets," "--Limitation on Transactions with Affiliates," "--Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries," "--SEC Reports," "--Future Subsidiary Guarantors" and "--Limitation on Lines of Business" (the "Suspended Covenants") will no longer be in effect upon our reaching Investment Grade Status. 96 Merger and Consolidation We will not, in a single transaction or series of related transactions, consolidate with or merge with or into, or convey, transfer, lease or otherwise dispose of all or substantially all its assets to, any Person nor permit any Person to merge with or into us, unless: (i) the resulting, surviving or transferee Person (the "Successor Company") will be a Person organized and existing under the laws of the United States of America, any State of the United States of America or the District of Columbia and the Successor Company (if not us) will expressly assume, by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of ours under the Notes and the indenture; (ii) immediately before and after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), no Default or Event of Default will have occurred and be continuing; (iii) immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness under paragraph (a) of the covenant described under "--Limitation on Indebtedness"; (iv) each Subsidiary Guarantor (unless it is the other party to the transactions above, in which case clause (i) shall apply) shall have by supplemental indenture confirmed that its Subsidiary Guarantee shall apply to such Person's obligations in respect of the indenture and the Notes; and (v) we will have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the indenture. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transactions or series of transactions) of all or substantially all of the properties and assets of one or more of our Subsidiaries, the Capital Stock of which constitutes all or substantially all of our properties and assets, shall be deemed to be the transfer of all or substantially all of our properties and assets. Subject to paragraph (b) of "--Future Subsidiary Guarantors," each Subsidiary Guarantor will not, in a single transaction or series of related transactions, consolidate with or merge with or into, or convey, transfer, lease or otherwise dispose of all or substantially all its assets to, any Person nor permit any Person to merge with or into such Subsidiary Guarantor, unless, (i) the resulting, surviving or transferee Person (the "Successor Guarantor") will be a Person organized and existing under the laws of the United States of America, any State of the United States of America or the District of Columbia and the Successor Guarantor (if not the Subsidiary Guarantor) will expressly assume in writing all the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee; (ii) immediately before and after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Guarantor or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Guarantor or such Restricted Subsidiary at the time of such transaction), no Default or Event of Default will have occurred and be continuing; (iii) immediately after giving effect to such transaction, the Company would be able to Incur an additional $1.00 of Indebtedness under paragraph (a) of the covenant described under "--Limitation on Indebtedness"; (iv) each other Subsidiary Guarantor shall have delivered a written instrument in 97 form and substance satisfactory to the Trustee confirming its Subsidiary Guarantee; and (v) we will have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such assumption of the Subsidiary Guarantee, if applicable, comply with the indenture. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties and assets of one or more Subsidiaries of such Subsidiary Guarantor, the Capital Stock of which constitutes all or substantially of all of the properties and assets of such Subsidiary Guarantor, shall be deemed to be the transfer of all or substantially all of the properties and assets of such Subsidiary Guarantor. The Successor Company will succeed to, and be substituted for, and may exercise every right and power of, ours under the indenture, but we, as the predecessor company, in the case of a conveyance, transfer or lease of all or substantially all our assets will not be released from the obligation to pay the principal of and interest on the Notes. Solely for the purpose of computing amounts described in clause 3(A) of "--Limitation on Restricted Payments," the Successor Company shall only be deemed to have succeeded and be substituted for the Company with respect to periods subsequent to the effective time of such merger, consolidation, combination or transfer of assets. Notwithstanding the foregoing clauses (ii) and (iii) of the first paragraph of this covenant, (1) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to us and (2) we may merge with an Affiliate incorporated exclusively for the purpose of reincorporating us in another jurisdiction to realize tax or other benefits. Defaults An Event of Default is defined in the indenture as (i) a default in the payment of principal of or premium, if any, on any Note when due at its Stated Maturity, upon required repurchase, upon declaration or otherwise, (ii) a default in any payment of interest on any Note when due, continued for 30 days, (iii) the failure by us or any Subsidiary Guarantor to comply with our or its obligations under the covenant described under "--Merger and Consolidation" above, (iv) the failure by us to comply for 30 days after notice with any of our obligations under the covenants described under "--Change of Control" or "-- Certain Covenants" above (in each case, other than a failure to purchase Notes), (v) a default by us in the performance of or a breach by us of any other covenant or agreement of ours in the indenture or under the Notes and such default continues for a period of 60 consecutive days after receipt by us of notice of such default or breach, (vi) the failure by any Subsidiary Guarantor that is a Significant Subsidiary (if any) to comply with its obligations under any Subsidiary Guarantee to which such Subsidiary Guarantor is a party, after any applicable grace period, (vii) the failure by us or any Significant Subsidiary to pay any Indebtedness within any applicable grace period after final maturity or the acceleration of any such Indebtedness by the holders of any such Indebtedness if the total amount of such Indebtedness unpaid or accelerated exceeds $25.0 million or its foreign currency equivalent (the "cross acceleration provision"), (viii) certain events of bankruptcy, insolvency or reorganization, whether voluntary or involuntary, of us or a Significant Subsidiary (the "bankruptcy provisions"), (ix) the rendering of any judgment or decree for the payment of 98 money in excess of $25.0 million or its foreign currency equivalent in the aggregate for all such final judgments or orders against us or a Significant Subsidiary if (A) an enforcement proceeding thereon is commenced and not discharged within ten days or (B) such judgment or decree remains outstanding for a period of 60 days following such judgment or decree and is not discharged, waived, stayed or bonded (the "judgment default provision"), or (x) the failure of any Subsidiary Guarantee by a Subsidiary Guarantor (if any) which is a Significant Subsidiary to be in full force and effect (except as contemplated by the terms of the Subsidiary Guarantee) or the denial or disaffirmation by any such Subsidiary Guarantor of its obligations under any Subsidiary Guarantee if such Default continues for 30 days. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. However, a Default under clause (iv) or (v) will not constitute an Event of Default until the Trustee or the Holders of at least 25% in principal amount of the outstanding Notes notify us of the Default and we do not cure such Default within the time specified in clauses (iv) and (v) after receipt of such notice. If an Event of Default (other than a Default relating to certain events of bankruptcy, insolvency or reorganization of us or a Significant Subsidiary) occurs and is continuing, the Trustee by notice to us, or the Holders of at least 25% in aggregate principal amount of the outstanding Notes by notice to us and the Trustee, may, and the Trustee at the request of such Holders shall, declare the principal of, premium, if any, and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration, such principal and interest will be due and payable immediately. In the event of a declaration of acceleration because an Event of Default set forth in clause (vii) above has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default or payment default triggering such Event of Default pursuant to clause (vii) shall be remedied or cured by us and/or the relevant Significant Subsidiaries or waived by the holders of the relevant Indebtedness within 60 days after the declaration of acceleration with respect thereto. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of us or a Significant Subsidiary occurs and is continuing, the principal of, premium, if any, and interest on all the Notes will become immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. The Holders of a majority in principal amount of the outstanding Notes may waive all past defaults (except with respect to nonpayment of principal, premium or interest) and rescind any such acceleration with respect to the Notes and its consequences if (i) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived and (ii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. Subject to the provisions of the indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the indenture at the request or direction of any of the Holders 99 unless such Holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no Holder may pursue any remedy with respect to the indenture or the Notes unless (i) such Holder has previously given the Trustee notice that an Event of Default is continuing, (ii) Holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy, (iii) such Holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity and (v) the Holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability. Prior to taking any action under the indenture, the Trustee will be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. The indenture provides that if a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each Holder notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of, premium (if any) or interest on any Note, the Trustee may withhold notice if and so long as a committee of its Trust Officers in good faith determines that withholding notice is in the interests of the Noteholders. In addition, we are required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers of the certificate know of any Default that occurred during the previous year. We also are required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event which would constitute certain Defaults, their status and what action we are taking or proposes to take in respect of those Defaults. Defeasance We may, at our option and at any time, elect to have our obligations and the obligations of the Subsidiary Guarantors discharged with respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that we shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes, except for (i) the rights of holders of the Notes to receive payments in respect of the principal of, premium, if any, and interest on the Notes when such payments are due, (ii) our 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 payments, (iii) the rights, powers, trust, duties and immunities of the Trustee and our related obligations and (iv) the Legal Defeasance provisions of the indenture. In addition, we may, at our option and at any time, elect to have our obligations released with respect to certain covenants that are described in the indenture ("Covenant Defeasance") and, after such an election is made, any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. 100 We may exercise our Legal Defeasance option notwithstanding our prior exercise of our Covenant Defeasance option. If we exercise our Legal Defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If we exercise our Covenant Defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (iv), (v), (vi), (vii), (viii) (with respect to Significant Subsidiaries), (ix) or (x) under "Events of Default" above or because of the failure of us to comply with clause (iii) or (iv) under "Certain Covenants-- Merger and Consolidation" above. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) we must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Notes cash in U.S. dollars, non-callable U.S. Government Obligations, or a combination of both, 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 on the Notes on the stated date for payment of the Notes or on the applicable redemption date, as the case may be; (ii) in the case of Legal Defeasance, we shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) we have 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 the 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, we 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 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 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 with respect to the indenture resulting from the incurrence of Indebtedness, all or a portion of which will be used to defease the Notes concurrently with such incurrence); (v) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the indenture or any other material agreement or instrument to which we or any of our Subsidiaries are a party or by which we or any of our Subsidiaries are bound; (vi) we shall have delivered to the Trustee an opinion of counsel to the effect that (A) the Notes and (B) assuming no intervening bankruptcy of us between the date of deposit and the 91st day following the deposit and that no Holder of the Notes is an insider of ours, 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; and (vii) certain other customary conditions precedent are satisfied. 101 Amendments and Waivers Subject to certain exceptions, the indenture may be amended with the consent of the Holders of a majority in principal amount of the Notes then outstanding and any past default (other than with respect to nonpayment) or compliance with any provisions may be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding. However, without the consent of each Holder of an affected outstanding Note, no amendment may, among other things, (i) reduce the principal amount of Notes whose Holders must consent to an amendment, (ii) reduce the rate of or extend the time for payment of interest on any Note, (iii) reduce the principal of or extend the Stated Maturity of any Note, (iv) reduce the premium payable upon repurchase or change the time at which any Note may be repurchased under "Change of Control" and "Limitations on Sales of Assets," (v) make any Note payable in money other than that stated in the Note, (vi) impair the right of any Holder to receive payment of principal of and interest on such Holder's Notes on or after the due dates for the payments or to institute suit for the enforcement of any payment on or with respect to such Holder's Notes, (vii) release any Subsidiary Guarantor (if any) from any of its obligations under its Subsidiary Guarantee or the indenture, except in compliance with the terms of the Subsidiary Guarantee or the indenture, as applicable, or (viii) make any change in the amendment provisions which require each Holder's consent or in the waiver provisions. Without the consent of any Holder, we and the Trustee may amend the indenture to (i) cure any ambiguity, omission, defect or inconsistency, (ii) to provide for the assumption by a successor corporation of our obligations under the indenture, (iii) to provide for uncertificated Notes in addition to or in place of certificated Notes (provided, however, that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code), (iv) to add Guarantees with respect to the Notes or release a Subsidiary Guarantor upon its designation as an Unrestricted Subsidiary; provided, however, that the designation is in accordance with the applicable provision of the indenture, (v) to secure the Notes, (vi) to add to our covenants for the benefit of the Noteholders or to surrender any right or power conferred upon us and (vii) to make any change that does not adversely affect the rights of any Holder or to comply with any requirement of the SEC in connection with the qualification of the indenture under the Trust Indenture Act. The consent of the Noteholders is not necessary under the indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment under the indenture becomes effective, we are required to mail to Noteholders a notice briefly describing such amendment. However, the failure to give such notice to all Noteholders, or any defect in the indenture, will not impair or affect the validity of the amendment. No Personal Liability of Incorporators, Shareholders, Officers, Directors, or Employees The indenture provides that no recourse for the payment of the principal of, premium, if any, or interest on any of the Notes or for any claim based on the indenture or otherwise in respect of 102 the indenture, and no recourse under or upon any obligation, covenant or agreement of us in the indenture, or in any of the Notes or because of the creation of any Indebtedness represented by the Notes, shall be had against any incorporator, shareholder, officer, director, employee or controlling person of us or of any successor Person thereof. Each Holder, by accepting the Notes, waives and releases all such liability. Such waiver and release are not intended to affect the rights of Holders under the federal securities laws. Concerning the Trustee SunTrust Bank is the Trustee under the indenture and has been appointed by us as registrar and paying agent with regard to the Notes. SunTrust Bank also serves as the trustee under the indenture relating to our 1998 Notes. The indenture provides that, except during the continuance of a Default, the Trustee will not be liable, except for the performance of such duties as are specifically set forth in such indenture. If an Event of Default has occurred and is continuing, the Trustee is to use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The indenture and provisions of the Trust Indenture Act, incorporated by reference in the indenture contain limitations on the rights of the Trustee, should it become our creditor, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided, however, that if it acquires any conflicting interest, it must eliminate such conflict or resign. Governing Law The indenture provides that it and the Notes will be governed by, and construed in accordance with, the laws of the State of New York. Certain Definitions "1998 Indenture" means the indenture, dated as of February 9, 1998, between us and the Trustee. "1998 Issue Date" means February 9, 1998. "1998 Notes" means our 7 5/8% Senior Subordinated Notes due 2008. "Acquired Indebtedness" means Indebtedness (i) of a Person or any of our Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or (ii) assumed in connection with the acquisition of assets from such Person, in each case whether or not incurred by such 103 Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of us or such acquisition. Acquired Indebtedness shall be deemed to have been incurred, with respect to clause (i) of the preceding sentence, on the date such Person becomes a Restricted Subsidiary and, with respect to clause (ii) of the preceding sentence, on the date of consummation of such acquisition of assets. "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock) to be used by us or a Restricted Subsidiary in a Related Business; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by us or another Restricted Subsidiary; or (iii) Capital Stock constituting a minority interest in any Person that at such time is or will thereupon become a Restricted Subsidiary; provided, however, that, in the case of clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a Related Business. "Affiliate" of any specified Person means (i) any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person, (ii) any Person who is a director or officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any Person described in clause (i) above and (iii) any beneficial owner of shares representing 5% or more of the total voting power of the Voting Stock (on a fully diluted basis) or of rights or warrants to purchase our Voting Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to clauses (i) and (ii). For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Notwithstanding the foregoing, no Person (other than us or any Subsidiary of ours) in whom a Receivables Entity makes an Investment in connection with a Qualified Receivables Transaction shall be deemed to be an Affiliate of ours or any of our Subsidiaries solely by reason of such Investment. "Asset Disposition" means any sale, lease, transfer or other issuance or disposition (or series of related sales, leases, transfers, issuance or dispositions that are part of a common plan) of shares of Capital Stock of a Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition") by us or any of our Restricted Subsidiaries (including any disposition by means of a sale and leaseback, merger, consolidation or similar transaction, but excluding any disposition by means of any pledge of assets or stock by us or any of our Subsidiaries otherwise permitted under the indenture, and any transaction or series of related transactions from which we or any of our Subsidiaries receive an aggregate consideration of less than $500,000) other than (i) a disposition by a Restricted Subsidiary to us or by us or a Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of assets held for resale in the ordinary course of business, (iii) the sale of Temporary Cash Investments in the ordinary course of business, (iv) the sale or other disposition of damaged, worn, unneeded or obsolete equipment in the ordinary course of business, (v) for purposes of the covenant described under "--Limitation on Sales of Assets" only, a disposition subject to the covenant described under "--Limitation on Restricted Payments," (vi) the sale of other assets so long as the fair market value of the assets disposed of 104 pursuant to this clause (vi) does not exceed $2.0 million in the aggregate in any fiscal year and $10.0 million in the aggregate prior to October 15, 2009, (vii) any disposition of assets pursuant to and in accordance with the provisions described under "Merger and Consolidation" and/or "Change of Control", (viii) sales or other dispositions of assets for consideration at least equal to the fair market value of the assets sold or disposed of, to the extent that the consideration received would constitute Additional Assets or an Investment in a Permitted Joint Venture that in each case complies with the "-- Limitation on Restricted Payments" covenant and (ix) sales of accounts receivable and related assets of the type specified in the definition of "Qualified Receivables Transaction" to a Receivables Entity for its fair market value, including cash in an amount at least equal to 75% of its book value as determined in accordance with GAAP. "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate assumed in making calculations in accordance with FAS 13) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "Bank Indebtedness" means any and all amounts payable under or in respect of the Revolving Credit Facility and any Refinancing Indebtedness with respect to the foregoing, as amended from time to time, including principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to us whether or not a claim for postfiling interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof (including, without limitation, cash collateralization of letters of credit). "Board of Directors" means our Board of Directors or any committee of our Board of Directors duly authorized to act on behalf of our Board of Directors with respect to the relevant matter. "Borrowing Base" means, as of the date of determination, an amount equal to the sum, without duplication, of (i) 75% of the net book value of our and our Restricted Subsidiaries' accounts receivable at such date and (ii) 75% of the net book value of our and our Restricted Subsidiaries' inventories at such date. Net book value shall be determined in accordance with GAAP and shall be that reflected on the most recent available balance sheet (it being understood that the accounts receivable and inventories of an acquired business may be included if such acquisition has been completed on or prior to the date of determination). "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banking institutions are authorized or required by law to close in New York City or Atlanta, Georgia. 105 "Capital Stock" of any Person means (i) with respect to any Person that is a corporation, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person but in each case excluding any debt securities convertible into such equity. "Capitalized Lease Obligations" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP, and the Stated Maturity of such obligation shall be the date of the last payment of rent or any other amount due under such lease. "Cash Equivalents" means (i) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government, (ii) certificates of deposit, time deposits and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any commercial bank having capital and surplus in excess of $500.0 million and the commercial paper of the holding company of which is rated at least "A-1" or the equivalent of "A-1" by S&P or "P-1" or the equivalent of "P-1" by Moody's, (iii) repurchase obligations for underlying securities of the types described in clauses (i) and (ii) entered into with any financial institution meeting the qualifications specified in clause (ii) above, (iv) commercial paper rated "A- 1" or the equivalent of "A-1" by S&P or "P-1" or the equivalent of "P-1" by Moody's and in each case maturing within one year after the date of acquisition of the commercial paper, (v) investment funds investing 95% of their assets in securities of the type described in clauses (i)-(iv) above. "Code" means the Internal Revenue Code of 1986, as amended. "Consolidated Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount our EBITDA and our Restricted Subsidiaries for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which our consolidated financial statements are available to (ii) our Consolidated Interest Expense and our Restricted Subsidiaries for such four consecutive fiscal quarters; provided, however, that: (1) if we or any Restricted Subsidiary have Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, 106 (2) if since the beginning of such period we or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets that are the subject of such Asset Disposition for such period or increased by an amount equal to the EBITDA (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any of our Indebtedness or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged (to the extent the related commitment is permanently reduced) with respect to us and our continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent we and our continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if since the beginning of such period we or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person that becomes a Restricted Subsidiary) or an acquisition of assets, including any Investment in a Restricted Subsidiary or any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness and including the pro forma expenses and cost reductions calculated on a basis consistent with Regulation S-X of the Securities Act) as if such Investment or acquisition occurred on the first day of such period and without regard to clause (ii) of the definition of Consolidated Net Income, and (4) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into us or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (2) or (3) above if made by us or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition of assets occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to a transaction, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of ours. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term as at the date of determination in excess of 12 months). "Consolidated Interest Expense" means, for any period, the total consolidated cash and non-cash interest expense (excluding capitalized interest) of us and our Restricted Subsidiaries, determined in accordance with GAAP, plus, to the extent incurred by us and our Restricted 107 Subsidiaries in such period but not included in such interest expense, (i) interest expense attributable to Capitalized Lease Obligations and imputed interest with respect to Attributable Debt, (ii) amortization of debt discount and debt issuance cost (other than those debt discounts and debt issuance costs incurred on the 1998 Issue Date or the Issue Date), (iii) capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts and other fees and charges attributable to letters of credit and bankers' acceptance financing, (vi) interest actually paid by us or any Restricted Subsidiary under any Guarantee of Indebtedness or other obligation of any other Person, (vii) net costs associated with Hedging Obligations (or minus net gains associated with Hedging Obligations), (viii) the product of (A) Preferred Stock dividends in respect of all Preferred Stock of Restricted Subsidiaries and Disqualified Stock of ours held by Persons other than us or a Wholly Owned Subsidiary multiplied by (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 ours, expressed as a decimal, in each case, determined on a consolidated basis in accordance with GAAP; and (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than us) in connection with Indebtedness Incurred by such plan or trust. For purposes of the foregoing, gross interest expense shall be determined after giving effect to any net payments made or received by us and our Restricted Subsidiaries with respect to Interest Rate Agreements. "Consolidated Net Income" means, for any period, without duplication, our consolidated net income (loss) and our Restricted Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income: (i) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (A) subject to the limitations contained in clause (iv) below, our equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to us or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) our equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income, (ii) any net income (loss) of any Person acquired by us or a Restricted Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition, (iii) any net income (loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly, or indirectly, to us, except that (A) subject to the limitations contained in (iv) below, our equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash distributed by such Restricted Subsidiary during such period to us or another Restricted Subsidiary as a dividend (subject, in the case of a dividend that could have been made to another Restricted Subsidiary, to the limitation contained in this clause) and (B) our equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income, 108 (iv) any gain (but not loss) realized upon the sale or other disposition of any asset of ours or our Restricted Subsidiaries (including pursuant to any Sale/Leaseback Transaction) that is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any Capital Stock of any Person, (v) any extraordinary gain or loss, (vi) the cumulative effect of a change in accounting principles, and (vii) for purposes of clause (a)(3)(A) of "Limitation on Restricted Payments," amounts otherwise included in Consolidated Net Income that have the effect of reducing the aggregate amount of Investments under clause (viii) of the definition of Permitted Investments. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement as to which such Person is a party or a beneficiary. "Default" means any event or condition that is, or after notice or passage of time or both would be, an Event of Default. "Disqualified Stock" means, with respect to any Person, any Capital Stock of such Person that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder of Capital Stock, in whole or in part, in each case on or prior to 123 days after the Stated Maturity of the Notes; provided that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders of Captial Stock the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the Stated Maturity of the Notes shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in "--Limitation on Sales of Assets" and "Change of Control" covenants contained in the indenture and the 1998 Indenture and the 1998 Indenture and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock pursuant to such provision prior to our repurchase of such Notes as are required to be repurchased pursuant to the "--Limitation on Sales of Assets" and "Change of Control" covenants. "EBITDA" means, for any period, the Consolidated Net Income for such period, plus, without duplication and to the extent deducted in calculating such Consolidated Net Income, (i) income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization of intangibles and (v) other non-cash charges or non-cash losses (other than non-cash charges to the extent they represent an accrual of or reserve for cash charges in any future period or amortization of a prepaid expense that was paid in a prior period), less, without 109 duplication, non-cash items increasing Consolidated Net Income of such Person for such period (excluding any items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period); provided, that if any Restricted Subsidiary is not directly or indirectly owned 100% by us, EBITDA shall be reduced (to the extent not otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount of the EBITDA attributable to such Restricted Subsidiary multiplied by (B) the quotient of (1) the number of shares of outstanding common Equity Interests of such Restricted Subsidiary not owned directly or indirectly by us on the last day of such period by us divided by (2) the total number of shares of outstanding common Equity Interests of such Restricted Subsidiary on the last day of such period. "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). "GAAP" means generally accepted accounting principles in the United States of America as in effect on the 1998 Issue Date, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in the indenture shall be computed in conformity with GAAP. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other nonfinancial obligation of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or such other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guarantor Subordinated Indebtedness" means, with respect to a Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is expressly subordinate in right of payment to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee pursuant to a written agreement. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Holder" or "Noteholder" means the Person in whose name a Note is registered in the Note Register. 110 "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. Any Indebtedness issued at a discount (including Indebtedness on which interest is payable through the issuance of additional Indebtedness) shall be deemed incurred at the time of original issuance of the Indebtedness at the initial accreted amount thereof. "Indebtedness" means, with respect to any Person on any date of determination (without duplication): (i) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money, (ii) the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto) (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (i), (ii) and (v)) entered into in the ordinary course of business of such Person to the extent that such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third business day following receipt by such Person of a demand for reimbursement following payment on the letter of credit), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services (except Trade Payables), which purchase price is due more than six months after the date of placing such property in final service or taking final delivery and title thereto or the completion of such services, (v) all Capitalized Lease Obligations and Attributable Debt of such Person, (vi) the redemption, repayment or other repurchase amount of such Person with respect to any Disqualified Stock or, with respect to any Subsidiary of us, any Preferred Stock (but excluding, in each case, any accrued dividends), (vii) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of Indebtedness of such Person shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness of such other Persons, (viii) all Indebtedness of other Persons to the extent Guaranteed by such Person, and 111 (ix) to the extent not otherwise included in this definition, net Hedging Obligations of such Person (such obligations to be equal at any time to the termination value of such agreement or arrangement giving rise to such Hedging Obligation that would be payable by such Person at such time). "Interest Rate Agreement" means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable on our balance sheet or that of our Restricted Subsidiaries) or other extension of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary" and the covenant described under "--Limitation on Restricted Payments," (i) "Investment" shall include the portion (proportionate to our equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of ours at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, we shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) our "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to our equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith either by the Board of Directors or Senior Management. "Investment Grade Status," with respect to us, shall occur when the Notes receive a rating of "BBB-" or higher from S&P and a rating of "Baa3" or higher from Moody's. "Issue Date" means October 23, 2001. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof, any option or other agreement to sell, or any filing of, or any agreement to give any security interest). "Moody's" means Moody's Investors Service, Inc., and its successors. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or 112 other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other noncash form), in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred (including fees and expenses of counsel, accountants and investment bankers), and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness that is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or that must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition, (iv) appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by us or any Restricted Subsidiary after such Asset Disposition and (v) any portion of the purchase price from an Asset Disposition placed in escrow (whether as a reserve for adjustment of the purchase price, or for satisfaction of indemnities in respect of such Asset Disposition), provided, however, that upon the termination of such escrow, Net Available Cash shall be increased by any portion of funds therein released to us or any Restricted Subsidiary. "Net Cash Proceeds" means, with respect to any issuance or sale of Capital Stock or Indebtedness, the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Non-Recourse Indebtedness" means Indebtedness (i) as to which neither we nor any of our Restricted Subsidiaries (A) provides credit support pursuant to any undertaking, agreement or instrument that would constitute Indebtedness or (B) is directly or indirectly liable and (ii) no default with respect to which would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of ours or any of our Restricted Subsidiaries to declare a default on such Indebtedness or cause the payment thereof to be accelerated or payable prior to its Stated Maturity. "Note Register" means the register of Notes, maintained by the Trustee, pursuant to the indenture. "Officer" means any one of the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, Vice President, Treasurer, Secretary or Controller of ours. "Officers' Certificate" means a certificate signed by two or more Officers. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to us or the Trustee. 113 "Pari Passu Indebtedness" means Indebtedness that ranks equally in right of payment to the Notes. "Permitted Employee Payments" means Restricted Payments by us or any Restricted Subsidiary in respect of (i) the repurchase of our Capital Stock or any Restricted Subsidiary from an employee of ours or any Restricted Subsidiary or their assigns, estates or heirs upon the death, retirement or termination of such employee or (ii) loans or advances to our employees or any of our Subsidiaries made in the ordinary course of business. "Permitted Holders" means Joseph W. Luter, III or any Person the majority of the equity interests of which is beneficially owned by Joseph W. Luter, III. "Permitted Investment" means an Investment by us or any Restricted Subsidiary in (i) a Restricted Subsidiary, us or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Related Business; (ii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, us or a Restricted Subsidiary; provided, however, that the primary business of such Person is a Related Business; (iii) Temporary Cash Investments; (iv) receivables owing to us or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as we or any such Restricted Subsidiary deems reasonable under the circumstances; (v) securities received as consideration in Asset Dispositions made in compliance with the covenant described under "--Limitation on Sales of Assets" with the exception of securities received as consideration for Asset Dispositions of any property, plant, equipment or other facility closed and designated in accordance with clause (a) (ii) of the "--Limitation on Sales of Assets" covenant; (vi) Investments in existence on the 1998 Issue Date (but not in excess of the amount of such Investments in existence on the 1998 Issue Date without giving effect to increases or decreases attributable to accounting for the net income of such Investments or subsequent changes in value); (vii) any Investment by us or a Wholly Owned Subsidiary in a Receivables Entity or any Investment by a Receivables Entity in any other Person in connection with a Qualified Receivables Transaction; provided that any Investment in a Receivables Entity is in the form of a Purchase Money Note or an Equity Interest; and (viii) additional Investments in a Related Business since the 1998 Issue Date having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (viii) since the 1998 Issue Date that are at that time outstanding, not to exceed 15% of Total Assets at the time 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 Liens" means, with respect to any Person: (1) Liens securing Indebtedness and our other obligations under the Revolving Credit Facility and related Interest Rate Agreements and liens on assets of Restricted Subsidiaries securing Guarantees of Indebtedness and our other obligations under the Revolving Credit Facility permitted to be incurred under the indenture in an aggregate 114 principal amount at any one time outstanding not to exceed the greater of (x) $650.0 million and (y) the Borrowing Base; (2) pledges or deposits by such Person under workmen's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits or cash or United States government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import or customs duties or for the payment of rent, in each case Incurred in the ordinary course of business; (3) Liens imposed by law, including carriers', warehousemen's and mechanics' Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings if a reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made in respect thereof; (4) Liens for taxes, assessments or other governmental charges not yet subject to penalties for non-payment or which are being contested in good faith by appropriate proceedings provided appropriate reserves required pursuant to GAAP have been made in respect thereof; (5) Liens in favor of issuers of surety or performance bonds or letters of credit or bankers' acceptances issued pursuant to the request of and for the account of such Person in the ordinary course of its business; provided, however, that such letters of credit do not constitute Indebtedness; (6) encumbrances, easements or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real properties or liens incidental to the conduct of the business of such Person or to the ownership of its properties which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; (7) Liens securing Hedging Obligations so long as the related Indebtedness is, and is permitted to be under the indenture, secured by a Lien on the same property securing such Hedging Obligation; (8) leases and subleases of real property which do not materially interfere with the ordinary conduct of our business or any of our Restricted Subsidiaries; (9) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment have not been finally terminated or the period within which such proceedings may be initiated has not expired; 115 (10) Liens for the purpose of securing the payment of all or a part of the purchase price of, or Capitalized Lease Obligations with respect to, assets or property acquired or constructed in the ordinary course of business, provided that: (a) the aggregate principal amount of Indebtedness secured by such Liens is otherwise permitted to be Incurred under the indenture and does not exceed the cost of the assets or property so acquired or constructed; and (b) such Liens are created within 180 days of construction or acquisition of such assets or property and do not encumber any other assets or property of ours or any Restricted Subsidiary other than such assets or property assets affixed or appurtenant thereto; (11) Liens arising solely by virtue of any statutory or common law provisions relating to banker's Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a depositary institution; provided that: (a) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by us in excess of those set forth by regulations promulgated by the Federal Reserve Board; and (b) such deposit account is not intended by us or any Restricted Subsidiary to provide collateral to the depository institution; (12) Liens arising from Uniform Commercial Code financing statement filings regarding operating leases entered into by us and our Restricted Subsidiaries in the ordinary course of business; (13) Liens existing on the Issue Date (excluding Liens permitted under clause (1)); (14) Liens on property or shares of stock of a Person at the time such Person becomes a Restricted Subsidiary; provided, however, that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such other Person becoming a Restricted Subsidiary; provided further, however, that any such Lien may not extend to any other property owned by us or any Restricted Subsidiary; (15) Liens on property at the time we or a Restricted Subsidiary acquired the property, including any acquisition by means of a merger or consolidation with or into us or any Restricted Subsidiary; provided, however, that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such acquisition; provided further, however, that such Liens may not extend to any other property owned by us or any Restricted Subsidiary; (16) Liens securing Indebtedness or other obligations of a Restricted Subsidiary owing to us or a Wholly Owned Subsidiary (other than a Receivables Entity); 116 (17) Liens securing the Notes and Subsidiary Guarantees; (18) Liens securing Indebtedness incurred after the Issue Date and any Refinancing Indebtedness relating thereto (excluding any Liens securing any other Indebtedness Incurred after the Issue Date permitted under other clauses hereof) in an aggregate principal amount at any one time outstanding not to exceed 15% of Total Assets; (19) Liens securing Refinancing Indebtedness (other than Liens Incurred under clauses (1) and (18) above) incurred to refinance Indebtedness that was previously so secured, provided that any such Lien is limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which the original Lien arose, could secure) the Indebtedness being refinanced or is in respect of property that is the security for a Permitted Lien hereunder; and (20) Liens on assets transferred to a Receivables Entity or on assets of a Receivables Entity, in either case incurred in connection with a Qualified Receivables Transaction. "Permitted Joint Venture" means any Person in which we or a Restricted Subsidiary owns, directly or indirectly, an ownership interest (other than a Subsidiary) and whose primary business is related, ancillary or complementary to any of our businesses and our Restricted Subsidiaries at the time of determination. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) that is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Purchase Money Note" means a promissory note of a Receivables Entity evidencing a line of credit, which may be irrevocable, from us or any Subsidiary of ours in connection with a Qualified Receivables Transaction to a Receivables Entity, which note shall be repaid from cash available to the Receivables Entity, other than amounts required to be established as reserves pursuant to agreements, amounts paid to investors in respect of interest, principal and other amounts owing to such investors and amounts owing to such investors and amounts paid in connection with the purchase of newly generated receivables. "Qualified Receivables Transaction" means any transaction or series of transactions that may be entered into by us or any of our Subsidiaries pursuant to which we or any of our Subsidiaries may sell, convey or otherwise transfer to (a) a Receivables Entity (in the case of a transfer by us or any of our Subsidiaries) and (b) any other Person (in the case of a transfer by a Receivables Entity), or may grant a security interest in, any accounts receivable (whether now existing or arising in the future) of ours or any of our Subsidiaries, and any assets related thereto 117 including, without limitation, all collateral securing such accounts receivable, all contracts and all guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable. "Receivables Entity" means a Wholly Owned Subsidiary of ours (or another Person in which we or any Subsidiary of ours makes an Investment and to which we or any Subsidiary of ours transfers accounts receivable and related assets) which engages in no activities other than in connection with the financing of accounts receivable and which is designated by our Board of Directors (as provided below) as a Receivables Entity, (a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by us or any Subsidiary of ours (excluding guarantees of obligations (other than the principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is recourse to or obligates us or any Subsidiary of ours in any way other than pursuant to Standard Securitization Undertakings or (iii) subjects any property or asset of us or any Subsidiary of ours, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings, (b) with which neither we nor any Subsidiary of ours have any material contract, agreement, arrangement or understanding other than on terms no less favorable to us or any Subsidiary of ours than those that might be obtained at the time from Persons that are not Affiliates of us, other than fees payable in the ordinary course of business in connection with servicing accounts receivable, and (c) to which neither we nor any Subsidiary of ours have any obligation to maintain or preserve such entity's financial condition or cause such entity to achieve certain levels of operating results. Any such designation by our Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of our Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. "Recourse Indebtedness" means Indebtedness that is not Non-Recourse Indebtedness. "Refinancing Indebtedness" means Indebtedness that is Incurred to refund, refinance, replace, renew, repay or extend (including pursuant to any defeasance or discharge mechanism) (collectively, "refinances," and "refinanced" shall have a correlative meaning) any Indebtedness existing on the 1998 Issue Date or Incurred in compliance with the indenture or the 1998 Indenture (including Indebtedness of us that refinances Indebtedness of any Restricted Subsidiary (to the extent permitted by the indenture) and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary (except that a Subsidiary Guarantor shall not refinance Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor)) including Indebtedness that refinances Refinancing Indebtedness; provided, however, that (i) the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced, (iii) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness 118 being refinanced, plus fees, underwriting discounts, premiums, unpaid accrued interest and other costs and expenses incurred in connection with such Refinancing Indebtedness and (iv) if the Indebtedness being refinanced is subordinated in right of payment to the Notes or a Subsidiary Guarantee, such Refinancing Indebtedness is subordinated in right of payment to the Notes or the Subsidiary Guarantee on terms at least favorable to the holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; provided further, however, that Refinancing Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary that refinances Indebtedness of us or (y) Indebtedness of us or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary. "Related Business" means any business which is the same as or related, complementary or ancillary to any of the businesses of us and our Restricted Subsidiaries on the date of the 1998 Indenture. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Subsidiary" means any Subsidiary of ours other than an Unrestricted Subsidiary. "Revolving Credit Facility" means the Second Amended and Restated Multi-Year Credit Agreement dated as of December 3, 1999, among Smithfield Foods, Inc., the Subsidiary Guarantors party thereto, the Lenders party thereto, and The Chase Manhattan Bank, as Administrative Agent, as it may be amended, supplemented or modified from time to time and any renewal, increase, extension, refunding, restructuring, replacement or refinancing thereof (whether with the original administrative agent and lenders or another administrative agent or agents or one or more other lenders and whether provided under the original Revolving Credit Facility or one or more other credit or other agreements or indentures). "Sale/Leaseback Transaction" means any direct or indirect arrangement relating to property now owned or hereafter acquired by us or a Restricted Subsidiary whereby we or such Restricted Subsidiary transfers such property to a Person and we or such Restricted Subsidiary leases it from such Person, other than leases between us and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries. "Secured Indebtedness" means any Indebtedness of us secured by a Lien. "Senior Management" means with respect to us or any of our Subsidiaries, as the case may be, any one of the Chairman of the Board, the Chief Executive Officer, the President and the Chief Operating Officer or any combination of the foregoing. "Senior Secured Notes" means collectively, the 8.41% Series B Senior Secured Notes Due August 1, 2006, the 8.34% Series C Senior Secured Notes Due August 1, 2003, the 9.80% Series D Senior Secured Notes Due August 1, 2003, the 10.75% Series E Senior Secured Notes Due August 1, 2005, the 8.52% Series F Senior Secured Notes Due August 1, 2006, the 9.85% Series G Senior Secured Notes Due November 1, 2006 and the 8.41% Series H Senior Secured Notes 119 Due August 1, 2004, each issued pursuant to the Amended and Restated Note Purchase Agreement, dated as of October 31, 1999, among us and each of the several purchasers named in the Amended and Restated Note Purchase Agreement, as the same may be amended, supplemented or otherwise modified from time to time, the 7.89% Series I Senior Secured Notes due October 1, 2009, the Variable Rate Series J Senior Secured Notes due October 1, 2009, the 8.44% Series K Senior Secured Notes due October 1, 2009, the LIBOR Rate Series L Senior Secured Notes due October 1, 2009, each issued pursuant to the Amended and Restated Note Purchase Agreement, dated as of October 27, 1999, among us and each of the several purchasers named in the Amended and Restated Note Purchase Agreement, as the same may be amended, supplemented or otherwise modified from time to time, and the 8.25% Series M Senior Secured Notes due March 2, 2006 and the LIBOR Rate Series N Senior Secured Notes due March 2, 2002 each issued pursuant to the Note Purchase Agreement, dated as of June 2, 2000, among us and each of the several purchasers named in the Note Purchase Agreement, as the same may be amended, supplemented or otherwise modified (but not increased) from time to time. "Significant Subsidiary" means any Restricted Subsidiary that is a "Significant Subsidiary" of us within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "S&P" means Standard & Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc., and its successors. "Standard Securitization Undertakings" means representations, warranties, covenants and indemnities entered into by us or any Subsidiary of us which are reasonably customary in an accounts receivable transaction. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer, unless such contingency has occurred). "Subordinated Indebtedness" means any Indebtedness of ours (whether outstanding on the date of the indenture or the 1998 Indenture or thereafter Incurred) which is subordinate or junior in right of payment to the Notes pursuant to a written agreement including in all respects, the 1998 Notes. "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership or joint venture interests) 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 (i) such Person or (ii) one or more Subsidiaries of such Person. 120 "Subsidiary Guarantee" means any Guarantee of the Notes that may from time to time be executed and delivered by a Restricted Subsidiary pursuant to the covenant described under "--Future Subsidiary Guarantors." "Subsidiary Guarantor" means any Subsidiary that has issued a Subsidiary Guarantee. "Successor Company" shall have the meaning assigned thereto in clause (i) under "--Merger and Consolidation." "Temporary Cash Investments" means any of the following: (i) any Investment in direct obligations (x) of the United States of America or any agency thereof or obligations Guaranteed by the United States of America or any agency thereof or (y) of any foreign country recognized by the United States of America rated at least "A" by S&P or "A-1" by Moody's, (ii) Investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company that is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America having capital and surplus aggregating in excess of $250.0 million (or the foreign currency equivalent thereof) and whose long-term debt is rated "A" by S&P or "A-1" by Moody's, (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) or (ii) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) Investments in commercial paper, maturing not more than 270 days after the date of acquisition, issued by a corporation (other than an Affiliate of ours) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any Investment therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P, (v) Investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's and (vi) any money market deposit accounts issued or offered by a domestic commercial bank or a commercial bank organized and located in a country recognized by the United States of America, in each case, having capital and surplus in excess of $250.0 million (or the foreign currency equivalent thereof), or investments in money market funds complying with the risk limiting conditions of Rule 2a-7 (or any short- term successor rule) of the SEC, under the Investment Company Act of 1940, as amended. "Total Assets" means, with respect to any Person, the total consolidated assets of such Person and our Restricted Subsidiaries, as shown on the recent balance sheet of such Person. "Trade Payables" means, with respect to any Person, any accounts payable or any indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person arising in the ordinary course of business in connection with the acquisition of goods or services. "Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb), as in effect from time to time. 121 "Trust Officer" means the Chairman of the Board, the President or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Trustee" means the party named as such in the indenture until a successor replaces it and, thereafter, means the successor. "Unrestricted Subsidiary" means (i) any Subsidiary of ours that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Restricted Subsidiary of ours (including any newly acquired or newly formed Subsidiary of ours) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, us or any Restricted Subsidiary (except a Restricted Subsidiary which upon such designation becomes an Unrestricted Subsidiary in accordance with the indenture); provided that (i) such designation would be permitted under the "Limitation on Restricted Payments" covenant described above, (ii) no portion of the Indebtedness or any other obligation (contingent or otherwise) of such Subsidiary (A) is Guaranteed by us or any Restricted Subsidiary, (B) is Recourse Indebtedness or (C) subjects any property or asset of ours or any Restricted Subsidiary, directly or indirectly, contingently or otherwise, to the satisfaction thereof, and (iii) no default or event of default with respect to any Indebtedness of such Subsidiary would permit any holder of any Indebtedness of ours or any Restricted Subsidiary to declare such Indebtedness of us or any Restricted Subsidiary due and payable prior to its maturity. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that immediately after giving effect to such designation (x) we could Incur $1.00 of additional Indebtedness under paragraph (a) of "--Limitation on Indebtedness" and (y) no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate that such designation complied with the foregoing provisions. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option. "Voting Stock" of an entity means all classes of Capital Stock of such entity then outstanding and normally entitled to vote in the election of directors or all interests in such entity with the ability to control the management or actions of such entity. "Wholly Owned Subsidiary" means a Restricted Subsidiary 80% or more of the Capital Stock of which (other than directors' qualifying shares) is owned directly or indirectly by us. 122 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 senior notes where such senior notes were acquired as a result of market-making activities or other trading activities. We have agreed that, for a period of 90 days after the expiration date, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until _______________, 200[_], all dealers effecting transactions in the exchange notes may be required to deliver a prospectus. We 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 transactions, through the writing of options on the exchange notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or 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 persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 90 days after the expiration date we 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. We have agreed to pay all expenses incident to the exchange offer (including the expenses of one counsel for the holders of the senior notes) other than commissions or concessions of any broker-dealers and will indemnify the holders of the senior notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. 123 LEGAL MATTERS The validity of the exchange notes offered hereby will be passed upon for us by McGuireWoods LLP, Richmond, Virginia, a limited liability partnership. As of November 21, 2001, lawyers of McGuireWoods LLP own approximately 14,700 shares of our Common Stock. INDEPENDENT PUBLIC ACCOUNTANTS Our audited consolidated financial statements included in, and incorporated by reference into, this prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect to those financial statements. 124 SMITHFIELD FOODS, INC. INDEX TO FINANCIAL STATEMENTS Audited Year-End Financial Statements Report of Independent Public Accountants.................................. F-2 Consolidated Statements of Income for the Fiscal Years 2001, 2000 and 1999..................................................................... F-3 Consolidated Balance Sheets for the Fiscal Years Ended April 29, 2001 and April 30, 2000........................................................... F-4 Consolidated Statements of Cash Flows for the Fiscal Years 2001, 2000 and 1999..................................................................... F-5 Consolidated Statements of Shareholders' Equity for the Fiscal Years ended May 2, 1999, April 30, 2000 and April 29, 2001........................... F-6 Notes to Consolidated Financial Statements................................ F-7 Unaudited Interim Financial Statements Consolidated Condensed Statements of Income for the 13 weeks ended July 29, 2001 and July 30, 2000............................................... F-27 Consolidated Condensed Balance Sheet at July 29, 2001 .................... F-28 Consolidated Condensed Statements of Cash Flows for the 13 weeks ended July 29, 2001 and July 30, 2000.......................................... F-29 Notes to Consolidated Condensed Financial Statements...................... F-30
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Smithfield Foods, Inc.: We have audited the accompanying consolidated balance sheets of Smithfield Foods, Inc. (a Virginia corporation) and subsidiaries as of April 29, 2001, and April 30, 2000, and the related consolidated statements of income, cash flows, and shareholders' equity for each of the three years in the period ended April 29, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Smithfield Foods, Inc. and subsidiaries as of April 29, 2001, and April 30, 2000, and the results of their operations and their cash flows for each of the three years in the period ended April 29, 2001, in conformity with accounting principles generally accepted in the United States. /s / ARTHUR ANDERSEN LLP Richmond, Virginia June 5, 2001 (except with respect to the matter discussed in Note 16, as to which the date is October 16, 2001) F-2 SMITHFIELD FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Fiscal Years --------------------------------- 2001 2000 1999 ---------- ---------- ---------- (In thousands, except per share data) Sales...................................... $5,899,927 $5,150,469 $3,774,989 Cost of sales.............................. 4,951,024 4,456,403 3,235,414 ---------- ---------- ---------- Gross profit.............................. 948,903 694,066 539,575 Selling, general and administrative expenses.................................. 450,965 390,634 295,610 Depreciation expense....................... 124,836 109,893 63,524 Interest expense........................... 88,974 71,944 40,521 Minority interests......................... 5,829 1,608 (3,518) Gain on sale of IBP, inc. common stock (See Note 11).................................. (79,019) - - ---------- ---------- ---------- Income before income taxes................. 357,318 119,987 143,438 Income taxes............................... 133,805 44,875 48,554 ---------- ---------- ---------- Net income................................. $ 223,513 $ 75,112 $ 94,884 ========== ========== ========== Net income per basic common share (1)...... $ 2.06 $ .77 $ 1.20 ========== ========== ========== Net income per diluted common share (1).... $ 2.03 $ .76 $ 1.16 ========== ========== ==========
(1) Adjusted for 2-for-1 stock split effective September 14, 2001 See Notes to Consolidated Financial Statements F-3 SMITHFIELD FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
Fiscal Years Ended ------------------------------ April 29, 2001 April 30, 2000 -------------- -------------- (In thousands, except share data) ASSETS Current assets: Cash and cash equivalents...................... $ 56,532 $ 49,882 Accounts receivable less allowances of $6,392 and $4,899.................................... 387,841 390,037 Inventories.................................... 729,167 665,143 Prepaid expenses and other current assets...... 90,155 127,664 ---------- ---------- Total current assets.......................... 1,263,695 1,232,726 ---------- ---------- Property, plant and equipment: Land........................................... 76,100 73,753 Buildings and improvements..................... 711,124 666,428 Machinery and equipment........................ 855,838 732,217 Breeding stock................................. 94,286 100,576 Construction in progress....................... 59,307 39,069 ---------- ---------- 1,796,655 1,612,043 Less accumulated depreciation.................. (522,178) (398,469) ---------- ---------- Net property, plant and equipment............. 1,274,477 1,213,574 ---------- ---------- Other assets: Goodwill, net of accumulated amortization of $18,925 and $8,695............................ 347,342 320,148 Investments in partnerships.................... 88,092 102,551 Other.......................................... 277,282 260,614 ---------- ---------- Total other assets............................ 712,716 683,313 ---------- ---------- $3,250,888 $3,129,613 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable.................................. $ 35,504 $ 64,924 Current portion of long-term debt and capital lease obligations............................. 79,590 48,505 Accounts payable............................... 278,093 270,004 Accrued expenses and other current liabilities................................... 235,095 239,436 ---------- ---------- Total current liabilities..................... 628,282 622,869 ---------- ---------- Long-term debt and capital lease obligations.... 1,146,223 1,187,770 ---------- ---------- Other noncurrent liabilities: Deferred income taxes.......................... 271,516 274,329 Pension and postretirement benefits............ 77,520 78,656 Other.......................................... 25,820 30,311 ---------- ---------- Total other noncurrent liabilities............ 374,856 383,296 ---------- ---------- Minority interests.............................. 48,395 32,769 ---------- ---------- Commitments and contingencies Shareholders' equity: Preferred stock, $1.00 par value, 1,000,000 authorized shares............................. - - Common stock, $.50 par value, 100,000,000 (1) authorized shares; 105,005,902 (2) and 54,705,386 issued and outstanding............. 52,503(2) 27,353 Additional paid-in capital..................... 379,413(2) 473,974 Retained earnings.............................. 638,779 415,266 Accumulated other comprehensive loss........... (17,563) (13,684) ---------- ---------- Total shareholders' equity.................... 1,053,132 902,909 ---------- ---------- $3,250,888 $3,129,613 ========== ==========
(1) Authorized shares were increased from 100,000,000 to 200,000,000 effective August 29, 2001 (2) Adjusted for 2-for-1 stock split effective September 14, 2001 See Notes To Consolidated Financial Statements F-4 SMITHFIELD FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years ------------------------------- 2001 2000 1999 --------- --------- --------- (In thousands) Operating activities: Net income................................... $ 223,513 $ 75,112 $ 94,884 Depreciation and amortization................ 140,050 118,964 68,566 Deferred income taxes........................ (7,151) 13,227 20,737 Gain on sale of IBP, inc. common stock....... (79,019) - - Gain on sale of property, plant and equipment................................... (2,714) (2,591) (138) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable......................... (4,640) (7,192) 954 Inventories................................. (51,169) (35,976) (17,680) Prepaid expenses and other current assets... 29,799 (44,501) (2,225) Other assets................................ (14,276) 2,153 (55,563) Accounts payable, accrued expenses and other liabilities................................ (16,111) 6,022 13,849 --------- --------- --------- Net cash provided by operating activities..... 218,282 125,218 123,384 --------- --------- --------- Investing activities: Capital expenditures......................... (144,120) (100,383) (95,447) Business acquisitions, net of cash acquired.. (29,725) (34,596) (151,223) Proceeds from sale of IBP, inc. common stock....................................... 224,451 - - Investments in IBP, inc. common stock........ (147,352) (51,479) - Investments in partnerships and other assets...................................... (2,013) (11,810) (16,206) Proceeds from sale of property, plant and equipment................................... 38,920 6,018 991 --------- --------- --------- Net cash used in investing activities......... (59,839) (192,250) (261,885) --------- --------- --------- Financing activities: Net (repayments) borrowings on notes payable..................................... (39,676) (249,393) 24,182 Proceeds from issuance of long-term debt..... 31,009 269,041 22,948 Net borrowings on long-term credit facility.. 12,000 324,000 71,000 Principal payments on long-term debt and capital lease obligations................... (86,286) (187,632) (21,754) Repurchase and retirement of common stock.... (77,768) (73,145) - Exercise of common stock options............. 8,357 4,121 12,155 --------- --------- --------- Net cash (used in) provided by financing activities................................... (152,364) 86,992 108,531 --------- --------- --------- Net increase (decrease) in cash and cash equivalents.................................. 6,079 19,960 (29,970) Effect of currency exchange rates on cash..... 571 (668) 38 Cash and cash equivalents at beginning of year......................................... 49,882 30,590 60,522 --------- --------- --------- Cash and cash equivalents at end of year...... $ 56,532 $ 49,882 $ 30,590 ========= ========= ========= Supplemental disclosures of cash flow information: Interest paid, net of amount capitalized..... $ 104,362 $ 79,780 $ 37,696 ========= ========= ========= Income taxes paid............................ $ 126,224 $ 30,315 $ 15,306 ========= ========= ========= Noncash investing and financing activities: Common stock issued for acquisitions......... $ - $ 369,407 $ 73,049 ========= ========= =========
See Notes to Consolidated Financial Statements F-5 SMITHFIELD FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated Common Stock Additional Other ------------------ Paid-In Retained Comprehensive Shares Par Value Capital Earnings Income Total ------- --------- ---------- -------- ------------- ---------- (In thousands) Balance, May 3, 1998.... 37,537 $18,769 $ 96,971 $245,270 $ - $ 361,010 Comprehensive income: Net income............ - - - 94,884 - 94,884 Unrealized gain on securities........... - - - - 1,372 1,372 Foreign currency translation.......... - - - - 2,960 2,960 Minimum pension liability............ - - - - (3,184) (3,184) ------- ------- -------- -------- -------- ---------- Total comprehensive income.............. 96,032 ---------- Common stock issued... 2,986 1,493 71,556 - - 73,049 Exercise of stock options.............. 1,324 662 11,493 - - 12,155 ------- ------- -------- -------- -------- ---------- Balance, May 2, 1999.... 41,847 20,924 180,020 340,154 1,148 542,246 Comprehensive income: Net income............ - - - 75,112 - 75,112 Unrealized loss on securities........... - - - - (3,882) (3,882) Foreign currency translation.......... - - - - (6,561) (6,561) Minimum pension liability............ - - - - (4,389) (4,389) ---------- Total comprehensive income.............. 60,280 ---------- Common stock issued... 15,604 7,802 361,605 - - 369,407 Exercise of stock options.............. 232 116 4,005 - - 4,121 Repurchase and retirement of common stock................ (2,978) (1,489) (71,656) - - (73,145) ------- ------- -------- -------- -------- ---------- Balance, April 30, 2000................... 54,705 27,353 473,974 415,266 (13,684) 902,909 Comprehensive income: Net income............ - - - 223,513 - 223,513 Unrealized gain on securities........... - - - - 45,899 45,899 Reclassification adjustment for gains included in net income............... - - - - (45,200) (45,200) Foreign currency translation.......... - - - - (3,167) (3,167) Minimum pension liability............ - - - - (1,411) (1,411) ---------- Total comprehensive income.............. 219,634 ---------- Exercise of stock options.............. 425 212 8,145 - - 8,357 Repurchase and retirement of common stock................ (2,627) (1,314) (76,454) - - (77,768) ------- ------- -------- -------- -------- ---------- Balance, April 29, 2001................... 52,503 $26,251 $405,665 $638,779 $(17,563) $1,053,132 ======= ======= ======== ======== ======== ========== Balance, April 29, 2001 adjusted for 2-for-1 stock split effective September 14, 2001 105,006 $52,503 $379,413 $638,779 $(17,563) $1,053,132 ======= ======= ======== ======== ======== ==========
See Notes to Consolidated Financial Statements F-6 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars In Thousands, Except Per Share Data) Note 1 -- Summary of Significant Accounting Policies Nature of Business Smithfield Foods, Inc. and subsidiaries (the "Company") is comprised of a Meat Processing Group (the "MPG") and a Hog Production Group (the "HPG"). The MPG consists primarily of five wholly owned domestic pork processing subsidiaries and four international meat processing entities. The HPG consists primarily of three domestic hog production operations and certain international joint ventures. Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company after elimination of all material intercompany balances and transactions. Investments in partnerships are recorded using the equity method of accounting. Management uses estimates and assumptions in the preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The Company's fiscal year consists of 52 or 53 weeks, ending on the Sunday nearest April 30. Fiscal 2001, 2000 and 1999 were all 52 weeks long. Foreign Currency Translation For foreign operations, the local foreign currency is the functional currency. Assets and liabilities are translated into U.S. dollars at the period-ending exchange rate. Statement of income amounts are translated to U.S. dollars using average exchange rates during the period. Translation gains and losses are reported as a component of other comprehensive income in shareholders' equity. Gains and losses from foreign transactions are included in current earnings. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of 90 days or less to be cash equivalents. The carrying value of cash equivalents approximates market value. As of April 29, 2001 and April 30, 2000, cash and cash equivalents include $2,670 and $200, respectively, in short-term marketable securities. Inventories Inventories are valued at the lower of first-in, first-out cost or market. Cost includes raw materials, labor and manufacturing and production overhead. Inventories consist of the following:
April 29, April 30, 2001 2000 --------- --------- Hogs on farms......................................... $331,060 $323,639 Fresh and processed meats............................. 316,929 264,479 Manufacturing supplies................................ 60,823 55,937 Other................................................. 20,355 21,088 -------- -------- $729,167 $665,143 ======== ========
F-7 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 1 -- Summary of Significant Accounting Policies -- Continued Financial Instruments The Company uses commodity hedging instruments, including futures and options, to reduce the risk of price fluctuations related to future raw material requirements and product sales. The terms of such instruments generally do not exceed twelve months and depend on the commodity and other market factors. The Company attempts to closely match the commodity contract expiration periods with the dates for product sale and delivery. Contracts are generally designated and effective as a hedge of a firm purchase or sale commitment and, as such, gains and losses are recognized in cost of sales when the related sale or purchase is made. The Company may enter into interest rate swap contracts to manage exposure to interest rate fluctuations. These contracts are designated as a hedge of variable or fixed rate debt instruments. The interest differential, receivable or payable, under the swap contract is recognized as interest expense in the period incurred. The notional value of outstanding swap contracts as of April 29, 2001 and April 30, 2000 is $22,464 and $32,712, respectively. As of April 29, 2001 and April 30, 2000, the estimated fair values of interest rate swaps was a loss of $441 and a loss of $249, respectively. Property, Plant and Equipment Property, plant and equipment is stated at cost and depreciated over the estimated useful lives of the assets. Buildings and improvements are depreciated over periods from 20 to 40 years. Machinery and equipment is depreciated over periods from two to 20 years. Breeding stock is depreciated over two and one-half years. Assets held under capital leases are classified as property, plant and equipment and amortized over the lease terms. Lease amortization is included in depreciation expense. Repairs and maintenance charges are expensed as incurred. Improvements that materially extend the life of the asset are capitalized. Gains and losses from dispositions or retirements of property, plant and equipment are recognized currently. Interest on capital projects is capitalized during the construction period. Total interest capitalized was $2,788 in fiscal 2001, $3,293 in fiscal 2000 and $2,377 in fiscal 1999. Repair and maintenance expenses totaled $178,928, $160,222 and $120,833 in fiscal 2001, 2000 and 1999, respectively. Other Assets Goodwill is amortized over no more than 40 years. Deferred debt issuance costs are amortized over the terms of the related loan agreements. Revenue Recognition Revenues from product sales are recorded upon shipment to customers. Environmental Expenditures Environmental expenditures that relate to current or future operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and do not contribute to current or future revenue generation are expensed. Liabilities are recorded when environmental assessments and cleanups are probable and the cost can be reasonably estimated. Generally, the timing of these accruals coincides with the Company's commitment to a formal plan of action (See Note 12). F-8 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 1 -- Summary of Significant Accounting Policies -- Continued Self-Insurance Programs The Company is self-insured for certain levels of general and vehicle liability, property, workers' compensation and health care coverage. The cost of these self-insurance programs is accrued based upon estimated settlements for known and anticipated claims. Any resulting adjustments to previously recorded reserves are reflected in current operating results. Net Income Per Share The Company presents dual computations of net income per share (See Note 13). The basic computation is based on weighted average common shares outstanding during the period. The diluted computation reflects the potentially dilutive effect of common stock equivalents, such as stock options, during the period. Recently Issued Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB issued Statement of Financial Accounting Standards No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities -an amendment of FASB Statement No. 133." The standards are collectively referred to as SFAS 133. The Company adopted SFAS 133 effective April 30, 2001, the first day of fiscal 2002. SFAS 133 requires that all derivative instruments be reported on the Company's Consolidated Balance Sheet at fair value. Changes in the fair value of derivatives will be recorded each period in current earnings or other comprehensive income, depending on whether the derivative is designated and effective as part of a hedge transaction and on the type of hedge transaction. Gains and losses on derivative instruments reported in other comprehensive income will be recognized in earnings in the period in which earnings are impacted by the underlying hedged item. The ineffective portion of all hedges will be recognized in current period earnings. The application of these new standards may result in volatility in reported earnings, other comprehensive income and accumulated other comprehensive income (loss). On April 30, 2001, the Company recorded a $12,716 after-tax cumulative effect loss as accumulated other comprehensive loss on the Company's Consolidated Balance Sheet to recognize the fair value of all derivative instruments that are designated as hedge transactions. Reclassifications Certain prior year amounts have been restated to conform to fiscal 2001 presentations. Note 2 -- Risk Management Substantially all of the Company's products are produced from commodity- based raw materials, corn and soybean meal in the HPG and live hogs in the MPG. The cost of corn and soybean meal (the principal feed ingredients for hogs) and live hogs are subject to wide fluctuations due to unpredictable factors such as weather conditions, economic conditions, government regulation and other unforeseen circumstances. The Company utilizes futures and option contracts for live hogs and grains to manage hog production margins when F-9 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 2 -- Risk Management -- Continued management determines the conditions are appropriate for such hedges. The particular hedging methods employed and the time periods for the contracts depend on a number of factors, including the availability of adequate contracts for the respective periods for the hedge. The Company attempts to closely match the commodity contract expiration periods with the dates for product sale and delivery. The pricing of the Company's fresh pork and processed meats is monitored and adjusted upward and downward in reaction to changes in the cost of the underlying raw materials. The unpredictability of the raw material costs limits the Company's ability to forward price fresh pork and processed meat products without the use of commodity contracts through a program of price-risk management. The Company uses price-risk management techniques to enhance its ability to engage in forward sales contracts, where prices for future deliveries are fixed, by purchasing (or selling) commodity contracts for future periods to reduce or eliminate the effect of fluctuations in future raw material costs on the profitability of the related sales. While this may tend to limit the Company's ability to participate in gains from favorable commodity price fluctuation, it also tends to reduce the risk of loss from adverse changes in raw material prices. As of April 29, 2001 and April 30, 2000, the Company had the following open commodity futures positions:
Contract Value Fair Value ----------------- ----------------- 2001 2000 2001 2000 -------- -------- -------- ------- Grains............................... $193,184 $206,123 $(20,102) $ 90 Hogs & Bellies....................... 57,921 505,531 (490) (41,399)
As of April 29, 2001 and April 30, 2000, the Company had deposits with brokers for outstanding futures contracts of $23,331 and $45,131, respectively, included in prepaid expenses and other current assets. Note 3 -- Acquisitions In the Company's third quarter of fiscal 2001, the Company's Schneider Corporation ("Schneider") subsidiary increased its investment in Saskatchewan- based Mitchell's Gourmet Foods Inc. ("Mitchell's") to 54%, requiring the Company to consolidate Mitchell's accounts and to discontinue using the equity method of accounting for Mitchell's. The impact of including Mitchell's in the Consolidated Balance Sheet as of April 29, 2001 was to increase total assets $87,307 and long-term debt $10,396. The balance of the purchase price in excess of the fair value of assets acquired and liabilities assumed at the date of acquisition was recorded as an intangible asset totaling $21,457. For the fiscal year ended October 2000, Mitchell's had annual sales of approximately $190 million. In January of fiscal 2000, the Company completed the acquisition of Murphy Farms, Inc. ("Murphy") and its affiliated companies for 22.1 million shares of the Company's common stock (subject to post-closing adjustments) and the assumption of approximately $203,000 in debt, plus other liabilities. Murphy is a hog producer that has approximately 345,000 sows that produce approximately 6.1 million market hogs annually. The balance of the purchase price in excess of the fair value of the assets acquired and the liabilities assumed at the date of acquisition was recorded as an intangible asset totaling $147,006. Had the acquisition of Murphy occurred at the beginning of fiscal 2000, sales, net income and net income per diluted share would have been $5,329,074, $77,633 and $.65, respectively. F-10 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 3 -- Acquisitions -- Continued In May of fiscal 2000, the Company completed the acquisition of Carroll's Foods, Inc. ("Carroll's") and its affiliated companies and partnership interests for 8.7 million shares of the Company's common stock and the assumption of approximately $231,000 in debt, plus other liabilities. Carroll's U.S. hog production operations include approximately 180,000 sows that produce approximately 3.5 million market hogs annually. The acquisition also included Carroll's 50% interest in Tar Heel Turkey Hatchery, 100% of Carroll's turkey grow-out operations, Carroll's 49% interest in Carolina Turkeys and certain hog production interests in Brazil and Mexico. The balance of the purchase price in excess of the fair value of the assets acquired and the liabilities assumed at the date of acquisition was recorded as an intangible asset totaling $45,100. In August of fiscal 2000, the Company acquired the capital stock of Societe Financiere de Gestion et de Participation S.A. ("SFGP"), a private-label processed meats manufacturer in France. Prior to the acquisition, SFGP had annual sales of approximately $100,000. In November of fiscal 1999, the Company acquired 63% of the total equity of Schneider in exchange for approximately 5.1 million Exchangeable Shares of Smithfield Canada Limited, a wholly owned subsidiary of the Company. Schneider produces and markets fresh pork and a full line of processed meats and is the second largest meat processing company in Canada. The balance of the purchase price in excess of the fair value of assets acquired and liabilities assumed at the date of acquisition was recorded as an intangible asset totaling $36,900. In April of fiscal 1999, the Company acquired a 67% interest in Animex S.A. ("Animex"), a major meat and poultry processing company in Poland. During fiscal 2000, the Company increased its ownership in Animex to 85% of total equity. The balance of the purchase price in excess of the fair value of assets acquired and liabilities assumed at the date of acquisition was recorded as an intangible asset totaling $55,100. In September of fiscal 1999, the Company acquired all of the capital stock of Societe Bretonne de Salaisons ("SBS"), the largest private-label manufacturer of ham, pork shoulder and bacon products in France. Prior to the acquisition, SBS had annual sales of approximately $100,000. In June of fiscal 1999, the Company increased its ownership in the Circle Four hog production operation from 37% to 84%, requiring the Company to consolidate Circle Four's accounts. Prior to June of fiscal 1999, Circle Four was accounted for using the equity method of accounting. As a result of the Carroll's acquisition in May of fiscal 2000, Circle Four became a wholly owned subsidiary of the Company. In October of fiscal 1999, the Company acquired all of the assets and business of North Side Foods Corp. ("North Side"), a major domestic supplier of precooked sausage to McDonald's Corporation. Prior to the acquisition, North Side had annual sales of approximately $60,000. Each of these acquisitions was accounted for using the purchase method of accounting and accordingly, the accompanying consolidated financial statements include the financial position and results of operations from the dates of acquisition. Had the acquisitions of Mitchell's and SFGP occurred at the beginning of fiscal 2000, there would not have been a material effect on sales, net income or net income per diluted share for such fiscal years. F-11 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 4 -- Debt Long-term debt consists of the following:
April 29, April 30, 2001 2000 ---------- ---------- Long-term credit facility, expiring July 2002.... $ 407,000 $ 395,000 7.625% senior subordinated notes, due February 2008............................................ 185,137 186,500 8.52% senior notes, due August 2006.............. 100,000 100,000 7.89% senior note, payable through October 2009.. 85,000 95,000 8.25% note, payable through March 2006........... 75,000 75,000 Variable rate note, payable through October 2009............................................ 67,500 72,500 8.44% note, payable through October 2009......... 50,000 50,000 8.34% senior notes, due August 2003.............. 40,000 40,000 Euribor 3 mos. +1.00% Euro notes, due June 2001.. 22,600 10,672 Miscellaneous with interest rates ranging from 4.70% to 10.75%, due May 2001 through September 2010............................................ 168,912 187,651 ---------- ---------- 1,201,149 1,212,323 Less current portion............................. (75,623) (44,941) ---------- ---------- $1,125,526 $1,167,382 ========== ==========
Scheduled maturities of long-term debt are as follows: Fiscal Year 2002.......................................................... $ 75,623 2003.......................................................... 494,471 2004.......................................................... 111,029 2005.......................................................... 50,726 2006.......................................................... 47,143 Thereafter.................................................... 422,157 ---------- $1,201,149 ==========
The Company has a five-year $650,000 revolving credit facility as its primary short-term financing source. The borrowings are prepayable and bear interest, at the Company's option, at various rates based on margins over the federal funds rate or Eurodollar rate. This facility expires in July 2002 and is expected to be refinanced in fiscal 2002. The Company has aggregate credit facilities totaling $777,856. As of April 29, 2001, the Company had unused capacity under these credit facilities of $311,704. Included in the aggregate credit facilities are $35,504 of short-term international credit facilities classified as notes payable in the Consolidated Balance Sheets. These facilities are generally at prevailing market rates. The Company pays a commitment fee on the unused portion of the aggregate revolving credit facilities. F-12 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 4 -- Debt -- Continued Average borrowings under credit facilities were $415,724 in fiscal 2001, $305,470 in fiscal 2000 and $74,820 in fiscal 1999 at average interest rates of approximately 7.3%, 7.5% and 6.3%, respectively. Maximum borrowings were $524,997 in fiscal 2001, $458,922 in fiscal 2000 and $152,510 in fiscal 1999. Total outstanding borrowings were $442,504 and $457,200 with average interest rates of 5.9% and 7.2% as of April 29, 2001 and April 30, 2000, respectively. The senior subordinated notes are unsecured. Senior notes are secured by certain of the Company's major processing plants and hog farm facilities. The $650,000 credit facility is secured by substantially all of the Company's U.S. inventories and accounts receivable. The Company's various debt agreements contain financial covenants that require the maintenance of certain levels and ratios for working capital, net worth, current ratio, fixed charges, capital expenditures and, among other restrictions, limit additional borrowings, the acquisition, disposition and leasing of assets, and payments of dividends to shareholders. The Company determines the fair value of public debt using quoted market prices and values all other debt using discounted cash flow techniques at estimated market prices for similar issues. As of April 29, 2001, the fair value of long-term debt, based on the market value of debt with similar maturities and covenants, was approximately $1,181,000. Note 5 -- Income Taxes Income tax expense consists of the following:
2001 2000 1999 -------- ------- ------- Current tax expense: Federal..................................... $121,070 $26,994 $20,445 State....................................... 15,416 3,174 5,409 Foreign..................................... 4,470 1,480 1,963 -------- ------- ------- 140,956 31,648 27,817 -------- ------- ------- Deferred tax expense: Federal..................................... (7,362) 9,500 19,924 State....................................... (1,479) 1,073 (2,082) Foreign..................................... 1,690 2,654 2,895 -------- ------- ------- (7,151) 13,227 20,737 -------- ------- ------- $133,805 $44,875 $48,554 ======== ======= ======= A reconciliation of taxes computed at the federal statutory rate to the provision for income taxes is as follows: 2001 2000 1999 -------- ------- ------- Federal income taxes at statutory rate....... 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit..................................... 2.4 1.7 2.5 Taxes on foreign income which differ from the statutory U.S. federal rate................. 0.7 2.9 - Foreign sales corporation benefit............ (0.7) (2.0) (1.4) Other........................................ - (0.2) (2.2) -------- ------- ------- 37.4% 37.4% 33.9% ======== ======= =======
F-13 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 5 -- Income Taxes -- Continued The tax effects of temporary differences consist of the following:
April 29, 2001 April 30, 2000 -------------- -------------- Deferred tax assets: Tax credits, carryforwards and net operating losses......................... $ 19,059 $ 13,939 Accrued expenses.......................... 11,909 16,998 Inventories............................... 2,473 1,758 Intangibles............................... 2,462 2,210 Alternative minimum tax credits........... 1,741 1,407 Employee benefits......................... 654 2,222 Other..................................... 1,453 572 -------- -------- $ 39,751 $ 39,106 ======== ======== Deferred tax liabilities: Accounting method change.................. $128,900 $138,403 Property, plant and equipment............. 123,560 120,277 Investments in subsidiaries............... 40,089 39,560 -------- -------- $292,549 $298,240 ======== ========
As of April 29, 2001 and April 30, 2000, the Company had $18,718 and $15,195, respectively, of net current deferred tax assets included in prepaid expenses and other current assets. The Company had a valuation allowance of $20,214 and $5,265 related to income tax assets as of April 29, 2001 and April 30, 2000, respectively, primarily related to losses in foreign jurisdictions for which no tax benefit was recognized. The tax credits, carryforwards and net operating losses expire from fiscal 2002 to 2021. The alternative minimum tax credits do not expire. As of April 29, 2001, foreign subsidiary net earnings of $29,139 were considered permanently reinvested in those businesses. Accordingly, federal income taxes have not been provided for such earnings. It is not practicable to determine the amount of unrecognized deferred tax liabilities associated with such earnings. Note 6 -- Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following:
April 29, 2001 April 30, 2000 -------------- -------------- Payroll and related benefits................. $ 80,960 $ 68,611 Self-insurance reserves...................... 31,870 29,248 Other........................................ 122,265 141,577 -------- -------- $235,095 $239,436 ======== ========
Note 7 -- Shareholders' Equity Share Repurchase Program As of April 29, 2001, the board of directors has authorized the repurchase of 16,000,000 shares of the Company's common stock. The Company repurchased 5,253,870 shares and 5,957,200 shares in fiscal 2001 and 2000, respectively. F-14 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 7 -- Shareholders' Equity -- Continued Preferred Stock The Company has 1,000,000 shares of $1.00 par value preferred stock authorized, none of which are issued. The board of directors is authorized to issue preferred stock in series and to fix, by resolution, the designation, dividend rate, redemption provisions, liquidation rights, sinking fund provisions, conversion rights and voting rights of each series of preferred stock. Stock Options The Company's 1992 Stock Incentive Plan (the "1992 Plan") provided for the issuance of nonstatutory stock options to management and other key employees. Options were granted for periods not exceeding 10 years and exercisable five years after the date of grant. The exercise price prior to August 31, 1994 was for not less than the 150% of the fair market value of the common stock on the date of grant and was amended to not less than the 100% on or after August 31, 1994. The Company's 1998 Stock Incentive Plan (the "1998 Plan") provides for the issuance of nonstatutory stock options to management and other key employees. Options were granted for periods not exceeding 10 years and exercisable five years after the date of grant at an exercise price of not less than the 100% of the fair market value of the common stock on the date of grant. In fiscal 1999, the 1992 Plan was merged with the 1998 Plan. There are 11,000,000 shares reserved under the 1998 Plan. As of April 29, 2001, there were 5,358,000 shares available for grant under the 1998 Plan. The following is a summary of stock option transactions for fiscal years 1999 through 2001:
Weighted Average Number Of Exercise Shares Price ---------- -------- Outstanding at May 3, 1998............................ 6,732,000 $ 5.23 Granted.............................................. 520,000 13.98 Exercised............................................ (2,647,000) 2.21 Canceled............................................. (320,000) 7.78 ---------- ------ Outstanding at May 2, 1999............................ 4,285,000 7.98 Granted.............................................. 110,000 11.99 Exercised............................................ (464,000) 5.77 Canceled............................................. (230,000) 8.43 ---------- ------ Outstanding at April 30, 2000......................... 3,701,000 8.34 Granted.............................................. 1,480,000 13.22 Exercised............................................ (849,000) 5.89 Canceled............................................. (130,000) 11.42 ---------- ------ Outstanding at April 29, 2001......................... 4,202,000 $10.46 ========== ======
F-15 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 7 -- Shareholders' Equity -- Continued The following table summarizes information about stock options outstanding as of April 29, 2001:
Options Weighted Exercisable Average ------------------ Remaining Weighted Weighted Contractual Average Average Life Exercise Exercise Range Of Exercise Price Shares (Years) Price Shares Price ----------------------- --------- ----------- -------- --------- -------- $ 5.76 to 5.87 1,162,000 2.7 $ 5.77 1,062,000 $5.77 6.81 to 7.66 380,000 4.7 6.88 360,000 6.89 8.23 to 9.39 270,000 6.3 8.66 - - 12.84 to 14.59 2,330,000 8.3 13.46 - - 15.81 to 16.34 60,000 6.8 16.04 - - --------------- --------- --- ------ --------- ----- $ 5.76 to 16.34 4,202,000 6.3 $10.46 1,422,000 $6.05 =============== ========= === ====== ========= =====
The Company does not recognize compensation costs for its stock option plans. Had the Company determined compensation costs based on the fair value at the grant date for its stock options granted subsequent to fiscal 1995, the Company's net income and net income per share would have decreased accordingly. The fair value of each stock option share granted is estimated at date of grant using the Black-Scholes option pricing model and weighted average assumptions:
2001 2000 1999 --------- --------- --------- Net income, as reported.................... $ 223,513 $ 75,112 $ 94,884 Pro forma net income....................... 221,686 73,960 93,705 Net income per share, as reported: Basic..................................... $ 2.06 $ .77 $ 1.20 Diluted................................... 2.03 .76 1.16 Pro forma net income per share: Basic..................................... $ 2.05 .76 $ 1.18 Diluted................................... 2.01 .75 1.14 Weighted average fair values of option shares granted............................ $ 6.64 $ 5.84 $ 6.70 Expected option life....................... 7.0 years 7.0 years 7.0 years Risk-free interest rate.................... 6.3% 5.9% 5.3% Expected annual volatility................. 35.0% 35.0% 35.0% Dividend yield............................. 0.0% 0.0% 0.0%
Preferred Share Purchase Rights On May 30, 2001, the board of directors of the Company adopted a new Shareholder Rights Plan (the "Rights Plan") and declared a dividend of one preferred share purchase right (a "Right") on each outstanding share of common stock. Under the terms of the Rights Plan, if a person or group acquires 15% (or other applicable percentage, as provided in the Rights Plan) or more of the outstanding common stock, each Right will entitle its holder (other than such person or members of such group) to purchase, at the Right's then current exercise price, a number of shares of common stock having a market value of twice such price. In addition, if the Company is acquired in a merger or other business transaction after a person or group has acquired such percentage of the outstanding common stock, each Right will entitle its holder (other than F-16 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 7 -- Shareholders' Equity -- Continued such person or members of such group) to purchase, at the Right's then current exercise price, a number of the acquiring company's common shares having a market value of twice such price. Upon the occurrence of certain events, each Right will entitle its holder to buy one two-thousandth of a Series A junior participating preferred share ("Preferred Share"), par value $1.00 per share, at an exercise price of $90.00, subject to adjustment. Each Preferred Share will entitle its holder to 2,000 votes and will have an aggregate dividend rate of 2,000 times the amount, if any, paid to holders of common stock. The Rights will expire on May 31, 2011, unless the date is extended or unless the Rights are earlier redeemed or exchanged at the option of the board of directors for $.00005 per Right. Generally, each share of common stock issued after May 31, 2001 will have one Right attached. The adoption of the Rights Plan has no impact on the financial position or results of operations of the Company. Note 8 -- Pension and Other Retirement Plans The Company provides substantially all U.S. and Canadian employees with pension benefits. Salaried employees are provided benefits based on years of service and average salary levels. Hourly employees are provided benefits of stated amounts for each year of service. The Company's funding policy is to contribute the minimum amount required under government regulations. Pension plan assets are invested primarily in equities, debt securities, insurance contracts and money market funds. The Company provides health care and life insurance benefits for certain retired employees. These plans are unfunded and generally pay covered costs reduced by retiree premium contributions, co-payments and deductibles. The Company retains the right to modify or eliminate these benefits. The changes in the status of the Company's pension and postretirement plans, the related components of pension and postretirement expense and the amounts recognized in the Consolidated Balance Sheets are as follows:
Pension Benefits Postretirement Benefits ------------------------------ ------------------------------ April 29, 2001 April 30, 2000 April 29, 2001 April 30, 2000 -------------- -------------- -------------- -------------- Change in benefit obligation: Benefit obligation at beginning of year..... $425,190 $442,752 $26,633 $30,294 Service cost.......... 11,194 10,779 523 596 Interest cost......... 32,535 30,251 1,916 2,006 Plan amendments....... 1,437 - - (1,360) Employee contributions........ 1,183 1,240 - - Acquisitions.......... 36,048 12,584 - - Benefits paid......... (32,366) (26,929) (1,818) (1,869) Foreign currency changes.............. (7,379) (2,727) (739) (388) Actuarial (gain) loss................. 12,602 (42,760) 268 (2,646) -------- -------- ------- ------- Benefit obligation at end of year........... 480,444 425,190 26,783 26,633 -------- -------- ------- -------
F-17 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 8 -- Pension and Other Retirement Plans -- Continued
Pension Benefits Postretirement Benefits ----------------------------- ----------------------------- April 29, 2001 April 30, 2000 April 29, 2001 April 30, 2000 -------------- -------------- -------------- -------------- Change in plan assets: Fair value of plan assets at beginning of year.................. 411,273 396,725 - - Actual return on plan assets............... 39,422 11,982 - - Acquisitions.......... 37,447 11,968 - - Employer and employee contributions........ 18,550 20,676 1,818 1,869 Foreign currency changes.............. (8,775) (3,149) - - Benefits paid......... (32,366) (26,929) (1,818) (1,869) -------- -------- -------- -------- Fair value of plan assets at end of year.................. 465,551 411,273 - - -------- -------- -------- -------- Reconciliation of accrued cost: Funded status.......... (14,893) (13,917) (26,783) (26,633) Unrecognized actuarial (gain) or loss........ 1,726 (7,333) (1,053) - Unrecognized prior service cost.......... 14,322 14,236 - - -------- -------- -------- -------- Accrued (prepaid) cost at end of year....... $ 1,155 $ (7,014) $(27,836) $(26,633) ======== ======== ======== ======== Amounts recognized in the statement of financial position consist of: Prepaid benefit cost... $ 38,601 $ 35,211 $ - $ - Accrued benefit liability............. (64,687) (64,127) (27,836) (26,633) Intangible asset....... 12,533 9,508 - - Minimum pension liability............. 14,708 12,394 - - -------- -------- -------- -------- Net amount recognized at end of year....... $ 1,155 $ (7,014) $(27,836) $(26,633) ======== ======== ======== ========
Components of net periodic costs include:
Pension Benefits ---------------------------- 2001 2000 1999 -------- -------- -------- Service cost................................. $ 11,194 $ 10,779 $ 6,626 Interest cost................................ 32,535 30,251 22,007 Expected return on plan assets............... (36,339) (35,468) (25,834) Net amortization............................. 1,315 1,174 86 -------- -------- -------- Net periodic cost............................ $ 8,705 $ 6,736 $ 2,885 ======== ======== ======== Postretirement Benefits ---------------------------- 2001 2000 1999 -------- -------- -------- Service cost................................. $ 523 $ 596 $ 397 Interest cost................................ 1,916 2,006 1,416 Net amortization............................. (336) (124) 95 -------- -------- -------- Net periodic cost............................ $ 2,103 $ 2,478 $ 1,908 ======== ======== ========
The projected benefit obligations, accumulated benefit obligations and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $200,361, $192,731 and $137,316, respectively, as of April 29, 2001 and $184,039, $174,709 and $119,951, respectively, as of April 30, 2000. F-18 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 8 -- Pension and Other Retirement Plans -- Continued In determining the projected benefit obligation and the accumulated postretirement benefit obligation in fiscal 2001 and 2000, the following weighted average assumptions were made:
Pension Benefits Postretirement Benefits ----------------------------- ----------------------------- April 29, 2001 April 30, 2000 April 29, 2001 April 30, 2000 -------------- -------------- -------------- -------------- Discount rate........... 7.4% 7.7% 7.5% 7.5% Expected return on assets................. 8.7% 8.7% - - Compensation increase... 3.5% 3.7% - -
In determining the accumulated postretirement benefit obligation in fiscal 2001 and 2000, the assumed annual rate of increase in per capita cost of covered health care benefits for U.S. plans was 5.5%. For non-U.S. plans, the assumed annual rate of increase was 7.5% for fiscal 2001 and decreased by 0.5% each year until leveling at 5.0%. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in the assumed health care cost trends would have the following effect:
One Percentage One Percentage Point Increase Point Decrease -------------- -------------- Effect on total of service and interest cost components.......................... $ 189 $ (169) Effect on accumulated benefit obligation.. $1,578 $(1,462)
Note 9 -- Lease Obligations and Commitments The Company has agreements, expiring from fiscal 2004 through 2013, to use cold storage warehouses owned by partnerships, 50% of which are owned by the Company. The Company has agreed to pay prevailing competitive rates for use of the facilities, subject to aggregate guaranteed minimum annual fees. In fiscal 2001, 2000 and 1999, the Company paid $9,079, $8,505 and $8,046, respectively, in fees for use of the facilities. As of April 29, 2001 and April 30, 2000, the Company had investments of $834 and $989, respectively, in the partnerships. The Company leases transportation equipment under operating leases ranging from one to 10 years with options to cancel at earlier dates. Minimum rental commitments under all noncancelable operating leases are as follows: Fiscal Year 2002.............................................................. $ 33,933 2003.............................................................. 20,340 2004.............................................................. 16,492 2005.............................................................. 12,627 2006.............................................................. 10,202 Thereafter........................................................ 27,634 -------- $121,228 ========
Rental expense was $39,612 in fiscal 2001, $32,425 in fiscal 2000 and $24,535 in fiscal 1999. Rental expense in fiscal 2001, 2000 and 1999 included $3,228, $2,566 and $2,787 of contingent maintenance fees, respectively. F-19 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 9 -- Pension and Other Retirement Plans -- Continued The Company has a sale and leaseback arrangement for certain hog production facilities accounted for as capital leases. The arrangement provides for an early termination at predetermined amounts in fiscal 2004. Future minimum lease payments under capital leases are as follows: Fiscal Year 2002.............................................................. $ 5,931 2003.............................................................. 5,450 2004.............................................................. 12,194 2005.............................................................. 2,602 2006.............................................................. 1,927 Thereafter........................................................ 1,816 ------- 29,920 Less amounts representing interest................................ (5,257) ------- Present value of net minimum obligations.......................... 24,663 Less current portion.............................................. (3,966) ------- Long-term capital lease obligations............................... $20,697 =======
As of April 29, 2001, the Company had definitive commitments of $104,965 for capital expenditures primarily for processed meats expansion, production efficiency projects and additional hog production facilities in Utah. Note 10 -- Related Party Transactions A director of the Company holds an ownership interest in Murfam Enterprises, LLC ("Murfam") and DM Farms, LLC. These entities own farms that produce hogs under contract to the Company. Murfam also produces and sells feed ingredients to the Company. In fiscal 2001 and 2000, the Company paid $25,236 and $7,565, respectively, to these entities for the production of hogs and feed ingredients. In fiscal 2001 and 2000, the Company was paid $16,325 and $3,382 by these entities for associated farm and other support costs. The Company believes that the terms of the arrangements are at prevailing market prices. A director of the Company is the chairman, president and chief executive officer and a director of Prestage Farms, Inc. ("Prestage"). The Company has a long-term agreement to purchase hogs from Prestage at prices that, in the opinion of management, are equivalent to market. Pursuant to this agreement with Prestage, the Company purchased $157,510, $138,705 and $106,365 of hogs in fiscal 2001, 2000 and 1999, respectively. Note 11 -- Nonrecurring Gain In fiscal 2001, the Company sold 8,193 shares of IBP, inc. ("IBP") common stock resulting in a nonrecurring, pretax gain of $79,019. Expenses incurred during the fiscal year related to the attempted merger with IBP and the expenses of the subsequent sale of these shares totaled $7,500. The after-tax gain on the sale, net of expenses, amounted to $45,200, or $.41 per diluted share. F-20 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 12 -- Regulation and Litigation Like other participants in the meat processing industry, the Company is subject to various laws and regulations administered by federal, state and other government entities, including the Environmental Protection Agency ("EPA") and corresponding state agencies as well as the United States Department of Agriculture, the United States Food and Drug Administration and the United States Occupational Safety and Health Administration. Management believes that the Company presently is in compliance with all such laws and regulations in all material respects, and that continued compliance with these standards will not have a material adverse effect on the Company's financial position or results of operations. The EPA has recently proposed to extensively modify its regulations governing confined animal feeding operations. These proposed modifications are scheduled to be finalized by December 2002 and could have a significant impact on the Company's hog production operations. The Company is committed to responsible environmental stewardship in its operations. The Company from time to time receives notices from regulatory authorities and others asserting that it is not in compliance with such laws and regulations. In some instances, litigation ensues, including the matters discussed below. Although the suits below remain pending and relief, if granted, could be costly to the Company, the Company believes that their ultimate resolution will not have a material adverse effect on the Company's financial position or annual results of operations. In United States of America v. Smithfield Foods, Inc. et al., the United States District Court for the Eastern District of Virginia imposed a $12,600 civil penalty on the Company and two of its subsidiaries for Clean Water Act violations at the Company's Smithfield, Virginia processing plants. The Company recorded a nonrecurring charge of $12,600 during fiscal 1998 with respect to this penalty. In September 1999, the United States Court of Appeals for the Fourth Circuit affirmed the District Court's determination of liability but remanded the penalty determination to the District Court with instructions to recalculate the civil penalty solely to correct a 4% error made by the government's expert. In May 2000, the Company filed a certiorari petition seeking review of the Fourth Circuit's ruling by the United States Supreme Court. The Company's certiorari petition was later denied, and the Company satisfied the judgment. The Water Keeper Alliance Inc., an environmental activist group from the State of New York, has recently filed or caused to be filed a series of lawsuits against the Company and/or its subsidiaries and properties, as described below. In June 2000, Neuse River Foundation, Richard J. Dove, d/b/a The Neuse Riverkeeper, D. Boulton Baldridge, d/b/a The Cape Fear Riverkeeper, New River Foundation, Inc., Tom Mattison, d/b/a The New Riverkeeper, and The Water Keeper Alliance, Inc. filed a lawsuit in the General Court of Justice, Superior Court Division, of the State of North Carolina against the Company, Carroll's Foods, Inc., Brown's of Carolina, Inc., Murphy Farms, Inc., Wendell H. Murphy, Sr., Wendell H. Murphy, Jr., and Joseph W. Luter, III. The lawsuit alleged, among other things, claims based on negligence, trespass, strict liability and unfair trade practices related to the operation of swine waste disposal lagoons and spray fields in North Carolina. The lawsuit sought numerous and costly remedies, including injunctive relief to end all use of swine waste disposal lagoons and spray fields in North Carolina, unspecified but costly remediation efforts and other damages. On March 27, 2001, the Superior Court granted the Company's motion and dismissed the lawsuit. The plaintiffs noted their appeal on April 11, 2001. F-21 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 12 -- Regulation and Litigation -- Continued In February 2001, Thomas E. Jones and twelve other individuals filed a lawsuit in the North Carolina General Court of Justice, Superior Court Division of the State of North Carolina, against the Company, three of its subsidiaries, Wendell H. Murphy, Sr., Wendell H. Murphy, Jr., and Joseph W. Luter, III (the "Jones Suit"). The Jones Suit alleged, among other things, claims based on negligence, trespass, strict liability and unfair trade practices related to the operation of swine waste disposal lagoons and spray fields in North Carolina. The lawsuit sought numerous and costly remedies, including injunctive relief to end all use of hog waste disposal lagoons in North Carolina, unspecified but costly remediation efforts and other damages. On March 27, 2001, the Superior Court granted the Company's motion and dismissed the lawsuit. The plaintiffs noted their appeal on April 11, 2001. Also in February 2001, The Water Keeper Alliance Inc., Thomas E. Jones d/b/a The Neuse Riverkeeper, and Neuse River Foundation filed two lawsuits in the United States District Court for the Eastern District of North Carolina against one of the Company's subsidiaries, and two of that subsidiary's hog production facilities in North Carolina (the "Citizens Suits"). The Company is named as a defendant in one of these suits. The Citizens Suits allege, among other things, violations of various environmental laws at each facility and the failure to obtain certain federal permits at each facility. The lawsuits seek remediation costs, injunctive relief and substantial civil penalties. The Company and its subsidiaries have moved to dismiss each of these lawsuits. The Company has also received notices from several organizations and individuals, including The Water Keeper Alliance Inc., of their intent to file additional lawsuits against the Company under various federal environmental statutes regulating water quality, air quality, and management of solid waste. These threatened lawsuits may seek civil penalties, injunctive relief and remediation costs. However, the Company is unable to determine whether any of these notices will result in suit being filed. In March 2001, Eugene C. Anderson and other individuals filed what purports to be a class action in the United States District Court for the Middle District of Florida, Tampa Division, against the Company and Joseph W. Luter, III (the "Anderson Suit"). The Anderson Suit purports to allege violations of various laws, including the Racketeer Influenced and Corrupt Organizations Act, based on the Company's alleged failure to comply with certain environmental laws. The complaint seeks treble damages that are unspecified. The plaintiffs filed an amended complaint on May 1, 2001. The Company believes that the Anderson Suit is baseless and without merit and the Company intends to defend the suit vigorously. The Company has investigated the allegations made in the Citizens Suits and believes that the outcome of these lawsuits will not have a material adverse effect on the Company's financial condition or results of operations. The Company believes that all of the litigation described above represents the agenda of special advocacy groups including the Water Keeper Alliance Inc. The plaintiffs in these cases have stated that federal and state environmental agencies have declined to bring any of these suits and, indeed, have criticized these agencies. In April 2000, the Company and one of its subsidiaries were named as defendants, along with IBP, inc., in a civil action filed in the United States District Court for the Middle District of Georgia. The case was filed by four named plaintiffs on behalf of a putative nationwide class of hog producers who from 1994 to the present produced and sold finished hogs to defendants on a spot, auction or cash market basis. The plaintiffs contend that the defendants violated the Packers and Stockyards Act of 1921 (the "PSA"), by reason of the defendants F-22 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 12 -- Regulation and Litigation -- Continued engaging in various captive supply arrangements for the procurement of hogs for slaughter. The Company moved the Georgia court to dismiss the case for lack of jurisdiction or in the alternative transfer it to the Eastern District of Virginia, where the Company is headquartered. On March 30, 2001, the Georgia court granted the Company's motion to transfer. On May 11, 2001, the Company filed a motion to dismiss the case for failure to state a claim upon which relief can be granted. The Company believes that it has valid defenses to this action, that it has acted properly in its dealings with hog producers, and that it has not violated the PSA or any other applicable law. The Company further believes that the action does not qualify for certification as a class action. Accordingly, the Company intends to defend this action vigorously. Note 13 -- Net Income Per Share The computation for basic and diluted net income per share follows:
Net Weighted Per Income Average Shares Share -------- -------------- ----- Fiscal 2001 Net income per basic share.................. $223,513 108,360 $2.06 Effect of dilutive stock options............ - 1,786 - -------- ------- ----- Net income per diluted share.............. $223,513 110,146 $2.03 ======== ======= ===== Fiscal 2000 Net income per basic share.................. $ 75,112 97,284 $ .77 Effect of dilutive stock options............ - 1,488 - -------- ------- ----- Net income per diluted share.............. $ 75,112 98,772 $ .76 ======== ======= ===== Fiscal 1999 Net income per basic share.................. $ 94,884 79,256 $1.20 Effect of dilutive stock options............ - 2,668 - -------- ------- ----- Net income per diluted share.............. $ 94,884 81,924 $1.16 ======== ======= =====
In fiscal 2001, weighted average shares for the computation of diluted net income per share excludes the antidilutive effect of outstanding stock options whose exercise price is in excess of $14.23, the average price of the Company's stock for the fiscal year. Note 14 -- Segments The MPG markets its products to food retailers, distributors, wholesalers, restaurant and hotel chains, other food processors and manufacturers of pharmaceuticals and animal feeds in both domestic and international markets. The HPG supplies raw materials (live hogs) to the hog slaughtering operations of the Company and other outside operations. The following tables present information about the results of operations and the assets of both of the Company's reportable segments for the fiscal years ended April 29, 2001, April 30, 2000 and May 2, 1999. The information contains certain allocations of expenses that the Company deems reasonable and appropriate for the evaluation of results of operations. The Company does not allocate income taxes to segments. Segment assets exclude intersegment account balances as the Company feels that inclusion would be misleading or not meaningful. Management believes all intersegment sales are at prices which approximate market. F-23 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 14 -- Segments -- Continued
Meat Hog General Processing Production Corporate Total ---------- ---------- --------- ---------- Fiscal 2001 Sales...................... $5,584,572 $1,225,820 $ - $6,810,392 Intersegment sales......... - (910,465) - (910,465) Depreciation and amortization.............. 85,628 49,380 5,042 140,050 Operating profit (loss) /1...................../.. 135,205 281,296 (49,228) 367,273 Gain on sale of IBP common stock..................... - - (79,019) (79,019) Interest expense........... 46,607 23,547 18,820 88,974 Assets..................... 1,743,944 1,282,559 224,385 3,250,888 Capital expenditures....... 124,923 16,047 3,150 144,120 Fiscal 2000 Sales...................... $4,984,010 $ 735,328 $ - $5,719,338 Intersegment sales......... - (568,869) - (568,869) Depreciation and amortization.............. 73,133 41,288 4,543 118,964 Operating profit (loss).... 122,880 99,633 (30,582) 191,931 Interest expense........... 37,941 26,103 7,900 71,944 Assets..................... 1,613,395 1,319,097 197,121 3,129,613 Capital expenditures....... 91,925 7,262 1,196 100,383 Fiscal 1999 Sales...................... $3,729,644 $ 155,796 $ - $3,885,440 Intersegment sales......... - (110,451) - (110,451) Depreciation and amortization.............. 48,814 16,541 3,211 68,566 Operating profit (loss).... 253,839 (46,050) (23,830) 183,959 Interest expense........... 25,565 12,583 2,373 40,521 Assets..................... 1,292,633 343,069 135,912 1,771,614 Capital expenditures....... 62,315 28,755 4,377 95,447
- --------------------- /1 /General corporate expenses include $7,500 of expenses related to the attempted merger with IBP and the subsequent sale of IBP common stock (See Note 11). F-24 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Note 14 -- Segments -- Continued The following table presents the Company's sales and long-lived assets attributed to operations in the U.S. and international geographic areas.
2001 2000 1999 ---------- ---------- ---------- Sales: U.S. .................................. $4,639,468 $4,016,749 $3,470,307 Canada................................. 771,969 632,897 244,121 Poland................................. 290,055 344,984 - France................................. 198,435 155,839 60,561 ---------- ---------- ---------- Total................................ $5,899,927 $5,150,469 $3,774,989 ========== ========== ========== Long-lived assets at end of year: U.S. .................................. $1,576,497 $1,545,204 $ 790,315 Canada................................. 229,690 187,092 169,038 Poland................................. 114,041 90,809 78,201 France................................. 66,965 73,782 51,980
Note 15 -- Subsequent Events On June 22, 2001, the Company completed the acquisition of Moyer Packing Company ("Moyer"), a closely held beef processor with annual sales of approximately $600,000 for $89,500 and the assumption of debt. Moyer is the ninth largest beef processor in the U.S. and the largest in the Eastern United States. Operations include beef processing, fabrication, and further processing, as well as hide processing and rendering operations. The Company has announced an offer to acquire all of the common shares of Schneider that it does not already own for approximately 2.8 million shares of the Company's common stock. The Company expects to complete the tender offer during the second quarter of fiscal 2002. Note 16 -- Stock Split On September 14, 2001, the Company effected a 2-for-1 stock split in the form of a stock dividend. All common share numbers and per share amounts in these Notes to Consolidated Financial Statements and, where indicated, on the consolidated financial statements have been adjusted to give effect to this stock split. Note 17 -- Quarterly Results of Operations (Unaudited)
First Second Third Fourth ---------- ---------- ---------- ---------- Fiscal 2001 Sales......................... $1,421,326 $1,430,919 $1,537,372 $1,510,310 Gross profit................ 229,400 234,796 229,493 255,214 Net income.................... 44,569 44,576 80,849 53,519 Net income per common share Basic....................... $ .41 $ .41 $ .74 $ .50 Diluted..................... $ .40 $ .40 $ .73 $ .49
F-25 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
First Second Third Fourth ---------- ---------- ---------- ---------- Fiscal 2000 Sales......................... $1,142,415 $1,230,129 $1,377,166 $1,400,759 Gross profit................ 147,496 172,640 176,183 197,747 Net income.................... 6,930 22,214 17,488 28,480 Net income per common share Basic....................... $ .08 $ .24 $ .18 $ .26 Diluted..................... $ .07 $ .24 $ .18 $ .26
F-26 SMITHFIELD FOODS, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
13 Weeks 13 Weeks Ended Ended July 29, July 30, (In thousands, except per share data) 2001 2000 ------------------------------------- ---------- ---------- Sales............................................. $1,636,412 $1,421,326 Cost of sales..................................... 1,380,994 1,191,926 ---------- ---------- Gross profit...................................... 255,418 229,400 Selling, general and administrative expenses...... 116,219 103,845 Depreciation expense.............................. 31,707 30,655 Interest expense.................................. 19,636 23,388 Minority interests................................ 1,578 (246) Gain on sale of IBP, inc. common stock............ (7,008) -- ---------- ---------- Income before income taxes........................ 93,286 71,758 Income taxes...................................... 36,382 27,189 ---------- ---------- Net income........................................ $ 56,904 $ 44,569 ========== ========== Net income per common share: Basic (1)........................................ $ .54 $ .41 ========== ========== Diluted (1)...................................... $ .53 $ .40 ========== ========== Average common shares outstanding: Basic (1)........................................ 104,934 109,320 ========== ========== Diluted (1)...................................... 106,902 110,686 ========== ==========
(1) Adjusted for 2-for-1 stock split effective September 14, 2001 See Notes to Consolidated Condensed Financial Statements F-27 SMITHFIELD FOODS, INC. CONSOLIDATED CONDENSED BALANCE SHEETS
July 29, (In thousands, except per share data) 2001 April 29, 2001 - ------------------------------------- ---------- -------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents........................ $ 61,192 $ 56,532 Accounts receivable, net......................... 462,470 387,841 Inventories...................................... 765,052 729,167 Prepaid expenses and other current assets........ 85,553 90,155 ---------- ---------- Total current assets............................ 1,374,267 1,263,695 ---------- ---------- Property, plant and equipment..................... 1,895,314 1,796,655 Less accumulated depreciation.................... (550,284) (522,178) ---------- ---------- Net property, plant and equipment............... 1,345,030 1,274,477 ---------- ---------- Other assets: Goodwill......................................... 332,964 347,342 Investments in partnerships...................... 105,819 88,092 Other............................................ 200,337 277,282 ---------- ---------- Total other assets.............................. 639,120 712,716 ---------- ---------- $3,358,417 $3,250,888 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable.................................... $ 34,981 $ 35,504 Current portion of long-term debt and capital lease obligations............................... 498,314 79,590 Accounts payable................................. 297,887 278,093 Accrued expenses and other current liabilities... 254,398 235,095 ---------- ---------- Total current liabilities....................... 1,085,580 628,282 ---------- ---------- Long-term debt and capital lease obligations...... 768,216 1,146,223 ---------- ---------- Other noncurrent liabilities: Deferred income taxes............................ 251,143 271,516 Pension and postretirement benefits.............. 74,646 77,520 Other............................................ 34,683 25,820 ---------- ---------- Total other noncurrent liabilities.............. 360,472 374,856 ---------- ---------- Minority interests................................ 49,981 48,395 ---------- ---------- Shareholders' equity: Preferred stock, $1.00 par value, 1,000,000 authorized shares............................... -- -- Common stock, $.50 par value, 100,000,000 (1) authorized shares; 104,365,572 (2) and 52,502,751 issued............................... 52,183 (2) 26,251 Additional paid-in capital....................... 364,507 (2) 405,665 Retained earnings................................ 695,682 638,779 Accumulated other comprehensive loss............. (18,204) (17,563) ---------- ---------- Total shareholders' equity...................... 1,094,168 1,053,132 ---------- ---------- $3,358,417 $3,250,888 ========== ==========
(1) Authorized shares were increased from 100,000,000 to 200,000,000 effective August 29, 2001 (2) Adjusted for 2-for-1 stock split effective September 14, 2001 See Notes to Consolidated Condensed Financial Statements F-28 SMITHFIELD FOODS, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
13 Weeks 13 Weeks Ended Ended (In thousands) July 29, 2001 July 30, 2000 - -------------- ------------- ------------- Cash flows from operating activities: Net income........................................ $ 56,904 $ 44,569 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................... 33,351 33,897 Gain on sale of IBP, inc. common stock........... (7,008) -- Loss on sale of property, plant and equipment.... 1,752 1,463 Changes in operating assets and liabilities, net of effect of acquisitions....................... 6,293 (20,070) -------- -------- Net cash provided by operating activities...... 91,292 59,859 -------- -------- Cash flows from investing activities: Capital expenditures.............................. (26,134) (30,506) Business acquisitions, net of cash................ (117,486) (7,916) Proceeds from sale of IBP, inc. common stock...... 58,654 -- Proceeds from sale of property, plant and equipment........................................ 639 859 Investments in IBP, inc. common stock............. -- (31,706) Investments in partnerships....................... (8,680) (6,772) -------- -------- Net cash used in investing activities.......... (93,007) (76,041) -------- -------- Cash flows from financing activities: Net (repayments) borrowings on notes payable...... (1,626) 5,418 Proceeds from issuance of long-term debt.......... 8,352 627 Net borrowings on revolving credit facility....... 31,000 26,000 Principal payments on long-term debt and capital lease obligations................................ (10,647) (12,024) Repurchase and retirement of common stock......... (20,911) (7,992) Exercise of common stock options.................. 590 471 -------- -------- Net cash provided by financing activities...... 6,758 12,500 -------- -------- Net increase (decrease) in cash and cash equivalents....................................... 5,043 (3,682) Effect of foreign exchange rate changes on cash.... (383) (43) Cash and cash equivalents at beginning of period... 56,532 49,882 -------- -------- Cash and cash equivalents at end of period......... $ 61,192 $ 46,157 ======== ======== Supplemental disclosures of cash flow information: Cash payments during period: Interest (net of amount capitalized)............. $ 15,312 $ 20,589 -------- -------- Income taxes..................................... $ 22,563 $ 15,607 ======== ========
See Notes to Consolidated Condensed Financial Statements F-29 SMITHFIELD FOODS, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (1) These statements should be read in conjunction with the Consolidated Financial Statements and related notes, which are included in the Company's Annual Report, for the fiscal year ended April 29, 2001. The interim consolidated condensed financial information furnished herein is unaudited. The information reflects all adjustments (which include only normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods included in the report. (2) Inventories consist of the following:
July 29, April (In thousands) 2001 29, 2001 -------------- -------- -------- Hogs on farms............................................. $340,569 $331,060 Fresh and processed meats................................. 328,711 316,929 Manufacturing supplies.................................... 68,505 60,823 Other..................................................... 27,267 20,355 -------- -------- $765,052 $729,167 ======== ========
(3) The Company has a 5-year $650.0 million revolving credit facility which is scheduled to expire in July 2002. The Company has begun the process to refinance this facility and expects to complete the refinancing during the third quarter of fiscal 2002. At July 29, 2001, the outstanding balance on this facility of $438.0 million was included in current portion of long- term debt and capital lease obligations on the Consolidated Condensed Balance Sheet. (4) Net income per basic share is computed based on the average common shares outstanding during the period. Net income per diluted share is computed based on the average common shares outstanding during the period adjusted for the effect of potential common stock equivalents, such as stock options. The computation for basic and diluted net income per share is as follows:
13 Weeks Ended --------------------------- (In thousands, except per share data) July 29, 2001 July 30, 2000 - ------------------------------------- ------------- ------------- Net income.......................................... $56,904 $44,569 ------- ------- Average common shares outstanding: Basic.............................................. 104,934 109,320 Dilutive stock options............................. 1,968 1,366 ------- ------- Diluted............................................ 106,902 110,686 ======= ======= Net income per common share: Basic.............................................. $ .54 $ .41 ======= ======= Diluted............................................ $ .53 $ .40 ======= =======
F-30 SMITHFIELD FOODS, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued) (5) The components of comprehensive income, net of related taxes, consist of:
13 Weeks Ended --------------------------- (In thousands) July 29, 2001 July 30, 2000 -------------- ------------- ------------- Net income....................................... $56,904 $44,569 Other comprehensive loss: Unrealized loss on cash flow hedges............. (1,796) -- Unrealized gain (loss) on securities............ 3,300 (1,313) Foreign currency translation.................... (2,145) (6,291) ------- ------- Comprehensive income............................. $56,263 $36,965 ======= =======
(6) The following table presents information about the results of operations for each of the Company's reportable segments for the 13 weeks ended July 29, 2001 and July 30, 2000, respectively.
Meat Hog General (In thousands) Processing Production Corporate Total -------------- ---------- ---------- --------- ---------- July 29, 2001 ------------------------------- Sales.......................... $1,541,388 $361,597 $ -- $1,902,985 Intersegment sales............. -- (266,573) -- (266,573) Operating profit (loss)........ (451) 119,700 (13,335) 105,914 July 30, 2000 ------------------------------- Sales.......................... $1,330,024 $324,717 $ -- $1,654,741 Intersegment sales............. -- (233,415) -- (233,415) Operating profit (loss)........ (7,818) 111,151 (8,187) 95,146
(7) In June 2001, the Company completed the acquisition of Moyer Packing Company (Moyer) for approximately $89.5 million in cash and the assumption of debt. The balance of the purchase price in excess of the fair value of the assets acquired and the liabilities assumed at the date of the acquisition was recorded as an intangible asset. Prior to the acquisition, Moyer had annual sales of approximately $600.0 million. In July 2001, the Company acquired substantially all of the assets and business of Gorges/Quik-to-Fix Foods, Inc. (Quik-to-Fix) for approximately $31 million in cash. Prior to the acquisition, Quik-to-Fix had annual sales of approximately $140 million. During the third quarter of fiscal year 2001, the Company's Schneider Corporation increased its investment in Saskatchewan-based Mitchell's Gourmet Foods Inc. (Mitchell's) to 54%. Prior to the third quarter of fiscal year 2001, the Company had used the equity method of accounting for Mitchell's. For the fiscal year ended October 2000, Mitchell's had sales of approximately $190.0 million. F-31 SMITHFIELD FOODS, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued) These acquisitions were accounted for using the purchase method of accounting, and accordingly, the accompanying financial statements include the financial position and results of operations from the dates of acquisition. Had these acquisitions occurred at the beginning of the fiscal year in which they were acquired, there would not have been a material effect to net income or net income per share for the 13 weeks ended July 29, 2001 or July 30, 2000. (8) On April 30, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 137 and No. 138. SFAS 133 requires that all derivative instruments be reported on the Company's Consolidated Balance Sheet at fair value and provides guidance on the accounting treatment of gains and losses from derivatives based on the type of hedging transaction. As substantially all of the Company's derivatives are considered cash flow hedges, as defined in SFAS 133, changes in the fair value of derivatives are recorded in other comprehensive income or current earnings depending on whether the derivative is designated as a hedge transaction and the effectiveness of the hedging relationship. Gains and losses on derivative instruments reported in other comprehensive income are recognized in earnings in the period in which earnings are impacted by the underlying hedged item. The ineffective portions of cash flow hedges are recognized in current period earnings. The Company uses futures and option contracts for the purpose of hedging its exposure to changes in the cost of raw materials, including live hogs and grains, and to changes in the market prices for the sale of live hogs when management determines the conditions are appropriate for such hedges. Substantially all of the Company's products are produced from commodity- based raw materials, corn and soybean meal in the Hog Production Group (HPG) and live hogs in the Meat Processing Group (MPG). The cost of corn and soybean meal and live hogs are subject to wide fluctuations due to unpredictable factors such as weather conditions, economic conditions, government regulation and other unforeseen circumstances. In addition, the unpredictability of raw material costs in the MPG limits the Company's ability to forward price fresh and processed meat products without the use of commodity contracts through a program of price-risk management. The Company uses price-risk management techniques to engage in forward sales contracts, where prices for future deliveries are fixed, by purchasing (or selling) commodity contracts to reduce or eliminate the effect of fluctuations in future raw material costs. The particular hedging methods employed and the time periods for the contracts depend on a number of factors, including the availability of adequate contracts for the respective periods and commodity hedged. The Company attempts to closely match the contract expiration periods with the dates for product sale and delivery. In accordance with the provisions of SFAS No. 133, the Company recorded a transition adjustment on April 30, 2001, (the first day of the Company's current fiscal year) of $12.7 million after-tax, cumulative effect loss in Accumulated Other Comprehensive Loss and a net decrease in current assets of $20.6 million to recognize the fair value of derivative instruments that are designated as hedge transactions. During the quarter ended July 29, 2001, $10.5 million of net derivative losses were reclassified from Accumulated Other Comprehensive Loss into earnings and $0.5 million of net losses related to cash flow hedge ineffectiveness were recognized in earnings. F-32 SMITHFIELD FOODS, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued) As of July 29, 2001, the net accumulated loss on derivative instruments in Accumulated Other Comprehensive Loss was $1.8 million. The Company expects that substantially all of these losses will be reclassified into earnings over the next twelve months as the underlying hedged transactions are realized. At July 29, 2001, the maximum maturity date for any commodity contract outstanding was 13 months. (9) In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142 "Goodwill and Other Intangible Assets". SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. The Statement requires that acquired goodwill and other intangible assets are no longer periodically amortized into income, but are subject to an annual impairment measurement. The Company has elected early adoption of SFAS 142. In accordance with SFAS 142, the 13 weeks ended July 29, 2001 do not include amortization of acquired goodwill and other intangible assets. The Company has allocated goodwill to its reporting units and performed a preliminary assessment of potential capital impairment. Management does not currently believe that there is significant exposure to a loss from impairment of acquired goodwill and other intangible assets. Had the Company not elected to early adopt SFAS 142 as of the beginning of the first quarter of fiscal year 2002, pre-tax income would have decreased by $2.3 million. (10) On September 14, 2001, the Company effected a 2-for-1 stock split in the form of a stock dividend. All common share numbers and per share amounts in these Notes to Consolidated Condensed Financial Statements and, where indicated, on the consolidated condensed financial statements have been adjusted to give effect to this stock split. F-33 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification of Directors and Officers Under the Smithfield Articles, the liability of officers and directors to Smithfield is eliminated to the fullest extent permitted by Virginia law. Under Virginia law, the liability of an officer or director cannot be limited or eliminated if the officer or director engages in willful misconduct or a knowing violation of the criminal law or of any federal or state securities law, including, without limitation, any claim of unlawful insider trading or manipulation of the market for any security. To the fullest extent permitted by Virginia law, the Smithfield Articles require it to indemnify any director or officer who is made a party to any proceeding because he or she was or is a director or officer of Smithfield against any liability, including reasonable expenses and legal fees, incurred in the proceeding. Under the Smithfield Articles, "proceeding" is broadly defined to include pending, threatened or completed actions of all types, including actions by or in the right of Smithfield. Similarly, "liability" is defined to include not only judgments, but also settlements, penalties, fines and certain excise taxes. The Smithfield Articles also provide that it may, but is not obligated to, indemnify its other employees or agents. Smithfield must indemnify any person who is or was serving at the written request of Smithfield as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, to the full extent provided by Virginia law. The indemnification provisions also require Smithfield to pay reasonable expenses incurred by a director or officer of Smithfield in a proceeding in advance of the final disposition of any such proceeding, provided that the indemnified person undertakes to repay Smithfield if it is ultimately determined that such person was not entitled to indemnification. Virginia law does not permit indemnification against willful misconduct or a knowing violation of the criminal law. The rights of indemnification provided in the Smithfield Articles are not exclusive of any other rights which may be available under any insurance or other agreement, by vote of stockholders or disinterested directors or otherwise. In addition, the Smithfield Articles authorize Smithfield to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of Smithfield, whether or not Smithfield would have the power to provide indemnification to such person, to protect any such person against any liability arising from his or her service to the corporation or any other legal entity at the request of the corporation. II - 1 Item 21. Exhibits (a) Exhibits The following is a list of exhibits filed as part of this registration statement. Where so indicated by footnote, exhibits which were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated parenthetically. Exhibit Description Number ___________ _______________________________________________________ Exhibit 3.1 Articles of Amendment effective August 29, 2001 to the Amended and Restated Articles of Incorporation, including the Amended and Restated Articles of Incorporation of the Company, as amended to date. (incorporated by reference to Exhibit 3.1 to the Company's Amendment No.1 to Form 10-Q Quarterly Report filed with the SEC on September 12, 2001). Exhibit 3.2 Amendment to the Bylaws adopted May 30, 2001, including the Bylaws of the Company, as amended to date (incorporated by reference to Exhibit 2 to the Company's Registration Statement on Form 8-A filed with the SEC on May 30, 2001). Exhibit 4.1 Articles of Incorporation of Smithfield, as amended to date (see Exhibit 3.1 above). Exhibit 4.2 Rights Agreement, dated as of May 30, 2001, between the Company and Computershare Investor Services, LLC, Rights Agent (incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form 8-A filed with the SEC on May 30, 2001). Exhibit 4.3(a) Indenture between Smithfield and SunTrust Bank dated October 23, 2001. (a) Exhibit 4.3(b) Purchase Agreement dated October 17, 2001 among Smithfield, J.P. Morgan Securities, Inc. and Goldman, Sachs & Co. (a) Exhibit 4.3(c) Exchange and Registration Rights Agreement dated October 23, 2001 among Smithfield, J.P. Morgan Securities, Inc. and Goldman, Sachs & Co. (a) Exhibit 4.4(a) Second Amended and Restated Multi-Year Credit Agreement dated as of December 3, 1999, among Smithfield Foods, Inc., the Subsidiary Guarantors party thereto, the Lenders party thereto, and The Chase Manhattan Bank, as Administrative Agent, relating to a $650,000,000 secured multi-year revolving credit facility (incorporated by reference to Exhibit 4.6(a) of the Company's Annual Report on Form 10-K for its fiscal year ended April 30, 2000 filed with the SEC on July 28, 2000). Exhibit 4.4(b) Collateral Agency, Pledge and Security Agreement dated as of July II - 2 10, 1997, among Smithfield Foods, Inc., the Subsidiary Guarantors party thereto, The Chase Manhattan Bank, as Collateral Agent, relating to the Company's multi-year revolving credit facility (incorporated by reference to Exhibit 4.5(b) of the Company's Annual Report on Form 10-K for its fiscal year ended April 27, 1997 filed with the SEC on July 25, 1997). Exhibit 4.5(a) Amended and Restated Note Purchase Agreement dated as of October 31, 1999, among Smithfield Foods, Inc. and each of the Purchasers listed on Annex 1 thereto, relating to $196,882,354 in senior secured notes (incorporated by reference to Exhibit 4.7(a) of the Company's Annual Report on Form 10-K for its fiscal year ended April 30, 2000 filed with the SEC on July 28, 2000). Exhibit 4.5(b) Joint and Several Guaranty dated as of July 15, 1996, by Gwaltney of Smithfield, Ltd., John Morrell & Co., The Smithfield Packing Company, Incorporated, SFFC, Inc., Patrick Cudahy Incorporated, and Brown's of Carolina, Inc. (incorporated by reference to Exhibit 4.7(a) to the Company's Form 10-Q Quarterly Report for the fiscal quarter ended July 28, 1996); and Amendment Number One to the Note Purchase Agreement dated as of July 15, 1997 (incorporated by reference to Exhibit 4.6(a) to the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 1997 filed with the SEC on July 25, 1997). Exhibit 4.5(c) Joint and Several Guaranty dated as of July 15, 1997, by Lykes Meat Group, Inc., Sunnyland, Inc., Valleydale Foods, Inc., Hancock's Old Fashioned Country Hams, Inc., Copaz Packing Corporation, and Smithfield Packing--Landover, Inc. (incorporated by reference to Exhibit 4.6(b) to the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 1997 filed with the SEC on July 25, 1997). Exhibit 4.5(d) Joinder Agreement dated as of March 9, 2000, among Gwaltney of Smithfield, Ltd., John Morrell & Co., The Smithfield Packing Company, Incorporated, SFFC, Inc., Patrick Cudahy Incorporated, and Brown's of Carolina, Inc. and each of the Noteholders listed on Annex 1 (incorporated by reference to Exhibit 4.7(d) of the Company's Annual Report on Form 10-K for its fiscal year ended April 30, 2000 filed with the SEC on July 28, 2000). Exhibit 4.6(a) Amended and Restated Note Purchase Agreement dated as of October 27, 1999, among Smithfield Foods, Inc. and each of the Purchasers listed on Annex 1 thereto, relating to $225,000,000 in senior secured notes (incorporated by reference to Exhibit 4.8(a) of the Company's Annual Report on Form 10-K for its fiscal year ended April 30, 2000 filed with the SEC on July 28, 2000). Exhibit 4.6(b) Joint and Several Guaranty dated as of October 27, 1999, by Gwaltney of Smithfield, Ltd., John Morrell & Co., The Smithfield Packing Company, Incorporated, SFFC, Inc., Patrick Cudahy Incorporated, Brown's of Carolina, Inc., Carroll's Foods, Inc., II - 3 Carroll's Realty, Inc., Carroll's Realty Partnership, North Side Foods Corp., Lykes Meat Group, Circle Four Corporation, Brown's Farms LLC, Carroll's Foods of Virginia, Inc., Smithfield-Carroll's Farms, and Central Plains Farms (incorporated by reference to Exhibit 4.8(b) of the Company's Annual Report on Form 10-K for its fiscal year ended April 30, 2000 filed with the SEC on July 28, 2000). Exhibit 4.6(c) Joinder Agreement dated as of June 9, 2000, among Murphy Farms, Inc. and Smithfield Packing Real Estate, LLC (incorporated by reference to Exhibit 4.8(c) of the Company's Annual Report on Form 10-K for its fiscal year ended April 30, 2000 filed with the SEC on July 28, 2000). Exhibit 4.7(a) Note Purchase Agreement dated as of June 2, 2000 among Smithfield Foods, Inc. and each of the Purchasers listed on Annex 1 thereto, relating to $100,000,000 in senior secured notes (incorporated by reference to Exhibit 4.4(a) of the Company's Annual Report on Form 10-K for it fiscal year ended April 29, 2001 filed with the SEC on July 30, 2001). Exhibit 4.7(b) Joint and Several Guaranty dated as of June 2, 2000, by Gwaltney of Smithfield, Ltd., John Morrell & Co., The Smithfield Packing Company, Incorporated, SFFC, Inc., Patrick Cudahy Incorporated, Brown's of Carolina, Inc., Carroll's Foods, Inc., Carroll's Realty, Inc., Carroll's Realty Partnership, North Side Foods Corp., Lykes Meat Group, Inc., Circle Four Corporation, Brown's Farms LLC, Carroll's Foods of Virginia, Inc., Smithfield-Carroll's Farms, Central Plains Farms, Inc., Smithfield Packing Real Estate, LLC and Murphy Farms, Inc. (incorporated by reference to Exhibit 4.4(b) of the Company's Annual Report on Form 10-K for it fiscal year ended April 29, 2001 filed with the SEC on July 30, 2001). Exhibit 4.8(a) Senior Secured Facilities Agreement dated as of June 20, 2001, among Animex S.A., the Original Borrowers party thereto, the Banks party thereto, and Rabobank Polska S.A. as Arranger, Agent, Security Agent and Pledge Administrator relating to a $100,000,000 term and revolving loan facility (incorporated by reference to Exhibit 4.5(a) of the Company's Annual Report on Form 10-K for it fiscal year ended April 29, 2001 filed with the SEC on July 30, 2001). Exhibit 4.8(b) Joint and Several Guaranty dated as of June 20, 2001, by Smithfield Foods, Inc. and Smithfield Holdings Sp. z.o.o. (incorporated by reference to Exhibit 4.5(b) of the Company's Annual Report on Form 10-K for it fiscal year ended April 29, 2001 filed with the SEC on July 30, 2001). Exhibit 4.9 Indenture between the Company and SunTrust Bank, Atlanta (incorporated by reference to Exhibit 4.8 to the Company's Current Report on Form 10-Q for the fiscal quarter ended February 1, 1998 filed with the SEC on March 17, 1998). Registrant hereby agrees to furnish the SEC upon request, other II - 4 instruments defining the rights of holders of long-term debt of the Registrant. Exhibit 5.1 Opinion of McGuireWoods LLP. (a) Exhibit 10.1(a) Agreement with Shareholders dated as of May 7, 1999 by and between the Company and Jeffrey S. Matthews, Carroll M. Baggett and James O. Matthews (incorporated by reference to Exhibit 2.3 to the Company's Current Report on Form 8-K dated May 7, 1999 and filed with the SEC on May 12, 1999). Exhibit 10.1(b) Registration Rights Agreement dated as of May 7, 1999 by and between the Company and Jeffrey S. Matthews, Carroll M. Baggett and James O. Matthews (incorporated by reference to Exhibit 2.4 to the Company's Current Report on Form 8-K dated May 7, 1999 and filed with the SEC on May 12, 1999). Exhibit 10.1(c) Registration Rights Agreement between Smithfield Foods, Inc. and Wendell H. Murphy, Harry D. Murphy, Joyce M. Norman, Wendell H. Murphy, Jr., Wendy Murphy Crumpler, Stratton K. Murphy, Marc D. Murphy and Angela Brown (excluding Smithfield Foods, Inc., the "Murphy Selling Shareholders") (incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K dated January 20, 2000 and filed February 14, 2000 (the "February 14, 2000 Form 8-K")). Exhibit 10.1(d) Agreement with Shareholders between Smithfield Foods, Inc. and the Murphy Selling Shareholders (incorporated by reference to Exhibit 2.3 to the February 14, 2000 Form 8-K). Exhibit 10.2 Smithfield Foods, Inc. 1984 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company's Form 10-K Annual Report for the fiscal year ended April 28, 1991). (b) Exhibit 10.3 Smithfield Foods, Inc. 1992 Stock Option Plan (incorporated by reference to Exhibit 10.4 to the Company's Form 10-K Annual Report for the fiscal year ended May 2, 1993). (b) Exhibit 10.4 Smithfield Foods, Inc. 1998 Incentive Bonus Plan applicable to the Company's Chief Operating Officer (incorporated by reference to Exhibit 10.6 to the Company's Form 10-K annual Report for the fiscal year ended April 27, 1997 filed with the SEC on July 25, 1997). (b) Exhibit 10.5 Smithfield Foods, Inc. 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.7 to the company's form 10-K Annual Report for the fiscal year ended May 3, 1998 filed with the SEC on July 30, 1998). (b) Exhibit 10.6(a) Indenture between Smithfield and SunTrust Bank (see Exhibit 4.3(a) above). Exhibit 10.6(b) Purchase Agreement among Smithfield, J.P. Morgan Securities, Inc. and Goldman, Sachs & Co. (see Exhibit 4.3(b) above). Exhibit 10.6(c) Exchange and Registration Rights Agreement among Smithfield, J.P. Morgan Securities, Inc. and Goldman, Sachs & Co. (see Exhibit II - 5 4.6(b) above). Exhibit 12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges. (a) Exhibit 21.1 Subsidiaries of Smithfield (incorporated by reference to Exhibit 21 to Smithfield's Annual Report on Form 10-K for the fiscal year ended April 29, 2001). Exhibit 23.1 Consent of Arthur Andersen LLP, independent public accountants. (a) Exhibit 23.2 Consent of McGuireWoods LLP contained in the opinion filed as Exhibit 5.1 hereto. Exhibit 24.1 Powers of Attorney. (a) Exhibit 25.1 Statement of Form T-1 of Eligibility of Trustee. (a) Exhibit 99.1 Form of Letter of Transmittal. (a) Exhibit 99.2 Form of Notice of Guaranteed Delivery. (a) Exhibit 99.3 Form of Letters to Clients. (a) Exhibit 99.4 Form of Letter to Nominees. (a) Exhibit 99.5 Form of Exchange Agent Agreement. (a) _______________ (a) Filed herewith. (b) Management contract or compensatory plan or arrangement of the Company required to be filed as an exhibit. Item 22. Undertakings The undersigned Registrant hereby undertakes: (1) 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; (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; (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. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement II - 6 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. (3) 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. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13 (a) or 15 (d) of the Exchange Act that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, each of the registrants has been advised that in the opinion of the SEC 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. 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 - 7 SIGNATURES Pursuant to the requirements of the Securities Act, Smithfield Foods has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Smithfield, Commonwealth of Virginia, on November 30, 2001. SMITHFIELD FOODS, INC. By: /s/ C. LARRY POPE ----------------------------------- C. Larry Pope Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities indicated on November 30, 2001.
Name Title ---- ----- /s/ JOSEPH W. LUTER, III Chairman of the Board, Chief Executive - ----------------------------------------- Officer and Director Joseph W. Luter, III * (Principal Executive Officer) /s/ DANIEL G. STEVENS Vice President and Chief Financial Officer - ----------------------------------------- (Principal Financial Officer) Daniel G. Stevens Corporate Controller /s/ JEFFREY A. DEEL (Principal Accounting Officer) - ----------------------------------------- Jeffrey A. Deel /s/ ROBERT L. BURRUS, JR. Director - ----------------------------------------- Robert L. Burrus, Jr. * /s/ CAROL T. CRAWFORD Director - ----------------------------------------- Carol T. Crawford *
II-8 /s/ RAY A. GOLDBERG Director - ----------------------------------------- Ray A. Goldberg * Director - ----------------------------------------- George E. Hamilton, Jr. /s/ WENDELL H. MURPHY Director - ----------------------------------------- Wendell H. Murphy * Director - ----------------------------------------- William H. Prestage /s/ JOHN SCHWIETERS Director - ----------------------------------------- John Schwieters * /s/ MELVIN O. WRIGHT Director - ----------------------------------------- Melvin O. Wright * * By: /s/ MICHAEL H. COLE - ----------------------------------------- Michael H. Cole Attorney-In-Fact
II-9 EXHIBIT INDEX Exhibit Description Number ___________ _______________________________________________________ Exhibit 3.1 Articles of Amendment effective August 29, 2001 to the Amended and Restated Articles of Incorporation, including the Amended and Restated Articles of Incorporation of the Company, as amended to date. (incorporated by reference to Exhibit 3.1 to the Company's Amendment No.1 to Form 10-Q Quarterly Report filed with the SEC on September 12, 2001). Exhibit 3.2 Amendment to the Bylaws adopted May 30, 2001, including the Bylaws of the Company, as amended to date (incorporated by reference to Exhibit 2 to the Company's Registration Statement on Form 8-A filed with the SEC on May 30, 2001). Exhibit 4.1 Articles of Incorporation of Smithfield, as amended to date (see Exhibit 3.1 above). Exhibit 4.2 Rights Agreement, dated as of May 30, 2001, between the Company and Computershare Investor Services, LLC, Rights Agent (incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form 8-A filed with the SEC on May 30, 2001). Exhibit 4.3(a) Indenture between Smithfield and SunTrust Bank dated October 23, 2001. (a) Exhibit 4.3(b) Purchase Agreement dated October 17, 2001 among Smithfield, J.P. Morgan Securities, Inc. and Goldman, Sachs & Co. (a) Exhibit 4.3(c) Exchange and Registration Rights Agreement dated October 23, 2001 among Smithfield, J.P. Morgan Securities, Inc. and Goldman, Sachs & Co. (a) Exhibit 4.4(a) Second Amended and Restated Multi-Year Credit Agreement dated as of December 3, 1999, among Smithfield Foods, Inc., the Subsidiary Guarantors party thereto, the Lenders party thereto, and The Chase Manhattan Bank, as Administrative Agent, relating to a $650,000,000 secured multi-year revolving credit facility (incorporated by reference to Exhibit 4.6(a) of the Company's Annual Report on Form 10-K for its fiscal year ended April 30, 2000 filed with the SEC on July 28, 2000). Exhibit 4.4(b) Collateral Agency, Pledge and Security Agreement dated as of July 10, 1997, among Smithfield Foods, Inc., the Subsidiary Guarantors party thereto, The Chase Manhattan Bank, as Collateral Agent, relating to the Company's multi-year revolving credit facility (incorporated by reference to Exhibit 4.5(b) of the Company's Annual Report on Form 10-K for its fiscal year ended April 27, 1997 filed II-10 with the SEC on July 25, 1997). Exhibit 4.5(a) Amended and Restated Note Purchase Agreement dated as of October 31, 1999, among Smithfield Foods, Inc. and each of the Purchasers listed on Annex 1 thereto, relating to $196,882,354 in senior secured notes (incorporated by reference to Exhibit 4.7(a) of the Company's Annual Report on Form 10-K for its fiscal year ended April 30, 2000 filed with the SEC on July 28, 2000). Exhibit 4.5(b) Joint and Several Guaranty dated as of July 15, 1996, by Gwaltney of Smithfield, Ltd., John Morrell & Co., The Smithfield Packing Company, Incorporated, SFFC, Inc., Patrick Cudahy Incorporated, and Brown's of Carolina, Inc. (incorporated by reference to Exhibit 4.7(a) to the Company's Form 10-Q Quarterly Report for the fiscal quarter ended July 28, 1996); and Amendment Number One to the Note Purchase Agreement dated as of July 15, 1997 (incorporated by reference to Exhibit 4.6(a) to the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 1997 filed with the SEC on July 25, 1997). Exhibit 4.5(c) Joint and Several Guaranty dated as of July 15, 1997, by Lykes Meat Group, Inc., Sunnyland, Inc., Valleydale Foods, Inc., Hancock's Old Fashioned Country Hams, Inc., Copaz Packing Corporation, and Smithfield Packing--Landover, Inc. (incorporated by reference to Exhibit 4.6(b) to the Company's Annual Report on Form 10-K for the fiscal year ended April 27, 1997 filed with the SEC on July 25, 1997). Exhibit 4.5(d) Joinder Agreement dated as of March 9, 2000, among Gwaltney of Smithfield, Ltd., John Morrell & Co., The Smithfield Packing Company, Incorporated, SFFC, Inc., Patrick Cudahy Incorporated, and Brown's of Carolina, Inc. and each of the Noteholders listed on Annex 1 (incorporated by reference to Exhibit 4.7(d) of the Company's Annual Report on Form 10-K for its fiscal year ended April 30, 2000 filed with the SEC on July 28, 2000). Exhibit 4.6(a) Amended and Restated Note Purchase Agreement dated as of October 27, 1999, among Smithfield Foods, Inc. and each of the Purchasers listed on Annex 1 thereto, relating to $225,000,000 in senior secured notes (incorporated by reference to Exhibit 4.8(a) of the Company's Annual Report on Form 10-K for its fiscal year ended April 30, 2000 filed with the SEC on July 28, 2000). Exhibit 4.6(b) Joint and Several Guaranty dated as of October 27, 1999, by Gwaltney of Smithfield, Ltd., John Morrell & Co., The Smithfield Packing Company, Incorporated, SFFC, Inc., Patrick Cudahy Incorporated, Brown's of Carolina, Inc., Carroll's Foods, Inc., Carroll's Realty, Inc., Carroll's Realty Partnership, North Side Foods Corp., Lykes Meat Group, Circle Four Corporation, Brown's Farms LLC, Carroll's Foods of Virginia, Inc., Smithfield-Carroll's Farms, and Central Plains Farms (incorporated by reference to Exhibit 4.8(b) of the Company's Annual Report on Form 10-K for its fiscal year II-11 ended April 30, 2000 filed with the SEC on July 28, 2000). Exhibit 4.6(c) Joinder Agreement dated as of June 9, 2000, among Murphy Farms, Inc. and Smithfield Packing Real Estate, LLC (incorporated by reference to Exhibit 4.8(c) of the Company's Annual Report on Form 10-K for its fiscal year ended April 30, 2000 filed with the SEC on July 28, 2000). Exhibit 4.7(a) Note Purchase Agreement dated as of June 2, 2000 among Smithfield Foods, Inc. and each of the Purchasers listed on Annex 1 thereto, relating to $100,000,000 in senior secured notes (incorporated by reference to Exhibit 4.4(a) of the Company's Annual Report on Form 10-K for it fiscal year ended April 29, 2001 filed with the SEC on July 30, 2001). Exhibit 4.7(b) Joint and Several Guaranty dated as of June 2, 2000, by Gwaltney of Smithfield, Ltd., John Morrell & Co., The Smithfield Packing Company, Incorporated, SFFC, Inc., Patrick Cudahy Incorporated, Brown's of Carolina, Inc., Carroll's Foods, Inc., Carroll's Realty, Inc., Carroll's Realty Partnership, North Side Foods Corp., Lykes Meat Group, Inc., Circle Four Corporation, Brown's Farms LLC, Carroll's Foods of Virginia, Inc., Smithfield-Carroll's Farms, Central Plains Farms, Inc., Smithfield Packing Real Estate, LLC and Murphy Farms, Inc. (incorporated by reference to Exhibit 4.4(b) of the Company's Annual Report on Form 10-K for it fiscal year ended April 29, 2001 filed with the SEC on July 30, 2001). Exhibit 4.8(a) Senior Secured Facilities Agreement dated as of June 20, 2001, among Animex S.A., the Original Borrowers party thereto, the Banks party thereto, and Rabobank Polska S.A. as Arranger, Agent, Security Agent and Pledge Administrator relating to a $100,000,000 term and revolving loan facility (incorporated by reference to Exhibit 4.5(a) of the Company's Annual Report on Form 10-K for it fiscal year ended April 29, 2001 filed with the SEC on July 30, 2001). Exhibit 4.8(b) Joint and Several Guaranty dated as of June 20, 2001, by Smithfield Foods, Inc. and Smithfield Holdings Sp. z.o.o. (incorporated by reference to Exhibit 4.5(b) of the Company's Annual Report on Form 10-K for it fiscal year ended April 29, 2001 filed with the SEC on July 30, 2001). Exhibit 4.9 Indenture between the Company and SunTrust Bank, Atlanta (incorporated by reference to Exhibit 4.8 to the Company's Current Report on Form 10-Q for the fiscal quarter ended February 1, 1998 filed with the SEC on March 17, 1998). Registrant hereby agrees to furnish the SEC upon request, other instruments defining the rights of holders of long- term debt of the Registrant. Exhibit 5.1 Opinion of McGuireWoods LLP. (a) Exhibit 10.1(a) Agreement with Shareholders dated as of May 7, 1999 by and II-12 between the Company and Jeffrey S. Matthews, Carroll M. Baggett and James O. Matthews (incorporated by reference to Exhibit 2.3 to the Company's Current Report on Form 8-K dated May 7, 1999 and filed with the SEC on May 12, 1999). Exhibit 10.1(b) Registration Rights Agreement dated as of May 7, 1999 by and between the Company and Jeffrey S. Matthews, Carroll M. Baggett and James O. Matthews (incorporated by reference to Exhibit 2.4 to the Company's Current Report on Form 8-K dated May 7, 1999 and filed with the SEC on May 12, 1999). Exhibit 10.1(c) Registration Rights Agreement between Smithfield Foods, Inc. and Wendell H. Murphy, Harry D. Murphy, Joyce M. Norman, Wendell H. Murphy, Jr., Wendy Murphy Crumpler, Stratton K. Murphy, Marc D. Murphy and Angela Brown (excluding Smithfield Foods, Inc., the "Murphy Selling Shareholders") (incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K dated January 20, 2000 and filed February 14, 2000 (the "February 14, 2000 Form 8-K")). Exhibit 10.1(d) Agreement with Shareholders between Smithfield Foods, Inc. and the Murphy Selling Shareholders (incorporated by reference to Exhibit 2.3 to the February 14, 2000 Form 8-K). Exhibit 10.2 Smithfield Foods, Inc. 1984 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company's Form 10-K Annual Report for the fiscal year ended April 28, 1991). (b) Exhibit 10.3 Smithfield Foods, Inc. 1992 Stock Option Plan (incorporated by reference to Exhibit 10.4 to the Company's Form 10-K Annual Report for the fiscal year ended May 2, 1993). (b) Exhibit 10.4 Smithfield Foods, Inc. 1998 Incentive Bonus Plan applicable to the Company's Chief Operating Officer (incorporated by reference to Exhibit 10.6 to the Company's Form 10-K annual Report for the fiscal year ended April 27, 1997 filed with the SEC on July 25, 1997). (b) Exhibit 10.5 Smithfield Foods, Inc. 1998 Stock Incentive Plan (incorporated by reference to Exhibit 10.7 to the company's form 10-K Annual Report for the fiscal year ended May 3, 1998 filed with the SEC on July 30, 1998). (b) Exhibit 10.6(a) Indenture between Smithfield and SunTrust Bank (see Exhibit 4.3(a) above). Exhibit 10.6(b) Purchase Agreement among Smithfield, J.P. Morgan Securities, Inc. and Goldman, Sachs & Co. (see Exhibit 4.3(b) above). Exhibit 10.6(c) Exchange and Registration Rights Agreement among Smithfield, J.P. Morgan Securities, Inc. and Goldman, Sachs & Co. (see Exhibit 4.6(b) above). Exhibit 12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges. (a) Exhibit 21.1 Subsidiaries of Smithfield (incorporated by reference to Exhibit 21 to Smithfield's Annual Report on Form 10-K for the fiscal year ended II-13 April 29, 2001). Exhibit 23.1 Consent of Arthur Andersen LLP, independent public accountants. (a) Exhibit 23.2 Consent of McGuireWoods LLP contained in the opinion filed as Exhibit 5.1 hereto. Exhibit 24.1 Powers of Attorney. (a) Exhibit 25.1 Statement of Form T-1 of Eligibility of Trustee. (a) Exhibit 99.1 Form of Letter of Transmittal. (a) Exhibit 99.2 Form of Notice of Guaranteed Delivery. (a) Exhibit 99.3 Form of Letters to Clients. (a) Exhibit 99.4 Form of Letter to Nominees. (a) Exhibit 99.5 Form of Exchange Agent Agreement. (a) _____________________ (a) Filed herewith. (b) Management contract or compensatory plan or arrangement of the Company required to be filed as an exhibit. II-14 EX-4.3A 3 dex43a.txt INDENTURE BETWEEN SMITHFIELD AND SUNTRUST BANK EXHIBIT 4.3(a) EXECUTION COPY ================================================================================ SMITHFIELD FOODS, INC. 8% Senior Notes due 2009 ---------------- INDENTURE Dated as of October 23, 2001 ---------------- SUNTRUST BANK as Trustee ================================================================================ CROSS-REFERENCE TABLE
TIA Indenture Section Section - ------- ----------- 310(a)(1) .............................................................. 6.10 (a)(2) .............................................................. 6.10 (a)(3) .............................................................. N.A. (a)(4) .............................................................. N.A. (b) .............................................................. 6.8; 6.10 (c) .............................................................. N.A. 311(a) .............................................................. 6.11 (b) .............................................................. 6.11 (c) .............................................................. N.A. 312(a) .............................................................. 2.5 (b) .............................................................. 9.3 (c) .............................................................. 9.3 313(a) .............................................................. 6.6 (b)(1) .............................................................. N.A. (b)(2) .............................................................. 6.6 (c) .............................................................. 6.6 (d) .............................................................. 6.6 314(a) .............................................................. 3.2; 9.2 (b) .............................................................. N.A. (c)(1) .............................................................. 9.4 (c)(2) .............................................................. 9.4 (c)(3) .............................................................. N.A. (d) .............................................................. N.A. (e) .............................................................. 10.5 (f) .............................................................. 3.9 315(a) .............................................................. 6.1 (b) .............................................................. 6.5; 10.2 (c) .............................................................. 6.1 (d) .............................................................. 6.1 (e) .............................................................. 5.11 316(a)(last sentence) .............................................................. 9.6 (a)(1)(A) .............................................................. 5.5 (a)(1)(B) .............................................................. 5.4 (a)(2) .............................................................. N.A. (b) .............................................................. 5.7 317(a)(1) .............................................................. 5.8 (a)(2) .............................................................. 5.9 (b) .............................................................. 2.4 318(a) .............................................................. 9.1 N.A. means Not Applicable. __________ Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of the Indenture.
-i- TABLE OF CONTENTS -----------------
Page ---- ARTICLE I Definitions and Incorporation by Reference.......................................................................... 1 SECTION 1.1. Definitions........................................................................................... 1 SECTION 1.2. Other Definitions..................................................................................... 22 SECTION 1.3. Incorporation by Reference of Trust Indenture Act..................................................... 23 SECTION 1.4. Rules of Construction................................................................................. 23 ARTICLE II The Securities..................................................................................................... 24 SECTION 2.1. Form, Dating and Terms................................................................................ 24 SECTION 2.2. Execution and Authentication.......................................................................... 31 SECTION 2.3. Registrar and Paying Agent............................................................................ 32 SECTION 2.4. Paying Agent To Hold Money in Trust................................................................... 32 SECTION 2.5. Securityholder Lists.................................................................................. 33 SECTION 2.6. Transfer and Exchange................................................................................. 33 SECTION 2.7. Form of Certificate to be Delivered in Connection with Transfers to Institutional Accredited Investors................................................................... 36 SECTION 2.8. Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S............. 37 SECTION 2.9. Mutilated, Destroyed, Lost or Stolen Securities....................................................... 38 SECTION 2.10. Outstanding Securities................................................................................ 39 SECTION 2.11. Temporary Securities.................................................................................. 39 SECTION 2.12. Cancellation.......................................................................................... 40 SECTION 2.13. Payment of Interest; Defaulted Interest............................................................... 40 SECTION 2.14. Computation of Interest............................................................................... 41 SECTION 2.15. CUSIP Numbers......................................................................................... 41 ARTICLE III Covenants......................................................................................................... 41 SECTION 3.1. Payment of Securities................................................................................. 41 SECTION 3.2. SEC Reports........................................................................................... 42 SECTION 3.3. Limitation on Indebtedness............................................................................ 42 SECTION 3.4. Limitation on Restricted Payments..................................................................... 44 SECTION 3.5. Limitation on Sale/Leaseback Transactions............................................................. 46 SECTION 3.6. Limitation on Restrictions on Distributions from Restricted Subsidiaries.............................. 47 SECTION 3.7. Limitation on Sales of Assets and Subsidiary Stock.................................................... 48
-i-
SECTION 3.8. Limitation on Transactions with Affiliates............................................................ 50 SECTION 3.9. Change of Control..................................................................................... 51 SECTION 3.10. Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries........................ 53 SECTION 3.11. Limitation on Liens................................................................................... 53 SECTION 3.12. Limitation on Issuances of Guarantees of Indebtedness by Restricted Subsidiaries...................... 54 SECTION 3.13. Limitation on Lines of Business....................................................................... 55 SECTION 3.14. Effectiveness of Covenants............................................................................ 55 SECTION 3.15. Maintenance of Office or Agency....................................................................... 55 SECTION 3.16. Money for Security Payments to Be Held in Trust....................................................... 56 SECTION 3.17. Corporate Existence................................................................................... 57 SECTION 3.18. Payment of Taxes and Other Claims..................................................................... 57 SECTION 3.19. Maintenance of Properties............................................................................. 57 SECTION 3.20. Insurance............................................................................................. 58 SECTION 3.21. Compliance with Laws.................................................................................. 58 SECTION 3.22. Compliance Certificate................................................................................ 58 SECTION 3.23. Further Instruments and Acts.......................................................................... 58 ARTICLE IV Successor Company and Successor Guarantor.......................................................................... 58 SECTION 4.1. When Company May Merge or Otherwise Dispose of Assets................................................. 58 SECTION 4.2. When a Subsidiary Guarantor May Merge or Otherwise Dispose of Assets.................................. 60 ARTICLE V Defaults and Remedies............................................................................................... 61 SECTION 5.1. Events of Default. An "Event of Default" occurs if:.................................................. 61 SECTION 5.2. Acceleration.......................................................................................... 63 SECTION 5.3. Other Remedies........................................................................................ 63 SECTION 5.4. Waiver of Past Defaults............................................................................... 63 SECTION 5.5. Control by Majority................................................................................... 64 SECTION 5.6. Limitation on Suits................................................................................... 64 SECTION 5.7. Rights of Holders to Receive Payment.................................................................. 64 SECTION 5.8. Collection Suit by Trustee............................................................................ 64 SECTION 5.9. Trustee May File Proofs of Claim...................................................................... 65 SECTION 5.10. Priorities............................................................................................ 65 SECTION 5.11. Undertaking for Costs................................................................................. 65 ARTICLE VI Trustee............................................................................................................ 65
-ii- SECTION 6.1. Duties of Trustee..................................................................................... 66 SECTION 6.2. Rights of Trustee..................................................................................... 67 SECTION 6.3. Individual Rights of Trustee.......................................................................... 67 SECTION 6.4. Trustee's Disclaimer.................................................................................. 67 SECTION 6.5. Notice of Defaults.................................................................................... 68 SECTION 6.6. Reports by Trustee to Holders......................................................................... 68 SECTION 6.7. Compensation and Indemnity............................................................................ 68 SECTION 6.8. Replacement of Trustee................................................................................ 69 SECTION 6.9. Successor Trustee by Merger........................................................................... 70 SECTION 6.10. Eligibility; Disqualification......................................................................... 70 SECTION 6.11. Preferential Collection of Claims Against Company..................................................... 70 ARTICLE VII Discharge of Indenture; Defeasance................................................................................ 70 SECTION 7.1. Discharge of Liability on Securities; Defeasance...................................................... 70 SECTION 7.2. Conditions to Defeasance.............................................................................. 71 SECTION 7.3. Application of Trust Money............................................................................ 72 SECTION 7.4. Repayment to Company.................................................................................. 72 SECTION 7.5. Indemnity for U.S. Government Obligations............................................................. 73 SECTION 7.6. Reinstatement......................................................................................... 73 ARTICLE VIII Amendments....................................................................................................... 73 SECTION 8.1. Without Consent of Holders............................................................................ 73 SECTION 8.2. With Consent of Holders............................................................................... 74 SECTION 8.3. Compliance with Trust Indenture Act................................................................... 75 SECTION 8.4. Revocation and Effect of Consents and Waivers......................................................... 75 SECTION 8.5. Notation on or Exchange of Securities................................................................. 75 SECTION 8.6. Trustee To Sign Amendments............................................................................ 76 ARTICLE IX Miscellaneous...................................................................................................... 76 SECTION 9.1. Trust Indenture Act Controls.......................................................................... 76 SECTION 9.2. Notices............................................................................................... 76 SECTION 9.3. Communication by Holders with other Holders........................................................... 78 SECTION 9.4. Certificate and Opinion as to Conditions Precedent.................................................... 78 SECTION 9.5. Statements Required in Certificate or Opinion......................................................... 78 SECTION 9.6. When Securities Disregarded........................................................................... 79 SECTION 9.7. Rules by Trustee, Paying Agent and Registrar.......................................................... 79
-iii- SECTION 9.8. Legal Holidays........................................................................................ 79 SECTION 9.9. Governing Law......................................................................................... 79 SECTION 9.10. No Recourse Against Others............................................................................ 79 SECTION 9.11. Successors............................................................................................ 79 SECTION 9.12. Multiple Originals.................................................................................... 80 SECTION 9.13. Variable Provisions................................................................................... 80 SECTION 9.14. Qualification of Indenture............................................................................ 80 SECTION 9.15. Table of Contents; Headings........................................................................... 80
EXHIBITS -------- EXHIBIT A Form of the Series A Note EXHIBIT B Form of the Series B Note -iv- INDENTURE dated as of October 23, 2001, among SMITHFIELD FOODS, INC., a Virginia corporation (the "Company"), and SunTrust Bank, a banking corporation duly organized and existing under the laws of the State of Georgia (the "Trustee"). Recitals Of The Company The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of (i) $300,000,000 aggregate principal amount of the Company's 8% Senior Notes, Series A, due 2009, issued on the date hereof (the "Initial Notes"), (ii) if and when issued, an unlimited principal amount of additional 8% Senior Notes, Series A, due 2009 in a non-registered offering or 8% Senior Notes, Series B, due 2009 in a registered offering of the Company that may be offered from time to time subsequent to the Issue Date (the "Additional Notes") and (iii) if and when issued, the Company's 8% Senior Notes, Series B, due 2009 that may be issued from time to time in exchange for Initial Notes or any Additional Notes in an offer registered under the Securities Act as provided in the Registration Rights Agreement (as hereinafter defined) (the "Exchange Notes," and together with the Initial Notes and Additional Notes, the "Securities"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Securities: ARTICLE I Definitions and Incorporation by Reference SECTION 1.1. Definitions. "1998 Indenture" means the Indenture, dated as of February 9, 1998, between the Company and the Trustee. "1998 Issue Date" means February 9, 1998. "1998 Notes" means the Company's 7-5/8% Senior Subordinated Notes due 2008. "Acquired Indebtedness" means Indebtedness (i) of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or (ii) assumed in connection with the acquisition of assets from such Person, in each case whether or not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition. Acquired Indebtedness shall be deemed to have been incurred, with respect to clause (i) of the preceding sentence, on the date such Person becomes a Restricted Subsidiary and, with respect to clause (ii) of the preceding sentence, on the date of consummation of such acquisition of assets. "Additional Assets" means: (i) any property or assets (other than Indebtedness and Capital Stock) to be used by the Company or a Restricted Subsidiary in a Related Business, 2 (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary or (iii) Capital Stock constituting a minority interest in any Person that at such time is or will thereupon become a Restricted Subsidiary; provided, however, that, in the case of clauses (ii) and (iii) of this definition, such Restricted Subsidiary is primarily engaged in a Related Business. "Affiliate" of any specified Person means (i) any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person, (ii) any Person who is a director or officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any Person described in clause (i) above and (iii) any beneficial owner of shares representing 5% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Voting Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to clauses (i) and (ii). For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Notwithstanding the foregoing, no Person (other than the Company or any Subsidiary of the Company) in whom a Receivables Entity makes an Investment in connection with a Qualified Receivables Transaction shall be deemed to be an Affiliate of the Company or any of its Subsidiaries solely by reason of such Investment. "Asset Disposition" means any sale, lease, transfer, or other issuance or disposition (or series of related sales, leases, transfers, issuance or dispositions that are part of a common plan) of shares of Capital Stock of a Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its Restricted Subsidiaries (including any disposition by means of a sale and leaseback, merger, consolidation or similar transaction, but excluding any disposition by means of any pledge of assets or stock by the Company or any of its Subsidiaries otherwise permitted under this Indenture, and any transaction or series of related transactions from which the Company or any of its Subsidiaries receives an aggregate consideration of less than $500,000) other than (i) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) a disposition of assets held for resale in the ordinary course of business, (iii) the sale of Temporary Cash Investments in the ordinary course of business, (iv) the sale or other disposition of damaged, worn, unneeded or obsolete equipment in the ordinary course of business, (v) for purposes of Section 3.7 only, a disposition subject to Section 3.4, (vi) the sale of other assets so long as the fair market value of the assets disposed of pursuant to this clause (vi) does not exceed $2.0 million in the aggregate in any fiscal year and $10.0 million in the aggregate prior to October 15, 2009, (vii) any disposition of assets pursuant to and in accordance with the provisions of Section 3.9 and/or Article IV, (viii) sales or other dispositions of assets for consideration at least equal to the fair market value of the assets sold or disposed of, to the extent that the consideration received would constitute Additional Assets or an Investment in a Permitted Joint Venture that in each case complies with Section 3.4 and (ix) sales of accounts receivable and related assets of the type specified in the definition of "Qualified Receivables Transaction" to a Receivables Entity for the fair market 3 value thereof, including cash in an amount at least equal to 75% of the book value thereof as determined in accordance with GAAP. "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate assumed in making calculations in accordance with FAS 13) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "Bank Indebtedness" means any and all amounts payable under or in respect of the Revolving Credit Facility and any Refinancing Indebtedness with respect to the foregoing, as amended from time to time, including 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 whether or not a claim for postfiling interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof (including, without limitation, cash collateralization of letters of credit). "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board of Directors with respect to the relevant matter. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of a company to have been duly adopted by the Board of Directors of such company and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Borrowing Base" means, as of the date of determination, an amount equal to the sum, without duplication of (i) 75% of the net book value of the Company's and its Restricted Subsidiaries' accounts receivable at such date and (ii) 75% of the net book value of the Company's and its Restricted Subsidiaries' inventories at such date. Net book value shall be determined in accordance with GAAP and shall be that reflected on the most recent available balance sheet (it being understood that the accounts receivable and inventories of an acquired business may be included if such acquisition has been completed on or prior to the date of determination). "Business Day" means a day other than a Saturday, Sunday or other day on which commercial banking institutions are authorized or required by law to close in New York City or Atlanta, Georgia. 4 "Capital Stock" of any Person means (i) with respect to any Person that is a corporation, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person but in each case excluding any debt securities convertible into such equity. "Capitalized Lease Obligations" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease. "Cash Equivalents" means (i) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof, (ii) certificates of deposit, time deposits and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any commercial bank having capital and surplus in excess of $500 million and the commercial paper of the holding company of which is rated at least "A-1" or the equivalent thereof by S&P or "P- 1" or the equivalent thereof by Moody's, (iii) repurchase obligations for underlying securities of the types described in clauses (i) and (ii) entered into with any financial institution meeting the qualifications specified in clause (ii) above, (iv) commercial paper rated "A-1" or the equivalent thereof by S&P or "P-1" or the equivalent thereof by Moody's and in each case maturing within one year after the date of acquisition thereof, (v) investment funds investing 95% of their assets in securities of the type described in clauses (i)-(iv) above. "Change of Control" means the occurrence of any of the following events: (i) any sale, transfer or other conveyance, whether direct or indirect, of all or substantially all of the fair market value of the assets of the Company on a consolidated basis, in one transaction or a series of related transactions, to any Person or Persons other than the Company or one or more of its Restricted Subsidiaries; (ii) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire within one year), directly or indirectly, of more than 50% of the Voting Stock of the Company (or its successor by merger, consolidation or purchase of all or substantially all of its assets); (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of 5 the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office; or (iv) the adoption of a plan relating to the liquidation or dissolution of the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Company" means Smithfield Foods, Inc. until a successor replaces it and, thereafter, means such successor. "Consolidated Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of EBITDA of the Company and its Restricted Subsidiaries for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of the Company are available to (ii) Consolidated Interest Expense of the Company and its Restricted Subsidiaries for such four consecutive fiscal quarters; provided, however, that (1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (2) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets that are the subject of such Asset Disposition for such period or increased by an amount equal to the EBITDA (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged (to the extent the related commitment is permanently reduced) with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person that becomes a Restricted Subsidiary) or an acquisition of assets, including any Investment in a Restricted Subsidiary or any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness and including the pro forma expenses and cost reductions calculated on a basis consistent with Regulation S-X of the Securities Act) as if such Investment or acquisition occurred on the first day of such period 6 and without regard to clause (ii) of the definition of Consolidated Net Income and (4) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition of assets occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to a transaction, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term as at the date of determination in excess of 12 months). "Consolidated Interest Expense" means, for any period, the total consolidated cash and non-cash interest expense (excluding capitalized interest) of the Company and its Restricted Subsidiaries, determined in accordance with GAAP, plus, to the extent incurred by the Company and its Restricted Subsidiaries in such period but not included in such interest expense, (i) interest expense attributable to Capitalized Lease Obligations and imputed interest with respect to Attributable Debt, (ii) amortization of debt discount and debt issuance cost (other than those debt discounts and debt issuance costs incurred on the 1998 Issue Date or the Issue Date), (iii) capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts and other fees and charges attributable to letters of credit and bankers' acceptance financing, (vi) interest actually paid by the Company or any Restricted Subsidiary under any Guarantee of Indebtedness or other obligation of any other Person, (vii) net costs associated with Hedging Obligations (or minus net gains associated with Hedging Obligations), (viii) the product of (A) Preferred Stock dividends in respect of all Preferred Stock of Restricted Subsidiaries and Disqualified Stock of the Company held by Persons other than the Company or a Wholly-Owned Subsidiary multiplied by (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 the Company, expressed as a decimal, in each case, determined on a consolidated basis in accordance with GAAP and (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust. For purposes of the foregoing, gross interest expense shall be determined after giving effect to any net payments made or received by the Company and its Restricted Subsidiaries with respect to Interest Rate Agreements. "Consolidated Net Income" means, for any period, without duplication, the consolidated net income (loss) of the Company and its Restricted Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income: (i) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (A) subject to the limitations contained in clause (iv) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate 7 amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income, (ii) any net income (loss) of any Person acquired by the Company or a Restricted Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition, (iii) any net income (loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) subject to the limitations contained in (iv) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend (subject, in the case of a dividend that could have been made to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income, (iv) any gain (but not loss) realized upon the sale or other disposition of any asset of the Company or its Restricted Subsidiaries (including pursuant to any Sale/Leaseback Transaction) that is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any Capital Stock of any Person, (v) any extraordinary gain or loss, (vi) the cumulative effect of a change in accounting principles and (vii) for purposes of clause (a)(3)(A) of Section 3.4, amounts otherwise included in Consolidated Net Income that have the effect of reducing the aggregate amount of Investments under clause (viii) of the definition of Permitted Investments. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement as to which such Person is a party or a beneficiary. "Default" means any event or condition that is, or after notice or passage of time or both would be, an Event of Default. "Defaulted Interest" shall have the meaning set forth in Section 2.13. "Depositary" means The Depository Trust Company, its nominees and their respective successors and assigns, or such other depository institution hereinafter appointed by the Company. "Disqualified Stock" means, with respect to any Person, any Capital Stock of such Person that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to 123 days after the Stated Maturity of the Securities; provided, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" 8 occurring prior to the Stated Maturity of the Securities shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in Sections 3.7 and 3.9 of the 1998 Indenture and Sections 3.7 and 3.9 of this Indenture and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock pursuant to such provision prior to the Company's repurchase of such Securities as are required to be repurchased pursuant to Sections 3.7 and 3.9 of the 1998 Indenture and Sections 3.7 and 3.9 of this Indenture. "EBITDA" means, for any period, the Consolidated Net Income for such period, plus, without duplication and to the extent deducted in calculating such Consolidated Net Income, (i) income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization of intangibles and (v) other non-cash charges or non-cash losses (other than non-cash charges to the extent they represent an accrual of or reserve for cash charges in any future period or amortization of a prepaid expense that was paid in a prior period), less, without duplication, non-cash items increasing Consolidated Net Income of such Person for such period (excluding any items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period); provided, that if any Restricted Subsidiary is not directly or indirectly owned 100% by the Company, EBITDA shall be reduced (to the extent not otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount of the EBITDA attributable to such Restricted Subsidiary multiplied by (B) the quotient of (1) the number of shares of outstanding common Equity Interests of such Restricted Subsidiary not owned directly or indirectly by the Company on the last day of such period by the Company divided by (2) the total number of shares of outstanding common Equity Interests of such Restricted Subsidiary on the last day of such period. "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). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fiscal Year" means the fiscal year of the Company ending on the Sunday closest to April 30 of each year or such other fiscal year as may be determined by the Company and the Board of Directors and of which the Trustee shall receive written notice pursuant to Section 3.22 hereof. "GAAP" means generally accepted accounting principles in the United States of America as in effect on the 1998 Issue Date, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in this Indenture shall be computed in conformity with GAAP. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other nonfinancial obligation of any other 9 Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or such other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep- well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guarantor Subordinated Indebtedness" means, with respect to a Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is expressly subordinate in right of payment to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee pursuant to a written agreement. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Holder" or "Securityholder" means the Person in whose name a Security is registered in the Note Register. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. Any Indebtedness issued at a discount (including Indebtedness on which interest is payable through the issuance of additional Indebtedness) shall be deemed incurred at the time of original issuance of the Indebtedness at the initial accreted amount thereof. "Indebtedness" means, with respect to any Person on any date of determination (without duplication): (i) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money, (ii) the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto) (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (i), (ii) and (v)) entered into in the ordinary course of business of such Person to the extent that such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third business day following receipt by such Person of a demand for reimbursement following payment on the letter of credit), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services (except Trade Payables), which purchase price is due more than six months after the date of placing such property in final service or taking final delivery and title thereto or the completion of such services, (v) all Capitalized Lease Obligations and Attributable Debt of such Person, (vi) the redemption, repayment or other repurchase amount of such Person with respect to any Disqualified Stock or, with respect to any Subsidiary of the Company, any Preferred Stock (but excluding, in each case, any accrued dividends), (vii) all 10 Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of Indebtedness of such Person shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness of such other Person, (viii) all Indebtedness of other Persons to the extent Guaranteed by such Person and (ix) to the extent not otherwise included in this definition, net Hedging Obligations of such Person (such obligations to be equal at any time to the termination value of such agreement or arrangement giving rise to such Hedging Obligation that would be payable by such Person at such time). "Indenture" means this Indenture as amended or supplemented from time to time. "Interest Rate Agreement" means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable on the balance sheet of the Company or its Restricted Subsidiaries) or other extension of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. For purposes of the definition of "Unrestricted Subsidiary" and Section 3.4, (i) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith either by the Board of Directors or Senior Management. "Investment Grade Status," with respect to the Company, shall occur when the Securities receive a rating of "BBB-"or higher from S&P and a rating of "Baa3" or higher from Moody's. "Issue Date" means the date on which the Initial Notes are originally issued. "Legal Holiday" has the meaning ascribed to it in Section 10.8. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in 11 the nature thereof, any option or other agreement to sell, or any filing of, or any agreement to give any security interest). "Moody's" means Moody's Investors Service, Inc., and its successors. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other non-cash form) therefrom, in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred (including fees and expenses of counsel, accountants and investment bankers), and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness that is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or that must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition, (iv) appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition and (v) any portion of the purchase price from an Asset Disposition placed in escrow (whether as a reserve for adjustment of the purchase price, or for satisfaction of indemnities in respect of such Asset Disposition); provided, however, that upon the termination of such escrow, Net Available Cash shall be increased by any portion of funds therein released to the Company or any Restricted Subsidiary. "Net Cash Proceeds" means, with respect to any issuance or sale of Capital Stock or Indebtedness, the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Non-Recourse Indebtedness" means Indebtedness (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support pursuant to any undertaking, agreement or instrument that would constitute Indebtedness or (b) is directly or indirectly liable and (ii) no default with respect to which 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 a default on such Indebtedness or cause the payment thereof to be accelerated or payable prior to its Stated Maturity. "Note Register" means the register of Securities, maintained by the Trustee, pursuant to Section 2.3. 12 "Officer" means any one of the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, any Vice President, the Treasurer, the Secretary or the Controller of the Company. "Officers' Certificate" means a certificate signed by two or more Officers. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Pari Passu Indebtedness" means Indebtedness that ranks equally in right of payment to the Securities. "Permitted Employee Payments" means Restricted Payments by the Company or any Restricted Subsidiary in respect of (i) the repurchase of Capital Stock by the Company or any Restricted Subsidiary from an employee of the Company or any Restricted Subsidiary or their assigns, estates or heirs upon the death, retirement or termination of such employee or (ii) loans or advances to employees of the Company or any of its Subsidiaries made in the ordinary course of business. "Permitted Holders" means Joseph W. Luter, III or any Person the majority of the equity interests of which is beneficially owned by Joseph W. Luter, III. "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in (i) a Restricted Subsidiary, the Company or a Person that will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Related Business, (ii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that the primary business of such Person is a Related Business, (iii) Temporary Cash Investments, (iv) receivables owing to the Company or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances, (v) securities received as consideration in Asset Dispositions made in compliance with Section 3.7 with the exception of securities received as consideration for Asset Dispositions of any property, plant, equipment or other facility closed and designated in accordance with clause (a)(ii) of Section 3.7, (vi) Investments in existence on the 1998 Issue Date (but not in excess of the amount of such Investments in existence on the 1998 Issue Date without giving effect to increases or decreases attributable to accounting for the net income of such Investments or subsequent changes in value), (vii) any Investment by the Company or a Wholly-Owned Subsidiary in a Receivables Entity or any Investment by a Receivables Entity in any other Person in connection with a Qualified Receivables Transaction; provided that any Investment in a Receivables Entity is in the form of a Purchase Money Note or an Equity Interest and (viii) additional Investments in a Related Business since the 1998 Issue Date having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (viii) since the 1998 Issue Date that are at that time outstanding, not to exceed 15% of Total Assets at the 13 time 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 Liens" means, with respect to any Person: (1) Liens securing Indebtedness and other obligations of the Company under the Revolving Credit Facility and related Interest Rate Agreements and liens on assets of Restricted Subsidiaries securing Guarantees of Indebtedness and other obligations of the Company under the Revolving Credit Facility permitted to be incurred under this Indenture in an aggregate principal amount at any one time outstanding not to exceed the greater of (x) $650.0 million and (y) the Borrowing Base; (2) pledges or deposits by such Person under workmen's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits or cash or United States government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import or customs duties or for the payment of rent, in each case Incurred in the ordinary course of business; (3) Liens imposed by law, including carriers', warehousemen's and mechanics' Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings if a reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made in respect thereof; (4) Liens for taxes, assessments or other governmental charges not yet subject to penalties for non-payment or which are being contested in good faith by appropriate proceedings provided appropriate reserves required pursuant to GAAP have been made in respect thereof; (5) Liens in favor of issuers of surety or performance bonds or letters of credit or bankers' acceptances issued pursuant to the request of and for the account of such Person in the ordinary course of its business; provided, however, that such letters of credit do not constitute Indebtedness; (6) encumbrances, easements or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real properties or liens incidental to the conduct of the business of such Person or to the ownership of its properties which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; (7) Liens securing Hedging Obligations so long as the related Indebtedness is, and is permitted to be under the Indenture, secured by a Lien on the same property securing such Hedging Obligation; 14 (8) leases and subleases of real property which do not materially interfere with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (9) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment have not been finally terminated or the period within which such proceedings may be initiated has not expired; (10) Liens for the purpose of securing the payment of all or a part of the purchase price of, or Capitalized Lease Obligations with respect to, assets or property acquired or constructed in the ordinary course of business, provided that: (a) the aggregate principal amount of Indebtedness secured by such Liens is otherwise permitted to be Incurred under the Indenture and does not exceed the cost of the assets or property so acquired or constructed; and (b) such Liens are created within 180 days of construction or acquisition of such assets or property and do not encumber any other assets or property of the Company or any Restricted Subsidiary other than such assets or property and assets affixed or appurtenant thereto; (11) Liens arising solely by virtue of any statutory or common law provisions relating to banker's Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a depositary institution; provided that: (a) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the Federal Reserve Board; and (b) such deposit account is not intended by the Company or any Restricted Subsidiary to provide collateral to the depository institution; (12) Liens arising from Uniform Commercial Code financing statement filings regarding operating leases entered into by the Company and its Restricted Subsidiaries in the ordinary course of business; (13) Liens existing on the Issue Date (excluding Liens permitted under clause (1)); (14) Liens on property or shares of stock of a Person at the time such Person becomes a Restricted Subsidiary; provided, however, that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such other Person becoming a Restricted Subsidiary; provided further, however, that any such Lien may not extend to any other property owned by the Company or any Restricted Subsidiary; (15) Liens on property at the time the Company or a Restricted Subsidiary acquired the property, including any acquisition by means of a merger or consolidation 15 with or into the Company or any Restricted Subsidiary; provided, however, that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such acquisition; provided further, however, that such Liens may not extend to any other property owned by the Company or any Restricted Subsidiary; (16) Liens securing Indebtedness or other obligations of a Restricted Subsidiary owing to the Company or a Wholly Owned Subsidiary (other than a Receivables Entity); (17) Liens securing the Securities and Subsidiary Guarantees; (18) Liens securing Indebtedness incurred after the Issue Date and any Refinancing Indebtedness relating thereto (excluding any Liens securing any other Indebtedness Incurred after the Issue Date permitted under other clauses hereof) in an aggregate principal amount at any one time outstanding not to exceed 15% of Total Assets; (19) Liens securing Refinancing Indebtedness (other than Liens Incurred under clauses (1) and (18) above) incurred to refinance Indebtedness that was previously so secured, provided that any such Lien is limited to all or part of the same property or assets (plus improvements, accessions, proceeds or dividends or distributions in respect thereof) that secured (or, under the written arrangements under which the original Lien arose, could secure) the Indebtedness being refinanced or is in respect of property that is the security for a Permitted Lien hereunder; and (20) Liens on assets transferred to a Receivables Entity or on assets of a Receivables Entity, in either case incurred in connection with a Qualified Receivables Transaction. "Permitted Joint Venture" means any Person in which the Company or a Restricted Subsidiary owns, directly or indirectly, an ownership interest (other than a Subsidiary) and whose primary business is related, ancillary or complementary to any of the businesses of the Company and its Restricted Subsidiaries at the time of determination. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) that is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Private Exchange Securities" shall have the meaning set forth in the Registration Rights Agreement. 16 "Purchase Money Note" means a promissory note of a Receivables Entity evidencing a line of credit, which may be irrevocable, from the Company or any Subsidiary of the Company in connection with a Qualified Receivables Transaction to a Receivables Entity, which note shall be repaid from cash available to the Receivables Entity, other than amounts required to be established as reserves pursuant to agreements, amounts paid to investors in respect of interest, principal and other amounts owing to such investors and amounts owing to such investors and amounts paid in connection with the purchase of newly generated receivables. "QIB" means any "qualified institutional buyer" (as defined in Rule 144A under the Securities Act). "Qualified Receivables Transaction" means any transaction or series of transactions that may be entered into by the Company or any of its Subsidiaries pursuant to which the Company or any of its Subsidiaries may sell, convey or otherwise transfer to (a) a Receivables Entity (in the case of a transfer by the Company or any of its Subsidiaries) and (b) any other Person (in the case of a transfer by a Receivables Entity), or may grant a security interest in, any accounts receivable (whether now existing or arising in the future) of the Company or any of its Subsidiaries, and any assets related thereto including, without limitation, all collateral securing such accounts receivable, all contracts and all guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable. "Receivables Entity" means a Wholly-Owned Subsidiary of the Company (or another Person in which the Company or any Subsidiary of the Company makes an Investment and to which the Company or any Subsidiary of the Company transfers accounts receivable and related assets) which engages in no activities other than in connection with the financing of accounts receivable and which is designated by the Board of Directors of the Company (as provided below) as a Receivables Entity, (a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by the Company or any Subsidiary of the Company (excluding guarantees of obligations (other than the principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is recourse to or obligates the Company or any Subsidiary of the Company in any way other than pursuant to Standard Securitization Undertakings or (iii) subjects any property or asset of the Company or any Subsidiary of the Company, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings, (b) with which neither the Company nor any Subsidiary of the Company has any material contract, agreement, arrangement or understanding other than on terms no less favorable to the Company or such Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of the Company, other than fees payable in the ordinary course of business in connection with servicing accounts receivable, and (c) to which neither the Company nor any Subsidiary of the Company has any obligation to maintain or preserve such entity's financial condition or cause such entity to achieve certain levels of operating results. Any such designation by the Board of Directors of the Company 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 17 designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. "Recourse Indebtedness" means Indebtedness that is not Non-Recourse Indebtedness. "Refinancing Indebtedness" means Indebtedness that is Incurred to refund, refinance, replace, renew, repay or extend (including pursuant to any defeasance or discharge mechanism) (collectively, "refinances", and "refinanced" shall have a correlative meaning) any Indebtedness existing on the 1998 Issue Date or Incurred in compliance with the Indenture or the 1998 Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary (to the extent permitted by the Indenture) and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary (except that a Subsidiary Guarantor shall not refinance Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor)) including Indebtedness that refinances Refinancing Indebtedness; provided, however, that (i) the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced, (iii) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced, plus fees, underwriting discounts, premiums, unpaid accrued interest and other costs and expenses incurred in connection with such Refinancing Indebtedness and (iv) if the Indebtedness being refinanced is subordinated in right of payment to the Securities or a Subsidiary Guarantee, such Refinancing Indebtedness is subordinated in right of payment to the Securities or the Subsidiary Guarantee on terms at least as favorable to the holders of Securities as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; provided further, however, that Refinancing Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary that refinances Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary. "Registered Exchange Offer" shall have the meaning set forth in the Registration Rights Agreement. "Registration Rights Agreement" means the Exchange and Registration Rights Agreement, dated October 23, 2001, among the Company, J.P. Morgan Securities Inc. and Goldman, Sachs & Co. and, with respect to any Additional Notes, one or more substantially similar registration rights agreements between the Company and the other parties thereto, as such agreement(s) may be amended, from time to time. "Related Business" means any business which is the same as or related, complementary or ancillary to any of the businesses of the Company and its Restricted Subsidiaries on the date of the 1998 Indenture. "Restricted Investment" means any Investment other than a Permitted Investment. 18 "Restricted Period" means, in relation to the Initial Notes, the 40 consecutive days beginning on and including the later of (A) the day on which the Initial Notes are offered to persons other than distributors (as defined in Regulation S under the Securities Act) and (B) the Issue Date and, in relation to any Additional Notes that are Restricted Securities, it means the comparable period of 40 consecutive days. "Restricted Security" means a Security that constitutes a "restricted security" within the meaning of Rule 144(a)(3) under the Securities Act; provided, however, that the Trustee shall be entitled to request and conclusively rely on an opinion of counsel with respect to whether any Security constitutes a Restricted Security. "Restricted Securities Legend" means the Private Placement Legend set forth in clause (A) of Section 2.1(c) or the Regulation S Legend set forth in clause (B) of Section 2.1(c), as applicable. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Revolving Credit Facility" means the Second Amended and Restated Multi-Year Credit Agreement dated as of December 3, 1999 among the Company, the subsidiary guarantors party thereto, the lenders party thereto, and The Chase Manhattan Bank, as Administrative Agent, as it may be amended, supplemented or modified from time to time and any renewal, increase, extension, refunding, restructuring, replacement or refinancing thereof (whether with the original administrative agent and lenders or another administrative agent or agents or one or more other lenders and whether provided under the original Revolving Credit Facility or one or more other credit or other agreements or indentures). "Sale/Leaseback Transaction" means any direct or indirect arrangement relating to property now owned or hereafter acquired by the Company or a Restricted Subsidiary whereby the Company or such Restricted Subsidiary transfers such property to a Person and the Company or such Restricted Subsidiary leases it from such Person, other than leases between the Company and a Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries. "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of the Company secured by a Lien. "Securities" means the Securities issued under this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Securities Custodian" means the custodian with respect to the Global Security (as appointed by the Depositary), or any successor Person thereto and shall initially be the Trustee. 19 "Senior Management" means with respect to the Company or any of its Subsidiaries, as the case may be, any one of the Chairman of the Board, the Chief Executive Officer, the President and the Chief Operating Officer or any combination of the foregoing. "Senior Secured Notes" means collectively, the 8.41% Series B Senior Secured Notes Due August 1, 2006, the 8.34% Series C Senior Secured Notes Due August 1, 2003, the 9.80% Series D Senior Secured Notes Due August 1, 2003, the 10.75% Series E Senior Secured Notes Due August 1, 2005, the 8.52% Series F Senior Secured Notes Due August 1, 2006, the 9.85% Series G Senior Secured Notes Due November 1, 2006 and the 8.41% Series H Senior Secured Notes Due August 1, 2004, each issued pursuant to the Amended and Restated Note Purchase Agreement, dated as of October 31, 1999, among the Company and each of the several purchasers named therein, as the same may be amended, supplemented or otherwise modified from time to time, the 7.89% Series I Senior Secured Notes due October 1, 2009, the Variable Rate Series J Senior Secured Notes due October 1, 2009, the 8.44% Series K Senior Secured Notes due October 1, 2009, the LIBOR Rate Series L Senior Secured Notes due October 1, 2009, each issued pursuant to the Amended and Restated Note Purchase Agreement, dated as of October 27, 1999, among the Company and each of the several purchasers named therein, as the same may be amended, supplemented or otherwise modified from time to time, and the 8.25% Series M Senior Secured Notes due March 2, 2006 and the LIBOR Rate Series N Senior Secured Notes due March 2, 2002 each issued pursuant to the Note Purchase Agreement, dated as of June 2, 2000, among the Company and each of the several purchasers named therein, as the same may be amended, supplemented or otherwise modified (but not increased) from time to time. "Significant Subsidiary" means any Restricted Subsidiary that is a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "S&P" means Standard & Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc., and its successors. "Standard Securitization Undertakings" means representations, warranties, covenants and indemnities entered into by the Company or any Subsidiary of the Company which are reasonably customary in an accounts receivable transaction. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer, unless such contingency has occurred). "Subordinated Indebtedness" means any Indebtedness of the Company (whether outstanding on the date of this Indenture or the 1998 Indenture or thereafter Incurred) which is subordinate or junior in right of payment to the Securities pursuant to a written agreement including, in all respects, the 1998 Notes. 20 "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership or joint venture interests) 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 (i) such Person or (ii) one or more Subsidiaries of such Person. "Subsidiary Guarantee" means any Guarantee of the Securities that may from time to time be executed and delivered by a Restricted Subsidiary pursuant to Section 3.12. "Subsidiary Guarantor" means any Subsidiary that has issued a Subsidiary Guarantee. "Successor Company" shall have the meaning assigned thereto in clause (i) of Section 4.1. "Successor Guarantor" shall have the meaning assigned thereto in clause (i) of Section 4.2. "Temporary Cash Investments" means any of the following: (i) any Investment in direct obligations (x) of the United States of America or any agency thereof or obligations Guaranteed by the United States of America or any agency thereof or (y) of any foreign country recognized by the United States of America rated at least "A" by S&P or "A-1" by Moody's, (ii) Investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company that is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America having capital and surplus aggregating in excess of $250.0 million (or the foreign currency equivalent thereof) and whose long-term debt is rated "A" by S&P or "A-1" by Moody's, (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) or (ii) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) Investments in commercial paper, maturing not more than 270 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any Investment therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P, (v) Investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's and (vi) any money market deposit accounts issued or offered by a domestic commercial bank or a commercial bank organized and located in a country recognized by the United States of America, in each case, having capital and surplus in excess of $250.0 million (or the foreign currency equivalent thereof), or investments in money market funds complying with the risk limiting conditions of Rule 2a-7 (or any short-term successor rule) of the SEC, under the Investment Company Act of 1940, as amended. 21 "TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb), as in effect from time to time. "Total Assets" means, with respect to any Person, the total consolidated assets of such Person and its Restricted Subsidiaries, as shown on the recent balance sheet of such Person. "Trade Payables" means, with respect to any Person, any accounts payable or any indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person arising in the ordinary course of business in connection with the acquisition of goods or services. "Trustee" means the party named as such in this Indenture until a successor replaces it and, thereafter, means such successor. "Trust Officer" means the Chairman of the Board, the President or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Uniform Commercial Code" means the New York Uniform Commercial Code as in effect from time to time. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Restricted Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary (except a Restricted Subsidiary which upon such designation becomes an Unrestricted Subsidiary in accordance with this Indenture); provided that (i) such designation would be permitted under Section 3.4, (ii) no portion of the Indebtedness or any other obligation (contingent or otherwise) of such Subsidiary (A) is Guaranteed by the Company or any Restricted Subsidiary, (B) is Recourse Indebtedness or (C) subjects any property or asset of the Company or any Restricted Subsidiary, directly or indirectly, contingently or otherwise, to the satisfaction thereof, and (iii) no default or event of default with respect to any Indebtedness of such Subsidiary would permit any holder of any Indebtedness of the Company or any Restricted Subsidiary to declare such Indebtedness of the Company or any Restricted Subsidiary due and payable prior to its maturity. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under Section 3.3(a) and (y) no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate that such designation complied with the foregoing provisions. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America 22 (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option. "Voting Stock" of an entity means all classes of Capital Stock of such entity then outstanding and normally entitled to vote in the election of directors or all interests in such entity with the ability to control the management or actions of such entity. "Wholly-Owned Subsidiary" means a Restricted Subsidiary of the Company, 80% or more of the Capital Stock of which (other than directors' qualifying shares) is owned directly or indirectly by the Company. SECTION 1.2. Other Definitions.
Defined in Term Section ---- --------------------- "Additional Notes"............................................................... Recitals "Additional Restricted Securities"............................................... 2.1(b) "Affiliate Transaction".......................................................... 3.8 "Agent Member"................................................................... 2.1(e) "Authenticating Agent" 2.2 "Bankruptcy Law"................................................................. 5.1 "Change of Control Offer"........................................................ 3.9(c) "Company Order".................................................................. 2.2 "Corporate Trust Office"......................................................... 3.15 "covenant defeasance option"..................................................... 7.1(b) "Custodian"...................................................................... 5.1 "Definitive Securities".......................................................... 2.1(f) "Event of Default"............................................................... 5.1 "Exchange Notes"................................................................. Recitals "Excess Proceeds"................................................................ 3.7(B) "Global Securities".............................................................. 2.1(b) "IAI"............................................................................ 2.1(b) "Initial Notes".................................................................. Recitals "Institutional Accredited Investor Global Note".................................. 2.1(b) "Institutional Accredited Investor Notes"........................................ 2.1(b) "legal defeasance option"........................................................ 7.1(b) "Offer".......................................................................... 3.7(b) "Offer Amount"................................................................... 3.7 "Offer Period"................................................................... 3.7 "Pari Passu Offer"............................................................... 3.7(b) "Paying Agent"................................................................... 2.3 "Private Placement Legend"....................................................... 2.1 "Purchase Agreement"............................................................. 2.1(b) "Purchase Date".................................................................. 3.7(c) "QIBs"........................................................................... 2.1(b) "Registrar"...................................................................... 2.3
23 "Regulation S"................................................................... 2.1(b) "Regulation S Global Note"....................................................... 2.1(b) "Regulation S Legend"............................................................ 2.1(d) "Regulation S Note".............................................................. 2.1(a) "Resale Restriction Termination Date"............................................ 2.6 "Restricted Payment"............................................................. 3.4 "Rule 144A"...................................................................... 2.1(b) "Rule 144A Global Note".......................................................... 2.1(b) "Rule 144A Note"................................................................. 2.1(b) "Securities"..................................................................... Recitals "Series B Global Note"........................................................... 2.1(b) "Special Interest Payment Date".................................................. 2.13(a) "Special Record Date"............................................................ 2.13(o)
SECTION 1.3. Incorporation by Reference of Trust Indenture Act. This Indenture is subject to the mandatory provisions of the TIA which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company and any other obligor on the indenture securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by the TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.4. 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) "including" means including without limitation; (5) words in the singular include the plural and words in the plural include the singular; 24 (6) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured Indebtedness merely by virtue of its nature as unsecured Indebtedness; (7) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP; and (8) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater. ARTICLE II The Securities SECTION 2.1. Form, Dating and Terms. (a) The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Initial Notes issued on the date hereof will be in an aggregate principal amount of $300,000,000. In addition, the Company may issue, from time to time in accordance with the provisions of this Indenture, including, without limitation, Section 3.3 hereof, Additional Notes and Exchange Notes. Furthermore, Securities may be authenticated and delivered upon registration or transfer, or in lieu of, other Securities pursuant to Section 2.6, 2.9, 2.11 or 8.5 or in connection with an Offer pursuant to Section 3.7 or a Change of Control Offer pursuant to Section 3.9. The Initial Notes shall be known and designated as "8% Senior Notes, Series A, due 2009" of the Company. Additional Notes issued as Restricted Securities shall be known and designated as "8% Senior Notes, Series A, due 2009" of the Company. Additional Notes issued other than as Restricted Securities shall be known and designated as "8% Senior Notes, Series B, due 2009" of the Company, and Exchange Notes shall be known and designated as "8% Senior Notes, Series B, due 2009" of the Company. With respect to any Additional Notes, the Company shall set forth in a Board Resolution and an Officer's Certificate, the following information: (i) the aggregate principal amount of such Additional Notes to be authenticated and delivered pursuant to this Indenture; (ii) the issue price and the issue date of such Additional Notes; and (iii) whether such Additional Notes shall be Restricted Securities issued in the form of Exhibit A hereto and/or shall be issued in the form of Exhibit B hereto. The Initial Notes, the Additional Notes and the Exchange Notes shall be considered collectively as a single class for all purposes of this Indenture. Holders of the Initial Notes, the Additional Notes and the Exchange Notes will vote and consent together on all 25 matters to which such Holders are entitled to vote or consent as one class, and none of the Holders of the Initial Notes, the Additional Notes or the Exchange Notes shall have the right to vote or consent as a separate class on any matter to which such Holders are entitled to vote or consent. (b) The Initial Notes are being offered and sold by the Company pursuant to a Purchase Agreement, dated October 17, 2001, between the Company, J.P. Morgan Securities Inc. and Goldman, Sachs & Co. (the "Purchase Agreement"). The Initial Notes and any Additional Notes (if issued as Restricted Securities) ("Additional Restricted Securities") will be resold initially only to (A) qualified institutional buyers (as defined in Rule 144A under the Securities Act ("Rule 144A")) in reliance on Rule 144A ("QIBs") and (B) Persons other than U.S. Persons (as defined in Regulations S under the Securities Act ("Regulation S")) in reliance on Regulation S. Such Initial Notes and Additional Restricted Securities may thereafter be transferred to among others, QIBs, purchasers in reliance on Regulation S and IAIs in accordance with Rule 501 of the Securities Act in accordance with the procedure described herein. Initial Notes offered and sold to the Initial Purchasers, and any Additional Restricted Securities, subsequently resold to QIBs in the United States of America in reliance on Rule 144A (the "Rule 144A Notes") will be issued on the Issue Date in the form of a permanent global Security substantially in the form of Exhibit A, which is hereby incorporated by reference and made a part of this Indenture including appropriate legends as set forth in (c) (the "Rule 144A Global Note"), deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Rule 144A Global Note may be represented by more than one certificate, if so required by the Depositary's rules regarding the maximum principal amount to be represented by a single certificate. The aggregate principal amount of the Rule 144A Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. Initial Notes, and any Additional Restricted Securities, offered, sold and resold outside the United States of America (the "Regulation S Notes") in reliance on Regulation S shall be issued in the form of a permanent global Security substantially in the form of Exhibit A including appropriate legends as set forth in (c) (the "Regulation S Global Note") deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Regulation S Global Note may be represented by more than one certificate, if so required by the Depositary's rules regarding the maximum principal amount to be represented by a single certificate. The aggregate principal amount of the Regulation S Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. Initial Notes, and any Additional Restricted Securities, resold after an initial sale to QIBs in reliance on Rule 144 or an initial resale (the "Institutional Accredited Investor Notes") in reliance on Regulation S to institutional "accredited investors" (as defined in Rules 501(a)(1), (2), (3) and (7) under the Securities Act) who are not QIBs ("IAIs") in the United States of America will be issued in the form of a permanent global Security substantially in the 26 form of Exhibit A (the "Institutional Accredited Investor Global Note") deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Institutional Accredited Investor Global Note may be represented by more than one certificate, if so required by the Depositary's rules regarding the maximum principal amount to be represented by a single certificate. The aggregate principal amount of the Institutional Accredited Investor Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. Exchange Notes exchanged for interests in the Rule 144A Note, the Regulation S Note and the Institutional Accredited Investor Note will be issued in the form of a permanent global Note substantially in the form of Exhibit B hereto, which is hereby incorporated by reference and made a part of this Indenture, deposited with the Trustee as hereinafter provided, including the appropriate legend set forth in Section 2.1(c) hereof (the "Exchange Global Note"). The Exchange Global Note may be represented by more than one certificate, if so required by the Depositary's rules regarding the maximum principal amount to be represented by a single certificate. Any Additional Notes issued other than as Restricted Securities will be issued in the form of one or more permanent global Securities substantially in the form of Exhibit B (each, a "Series B Global Note") deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. A Series B Global Note may be represented by more than one certificate, if so required by the Depositary's rules regarding the maximum principal amount to be represented by a single certificate. The aggregate principal amount of the Series B Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. The Rule 144A Global Note, the Regulation S Global Note, the Exchange Global Note, the Institutional Accredited Investor Global Note, the Exchange Global Note, and the Series B Global Notes are sometimes collectively herein referred to as the "Global Securities." The principal of (and premium, if any) and interest on the Securities shall be payable at the office or agency of the Company maintained for such purpose in The City of New York, or at such other office or agency of the Company as may be maintained for such purpose pursuant to Section 2.3; provided, however, that, at the option of the Company, each installment of interest may be paid by (i) check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Note Register or (ii) wire transfer or other electronic funds transfer to an account located in the United States maintained by the payee. The Private Exchange Securities shall be in the form of Exhibit A. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage, in addition to those set forth on Exhibits A and B and in (d). The Company and the Trustee shall approve the forms of the Securities and any notation, endorsement or legend on them. Each Security shall be dated the date of its authentication. The terms of the Securities set forth in Exhibit A and Exhibit B are part of the terms of this Indenture and, to the extent applicable, the 27 Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to be bound by such terms. (c) Denominations. The Securities shall be issuable only in fully registered form, without coupons, and only in denominations of $1,000 and any integral multiple thereof. (d) Restrictive Legends. Unless and until (i) an Initial Note or an Additional Note issued as a Restricted Security is sold under an effective registration statement or (ii) an Initial Note or an Additional Note issued as a Restricted Security is exchanged for an Exchange Note in connection with an effective registration statement, in each case pursuant to the Registration Rights Agreement, (A) such Rule 144A Global Note and the Institutional Accredited Investor Global Note shall bear the following legend (the "Private Placement Legend") on the face thereof: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A TRANSACTION INVOLVING A MINIMUM PRINCIPAL AMOUNT OF 28 SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND (ii) IN THE CASE OF THE FOREGOING CLAUSE (E), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE."; and (B) the Regulation S Global Note shall bear the following legend (the "Regulation S Legend") on the face thereof: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS NOT A U.S. PERSON NOR IS IT PURCHASING FOR THE ACCOUNT OF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT ("REGULATION S"), (2) BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN 29 ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A TRANSACTION INVOLVING A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND (ii) IN THE CASE OF THE FOREGOING CLAUSE (E), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED AFTER 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH THE SECURITIES ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE DATE OF THE CLOSING OF THE ORIGINAL OFFERING. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.". The Global Securities, whether or not an Initial Note, shall bear the following legend on the face thereof: "UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS 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. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF." 30 (e) Book-Entry Provisions. (i) This Section 2.1(d) shall apply only to Global Securities deposited with the Trustee, as custodian for the Depositary. (ii) Each Global Security initially shall (x) be registered in the name of the Depositary for such Global Security or the nominee of such Depositary, (y) be delivered to the Trustee as custodian for such Depositary and (z) bear legends as set forth in Section 2.1(c). (iii) Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary or by the Trustee as the custodian of the Depositary or under such Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of the Depositary governing the exercise of the rights of a Holder of a beneficial interest in any Global Security. (iv) In connection with any transfer of a portion of the beneficial interest in a Global Security pursuant to subsection (e) of this Section to beneficial owners who are required to hold Definitive Securities (as defined below), the Security Trustee shall reflect on its books and records the date and a decrease in the principal amount of such Global Security in an amount equal to the principal amount of the beneficial interest in the Global Security to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Definitive Securities of like tenor and amount. (v) In connection with the transfer of an entire Global Security to beneficial owners pursuant to subsection (e) of this Section, such Global Security shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in such Global Security, an equal aggregate principal amount of Definitive Securities of authorized denominations. (vi) The registered holder of a Global Security may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. (f) Definitive Securities. Except as provided below, owners of beneficial interests in Global Securities will not be entitled to receive certificated Securities ("Definitive Securities"). If required to do so pursuant to any applicable law or regulation, beneficial owners may obtain Definitive Securities in exchange for their beneficial interests in a Global Security upon written request in accordance with the Depositary's and the Registrar's procedures. In addition, Definitive Securities shall be transferred to all beneficial owners in exchange for their beneficial interests in a Global Security if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security or the Depositary ceases to be a clearing agency registered under the Exchange Act, at a time when the Depositary is 31 required to be so registered in order to act as Depositary, and in each case a successor depositary is not appointed by the Company within 90 days of such notice or, (ii) the Company executes and delivers to the Trustee and Registrar an Officers' Certificate stating that such Global Security shall be so exchangeable or (iii) an Event of Default has occurred and is continuing and the Registrar has received a request from the Depositary. (g) Any Definitive Security delivered in exchange for an interest in a Global Security pursuant to Section 2.1(d)(iv) and (v) shall, except as otherwise provided by paragraph (c) of Section 2.6, bear the applicable legend regarding transfer restrictions applicable to the Definitive Security set forth in Section 2.1(c). (h) The registered holder of a Global Security may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. SECTION 2.2. Execution and Authentication. Two Officers shall sign the Securities for the Company by manual or facsimile signature. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually authenticates the Security. The signature of the Trustee on a Security shall be conclusive evidence that such Security has been duly and validly authenticated and issued under this Indenture. At any time and from time to time after the execution and delivery of this Indenture, the Trustee shall authenticate and make available for delivery: (1) Initial Notes for original issue, (2) Additional Notes for original issue and (3) Exchange Notes for issue only in a Registered Exchange Offer pursuant to the Registration Rights Agreement, and only in exchange for Initial Notes or Additional Notes, as the case may be, of an equal principal amount, in each case upon a written order of the Company signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company (the "Company Order"). Such Company Order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and whether the Securities are to be Initial Notes, Additional Notes or Exchange Notes. The Trustee may appoint an agent (the "Authenticating Agent") reasonably acceptable to the Company to authenticate the Securities. Unless limited by the terms of such appointment, any such Authenticating Agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. In case the Company or any Subsidiary Guarantor (if any), pursuant to Article IV, shall be consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwise dispose of its properties and assets substantially as an entirety to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the 32 Company or such Subsidiary Guarantor shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article IV, any of the Securities authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon Company Order of the successor Person, shall authenticate and deliver Securities as specified in such order for the purpose of such exchange. If Securities shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section 2.2 in exchange or substitution for or upon registration of transfer of any Securities, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time outstanding for Securities authenticated and delivered in such new name. SECTION 2.3. Registrar and Paying Agent. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar") and an office or agency where Securities may be presented for payment (the "Paying Agent"). The Company shall cause each of the Registrar and the Paying Agent to maintain an office or agency in the Borough of Manhattan, The City of New York. The Registrar shall keep a register of the Securities and of their transfer and exchange (the "Note Register"). The Company may have one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-registrar not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of each such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 6.7. The Company or any of its domestically incorporated Wholly-Owned Subsidiaries may act as Paying Agent, Registrar, co-registrar or transfer agent. The Company initially appoints the Trustee as Registrar and Paying Agent for the Securities. SECTION 2.4. Paying Agent To Hold Money in Trust. By at least 10:00 a.m. (New York City time) on the date on which any principal of or interest on any Security is due and payable, the Company shall deposit with the Paying Agent a sum sufficient to pay such principal or interest when due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that such Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by such Paying Agent for the payment of principal of or interest on the Securities and shall notify the Trustee of any default by the Company in making any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent (other than the Trustee) to pay all money held by it to the Trustee and to account for any funds disbursed by such Paying Agent. Upon 33 complying with this Section, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money delivered to the Trustee. Upon any bankruptcy, reorganization or similar proceeding with respect to the Company, the Trustee shall serve as Paying Agent for the Securities. SECTION 2.5. Securityholder 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 Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee, in writing at least five 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 Securityholders. SECTION 2.6. Transfer and Exchange. (a) The following provisions shall apply with respect to any proposed transfer of a Rule 144A Note or an Institutional Accredited Investor Note prior to the date which is two years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Securities (or any predecessor thereto) (the "Resale Restriction Termination Date"): (i) a transfer of a Rule 144A Note or an Institutional Accredited Investor Note or a beneficial interest therein to a QIB shall be made upon the representation of the transferee in the form as set forth on the reverse of the Security that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; (ii) a transfer of a Rule 144A Note or an Institutional Accredited Investor Note or a beneficial interest therein to an IAI shall be made upon receipt by the Trustee or its agent of a certificate substantially in the form set forth in Section 2.7 hereof from the proposed transferee and, if requested by the Company or the Trustee, the delivery of an opinion of counsel, certification and/or other information satisfactory to each of them; and (iii) a transfer of a Rule 144A Note or an Institutional Accredited Investor Note or a beneficial interest therein to a Non-U.S. Person shall be made upon receipt by the Trustee or its agent of a certificate substantially in the form set forth in Section 2.8 hereof from the proposed transferee and, if requested by the Company or the Trustee, the delivery of an opinion of counsel, certification and/or other information satisfactory to each of them. (b) The following provisions shall apply with respect to any proposed transfer of a Regulation S Note prior to the expiration of the Restricted Period: 34 (i) a transfer of a Regulation S Note or a beneficial interest therein to a QIB shall be made upon the representation of the transferee, in the form of assignment on the reverse of the certificate, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; (ii) a transfer of a Regulation S Note or a beneficial interest therein to an IAI shall be made upon receipt by the Trustee or its agent of a certificate substantially in the form set forth in Section 2.7 hereof from the proposed transferee and, if requested by the Company or the Trustee, the delivery of an opinion of counsel, certification and/or other information satisfactory to each of them; and (iii) a transfer of a Regulation S Note or a beneficial interest therein to a Non-U.S. Person shall be made upon receipt by the Trustee or its agent of a certificate substantially in the form set forth in Section 2.8 hereof from the proposed transferee and, if requested by the Company or the Trustee, receipt by the Trustee or its agent of an opinion of counsel, certification and/or other information satisfactory to each of them. After the expiration of the Restricted Period, interests in the Regulation S Note may be transferred without requiring certification set forth in Section 2.8 or any additional certification. (c) Restricted Securities Legend. Upon the transfer, exchange or replacement of Securities not bearing a Restricted Securities Legend, the Registrar shall deliver Securities that do not bear a Restricted Securities Legend. Upon the transfer, exchange or replacement of Securities bearing a Restricted Securities Legend, the Registrar shall deliver only Securities that bear such Restricted Securities Legend unless there is delivered to the Registrar an Opinion of Counsel to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (d) The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.1 or this Section 2.6. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. (e) Obligations with Respect to Transfers and Exchanges of Securities. (i) To permit registrations of transfers and exchanges, the Company shall, subject to the other terms and conditions of this Article II, execute and the Trustee shall authenticate Definitive Securities and Global Securities at the Registrar's or co-registrar's request. 35 (ii) No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charges payable upon exchange or transfer pursuant to Sections 3.7, 3.9 or 8.5). (iii) The Registrar or co-registrar shall not be required to register the transfer of or exchange of any Security for a period beginning (1) 15 Business Days before the mailing of a notice of an offer to repurchase Securities and ending at the close of business on the day of such mailing or (2) 15 Business Days before an interest payment date and ending on such interest payment date. (iv) Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. (v) All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. (f) No Obligation of the Trustee. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security, a member of, or a participant in, the Depositary or other Person with respect to the accuracy of the records of the Depositary or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depositary) of any notice or the payment of any amount or delivery of any Securities (or other security or property) under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders in respect of the Securities shall be given or made only to or upon the order of the registered Holders (which shall be the Depositary or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through the Depositary subject to the applicable rules and procedures of the Depositary. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depositary with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depositary participants, members or beneficial owners in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. 36 SECTION 2.7. Form of Certificate to be Delivered in Connection with Transfers to Institutional Accredited Investors. [Date] Smithfield Foods, Inc. c/o SunTrust Bank 25 Park Place 24th Floor Atlanta, Georgia 30303-2900 Attention: Corporate Trust Department (mc 008) Dear Sirs: This certificate is delivered to request a transfer of $ principal amount of the 8% Senior Notes due 2009 (the "Notes") of Smithfield Foods, Inc. (the "Company"). Upon transfer, the Notes would be registered in the name of the new beneficial owner as follows: Name: ___________________________________________________ Address: ________________________________________________ Taxpayer ID Number: _____________________________________ The undersigned represents and warrants to you that: 1. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the "Securities Act")) purchasing for our own account or for the account of such an institutional "accredited investor" at least $250,000 principal amount of the Notes, and we are acquiring the Notes not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risk of our investment in the Notes and we invest in or purchase securities similar to the Notes in the normal course of our business. We and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 2. We understand that the Notes have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Notes to offer, sell or otherwise transfer such Notes prior to the date that is two years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Notes (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act ("Rule 144A"), (c) in a transaction 37 complying with the requirements of Rule 144A under the Securities Act, to a person we reasonably believe is a qualified institutional buyer under Rule 144A (a "QIB") that purchases for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing for its own account or for the account of such an institutional "accredited investor," in each case in a minimum principal amount of Notes of $250,000 or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and in compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Notes is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Company and the Trustee, which shall provide, among other things, that the transferee is an institutional "accredited investor" (within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and that it is acquiring such Notes for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Company and the Trustee reserve the right prior to any offer, sale or other transfer prior to the Resale Termination Date of the Notes pursuant to clauses (d), (e) or (f) above to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to the Company and the Trustee. TRANSFEREE:_____________________ BY______________________________ SECTION 2.8. Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S. [Date] Smithfield Foods, Inc. c/o SunTrust Bank 25 Park Place 24th Floor Atlanta, Georgia 30303-2900 Attention: Corporate Trust Department (mc 008) Re: Smithfield Foods, Inc. 8% Senior Notes due 2009 (the "Securities") Ladies and Gentlemen: 38 In connection with our proposed sale of $________ aggregate principal amount of the Securities, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (a) the offer of the Securities was not made to a person in the United States; (b) either (i) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States or (ii) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States; (c) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(a)(2) or Rule 904(a)(2) of Regulation S, as applicable; and (d) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. In addition, if the sale is made during a restricted period and the provisions of Rule 903(b)(2) or Rule 904(b)(1) of Regulation S are applicable thereto, we confirm that such sale has been made in accordance with the applicable provisions of Rule 903(b)(2) or Rule 904(b)(1), as the case may be. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By:____________________________ ______________________________ Authorized Signature Signature Medallion Guaranteed SECTION 2.9. Mutilated, Destroyed, Lost or Stolen Securities. If a mutilated Security is surrendered to the Registrar or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the requirements of Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies any other reasonable requirements of the Trustee. If required by the Trustee or the Company, such Holder shall furnish an indemnity bond sufficient in the judgment of the Company and the Trustee to protect the Company, the Trustee, the Paying Agent, the Registrar and any co- registrar from any loss which any of them may suffer if a Security is replaced, then, in the absence of notice to the Company, any Subsidiary Guarantor or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon Company Order the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, 39 a new Security of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) in connection therewith. Every new Security issued pursuant to this Section in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, any Subsidiary Guarantor and any other obligor upon the Securities, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 2.10. Outstanding Securities. Securities outstanding at any time are all Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding in the event the Company or an Affiliate of the Company holds the Security except that the Company or an Affiliate of the Company shall not obtain voting rights with respect to such Security. If a Security is replaced pursuant to Section 2.9, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a bona fide purchaser. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a maturity date money sufficient to pay all principal and interest payable on that date with respect to the Securities maturing and the Paying Agent is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue. SECTION 2.11. Temporary Securities. Until Definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of Definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Definitive Securities. After the preparation of Definitive Securities, the temporary Securities shall be exchangeable for Definitive Securities upon surrender of the temporary Securities at any office 40 or agency maintained by the Company for that purpose and such exchange shall be without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute, and the Trustee shall authenticate and make available for delivery in exchange therefor, one or more Definitive Securities representing an equal principal amount of Securities. Until so exchanged, the Holder of temporary Securities shall in all respects be entitled to the same benefits under this Indenture as a holder of Definitive Securities. SECTION 2.12. Cancellation. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel and return to the Company all Securities surrendered for registration of transfer, exchange, payment or cancellation and deliver a certificate of such cancellation to the Company. The Company may not issue new Securities to replace Securities it has paid or delivered to the Trustee for cancellation. SECTION 2.13. Payment of Interest; Defaulted Interest. Interest on any Security which is payable, and is punctually paid or duly provided for, on any interest payment date shall be paid to the Person in whose name such Security (or one or more predecessor Securities) is registered at the close of business on the regular record date for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 2.3. Any interest on any Security which is payable, but is not paid when the same becomes due and payable and such nonpayment continues for a period of 30 days shall forthwith cease to be payable to the Holder on the regular record date by virtue of having been such Holder, and such defaulted interest and (to the extent lawful) interest on such defaulted interest at the rate borne by the Securities (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") shall be paid by the Company, at its election in each case, as provided in clause (a) or (b) below: (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective predecessor Securities) are registered at the close of business on a Special Record Date (as defined below) for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date (not less than 30 days after such notice) of the proposed payment (the "Special Interest Payment Date"), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a record date (the "Special Record Date") for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the Special Interest Payment Date and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date, and in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date 41 and Special Interest Payment Date therefor to be given in the manner provided for in Section 9.2, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date and Special Interest Payment Date therefor having been so given, such Defaulted Interest shall be paid on the Special Interest Payment Date to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (b). (b) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 2.14. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 2.15. CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use). The Trustee shall not be responsible for the use of CUSIP numbers, and the Trustee makes no representation as to their correctness as printed on any Security or notice to Securityholders. ARTICLE III Covenants SECTION 3.1. Payment of Securities. The Company shall promptly pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal and interest then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture. The Company shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. 42 Notwithstanding anything to the contrary contained in this Indenture, the Company may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal or interest payments hereunder. SECTION 3.2. SEC Reports. Notwithstanding that the Company may not remain subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act, the Company will file (if then permitted to do so) with the SEC and provide (whether or not so filed with the SEC) the Trustee and Securityholders and prospective Securityholders (upon request) within 15 days of the date of filing with the SEC or, if not filed, on the date that such reports would be required to be filed with the SEC if the Company was a reporting company, with the annual reports and the information, documents and other reports, which are specified in Sections 13 and 15(d) of the Exchange Act; provided, however, that the Company shall provide one copy of the exhibits of the foregoing to the Trustee and shall (upon request) provide additional copies of such exhibits to any Securityholder or prospective Securityholder. The Company shall also comply with the other provisions of TIA (S) 314(a). SECTION 3.3. Limitation on Indebtedness. (a) The Company will not, and will not permit any Restricted Subsidiary to, Incur any Indebtedness (including Acquired Indebtedness); provided, however, that the Company and its Restricted Subsidiaries may Incur Indebtedness if on the date of the Incurrence of such Indebtedness the Consolidated Coverage Ratio would be equal to or greater than 2.00:1.00. (b) Notwithstanding the foregoing paragraph (a), the Company and its Restricted Subsidiaries may Incur the following Indebtedness: (i) (A) Indebtedness of the Company Incurred pursuant to the Revolving Credit Facility and (B) the Incurrence by a Receivables Entity of Indebtedness in a Qualified Receivables Transaction that is nonrecourse to the Company or any Subsidiary of the Company (except for Standard Securitization Undertakings) in an aggregate principal amount for Indebtedness Incurred under clauses (A) and (B) since the date of the 1998 Indenture and outstanding at any one time, not to exceed the greater of (x) $400.0 million, less the aggregate amount of all repayments of principal actually made under the Revolving Credit Facility since the 1998 Issue Date with Net Available Cash from Asset Dispositions pursuant to clause (a)(iii)(A) of Section 3.7 and (y) the Borrowing Base; (ii) the incurrence by the Company of Indebtedness represented by the Securities; (iii) Indebtedness (A) of the Company to any Wholly-Owned Subsidiary and (B) of any Restricted Subsidiary to the Company or any other Wholly- Owned Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock or any other event that results in any such Wholly-Owned Subsidiary ceasing to be a Wholly-Owned Subsidiary or any other subsequent transfer of any such Indebtedness (except to the Company or a Wholly-Owned Subsidiary) will be deemed, in each case, an Incurrence of Indebtedness by the Company or such Restricted Subsidiary, as the case may be; 43 (iv) any Indebtedness (other than the Indebtedness described in clauses (i) or (iii) above) outstanding on the date of the 1998 Indenture, including the 1998 Notes and the Senior Secured Notes then in existence and the Guarantees related thereto, and any Refinancing Indebtedness Incurred in respect of any Indebtedness described in this clause (iv) or paragraph (a); (v) Indebtedness represented by the Subsidiary Guarantees and Guarantees of Indebtedness Incurred pursuant to clause (i) above; (vi) Indebtedness in respect of performance, surety or appeal bonds provided in the ordinary course of business; (vii) Indebtedness under Hedging Obligations; provided, however, that such Hedging Obligations are entered into for bona fide hedging purposes of the Company or any Restricted Subsidiary in the ordinary course of business; (viii) Indebtedness (in addition to Indebtedness described in clauses (i), (iii) and (iv)) of the Company or any Restricted Subsidiary attributable to Capitalized Lease Obligations, or Incurred to finance the acquisition, construction or improvement of fixed or capital assets, or constituting Attributable Debt in respect of Sale/Leaseback Transactions, in an aggregate principal amount at any time outstanding, since the date of the 1998 Indenture, not in excess of $50.0 million; (ix) Indebtedness of a Restricted Subsidiary issued and outstanding on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred (A) as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company or (B) otherwise in connection with, or in contemplation of, such acquisition) and any Refinancing Indebtedness with respect thereto; provided, however, that on the date of any such acquisition of a Restricted Subsidiary, the Company shall have been able to Incur at least an additional $1.00 of Indebtedness under paragraph (a) above after giving effect to such acquisition; and (x) Indebtedness (in addition to Indebtedness described in clauses (i)-(ix)) in a principal amount which, when taken together with the principal amount of all other Indebtedness Incurred pursuant to this clause (x) since the date of the 1998 Indenture and then outstanding, will not in the aggregate exceed $50.0 million. (c) Notwithstanding the foregoing, the Company will not Incur any Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are used, directly or indirectly, to refinance any Subordinated Indebtedness unless such Indebtedness (i) will be subordinated to the Securities to at least the same extent as such Subordinated Indebtedness and (ii) will not mature prior to the Stated Maturity of the Indebtedness to be refinanced or refunded, and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded. 44 (d) No Subsidiary Guarantor will incur any Indebtedness if the proceeds thereof are used, directly or indirectly, to refinance any Guarantor Subordinated Indebtedness of such Subsidiary Guarantor unless such Indebtedness will be subordinated to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee to at least the same extent as such Guarantor Subordinated Indebtedness. (e) The Company will not permit any Unrestricted Subsidiary to Incur any Indebtedness other than Non-Recourse Indebtedness; provided, however, if any such Indebtedness ceases to be Non-Recourse Indebtedness, such event shall be deemed to constitute an Incurrence of Indebtedness by the Company or a Restricted Subsidiary. (f) For purposes of determining compliance with this Section 3.3, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in the above clauses, the Company, in its sole discretion, shall classify such item of Indebtedness at the time of Incurrence and only be required to include the amount and type of such Indebtedness in one of such clauses. (g) For purposes of determining compliance with any U.S. dollar- denominated restriction on the Incurrence of Indebtedness, the U.S. dollar- equivalent principal amount of Indebtedness denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was Incurred, in the case of term Indebtedness, or first committed, in the case of revolving credit Indebtedness; provided that if such Indebtedness is Incurred to refinance other Indebtedness denominated in a foreign currency, and such refinancing would cause the applicable U.S. dollar- dominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such U.S. dollar- dominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed the principal amount of such Indebtedness being refinanced. Notwithstanding any other provision of this Section 3.3, the maximum amount of Indebtedness that the Company may Incur pursuant to this Section 3.3 shall not be deemed to be exceeded solely as a result of fluctuations in the exchange rate of currencies. The principal amount of any Indebtedness incurred to refinance other Indebtedness, if Incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such Refinancing Indebtedness is denominated that is in effect on the date of such refinancing. SECTION 3.4. Limitation on Restricted Payments. (a) The Company will not, and will not permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving the Company) except (x) dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and (y) dividends or distributions payable to the Company or any of its Subsidiaries (and, if such Subsidiary is not directly or indirectly owned 100% by the Company, to its other stockholders on a pro rata basis), (ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company or any Restricted Subsidiary held by Persons other than the Company or any of its Subsidiaries, (iii) purchase, repurchase, redeem, prepay interest, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Indebtedness or Guarantor Subordinated Indebtedness (other than the purchase, 45 repurchase or other acquisition of Subordinated Indebtedness or Guarantor Subordinated Indebtedness purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, repurchase or acquisition) or (iv) make any Restricted Investment in any Person (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment referred to in clauses (i) through (iv) being herein referred to as a "Restricted Payment"), if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); (2) the Company could not Incur at least an additional $1.00 of Indebtedness under paragraph (a) of Section 3.3; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments (the amount so expended, if other than in cash, to be determined in good faith by the Company's Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Company's Board of Directors) declared or made subsequent to the date of the 1998 Indenture would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) commencing on the 1998 Issue Date to the end of the most recent fiscal quarter ending prior to the date of such Restricted Payment as to which financial results are available (but in no event ending more than 135 days prior to the date of such Restricted Payment) (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds received by the Company from the issuance or sale of its Capital Stock (other than Disqualified Stock) or other cash capital contributions subsequent to the 1998 Issue Date (other than an issuance or sale to a Subsidiary of the Company and other than an issuance or sale to an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries for the benefit of their employees to the extent the purchase by such plan or trust is financed by Indebtedness of such plan or trust and for which the Company or any Restricted Subsidiary is the lender or is liable as guarantor or otherwise); (C) the sum of (i) the amount by which Indebtedness of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the 1998 Issue Date, of any Indebtedness of the Company or its Restricted Subsidiaries convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash or other property (other than Capital Stock) distributed by the Company upon such conversion or exchange) and (ii) the aggregate Net Cash Proceeds received by the Company (less any contingent amounts that the Company may be required to refund or return) upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the 1998 Issue Date of any Indebtedness of the Company or its Restricted Subsidiaries convertible or exchangeable for Capital Stock (other than Disqualified Stock); (D) the amount equal to the net reduction in Investments since the 1998 Issue Date in Unrestricted Subsidiaries resulting from (i) repayments of loans or advances or other transfers of assets to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries or (ii) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investment") not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount was treated as a Restricted Payment (and, with respect to clauses (i) and (ii), without duplication of any amounts included in Consolidated Net Income); and (E) to the extent that any Restricted Investment that was made after the 1998 Issue Date is sold for cash or otherwise liquidated or repaid for cash, the lesser of 46 (A) the net proceeds of such sale, liquidation or repayment and (B) the net book value of such Restricted Investment. (b) So long as there is no Default or Event of Default continuing, the provisions of the foregoing paragraph (a) will not prohibit: (i) any purchase, defeasance or redemption of Capital Stock or Subordinated Indebtedness of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company or an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries for the benefit of their employees to the extent the purchase by such plan or trust is financed by Indebtedness by such plan or trust and for which the Company or any Restricted Subsidiary is the lender or is liable as a guarantor or otherwise); provided, however, that (A) such purchase, defeasance or redemption shall be excluded in subsequent calculations of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale of Capital Stock shall be excluded in calculations under clause (3) (B) of Section 3.4(a); (ii) any purchase, defeasance or redemption of Subordinated Indebtedness made by exchange for, or out of the proceeds of the substantially concurrent sale of, Subordinated Indebtedness of the Company that is Refinancing Indebtedness; provided, however, that (A) such Indebtedness is subordinated to the Securities at least to the same extent as such Subordinated Indebtedness so purchased or redeemed and (B) such purchase, defeasance or redemption shall be excluded in subsequent calculations of the amount of Restricted Payments; (iii) the repurchase, redemption or other acquisition or retirement for value of Subordinated Indebtedness of the Company or Guarantor Subordinated Indebtedness of any of its Restricted Subsidiaries pursuant to a "change of control" or "asset sale" covenant set forth in the Indenture pursuant to which the same is issued and such "change of control" and "asset sale" covenants are substantially identical in all material respects to the comparable provisions included in the Indenture; provided that such repurchase, redemption or other acquisition or retirement for value shall only be permitted if all of the terms and conditions in such provisions have been complied with and such repurchases, redemptions or other acquisitions or retirements for value are made in accordance with such indenture pursuant to which the same is issued and provided further that the Company has repurchased all Securities required to be repurchased by the Company pursuant to the terms and conditions described in Section 3.7 or 3.9, as the case may be, prior to the repurchase, redemption or other acquisition or retirement for value of such Subordinated Indebtedness or Guarantor Subordinated Indebtedness pursuant to the "change of control" or "asset sale" covenant included in such indenture; provided that such repurchase, redemption or other acquisition shall be excluded in subsequent calculations of the amount of Restricted Payments; (iv) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with the requirements of Section 3.4(a); provided, however, that such dividend shall be included in subsequent calculations of the amount of Restricted Payments; (v) any repurchase of an Equity Interest deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options; or (vi) Permitted Employee Payments in an aggregate amount not in excess of $5.0 million since the 1998 Issue Date; provided, however, that such payments shall be included in the calculation of Restricted Payments. SECTION 3.5. Limitation on Sale/Leaseback Transactions. The Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any Sale/Leaseback 47 Transaction unless: (i) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Sale/Leaseback Transaction at least equal to the fair market value (as evidenced by a resolution of the Board of Directors of the Company) of the property subject to such transaction; (ii) the Company or such Restricted Subsidiary could have Incurred Indebtedness in an amount equal to the Attributable Debt in respect of such Sale/Leaseback Transaction pursuant to Section 3.3; (iii) the Company or such Restricted Subsidiary would be permitted to create a Lien on the property subject to such Sale/Leaseback Transaction without securing the Securities pursuant to Section 3.11; and (iv) the Sale/Leaseback Transaction is treated as an Asset Disposition and all of the conditions of the Indenture described in Section 3.7 (including the provisions concerning the application of Net Available Cash) are satisfied with respect to such Sale/Leaseback Transaction, treating all of the consideration received in such Sale/Leaseback Transaction as Net Available Cash for purposes of such covenant. SECTION 3.6. Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to the Company or any other Restricted Subsidiary, (ii) make any loans or advances to the Company or any other Restricted Subsidiary or (iii) transfer any of its property or assets to the Company or any other Restricted Subsidiary; except: (a) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the 1998 Issue Date, including pursuant to this Indenture, the Revolving Credit Facility and the Senior Secured Notes then in existence; (b) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company) and outstanding on such date; (c) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement effecting a refinancing of Indebtedness Incurred pursuant to an agreement referred to in the preceding clauses (a) or (b) or this clause (c) or contained in any amendment to an agreement referred to in the preceding clauses (a) or (b) or this clause (c); provided, however, that the encumbrances and restrictions contained in any such refinancing agreement or amendment are no less favorable to the Holders of the Securities taken as a whole, than the original encumbrances and restrictions contained in such agreements; (d) in the case of clause (iii) of this Section 3.6, any encumbrance or restriction (A) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract, (B) by virtue of any transfer of, agreement to transfer, option or right with respect to, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by this Indenture, (C) contained in security agreements securing Indebtedness of a Restricted Subsidiary to the extent such encumbrance or restrictions restrict the transfer of the property subject to such security agreements and (D) ordinary course provisions restricting the assignability of contracts; (e) any restriction with respect to the Company or a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of the Company or such Restricted Subsidiary pending the closing of such sale or disposition; (f) 48 restrictions created in connection with a Qualified Receivables Transaction that, in the good faith determination of the Board of Directors, are necessary to effect such Qualified Receivables Transaction; provided that such restrictions apply only to such Receivables Entity; and (g) any restriction by operation of applicable law. SECTION 3.7. Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless (i) the Company or such Restricted Subsidiary receives consideration (including by way of relief from, or by any other Person assuming sole responsibility for, any liabilities, contingent or otherwise) at the time of such Asset Disposition at least equal to the fair market value of the shares and assets subject to such Asset Disposition (as determined in good faith by the management of the Company, or if such Asset Disposition involves consideration in excess of $20.0 million, by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee), (ii) at least 75% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash and/or Cash Equivalents (except such requirement of cash and/or Cash Equivalents shall not apply to any property, plant, equipment or other facility closed and designated as unused, idle or obsolete by either Senior Management or by resolution of the Board of Directors, and in either case set forth in an Officers' Certificate delivered to the Trustee) and (iii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) as follows: (A) first, to the extent the Company or such Restricted Subsidiary elects (or is required by the terms of any Indebtedness), to prepay, repay or purchase Indebtedness (other than Disqualified Stock or Subordinated Indebtedness) (and to correspondingly reduce commitments with respect thereto) within 365 days after the date of such Asset Disposition; (B) second, to the extent of the balance of Net Available Cash after application in accordance with clause (A), to the extent the Company or such Restricted Subsidiary elects, to reinvest in Additional Assets (including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by the Company or another Restricted Subsidiary) within 365 days from the date of such Asset Disposition; (C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to purchase Securities and Pari Passu Indebtedness with similar asset sale provisions, pro rata at 100% of the tendered principal amount thereof (or 100% of the accreted value of such other Pari Passu Indebtedness so tendered, if such Pari Passu Indebtedness was offered at a discount) plus accrued and unpaid interest, if any, thereon to the purchase date and (D) fourth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C) above, to fund (to the extent consistent with any other applicable provision of the Indenture or the 1998 Indenture) any corporate purpose; provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) or (C) above, the Company or such Restricted Subsidiary will retire such Indebtedness and will cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions of this Section 3.7, the Company and the Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with this covenant except to the extent that the aggregate Net Available Cash from all Asset Dispositions that is not yet applied in accordance with this Section 3.7 at any time exceeds $10.0 million. 49 For the purposes of this Section 3.7, the following will be deemed to be cash: (x) the assumption of Indebtedness of the Company (other than Disqualified Stock or Subordinated Indebtedness of the Company) or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition and (y) securities received by the Company or any Restricted Subsidiary from the transferee that are converted within 30 days by the Company or such Restricted Subsidiary into cash. Upon the completion of the application of the Net Available Cash from any Asset Disposition pursuant to this paragraph (a), the amount of Net Available Cash attributable to such Asset Disposition shall be deemed to be zero. (b) In the event of an Asset Disposition that requires the purchase of Securities pursuant to Section 3.7(a)(iii)(C), the Company will be required to apply such Excess Proceeds (as defined below) to the repayment of the Securities and any other Pari Passu Indebtedness outstanding with similar provisions requiring the Company to make an offer to purchase such Indebtedness with the proceeds from any Asset Disposition as follows: (A) the Company will make an offer to purchase (an "Offer") within ten days of such time from all holders of the Securities in accordance with the procedures set forth in this Indenture in the maximum principal amount (expressed as a multiple of $1,000) of Securities that may be purchased out of an amount (the "Note Amount") equal to the product of such Excess Proceeds multiplied by a fraction, the numerator of which is the outstanding principal amount of the Securities and the denominator of which is the sum of the outstanding principal amount of the Securities and such Pari Passu Indebtedness and (B) to the extent required by such Pari Passu Indebtedness to permanently reduce the principal amount of such Pari Passu Indebtedness, the Company will make an offer to purchase or otherwise repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer") in an amount equal to the excess of the Excess Proceeds over the Note Amount at a purchase price of 100% of their principal amount plus accrued and unpaid interest (or 100% of the accreted value of such Pari Passu Indebtedness, if such Pari Passu Indebtedness was offered at a discount) to the purchase date in accordance with the procedures (including prorating in the event of oversubscription) set forth in this Indenture with respect to the Offer and in the documentation governing such Pari Passu Indebtedness with respect to the Pari Passu Offer. If the aggregate purchase price of the Securities tendered pursuant to the Offer and Pari Passu Offer is less than the Excess Proceeds, the remaining Excess Proceeds will be available to the Company for use in accordance with clause (a)(iii)(D) above. The Company shall not be required to make an Offer for Securities pursuant to this Section 3.7 if the Net Available Cash available therefor (after application of the proceeds as provided in clauses (a)(iii)(A) and (a)(iii)(B)) above ("Excess Proceeds") is less than $10.0 million (which lesser amounts shall be carried forward for purposes of determining whether an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). (c) (1) Promptly, and in any event within 10 days after the Company is required to make an Offer, the Company will deliver to the Trustee and send, by first-class mail to each Holder, a written notice stating that the Holder may elect to have his Securities purchased by the Company either in whole or in part (subject to prorating as hereinafter described in the event the Offer is oversubscribed) in integral multiples of $1,000 of principal amount, at the applicable purchase price. The notice shall specify a purchase date not less than 30 days nor more than 60 days after the date of such notice (the "Purchase Date"). 50 (2) Not later than the date upon which such written notice of an Offer is delivered to the Trustee and the Holders, the Company will deliver to the Trustee an Officers' Certificate setting forth (i) the amount of the Offer (the "Offer Amount"), (ii) the allocation of the Net Available Cash from the Asset Dispositions as a result of which such Offer is being made and (iii) the compliance of such allocation with the provisions of Section 3.7(a). Upon the expiration of the period (the "Offer Period") for which the Offer remains open, the Company shall deliver to the Trustee for cancellation the Securities or portions thereof which have been properly tendered to and are to be accepted by the Company. The Trustee shall, on the Purchase Date, mail or deliver payment to each tendering Holder in the amount of the purchase price of the Securities tendered by such Holder to the extent such funds are available to the Trustee. (3) Holders electing to have a Security purchased will be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice prior to the expiration of the Offer Period. Each Holder will be entitled to withdraw its election if the Trustee or the Company receives, not later than one Business Day prior to the expiration of the Offer Period, a facsimile transmission or overnight mail from such Holder setting forth the name of such Holder, the principal amount of the Security or Securities which were delivered for purchase by such Holder and a statement that such Holder is withdrawing his election to have such Security or Securities purchased. If at the expiration of the Offer Period the aggregate principal amount of Securities surrendered by Holders exceeds the Offer Amount, the Company shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000, or integral multiples thereof, shall be purchased). Holders whose Securities are purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. (d) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section 3.7. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 3.7, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Indenture by virtue thereof. SECTION 3.8. Limitation on Transactions with Affiliates. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into or conduct any transaction or series of transactions (including the purchase, sale, lease or exchange of any property or assets or the rendering of any service or the making of any Investment) with any Affiliate of the Company (an "Affiliate Transaction") on terms: (i) that are less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not an Affiliate and (ii) that, in the event such Affiliate Transaction involves an aggregate amount in excess of $10.0 million, are not in writing and have not been approved or negotiated and entered into on behalf of the Company or such Restricted Subsidiary by Senior Management acting pursuant to authorizing resolutions adopted by a majority of the members of the Board of Directors or by a majority of the members of the Board of Directors having no personal stake in such Affiliate Transaction (and such majority or majorities, as the case may be, determines that such Affiliate 51 Transaction satisfies the criteria in clause (i) above). Any Affiliate Transaction involving aggregate payments or other transfers by the Company and its Restricted Subsidiaries in excess of $20.0 million will also require an opinion from an independent investment banking firm or appraiser, as appropriate, of national prominence, to the effect that the terms of such transaction are either (i) no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not an Affiliate or (ii) fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view. (b) The provisions of Section 3.8(a) shall not prohibit (i) any Restricted Payment or Permitted Investment permitted to be made pursuant to Section 3.4, (ii) the performance of the Company's or Restricted Subsidiary's obligations under any collective bargaining agreement, employee benefit plan, related trust agreement or any other similar arrangement heretofore or hereafter entered into in the ordinary course of business, (iii) payment of reasonable fees and compensation to employees, officers or directors as determined in good faith by the Company's Board of Directors or Senior Management (including indemnification to the fullest extent permitted by applicable law, directors' and officers' insurance and similar arrangements, employment contracts, non- competition and confidentiality agreements and similar instruments or payments) entered into in the ordinary course of business, (iv) maintenance in the ordinary course of business of reasonable benefit programs or arrangements for employees, officers or directors, including vacation plans, health and life insurance plans, SERPs, split-dollar life insurance plans, deferred compensation plans, and retirement or savings plans and similar plans as determined in good faith by the Company's Board of Directors or Senior Management, (v) any transaction between the Company and a Wholly-Owned Subsidiary or between Wholly- Owned Subsidiaries, (vi) transactions effected as part of a Qualified Receivables Transaction, (vii) any issuance by the Company of Capital Stock (other than Disqualified Stock) or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans to the extent reasonable, as determined in good faith by the Company's Board of Directors in the ordinary course of business, and loans or advances to employees in the ordinary course of business of the Company or its Restricted Subsidiaries consistent with past practices, (viii) transactions with customers, suppliers, or purchasers or sellers of goods or services, in each case, in the ordinary course of business and otherwise in compliance with the terms of this Indenture which are fair to the Company or the Restricted Subsidiaries or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated third party, in the reasonable determination of the Board of Directors of the Company or the Senior Management thereof, and (ix) any agreement as in effect on the 1998 Issue Date or any amendment thereto (so long as any such amendment is not disadvantageous to the holders of the Securities in any material respect). SECTION 3.9. Change of Control. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require the Company to repurchase all or any part of such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date). 52 (b) In the event that at the time of such Change of Control the terms of any Indebtedness restrict or prohibit the repurchase of Securities pursuant to Section 3.9(a), prior to the mailing of the notice to Holders provided for in Section 3.9(c) but in any event within 30 days following any Change of Control, the Company shall either (i) repay in full all Indebtedness or offer to repay in full all such Indebtedness and repay the Indebtedness of each lender who has accepted such offer or (ii) obtain the requisite consent under the agreements governing such Indebtedness to permit the repurchase of the Securities as provided for in Section 3.9(c). The Company will first comply with the preceding sentence of this Section 3.9(b) before the Company will be required to make the Change of Control Offer or to purchase the Securities pursuant to this Section 3.9; provided, that compliance with this clause (b) will not extend the time periods set forth in Section 3.9(c) for the Company to make an offer to repurchase the Securities in connection with a Change of Control. (c) Subject to the provisions of Section 3.9(b), within 30 days following any Change of Control, the Company shall mail a notice (the "Change of Control Offer") to each Holder with a copy to the Trustee stating: (1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on a record date to receive interest on the relevant interest payment date); (2) the circumstances and relevant facts and financial information regarding such Change of Control; (3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Change of Control Payment Date"); (4) that any Security not tendered will continue to accrue interest pursuant to its terms; (5) that, unless the Company defaults in the payment of the purchase price, any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on and after the Change of Control Payment Date; and (6) the instructions determined by the Company, consistent with this Section 3.9, that a Holder must follow in order to have its Securities purchased or to cancel such order of purchase. (d) Holders electing to have a Security purchased will be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least three Business Days prior to the purchase date. Each Holder will be entitled to withdraw its election if the Company receives, not later than one Business Day prior to the purchase date, a telegram, telex, facsimile transmission or letter from such Holder setting forth the name of such Holder, the principal amount of the Security or Securities which were delivered 53 for purchase by such Holder and a statement that such Holder is withdrawing his election to have such Security or Securities purchased. (e) On or before the Change of Control Payment Date, the Company shall: (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Securities or portions thereof so accepted and (iii) deliver, or cause to be delivered, to the Trustee, all Securities or portions thereof so accepted together with an Officers' Certificate specifying the Securities or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail, to the Holders of Securities so accepted, payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new Security equal in principal amount to any unpurchased portion of the Securities surrendered; provided that each Security purchased and each new Security issued shall be in a principal amount of $1,000 or integral multiples thereof. (f) 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. (g) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section 3.9. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 3.9, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Indenture by virtue thereof. SECTION 3.10. Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries. The Company (i) will not, and will not permit any Restricted Subsidiary to, transfer, convey, lease, sell or otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary to any Person (other than to the Company or a Wholly-Owned Subsidiary) and (ii) will not permit any Restricted Subsidiary, directly or indirectly, to issue or sell any shares of its Capital Stock (other than directors' qualifying shares) to any Person (other than to the Company or a Wholly-Owned Subsidiary); provided, however, that (i) the Company is permitted to sell all the Capital Stock of a Restricted Subsidiary as long as the Company is in compliance with the terms of Section 3.7 and (ii) the Company is permitted to sell less than all of the Capital Stock of a Restricted Subsidiary if (A) immediately after giving effect to such sale such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect to such sale would have been permitted to be made under Section 3.4 if made on the date of such issuance or sale and (B) the Company is in compliance with the terms of Section 3.7. SECTION 3.11. Limitation on Liens. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist any Lien (other than Permitted Liens) that secures obligations under any Indebtedness on any asset or property of the Company or such Restricted Subsidiary, including any Guarantee of such Restricted Subsidiary, or any income or profits therefrom, or assign or convey any right to receive income therefrom, unless the Securities are equally and ratably secured with the 54 obligations so secured (or senior to, in the event the Lien relates to Subordinated Indebtedness) or until such time as such obligations are no longer secured by a Lien. (b) The Company will not permit any Subsidiary Guarantor to directly or indirectly create, incur, assume or suffer to exist any Lien (other than Permitted Liens) that secures obligations under any Indebtedness of such Subsidiary Guarantor on any asset or property of such Subsidiary Guarantor or any income or profits therefrom, or assign or convey any right to receive income therefrom, unless the Subsidiary Guarantee of such Subsidiary Guarantor is equally and ratably secured with the obligations so secured (or senior to, in the event the Lien relates to Guarantor Subordinated Indebtedness) or until such time as such obligations are no longer secured by a Lien. (c) Notwithstanding the foregoing, Liens on assets transferred to a Receivables Entity or on assets of a Receivables Entity incurred in connection with a Qualified Receivables Transaction will not require such equal and ratable security. SECTION 3.12. Limitation on Issuances of Guarantees of Indebtedness by Restricted Subsidiaries. (a) The Company will not permit any Restricted Subsidiary to Guarantee the payment of any Indebtedness of the Company or any Indebtedness of any other Restricted Subsidiary unless (i) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to the Indenture providing for a Guarantee of payment of the Securities by such Restricted Subsidiary (a "Subsidiary Guarantee") except that with respect to a guarantee of Indebtedness of the Company if such Indebtedness is by its express terms subordinated in right of payment to the Securities, any such Guarantee of such Restricted Subsidiary with respect to such Indebtedness shall be subordinated in right of payment to such Restricted Subsidiary's Subsidiary Guarantee with respect to the Securities substantially to the same extent as such Indebtedness is subordinated to the Securities; (ii) such Restricted Subsidiary waives and will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Subsidiary Guarantee; and (iii) such Restricted Subsidiary shall deliver to the Trustee an Opinion of Counsel to the effect that (A) such Subsidiary Guarantee has been duly executed and authorized and (B) such Subsidiary Guarantee constitutes a valid, binding and enforceable obligation of such Restricted Subsidiary, except insofar as enforcement thereof may be limited by bankruptcy, insolvency or similar laws (including, without limitation, all laws relating to fraudulent transfers) and except insofar as enforcement thereof is limited by general principles of equity; provided that this paragraph (a) shall not become applicable to any Guarantee of any Restricted Subsidiary (x) that (A) existed at the time such Person became a Restricted Subsidiary of the Company and (B) was not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary of the Company or (y) that Guarantees the payment of obligations of the Company or any Restricted Subsidiary under the Revolving Credit Facility or the Senior Secured Notes or Indebtedness with similar terms (other than interest rates and maturity), provisions and covenants as the Senior Secured Notes and such Indebtedness is secured by a Lien Incurred exclusively under clause (18) of the definition of Permitted Liens and the principal amount of such Indebtedness in the aggregate does not exceed 15% of Total Assets and any refunding, refinancing or replacement thereof, in whole or in part; provided, further that 55 such Indebtedness Incurred under this clause (y) and any refunding, refinancing or replacement thereof (1) does not constitute Subordinated Indebtedness and (2) is not Incurred pursuant to a registered offering of securities under the Securities Act or a private placement of securities (including under Rule 144A) pursuant to an exemption from the registration requirements of the Securities Act, which private placement provides for registration rights under the Securities Act (any guarantee excluded by operations of this clause (y) being an "Excluded Guarantee"). (b) Notwithstanding the foregoing and the other provisions of this Indenture, any Subsidiary Guarantee by a Restricted Subsidiary shall provide by its terms that it shall be automatically and unconditionally released and discharged upon (1) any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all of the Company's Capital Stock in, or all or substantially all the assets of, whether by way of merger, consolidation or otherwise, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by this Indenture), (2) the release or discharge of the guarantee which resulted in the creation of such Subsidiary Guarantee, except a discharge or release by or as a result of payment under such guarantee or (iii) such Restricted Subsidiary is designated an Unrestricted Subsidiary of the Company in accordance with the terms of this Indenture by the Company's Board of Directors. SECTION 3.13. Limitation on Lines of Business. The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than a Related Business. SECTION 3.14. Effectiveness of Covenants. The covenants described in Sections 3.2, 3.3, 3.4, 3.6, 3.7, 3.8, 3.10, 3.12 and 3.13 will no longer be in effect upon the Company reaching Investment Grade Status. SECTION 3.15. Maintenance of Office or Agency. The Company will maintain in The City of New York, an office or agency where the Securities may be presented or surrendered for payment, where, if applicable, the Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The corporate trust office of the Trustee, which initially shall be located at SunTrust Bank, c/o Computer Share, c/o SunTrust Bank, 88 Pine Street, 19th Floor, New York, New York 10005 Attention: Corporate Trust Department (the "Corporate Trust Office") shall be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. The Company will give prompt written notice to the Trustee of any change in the location of any 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, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside of The City of New York) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind any such designation; 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 City of New York 56 for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such other office or agency. SECTION 3.16. Money for Security Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of (or premium, if any) or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal of (or premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee in writing of its action or failure to so act. Whenever the Company shall have one or more Paying Agents for the Securities, it will, on or before each due date of the principal of (or premium, if any) or interest on any Securities, deposit with any Paying Agent a sum in same day funds (or New York Clearing House funds if such deposit is made prior to the date on which such deposit is required to be made) that shall be available to the Trustee by 10:00 a.m. New York City time on such due date sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee in writing of such action or any failure to so act. The Company will cause each Paying Agent (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (a) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (b) give the Trustee written notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal (and premium, if any) or interest; and (c) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. 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 (or premium, if any) or interest on any Security and remaining unclaimed for two years after such principal, premium or interest has 57 become due and payable shall be paid to the Company on Company Order, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general 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 to the Company, may at the expense of the Company cause to be published once, in a leading daily newspaper (if practicable, The Wall Street Journal (Eastern Edition)) printed in the English language and of general circulation in New York City, 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 publication nor shall it be later than two years after such principal (or premium, if any) or interest shall have become due and payable, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 3.17. Corporate Existence. Subject to Article IV, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and that of each Restricted Subsidiary and the corporate rights (charter and statutory) licenses and franchises of the Company and each Restricted Subsidiary; provided, however, that the Company shall not be required to preserve any such existence (except the Company), right, license or franchise if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and each of its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not, and will not be, disadvantageous in any material respect to the Holders. SECTION 3.18. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary and (ii) all lawful claims for labor, materials and supplies, which, if unpaid, might by law become a material liability or lien upon the property of the Company or any Restricted Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which appropriate reserves, if necessary (in the good faith judgment of management of the Company) are being maintained in accordance with GAAP. SECTION 3.19. Maintenance of Properties. The Company will cause all material properties owned by the Company or any Restricted Subsidiary or used or held for use in the conduct of its business or the business of any Restricted Subsidiary to be maintained and kept in normal condition, repair and working order and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly conducted at all times; provided, however, that nothing in this Section shall prevent the Company or any of its Restricted Subsidiaries from discontinuing the maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of 58 its business or the business of any Restricted Subsidiary and not adverse in any material respect to the Holders. SECTION 3.20. Insurance. To the extent available at commercially reasonable rates, the Company will maintain, and will cause its Restricted Subsidiaries to maintain, insurance with responsible carriers against such risks and in such amounts, and with such deductibles, retentions, self-insured amounts and co-insurance provisions, as are customarily carried by similar businesses, of similar size in their country of organization, including professional and general liability, property and casualty loss, workers' compensation and interruption of business insurance. In the event the Company determines that insurance satisfying the first sentence of this Section 3.20 is not available at commercially reasonable rates, it shall provide an Officer's Certificate to such effect to the Trustee and the Trustee may conclusively rely on the determinations set forth therein. SECTION 3.21. Compliance with Laws. The Company shall comply, and shall cause each of its Restricted Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental regulatory authority, in respect of the conduct of their respective businesses and the ownership of their respective properties, except for such noncompliances as would not in the aggregate have a material adverse effect on the financial condition or results of operations of the Company and its Restricted Subsidiaries, taken as a whole. SECTION 3.22. Compliance Certificate. The Company shall deliver to the Trustee within 120 days after the end of each Fiscal Year of the Company an Officers' Certificate stating that in the course of the performance by the signers of their duties as Officers of the Company they would normally have knowledge of any Default or Event of Default and whether or not the signers know of any Default or Event of Default that occurred during such period. If they do, the certificate shall describe the Default or Event of Default, its status and what action the Company is taking or proposes to take with respect thereto. The Company also shall comply with TIA (S) 314(a)(4). The Officer's Certificate shall also notify the Trustee should the then current Fiscal Year be changed to end on any date other than on the date as herein defined. SECTION 3.23. Further Instruments and Acts. Upon request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. ARTICLE IV Successor Company and Successor Guarantor SECTION 4.1. When Company May Merge or Otherwise Dispose of Assets. The Company will not, in a single transaction or series of related transactions, consolidate with 59 or merge with or into, or convey, transfer, lease or otherwise dispose of all or substantially all its assets to, any Person nor permit any Person to merge with or into the Company, unless: (i) the resulting, surviving or transferee Person (the "Successor Company") will be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) will expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture; (ii) immediately before and after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), no Default or Event of Default will have occurred and be continuing; (iii) immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness under paragraph (a) of Section 3.3; (iv) each Subsidiary Guarantor (unless it is the other party to the transactions above, in which case clause (i) shall apply) shall have by supplemental indenture confirmed that its Subsidiary Guarantee shall apply to such Person's obligations in respect of the Indenture and the Securities; and (v) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transactions or series of transactions) of all or substantially all of the properties and assets of one or more Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. The Successor Company shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture, but the predecessor Company in the case of a conveyance, transfer, lease of all or substantially all its assets will not be released from the obligation to pay the principal of and interest on the Securities. Solely for the purpose of computing amounts described in clause 3(A) of Section 3.4(a), the Successor Company shall only be deemed to have succeeded and be substituted for the Company with respect to periods subsequent to the effective time of such merger, consolidation, combination or transfer of assets. Notwithstanding clauses (ii) and (iii) of the first sentence of this Section 4.1: (1) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (2) the Company may merge with an Affiliate incorporated solely 60 for the purpose of reincorporating the Company in another jurisdiction to realize tax or other benefits. SECTION 4.2. When a Subsidiary Guarantor May Merge or Otherwise Dispose of Assets. Subject to Section 3.12(b), the Company will not permit any Subsidiary Guarantor, if any, to, in a single transaction or series of related transactions, consolidate with or merge with or into, or convey, transfer or lease or otherwise dispose of all or substantially all its assets to, any Person nor permit any Person to merge with or into such Subsidiary Guarantor, unless: (i) the resulting, surviving or transferee Person (the "Successor Guarantor") will be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Guarantor (if not the Subsidiary Guarantor) will expressly assume in writing all the obligations of such Subsidiary Guarantor under such Subsidiary Guarantor's respective Subsidiary Guarantee; (ii) immediately before and after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Guarantor or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Guarantor or such Restricted Subsidiary at the time of such transaction), no Default or Event of Default will have occurred and be continuing; (iii) immediately after giving effect to such transaction, the Company would be able to Incur an additional $1.00 of Indebtedness under paragraph (a) of Section 3.3; (iv) each other Subsidiary Guarantor shall have delivered a written instrument in form and substance satisfactory to the Trustee confirming its Subsidiary Guarantee; and (v) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such assumption of the Subsidiary Guarantee, if applicable, comply with this Indenture. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties and assets of one or more Subsidiaries of such Subsidiary Guarantor, the Capital Stock of which constitutes all or substantially all of the properties and assets of such Subsidiary Guarantor, shall be deemed to be the transfer of all or substantially all of the properties and assets of such Subsidiary Guarantor. The Successor Guarantor shall succeed to, and be substituted for, and may exercise every right and power of, the Subsidiary Guarantor under this Indenture and the relevant Subsidiary Guarantee, but the predecessor Subsidiary Guarantor in the case of a conveyance, transfer or lease of all or substantially all its assets will not be released from its obligation to pay the principal of and interest on the Securities. Solely for the purpose of computing amounts described in clause 3(A) of Section 3.4(a), the Successor Company shall only be deemed to have succeeded and be substituted for the Company with respect to periods subsequent to the effective time of such merger, consolidation, combination or transfer of assets. 61 Notwithstanding clauses (ii) and (iii) of the first sentence of this Section 4.2, (1) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (2) the Company may merge with an Affiliate incorporated exclusively for the purpose of reincorporating the Company in another jurisdictin to realize tax or other benefits. ARTICLE V Defaults and Remedies SECTION 5.1. Events of Default. An "Event of Default" occurs if: (1) the Company defaults in any payment of interest on any Security when the same becomes due and payable, and such default continues for a period of 30 days; (2) the Company defaults in the payment of the principal of or premium, if any, on any Security when the same becomes due and payable at its Stated Maturity, upon required repurchase, upon declaration or otherwise; (3) the Company or any Subsidiary Guarantor fails to comply with Article IV; (4) the Company fails to comply with Section 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12 or 3.13 (in each case other than a failure to repurchase Securities when required pursuant to Section 3.7 or 3.9, which failure shall constitute an Event of Default under Section 5.1(2)) and such failure continues for 30 days after the notice specified below; (5) the Company defaults in the performance of or a breach by the Company of any other covenant or agreement in this Indenture or under the Securities (other than those referred to in (1), (2), (3) or (4) above) and such default continues for 60 days after the notice specified below; (6) the failure by any Subsidiary Guarantor that is a Significant Subsidiary (if any) to comply with its obligations under any Subsidiary Guarantee to which such Subsidiary Guarantor is a party, after any applicable grace period; (7) Indebtedness of the Company or any Significant Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof and the total amount of such unpaid or accelerated Indebtedness exceeds $25.0 million or its foreign currency equivalent at the time; (8) the Company or a Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law (as defined below): (A) commences a voluntary case; 62 (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian (as defined below) of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; (9) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Significant Subsidiary in an involuntary case; (B) appoints a Custodian of the Company or any Significant Subsidiary or for any substantial part of its property; or (C) orders the winding up or liquidation of the Company or any Significant Subsidiary; or any similar relief is granted under any foreign laws and the order, decree or relief remains unstayed and in effect for 60 days; (10) any judgment or decree for the payment of money in excess of $25.0 million or its foreign currency equivalent at the time in the aggregate for all such final judgments or orders against the Company or a Significant Subsidiary if (A) an enforcement proceeding thereon is commenced and not discharged within ten days or (B) such judgment or decree remains outstanding for a period of 60 days following such judgment or decree and is not discharged, waived, stayed or bonded; or (11) the failure of any Subsidiary Guarantee by a Subsidiary Guarantor (if any) which is a Significant Subsidiary to be in full force and effect (except as contemplated by the terms thereof) or the denial or disaffirmation by any such Subsidiary Guarantor of its obligations under any Subsidiary Guarantee if such Default continues for 30 days. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, United States Code, or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. Notwithstanding the foregoing, a Default under clause (4) or (5) of this Section 5.1 will not constitute an Event of Default until the Trustee or the Holders of at least 25% in 63 principal amount of the outstanding Securities notify the Company of the Default and the Company does not cure such Default within the time specified in said clause (4) or (5) after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of any Event of Default under clauses (1), (2), (3), (4), (5), (6), (7), (10) or (11) of this Section 5.1. SECTION 5.2. Acceleration. If an Event of Default (other than an Event of Default specified in Section 5.1(8) or (9) with respect to the Company or a Significant Subsidiary) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in outstanding principal amount of the Securities by notice to the Company and the Trustee, may, and the Trustee at the request of such Holders shall, declare the principal of, premium, if any, and accrued but unpaid interest on all the Securities to be due and payable. Upon such a declaration, such principal, premium and interest shall, subject to Section 9.4, be immediately due and payable. In the event of a declaration of acceleration because an Event of Default set forth in Section 5.1(7) above has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default or payment default triggering such Event of Default pursuant to Section 5.1(7) shall be remedied or cured by the Company and/or the relevant Significant Subsidiaries or waived by the holders of the relevant Indebtedness within 60 days after the declaration of acceleration with respect thereto. If an Event of Default specified in Section 5.1(8) or (9) with respect to the Company occurs, the principal of, premium, if any, and accrued and unpaid interest on all the Securities will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. The Holders of a majority in principal amount of the Securities then outstanding by notice to the Trustee may waive all past defaults (except with respect to nonpayment of principal, premium or interest) and rescind an acceleration with respect to the Securities and its consequences if (i) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (ii) all existing Events of Default, other than the nonpayment of principal of, premium, if any or interest on the Securities that has become due solely because of such acceleration, have been cured or waived. No such rescission shall affect any subsequent Default or Event of Default or impair any right consequent thereto. SECTION 5.3. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder 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. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 5.4. Waiver of Past Defaults. The Holders of a majority in principal amount of the Securities by notice to the Trustee may waive an existing Default or Event of 64 Default and its consequences except (i) a Default or Event of Default in the payment of the principal of or interest on a Security or (ii) a Default or Event of Default in respect of a provision that under Section 8.2 cannot be amended without the consent of each Securityholder affected. When a Default or Event of Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any consequent right. SECTION 5.5. Control by Majority. The Holders of a majority in principal amount of the Securities then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to Section 6.1, that the Trustee determines is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action under this Indenture, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. SECTION 5.6. Limitation on Suits. A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders of at least 25% in outstanding principal amount of the Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (5) the Holders of a majority in principal amount of the Securities do not give the Trustee a direction inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 5.7. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of, premium (if any) or interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, 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. SECTION 5.8. Collection Suit by Trustee. If an Event of Default specified in Section 5.1(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount then due and owing 65 (together with interest on any unpaid interest to the extent lawful) and the amounts provided for in Section 6.7. SECTION 5.9. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Company, its Subsidiaries or their respective creditors or properties and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make 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 it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 6.7. SECTION 5.10. Priorities. If the Trustee collects any money or property pursuant to this Article V, it shall pay out the money or property in the following order: First: to the Trustee for amounts due under Section 6.7; Second: to Securityholders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and Third: to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section. At least 15 days before such record date, the Company shall mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid. SECTION 5.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs 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, a suit by the Company, a suit by a Holder pursuant to Section 5.7 or a suit by Holders of more than 10% in outstanding principal amount of the Securities. 66 ARTICLE VI Trustee SECTION 6.1. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) 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, in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall examine such certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer or Trust Officers unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) 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 5.5. (d) 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. (e) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (f) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (g) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA. 67 SECTION 6.2. Rights of Trustee. (a) The Trustee may conclusively rely and shall be protected in acting upon any paper or document believed by it to be genuine and to have been signed or presented by the proper Person or Persons. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. (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 which it believes to be authorized or within its rights or powers; provided, however, that the Trustee's conduct does not constitute wilful misconduct or negligence. (e) The Trustee may consult with counsel of its selection, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond or other paper or document; but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (g) The Trustee shall not be deemed to have knowledge of any Default or Event of Default except (i), during any period it is serving as Registrar and Paying Agent for the Securities, any Event of Default occurring pursuant to Section 5.1(1) and 5.1(2), or (ii) any Default or Event of Default of which a Trust Officer shall have received written notification or obtained "actual knowledge." "Actual knowledge" shall mean the actual fact or statement of knowing by a Trust Officer without independent investigation with respect thereto. SECTION 6.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 6.10 and 6.11. SECTION 6.4. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in this Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee's certificate of authentication or for the use or application of any funds received by any Paying Agent other than the Trustee. 68 SECTION 6.5. Notice of Defaults. If a Default or Event of Default occurs and is continuing and if a Trust Officer has actual knowledge thereof, the Trustee shall mail to each Securityholder 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, premium (if any), or interest on any Security (including payments pursuant to the required repurchase provisions of such Security, if any), the Trustee may withhold the notice if and so long as its board of directors, a committee of its board of directors or a committee of its Trust Officers and/or a Trust Officer of the Trustee in good faith determines that withholding the notice is in the interests of Securityholders. SECTION 6.6. Reports by Trustee to Holders. As promptly as practicable after each May 15 beginning with the May 15 following the date of this Indenture, and in any event prior to July 15 in each year, the Trustee shall mail to each Securityholder a brief report dated as of such May 15 that complies with TIA (S) 313(a). The Trustee also shall comply with TIA (S) 313(b). The Trustee shall also transmit by mail all reports required by TIA (S) 313(c). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to notify promptly the Trustee in writing whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 6.7. Compensation and Indemnity. The Company shall pay to the Trustee from time to time such compensation for its services as the parties shall agree in writing 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 upon request for all reasonable out-of- pocket expenses incurred or made by it, including, but not limited to, costs of collection, costs of preparing and reviewing reports, certificates and other documents, costs of preparation and mailing of notices to Securityholders and reasonable costs of counsel retained by the Trustee in connection with the delivery of an Opinion of Counsel or otherwise, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. The Company shall indemnify the Trustee, and each of its officers, directors, counsel and agents, against any and all loss, liability or expense (including, but not limited to, reasonable attorneys' fees and expenses) incurred by it in connection with the administration of this trust and the performance of its duties hereunder, including the costs and expenses of enforcing this Indenture (including this Section 6.7) and of defending itself against any claims (whether asserted by any Securityholder, the Company or otherwise). 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 may have separate counsel and the Company shall pay the fees and expenses of such counsel. The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustee's own wilful misconduct, negligence or bad faith, subject to the exceptions contained in Section 6.1(c) hereof. To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest on particular Securities. The 69 Trustee's right to receive payment of any amounts due under this Section 6.7 shall not be subordinate to any other liability or indebtedness of the Company. The Company's payment obligations pursuant to this Section and any lien arising hereunder shall survive the discharge of this Indenture and the resignation or removal of the Trustee. When the Trustee incurs expenses after the occurrence of a Default specified in Section 5.1(8) or (9) with respect to the Company, the expenses are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 6.8. Replacement of Trustee. The Trustee may resign at any time by so notifying the Company. The Holders of a majority in principal amount of the Securities may remove the Trustee by so notifying the Company and the Trustee in writing and may appoint a successor Trustee. The Company shall remove the Trustee if: (1) the Trustee fails to comply with Section 6.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed by the Company or by the Holders of a majority in principal amount of the Securities and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint 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 Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 6.7. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 6.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section 6.8, the Company's obligations under Section 6.7 shall continue for the benefit of the retiring Trustee. 70 SECTION 6.9. Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture, any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION 6.10. Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of TIA (S) 310(a). The Trustee shall have a combined capital and surplus of at least $100 million as set forth in its most recent filed annual report of condition. The Trustee shall comply with TIA (S) 310(b). SECTION 6.11. Preferential Collection of Claims Against Company. The Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated. ARTICLE VII Discharge of Indenture; Defeasance SECTION 7.1. Discharge of Liability on Securities; Defeasance. (a) When (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.9) for cancellation or (ii) all outstanding Securities have become due and payable at maturity and the Company irrevocably deposits with the Trustee funds sufficient to pay at maturity all outstanding Securities (other than Securities replaced pursuant to Section 2.9), including interest thereon to maturity, and the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Section 7.1(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company (accompanied by an Officers' Certificate and an Opinion of Counsel stating that all conditions precedent specified herein relating to the satisfaction and discharge of this Indenture have been complied with) and at the cost and expense of the Company. (b) Subject to Sections 7.1(c) and 7.2, the Company at its option and at any time may terminate (i) all the obligations of the Company and any Subsidiary Guarantor under the Securities and this Indenture ("legal defeasance option") or (ii) the obligations of the Company and any Subsidiary Guarantor under Sections 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 71 3.13, 4.1(iii), 4.1(v), 4.2(iii) and 4.2(v) and 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 or provision, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or provision 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 5.1(3) and 5.1(4) ("covenant defeasance option"), but except as specified above, the remainder of this Indenture and the Securities shall be unaffected thereby. The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Securities may not be accelerated because of an Event of Default. If the Company exercises its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Sections 5.1(4), 5.1(6), 5.1(7), 5.1(8) (but only with respect to a Significant Subsidiary), 5.1(9) (but only with respect to a Significant Subsidiary), 5.1(10) and 5.1(11) or because of the failure of the Company to comply with Sections 4.1(iii), 4.1(v), 4.2(iii) and 4.2(v). Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding the provisions of Sections 7.1(a) and (b), the Company's obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.9, 6.7, 6.8, 7.4, 7.5 and 7.6 shall survive until the Securities have been paid in full. Thereafter, the Company's obligations in Sections 6.7, 7.4 and 7.5 shall survive. SECTION 7.2. Conditions to Defeasance. The Company may exercise its legal defeasance option or its covenant defeasance option only if: (1) the Company irrevocably deposits in trust with the Trustee for the benefit of the Holders cash in U.S. dollars or U.S. Government Obligations or a combination thereof for the payment of principal of and interest on the Securities to maturity; (2) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Securities to maturity; (3) 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 with respect to the Indenture resulting from the incurrence of Indebtedness, all or a portion of which will be used to defease the Securities concurrently with such incurrence); (4) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a Default under this Indenture or any other material agreement 72 or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (5) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that (A) the Securities and (B) assuming no intervening bankruptcy of the Company between the date of deposit and the 91st day following the deposit and that no Holder of the Securities is an insider of the Company, 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' right generally; (6) the deposit does not constitute a default under any other agreement binding on the Company; (7) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (8) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) 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 Securityholders 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; (9) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States to the effect that the Securityholders 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; and (10) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities and this Indenture as contemplated by this Article VII have been complied with. SECTION 7.3. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article VII. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Securities. SECTION 7.4. Repayment to Company. Anything herein to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon 73 Company Order any money or U.S. Government Obligations held by it as provided in this Article VII which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect legal defeasance or covenant defeasance, as applicable, provided that the Trustee shall not be required to liquidate any U.S. Government Obligations in order to comply with the provisions of this paragraph. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of principal of or interest on the Securities that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors. SECTION 7.5. Indemnity for U.S. Government Obligations. The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. SECTION 7.6. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article VII by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the obligations of the Company under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article VII until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article VII; provided, however, that, if the Company has made any payment of interest on or principal of any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE VIII Amendments SECTION 8.1. Without Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities without notice to or consent of any Securityholder: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to comply with Article IV in respect of the assumption by a Successor Company of an obligation of the Company under this Indenture; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the uncertificated Securities are issued in 74 registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code; (4) to add Guarantees with respect to the Securities, to secure the Securities or to release a Subsidiary Guarantor upon its designation as an Unrestricted Subsidiary; provided, however, that the designation is made in accordance with the applicable provision of this Indenture; (5) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; (6) to comply with any requirements of the SEC in connection with qualifying this Indenture under the TIA; (7) to make any change that does not adversely affect the rights of any Securityholder; or (8) to provide for the issuance of the Exchange Notes, which will have terms substantially identical in all material respects to the Initial Notes (except that the transfer restrictions contained in the Initial Notes will be modified or eliminated, as appropriate), and which will be treated, together with any outstanding Initial Notes, as a single issue of securities . After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 8.2. With Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding. However, without the consent of each Securityholder affected, an amendment may not: (1) reduce the principal amount of Securities whose Holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any Security; (3) reduce the principal of or extend the Stated Maturity of any Security; (4) reduce the premium payable upon the repurchase of any Security or change the time at which any Security may or shall be repurchased in accordance with Section 3.9; (5) make any Security payable in money other than that stated in the Security; 75 (6) impair the right of any Holder to receive payment of principal of and interest on such Holder's Securities on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder's Securities; (7) release any Subsidiary Guarantor, if any, from any of its obligations under its Subsidiary Guarantee or this Indenture, except in compliance with the terms thereof; or (8) make any change in the amendment provisions which require each Holder's consent or in the waiver provisions. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 8.3. Compliance with Trust Indenture Act. Every amendment to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 8.4. Revocation and Effect of Consents and Waivers. A consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Securityholder. An amendment or waiver made pursuant to Section 8.2 shall become effective upon receipt by the Trustee of the requisite number of written consents. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall become valid or effective more than 120 days after such record date. SECTION 8.5. Notation on or Exchange of Securities. If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall 76 authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 8.6. Trustee To Sign Amendments. The Trustee shall sign any amendment authorized pursuant to this Article VIII if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture. ARTICLE IX Miscellaneous SECTION 9.1. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the provision required by the TIA shall control. SECTION 9.2. Notices. Any notice or communication shall be in writing and delivered in person or mailed by first-class mail addressed as follows: if to the Company: Smithfield Foods, Inc. 200 Commerce Street Smithfield, VA 23430 Attention: Chief Financial Officer Facsimile No.: (757) 365-3023 With a copy to: McGuireWoods LLP One James Center 901 E. Cary Street Richmond, VA 23219-4030 Attention: Jane Whitt Sellers, Esq. Facsimile No.: (804) 698-2170 if to the Trustee: SunTrust Bank 25 Park Place 24th Floor Atlanta, Georgia 30303-2900 Attention: Corporate Trust Department Facsimile No.: (404) 332-3966 (mc 008) 77 78 With a copy (which shall not constitute notice) to: Alston & Bird, LLP One Atlantic Center 1201 West Peachtree Street N.E. Atlanta, Georgia 30309-3424 Attention: Glenn R. Thomson Facsimile No.: (404) 881-4777 The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 9.3. Communication by Holders with other Holders. Securityholders may communicate pursuant to TIA (S) 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA (S) 312(c). SECTION 9.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 9.5. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that the individual making such certificate or opinion has read such covenant or condition; 79 (2) 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; (3) a statement that, in the opinion of such individual, he 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 complied with; and (4) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. SECTION 9.6. When Securities Disregarded. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities 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 disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination. SECTION 9.7. Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by, or a meeting of, Securityholders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 9.8. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or other day on which commercial banking institutions are authorized or required to be closed in New York City or Atlanta, Georgia. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected. SECTION 9.9. Governing Law. This Indenture and the Securities shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 9.10. No Recourse Against Others. An incorporator, director, officer, employee, stockholder or controlling person, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 9.11. Successors. All agreements of the Company in this Indenture and the Securities shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successors. 80 SECTION 9.12. Multiple 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. One signed copy is enough to prove this Indenture. SECTION 9.13. Variable Provisions. The Company initially appoints the Trustee as Paying Agent and Registrar and custodian with respect to any Global Securities. SECTION 9.14. Qualification of Indenture. The Company shall qualify this Indenture under the TIA in accordance with the terms and conditions of the Registration Rights Agreement and shall pay all reasonable costs and expenses (including attorneys' fees and expenses for the Company and the Trustee) incurred in connection therewith, including, but not limited to, costs and expenses of qualification of the Indenture and the Securities and printing this Indenture and the Securities. The Trustee shall be entitled to receive from the Company any such Officers' Certificates, Opinions of Counsel or other documentation as it may reasonably request in connection with any such qualification of this Indenture under the TIA. SECTION 9.15. Table of Contents; Headings. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. 81 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. SMITHFIELD FOODS, INC. By: /s/ C. Larry Pope ----------------- Name: C. LARRY POPE Title: Vice President and Chief Financial Officer SUNTRUST BANK, as Trustee By: /s/ Jack Ellerin ------------------------------- Name: Jack Ellerin Title: Assistant Vice President EXHIBIT A [FORM OF FACE OF SERIES A NOTE] [Applicable Restricted Securities Legend] [Depository Legend, if applicable] No. [___] Principal Amount $[______________] CUSIP NO. ____________ SMITHFIELD FOODS, INC. 8% Senior Note, Series A, due 2009 Smithfield Foods, Inc., a Virginia corporation, promises to pay to [___________], or registered assigns, the principal sum of [__________________] Dollars on October 15, 2009. Interest Payment Dates: October 15 and April 15. Record Dates: October 1 and April 1. Additional provisions of this Security are set forth on the other side of this Security. Dated: SMITHFIELD FOODS, INC. By:____________________________ By:____________________________ TRUSTEE'S CERTIFICATE OF AUTHENTICATION SUNTRUST BANK as Trustee, certifies that this is one of the Securities referred to in the Indenture. By _________________________________ Authorized Signatory Date: [FORM OF REVERSE SIDE OF SERIES A NOTE] 8% Senior Note, Series A, due 2009 1. Interest Smithfield Foods, Inc., a Virginia corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually on October 15 and April 15 of each year. Interest on the Securities will accrue from the most recent date to which interest has been paid on the Securities or, if no interest has been paid, from October 23, 2001. The Company shall pay interest on overdue principal or premium, if any (plus interest on such interest to the extent lawful), at the rate borne by the Securities 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 By at least 10:00 a.m. (New York City time) on the date on which any principal of or interest on any Security is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and/or interest. The Company will pay interest (except Defaulted Interest) to the Persons who are registered Holders of Securities at the close of business on the October 1 or April 1 next preceding the interest payment date even if Securities are cancelled or repurchased after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money and mailed to a Holder's registered address. 3. Paying Agent and Registrar Initially, SunTrust Bank, a banking corporation duly organized and existing under the laws of the State of Georgia ("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice to any Securityholder. The Company or any of its domestically incorporated Wholly-Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. Indenture The Company issued the Securities under an Indenture dated as of October 23, 2001 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Indenture"), among the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) as in effect from time to time (the "Act"). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are general unsecured senior obligations of the Company. The aggregate principal amount of Securities which may be authenticated and delivered under the Indenture is unlimited. This Security is one of the 8% Senior Notes, Series A, due 2009 referred to in the Indenture. The Securities include (i) $300,000,000 aggregate principal amount of the Company's 8% Senior Notes, Series A, due 2009 issued under the Indenture on October 23, 2001 (herein called "Initial Notes"), (ii) if and when issued, additional 8% Senior Notes, Series A, due 2009 or 8% Senior Notes, Series B, due 2009 of the Company that may be issued from time to time under the Indenture subsequent to October 23, 2001 (herein called "Additional Notes") and (iii) if and when issued, the Company's 8% Senior Notes, Series B, due 2009 that may be issued from time to time under the Indenture in exchange for Initial Notes or Additional Notes in an offer registered under the Securities Act as provided in the Registration Rights Agreement. The Initial Notes, Additional Notes and Exchange Notes are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the Incurrence of Indebtedness by the Company and its Subsidiaries, the payment of dividends and other distributions on the Capital Stock of the Company and its Subsidiaries, the purchase or redemption of Capital Stock of the Company and Capital Stock of such Subsidiaries, certain purchases or redemptions of Subordinated Indebtedness, the sale or transfer of assets and Capital Stock of Subsidiaries, certain sale/leaseback transactions involving the Company or any Restricted Subsidiary, the issuance or sale of Capital Stock of Subsidiaries, the incurrence of certain liens, certain payment guarantees, the business activities and investments of the Company and its Subsidiaries and transactions with Affiliates, provided, however, certain of such limitations will no longer be in effect if the Securities receive a rating of "BBB-" or higher from Standard & Poor's Rating Services (or its successors) and "Baa3" or higher from Moody's Investors Service, Inc. (or its successors). In addition, the Indenture limits the ability of the Company and its Subsidiaries to enter into agreements that restrict distributions and dividends from Subsidiaries. 5. Put Provisions Upon a Change of Control, any Holder of Securities will have the right to cause the Company to repurchase all or any part of the Securities of such Holder at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date) as provided in, and subject to the terms of, the Indenture. 6. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities for a period beginning 15 days before an interest payment date and ending on such interest payment date. 7. Persons Deemed Owners The registered holder of this Security may be treated as the owner of it for all purposes. 8. Unclaimed Money If money for the payment of the principal of or premium, if any, or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 9. Defeasance Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to maturity. 10. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the then outstanding Securities and (ii) any default (other than with respect to nonpayment) or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount of the then outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article IV of the Indenture in respect of the assumption by a Successor Company of an obligation of the Company under the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to release a Subsidiary Guarantor upon its designation as an Unrestricted Subsidiary or to add additional covenants or surrender rights and powers conferred on the Company, or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect the rights of any Securityholder, or to provide for the issuance of Exchange Notes. 11. Defaults and Remedies Under the Indenture, Events of Default include: (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of the principal of or premium, if any, on the Securities at maturity, upon required repurchase, upon declaration or otherwise; (iii) failure by the Company or any Significant Subsidiary to comply with other agreements in the Indenture or the Securities, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Company or any Significant Subsidiary if the amount accelerated (or so unpaid) exceeds $25.0 million; (v) certain events of bankruptcy or insolvency with respect to the Company or any Significant Subsidiary; (vi) certain final, non-appealable judgments or decrees for the payment of money in excess of $25.0 million; and (vii) nonperformance by any Subsidiary Guarantor that is a Significant Subsidiary under a Subsidiary Guarantee or the failure of any Subsidiary Guarantee by a Subsidiary Guarantor which is a Significant Subsidiary to be in full force and effect. If an Event of Default occurs and is continuing, the Trustee or Holders of at least 25% in principal amount of the Securities then outstanding may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of principal or interest) if it determines that withholding notice is in their interest. 12. Trustee Dealings with the Company Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its affiliates and may otherwise deal with the Company or its affiliates with the same rights it would have if it were not Trustee. 13. No Recourse Against Others A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 14. Authentication This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security. 15. Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act). 16. 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 Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers placed thereon. 17. Governing Law This Security shall be governed by, and construed in accordance with, the laws of the State of New York. The Company will furnish to any Securityholder upon written request and without charge to the Securityholder a copy of the Indenture which has in it the text of this Security in larger type. Requests may be made to: Smithfield Foods, Inc. 200 Commerce Street Smithfield, VA 23430 Attention: Chief Financial Officer ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to ___________________________________________________ (Print or type assignee's name, address and zip code) _________________________________________________ (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint ___________agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. _______________________________________________________________________________ Date:____________________ Your Signature:___________________ Signature Guarantee:______________________________ (Signature must be guaranteed) Sign exactly as your name appears on the other side of this Security. The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. In connection with any transfer or exchange of any of the Securities evidenced by this certificate occurring prior to the date that is two years after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Securities are being: CHECK ONE BOX BELOW: 1 [ ] acquired for the undersigned's own account, without transfer; or 2 [ ] transferred to the Company; or 3 [ ] transferred pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act") and the transferee is purchasing for its own account or an account with respect to which it exercises sole investment discretion and any such transferee is a qualified institutional buyer within the meaning of Rule 144A; or 4 [ ] transferred pursuant to an effective registration statement under the Securities Act; or 5 [ ] transferred pursuant to and in compliance with Regulation S under the Securities Act; or 6 [ ] transferred to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act), that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter appears as Section 2.7 of the Indenture); or 7 [ ] transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box (5), (6) or (7) is checked, the Trustee or the Company may require, prior to registering any such transfer of the Securities, in their sole discretion, such legal opinions, certifications and other information as the Trustee or the Company may reasonably request to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. ______________________________ Signature Signature Guarantee: _____________________________ ______________________________ (Signature must be guaranteed) Signature ____________________________________________________________ The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: NOTICE: To be executed by an executive officer [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made:
Amount of decrease Amount of increase Principal Amount of Signature of Date of in Principal Amount in Principal Amount this Global authorized Exchange of this Global of this Global Security following signatory of Security Security such decrease or Trustee or increase Securities Custodian
OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 3.7 or 3.9 of the Indenture, check the box: If you want to elect to have only part of this Security purchased by the Company pursuant to Section 3.7 or 3.9 of the Indenture, state the amount in principal amount (must be integral multiple of $1,000): $ Date: _______________ Your Signature: _________________________ (Sign exactly as your name appears on the other side of the Security) Signature Guarantee: _______________________________________ (Signature must be guaranteed) The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. EXHIBIT B [FORM OF FACE OF SERIES B NOTE] [Depository Legend, if applicable] No. [_____] Principal Amount $[____________] CUSIP NO. _____________ SMITHFIELD FOODS, INC. 8% Senior Notes, Series B, due 2009 Smithfield Foods, Inc., a Virginia corporation, promises to pay to [______________], or registered assigns, the principal sum of [_______________] Dollars on October 15, 2009. Interest Payment Dates: October 15 and April 15. Record Dates: October 1 and April 1. Additional provisions of this Security are set forth on the other side of this Security. SMITHFIELD FOODS, INC. By:______________________________ By:______________________________ TRUSTEE'S CERTIFICATE OF AUTHENTICATION SUNTRUST BANK as Trustee, certifies that this is one of the Securities referred to in the Indenture. By:_________________________ Authorized Signatory Date: [FORM OF REVERSE SIDE OF SERIES B NOTE] 8% Senior Note, Series B, due 2009 1. Interest Smithfield Foods, Inc., a Virginia corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually on October 15 and April 15 of each year. Interest on the Securities will accrue from the most recent date to which interest has been paid on the Securities or, if no interest has been paid, from October 23, 2001. The Company shall pay interest on overdue principal or premium, if any (plus interest on such interest to the extent lawful), at the rate borne by the Securities 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 By at least 10:00 a.m. (New York City time) on the date on which any principal of or interest on any Security is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and/or interest. The Company will pay interest (except Defaulted Interest) to the Persons who are registered Holders of Securities at the close of business on the October 1 or April 1 next preceding the interest payment date even if Securities are cancelled or repurchased after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money and mailed to a Holder's registered address. 3. Paying Agent and Registrar Initially, SunTrust Bank, a banking corporation duly organized and existing under the laws of the State of Georgia ("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice to any Securityholder. The Company or any of its domestically incorporated Wholly-Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. Indenture The Company issued the Securities under an Indenture dated as of October 23, 2001 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Indenture"), among the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) as in effect from time to time (the "Act"). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are general unsecured senior obligations of the Company. The aggregate principal amount of Securities which may be authenticated and delivered under the Indenture is unlimited. This Security is one of the 8% Senior Notes, Series B, due 2009 referred to in the Indenture. The Securities include (i) $300,000,000 aggregate principal amount of the Company's 8% Senior Notes, Series A, due 2009 issued under the Indenture on October 23, 2001 (herein called "Initial Notes"), (ii) if and when issued, additional 8% Senior Notes, Series A, due 2009 or 8% Senior Notes, Series B, due 2009 of the Company that may be issued from time to time under the Indenture subsequent to October 23, 2001 (herein called "Additional Notes") and (iii) if and when issued, the Company's 8% Senior Notes, Series B, due 2009 that may be issued from time to time under the Indenture in exchange for Initial Notes or Additional Notes in an offer registered under the Securities Act as provided in the Registration Rights Agreement. The Initial Notes, Additional Notes and Exchange Notes are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the Incurrence of Indebtedness by the Company and its Subsidiaries, the payment of dividends and other distributions on the Capital Stock of the Company and its Subsidiaries, the purchase or redemption of Capital Stock of the Company and Capital Stock of such Subsidiaries, certain purchases or redemptions of Subordinated Indebtedness, the sale or transfer of assets and Capital Stock of Subsidiaries, certain sale/leaseback transactions involving the Company or any Restricted Subsidiary, the issuance or sale of Capital Stock of Subsidiaries, the incurrence of certain liens, certain payment guarantees, the business activities and investments of the Company and its Subsidiaries and transactions with Affiliates, provided, however, certain of such limitations will no longer be in effect if the Securities receive a rating of "BBB-" or higher from Standard & Poor's Rating Services (or its successors) and "Baa3" or higher from Moody's Investors Service, Inc. (or its successors). In addition, the Indenture limits the ability of the Company and its Subsidiaries to enter into agreements that restrict distributions and dividends from Subsidiaries. 5. Put Provisions Upon a Change of Control, any Holder of Securities will have the right to cause the Company to repurchase all or any part of the Securities of such Holder at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date) as provided in, and subject to the terms of, the Indenture. 6. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities for a period beginning 15 days before an interest payment date and ending on such interest payment date. 7. Persons Deemed Owners The registered holder of this Security may be treated as the owner of it for all purposes. 8. Unclaimed Money If money for the payment of the principal of or premium, if any, or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 9. Defeasance Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to maturity. 10. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the then outstanding Securities and (ii) any default (other than with respect to nonpayment) or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount of the then outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article IV of the Indenture in respect of the assumption by a Successor Company of an obligation of the Company under the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to release a Subsidiary Guarantor upon its designation as an Unrestricted Subsidiary or to add additional covenants or surrender rights and powers conferred on the Company or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect the rights of any Securityholder, or to provide for the issuance of Exchange Notes. 11. Defaults and Remedies Under the Indenture, Events of Default include: (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of the principal of or premium, if any, on the Securities at maturity, upon required repurchase, upon declaration or otherwise; (iii) failure by the Company or any Significant Subsidiary to comply with other agreements in the Indenture or the Securities, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Company or any Significant Subsidiary if the amount accelerated (or so unpaid) exceeds $25.0 million; (v) certain events of bankruptcy or insolvency with respect to the Company or any Significant Subsidiary; (vi) certain final, non-appealable judgments or decrees for the payment of money in excess of $25.0 million; and (vii) nonperformance by any Subsidiary Guarantor that is a Significant Subsidiary under a Subsidiary Guarantee or the failure of any Subsidiary Guarantee by a Subsidiary Guarantor which is a Significant Subsidiary to be in full force and effect. If an Event of Default occurs and is continuing, the Trustee or Holders of at least 25% in principal amount of the Securities then outstanding may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of principal or interest) if it determines that withholding notice is in their interest. 12. Trustee Dealings with the Company Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its affiliates and may otherwise deal with the Company or its affiliates with the same rights it would have if it were not Trustee. 13. No Recourse Against Others A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 14. Authentication This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security. 15. Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act). 16. 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 Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers placed thereon. 17. Governing Law This Security shall be governed by, and construed in accordance with, the laws of the State of New York. The Company will furnish to any Securityholder upon written request and without charge to the Securityholder a copy of the Indenture which has in it the text of this Security in larger type. Requests may be made to: Smithfield Foods, Inc. 200 Commerce Street Smithfield, VA 23430 Attention: Chief Financial Officer ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to _____________________________________________________ (Print or type assignee's name, address and zip code) _____________________________________________ (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint ___________agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. _______________________________________________________________________________ Date: _______________ Your Signature ____________________ Signature Guarantee: ____________________________________ (Signature must be guaranteed) _______________________________________________________________________________ Sign exactly as your name appears on the other side of this Security. The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made:
Amount of decrease Amount of increase Principal Amount of Signature of Date of in Principal Amount in Principal Amount this Global authorized Exchange of this Global of this Global Security following signatory of Security Security such decrease or Trustee or increase Securities Custodian
OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 3.7 or 3.9 of the Indenture, check the box: [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 3.7 or 3.9 of the Indenture, state the amount in principal amount (must be integral multiple of $1,000): $ Date: _______________ Your Signature: _________________________ (Sign exactly as your name appears on the other side of the Security) Signature Guarantee: _______________________________________ (Signature must be guaranteed) The signature(s) should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. EX-4.3B 4 dex43b.txt PURCHASE AGREEMENT DATED OCTOBER 17, 2001 EXHIBIT 4.3(b) EXECUTION COPY SMITHFIELD FOODS, INC. $300,000,000 8% Senior Notes due 2009 PURCHASE AGREEMENT October 17, 2001 J.P. Morgan Securities, Inc. Goldman, Sachs & Co. c/o J.P. Morgan Securities, Inc. 270 Park Avenue 4th floor New York, New York 10017 Ladies and Gentlemen: Smithfield Foods, Inc., a Virginia corporation (the "Company"), proposes to issue and sell $300,000,000 aggregate principal amount of its 8% Senior Notes due 2009 (the "Securities"). The Securities will be issued pursuant to an Indenture dated as of October 23, 2001 (the "Indenture") between the Company and SunTrust Bank, Atlanta, as trustee (the "Trustee"). The Company hereby confirms its agreement with J.P. Morgan Securities, Inc. ("JPMSI") and Goldman, Sachs & Co. ("GS", and together with JPMSI, the "Initial Purchasers") concerning the purchase of the Securities from the Company by the Initial Purchasers. The Securities will be offered and sold to the Initial Purchasers without being registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon an exemption therefrom. The Company has prepared a preliminary offering memorandum dated September 7, 2001 (including the documents incorporated by reference therein, the "Preliminary Offering Memorandum") and will prepare an offering memorandum dated the date hereof (including the documents incorporated by reference therein, the "Offering Memorandum") setting forth information concerning the Company and the Securities. Copies of the Preliminary Offering Memorandum have been, and copies of the Offering Memorandum will be, delivered by the Company to the Initial Purchasers pursuant to the terms of this Agreement. Any references herein to the Preliminary Offering Memorandum and the Offering Memorandum shall be deemed to include all amendments and supplements thereto, unless otherwise noted. The Company hereby confirms that it has authorized the use of the Preliminary Offering 2 Memorandum and the Offering Memorandum in connection with the offering and resale of the Securities by the Initial Purchasers in accordance with Section 2. Holders of the Securities (including each Initial Purchaser and its direct and indirect transferees) will be entitled to the benefits of an Exchange and Registration Rights Agreement, substantially in the form attached hereto as Annex A (the "Registration Rights Agreement"), pursuant to which the Company will agree to file with the Securities and Exchange Commission (the "Commission") a registration statement under the Securities Act (the "Exchange Offer Registration Statement") registering an issue of senior notes of the Company (the "Exchange Securities") and, under certain circumstances, a shelf registration statement pursuant to Rule 415 under the Securities Act (the "Shelf Registration Statement"). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Offering Memorandum. 1. Representations, Warranties and Agreements of the Company. The Company represents and warrants to, and agrees with, the several Initial Purchasers on and as of the date hereof and the Closing Date (as defined in Section 3) as set forth below in this Section 1. Any reference to persons acting on behalf of the Company, or on behalf of any of the Company's affiliates, does not include the Initial Purchasers, with respect to whom the Company makes no representation. (a) Each of the Preliminary Offering Memorandum and the Offering Memorandum, as of their respective dates, did not, and on the Closing Date the Offering Memorandum will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty as to information contained in or omitted from the Preliminary Offering Memorandum or the Offering Memorandum in reliance upon and in conformity with written information relating to any Initial Purchaser furnished to the Company by or on behalf of the Initial Purchasers specifically for use therein, (the "Initial Purchasers' Information"), as specified in Section 15 hereof. (b) Each of the Preliminary Offering Memorandum and the Offering Memorandum, as of their respective dates, contains all of the information that, if requested by a prospective purchaser of the Securities, would be required to be provided to such prospective purchaser pursuant to Rule 144A(d)(4) under the Securities Act. (c) Assuming the accuracy of the representations and warranties of the Initial Purchasers contained in Section 2 and their compliance with the agreements set forth therein, it is not necessary, in connection with the issuance and sale of the Securities to the Initial Purchasers and the offer, resale and delivery of the Securities by the Initial Purchasers in the manner contemplated by this Agreement and the Offering Memorandum, to register the Securities under the Securities Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). 3 (d) The documents incorporated by reference in the Offering Memorandum (the "Incorporated Documents"), when they were filed with the Commission, conformed in all material respects to the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and any further documents so filed and incorporated by reference in the Offering Memorandum or any further amendment or supplement thereto, when such documents are filed with the Commission, will conform in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder, and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The representation and warranty set forth in this paragraph (d) is given on the basis that any statement contained in an Incorporated Document shall be deemed not to be contained in the Offering Memorandum if the statement has been modified or superseded by any statement in a subsequently filed Incorporated Document or in the Offering Memorandum. (e) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the Commonwealth of Virginia, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Memorandum, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; and each of its subsidiaries listed on Schedule II hereto (the "Subsidiaries") has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction, except to the extent the failure to so qualify as a foreign corporation could not reasonably be expected to have a Material Adverse Effect (as defined below). The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the Subsidiaries. (f) The Company has an authorized capitalization as set forth in the Offering Memorandum under the heading "Capitalization," and all the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable; and all of the issued shares of capital stock of each of the Subsidiaries have been duly and validly authorized and issued, are fully paid and non-assessable and other than as set forth or contemplated in the Offering Memorandum are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims. 4 (g) The Company has full corporate power and authority to execute and deliver this Agreement, the Indenture, the Registration Rights Agreement and the Securities (collectively, the "Transaction Documents") and to perform its obligations hereunder and thereunder; and all corporate, limited liability company or limited partnership action required to be taken for the due and proper authorization, execution and delivery of each of the Transaction Documents and the consummation of the transactions contemplated thereby have been duly and validly taken. (h) This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding agreement of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and to general equitable principles (whether considered in a proceeding in equity or at law) and considerations of public policy as they relate to the enforcement of the indemnification provisions hereof. (i) The Registration Rights Agreement has been duly authorized by the Company and, when duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute a valid and legally binding agreement of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and to general equitable principles (whether considered in a proceeding in equity or at law) and considerations of public policy as they relate to the enforcement of the indemnification provisions hereof. (j) The Indenture has been duly authorized by the Company and, when duly executed and delivered in accordance with its terms by each of the parties thereto, will constitute a valid and legally binding agreement of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and to general equitable principles (whether considered in a proceeding in equity or at law). On the Closing Date, the Indenture will conform in all material respects to the requirements of the Trust Indenture Act and the rules and regulations of the Commission applicable to an indenture which is qualified thereunder. (k) The Securities have been duly authorized by the Company and, when duly executed, authenticated, issued and delivered as provided in the Indenture (assuming the Indenture is the valid and legally binding obligation of the Trustee and due authentication of the Securities by the Trustee) and paid for as provided herein, will be duly and validly issued and outstanding and will constitute valid and legally binding obligations of the Company, as issuer, entitled to the benefits of the Indenture and enforceable against the Company, as issuer, in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and to general equitable principles (whether considered in a proceeding in equity or at law). 5 (l) The Exchange Securities have been duly authorized by the Company and, when duly executed, authenticated, issued and delivered as provided in the Indenture and the Registration Rights Agreement (assuming the Indenture is the valid and legally binding obligation of the Trustee and due authentication of the Exchange Securities by the Trustee), will be duly and validly issued and outstanding and will constitute valid and legally binding obligations of the Company, as issuer, entitled to the benefits of the Indenture and enforceable against the Company, as issuer, in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and to general equitable principles (whether considered in a proceeding in equity or at law). (m) Each Transaction Document conforms in all material respects to the description thereof contained in the Offering Memorandum. (n) The execution, delivery and performance by the Company of its obligations under each of the Transaction Documents to which it is a party and the issue and sale of the Securities and the Exchange Securities by the Company and the compliance by the Company with all of the provisions of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated herein and therein will not conflict with or result in a breach or violation of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or to which any of the property or assets of the Company or any of its Subsidiaries is subject, except for any such conflicts, breaches, violations or defaults that would not have a Material Adverse Effect (as defined below), nor will such action result in any violations of the provisions of the charter or by-laws (or other comparable organizational documents) of the Company or any of its Subsidiaries or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its Subsidiaries or any of their properties, except any such violation that would not have a Material Adverse Effect; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the execution, delivery and performance by the Company of its obligations under each of the Transaction Documents to which it is a party and the issue and sale of the Securities or the consummation by the Company of the transactions contemplated by this Agreement and the other Transaction Documents, except for such consents, approvals, authorizations, registrations or qualifications (i) which shall have been obtained or made prior to the Closing Date and as may be required to be obtained or made under the Securities Act and applicable state securities laws, as provided in the Registration Rights Agreement or (ii) the failure of which to be obtained or made would not have a Material Adverse Effect. (o) Arthur Andersen LLP ("Arthur Andersen") are independent certified public accountants with respect to the Company and its Subsidiaries (i) as required by the Securities Act and the rules and regulations of the Commission thereunder and (ii) within the meaning of Rule 101 of the Code of Professional Conduct of the American Institute of Certified Public Accountants ("AICPA") and its interpretations and rulings thereunder. 6 The historical financial statements (including the related notes) contained in the Offering Memorandum comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the related published rules and regulations; such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods covered thereby and fairly present the financial position of the entities purported to be covered thereby at the respective dates indicated and the results of their operations and their cash flows for the respective periods indicated; and the financial information contained in the Offering Memorandum under the headings "Summary--Summary Consolidated Condensed Financial Information," "Capitalization," "Selected Historical Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the financial information contained in the Company's Proxy Statement for Annual Meeting of Shareholders dated July 30, 2001, incorporated by reference in the Offering Memorandum, under the heading "Executive Compensation" are derived from the accounting records of the Company and its Subsidiaries and fairly present the information purported to be shown thereby. The other historical financial and statistical information and data included in the Offering Memorandum are, in all material respects, fairly presented. (p) Other than as set forth or contemplated in the Offering Memorandum, there are no legal or governmental proceedings pending to which the Company or any of its Subsidiaries is a party or of which any property of the Company or any of its Subsidiaries is the subject which, if determined adversely to the Company or any of its Subsidiaries, individually or in the aggregate would have a material adverse effect on the condition (financial or otherwise), results of operations, business or prospects of the Company and its Subsidiaries taken as a whole ("Material Adverse Effect"); and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others. (q) No injunction, restraining order or order of any nature by any federal or state court of competent jurisdiction has been issued with respect to the Company or any of its Subsidiaries which would prevent or suspend the issuance or sale of the Securities or the use of the Preliminary Offering Memorandum or the Offering Memorandum in any jurisdiction; no action, suit or proceeding is pending against or, to the best knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries before any court or arbitrator or any governmental agency, body or official, domestic or foreign, which could reasonably be expected to interfere with or adversely affect the issuance of the Securities or in any manner draw into question the validity or enforceability of any of the Transaction Documents or any action taken or to be taken pursuant thereto; and the Company has complied with any and all known requests, or any and all requests that should have been reasonably known, by any securities authority in any jurisdiction for additional information to be included in the Preliminary Offering Memorandum and the Offering Memorandum. (r) Except with respect to the matters referred to in Section 5(q), neither the Company nor any of its Subsidiaries is (i) in violation of its charter or by-laws (or other 7 comparable organizational documents), (ii) in default, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which it is a party or by which it is bound or to which any of its property or assets is subject or (iii) in violation in any respect of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject, which default under clause (ii) or violation under clause (iii) could reasonably be expected to have a Material Adverse Effect. (s) The Company and each of its Subsidiaries possess all material licenses, certificates, authorizations and permits issued by, and have made all declarations and filings with, the appropriate federal, state or foreign regulatory agencies or bodies which are necessary or desirable for the ownership of their respective properties or the conduct of their respective businesses as described in the Offering Memorandum, except where the failure to possess or make the same would not have, singularly or in the aggregate, a Material Adverse Effect, and neither the Company nor any of its Subsidiaries has received notification of any revocation or modification of any such license, certificate, authorization or permit or has any reason to believe that any such license, certificate, authorization or permit will not be renewed in the ordinary course. (t) The Company and each of its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Offering Memorandum or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its Subsidiaries; and any real property and buildings held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries. (u) No material labor disturbance by or dispute with the employees of the Company or any of its Subsidiaries exists or, to the best knowledge of the Company, is contemplated or threatened. (v) Other than as set forth in the Offering Memorandum, there has been no storage, generation, transportation, handling, treatment, disposal, discharge, emission or other release of any kind of toxic or other wastes or other hazardous substances by, due to or caused by the Company or any of its Subsidiaries (or, to the best knowledge of the Company, any other entity (including any predecessor) for whose acts or omissions the Company or any of its Subsidiaries is or could reasonably be expected to be liable) upon any of the property now or previously owned or leased by the Company or any of its Subsidiaries, or upon any other property (i) in violation of any statute or any ordinance, rule, regulation, order, judgment, decree or permit or (ii) which would, under any statute or any ordinance, rule (including rule of common law), regulation, order, judgment, 8 decree or permit, give rise to any liability, except in the case of both clauses (i) and (ii), for any violation or liability which could not reasonably be expected to have, singularly or in the aggregate with all such violations and liabilities, a Material Adverse Effect; and there has been no disposal, discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or other wastes or other hazardous substances with respect to which the Company or any of its Subsidiaries has any knowledge, except for any such disposal, discharge, emission or other release of any kind which could not reasonably be expected to have, singularly or in the aggregate with all such discharges and other releases, a Material Adverse Effect. (w) None of the proceeds of the sale of the Securities will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Securities to be considered a "purpose credit" within the meanings of Regulation T, U or X of the Board of Governors of the Federal Reserve System. (x) Other than this Agreement, neither the Company nor any of its Subsidiaries is a party to any contract, agreement or understanding with any person that would give rise to a valid claim against the Company or the Initial Purchasers for a brokerage commission, finder's fee or like payment in connection with the offering and sale of the Securities. (y) None of the Company, any of its affiliates or any person acting on its or their behalf has engaged or will engage in any directed selling efforts (as such term is defined in Rule 902(c) of Regulation S under the Securities Act ("Regulation S")) with respect to the Securities, and all such persons have complied and will comply with the offering restrictions requirement of Regulation S to the extent applicable. (z) Neither the Company nor any of its affiliates has, directly or through any agent, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as such term is defined in the Securities Act), which is or will be integrated with the sale of the Securities in a manner that would require registration of the Securities under the Securities Act. (aa) None of the Company or any of its affiliates or any other person acting on its or their behalf has engaged, in connection with the offering of the Securities, in any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act. (bb) When the Securities are delivered pursuant to this Agreement, none of the Securities will be of the same class (within the meaning of Rule 144A under the Securities Act ("Rule 144A")) as securities of the Company that are listed on a national securities exchange registered under Section 6 of the Exchange Act, or quoted in a U.S. automated inter-dealer quotation system. 9 (cc) The Company has not taken and will not take, directly or indirectly, any action prohibited by Regulation M under the Exchange Act in connection with the offering of the Securities (other than actions taken by the Initial Purchasers, as to which the Company makes no representation). (dd) No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) contained in the Preliminary Offering Memorandum or the Offering Memorandum has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith. (ee) Since the date as of which information is given in the Offering Memorandum (excluding any amendment or supplement thereto or any document incorporated by reference therein), except as otherwise stated or contemplated therein, there has been no material adverse change or any development involving a prospective material adverse change in the condition, financial or otherwise, or in the earnings, business affairs, management or business prospects of the Company, whether or not arising in the ordinary course of business, none of the Company or any of its Subsidiaries has incurred any material liability or obligation, direct or contingent, other than in the ordinary course of business and there has not been any material change in the capital stock or long-term debt of the Company and its Subsidiaries on a consolidated basis, or any dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (ff) No holder of securities of the Company or any of its Subsidiaries will be entitled to have such securities registered under the registration statements required to be filed by the Company pursuant to the Registration Rights Agreement, other than as expressly permitted thereby. 2. Purchase and Resale of the Securities. (a) On the basis of the representations, warranties and agreements contained herein, and subject to the terms and conditions set forth herein, the Company agrees to issue and sell to the Initial Purchasers, and each Initial Purchaser, severally and not jointly, agrees to purchase from the Company, the principal amount of Securities set forth opposite the name of such Initial Purchaser on Schedule I hereto at a purchase price equal to 98.75% of the principal amount thereof. The Company shall not be obligated to deliver any of the Securities except upon payment for all of the Securities to be purchased as provided herein. (b) Each Initial Purchaser has advised the Company that it proposes to offer the Securities for resale upon the terms and subject to the conditions set forth herein and in the Offering Memorandum. Each Initial Purchaser represents and warrants to, and agrees with, the Company that (i) it is purchasing the Securities pursuant to a private sale exempt from registration under the Securities Act, (ii) it has not solicited offers for, or offered or sold, and will not solicit offers for, or offer to sell, the Securities by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D under the Securities Act ("Regulation D") or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act and (iii) it has solicited and will solicit offers for the Securities only 10 from, and has offered or sold and will offer, sell or deliver the Securities, at any time prior to the completion of its distribution of the Securities, only (A) within the United States to persons whom it reasonably believes to be qualified institutional buyers ("Qualified Institutional Buyers") as defined in Rule 144A, or if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to it that each such account is a Qualified Institutional Buyer to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A and in each case, in transactions in accordance with Rule 144A and (B) outside the United States to persons other than U.S. persons in reliance on Regulation S. (c) In connection with the offer and sale of Securities in reliance on Regulation S, each Initial Purchaser, severally and not jointly, represents, warrants and agrees that: (i) the Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in transactions not subject to, the registration requirements of the Securities Act; (ii) such Initial Purchaser has offered and sold the Securities, and will offer and sell the Securities, (A) as part of their distribution at any time and (B) otherwise until 40 days after the later of the commencement of the offering of the Securities and the Closing Date, only in accordance with Regulation S or Rule 144A or any other available exemption from registration under the Securities Act; (iii) none of such Initial Purchaser or any of its affiliates or any other person acting on its or their behalf has engaged or will engage in any directed selling efforts (as such term is defined in Regulation S) with respect to the Securities, and all such persons have complied and will comply with the offering restrictions requirement of Regulation S; (iv) at or prior to the confirmation of sale of any Securities sold in reliance on Regulation S, it will have sent to each distributor, dealer or other person receiving a selling concession, fee or other remuneration that purchase Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering of the Securities and the date of original issuance of the Securities, except in accordance with Regulation S or Rule 144A or any other available exemption from registration under the Securities Act. Terms used above have the meanings given to them by Regulation S."; and 11 (v) it has not and will not enter into any contractual arrangement with any distributor with respect to the distribution of the Securities, except with its affiliates or with the prior written consent of the Company. Terms used in this Section 2(c) have the meanings given to them by Regulation S. (d) Each Initial Purchaser, severally and not jointly, represents, warrants and agrees that (i) it has not offered or sold and prior to the date six months after the Closing Date will not offer or sell any Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 and the Public Offers of Securities Regulations 1995 with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. (e) Each Initial Purchaser, severally and not jointly, agrees that, prior to or simultaneously with the confirmation of sale by such Initial Purchaser to any purchaser of any of the Securities purchased by such Initial Purchasers from the Company pursuant hereto, each Initial Purchaser shall furnish to that purchaser a copy of the Offering Memorandum (and any amendment or supplement thereto that the Company shall have furnished to such Initial Purchasers prior to the date of such confirmation of sale). In addition to the foregoing, each Initial Purchaser acknowledges and agrees that the Company and, for purposes of the opinions to be delivered to the Initial Purchasers pursuant to Sections 5(c) and (d), counsel for the Company and for the Initial Purchasers, respectively, may rely upon the accuracy of the representations and warranties of each Initial Purchaser and their compliance with their agreements contained in this Section 2, and each Initial Purchaser hereby consents to such reliance. (f) The Company acknowledges and agrees that the Initial Purchasers may sell Securities to any of its affiliates and that any such affiliate may sell Securities purchased by it to an Initial Purchaser. 3. Delivery of and Payment for the Securities. (a) Delivery of and payment for the Securities shall be made at the offices of Simpson Thacher & Bartlett, New York, New York, or at such other place as shall be agreed upon by the Initial Purchasers and the Company, at 9:00 A.M., New York City time, on October 23, 2001 or at such other time or date, not later than seven full business days thereafter, as shall be agreed upon by the Initial Purchasers and the Company (such date and time of payment and delivery being referred to herein as the "Closing Date"). 12 (b) On the Closing Date, payment of the purchase price for the Securities shall be made to the Company by wire or book-entry transfer of same-day funds to such account or accounts as the Company shall specify prior to the Closing Date or by such other means as the parties hereto shall agree prior to the Closing Date against delivery to the Initial Purchasers of the certificate(s) evidencing the Securities. Time shall be of the essence, and delivery by the Company at the time and place specified pursuant to this Agreement is a further condition of the obligations of each Initial Purchaser hereunder. Upon delivery, the Securities shall be in global form, registered in such names and in such denominations as JPMSI on behalf of the Initial Purchasers shall have requested in writing not less than two full business days prior to the Closing Date. The Company agrees to make one or more global certificates evidencing the Securities available for inspection by JPMSI on behalf of the Initial Purchasers in New York City at least 24 hours prior to the Closing Date. 4. Further Agreements of the Company. The Company agrees with the Initial Purchasers: (a) at any time prior to the completion of the distribution by the Initial Purchasers of the Securities, to advise the Initial Purchasers promptly and, if requested, confirm such advice in writing, of the happening of any event which makes any statement of a material fact made in the Offering Memorandum untrue or which requires the making of any additions to or changes (whether through incorporation by reference or otherwise) in the Offering Memorandum (as amended or supplemented from time to time) in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; to advise the Initial Purchasers promptly of any order preventing or suspending the use of the Preliminary Offering Memorandum or the Offering Memorandum, of any suspension of the qualification of the Securities for offering or sale in any jurisdiction and of the initiation or threatening of any proceeding for any such purpose; and to use its best efforts to prevent the issuance of any such order preventing or suspending the use of the Preliminary Offering Memorandum or the Offering Memorandum or suspending any such qualification and, if any such suspension is issued, to obtain the lifting thereof at the earliest possible time; (b) at any time prior to the completion of the distribution by the Initial Purchasers of the Securities, to furnish promptly to each of the Initial Purchasers and counsel for the Initial Purchasers, without charge, as many copies of the Preliminary Offering Memorandum and the Offering Memorandum (and any amendments or supplements thereto) as may be reasonably requested; (c) prior to making any amendment or supplement to the Offering Memorandum, to furnish a copy thereof to each of the Initial Purchasers and counsel for the Initial Purchasers and not to effect any such amendment or supplement to which the Initial Purchasers shall reasonably object by notice to the Company after a reasonable period to review; (d) if, at any time prior to completion of the resale of the Securities by the Initial Purchasers, any event shall occur or condition exist as a result of which it is necessary, in 13 the opinion of counsel for the Initial Purchasers or counsel for the Company, to amend or supplement (whether through incorporation by reference or otherwise) the Offering Memorandum in order that the Offering Memorandum will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time it is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement (whether through incorporation by reference or otherwise) the Offering Memorandum to comply with applicable law, to promptly prepare such amendment or supplement as may be necessary to correct such untrue statement or omission or so that the Offering Memorandum, as so amended or supplemented, will comply with applicable law; (e) for so long as the Securities are outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, to furnish to holders of the Securities and prospective purchasers of the Securities designated by such holders, upon request of such holders or such prospective purchasers, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act, unless the Company is then subject to and in compliance with Section 13 or 15(d) of the Exchange Act (the foregoing agreement being for the benefit of the holders from time to time of the Securities and prospective purchasers of the Securities designated by such holders); (f) unless such reports are available through the Commission's EDGAR system, for so long as the Securities are outstanding, to furnish to the Initial Purchasers copies of any annual reports, quarterly reports and current reports filed by the Company with the Commission on Forms 10-K, 10- Q and 8-K, or such other similar forms as may be designated by the Commission, and such other documents, reports and information as shall be furnished by the Company to the Trustee or to the holders of the Securities pursuant to the Indenture or the Exchange Act or any rule or regulation of the Commission thereunder; (g) to promptly take from time to time such actions as the Initial Purchasers may reasonably request to qualify the Securities for offering and sale by the Initial Purchasers under the securities or Blue Sky laws of such jurisdictions as the Initial Purchasers may designate and to continue such qualifications in effect for so long as required for the resale of the Securities; and to arrange for the determination of the eligibility for investment of the Securities under the laws of such jurisdictions as the Initial Purchasers may reasonably request; provided that neither the Company nor any of its Subsidiaries shall be obligated to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or to file a general consent to service of process in any jurisdiction or subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject; (h) to assist the Initial Purchasers in arranging for the Securities to be designated Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") Market securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. ("NASD") relating to trading in the PORTAL 14 Market and for the Securities to be eligible for clearance and settlement through The Depository Trust Company ("DTC"); (i) not to, and to cause its affiliates not to, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as such term is defined in the Securities Act) which could be integrated with the sale of the Securities in a manner which would require registration of the Securities under the Securities Act; (j) except following the effectiveness of the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, not to, and to cause its affiliates not to, and not to authorize or knowingly permit any person acting on their behalf to, solicit any offer to buy or offer to sell the Securities by means of any form of general solicitation or general advertising within the meaning of Regulation D or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act; and not to offer, sell, contract to sell or otherwise dispose of, directly or indirectly, any securities under circumstances where such offer, sale, contract or disposition would cause the exemption afforded by Section 4(2) of the Securities Act to cease to be applicable to the offering and sale of the Securities as contemplated by this Agreement and the Offering Memorandum; (k) for a period of 45 days from the date of the Offering Memorandum, not to offer for sale, sell, contract to sell or otherwise dispose of, directly or indirectly, or file a registration statement for, or announce any offer, sale, contract for sale of or other disposition of any debt securities with a maturity greater than one year issued or guaranteed by the Company or any of its Subsidiaries (other than the Securities, the Exchange Securities or under the Revolving Credit Facilities (as defined in the Offering Memorandum) without the prior written consent of JPMSI; (l) during the period from the Closing Date until two years after the Closing Date, without the prior written consent of the Initial Purchasers, not to, and not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Securities that have been reacquired by them, except for Securities purchased by the Company or any of its affiliates and resold in a transaction registered under the Securities Act; (m) not to, for so long as the Securities are outstanding, be or become, or be or become owned by, an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act, and not to be or become, or be or become owned by, a closed-end investment company required to be registered, but not registered thereunder; (n) in connection with the offering of the Securities, until JPMSI on behalf of the Initial Purchasers shall have notified the Company of the completion of the resale of the Securities, not to, and to cause its affiliated purchasers (as defined in Regulation M under the Exchange Act) not to, either alone or with one or more other persons, bid for or purchase, for any account in which it or any of its affiliated purchasers has a beneficial 15 interest, any Securities, or attempt to induce any person to purchase any Securities; and not to, and to cause its affiliated purchasers not to, make bids or purchase for the purpose of creating actual, or apparent active trading in or of raising the price of the Securities; (o) in connection with the offering of the Securities, to make its officers, employees, independent accountants and legal counsel reasonably available upon request by the Initial Purchasers; (p) to do and perform all things required to be done and performed by it under this Agreement that are within its control prior to or after the Closing Date, and to use its reasonable best efforts to satisfy all conditions precedent on its part to the delivery of the Securities; (q) to not take any action prior to the execution and delivery of the Indenture which, if taken after such execution and delivery, would have violated any of the covenants contained in the Indenture; (r) to not take any action prior to the Closing Date which would in the Company's reasonable judgment require the Offering Memorandum to be amended or supplemented pursuant to Section 4(d); (s) prior to the Closing Date, not to issue any press release or other public communication directly or indirectly or hold any press conference with respect to the Company, its condition, financial or otherwise, or earnings, business affairs or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past practices of the Company and of which the Initial Purchasers are notified), without the prior written consent of the Initial Purchasers, which consent may not be unreasonably withheld, unless in the judgment of the Company and its counsel, and after notification to the Initial Purchaser, such press release or communication is required by law; and (t) to apply the net proceeds from the sale of the Securities as set forth in the Offering Memorandum under the heading "Use of Proceeds." 5. Conditions of Initial Purchasers' Obligations. The respective obligations of the several Initial Purchasers hereunder are subject to the accuracy, on and as of the date hereof and the Closing Date, of the representations and warranties of the Company contained herein, to the accuracy of the statements of the Company and its officers made in any certificates delivered pursuant hereto, to the performance by the Company of its obligations hereunder, and to each of the following additional terms and conditions: (a) The Offering Memorandum (and any amendments or supplements thereto) shall have been printed and copies distributed to the Initial Purchasers as promptly as practicable on or following the date of this Agreement or at such other date and time as to which the Initial Purchasers may agree; and no stop order suspending the sale of the 16 Securities in any jurisdiction shall have been issued and no proceedings for that purpose shall have been commenced or shall be pending or threatened. (b) All requisite corporate, limited liability company and limited partnership proceedings and other legal matters incident to the authorization, form and validity of each of the Transaction Documents and the Offering Memorandum, and all other legal matters relating to the Transaction Documents and the transactions contemplated thereby, shall be satisfactory in all material respects to the Initial Purchasers and the Company shall have furnished to the Initial Purchasers all documents and information that they or their counsel may reasonably request to enable them to pass upon such matters. (c) McGuireWoods LLP shall have furnished to the Initial Purchasers their written opinion, as counsel to the Company, addressed to the Initial Purchasers and dated the Closing Date, in form and substance reasonably satisfactory to the Initial Purchasers, substantially to the effect set forth in Annex B hereto. (d) The Initial Purchasers shall have received from Simpson Thacher & Bartlett, counsel for the Initial Purchasers, such opinion or opinions, dated the Closing Date, with respect to such matters as the Initial Purchasers may reasonably require, and the Company shall have furnished to such counsel such documents and information as they reasonably request for the purpose of enabling them to pass upon such matters. (e) The Company shall have furnished to the Initial Purchasers a letter (the "Initial Letter") of Arthur Andersen, addressed to the Initial Purchasers and dated the date hereof, in form and substance reasonably satisfactory in all material respects to the Initial Purchasers and counsel for the Initial Purchasers. (f) The Company shall have furnished to the Initial Purchasers a letter (the "Bring-Down Letter") of Arthur Andersen, addressed to the Initial Purchasers and dated the Closing Date (A) confirming that they are independent public accountants with respect to the Company and its Subsidiaries within the meaning of Rule 101 of the Code of Professional Conduct of the AICPA and its interpretations and rulings thereunder, (B) stating, as of the date of the Bring-Down Letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Offering Memorandum, as of a date not more than three business days prior to the date of the Bring-Down Letter), that the conclusions and findings of such accountants with respect to the financial information and other matters covered by the Initial Letter are accurate and (C) confirming in all material respects the conclusions and findings set forth in the Initial Letter. (g) The Company shall have furnished to the Initial Purchasers a certificate, dated the Closing Date, of its Vice President, Secretary and Treasurer, and its Vice President and Controller stating that (A) such officers have carefully examined the Offering Memorandum, (B) in their opinion, the Offering Memorandum, as of its date, did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the 17 light of the circumstances under which they were made, not misleading, and since the date of the Offering Memorandum, no event has occurred which should have been set forth in a supplement or amendment to the Offering Memorandum (whether through incorporation by reference or otherwise) so that the Offering Memorandum (as so amended or supplemented) would not include any untrue statement of a material fact and would not omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading and (C) as of the Closing Date, the representations and warranties of the Company in this Agreement are true and correct in all material respects, the Company has complied with all agreements and satisfied all conditions on their part to be performed or satisfied hereunder on or prior to the Closing Date, and subsequent to the date of the most recent financial statements contained in the Offering Memorandum, there has been no material adverse change in the financial position or results of operation of the Company or any of its Subsidiaries, or any change, or any development including a prospective change, in or affecting the condition (financial or otherwise), results of operations, business or prospects of the Company and its Subsidiaries taken as a whole, except as set forth in the Offering Memorandum. (h) The Initial Purchasers shall have received a counterpart of the Registration Rights Agreement which shall have been executed and delivered by a duly authorized officer of the Company. (i) The Indenture shall have been duly executed and delivered by the Company and the Trustee, and the Securities shall have been duly executed and delivered by the Company and duly authenticated by the Trustee. (j) The Securities shall have been approved by the NASD for trading in the PORTAL Market. (k) If any event shall have occurred that requires the Company under Section 4(d) to prepare an amendment or supplement to the Offering Memorandum, such amendment or supplement shall have been prepared, the Initial Purchasers shall have been given a reasonable opportunity to comment thereon, and copies thereof shall have been delivered to the Initial Purchasers reasonably in advance of the Closing Date. (l) There shall not have occurred any invalidation of Rule 144A or Regulation S under the Securities Act by any court or any withdrawal or proposed withdrawal of any rule or regulation under the Securities Act or the Exchange Act by the Commission or any amendment or proposed amendment thereof by the Commission which in the reasonable judgment of the Initial Purchasers would materially impair the ability of the Initial Purchasers to purchase, hold or effect resales of the Securities contemplated hereby. (m) Subsequent to the execution and delivery of this Agreement or, if earlier, the dates as of which information is given in the Offering Memorandum (exclusive of any amendment or supplement thereto or document incorporated by reference therein), there 18 shall not have been any change in the capital stock or long-term debt or any change, or any development involving a prospective change, in or affecting the condition (financial or otherwise), results of operations, business or prospects of the Company and its Subsidiaries taken as a whole, the effect of which, in any such case described above, is, in the reasonable judgment of the Initial Purchasers, so material and adverse as to make it impracticable or inadvisable to proceed with the sale or delivery of the Securities on the terms and in the manner contemplated by this Agreement and the Offering Memorandum (exclusive of any amendment or supplement thereto or document incorporated by reference therein). (n) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency or body which would, as of the Closing Date, prevent the issuance or sale of the Securities; and no injunction, restraining order or order of any other nature by any federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance or sale of the Securities. (o) Subsequent to the execution and delivery of this Agreement (i) no downgrading shall have occurred in the rating accorded the Securities or any of the Company's other debt securities or preferred stock by any "nationally recognized statistical rating organization", as such term is defined by the Commission for purposes of Rule 436(g)(2) of the rules and regulations of the Commission under the Securities Act and (ii) no such organization shall have publicly announced that it has under surveillance or review (other than an announcement with positive implications of a possible upgrading), its rating of the Securities or any of the Company's other debt securities or preferred stock. (p) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the over-the-counter market shall have been suspended or limited, or minimum prices shall have been established on any such exchange or market by the Commission, by any such exchange or by any other regulatory body or governmental authority having jurisdiction, or trading in any securities of the Company on any exchange or in the over-the-counter market shall have been suspended or (ii) any moratorium on commercial banking activities shall have been declared by federal or New York state authorities or (iii) an outbreak or escalation of hostilities or a declaration by the United States of a national emergency or war or any calamity or crisis, either within or outside the United States, or (iv) a material adverse change in general economic, political or financial conditions or the financial markets in the United States (or the effect of international conditions on the financial markets in the United States shall be such), the effect of which, in the case of clauses (iii) and (iv), is, in the reasonable judgment of the Initial Purchasers, so material and adverse as to make it impracticable or inadvisable to proceed with the sale or the delivery of the Securities on the terms and in the manner contemplated by this Agreement and in the Offering Memorandum (exclusive of any amendment or supplement thereto or document incorporated by reference therein). 19 (q) With respect to any default, or any event which, with notice or lapse of time or both, would constitute a default, in the due performance or observance of any term, covenant or condition restricting the extent to which the Company's Subsidiaries may enter into loan agreements which prohibit the payment of dividends or the making of loans or transferring of property to the Company or to other Subsidiaries contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument evidencing indebtedness to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or to which any of their property or assets is subject, the Company shall have delivered to the Initial Purchasers evidence satisfactory to the Initial Purchasers that (i) the Company has received a written waiver (which may by its terms be effective only until a date not earlier than December 7, 2001) of all such defaults and the aggregate principal amount outstanding under the Subsidiary loan agreements causing such defaults (the "Subsidiary Loan Agreements") does not exceed $75.0 million, (ii) the Company has repaid the entirety of the obligations, and terminated any related commitments, under the Subsidiary Loan Agreements, (iii) the Subsidiary Loan Agreements have been modified to remove the provisions causing such defaults, (iv) any combination of the foregoing, the result of which is that all such defaults have been cured or waived, or (v) such defaults are otherwise cured. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to Simpson Thacher & Bartlett. 6. Termination. The obligations of the Initial Purchasers hereunder may be terminated by the Initial Purchasers, in their sole absolute discretion, by notice given to and received by the Company prior to delivery of and payment for the Securities if, prior to that time, any of the events described in Section 5(l), (m), (n), (o), (p) or (q) shall have occurred and be continuing. 7. Defaulting Initial Purchaser. (a) If, on the Closing Date, any Initial Purchaser defaults on its obligation to purchase the Securities that it has agreed to purchase hereunder, the non-defaulting Initial Purchasers may in their discretion arrange for the purchase of such Securities by other persons satisfactory to the Company on the terms contained in this Agreement. If, within 36 hours after any such default by any Initial Purchaser, the non-defaulting Initial Purchasers do not arrange for the purchase of such Securities, then the Company shall be entitled to a further period of 36 hours within which to procure other persons satisfactory to the non-defaulting Initial Purchasers to purchase such Securities on such terms. If other persons become obligated or agree to purchase the Securities of a defaulting Initial Purchaser, either the non-defaulting Initial Purchasers or the Company may postpone the Closing Date for up to five full Business Days in order to effect any changes that in the opinion of counsel for the Company or counsel for the Initial Purchasers may be necessary in the Offering Memorandum or in any other document or arrangement, and the Company agrees to promptly prepare any amendment or supplement to the Offering Memorandum that effects any such changes. As used in this Agreement, the term "Initial Purchaser" includes, for all purposes of this Agreement unless the context otherwise requires, any person not listed in Schedule I hereto 20 that, pursuant to this Section 7, purchases Securities that a defaulting Initial Purchaser agreed but failed to purchase. (b) If, after giving effect to any arrangements for the purchase of the Securities of a defaulting Initial Purchaser or Initial Purchasers by the non-defaulting Initial Purchasers and the Company as provided in paragraph (a) above, the aggregate principal amount of such Securities that remains unpurchased does not exceed one-eleventh of the aggregate principal amount of all the Securities, then the Company shall have the right to require each non-defaulting Initial Purchaser to purchase the principal amount of Securities that such Initial Purchaser agreed to purchase hereunder plus such Initial Purchaser's pro rata share (based on the principal amount of Securities that such Initial Purchaser agreed to purchase hereunder) of the Securities of such defaulting Initial Purchaser or Initial Purchasers for which such arrangements have not been made. (c) If, after giving effect to any arrangements for the purchase of the Securities of a defaulting Initial Purchaser or Initial Purchasers by the non-defaulting Initial Purchasers and the Company as provided in paragraph (a) above, the aggregate principal amount of such Securities that remains unpurchased exceeds one-eleventh of the aggregate principal amount of all the Securities, or if the Company shall not exercise the right described in paragraph (b) above, then this Agreement shall terminate without liability on the part of the non-defaulting Initial Purchasers or the Company, except that the Company will continue to be liable for the payment of expenses as set forth in Section 8 and Section 12 hereof and except that the provisions of Section 9 and Section 10 hereof shall not terminate and shall remain in effect. (d) Nothing contained herein shall relieve a defaulting Initial Purchaser of any liability it may have to the Company or any non-defaulting Initial Purchaser for damages caused by its default. 8. Reimbursement of Initial Purchasers' Expenses. If (a) this Agreement shall have been terminated pursuant to Section 6 and Section 7, (b) the Company shall fail to tender the Securities for delivery to the Initial Purchasers for any reason other than by reason of a default by the Initial Purchasers or (c) the Initial Purchasers shall decline to purchase the Securities for any reason permitted under this Agreement, the Company shall reimburse the Initial Purchasers for such out-of-pocket expenses (including reasonable fees and disbursements of counsel) as shall have been reasonably incurred by the Initial Purchasers in connection with this Agreement and the proposed purchase and resale of the Securities. 9. Indemnification. (a) The Company shall indemnify and hold harmless each Initial Purchaser, its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls any Initial Purchaser within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 9(a) and Section 10 as an Initial Purchaser), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, without limitation, any loss, claim, damage, liability or action relating to purchases and sales of the Securities), to which that Initial Purchaser may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or 21 otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering Memorandum or the Offering Memorandum or in any amendment or supplement thereto or in any information provided by the Company pursuant to Section 4(e) or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse each Initial Purchaser promptly upon demand for any legal or other expenses reasonably incurred by that Initial Purchaser in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with any Initial Purchasers' Information; and provided, further, that with respect to any such untrue statement in or omission from the Preliminary Offering Memorandum, the indemnity agreement contained in this Section 9(a) shall not inure to the benefit of any such Initial Purchaser to the extent that the sale to the person asserting any such loss, claim, damage, liability or action was an initial resale by such Initial Purchaser and any such loss, claim, damage, liability or action of or with respect to such Initial Purchaser results from the fact that both (A) to the extent required by applicable law a copy of the Offering Memorandum was not sent or given to such person at or prior to the written confirmation of the sale of such Securities to such person and (B) the untrue statement in or omission from the Preliminary Offering Memorandum was corrected in the Offering Memorandum unless, in either case, such failure to deliver the Offering Memorandum was a result of non-compliance by the Company with Section 4(b). (b) Each Initial Purchaser shall indemnify and hold harmless the Company and its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 9(b) and Section 10 as the Company), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Offering Memorandum or the Offering Memorandum or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with any Initial Purchasers' Information, and shall reimburse the Company promptly upon demand for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred. 22 (c) Promptly after receipt by an indemnified party under this Section 9 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 9(a) or 9(b), notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 9 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and, provided, further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 9. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 9 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that an indemnified party shall have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel for the indemnified party will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based upon advice of counsel to the indemnified party) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based upon advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm of attorneys (in addition to no more than one local counsel in any jurisdiction) at any one time for all such indemnified party or parties. Each indemnified party, as a condition of the indemnity agreements contained in Sections 9(a) and 9(b), shall use all reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder 23 by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceedings. The obligations of the Company and the Initial Purchasers in this Section 9 and in Section 10 are in addition to any other liability that the Company or the Initial Purchasers, as the case may be, may otherwise have, including in respect of any breaches of representations, warranties and agreements made herein by any such party. 10. Contribution. If the indemnification provided for in Section 9 is unavailable or insufficient to hold harmless an indemnified party under Section 9(a) or 9(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchasers on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Initial Purchasers on the other with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchasers on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities purchased under this Agreement (before deducting expenses) received by or on behalf of the Company, on the one hand, and the total discounts and commissions received by the Initial Purchasers with respect to the Securities purchased under this Agreement, on the other, bear to the total gross proceeds from the sale of the Securities under this Agreement. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to the Company or information supplied by the Company on the one hand or to any Initial Purchasers' Information on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omissions. The Company and the Initial Purchasers agree that it would not be just and equitable if contributions pursuant to this Section 10 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 10 shall be deemed to include, for purposes of this Section 10, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 10, the Initial Purchasers shall not be required to contribute any amount in excess of the amount by which the total discounts and commissions received by such Initial Purchaser with respect to the Securities purchased by it under this Agreement exceeds the amount of any damages which such Initial Purchaser has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of 24 Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 11. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers, the Company and their respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except as provided in Sections 9 and 10 with respect to affiliates, officers, directors, employees, representatives, agents and controlling persons of the Company and the Initial Purchasers and in Section 4(e) with respect to holders and prospective purchasers of the Securities. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 11, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 12. Expenses. The Company agrees with the Initial Purchasers to pay (a) the costs incident to the authorization, issuance, sale, preparation and delivery of the Securities and any taxes payable in that connection; (b) the costs incident to the preparation, printing and distribution of the Preliminary Offering Memorandum, the Offering Memorandum and any amendments or supplements thereto; (c) the costs of reproducing and distributing each of the Transaction Documents; (d) the costs incident to the preparation, printing and delivery of the certificates evidencing the Securities, including stamp duties and transfer taxes, if any, payable upon issuance of the Securities; (e) the fees and expenses of the Company's counsel and independent accountants; (f) the reasonable fees and expenses of qualifying the Securities under the securities laws of the several jurisdictions as provided in Section 4(g) and of preparing, printing and distributing Blue Sky Memoranda (including related fees and expenses of counsel for the Initial Purchasers); (g) any fees charged by rating agencies for rating the Securities; (h) the fees and expenses of the Trustee and any paying agent (including related fees and expenses of any counsel to such parties); (i) all expenses and application fees incurred in connection with the application for the inclusion of the Securities on the PORTAL Market and the approval of the Securities for book-entry transfer by DTC; and (j) all other costs and expenses incident to the performance of the obligations of the Company under this Agreement which are not otherwise specifically provided for in this Section 11; provided, however, that except as provided in this Section 12 and Section 8, the Initial Purchasers shall pay their own costs and expenses, including the fees, disbursements and expenses of its counsel, its road-show costs and any transfer taxes on the Securities that it may sell. 13. Survival. The respective indemnities, rights of contribution, representations, warranties and agreements of the Company and the Initial Purchasers contained in this Agreement or made by or on behalf of the Company or the Initial Purchasers pursuant to this Agreement or any certificate delivered pursuant hereto shall survive the delivery of and payment for the Securities and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any of them or any of their respective affiliates, officers, directors, employees, representatives, agents or controlling persons. 14. Notices, etc. All statements, requests, notices and agreements hereunder shall be in writing, and: 25 (a) if to the Initial Purchasers, shall be delivered or sent by mail or telecopy transmission to J. P. Morgan Securities, Inc., 270 Park Avenue, New York, New York 10017, Attention: Mr. Gerry Murray (telecopier no.: (212) 270-0994); or (b) if to the Company, shall be delivered or sent by mail or telecopy transmission to the address of the Company set forth in the Offering Memorandum, Attention: Mr. Larry Pope, Vice President and Chief Financial Officer (telecopier no.: (757) 365-3025), with a copy to Jane Whitt Sellers., Esq., McGuireWoods LLP (telecopier no.: (804) 698-2170); provided that any notice to an Initial Purchaser pursuant to Section 9(c) shall also be delivered or sent by mail to such Initial Purchaser at its address set forth on the signature page hereof. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. The Company shall be entitled to act and rely upon any request, consent, notice or agreement given or made on behalf of the Initial Purchasers by JPMSI. 15. Definition of Terms. For purposes of this Agreement, (a) the term "business day" means any day on which the New York Stock Exchange, Inc. and commercial banks in New York, New York and Richmond, Virginia are open for trading or business, (b) the term "subsidiary" has the meaning set forth in Rule 405 under the Securities Act and (c) except where otherwise expressly provided, the term "affiliate" has the meaning set forth in Rule 405 under the Securities Act. 16. Initial Purchasers' Information. The parties hereto acknowledge and agree that, for all purposes of this Agreement, the Initial Purchasers' Information consists solely of the following information in the Preliminary Offering Memorandum and the Offering Memorandum: the statements concerning the Initial Purchasers contained in the third and twelfth paragraphs, and the fourth and fifth sentences of the eleventh paragraph under the heading "Plan of Distribution," the sixth and seventh sentences of the eighteenth paragraph under the heading "Summary--The Offering," the second and third sentences of the second paragraph under the heading "Risk Factors--Lack of Public Market; Restrictions on Transferability," and, with respect to each Initial Purchaser, such Initial Purchaser's name at it appears on the cover. 17. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 18. Counterparts. This Agreement may be executed in one or more counterparts (which may include counterparts delivered by telecopier) and, if executed in more than one counterpart, the executed agreement, counterparts shall each be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 19. Amendments. No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto (it being understood that the successful delivery of and payment for the Securities shall constitute an effective waiver 26 of any outstanding pre-closing condition contained in Section 5 hereof, known to the Initial Purchasers on the Closing Date). 20. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us a counterpart hereof, whereupon this instrument will become a binding agreement between the Company and the several Initial Purchasers in accordance with its terms. Very truly yours, SMITHFIELD FOODS, INC. By /s/ C. Larry Pope ---------------------------- Name: C. LARRY POPE Title: Vice President and Chief Financial Officer Accepted: J.P. MORGAN SECURITIES INC. By /s/ Gerry Murray ------------------------------------------ Authorized Signatory Address for notices pursuant to Section 9(c): 1 Chase Plaza, 25th floor New York, New York 10081 Attention: Legal Department GOLDMAN, SACHS & CO. By /s/ Goldman, Sachs & Co. ------------------------------------------ (Goldman, Sachs & Co.) Address for notices pursuant to Section 9(c): 85 Broad Street, 9th Floor New York, New York 10004 Attention: Don Hansen, Registration Department SCHEDULE I
Principal Amount Initial Purchasers of Securities - ------------------ ------------- JPMorgan $252,000,000 Goldman, Sachs & Co. 48,000,000 ------------ Total $300,000,000
SCHEDULE II SUBSIDIARIES OF THE COMPANY Animex S.A. Animpol S.A. B&G Farms LLC Brown's Farms LLC Brown's of Carolina LLC Carroll's Capital, Inc. Carroll's Foods LLC Carroll's Foods of Brazil, LLC Carroll's Foods of Mexico, Inc. Carroll's Foods of Virginia LLC Carroll's Processing, Inc. Carroll's Realty Inc. Carroll's Turkeys, Inc. Central Plains Farms LLC Charcuterie Roy Inc. Charcuteries Imperator S.A. Circle Four LLC d/b/a Circle Four Farms Coddle Roasted Meats, Inc. Consolidated Food Brands Inc. Dakota Acquisition Company Ed Kelly, Inc. Esskay Investments, Inc. Gwaltney of Smithfield, Ltd. Gwaltney Transportation Co., Inc. Hancock's Old Fashioned Country Ham, Inc. Iowa Quality Meats, Ltd. Jasan Sp. z o.o. Jean d'Erguet S.A. J. M. Schneider Inc. John Morrell & Co. John Morrell of Japan, Inc. JonMor Investments, Inc. LMG Investments, Inc. LMJ Distribution Center, Inc. Lykes Meat Group, Inc. MOPAC Foreign Sales Corporation MOPAC of Virginia, Inc. Moyer Packing Company Murphy-Brown LLC Murphy Farms LLC Murphy Funding, Inc. 2 North Side Foods Corp. North Side Investments, Inc. NPD Investments, Inc. Patrick Cudahy Incorporated PatCud Investments, Inc. PC Express, Inc. Pinnacle Foods, Inc. Premium Pork, Inc. Prochowickie Zaklady Drobiarskie Sp. z o.o. Quarter M Farms LLC Quik-to-Fix Foods, Inc. Schneider Corporation Skippack Creek Corporation Schneider Foods Inc. SF Investments, Inc. SFDS Global Holdings B.V. SFFC, Inc. Smithfield Canada, Ltd. Smithfield Foods de Mexico de R.L. de C.V. Smithfield Inn Corporation Smithfield Insurance Co. Ltd. Smithfield International, Inc. Smithfield International Investments, Inc. Smithfield Packing Real Estate, LLC Smithfield Packing Transportation Co., Inc. Smithfield Purchase Corporation Smithfield Transportation Co., Inc. Societe Bretonne de Salaisons Societe Financiere de Gestion et de Participation S.A. Sunnyland, Inc. Suwalskie Zaklady Drobiarskie Sp. z o.o. The Smithfield Companies, Inc. The Smithfield Packing Company, Incorporated Zaklady Miesne "Agryf" Sp. z o.o. Zaklady Miesne "Mazury" w Elku Sp. z o.o. Zaklady Miesne "Przylep" S.A. w Przylepoe ANNEX A SMITHFIELD FOODS, INC. $300,000,000 8% Senior Notes due 2009 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT ------------------------------------------ October 23, 2001 J.P. Morgan Securities, Inc. Goldman, Sachs & Co. c/o J.P. Morgan Securities, Inc. 270 Park Avenue, 4th floor New York, New York 10017 Ladies and Gentlemen: Smithfield Foods, Inc., a Virginia corporation (the "Company"), proposes to issue and sell to J.P. Morgan Securities Inc. (("JPMSI") and Goldman, Sachs & Co. ("GS", and together with JPMSI, the "Initial Purchasers"), upon the terms and subject to the conditions set forth in a purchase agreement dated October 17, 2001 (the "Purchase Agreement"), $300,000,000 aggregate principal amount of its 8% Senior Notes due 2009 (the "Securities"). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Purchase Agreement. As an inducement to the Initial Purchasers to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Initial Purchasers thereunder, the Company agrees with the Initial Purchasers, for the benefit of the holders (including the Initial Purchasers) of the Securities, the Exchange Securities (as defined herein) and the Private Exchange Securities (as defined herein) (collectively, the "Holders"), as follows: 1. Registered Exchange Offer. The Company shall (i) prepare and, not later than 90 days following the date of original issuance of the Securities (the "Issue Date"), file with the Commission a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act with respect to a proposed offer to the Holders of the Securities (the "Registered Exchange Offer") to issue and deliver to such Holders, in exchange for the Securities, a like aggregate principal amount of debt securities of the Company (the "Exchange Securities") that are identical in all material respects to the Securities, except for the transfer restrictions relating to the Securities, (ii) use its reasonable best efforts to cause the 2 Exchange Offer Registration Statement to become effective under the Securities Act no later than 150 days after the Issue Date and the Registered Exchange Offer to be consummated no later than 180 days after the Issue Date and (iii) keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "Exchange Offer Registration Period"). The Exchange Securities will be issued under the Indenture or an indenture (the "Exchange Securities Indenture") between the Company and the Trustee or such other bank or trust company that is reasonably satisfactory to the Initial Purchasers, as trustee (the "Exchange Securities Trustee"), such indenture to be identical in all material respects to the Indenture, except for the transfer restrictions relating to the Securities (as described above). Upon the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder electing to exchange Securities for Exchange Securities (assuming that such Holder (a) is not an affiliate of the Company or an Exchanging Dealer (as defined herein) not complying with the requirements of the next sentence, (b) is not an Initial Purchaser holding Securities that have, or that are reasonably likely to have, the status of an unsold allotment in an initial distribution, (c) acquires the Exchange Securities in the ordinary course of such Holder's business and (d) has no arrangements or understandings with any person to participate in the distribution of the Exchange Securities) and to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company, the Initial Purchasers and each Exchanging Dealer acknowledge that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, (i) each Holder that is a broker-dealer electing to exchange Securities, acquired for its own account as a result of market-making activities or other trading activities, for Exchange Securities (an "Exchanging Dealer"), is required to deliver a prospectus containing substantially the information set forth in Annex A hereto, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) if any Initial Purchaser elects to sell Private Exchange Securities acquired in exchange for Securities constituting any portion of an unsold allotment, it is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act and the Exchange Act ("Regulation S-K"). If, prior to the consummation of the Registered Exchange Offer, any Holder holds any Securities acquired by it that have, or that are reasonably likely to be determined to have, the status of an unsold allotment in an initial distribution, or any Holder is not entitled to participate in the Registered Exchange Offer, the Company shall, upon the request of any such Holder, simultaneously with the delivery of the Exchange Securities in the Registered Exchange Offer, issue and deliver to any such Holder, in exchange for the Securities held by such Holder (the "Private Exchange"), a like aggregate principal amount of debt securities of the Company (the "Private Exchange Securities") that are identical in all material respects to the Exchange 3 Securities, except for the transfer restrictions relating to such Private Exchange Securities. The Private Exchange Securities will be issued under the same indenture as the Exchange Securities, and the Company shall use its reasonable best efforts to cause the Private Exchange Securities to bear the same CUSIP number as the Exchange Securities. In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York City time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply in all respects with all laws that are applicable to the Registered Exchange Offer. As soon as practicable after the close of the Registered Exchange Offer and any Private Exchange, as the case may be, the Company shall: (a) accept for exchange all Securities tendered and not validly withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (b) deliver to the Trustee for cancellation all Securities so accepted for exchange; and (c) cause the Trustee or the Exchange Securities Trustee, as the case may be, promptly to authenticate and deliver to each Holder, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Securities of such Holder so accepted for exchange. The Company shall use its reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein in order to permit such prospectus to be used by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided that (i) in the case where such prospectus 4 and any amendment or supplement thereto must be delivered by an Exchanging Dealer, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers have sold all Exchange Securities held by them and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 90 days after the consummation of the Registered Exchange Offer. The Indenture or the Exchange Securities Indenture, as the case may be, shall provide that the Securities, the Exchange Securities and the Private Exchange Securities shall vote and consent together on all matters as one class and that none of the Securities, the Exchange Securities or the Private Exchange Securities will have the right to vote or consent as a separate class on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Securities surrendered in exchange therefor or, if no interest has been paid on the Securities, from the Issue Date. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act, (iii) such Holder is not an affiliate of the Company or, if it is such an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if the Holder is not a broker-dealer, it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities and (v) if such person is an Exchanging Dealer, such person shall comply with the prospectus delivery requirements of the Securities Act. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not, as of the consummation of the Registered Exchange Offer, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. Shelf Registration. If (i) because of any change in law or applicable interpretations thereof by the Commission's staff the Company is not permitted to effect the Registered Exchange Offer as contemplated by Section 1 hereof, or (ii) for any other reason the Registered Exchange Offer is not consummated within 180 days after the Issue Date, or (iii) any Initial Purchaser so requests with respect to Securities or Private Exchange Securities not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by it 5 following the consummation of the Registered Exchange Offer, or (iv) any applicable law or interpretations do not permit any Holder to participate in the Registered Exchange Offer, (v) any Holder that participates in the Registered Exchange Offer does not receive freely transferable Exchange Securities in exchange for tendered Securities, or (vi) any Securities validly tendered pursuant to the Registered Exchange Offer are not exchanged for Exchange Securities within 10 days of being accepted in the Registered Exchange Offer, then the following provisions shall apply: (a) The Company shall use its reasonable best efforts to file as promptly as practicable (but in no event more than 75 days after so required or requested pursuant to this Section 2) with the Commission (the "Shelf Filing Date"), and thereafter shall use its reasonable best efforts to cause to be declared effective, a shelf registration statement on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities (as defined below) by the Holders thereof from time to time in accordance with the methods of distribution set forth in such registration statement (hereafter, a "Shelf Registration Statement" and, together with any Exchange Offer Registration Statement, a "Registration Statement"); provided, however, that no Holder of Transfer Restricted Securities (other than the Initial Purchasers) shall be entitled to have Transfer Restricted Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (b) The Company shall use its reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus forming part thereof to be used by Holders of Transfer Restricted Securities (as defined below) for a period ending on the earlier of (i) two years from the Issue Date or such shorter period that will terminate when all the Transfer Restricted Securities covered by the Shelf Registration Statement have been sold pursuant thereto and (ii) the date on which the Securities become eligible for resale without volume restrictions pursuant to Rule 144 under the Securities Act (in any such case, such period being called the "Shelf Registration Period"). The Company shall be deemed not to have used its reasonable best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Transfer Restricted Securities covered thereby not being able to offer and sell such Transfer Restricted Securities during that period, unless such action is required by applicable law; provided however, that the foregoing shall not apply to actions taken by the Company in good faith and for valid business reasons (not including avoidance of their obligations hereunder), including, without limitation, the acquisition or divestiture of assets, so long as the Company within 30 days thereafter complies with the requirements of Section 4(j) hereof. Any such period during which the Company fails to keep the Shelf Registration Statement effective and usable for offers and sales of Transfer Restricted Securities is referred to as a "Suspension Period." A Suspension Period shall commence on and include the date that the Company gives notice that the Shelf Registration Statement is no longer effective or the prospectus included therein is no longer usable for offers and sales of Transfer Restricted Securities and shall end on the date when each Holder of Transfer Restricted Securities covered by such registration statement either receives the copies of the supplemented or amended prospectus contemplated by Section 4(j) hereof or is advised in writing by the Company that use of the prospectus may be resumed. If 6 one or more Suspension Periods occur, the two-year time period referenced above shall be extended by the aggregate of the number of days included in each such Suspension Period. (c) Notwithstanding any other provisions hereof, the Company will ensure that (i) any Shelf Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Shelf Registration Statement and any amendment thereto (in either case, other than with respect to information included therein in reliance upon or in conformity with written information furnished to the Company by or on behalf of any Holder specifically for use therein (the "Holders' Information")) does not contain an untrue statement a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Shelf Registration Statement, and any supplement to such prospectus (in either case, other than with respect to Holders' Information), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (d) In the absence of the events described in clauses (i) through (vi) of the first paragraph of this Section 2, the Company shall not be permitted to discharge its obligations hereunder by means of the filing of a Shelf Registration Statement. 3. Additional Interest. (a) The parties hereto agree that the Holders of Transfer Restricted Securities will suffer damages if the Company fails to fulfill its obligations under Section 1 or Section 2, as applicable, and that it would not be feasible to ascertain the extent of such damages. Accordingly, if (i) the Exchange Offer Registration Statement is not filed with the Commission on or prior to 90 days after the Issue Date or the Shelf Registration Statement is not filed with the Commission on or before the Shelf Filing Date, (ii) the Exchange Offer Registration Statement is not declared effective within 150 days after the Issue Date or the Shelf Registration Statement is not declared effective within 150 days of the Shelf Filing Date, (iii) the Registered Exchange Offer is not consummated on or prior to 180 days after the Issue Date, or (iv) the Shelf Registration Statement is filed and declared effective within 150 days after the Shelf Filing Date but shall thereafter cease to be effective (at any time that the Company is obligated to maintain the effectiveness thereof) without being succeeded within 75 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default"), the Company will be obligated to pay additional interest to each Holder of Transfer Restricted Securities, during the period of one or more such Registration Defaults, in an amount equal to $0.192 per week per $1,000 principal amount of Transfer Restricted Securities held by such Holder until (i) the applicable Registration Statement is filed, (ii) the Exchange Offer Registration Statement is declared effective and the Registered Exchange Offer is consummated, (iii) the Shelf Registration Statement is declared effective or (iv) the Shelf Registration Statement again becomes effective, as the case may be. Following the cure of all Registration Defaults, the accrual of additional interest will cease. As used herein, the term "Transfer Restricted Securities" means each Security or Private Exchange Security until the earliest to occur of (i) the date on which such Security has been exchanged for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) each Security or 7 Private Exchange Security until the date on which it has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iii) each Security or Private Exchange Security until the date on which it is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary in this Section 3(a), the Company shall not be required to pay additional interest to a Holder of Transfer Restricted Securities if such Holder failed to comply with its obligations to make the representations set forth in the second to last paragraph of Section 1 or failed to provide the information required to be provided by it, if any, pursuant to Section 4(n). (b) The Company shall notify the Trustee and the Paying Agent under the Indenture immediately upon the happening of each and every Registration Default. The Company shall pay the additional interest due on the Transfer Restricted Securities by depositing with the Paying Agent (which may not be the Company for these purposes), in trust, for the benefit of the Holders thereof, prior to 10:00 a.m., New York City time, on the next interest payment date specified by the Indenture and the Securities, sums sufficient to pay the additional interest then due. The additional interest due shall be payable on each interest payment date specified by the Indenture and the Securities to the record holder of the Transfer Restricted Securities entitled to receive the interest payment to be made on such date. Each obligation to pay additional interest shall be deemed to accrue from and including the date of the applicable Registration Default. (c) The parties hereto agree that the additional interest provided for in this Section 3 constitute a reasonable estimate of and are intended to constitute the sole damages that will be suffered by Holders of Transfer Restricted Securities by reason of the failure of (i) the Shelf Registration Statement or the Exchange Offer Registration Statement to be filed, (ii) the Shelf Registration Statement to remain effective or (iii) the Exchange Offer Registration Statement to be declared effective and the Registered Exchange Offer to be consummated, in each case, to the extent required by this Agreement. 4. Registration Procedures. In connection with any Registration Statement, the following provisions shall apply: (a) The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and shall use its reasonable best efforts to reflect in each such document, when so filed with the Commission, such comments as any Initial Purchaser may reasonably propose; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement, and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; and (iii) if requested by any Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement. 8 (b) The Company shall advise each Initial Purchaser, each Exchanging Dealer and the Holders (if applicable) and, if requested by any such person, confirm such advice in writing (which advice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when any Registration Statement and any amendment thereto has been filed with the Commission and when such Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to any Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities, the Exchange Securities or the Private Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the making of any changes in any Registration Statement or the prospectus included therein in order that the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (c) The Company will make every reasonable effort to obtain the withdrawal at the earliest possible time of any order suspending the effectiveness of any Registration Statement. (d) The Company will furnish to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, at least one conformed copy of such Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company will, during the Shelf Registration Period, promptly deliver to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, as many copies of the prospectus (including each preliminary prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request; and the Company consents to the use of such prospectus or any amendment or supplement thereto by each of the selling Holders of Transfer Restricted Securities in connection with the offer and sale of the Transfer Restricted Securities covered by such prospectus or any amendment or supplement thereto. 9 (f) The Company will furnish to each Initial Purchaser and each Exchanging Dealer, and to any other Holder who so requests, without charge, at least one conformed copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any Initial Purchasers or Exchanging Dealer or any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (g) The Company will, during the Exchange Offer Registration Period or the Shelf Registration Period, as applicable, promptly deliver to each Initial Purchaser, each Exchanging Dealer and any such other persons that are required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement or the Shelf Registration Statement and any amendment or supplement thereto as such Initial Purchasers, Exchanging Dealer or other persons may reasonably request; and the Company consents to the use of such prospectus or any amendment or supplement thereto by any such Initial Purchasers, Exchanging Dealer or other persons, as applicable, as aforesaid. (h) Prior to the effective date of any Registration Statement, the Company will use its reasonable best efforts to register or qualify, or cooperate with the Holders of Securities, Exchange Securities or Private Exchange Securities included therein and their respective counsel in connection with the registration or qualification of, such Securities, Exchange Securities or Private Exchange Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any such Holder reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities, Exchange Securities or Private Exchange Securities covered by such Registration Statement; provided that the Company will not be required to qualify generally to do business in any jurisdiction where they are not then so qualified or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. (i) The Company will cooperate with the Holders of Securities, Exchange Securities or Private Exchange Securities to facilitate the timely preparation and delivery of certificates representing Securities, Exchange Securities or Private Exchange Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders thereof may request in writing prior to sales of Securities, Exchange Securities or Private Exchange Securities pursuant to such Registration Statement. (j) If any event contemplated by Section 4(b)(ii) through (v) occurs during the period for which the Company is required to maintain an effective Registration Statement, the Company will promptly prepare and file with the Commission a post-effective amendment to the Registration Statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to purchasers of the Securities, Exchange Securities or Private Exchange Securities from a Holder, the prospectus will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 10 (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Securities, the Exchange Securities and the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all applicable rules and regulations of the Commission and will make generally available to its security holders as soon as practicable after the effective date of the applicable Registration Statement an earnings statement satisfying the provisions of Section 11(a) of the Securities Act; provided that in no event shall such earnings statement be delivered later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the applicable Registration Statement, which statement shall cover such 12-month period. (m) The Company will cause the Indenture or the Exchange Securities Indenture, as the case may be, to be qualified under the Trust Indenture Act as required by applicable law in a timely manner. (n) The Company may require each Holder of Transfer Restricted Securities to be registered pursuant to any Shelf Registration Statement to furnish to the Company such information concerning the Holder and the distribution of such Transfer Restricted Securities as the Company may from time to time reasonably require for inclusion in such Shelf Registration Statement, and the Company may exclude from such registration the Transfer Restricted Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request. (o) In the case of a Shelf Registration Statement, each Holder of Transfer Restricted Securities to be registered pursuant thereto agrees by acquisition of such Transfer Restricted Securities that, upon receipt of any notice from the Company pursuant to Section 4(b)(ii) through (v), such Holder will discontinue disposition of such Transfer Restricted Securities until such Holder's receipt of copies of the supplemental or amended prospectus contemplated by Section 4(j) or until advised in writing (the "Advice") by the Company that the use of the applicable prospectus may be resumed. If the Company shall give any notice under Section 4(b)(ii) through (v) during the period that the Company is required to maintain an effective Registration Statement (the "Effectiveness Period"), such Effectiveness Period shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each seller of Transfer Restricted Securities covered by such Registration Statement shall have received (x) the copies of the supplemental or amended prospectus contemplated by Section 4(j) (if an amended or supplemental prospectus is required) or (y) the Advice (if no amended or supplemental prospectus is required). (p) In the case of a Shelf Registration Statement, the Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold or the 11 managing underwriters (if any) shall reasonably request in order to facilitate any disposition of such Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement. (q) In the case of a Shelf Registration Statement, the Company shall (i) make reasonably available for inspection by a representative of, and Special Counsel (as defined below) acting for, Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold and any underwriter participating in any disposition of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement, all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries and (ii) use its reasonable best efforts to have its officers, directors, employees, accountants and counsel supply all relevant information reasonably requested by such representative, Special Counsel or any such underwriter (an "Inspector") in connection with such Shelf Registration Statement; provided, however, that such persons shall first agree in writing with the Company that any information that is in good faith designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such persons, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to federal securities laws in connection with the filing of such Shelf Registration Statement or the use of any Prospectus), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard such information by such person or (iv) such information becomes available to such person from a source other than the Company and its subsidiaries and such source is not bound by a confidentiality agreement; and provided further each such person will also be required to further agree in writing that (i) it will, upon learning that disclosure of such information is sought in a court of competent jurisdiction, if legally permitted, give notice to the Company and allow the Company at its expense to undertake appropriate action to prevent disclosure of such information deemed confidential and (ii) it will not use such information in violation of any securities laws . (r) In the case of a Shelf Registration Statement, the Company shall, if requested by Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold, their Special Counsel or the managing underwriters (if any) in connection with such Shelf Registration Statement, use their reasonable best efforts to cause (i) their counsel to deliver an opinion relating to the Shelf Registration Statement and the Securities, Exchange Securities or Private Exchange Securities, as applicable, in customary form, (ii) their officers to execute and deliver all customary documents and certificates requested by such Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold, their Special Counsel or the managing underwriters (if any) and (iii) their independent public accountants to provide a comfort letter or letters in customary form, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. 12 5. Registration Expenses. The Company will bear all expenses incurred in connection with the performance of its obligations under Sections 1, 2, 3 and 4 and the Company will reimburse the Initial Purchasers and the Holders for the reasonable fees and disbursements of one firm of attorneys (in addition to any local counsel) chosen by the Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities to be sold pursuant to each Registration Statement (the "Special Counsel") acting for the Initial Purchasers or Holders in connection therewith. 6. Indemnification. (a) In the event of a Shelf Registration Statement or in connection with any prospectus delivery pursuant to an Exchange Offer Registration Statement by an Initial Purchasers or Exchanging Dealer, as applicable, the Company shall indemnify and hold harmless each Holder (including, without limitation, any such Initial Purchasers or Exchanging Dealer), its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls such Holder within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6 and Section 7 as a Holder) from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, without limitation, any loss, claim, damage, liability or action relating to purchases and sales of Securities, Exchange Securities or Private Exchange Securities), to which that Holder may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse each Holder promptly upon demand for any legal or other expenses reasonably incurred by that Holder in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with any Holders' Information; and provided, further, that with respect to any such untrue statement in or omission from any related preliminary prospectus, the indemnity agreement contained in this Section 6(a) shall not inure to the benefit of any Holder from whom the person asserting any such loss, claim, damage, liability or action received Securities, Exchange Securities or Private Exchange Securities to the extent that such loss, claim, damage, liability or action of or with respect to such Holder results from the fact that both (A) a copy of the final prospectus was not sent or given to such person at or prior to the written confirmation of the sale of such Securities, Exchange Securities or Private Exchange Securities to such person and (B) the untrue statement in or omission from the related preliminary prospectus was corrected in the final prospectus unless, in either case, such failure to deliver the final prospectus was a result of non-compliance by the Company with Section 4(d), 4(e), 4(f) or 4(g). 13 (b) In the event of a Shelf Registration Statement, each Holder shall indemnify and hold harmless the Company, its affiliates, its officers, directors, employees, representatives and agents, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively referred to for purposes of this Section 6(b) and Section 7 as the Company), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, but in each case, only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with any Holders' Information furnished to the Company by such Holder, and shall reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that no such Holder shall be liable for any indemnity claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 6 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 6. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than the reasonable costs of investigation; provided, however, that an indemnified party shall have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel for the indemnified party will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified 14 party has reasonably concluded (based upon advice of counsel to the indemnified party) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based upon advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm of attorneys (in addition to any local counsel) at any one time for all such indemnified party or parties. Each indemnified party, as a condition of the indemnity agreements contained in Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. 7. Contribution. If the indemnification provided for in Section 6 is unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company from the offering and sale of the Securities, on the one hand, and a Holder with respect to the sale by such Holder of Securities, Exchange Securities or Private Exchange Securities, on the other, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and such Holder on the other with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and a Holder on the other with respect to such offering and such sale shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities (before deducting expenses) received by or on behalf of the Company as set forth in the table on the cover of the Offering Memorandum, on the one hand, bear to the total proceeds received by such Holder with respect to its sale of Securities, Exchange Securities or Private Exchange Securities, on the other. 15 The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to the Company or information supplied by the Company on the one hand or to any Holders' Information supplied by such Holder on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 7 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7 shall be deemed to include, for purposes of this Section 7, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 7, an indemnifying party that is a Holder of Securities, Exchange Securities or Private Exchange Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Securities, Exchange Securities or Private Exchange Securities sold by such indemnifying party to any purchaser exceeds the amount of any damages which such indemnifying party has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 8. Rules 144 and 144A. So long as any Transfer Restricted Securities remain outstanding, the Company shall use its reasonable best efforts to file the reports required to be filed by them under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the written request of any Holder of Transfer Restricted Securities, make publicly available other information so long as necessary to permit sales of such Holder's securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including, without limitation, the requirements of Rule 144A(d)(4)). Upon the written request of any Holder of Transfer Restricted Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 9. Underwritten Registrations. If any of the Transfer Restricted Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities included in such offering, subject to the consent of the Company (which shall not be unreasonably withheld or delayed), and such Holders shall be responsible for all underwriting commissions and discounts in connection therewith. 16 No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 10. Miscellaneous. (a) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities, taken as a single class. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose Securities, Exchange Securities or Private Exchange Securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities being sold by such Holders pursuant to such Registration Statement. (b) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail, telecopier or air courier guaranteeing next-day delivery: (1) if to a Holder, at the most current address given by such Holder to the Company in accordance with the provisions of this Section 10(b), which address initially is, with respect to each Holder, the address of such Holder maintained by the Registrar under the Indenture, with a copy in like manner to each of the Initial Purchasers; (2) if to an Initial Purchaser, initially at its address set forth in the Purchase Agreement; and (3) if to the Company, initially at the address of the Company set forth in the Purchase Agreement. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being delivered to a next-day air courier; five business days after being deposited in the mail; and when receipt is acknowledged by the recipient's telecopier machine, if sent by telecopier. The Initial Purchasers and the Company, by notice to the other, may designate additional or different addresses or telecopy numbers for subsequent notices or communications. (c) Successors And Assigns. This Agreement shall be binding upon the Company and its successors and assigns. 17 (d) Counterparts. This Agreement may be executed in any number of counterparts (which may be delivered in original form or by telecopier) and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (e) Definition of Terms. For purposes of this Agreement, (a) the term "business day" means any day on which the New York Stock Exchange, Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405 under the Securities Act and (c) except where otherwise expressly provided, the term "affiliate" has the meaning set forth in Rule 405 under the Securities Act. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (h) Remedies. In the event of a breach by the Company or any Holder of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law, including recovery of damages (other than the recovery of damages for a breach by the Company of its obligations under Sections 1 or 2 hereof for which additional interest have been paid pursuant to Section 3 hereof), will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agree that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (i) No Inconsistent Agreements. The Company represents, warrants and agrees that (i) it has not entered into, shall not, on or after the date of this Agreement, enter into any agreement that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof, (ii) it has not previously entered into any agreement which remains in effect granting any registration rights with respect to any of its debt securities to any person and (iii) without limiting the generality of the foregoing, without the written consent of the Holders of a majority in aggregate principal amount of the then outstanding Transfer Restricted Securities, it shall not grant to any person the right to request the Company to register any debt securities of the Company under the Securities Act unless the rights so granted are not in conflict or inconsistent with the provisions of this Agreement. (j) No Piggyback on Registrations. Neither the Company nor any of its security holders (other than the Holders of Transfer Restricted Securities in such capacity) shall have the right to include any securities of the Company in any Shelf Registration or Registered Exchange Offer other than Transfer Restricted Securities. (k) Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this 18 Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 19 Please confirm that the foregoing correctly sets forth the agreement among the Company and the Initial Purchasers. Very truly yours, SMITHFIELD FOODS, INC. By ----------------- Name: C. LARRY POPE Title: Vice President and Chief Financial Officer Accepted: J.P. MORGAN SECURITIES INC. By ---------------- Authorized Signatory GOLDMAN, SACHS & CO. By ------------------------- (Goldman, Sachs & Co.) ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. 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 Securities received in exchange for Securities where such Securities 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 90 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Securities, where such Securities 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 Securities. See "Plan of Distribution." ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. 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 Securities received in exchange for Securities where such Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 90 days after the Expiration Date, they will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until _______________, 200[], all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus./1/ The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Registered Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities 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 Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Registered Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 90 days after the Expiration Date 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 Registered Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any broker-dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. - --------------------- /1/ In addition, the legend required by Item 502(e) of Regulation S-K will appear on the back cover page of the Registered Exchange Offer prospectus. ANNEX D [ ] 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 Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account, in exchange for Securities that were acquired as a result of market-making activities or other trading activities, and it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; 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. ANNEX B [Form of Opinion of Counsel for the Company] McGuireWoods LLP shall have furnished to the Initial Purchasers their written opinion, as counsel to the Company, addressed to the Initial Purchasers and dated the Closing Date, in form and substance reasonably satisfactory to the Initial Purchasers, substantially to the effect set forth below: (i) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the Commonwealth of Virginia, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which its ownership or lease of property or the conduct of its business requires such qualification except to the extent that the failure so to qualify or be in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole, and has all corporate power and authority necessary to own or hold its properties and to conduct its businesses substantially as described in the Offering Memorandum; (ii) the Company has an authorized capitalization as set forth in the Offering Memorandum, and all of the outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable; and the shareholders of the Company have no preemptive rights; (iii) each of the subsidiaries other than [list the foreign subsidiaries -for Schneider Corporation, Canadian counsel should opine that Smithfield owns 99% of the outstanding shares of Schneider] (the "Domestic Subsidiaries") has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation; has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, except to the extent that the failure so to qualify or be in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole; and all of the outstanding shares of capital stock of each of the Domestic Subsidiaries have been duly and validly authorized and issued, are fully paid and non-assessable, and are owned directly or indirectly by the Company, free and clear of all perfected liens, encumbrances, equities or claims and to such counsel's knowledge any other liens, encumbrances, equities or claims; (iv) the Purchase Agreement has been duly authorized, executed and delivered by the Company; (v) the Registration Rights Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding agreement of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, 2 moratorium and other similar laws relating to or affecting creditors' rights generally and to general equitable principles (whether considered in a proceeding in equity or at law); provided, however, that such counsel does not opine as to the enforceability against the Company of any rights to indemnification or contribution provided for therein; (vi) the Indenture has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery thereof by the Trustee, constitutes a valid and legally binding agreement of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and to general equitable principles (whether considered in a proceeding in equity or at law); (vii) the Securities have been duly authorized, executed and issued by the Company and, assuming due authentication thereof by the Trustee and upon payment and delivery in accordance with the Purchase Agreement, will constitute valid and legally binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and to general equitable principles (whether considered in a proceeding in equity or at law); (viii) the Exchange Securities have been duly authorized by the Company and, when duly executed, authenticated, issued and delivered as provided in the Indenture and contemplated by the Registration Rights Agreement (assuming the Indenture is the valid and legally binding obligation of the Trustee and due authentication of the Exchange Securities by the Trustee), will constitute valid and legally binding obligations of the Company, as issuer, entitled to the benefits of the Indenture and enforceable against the Company, as issuer, in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and to general equitable principles (whether considered in a proceeding in equity or at law); (ix) each Transaction Document conforms in all material respects to the respective descriptions thereof contained in the Offering Memorandum; (x) the execution, delivery and performance by the Company of its obligations under each of the Transaction Documents, the issuance, authentication, sale and delivery of the Securities and compliance by the Company with the terms thereof and the consummation of the transactions contemplated by the Transaction Documents will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument, in each case, known to such counsel, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, which breach, violation or default could reasonably be expected to have a material adverse effect on the Company and its subsidiaries taken as a whole, 3 nor will such actions result in any violation of the provisions of the charter or by-laws (or other comparable organizational documents) of the Company or any of its subsidiaries or any statute, judgment, order, decree, rule or regulation known to such counsel of any court or arbitrator or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets (other than the securities and Blue Sky laws of the various states, as to which such counsel expresses no opinion); and no consent, approval, authorization, order, registration or qualification of or with, any such court or governmental agency or body is required for the execution, delivery and performance by the Company of each of the Transaction Documents to which it is a party, the issuance, authentication, sale and delivery of the Securities and compliance by the Company with the terms thereof and the consummation of the transactions contemplated by the Transaction Documents, except for such consents, approvals, authorizations, registrations or qualifications (i) which have been obtained or made prior to the Closing Date, (ii) as may be required under state securities and Blue Sky laws and (iii) as may be required to be obtained or made under the Securities Act and applicable state securities laws as contemplated by the Registration Rights Agreement; (xi) other than as set forth in the Offering Memorandum, nothing has come to such counsel's attention that would lead them to believe that there are any legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject, which (A) singularly or in the aggregate, if determined adversely to the Company or any of its subsidiaries, could reasonably be expected to have a material adverse effect on the Company and its subsidiaries taken as a whole or (B) questions the validity or enforceability of any of the Transaction Documents or any action taken or to be taken pursuant thereto; and nothing has come to their attention that would lead them to believe that any such proceedings are threatened or contemplated by governmental authorities or threatened by others; (xii) to our knowledge neither the Company nor any of its subsidiaries is (A) in violation of its charter or by-laws (or other comparable organizational documents), (B) in default, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which it is a party or by which it is bound or to which any of its property or assets is subject or (C) in violation of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject, which default under clause (B) or violation under clause (C) could reasonably be expected to have a material adverse effect on the Company and its subsidiaries taken as a whole; (xiii) assuming that the Securities are offered and sold in the manner contemplated by, and in accordance with, this Agreement and the Offering Memorandum, no registration of the Securities under the Securities Act or qualification of the Indenture under the Trust Indenture Act is required in connection with the issuance 4 and sale of the Securities by the Company and the offer, resale and delivery of the Securities by the Initial Purchasers; (xiv) the documents incorporated by reference or deemed to be incorporated by reference in the Offering Memorandum (collectively, the "Exchange Act Documents") complied as to form when filed in all material respects with the requirements of the Exchange Act and the applicable rules and regulations of the Commission thereunder, except that in each case such counsel need express no opinion with the respect to the financial statements or other financial data contained in or incorporated by reference in or omitted from the Exchange Act Documents; and (xv) the issuance of Exchangeable Shares of Smithfield Canada Limited, a corporation organized under the Business Corporations Act (Ontario), as amended, and a wholly-owned subsidiary of the Company ("Smithfield Canada"), in connection with Smithfield Canada's acquisition of common stock of Schneider Corporation, a corporation organized under the Business Corporations Act (Ontario), as amended, did not constitute an Event of Default under the Indenture, dated as of February 9, 1998, between the Company and SunTrust Bank, Atlanta, a banking corporation duly organized and existing under the laws of the State of Georgia, as trustee. Such counsel shall also state that they have participated in conferences with officers and other representatives of the Company, representatives of Arthur Andersen LLP, independent auditors for the Company, the Initial Purchasers and counsel for the Initial Purchasers, at which the contents of the Preliminary Offering Memorandum and the Offering Memorandum and any amendment thereof or supplement thereto and related matters were discussed, and, although they have not undertaken to investigate or verify independently, and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Preliminary Offering Memorandum and the Offering Memorandum or any amendment thereof or supplement thereto (except as expressly stated in paragraph (x) above), no facts have come to such counsel's attention which would lead them to believe that the Offering Memorandum and any amendment thereof or supplement thereto as of its date (other than the historical, pro forma or other financial statements, financial information and financial data included or incorporated by reference therein, in each case as to which no opinion need be given) contained any untrue statement of material fact or omitted to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or that the Offering Memorandum and any amendment thereof or supplement thereto at the date of such opinion (other than the historical, pro forma or other financial statements, financial information and financial data included or incorporated by reference therein, in each case as to which no opinion need be given) includes any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may (A) rely in respect of matters of fact upon certificates of the Company and of executive officers of the Company and its subsidiaries and upon information obtained from public officials and other sources believed by such counsel to be responsible, (B) state that their opinion is limited to the laws of the Commonwealth of Virginia, the General Corporation Law of the State of Delaware, the laws of the State of New 5 York and the federal laws of the United States, (C) rely, insofar as laws other than the laws of the Commonwealth of Virginia, the General Corporation Law of the State of Delaware, the laws of the State of New York and the federal laws of the United States are concerned, solely on the opinions of local counsel (provided that such counsel shall state that they believe that both the Initial Purchasers and they are justified in relying upon such opinions) and may state that their opinion is subject to the same qualifications and limitations expressed in such opinions, (D) rely in respect of the opinions expressed in clause (iii) upon reports of the Uniform Commercial Code search services and (E) make other customary and reasonable assumptions. Such opinion shall also state that the opinion is being rendered to the Initial Purchasers pursuant to Section 5(c) of this Agreement and that such opinion may not be relied upon by the Initial Purchasers for any other purpose, or relied upon by, or furnished to, any other person, firm or corporation without such counsel's prior consent, except that the law firm of Simpson Thacher & Bartlett may rely upon such opinion with respect to matters of the laws of the Commonwealth of Virginia, the State of Tennessee and the other jurisdictions of incorporation of the Company's subsidiaries in connection with the delivery of its opinions pursuant to Section 5(d) of this Agreement and the Indenture. EX-4.3C 5 dex43c.txt EXCHANGE AND REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.3(c) EXECUTION COPY SMITHFIELD FOODS, INC. $300,000,000 8% Senior Notes due 2009 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT ------------------------------------------ October 23, 2001 J.P. Morgan Securities, Inc. Goldman, Sachs & Co. c/o J.P. Morgan Securities, Inc. 270 Park Avenue, 4th floor New York, New York 10017 Ladies and Gentlemen: Smithfield Foods, Inc., a Virginia corporation (the "Company"), proposes to issue and sell to J.P. Morgan Securities Inc. (("JPMSI") and Goldman, Sachs & Co. ("GS", and together with JPMSI, the "Initial Purchasers"), upon the terms and subject to the conditions set forth in a purchase agreement dated October 17, 2001 (the "Purchase Agreement"), $300,000,000 aggregate principal amount of its 8% Senior Notes due 2009 (the "Securities"). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Purchase Agreement. As an inducement to the Initial Purchasers to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Initial Purchasers thereunder, the Company agrees with the Initial Purchasers, for the benefit of the holders (including the Initial Purchasers) of the Securities, the Exchange Securities (as defined herein) and the Private Exchange Securities (as defined herein) (collectively, the "Holders"), as follows: 1. Registered Exchange Offer. The Company shall (i) prepare and, not later than 90 days following the date of original issuance of the Securities (the "Issue Date"), file with the Commission a registration statement (the "Exchange Offer Registration Statement") on an appropriate form under the Securities Act with respect to a proposed offer to the Holders of the Securities (the "Registered Exchange Offer") to issue and deliver to such Holders, in exchange for the Securities, a like aggregate principal amount of debt securities of the Company (the "Exchange Securities") that are identical in all material respects to the Securities, except for the transfer restrictions relating to the Securities, (ii) use its reasonable best efforts to cause the 2 Exchange Offer Registration Statement to become effective under the Securities Act no later than 150 days after the Issue Date and the Registered Exchange Offer to be consummated no later than 180 days after the Issue Date and (iii) keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "Exchange Offer Registration Period"). The Exchange Securities will be issued under the Indenture or an indenture (the "Exchange Securities Indenture") between the Company and the Trustee or such other bank or trust company that is reasonably satisfactory to the Initial Purchasers, as trustee (the "Exchange Securities Trustee"), such indenture to be identical in all material respects to the Indenture, except for the transfer restrictions relating to the Securities (as described above). Upon the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder electing to exchange Securities for Exchange Securities (assuming that such Holder (a) is not an affiliate of the Company or an Exchanging Dealer (as defined herein) not complying with the requirements of the next sentence, (b) is not an Initial Purchaser holding Securities that have, or that are reasonably likely to have, the status of an unsold allotment in an initial distribution, (c) acquires the Exchange Securities in the ordinary course of such Holder's business and (d) has no arrangements or understandings with any person to participate in the distribution of the Exchange Securities) and to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company, the Initial Purchasers and each Exchanging Dealer acknowledge that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, (i) each Holder that is a broker-dealer electing to exchange Securities, acquired for its own account as a result of market-making activities or other trading activities, for Exchange Securities (an "Exchanging Dealer"), is required to deliver a prospectus containing substantially the information set forth in Annex A hereto, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) if any Initial Purchaser elects to sell Private Exchange Securities acquired in exchange for Securities constituting any portion of an unsold allotment, it is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act and the Exchange Act ("Regulation S-K"). If, prior to the consummation of the Registered Exchange Offer, any Holder holds any Securities acquired by it that have, or that are reasonably likely to be determined to have, the status of an unsold allotment in an initial distribution, or any Holder is not entitled to participate in the Registered Exchange Offer, the Company shall, upon the request of any such Holder, simultaneously with the delivery of the Exchange Securities in the Registered Exchange Offer, issue and deliver to any such Holder, in exchange for the Securities held by such Holder (the "Private Exchange"), a like aggregate principal amount of debt securities of the Company (the "Private Exchange Securities") that are identical in all material respects to the Exchange 3 Securities, except for the transfer restrictions relating to such Private Exchange Securities. The Private Exchange Securities will be issued under the same indenture as the Exchange Securities, and the Company shall use its reasonable best efforts to cause the Private Exchange Securities to bear the same CUSIP number as the Exchange Securities. In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York City time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply in all respects with all laws that are applicable to the Registered Exchange Offer. As soon as practicable after the close of the Registered Exchange Offer and any Private Exchange, as the case may be, the Company shall: (a) accept for exchange all Securities tendered and not validly withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (b) deliver to the Trustee for cancellation all Securities so accepted for exchange; and (c) cause the Trustee or the Exchange Securities Trustee, as the case may be, promptly to authenticate and deliver to each Holder, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Securities of such Holder so accepted for exchange. The Company shall use its reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein in order to permit such prospectus to be used by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided that (i) in the case where such prospectus 4 and any amendment or supplement thereto must be delivered by an Exchanging Dealer, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers have sold all Exchange Securities held by them and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 90 days after the consummation of the Registered Exchange Offer. The Indenture or the Exchange Securities Indenture, as the case may be, shall provide that the Securities, the Exchange Securities and the Private Exchange Securities shall vote and consent together on all matters as one class and that none of the Securities, the Exchange Securities or the Private Exchange Securities will have the right to vote or consent as a separate class on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Securities surrendered in exchange therefor or, if no interest has been paid on the Securities, from the Issue Date. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act, (iii) such Holder is not an affiliate of the Company or, if it is such an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if the Holder is not a broker-dealer, it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities and (v) if such person is an Exchanging Dealer, such person shall comply with the prospectus delivery requirements of the Securities Act. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not, as of the consummation of the Registered Exchange Offer, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. Shelf Registration. If (i) because of any change in law or applicable interpretations thereof by the Commission's staff the Company is not permitted to effect the Registered Exchange Offer as contemplated by Section 1 hereof, or (ii) for any other reason the Registered Exchange Offer is not consummated within 180 days after the Issue Date, or (iii) any Initial Purchaser so requests with respect to Securities or Private Exchange Securities not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by it 5 following the consummation of the Registered Exchange Offer, or (iv) any applicable law or interpretations do not permit any Holder to participate in the Registered Exchange Offer, (v) any Holder that participates in the Registered Exchange Offer does not receive freely transferable Exchange Securities in exchange for tendered Securities, or (vi) any Securities validly tendered pursuant to the Registered Exchange Offer are not exchanged for Exchange Securities within 10 days of being accepted in the Registered Exchange Offer, then the following provisions shall apply: (a) The Company shall use its reasonable best efforts to file as promptly as practicable (but in no event more than 75 days after so required or requested pursuant to this Section 2) with the Commission (the "Shelf Filing Date"), and thereafter shall use its reasonable best efforts to cause to be declared effective, a shelf registration statement on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities (as defined below) by the Holders thereof from time to time in accordance with the methods of distribution set forth in such registration statement (hereafter, a "Shelf Registration Statement" and, together with any Exchange Offer Registration Statement, a "Registration Statement"); provided, however, that no Holder of Transfer Restricted Securities (other than the Initial Purchasers) shall be entitled to have Transfer Restricted Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (b) The Company shall use its reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus forming part thereof to be used by Holders of Transfer Restricted Securities (as defined below) for a period ending on the earlier of (i) two years from the Issue Date or such shorter period that will terminate when all the Transfer Restricted Securities covered by the Shelf Registration Statement have been sold pursuant thereto and (ii) the date on which the Securities become eligible for resale without volume restrictions pursuant to Rule 144 under the Securities Act (in any such case, such period being called the "Shelf Registration Period"). The Company shall be deemed not to have used its reasonable best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Transfer Restricted Securities covered thereby not being able to offer and sell such Transfer Restricted Securities during that period, unless such action is required by applicable law; provided however, that the foregoing shall not apply to actions taken by the Company in good faith and for valid business reasons (not including avoidance of their obligations hereunder), including, without limitation, the acquisition or divestiture of assets, so long as the Company within 30 days thereafter complies with the requirements of Section 4(j) hereof. Any such period during which the Company fails to keep the Shelf Registration Statement effective and usable for offers and sales of Transfer Restricted Securities is referred to as a "Suspension Period." A Suspension Period shall commence on and include the date that the Company gives notice that the Shelf Registration Statement is no longer effective or the prospectus included therein is no longer usable for offers and sales of Transfer Restricted Securities and shall end on the date when each Holder of Transfer Restricted Securities covered by such registration statement either receives the copies of the supplemented or amended prospectus contemplated by Section 4(j) hereof or is advised in writing by the Company that use of the prospectus may be resumed. If 6 one or more Suspension Periods occur, the two-year time period referenced above shall be extended by the aggregate of the number of days included in each such Suspension Period. (c) Notwithstanding any other provisions hereof, the Company will ensure that (i) any Shelf Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Shelf Registration Statement and any amendment thereto (in either case, other than with respect to information included therein in reliance upon or in conformity with written information furnished to the Company by or on behalf of any Holder specifically for use therein (the "Holders' Information")) does not contain an untrue statement a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Shelf Registration Statement, and any supplement to such prospectus (in either case, other than with respect to Holders' Information), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (d) In the absence of the events described in clauses (i) through (vi) of the first paragraph of this Section 2, the Company shall not be permitted to discharge its obligations hereunder by means of the filing of a Shelf Registration Statement. 3. Additional Interest. (a) The parties hereto agree that the Holders of Transfer Restricted Securities will suffer damages if the Company fails to fulfill its obligations under Section 1 or Section 2, as applicable, and that it would not be feasible to ascertain the extent of such damages. Accordingly, if (i) the Exchange Offer Registration Statement is not filed with the Commission on or prior to 90 days after the Issue Date or the Shelf Registration Statement is not filed with the Commission on or before the Shelf Filing Date, (ii) the Exchange Offer Registration Statement is not declared effective within 150 days after the Issue Date or the Shelf Registration Statement is not declared effective within 150 days of the Shelf Filing Date, (iii) the Registered Exchange Offer is not consummated on or prior to 180 days after the Issue Date, or (iv) the Shelf Registration Statement is filed and declared effective within 150 days after the Shelf Filing Date but shall thereafter cease to be effective (at any time that the Company is obligated to maintain the effectiveness thereof) without being succeeded within 75 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default"), the Company will be obligated to pay additional interest to each Holder of Transfer Restricted Securities, during the period of one or more such Registration Defaults, in an amount equal to $0.192 per week per $1,000 principal amount of Transfer Restricted Securities held by such Holder until (i) the applicable Registration Statement is filed, (ii) the Exchange Offer Registration Statement is declared effective and the Registered Exchange Offer is consummated, (iii) the Shelf Registration Statement is declared effective or (iv) the Shelf Registration Statement again becomes effective, as the case may be. Following the cure of all Registration Defaults, the accrual of additional interest will cease. As used herein, the term "Transfer Restricted Securities" means each Security or Private Exchange Security until the earliest to occur of (i) the date on which such Security has been exchanged for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) each Security or 7 Private Exchange Security until the date on which it has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iii) each Security or Private Exchange Security until the date on which it is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary in this Section 3(a), the Company shall not be required to pay additional interest to a Holder of Transfer Restricted Securities if such Holder failed to comply with its obligations to make the representations set forth in the second to last paragraph of Section 1 or failed to provide the information required to be provided by it, if any, pursuant to Section 4(n). (b) The Company shall notify the Trustee and the Paying Agent under the Indenture immediately upon the happening of each and every Registration Default. The Company shall pay the additional interest due on the Transfer Restricted Securities by depositing with the Paying Agent (which may not be the Company for these purposes), in trust, for the benefit of the Holders thereof, prior to 10:00 a.m., New York City time, on the next interest payment date specified by the Indenture and the Securities, sums sufficient to pay the additional interest then due. The additional interest due shall be payable on each interest payment date specified by the Indenture and the Securities to the record holder of the Transfer Restricted Securities entitled to receive the interest payment to be made on such date. Each obligation to pay additional interest shall be deemed to accrue from and including the date of the applicable Registration Default. (c) The parties hereto agree that the additional interest provided for in this Section 3 constitute a reasonable estimate of and are intended to constitute the sole damages that will be suffered by Holders of Transfer Restricted Securities by reason of the failure of (i) the Shelf Registration Statement or the Exchange Offer Registration Statement to be filed, (ii) the Shelf Registration Statement to remain effective or (iii) the Exchange Offer Registration Statement to be declared effective and the Registered Exchange Offer to be consummated, in each case, to the extent required by this Agreement. 4. Registration Procedures. In connection with any Registration Statement, the following provisions shall apply: (a) The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and shall use its reasonable best efforts to reflect in each such document, when so filed with the Commission, such comments as any Initial Purchaser may reasonably propose; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement, and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; and (iii) if requested by any Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement. 8 (b) The Company shall advise each Initial Purchaser, each Exchanging Dealer and the Holders (if applicable) and, if requested by any such person, confirm such advice in writing (which advice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when any Registration Statement and any amendment thereto has been filed with the Commission and when such Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to any Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities, the Exchange Securities or the Private Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the making of any changes in any Registration Statement or the prospectus included therein in order that the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (c) The Company will make every reasonable effort to obtain the withdrawal at the earliest possible time of any order suspending the effectiveness of any Registration Statement. (d) The Company will furnish to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, at least one conformed copy of such Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company will, during the Shelf Registration Period, promptly deliver to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, as many copies of the prospectus (including each preliminary prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request; and the Company consents to the use of such prospectus or any amendment or supplement thereto by each of the selling Holders of Transfer Restricted Securities in connection with the offer and sale of the Transfer Restricted Securities covered by such prospectus or any amendment or supplement thereto. 9 (f) The Company will furnish to each Initial Purchaser and each Exchanging Dealer, and to any other Holder who so requests, without charge, at least one conformed copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any Initial Purchasers or Exchanging Dealer or any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (g) The Company will, during the Exchange Offer Registration Period or the Shelf Registration Period, as applicable, promptly deliver to each Initial Purchaser, each Exchanging Dealer and any such other persons that are required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement or the Shelf Registration Statement and any amendment or supplement thereto as such Initial Purchasers, Exchanging Dealer or other persons may reasonably request; and the Company consents to the use of such prospectus or any amendment or supplement thereto by any such Initial Purchasers, Exchanging Dealer or other persons, as applicable, as aforesaid. (h) Prior to the effective date of any Registration Statement, the Company will use its reasonable best efforts to register or qualify, or cooperate with the Holders of Securities, Exchange Securities or Private Exchange Securities included therein and their respective counsel in connection with the registration or qualification of, such Securities, Exchange Securities or Private Exchange Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any such Holder reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities, Exchange Securities or Private Exchange Securities covered by such Registration Statement; provided that the Company will not be required to qualify generally to do business in any jurisdiction where they are not then so qualified or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. (i) The Company will cooperate with the Holders of Securities, Exchange Securities or Private Exchange Securities to facilitate the timely preparation and delivery of certificates representing Securities, Exchange Securities or Private Exchange Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders thereof may request in writing prior to sales of Securities, Exchange Securities or Private Exchange Securities pursuant to such Registration Statement. (j) If any event contemplated by Section 4(b)(ii) through (v) occurs during the period for which the Company is required to maintain an effective Registration Statement, the Company will promptly prepare and file with the Commission a post-effective amendment to the Registration Statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to purchasers of the Securities, Exchange Securities or Private Exchange Securities from a Holder, the prospectus will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 10 (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Securities, the Exchange Securities and the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all applicable rules and regulations of the Commission and will make generally available to its security holders as soon as practicable after the effective date of the applicable Registration Statement an earnings statement satisfying the provisions of Section 11(a) of the Securities Act; provided that in no event shall such earnings statement be delivered later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the applicable Registration Statement, which statement shall cover such 12-month period. (m) The Company will cause the Indenture or the Exchange Securities Indenture, as the case may be, to be qualified under the Trust Indenture Act as required by applicable law in a timely manner. (n) The Company may require each Holder of Transfer Restricted Securities to be registered pursuant to any Shelf Registration Statement to furnish to the Company such information concerning the Holder and the distribution of such Transfer Restricted Securities as the Company may from time to time reasonably require for inclusion in such Shelf Registration Statement, and the Company may exclude from such registration the Transfer Restricted Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request. (o) In the case of a Shelf Registration Statement, each Holder of Transfer Restricted Securities to be registered pursuant thereto agrees by acquisition of such Transfer Restricted Securities that, upon receipt of any notice from the Company pursuant to Section 4(b)(ii) through (v), such Holder will discontinue disposition of such Transfer Restricted Securities until such Holder's receipt of copies of the supplemental or amended prospectus contemplated by Section 4(j) or until advised in writing (the "Advice") by the Company that the use of the applicable prospectus may be resumed. If the Company shall give any notice under Section 4(b)(ii) through (v) during the period that the Company is required to maintain an effective Registration Statement (the "Effectiveness Period"), such Effectiveness Period shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each seller of Transfer Restricted Securities covered by such Registration Statement shall have received (x) the copies of the supplemental or amended prospectus contemplated by Section 4(j) (if an amended or supplemental prospectus is required) or (y) the Advice (if no amended or supplemental prospectus is required). (p) In the case of a Shelf Registration Statement, the Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold or the 11 managing underwriters (if any) shall reasonably request in order to facilitate any disposition of such Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement. (q) In the case of a Shelf Registration Statement, the Company shall (i) make reasonably available for inspection by a representative of, and Special Counsel (as defined below) acting for, Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold and any underwriter participating in any disposition of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement, all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries and (ii) use its reasonable best efforts to have its officers, directors, employees, accountants and counsel supply all relevant information reasonably requested by such representative, Special Counsel or any such underwriter (an "Inspector") in connection with such Shelf Registration Statement; provided, however, that such persons shall first agree in writing with the Company that any information that is in good faith designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such persons, unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to federal securities laws in connection with the filing of such Shelf Registration Statement or the use of any Prospectus), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard such information by such person or (iv) such information becomes available to such person from a source other than the Company and its subsidiaries and such source is not bound by a confidentiality agreement; and provided further each such person will also be required to further agree in writing that (i) it will, upon learning that disclosure of such information is sought in a court of competent jurisdiction, if legally permitted, give notice to the Company and allow the Company at its expense to undertake appropriate action to prevent disclosure of such information deemed confidential and (ii) it will not use such information in violation of any securities laws . (r) In the case of a Shelf Registration Statement, the Company shall, if requested by Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold, their Special Counsel or the managing underwriters (if any) in connection with such Shelf Registration Statement, use their reasonable best efforts to cause (i) their counsel to deliver an opinion relating to the Shelf Registration Statement and the Securities, Exchange Securities or Private Exchange Securities, as applicable, in customary form, (ii) their officers to execute and deliver all customary documents and certificates requested by such Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold, their Special Counsel or the managing underwriters (if any) and (iii) their independent public accountants to provide a comfort letter or letters in customary form, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. 12 5. Registration Expenses. The Company will bear all expenses incurred in connection with the performance of its obligations under Sections 1, 2, 3 and 4 and the Company will reimburse the Initial Purchasers and the Holders for the reasonable fees and disbursements of one firm of attorneys (in addition to any local counsel) chosen by the Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities to be sold pursuant to each Registration Statement (the "Special Counsel") acting for the Initial Purchasers or Holders in connection therewith. 6. Indemnification. (a) In the event of a Shelf Registration Statement or in connection with any prospectus delivery pursuant to an Exchange Offer Registration Statement by an Initial Purchasers or Exchanging Dealer, as applicable, the Company shall indemnify and hold harmless each Holder (including, without limitation, any such Initial Purchasers or Exchanging Dealer), its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls such Holder within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6 and Section 7 as a Holder) from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, without limitation, any loss, claim, damage, liability or action relating to purchases and sales of Securities, Exchange Securities or Private Exchange Securities), to which that Holder may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse each Holder promptly upon demand for any legal or other expenses reasonably incurred by that Holder in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with any Holders' Information; and provided, further, that with respect to any such untrue statement in or omission from any related preliminary prospectus, the indemnity agreement contained in this Section 6(a) shall not inure to the benefit of any Holder from whom the person asserting any such loss, claim, damage, liability or action received Securities, Exchange Securities or Private Exchange Securities to the extent that such loss, claim, damage, liability or action of or with respect to such Holder results from the fact that both (A) a copy of the final prospectus was not sent or given to such person at or prior to the written confirmation of the sale of such Securities, Exchange Securities or Private Exchange Securities to such person and (B) the untrue statement in or omission from the related preliminary prospectus was corrected in the final prospectus unless, in either case, such failure to deliver the final prospectus was a result of non-compliance by the Company with Section 4(d), 4(e), 4(f) or 4(g). 13 (b) In the event of a Shelf Registration Statement, each Holder shall indemnify and hold harmless the Company, its affiliates, its officers, directors, employees, representatives and agents, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively referred to for purposes of this Section 6(b) and Section 7 as the Company), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, but in each case, only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with any Holders' Information furnished to the Company by such Holder, and shall reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that no such Holder shall be liable for any indemnity claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 6 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 6. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than the reasonable costs of investigation; provided, however, that an indemnified party shall have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel for the indemnified party will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified 14 party has reasonably concluded (based upon advice of counsel to the indemnified party) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based upon advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm of attorneys (in addition to any local counsel) at any one time for all such indemnified party or parties. Each indemnified party, as a condition of the indemnity agreements contained in Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. 7. Contribution. If the indemnification provided for in Section 6 is unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company from the offering and sale of the Securities, on the one hand, and a Holder with respect to the sale by such Holder of Securities, Exchange Securities or Private Exchange Securities, on the other, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and such Holder on the other with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and a Holder on the other with respect to such offering and such sale shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities (before deducting expenses) received by or on behalf of the Company as set forth in the table on the cover of the Offering Memorandum, on the one hand, bear to the total proceeds received by such Holder with respect to its sale of Securities, Exchange Securities or Private Exchange Securities, on the other. 15 The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to the Company or information supplied by the Company on the one hand or to any Holders' Information supplied by such Holder on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 7 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7 shall be deemed to include, for purposes of this Section 7, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 7, an indemnifying party that is a Holder of Securities, Exchange Securities or Private Exchange Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Securities, Exchange Securities or Private Exchange Securities sold by such indemnifying party to any purchaser exceeds the amount of any damages which such indemnifying party has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 8. Rules 144 and 144A. So long as any Transfer Restricted Securities remain outstanding, the Company shall use its reasonable best efforts to file the reports required to be filed by them under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the written request of any Holder of Transfer Restricted Securities, make publicly available other information so long as necessary to permit sales of such Holder's securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including, without limitation, the requirements of Rule 144A(d)(4)). Upon the written request of any Holder of Transfer Restricted Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 9. Underwritten Registrations. If any of the Transfer Restricted Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities included in such offering, subject to the consent of the Company (which shall not be unreasonably withheld or delayed), and such Holders shall be responsible for all underwriting commissions and discounts in connection therewith. 16 No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 10. Miscellaneous. (a) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities, taken as a single class. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose Securities, Exchange Securities or Private Exchange Securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities being sold by such Holders pursuant to such Registration Statement. (b) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail, telecopier or air courier guaranteeing next-day delivery: (1) if to a Holder, at the most current address given by such Holder to the Company in accordance with the provisions of this Section 10(b), which address initially is, with respect to each Holder, the address of such Holder maintained by the Registrar under the Indenture, with a copy in like manner to each of the Initial Purchasers; (2) if to an Initial Purchaser, initially at its address set forth in the Purchase Agreement; and (3) if to the Company, initially at the address of the Company set forth in the Purchase Agreement. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being delivered to a next-day air courier; five business days after being deposited in the mail; and when receipt is acknowledged by the recipient's telecopier machine, if sent by telecopier. The Initial Purchasers and the Company, by notice to the other, may designate additional or different addresses or telecopy numbers for subsequent notices or communications. (c) Successors And Assigns. This Agreement shall be binding upon the Company and its successors and assigns. 17 (d) Counterparts. This Agreement may be executed in any number of counterparts (which may be delivered in original form or by telecopier) and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (e) Definition of Terms. For purposes of this Agreement, (a) the term "business day" means any day on which the New York Stock Exchange, Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405 under the Securities Act and (c) except where otherwise expressly provided, the term "affiliate" has the meaning set forth in Rule 405 under the Securities Act. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (h) Remedies. In the event of a breach by the Company or any Holder of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law, including recovery of damages (other than the recovery of damages for a breach by the Company of its obligations under Sections 1 or 2 hereof for which additional interest have been paid pursuant to Section 3 hereof), will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agree that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (i) No Inconsistent Agreements. The Company represents, warrants and agrees that (i) it has not entered into, shall not, on or after the date of this Agreement, enter into any agreement that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof, (ii) it has not previously entered into any agreement which remains in effect granting any registration rights with respect to any of its debt securities to any person and (iii) without limiting the generality of the foregoing, without the written consent of the Holders of a majority in aggregate principal amount of the then outstanding Transfer Restricted Securities, it shall not grant to any person the right to request the Company to register any debt securities of the Company under the Securities Act unless the rights so granted are not in conflict or inconsistent with the provisions of this Agreement. (j) No Piggyback on Registrations. Neither the Company nor any of its security holders (other than the Holders of Transfer Restricted Securities in such capacity) shall have the right to include any securities of the Company in any Shelf Registration or Registered Exchange Offer other than Transfer Restricted Securities. (k) Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this 18 Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 19 Please confirm that the foregoing correctly sets forth the agreement among the Company and the Initial Purchasers. Very truly yours, SMITHFIELD FOODS, INC. By /s/ C. Larry Pope ----------------- Name: C. LARRY POPE Title: Vice President and Chief Financial Officer Accepted: J.P. MORGAN SECURITIES INC. By /s/ Gerry Murray ---------------- Authorized Signatory GOLDMAN, SACHS & CO. By /s/ Goldman, Sachs & Co. ------------------------- (Goldman, Sachs & Co.) ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. 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 Securities received in exchange for Securities where such Securities 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 90 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Securities, where such Securities 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 Securities. See "Plan of Distribution." ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. 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 Securities received in exchange for Securities where such Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 90 days after the Expiration Date, they will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until _______________, 200[], all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus./1/ The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Registered Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities 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 Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Registered Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 90 days after the Expiration Date 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 Registered Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any broker-dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. - --------------------- /1/ In addition, the legend required by Item 502(e) of Regulation S-K will appear on the back cover page of the Registered Exchange Offer prospectus. ANNEX D [ ] 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 Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account, in exchange for Securities that were acquired as a result of market-making activities or other trading activities, and it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; 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. EX-5.1 6 dex51.txt OPINION OF MCGUIREWOODS LLP EXHIBIT 5.1 [LETTERHEAD OF MCGUIREWOODS LLP] November 30, 2001 Smithfield Foods, Inc. 200 Commerce Street Smithfield, VA 23430 Smithfield Foods, Inc. Registration Statement on Form S-4 ---------------------------------- Ladies and Gentlemen: Smithfield Foods, Inc. (the "Company"), has requested our opinion in connection with various legal matters relating to the filing of a Registration Statement on Form S-4 (the "Registration Statement") under the Securities Act of 1933, as amended (the "1933 Act"), covering the offer to exchange $1,000 principal amount of 8% Senior Notes, Series B, due 2009 (the "Exchange Notes") for each $1,000 principal amount of outstanding 8% Senior Notes, Series A, due 2009 (the "Senior Notes"). The Senior Notes were, and the Exchange Notes are to be, issued under the Indenture, dated as of October 23, 2001 (the "Indenture"), between the Company and SunTrust Bank, as trustee. The exchange will be made pursuant to an exchange offer (the "Exchange Offer") contemplated by the Registration Statement. We have examined copies of such records of the Company and such other certificates and documents as we have deemed relevant and necessary for the opinions hereinafter set forth. In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to authentic originals of all documents submitted to us as certified or reproduced copies. We have also assumed the legal capacity of all persons executing such documents and the truth and correctness of any representations or warranties therein contained. As to various questions of fact material to such opinions, we have relied upon certificates of officers of the Company and of public officials. Based upon the foregoing, we are of the opinion that: 1. The Company is duly formed and validly existing under the laws of the Commonwealth of Virginia. 2. The execution and delivery of the Indenture has been duly authorized by the Company, and the Indenture constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with the terms thereof, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance and other similar laws affecting the enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 3. The Exchange Notes will, upon the due issuance and authentication of the Exchange Notes and exchange thereof for the Senior Notes in the manner referred to in the Registration Statement and the Indenture, constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance and other similar laws affecting the enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 4. This opinion is limited to the laws of the Commonwealth of Virginia, the State of New York and the federal laws of the United States of the type typically applicable to transactions contemplated by the Exchange Offer, and we do not express any opinion with respect to the laws of any other jurisdiction. This letter speaks only as of the date hereof and is limited to present statutes, regulations and administrative and judicial interpretations. We undertake no responsibility to update or supplement this letter after the date hereof. We consent to being named in the Registration Statement and related Prospectus as counsel who are passing upon the legality of the Exchange Notes for the Company and to the reference to our name under the caption "Legal Matters" in such Prospectus. We also consent to your filing copies of this opinion as an exhibit to the Registration Statement or any amendment thereto. In giving such consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the 1933 Act. Very truly yours, /s/ McGuireWoods LLP EX-12.1 7 dex121.txt STATEMENT REGARDING COMPUTATION OF EARNINGS EXHIBIT 12.1 Smithfield Foods, Inc and Subsidiaries Ratio of Earnings to Fixed Charges (Dollars in thousands)
52 weeks ended 13 Weeks Ended Fiscal Years --------- ------------------- ------------------------------------------------------ July 29, July 29, July 30, April 29, April 30, May 2, May 3, April 27, 2001 2001 2000 2001 2000 1999 1998 1997 --------- ------------------- ------------------------------------------------------ Earnings: Income from continuing operations before income taxes $ 378,846 $ 93,286 $ 71,758 $357,318 $119,987 $ 143,438 $ 80,962 $ 67,677 Nonrecurring (gain)/loss * (78,615) (2,008) (76,607) 12,600 Interest expense 85,222 19,636 23,388 88,974 71,944 40,521 31,891 26,211 Interest factor of rentals 11,359 2,848 3,617 12,128 9,953 7,249 7,203 6,892 Amortization of debt costs 1,093 259 315 1,149 868 904 551 142 --------- -------------------- ----------------------------------------------------- Earnings as Adjusted $ 397,905 $114,021 $ 99,078 $382,962 $202,752 $ 192,112 $ 133,207 $ 100,922 ========= ==================== ===================================================== Fixed Charges: Interest expense $ 85,222 $ 19,636 $ 23,388 $ 88,974 $ 71,944 $ 40,521 $ 31,891 $ 26,211 Capitalized interest 2,569 514 592 2,647 3,293 2,377 2,530 2,640 Interest factor of rentals 11,359 2,848 3,617 12,128 9,953 7,249 7,203 6,892 Amortization of debt costs 1,093 259 315 1,149 868 904 551 142 --------- ------------------- ----------------------------------------------------- Fixed Charges $ 100,243 $ 23,257 $ 27,912 $104,898 $ 86,058 $ 51,051 $ 42,175 $ 35,885 ========= =================== ===================================================== Ratio of Earnings to Fixed Charges 4.0x 4.9x 3.5x 3.7x 2.4x 3.8x 3.2x 2.8x ========= =================== =====================================================
* Reflects a nonrecurring charge of $12.6 million for the fiscal year ended May 3, 1998 related to civil penalties in an environmental case and nonrecurring gains of $79.0 million for the fiscal year ended April 29, 2001, $7.0 million for the 13 weeks ended July 29, 2001, and $86.0 million for the 52 weeks ended July 29, 2001 on the sale of shares of IBP, inc common stock and a $5.1 million gain on the sale of a plant for the fiscal year ended April 29, 2001 and the 52 weeks ended July 29, 2001, net of expenses of $7.5 million incurred related to the attempted merger with IBP, inc for the fiscal year ended April 29, 2001 and the 52 weeks ended July 29, 2001, and a $5.0 million loss resulting from a fire at a Circle Four farm in Utah for the 13 weeks and 52 weeks ended July 29, 2001. EX-23.1 8 dex231.txt CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report included in this registration statement and to the incorporation by reference in this registration statement of our report dated June 5, 2001 included in Smithfield Foods, Inc.'s Form 10-K for the year ended April 29, 2001, and to all references to our Firm included in this registration statement. /s/ ARTHUR ANDERSEN LLP Richmond, Virginia November 30, 2001 EX-24.1 9 dex241.txt POWERS OF ATTORNEY Exhibit 24.1 POWER OF ATTORNEY The undersigned hereby appoints Joseph W. Luter, III, Richard J. M. Poulson, Daniel G. Stevens or Michael H. Cole (each with full power to act alone), as his true and lawful attorneys-in-fact, and grants unto said attorneys the authority in their name and on their behalf to execute and file (individually and in the capacities stated below) any documents relating to the registration by Smithfield Foods, Inc. (the "Company") of $300,000,000 senior debt securities of the Company, under the federal and/or state securities laws, including the Company's Registration Statement on Form S-4 and any and all amendments or supplements thereto (including post-effective amendments under Rule 462(b) or otherwise), with all exhibits and documents required to be filed in connection therewith. The undersigned further grants unto said attorneys, and each of them, full power and authority to perform each and every act necessary in order to accomplish the foregoing registration as fully as he himself might do. IN WITNESS WHEREOF, the undersigned has signed this power of attorney this 30TH day of November, 2001.
Name Title ---- ----- By: /S/ JOSEPH W. LUTER, III Chairman of the Board, Chief Executive ------------------------ Officer and Director Joseph W. Luter, III By: Vice President and ------------------------ Chief Financial Officer Daniel G. Stevens By: Corporate Controller ------------------------ Jeffrey A. Deel By: /S/ ROBERT L. BURRUS, JR. Director ------------------------ Robert L. Burrus, Jr. By: /S/ CAROL T. CRAWFORD Director ------------------------ Carol T. Crawford By: /S/ RAY A. GOLDBERG Director ------------------------ Ray A. Goldberg By: Director ------------------------ George E. Hamilton, Jr. By: /S/ WENDELL H. MURPHY Director ------------------------ Wendell H. Murphy By: Director ------------------------ William H. Prestage By: /S/ JOHN SCHWIETERS Director ------------------------ John Schwieters By: /S/ MELVIN O. WRIGHT Director ------------------------ Melvin O. Wright
EX-25.1 10 dex251.txt STATEMENT OF FORM T-1 OF ELIGIBILITY OF TRUSTEE EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM T-1 ---------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) [ ] ---------- SUNTRUST BANK (Exact name of trustee as specified in its charter) 303 Peachtree Street 30308 58-0466330 30th Floor (Zip Code) (I.R.S. employer identification no.) Atlanta, Georgia (Address of principal executive offices)
Jack Ellerin SunTrust Bank 25 Park Place, N.E. 24th Floor Atlanta, Georgia 30303-2900 (404) 588-7296 (Name, address and telephone number of agent for service) ---------- SMITHFIELD FOODS, INC. Virginia 52-0845861 (State or other jurisdiction of (IRS employer identification no.) incorporation or organization) 200 Commerce Street 23430 Smithfield, Virginia (Zip Code) (Address of principal executive offices) ---------- 8% Senior Notes, Series B due 2009 pursuant to Registration Statement No. (Title of the indenture securities) 1. General information. ------------------- Furnish the following information as to the trustee- Name and address of each examining or supervising authority to which it is subject. Department of Banking and Finance, State of Georgia Atlanta, Georgia Federal Reserve Bank of Atlanta 104 Marietta Street, N.W. Atlanta, Georgia Federal Deposit Insurance Corporation Washington, D.C. Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. ------------------------- If the obligor is an affiliate of the trustee, describe each such affiliation. None. 3-12 No responses are included for Items 3 through 12. Responses to those Items are not required because, as provided in General Instruction B and as set forth in Item 13(b), the obligor is not in default on any securities issued under indentures under which SunTrust Bank is a trustee. 13. Defaults by the Obligor. ----------------------- (a) State whether there is or has been a default with respect to the securities under this indenture. Explain the nature of any such default. There is not and has not been any default under this indenture. (b) If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, or is trustee for more than one outstanding series of securities under the indenture, state whether there has been a default under any such indenture or series, identify the indenture or series affected, and explain the nature of any such default. There has not been any such default. 14-15 No responses are included for Items 14 and 15. Responses to those Items are not required because, as provided in General Instruction B and as set forth in Item 13(b), the obligor is not in default on any securities issued under indentures under which SunTrust Bank is a trustee. 2 16. List of Exhibits. ---------------- List below all exhibits filed as a part of this statement of eligibility; exhibits identified in parentheses are filed with the Commission and are incorporated herein by reference as exhibits hereto pursuant to Rule 7a-29 under the Trust Indenture Act of 1939, as amended, and Rule 24 of the Commission's Rules of Practice. (1) A copy of the Articles of Amendment and Restated Articles of Association of the trustee as now in effect. (2) A copy of the certificate of authority of the trustee to commence business. (Exhibit 2 to Form T-1 as filed as Exhibit 25.1 to Sabre Holdings Corporation Form S-3, filed March 10, 2000, as amended (Registration No. 333-32106)) (3) A copy of the authorization of the trustee to exercise corporate trust powers. (Exhibits 2 and 3 to Form T-1 as filed as Exhibit 25.1 to Sabre Holdings Corporation Form S-3, filed March 10, 2000, as amended (Registration No. 333-32106)) (4) A copy of the existing by-laws of the trustee. (5) Not applicable. (6) The consent of the trustee required by Section 321(b) of the Trust Indenture Act of 1939. (7) A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority as of the close of business on June 30, 2001. (8) Not applicable. (9) Not applicable. 3 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939 the trustee, SunTrust Bank, a banking corporation organized and existing under the laws of the State of Georgia, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Atlanta and the State of Georgia, on the 30 day of November, 2001. SUNTRUST BANK By: /s/ Jack Ellerin --------------------------- Jack Ellerin Assistant Vice President 4 EXHIBIT 1 TO FORM T-1 ARTICLES OF ASSOCIATION OF SUNTRUST BANK (ATTACHED) 5 ARTICLES OF AMENDMENT AND RESTATED ARTICLES OF INCORPORATION OF SUNTRUST BANK Pursuant to the Financial Institutions Code of Georgia, SunTrust Bank, a Georgia banking corporation (the "Bank"), submits Articles of Amendment and Restated Articles of Incorporation and shows as follows: 1. The Bank was chartered by a special act of the General Assembly of Georgia approved on September 21, 1891 with banking and trust powers. 2. The Bank's main office is located at One Park Place, N.E., Atlanta, Fulton County, Georgia, 30302. 3. By a written consent and waiver of notice dated August 8, 2000, the sole shareholder of the 4,320,000 shares of Common Stock then outstanding and entitled to vote did authorize, approve and adopt these Articles of Amendment and Restated Articles of Incorporation of the Bank, as submitted by a Resolution of the Board of Directors, and as set forth in Paragraph 4 below. The Bank has only one class of stock authorized, issued and outstanding. 4. The Articles of Incorporation of the Bank shall be amended by changing the address of the registered office in Article IV, authorizing the issuance of preferred stock in Article VI, and by restating in their entirety the Articles of Incorporation, as heretofore amended, and substituting therefor in all respects, the Restated Articles of Incorporation as follows: 6 RESTATED ARTICLES OF INCORPORATION OF SUNTRUST BANK Article I The name of the bank is SunTrust Bank (the "Bank"). Article II The Bank is organized pursuant to the provisions of the Financial Institutions Code of Georgia. Article III The Bank shall have perpetual duration. Article IV The principal place of business of the Bank is located in Atlanta, Fulton County, Georgia, and the Bank may establish branches or agencies at other places in Georgia or elsewhere. The address of the main office of the Bank is 303 Peachtree Street, N.E., Atlanta, Fulton County, Georgia 30308. Article V The purposes for which the Bank is organized are to act as a bank and as a trust company and to enjoy and be subject to the powers and restrictions of a bank and a trust company under the laws of the State of Georgia, and to conduct any other businesses, to exercise any powers, and to engage in any other activities not specifically prohibited to corporations organized to act as a bank and as a trust company under the laws of the State of Georgia. Article VI Section 6.01. The aggregate number of common shares which the Bank has authority to issue is 4,750,000, all of which are of one class only, each such share having a par value of $5.00 (the "Common Stock"). The Bank shall also have authority to issue 15,000 shares of preferred stock, par value $1,000 per share (the "Preferred Stock"). Section 6.02. Pursuant to the provisions of this Article VI, a series of Preferred Stock, all designated as the Series A Non-Cumulative Preferred Stock, consisting of 1,000 shares, is hereby established and authorized to be issued, and in addition to such matters specified elsewhere in this Article VI, such Series A Non-Cumulative Preferred Stock shall have the following powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions: (a) Designation and Amount. The shares of such series of Preferred Stock shall be designated as the Series A Non-Cumulative Preferred Stock ("Series A Preferred Stock"), and the number of shares constituting the Series A Preferred 7 Stock shall be 1,000. The liquidation preference of the Series A Preferred Stock shall be $100,000 per share ("Series A Liquidation Value"). (b) Maturity. The Series A Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption. (c) Rank. The Series A Preferred Stock shall, with respect to dividend rights and upon liquidation, dissolution and winding up of the Bank, rank (i) senior to all classes and series of Common Stock of the Bank and to all classes and series of equity securities of the Bank now or hereafter authorized, issued or outstanding, which by their terms expressly provide that they are junior to the Series A Preferred Stock as to dividend distributions and distributions upon the liquidation, dissolution or winding up of the Bank, or which do not specify their rank (collectively with the Common Stock, the "Series A Junior Securities"); (ii) on a parity with the Series B Preferred Stock and each other class or series of equity securities issued by the Bank after the date hereof, the terms of which specifically provide that such class or series will rank on a parity with the Series A Preferred Stock as to dividend distributions and distributions upon the liquidation, dissolution or winding up of the Bank (collectively with the Series B Preferred Stock, the "Series A Parity Securities"); and (iii) junior to each other class or series of equity securities issued by the Bank after the date hereof, the terms of which specifically provide that such class or series will rank senior to the Series A Preferred Stock as to dividend distributions and distributions upon the liquidation, dissolution or winding up of the Bank (collectively, the "Series A Senior Securities"), provided that any such Series A Senior Securities and Series A Parity Securities issued after the date hereof that are not approved by the holders of Series A Preferred Stock as required by Section 6.02(i)(i)(D) hereof shall be deemed to be Series A Junior Securities and not Series A Senior Securities or Series A Parity Securities, as the case may be. (d) Dividends. Dividends are payable on the Series A Preferred Stock as follows: (i) The holders of shares of the Series A Preferred Stock in preference to the Series A Junior Securities shall be entitled to receive, out of funds legally available for that purpose, and when, as, and if declared by the Board of Directors of the Bank, preferential non-cumulative dividends payable in cash at the annual rate of nine percent (9.00%) of the Series A Liquidation Value (the "Series A Dividend Rate"). (ii) Dividends on the Series A Preferred Stock shall be non- cumulative. Dividends not paid on any Series A Dividend Payment Date shall not accumulate thereafter. Dividends shall accumulate from the first day of any Series A Dividend Period to but excluding the immediately succeeding Series A Dividend Payment Date. Dividends, if and when declared, shall be payable in arrears in cash on each Series A Dividend Payment Date of each year with respect to the Series A Dividend Period ending on the day immediately prior to such Series A Dividend Payment Date at the Series A Dividend Rate to holders of record at the close of business on the applicable Record Date, commencing on March 31, 2001 with respect to any shares of Series A Preferred Stock issued prior to that Series A Dividend Payment Date; provided that dividends payable on the Series A Preferred Stock on the initial Series A Dividend Payment Date (and any dividend payable for a period less than a full semiannual period) shall be prorated for the period and computed on the basis of a 360-day year of twelve 30-day months and the actual number of days in such Series A Dividend Period; and 8 provided, further, that dividends payable on the Series A Preferred Stock on the initial Series A Dividend Payment Date shall include any accumulated and unpaid dividends on the Series B Non-Cumulative Exchangeable Preferred Stock of the Corporation exchanged for the Series A Preferred Stock as of the Exchange Date for the then current dividend period. Dividends on such Series A Preferred Stock shall be paid only in cash. (iii) No dividends on shares of Series A Preferred Stock shall be declared by the Board of Directors or paid or set apart for payment by the Board of Directors or paid or set apart for payment by the Bank at such time as the terms and provisions of any agreement of the Bank, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (iv) Holders of shares of Series A Preferred Stock shall not be entitled to any dividends in excess of full non-cumulative dividends declared, as herein provided, on the shares of Series A Preferred Stock. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment on the shares of Series A Preferred Stock that may be in arrears. (v) (A) So long as any shares of Series A Preferred Stock are outstanding, no dividends shall be declared, paid or set aside for payment or other distribution upon any Series A Junior Securities (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, Series A Junior Securities and other than as provided in clause (B) below), nor shall any shares of any Series A Junior Securities or any Series A Parity Securities be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or set aside or made available for a sinking fund for the redemption of any shares of any such stock) by the Bank (except by conversion into or exchange for shares of, or options, warrants or rights to subscribe for or purchase, Series A Junior Securities) whenever, in each case, full non-cumulative dividends on all outstanding shares of the Series A Preferred Stock for the related Series A Dividend Period shall not have been declared and paid, when due, for the two consecutive Series A Dividend Periods terminating on or immediately prior to the date of payment in respect of such dividend, distribution, redemption, purchase or acquisition. (B) When dividends for any dividend period are not paid in full, as provided in clause (A) above, on the shares of the Series A Preferred Stock or any Series A Parity Securities, dividends may be declared and paid on any such shares for any dividend period therefor, but only if such dividends are declared and paid pro rata so that the amount of dividends declared and paid per share on the shares of the Series A Preferred Stock and any Series A Parity Securities, in all cases shall bear to each other the same ratio that the amount of unpaid dividends per share on the shares of the Series A Preferred Stock for such Series A Dividend Period and such Series A Parity Securities for the corresponding dividend period bear to each other. 9 (e) Liquidation Preference. ---------------------- (i) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Bank, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Bank available for distribution to its stockholders an amount in cash equal to the Series A Liquidation Value for each share outstanding, plus an amount in cash equal to all accumulated and unpaid dividends thereon for the then current Series A Dividend Period, whether or not earned or declared, before any payment shall be made or any assets distributed to the holders of Series A Junior Securities. If the assets of the Bank are not sufficient to pay in full the liquidation payments payable to the holders of outstanding shares of the Series A Preferred Stock and any Series A Parity Securities, then the holders of all such shares shall share ratably in such distribution of assets in accordance with the amount which would be payable on such distribution if the amounts to which the holders of outstanding shares of Series A Preferred Stock and the holders of outstanding shares of such Series A Parity Securities are entitled were paid in full. After payment of the full amount of the liquidation preference, plus any accumulated and unpaid dividends for the then current Series A Dividend Period, to which holders of Series A Preferred Stock are entitled, holders of Series A Preferred Stock will have no right or claim to any remaining assets of the Bank. (ii) For the purpose of this Section 6.02(e), neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Bank, nor the consolidation or merger of the Bank, shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Bank, unless such voluntary sale, conveyance, exchange or transfer shall be in connection with a plan of liquidation, dissolution or winding up of the Bank. (f) Redemption. The Series A Preferred Stock is not redeemable prior to March 31, 2021. On or after such date, the Series A Preferred Stock shall be redeemable, in whole or in part, at the option of the Bank, but only with the prior written approval of the Federal Reserve and, if such approval is then required under any applicable law, rule, guideline or policy, with the prior written approval of the Georgia Department of Banking and Finance, for cash out of any source of funds legally available, at a redemption price equal to 100% of the Series A Liquidation Value per share plus unpaid dividends thereon accumulated since the immediately preceding Series A Dividend Payment Date (the "Series A Redemption Price"). Any date of such redemption is referred to as the "Series A Redemption Date." If fewer than all the outstanding shares of Series A Preferred Stock are to be redeemed, the Bank will select those to be redeemed by lot or pro rata or by any other method as may be determined by the Board of Directors to be equitable. (g) Procedure for Redemption. ------------------------ (i) Upon redemption of the Series A Preferred Stock pursuant to Section 6.02(f) hereof, notice of such redemption (a "Series A Notice of Redemption") shall be mailed by first-class mail, postage prepaid, not less than 30 days nor more than 60 days prior to the Series A Redemption Date to the holders of record of the shares to be redeemed at their respective addresses as they shall appear in the records of the Bank; provided, 10 however, that failure to give such notice or any defect therein or in the mailing thereof shall not affect the validity of the proceeding for the redemption of any shares so to be redeemed except as to the holder to whom the Bank has failed to give such notice or except as to the holder to whom notice was defective. Each such notice shall state: (A) the Series A Redemption Date; (B) the Series A Redemption Price; (C) the place or places where certificates for such shares are to be surrendered for payment of the Series A Redemption Price; and (D) the CUSIP number of the shares being redeemed. (ii) If a Series A Notice of Redemption shall have been given as aforesaid and the Bank shall have deposited on or before the Redemption Date a sum sufficient to redeem the shares of Series A Preferred Stock as to which a Series A Notice of Redemption has been given in trust with the Transfer Agent with irrevocable instructions and authority to pay the Series A Redemption Price to the holders thereof, or if no such deposit is made, then upon the Series A Redemption Date (unless the Bank shall default in making payment of the Series A Redemption Price), all rights of the holders thereof as stockholders of the Bank by reason of the ownership of such shares (except their right to receive the Series A Redemption Price thereof without interest) shall cease and terminate, and such shares shall no longer be deemed outstanding for any purpose. The Bank shall be entitled to receive, from time to time, from the Transfer Agent the interest, if any, earned on such moneys deposited with it, and the holders of any shares so redeemed shall have no claim to any such interest. In case the holder of any shares of Series A Preferred Stock so called for redemption shall not claim the Series A Redemption Price for its shares within six months after the related Series A Redemption Date, the Transfer Agent shall, upon demand, pay over to the Bank such amount remaining on deposit, and the Transfer Agent shall thereupon be relieved of all responsibility to the holder of such shares, and such holder shall look only to the Bank for payment thereof. (iii) Not later than 1:30 p.m., Eastern Standard Time, on the Business Day immediately preceding the Series A Redemption Date, the Bank shall irrevocably deposit with the Transfer Agent sufficient funds for the payment of the Series A Redemption Price for the shares to be redeemed on the Series A Redemption Date and shall give the Transfer Agent irrevocable instructions to apply such funds, and, if applicable and so specified in the instructions, the income and proceeds therefrom, to the payment of such Series A Redemption Price. The Bank may direct the Transfer Agent to invest any such available funds, provided that the proceeds of any such investment will be available to the Transfer Agent in Atlanta, Georgia at the opening of business on such Series A Redemption Date. (iv) Except as otherwise expressly set forth in this Section 6.02(g), nothing contained in these Restated Articles of Incorporation shall limit any legal right of the Bank to purchase or otherwise acquire any shares of Series A Preferred Stock at any price, whether higher or lower than the Series A Redemption Price, in private negotiated transactions, the over- the-counter market or otherwise. (v) If the Bank shall not have funds legally available for the redemption of all of the shares of Series A Preferred Stock on any Series A Redemption Date, the Bank shall redeem on the Series A Redemption Date only the number of shares of Series A Preferred Stock as it shall have legally available funds to redeem, as determined in an equitable manner, and the remainder of the shares of Series A Preferred Stock shall be redeemed, at 11 the option of the Bank, on the earliest practicable date next following the day on which the Bank shall first have funds legally available for the redemption of such shares. (h) Reacquired Shares. Shares of the Series A Preferred Stock that have been redeemed, purchased or otherwise acquired by the Bank are not subject to reissuance or resale as shares of Series A Preferred Stock and shall be held in treasury. Such shares shall revert to the status of authorized but unissued shares of preferred stock, undesignated as to series, until the Board of Directors of the Bank shall designate them again for issuance as part of a series. (i) Voting Rights. Holders of Series A Preferred Stock will not have any voting rights, except as otherwise from time to time required by law and except as follows: (i) In addition to any vote or consent of stockholders required by law, the approval of the holders of two-thirds of the outstanding shares of Series A Preferred Stock, voting as a class, shall be required for the Bank: (A) to amend, alter or repeal any of the provisions of these Restated Articles of Incorporation in any manner that would alter or change the powers, preferences or special rights of the shares of Series A Preferred Stock so as to materially and adversely affect them, except as permitted in Section 6.02(j)(i)(A); (B) to authorize the merger, consolidation, or reclassification of the Bank with or into another Person, except as permitted in Section 6.02(j)(i)(B); (C) to dissolve, liquidate or wind up the affairs of the Bank; and (D) to authorize or issue, or obligate itself to authorize or issue, any Series A Senior Securities or any Series A Parity Securities unless, for purposes of this clause (D) only, the Bank shall have received written notice from each of the Rating Agencies, and delivered a copy of such written notice to the Transfer Agent, confirming that any such issuance will not result in a reduction of the rating assigned by any of such Rating Agencies to the Series A Preferred Stock then outstanding. (ii) If at any time dividends on the Series A Preferred Stock or any Series A Parity Securities shall not have been declared and paid in an amount equal to three semiannual dividends, whether consecutive or not, the number of directors constituting the Board of Directors of the Bank shall be increased by two and the holders of the Series A Preferred Stock and any Series A Parity Securities with similar voting rights, voting together as a single class, shall be entitled to elect two additional persons to fill such newly created directorships. The directors so elected shall meet the qualifications set forth in the Bank's bylaws and any applicable statutory or regulatory qualifications. At such time as dividends for at least two consecutive Series A Dividend Periods have been fully paid or set apart for full payment on the outstanding Series A Preferred Stock and any Series A Parity Securities with similar voting rights, the rights of such holders to vote for the election of directors as provided in this Section 6.02(i)(ii) shall cease and such directors shall no longer serve on the Board of Directors of the Bank, subject to renewal from time to time in the event of each and every subsequent default in the aggregate amount equivalent of three full semiannual dividends. During any period when the holders of the Series A Preferred Stock and any Series A Parity Securities have the right to vote as a class for directors as provided above, the directors so elected by the holders of the Series A Preferred Stock and any Series A Parity Securities with similar voting rights shall continue in office until their successors shall have 12 been elected or until termination of the right of the holders of the Series A Preferred Stock and any Series A Parity Securities to vote as a class for directors. For purposes of the foregoing, the holders of the Series A Preferred Stock and any Series A Parity Securities shall vote in proportion to their respective liquidation preference of the shares of such stock held by them. (iii) With respect to any right of the holders of shares of Series A Preferred Stock to vote on any matter, whether such right is created by this Section 6.02(i), by applicable law or otherwise, no holder of any share of Series A Preferred Stock shall be entitled to vote, and no share of Series A Preferred Stock shall be deemed to be outstanding for the purpose of voting or determining the number of shares required to constitute a quorum, if prior to or concurrently with a determination of shares entitled to vote or of shares deemed outstanding for quorum purposes, as the case may be, funds sufficient for the redemption of such shares are irrevocably deposited with the Transfer Agent and a Series A Notice of Redemption has been given by the Bank or an affiliate thereof to the holders of the Series A Preferred Stock. (j) Covenants. So long as any shares of Series A Preferred Stock are outstanding, the Bank covenants and agrees with and for the benefit of the holders of shares of Series A Preferred Stock that: (i) the Bank shall not, without the affirmative vote or consent of holders of two-thirds of the number of shares of Series A Preferred Stock then outstanding, voting as a separate class: (A) amend, alter or repeal any provisions of these Restated Articles of Incorporation (existing prior to and at the time of such vote) so as to materially and adversely affect the rights, preferences, privileges or restrictions of the holders of Series A Preferred Stock, except that this subsection (A) shall not apply to steps taken by the Bank to issue and the issuance of other preferred stock by the Bank; or (B) consolidate, merge, or reclassify with or into any other Person, or permit any merger of another Person into the Bank, or enter into a voluntary liquidation or voluntary dissolution of the Bank or enter into a share exchange with another Person, except that (1) the Bank may consolidate, merge or reclassify with or into another Person or enter into a share exchange with another Person if such other Person is a consolidated subsidiary (in accordance with generally accepted accounting principles) of SunTrust Banks, Inc., or (2) the Bank may consolidate, merge, or reclassify with or into another Person or enter into a share exchange with another Person if (a) such other Person is a Depository Institution or corporation organized under the laws of the United States or of a state of the United States, (b) such other Person expressly assumes all obligations and commitments of the Bank pursuant to such consolidation, merger, reclassification or share exchange, (c) the outstanding shares of Series A Preferred Stock are exchanged for, reclassified as or converted into shares of the surviving Depository Institution or corporation which have preferences, limitations and relative voting and other rights substantially identical to those of the Series A Preferred Stock, (d) after giving effect to such merger, consolidation, reclassification or share exchange, no default, or event which with the giving of notice 13 or passage of time or both could become a default by the Bank of its obligations under these Restated Articles of Incorporation, shall have occurred and be continuing, and (e) the Bank shall have received written notice from each of the Rating Agencies, and delivered a copy of such written notice to the Transfer Agent, confirming that such merger, consolidation, reclassification or share exchange will not result in a reduction of the rating assigned by any of such Rating Agencies to the Series A Preferred Stock then outstanding; provided that, for purposes of this subsection (B)(2), the Bank shall have delivered to the Transfer Agent and caused to be mailed to each holder of record of Series A Preferred Stock, at least thirty days prior to any such merger, consolidation, reclassification or share exchange becoming effective, a notice describing such merger, consolidation, reclassification or share exchange, together with an Officers' Certificate and an Opinion of Counsel, each stating that such merger, consolidation, reclassification or share exchange complies with the requirements of these Restated Articles of Incorporation and that all conditions precedent herein provided for relating to such transaction have been complied with. (ii) the Bank will not issue additional shares of Series A Senior Securities or Series A Parity Securities unless the Bank shall have received written notice from each of the Rating Agencies, and delivered a copy of such written notice to the Transfer Agent, confirming that any such issuance will not result in a reduction of the rating assigned by any of such Rating Agencies to the Series A Preferred Stock then outstanding. Section 6.03. Pursuant to the provisions of this Article VI, a series of Preferred Stock, all designated as the Series B Non-Cumulative Preferred Stock, consisting 9,000 shares, is hereby established and authorized to be issued, and in addition to such matters specified elsewhere in this Article VI, such Series B Non-Cumulative Preferred Stock shall have the following powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions: (a) Designation and Amount. The shares of such series of Preferred Stock shall be designated as the Series B Non-Cumulative Preferred Stock ("Series B Preferred Stock"), and the number of shares constituting the Series B Preferred Stock shall be 9,000. The liquidation preference of the Series B Preferred Stock shall be $100,000 per share ("Series B Liquidation Value"). (b) Maturity. The Series B Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption. (c) Rank. The Series B Preferred Stock shall, with respect to dividend rights and upon liquidation, dissolution and winding up of the Bank, rank (i) senior to all classes and series of Common Stock of the Bank and to all classes and series of equity securities of the Bank now or hereafter authorized, issued or outstanding, which by their terms expressly provide that they are junior to the Series B Preferred Stock as to dividend distributions and distributions upon the liquidation, dissolution or winding up of the Bank, or which do not specify their rank (collectively with the Common Stock, the "Series B Junior Securities"); (ii) on a parity with the Series A Preferred Stock and each other class or series of equity securities issued by the Bank after the date hereof, the terms of which specifically provide that such class or series will rank on a parity with the Series B Preferred Stock as to dividend distributions and distributions upon the liquidation, dissolution or winding up of the Bank (collectively with the Series A Preferred Stock, the "Series B Parity Securities"); and (iii) junior to each other class or series of equity securities issued by the Bank after the date hereof, the terms of which 14 specifically provide that such class or series will rank senior to the Series B Preferred Stock as to dividend distributions and distributions upon the liquidation, dissolution or winding up of the Bank (collectively, the "Series B Senior Securities"), provided that any such Series B Senior Securities or Series B Parity Securities issued after the date hereof that are not approved by the holders of Series B Preferred Stock as required by Section 6.03(i)(i)(D) hereof shall be deemed to be Series B Junior Securities and not Series B Senior Securities or Series B Parity Securities, as the case may be. (d) Dividends. Dividends are payable on the Series B Preferred Stock as follows: (i) The holders of shares of the Series B Preferred Stock in preference to the Series B Junior Securities shall be entitled to receive, out of funds legally available for that purpose, and when, as, and if declared by the Board of Directors of the Bank, preferential non-cumulative dividends payable in cash in an amount determined by applying the annual rate of LIBOR plus 200 basis points to the Series B Liquidation Value (the "Series B Dividend Rate"). (ii) Dividends on the Series B Preferred Stock shall be non- cumulative. Dividends not paid on any Series B Dividend Payment Date shall not accumulate thereafter. Dividends shall accumulate from the first day of any Series B Dividend Period to but excluding the immediately succeeding Series B Dividend Payment Date. Dividends, if and when declared, shall be payable in arrears in cash on each Series B Dividend Payment Date of each year with respect to the Series B Dividend Period ending on the day immediately prior to such Series B Dividend Payment Date at the Series B Dividend Rate per share to holders of record at the close of business on the applicable Record Date, commencing on the Exchange Date with respect to any shares of Series B Preferred Stock issued prior to that Series B Dividend Payment Date; provided that dividends payable on the Series B Preferred Stock on the initial Series B Dividend Payment Date (and any dividend payable for a period less than a full quarterly period) shall be prorated for the period and computed on the basis of a 360-day year and the actual number of days in such Series B Dividend Period; and provided, further, that dividends payable on the Series B Preferred Stock on the initial Series B Dividend Payment Date shall include any accumulated and unpaid dividends on the Series C Non-Cumulative Exchangeable Preferred Stock of the Corporation exchanged for the Series B Preferred Stock as of the Exchange Date for the then current dividend period. Dividends on such Series B Preferred Stock shall be paid only in cash. (iii) No dividends on shares of Series B Preferred Stock shall be declared by the Board of Directors or paid or set apart for payment by the Board of Directors or paid or set apart for payment by the Bank at such time as the terms and provisions of any agreement of the Bank, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law. (iv) Holders of shares of Series B Preferred Stock shall not be entitled to any dividends in excess of full non-cumulative dividends declared, as herein provided, on the shares of Series B Preferred Stock. No interest, or sum of money in lieu of interest, shall be payable in 15 respect of any dividend payment on the shares of Series B Preferred Stock that may be in arrears. (v) (A) So long as any shares of Series B Preferred Stock are outstanding, no dividends shall be declared, paid or set aside for payment or other distribution upon any Series B Junior Securities (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, Series B Junior Securities and other than as provided in clause (B) below), nor shall any shares of any Series B Junior Securities or any Series B Parity Securities be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or set aside or made available for a sinking fund for the redemption of any shares of any such stock) by the Bank (except by conversion into or exchange for shares of, or options, warrants or rights to subscribe for or purchase, Series B Junior Securities) whenever, in each case, full non-cumulative dividends on all outstanding shares of the Series B Preferred Stock for the related Series B Dividend Period shall not have been declared and paid, when due, for the four consecutive Series B Dividend Periods terminating on or immediately prior to the date of payment in respect of such dividend, distribution, redemption, purchase or acquisition. (B) When dividends for any dividend period are not paid in full, as provided in clause (A) above, on the shares of the Series B Preferred Stock or any Series B Parity Securities, dividends may be declared and paid on any such shares for any dividend period therefor, but only if such dividends are declared and paid pro rata so that the amount of dividends declared and paid per share on the shares of the Series B Preferred Stock and any Series B Parity Securities, in all cases shall bear to each other the same ratio that the amount of unpaid dividends per share on the shares of the Series B Preferred Stock for such Series B Dividend Period and such Series B Parity Securities for the corresponding dividend period bear to each other. (e) Liquidation Preference. (i) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Bank, the holders of shares of Series B Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Bank available for distribution to its stockholders an amount in cash equal to the Series B Liquidation Value for each share outstanding, plus an amount in cash equal to all accumulated and unpaid dividends thereon for the then current Series B Dividend Period, whether or not earned or declared, before any payment shall be made or any assets distributed to the holders of Series B Junior Securities. If the assets of the Bank are not sufficient to pay in full the liquidation payments payable to the holders of outstanding shares of the Series B Preferred Stock and any Series B Parity Securities, then the holders of all such shares shall share ratably in such distribution of assets in accordance with the amount which would be payable on such distribution if the amounts to which the holders of outstanding shares of Series B Preferred Stock and the holders of outstanding shares of such Series B Parity Securities are entitled were paid in full. After payment of the full amount of the liquidation preference, plus any accumulated and unpaid dividends for the then current Series B Dividend Period, to which holders of Series B Preferred Stock are entitled, holders of Series B Preferred Stock will have no right or claim to any remaining assets of the Bank. 16 (ii) For the purpose of this Section 6.03(e), neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Bank, nor the consolidation or merger of the Bank, shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Bank, unless such voluntary sale, conveyance, exchange or transfer shall be in connection with a plan of liquidation, dissolution or winding up of the Bank. (f) Redemption. The Series B Preferred Stock is not redeemable prior to March 31, 2011. On March 31, 2011 and on each Series B Dividend Payment Date thereafter, the Series B Preferred Stock shall be redeemable, in whole or in part, at the option of the Bank, but with the prior written approval of the Federal Reserve and, if approval is then required under any applicable law, rule, guideline or policy, the Georgia Department of Banking and Finance, for cash out of any source of funds legally available, at a redemption price equal to 100% of the Series B Liquidation Value per share plus unpaid dividends thereon accumulated since the immediately preceding Series B Dividend Payment Date (the "Series B Redemption Price"). Any date of such redemption is referred to as the "Series B Redemption Date." If fewer than all the outstanding shares of Series B Preferred Stock are to be redeemed, the Bank will select those to be redeemed by lot or pro rata or by any other method as may be determined by the Board of Directors to be equitable. (g) Procedure for Redemption. ------------------------ (i) Upon redemption of the Series B Preferred Stock pursuant to Section 6.03(f) hereof, notice of such redemption (a "Series B Notice of Redemption") shall be mailed by first-class mail, postage prepaid, not less than 30 days nor more than 60 days prior to the Series B Redemption Date to the holders of record of the shares to be redeemed at their respective addresses as they shall appear in the records of the Bank; provided, however, that failure to give such notice or any defect therein or in the mailing thereof shall not affect the validity of the proceeding for the redemption of any shares so to be redeemed except as to the holder to whom the Bank has failed to give such notice or except as to the holder to whom notice was defective. Each such notice shall state: (A) the Series B Redemption Date; (B) the Series B Redemption Price; (C) the place or places where certificates for such shares are to be surrendered for payment of the Series B Redemption Price; and (D) the CUSIP number of the shares being redeemed. (ii) If a Series B Notice of Redemption shall have been given as aforesaid and the Bank shall have deposited on or before the Redemption Date a sum sufficient to redeem the shares of Series B Preferred Stock as to which a Series B Notice of Redemption has been given in trust with the Transfer Agent with irrevocable instructions and authority to pay the Series B Redemption Price to the holders thereof, or if no such deposit is made, then upon the Series B Redemption Date (unless the Bank shall default in making payment of the Series B Redemption Price), all rights of the holders thereof as stockholders of the Bank by reason of the ownership of such shares (except their right to receive the Series B Redemption Price thereof without interest) shall cease and terminate, and such shares shall no longer be deemed outstanding for any purpose. The Bank shall be 17 entitled to receive, from time to time, from the Transfer Agent the interest, if any, earned on such moneys deposited with it, and the holders of any shares so redeemed shall have no claim to any such interest. In case the holder of any shares of Series B Preferred Stock so called for redemption shall not claim the Series B Redemption Price for its shares within six months after the related Series B Redemption Date, the Transfer Agent shall, upon demand, pay over to the Bank such amount remaining on deposit, and the Transfer Agent shall thereupon be relieved of all responsibility to the holder of such shares, and such holder shall look only to the Bank for payment thereof. (iii) Not later than 1:30 p.m., Eastern Standard Time, on the Business Day immediately preceding the Series B Redemption Date, the Bank shall irrevocably deposit with the Transfer Agent sufficient funds for the payment of the Series B Redemption Price for the shares to be redeemed on the Series B Redemption Date and shall give the Transfer Agent irrevocable instructions to apply such funds, and, if applicable and so specified in the instructions, the income and proceeds therefrom, to the payment of such Series B Redemption Price. The Bank may direct the Transfer Agent to invest any such available funds, provided that the proceeds of any such investment will be available to the Transfer Agent in Atlanta, Georgia at the opening of business on such Series B Redemption Date. (iv) Except as otherwise expressly set forth in this Section 6.03(g), nothing contained in these Restated Articles of Incorporation shall limit any legal right of the Bank to purchase or otherwise acquire any shares of Series B Preferred Stock at any price, whether higher or lower than the Series B Redemption Price, in private negotiated transactions, the over- the-counter market or otherwise. (v) If the Bank shall not have funds legally available for the redemption of all of the shares of Series B Preferred Stock on any Series B Redemption Date, the Bank shall redeem on the Series B Redemption Date only the number of shares of Series B Preferred Stock as it shall have legally available funds to redeem, as determined in an equitable manner, and the remainder of the shares of Series B Preferred Stock shall be redeemed, at the option of the Bank, on the earliest practicable date next following the day on which the Bank shall first have funds legally available for the redemption of such shares. (h) Reacquired Shares. Shares of the Series B Preferred Stock that have been redeemed, purchased or otherwise acquired by the Bank are not subject to reissuance or resale as shares of Series B Preferred Stock and shall be held in treasury. Such shares shall revert to the status of authorized but unissued shares of preferred stock, undesignated as to series, until the Board of Directors of the Bank shall designate them again for issuance as part of a series. (i) Voting Rights. Holders of Series B Preferred Stock will not have any voting rights, except as otherwise from time to time required by law and except as follows: (i) In addition to any vote or consent of stockholders required by law, the approval of the holders of two-thirds of the outstanding shares of Series B Preferred Stock, voting as a class, shall be required for the Bank: (A) to amend, alter or repeal any of the provisions of these Restated Articles of Incorporation in any manner that would alter or change the powers, preferences or special rights of the shares of Series B Preferred Stock so as to materially and adversely affect them, except as permitted in Section 6.03(j)(i)(A); (B) to authorize the merger, consolidation, or reclassification of the Bank with or into another Person, except as permitted in Section 6.03(j)(i)(B); (C) to dissolve, liquidate or wind up the affairs of the Bank; and (D) to authorize or issue, or obligate itself 18 to authorize or issue, any Series B Senior Securities or Series B Parity Securities, unless, for purposes of this clause (D), the Bank shall have received written notice from each of the Rating Agencies, and delivered a copy of such written notice to the Transfer Agent, confirming that any such issuance of Series B Parity Securities will not result in a reduction of the rating assigned by any of such Rating Agencies to the Series B Preferred Stock then outstanding. (ii) If at any time dividends on the Series B Preferred Stock or any Series B Parity Securities shall not have been declared and paid in an amount equal to six quarterly dividends, whether consecutive or not, the number of directors constituting the Board of Directors of the Bank shall be increased by two and the holders of the Series B Preferred Stock and any Series B Parity Securities with similar voting rights, voting together as a single class, shall be entitled to elect two additional persons to fill such newly created directorships. The directors so elected shall meet the qualifications set forth in the Bank's bylaws and any applicable statutory or regulatory qualifications. At such time as dividends for at least four consecutive Series B Dividend Periods have been fully paid or set apart for full payment on the outstanding Series B Preferred Stock and any Series B Parity Securities with similar voting rights, the rights of such holders to vote for the election of directors as provided in this Section 6.03(i)(ii) shall cease and such directors shall no longer serve on the Board of Directors of the Bank, subject to renewal from time to time upon the same terms and conditions in the event of each and every subsequent default in the aggregate amount equivalent of six full quarterly dividends. During any period when the holders of the Series B Preferred Stock and any Series B Parity Securities have the right to vote as a class for directors as provided above, the directors so elected by the holders of the Series B Preferred Stock and any Series B Parity Securities with similar voting rights shall continue in office until their successors shall have been elected or until termination of the right of the holders of the Series B Preferred Stock and any Series B Parity Securities to vote as a class for directors. For purposes of the foregoing, the holders of the Series B Preferred Stock and any Series B Parity Securities shall vote in proportion to their respective liquidation preference of the shares of such stock held by them. (iii) With respect to any right of the holders of shares of Series B Preferred Stock to vote on any matter, whether such right is created by this Section 6.03(i), by applicable law or otherwise, no holder of any share of Series B Preferred Stock shall be entitled to vote, and no share of Series B Preferred Stock shall be deemed to be outstanding for the purpose of voting or determining the number of shares required to constitute a quorum, if prior to or concurrently with a determination of shares entitled to vote or of shares deemed outstanding for quorum purposes, as the case may be, funds sufficient for the redemption of such shares are irrevocably deposited with the Transfer Agent and a Series B Notice of Redemption has been given by the Bank or an affiliate thereof to the holders of the Series B Preferred Stock. (j) Covenants. So long as any shares of Series B Preferred Stock are outstanding, the Bank covenants and agrees with and for the benefit of the holders of shares of Series B Preferred Stock that: (i) the Bank shall not, without the affirmative vote or consent of holders of two-thirds of the number of shares of Series B Preferred Stock then outstanding, voting as a separate class: 19 (A) amend, alter or repeal any provisions of these Restated Articles of Incorporation (existing prior to and at the time of such vote) so as to materially and adversely affect the rights, preferences, privileges or restrictions of the holders of Series B Preferred Stock, except that this subsection (A) shall not apply to steps taken by the Bank to issue and the issuance of other preferred stock by the Bank; or (B) consolidate, merge, or reclassify with or into any other Person, or permit any merger of another Person into the Bank, or enter into a voluntary liquidation or voluntary dissolution of the Bank or enter into a share exchange with another Person, except that (1) the Bank may consolidate, merge or reclassify with or into another Person or enter into a share exchange with another Person if such other Person is a consolidated subsidiary (in accordance with generally accepted accounting principles) of SunTrust Banks, Inc., or (2) the Bank may consolidate, merge, or reclassify with or into another Person or enter into a share exchange with another Person if (a) such other Person is a Depository Institution or corporation organized under the laws of the United States or a state of the United States, (b) such other Person expressly assumes all obligations and commitments of the Bank pursuant to such consolidation, merger, reclassification or share exchange, (c) the outstanding shares of Series B Preferred Stock are exchanged for, reclassified as or converted into shares of the surviving Depository Institution or corporation which have preferences, limitations and relative voting and other rights substantially identical to those of the Series B Preferred Stock, (d) after giving effect to such merger, consolidation, reclassification or share exchange, no default, or event which with the giving of notice or passage of time or both could become a default by the Bank of its obligations under these Restated Articles of Incorporation, shall have occurred and be continuing, and (e) the Bank shall have received written notice from each of the Rating Agencies, and delivered a copy of such written notice to the Transfer Agent, confirming that such merger, consolidation, reclassification or share exchange will not result in a reduction of the rating assigned by any of such Rating Agencies to the Series B Preferred Stock then outstanding; provided that, for purposes of this subsection (B)(2), the Bank shall have delivered to the Transfer Agent and caused to be mailed to each holder of record of Series B Preferred Stock, at least thirty days prior to any such merger, consolidation, reclassification or share exchange becoming effective, a notice describing such merger, consolidation, reclassification or share exchange, together with an Officers' Certificate and an Opinion of Counsel, each stating that such merger, consolidation, reclassification or share exchange complies with the requirements of these Restated Articles of Incorporation and that all conditions precedent herein provided for relating to such transaction have been complied with. (ii) The Bank covenants and agrees with and for the benefit of the holders of shares of Series B Preferred Stock that the Bank will not issue additional shares of Series B Senior Securities or Series B Parity Securities unless the Bank shall have received written notice from each of the Rating Agencies, and delivered a copy of such written notice to the Transfer Agent, confirming that any such issuance will not result in a reduction of the rating assigned by any of such Rating Agencies to the Series B Preferred Stock then outstanding. 20 Section 6.04. Definitions. For the purpose of Sections 6.02 and 6.03 hereof, the following terms shall have the meanings indicated: "Business Day" means a day on which the New York Stock Exchange is open for trading and which is not a day on which banking institutions in The City of New York or Atlanta, Georgia are authorized or required by law or executive order to close. "Calculation Agent" means any Person authorized by the Bank to determine the Series B Dividend Rate, which initially shall be the Bank. "Corporation" means SunTrust Real Estate Investment Corporation, a Virginia corporation, or any successor thereto. "Depository Institution" has the meaning given to such term in 12 U.S.C. (S) 1813(c)(i), or any successor thereto. "Determination Date" means, with respect to any Series B Dividend Period, the date that is two London Business Days prior to the first day of such Series B Dividend Period. "Dividend Payment Date" means, as the context requires, a Series A Dividend Payment Date or a Series B Dividend Payment Date. "Exchange Date" means any date on which the Series B Non- Cumulative Exchangeable Preferred Stock of the Corporation is exchanged for the Series A Preferred Stock or any date on which the Series C Non- Cumulative Exchangeable Preferred Stock of the Corporation is exchanged for the Series B Preferred Stock "Federal Reserve" means the Board of Governors of the Federal Reserve System, or any successor thereto. "Issue Date" means, with respect to the Series A Preferred Stock, the first date on which shares of Series A Preferred Stock are issued and with respect to the Series B Preferred Stock, the first date on which shares of the Series B Preferred Stock are issued. "LIBOR" means, with respect to a Series B Dividend Period relating to a Series B Dividend Payment Date (in the following order of priority): (i) the rate (expressed as a percentage per annum) for Eurodollar deposits having a three-month maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date; (ii) if such rate does not appear on Telerate Page 3750 as of 11:00 a.m. (London time) on the related Determination Date, LIBOR will be the arithmetic mean (if necessary rounded upwards to the nearest whole multiple of .00001%) of the rates (expressed as percentages per annum) for Eurodollar deposits having a three-month maturity that appear on Reuters Monitor Money Rates Page LIBO ("Reuters Page LIBO") as of 11:00 a.m. (London time) on such Determination Date; (iii) if such rate does not appear on Reuters Page LIBO as of 11:00 a.m. (London time) on the related Determination Date, the Calculation Agent will request the principal London offices of four leading banks in the London interbank market of the Bank's selection to provide such banks' offered quotations (expressed as percentages per annum) to prime banks in the London interbank market for 21 Eurodollar deposits having a three-month maturity as of 11:00 a.m. (London time) on such Determination Date. If at least two quotations are provided, LIBOR will be the arithmetic mean (if necessary rounded upwards to the nearest whole multiple of .00001%) of such quotations; (iv) if fewer than two such quotations are provided as requested in clause (iii) above, the Calculation Agent will request four major New York City banks of the Bank's selection to provide such banks' offered quotations (expressed as percentages per annum) to leading European banks for loans in Eurodollars as of 11:00 a.m. (London time) on such Determination Date. If at least two such quotations are provided, LIBOR will be the arithmetic mean (if necessary rounded upwards to the nearest whole multiple of .00001%) of such quotations; and (v) if fewer than two such quotations are provided as requested in clause (iv) above, LIBOR will be LIBOR determined with respect to the Series B Dividend Period immediately preceding such current Series B Dividend Period. If the rate for Eurodollar deposits having a three-month maturity that initially appears on Telerate Page 3750 or Reuters Page LIBO, as the case may be, as of 11:00 a.m. (London time) on the related Determination Date is superseded on Telerate Page 3750 or Reuters Page LIBO, as the case may be, by a corrected rate before 12:00 noon (London time) on such Determination Date, the corrected rate as so substituted on the applicable page will be the applicable LIBOR for such Determination Date. "London Business Day" means any day, other than a Saturday or Sunday, on which commercial banks and foreign exchange markets are open for business, including dealings in foreign exchange and foreign currency deposits, in London. "Moody's" means Moody's Investors Service, Inc., or its successor, so long as such agency (or successor) is in the business of rating securities of the type of the Series A Preferred Stock or the Series B Preferred Stock. "Officer's Certificate" means a certificate signed by the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Bank. "Opinion of Counsel" means a written opinion of counsel, who may be in-house counsel for the Bank. "Person" means any individual, firm, Depository Institution or other entity and shall include any successor (by merger or otherwise) of such entity. "Rating Agencies" means Moody's (and any successor thereto), Standard & Poor's (and any successor thereto) and any other nationally recognized statistical rating organizations assigning, at the Bank's request, ratings to the shares of Series A Preferred Stock or Series B Preferred Stock. "Record Date" means the 15th day of the month in which the applicable Dividend Payment Date falls for dividends declared by the Board of Directors. "Series A Dividend Payment Date" means each March 31 and September 30 of each year. 22 "Series A Dividend Period" is the period from a Series A Dividend Payment Date to, but excluding, the next succeeding Series A Dividend Payment Date; provided, however, that the initial Series A Dividend Period is the period from the Issue Date of the Series B Preferred Stock to the next succeeding Series A Dividend Payment Date. "Series A Dividend Rate" has the meaning set forth in Section 6.02(d)(i) hereof. "Series A Junior Securities" has the meaning set forth in Section 6.02(c) hereof. "Series A Liquidation Value" has the meaning set forth in Section 6.02(a) hereof. "Series A Notice of Redemption" has the meaning set forth in Section 6.02(g)(i) hereof. "Series A Parity Securities" has the meaning set forth in Section 6.02(c) hereof. "Series A Preferred Stock" has the meaning set forth in Section 6.02(a) hereof. "Series A Redemption Date" has the meaning set forth in Section 6.02(f) hereof. "Series A Redemption Price" has the meaning set forth in Section 6.02(f) hereof. "Series A Senior Securities" has the meaning set forth in Section 6.02(c) hereof. "Series B Dividend Payment Date" means each March 31, June 30, September 30 and December 31 of each year. "Series B Dividend Period" is the period from a Series B Dividend Payment Date to, but excluding, the next succeeding Series B Dividend Payment Date; provided, however, that the initial Series B Dividend Period is the period from the Issue Date of the Series B Preferred Stock to the next succeeding Series B Dividend Payment Date. "Series B Dividend Rate" has the meaning set forth in Section 6.03(d)(i) hereof. "Series B Junior Securities" has the meaning set forth in Section 6.03(c) hereof. "Series B Liquidation Value" has the meaning set forth in Section 6.03(a) hereof. "Series B Notice of Redemption" has the meaning set forth in Section 6.03(g)(i) hereof. "Series B Parity Securities" has the meaning set forth in Section 6.03(c) hereof. "Series B Preferred Stock" has the meaning set forth in Section 6.03(a) hereof. "Series B Redemption Date" has the meaning set forth in Section 6.03(f) hereof. "Series B Redemption Price" has the meaning set forth in Section 6.03(f) hereof. "Series B Senior Securities" has the meaning set forth in Section 6.03(c) hereof. "Standard & Poor's" means Standard & Poor's Ratings Group, a division of the McGraw-Hill Companies, Inc. or its successor, so long as such agency (or successor) is in the business of rating securities of the type of the Series A Preferred Stock or the Series B Preferred Stock. "Transfer Agent" means a bank or trust company as may be appointed from time to time by the Board of Directors of the Bank, or a committee thereof, to act as transfer agent, paying agent and registrar of the Series A Preferred Stock and the Series B Preferred Stock. 23 Section 6.05. Authority is hereby expressly granted to the Board of Directors from time to time to issue additional Preferred Stock, for such consideration and on such terms as it may determine, as Preferred Stock of one or more series and in connection with the creation of any such series to fix by the resolution or resolutions providing for the issue of shares thereof the designation, powers and relative participating, optional, or other special rights of such series, and the qualifications, limitations, or restrictions thereof. Article VII No stockholder shall have any preemptive right to subscribe for or to purchase any shares or other securities issued by the Bank. Article VIII The number of directors shall be not less than eleven nor more than twenty-five, which number shall be fixed as provided by law. Article IX Section 9.01. No director of the Bank shall be personally liable to the shareholders of the Bank for monetary damages for breach of his duty of care or other duty as a director, provided that this provision shall eliminate or limit the liability of a director only to the maximum extent permitted from time to time by the Financial Institutions Code of Georgia or any successor law or laws. Section 9.02. Any repeal or modification of clause (a) of this Article IX by the shareholders of the Bank shall not adversely affect any right or protection of a director of the Bank existing at the time of such repeal or modification. 24 IN WITNESS WHEREOF, SunTrust Bank has caused these Restated Articles of Incorporation to be executed and its corporate seal to be affixed and has caused the foregoing to be attested, all by its duly authorized officers on this 8th day of August, 2000. SUNTRUST BANK By: /s/ L. Phillip Humann ----------------------- Name: L. Phillip Humann Title: Chairman of the Board, President and Chief Executive Officer By: /s/ John W. Spiegel ------------------- Name: John W. Spiegel Title: Executive Vice President and Chief Financial Officer (SEAL) Attest: /s/ Raymond D. Fortin --------------------- Name: Raymond D. Fortin Title: Corporate Secretary 25 EXHIBIT 2 TO FORM T-1 CERTIFICATE OF AUTHORITY OF SUNTRUST BANK TO COMMENCE BUSINESS (Incorporated by reference from Exhibit 2 to Form T-1 as filed as Exhibit 25.1 to Sabre Holdings Corporation Form S-3, filed March 10, 2000, as amended (Registration No. 333-32106)) 26 EXHIBIT 3 TO FORM T-1 AUTHORIZATION OF SUNTRUST BANK TO EXERCISE CORPORATE TRUST POWERS (Incorporated by reference from Exhibits 2 and 3 to Form T-1 as filed as Exhibit 25.1 to Sabre Holdings Corporation Form S-3, filed March 10, 2000, as amended (Registration No. 333-32106)) 27 EXHIBIT 4 TO FORM T-1 BY-LAWS OF SUNTRUST BANK (ATTACHED) 28 SUNTRUST BANK BYLAWS (As Amended and Restated February 13, 2001) ARTICLE I SHAREHOLDERS SECTION 1. Annual Meeting. The annual meeting of the shareholder for the election of Directors and for the transaction of such other business as may properly come before the meeting shall be held at such place, on such date and at such time as the Board of Directors may by resolution provide. If the Board of Directors fails to provide such date and time, the meeting shall be held at the Bank's headquarters at 10:00 AM local time on the third Tuesday in April of each year, or, if that date is a legal holiday, on the next succeeding business day. The Board of Directors may specify by resolution prior to any special meeting of the shareholder that such meeting shall be in lieu of the annual meeting. SECTION 2. Special Meeting; Call of Meetings. Special meetings of the shareholder may be called at any time by the Chairman of the Board, the President, or the Board itself, and shall be held at such place as is stated in the notice. ARTICLE II DIRECTORS SECTION 1. Board of Directors. The Board of Directors shall manage the business and affairs of the Bank and may exercise all of the powers of the Bank, subject to whatever restrictions are imposed by law. SECTION 2. Composition of the Board. The Board of Directors of the Bank shall consist of not less than ten (10) nor more than twenty (20) natural persons, the exact number to be set from time to time by the Board of Directors. In the absence of the Board setting the number of Directors, the number shall be sixteen (16). Each Director, unless he or she dies, resigns, retires or is removed from office, shall hold office until the next annual meeting of the shareholder, and may be reelected for successive terms. SECTION 3. Election of Directors. Nominations for election to the Board of Directors may be made by the Board, or by the Bank's shareholder. Nominations shall specify the class of Directors to which each person is nominated. SECTION 4. Vacancies. Vacancies resulting from retirement, resignation, removal from office (with or without cause), death or an increase in the number of Directors comprising the Board, shall be filled by the Board of Directors. Any Director so elected shall hold office until the next annual meeting of the shareholder. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. SECTION 5. Retirement. Each Director serving as an officer of the Bank or any of its affiliates shall cease to be a Director on the date of the first to 29 occur of (a) his or her 65th birthday, or (b) the date of his or her termination, resignation or retirement of employment. Each Director who is not an officer of the Bank or any of its affiliates shall cease to be a Director at the end of his or her term that coincides with or follows his or her 70th birthday. SECTION 6. Removal. Any or all Directors may be removed from office at any time with or without cause, by the affirmative vote of the shareholder. SECTION 7. Resignations. Any Director may resign at any time by giving written notice to the Chairman of the Board, the President or the Corporate Secretary. Such resignation shall take effect when delivered unless the notice specifies a later effective date, and the acceptance of the resignation shall not be necessary to make it effective, unless otherwise stated in the resignation. ARTICLE III ACTION OF THE BOARD OF DIRECTORS; COMMITTEES SECTION 1. Quorum; Vote Requirement. A majority of the Directors holding office shall constitute a quorum for the transaction of the Board's business. If a quorum is present, a vote of a majority of the Directors present at such time shall be the act of the Board of Directors, unless a greater vote is required by law, the Articles of Incorporation or these Bylaws. SECTION 2. Executive Committee. An Executive Committee, consisting of not less than four (4) Directors, is hereby established. The members of the Executive Committee shall be elected by the Board at its meeting immediately following the annual shareholder's meeting, or at such other time as the Board determines to be appropriate. The Executive Committee shall have and may exercise all the authority of the Board as permitted by law. In addition, the Executive Committee shall serve as the Nominating Committee and shall have the power to recommend candidates for election to the Board and consider other issues related to the size and composition of the Board. The Board shall elect the Chairman of the Executive Committee, who shall be entitled to preside at all meetings of the Executive Committee and perform such other duties as may be designated by the Committee. SECTION 3. Audit Committee. An Audit Committee, consisting of not less than four (4) Directors, is hereby established. No Director who is an officer of the Bank or any affiliate shall be a member of the Audit Committee. The members of the Audit Committee shall be elected by the Board at its meeting immediately following the annual shareholder's meeting, or at such other time as the Board determines to be appropriate. The Audit Committee shall require that an audit of the books and records of the affairs of the Bank be made at such time or times as the members of the Audit Committee choose, and shall review the scope of the audit and approve of any non-audit services to be performed for the Bank by the independent accountants. The Audit Committee shall also review examination reports by the independent accountants and regulatory agencies; review credit issues, loan policies and procedures, the classification of loans and the adequacy of the allowance for loan losses; monitor the credit process review function; review the Bank's CRA policy, plans and performance; review internal programs to assure compliance with laws and regulations and the adequacy of internal controls, and exercise oversight for the Bank's fiduciary actions and duties. The Board shall elect the Chairman of the Audit Committee who shall be entitled to preside at all meetings of the Committee and perform such other duties as may be designated by the Committee. 30 SECTION 4. Other Committees. The Board of Directors may designate one or more other committees, each consisting of one or more Directors, and each of which, to the extent permitted by law and provided in the resolution establishing such committee, shall have and may exercise all authority of the Board of Directors. SECTION 5. Committee Meetings. Regular meetings of each committee, of which no notice is necessary, shall be held at such times and places as fixed, from time to time, by resolution adopted by the committee. Special meetings of any committee may be called at any time by the Chairman of the Board or the President, by the Chairman of such committee or by two members of the committee. Notice of any special meeting of any committee may be given in the manner provided in the Bylaws for giving notice of a special meeting of the Board of Directors. However, notice of any special meeting need not be given to any member of the committee who is present at the meeting or who, before or after the meeting, waives notice in writing (including telegram, cablegram, facsimile, or radiogram). Any regular or special meeting of any committee shall be a legal meeting, without any notice being given, if all the members are present. A majority of the members of any committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of the committee. SECTION 6. Committee Records. Each committee shall keep a record of its acts and proceedings and shall report them from time to time to the Board of Directors. SECTION 7. Alternate Members; Vacancies. The Board of Directors may designate one or more Directors as alternate members of any committee, to act in the place and stead of one or more members who are absent from such committee. The Board of Directors may fill any vacancy or vacancies occurring in any committee. SECTION 8. Place, Time, Notice and Call of Directors' Meetings. The annual meeting of the Board of Directors shall be held each year immediately following the annual meeting of the shareholder or at such other time and place as the Chairman of the Board may designate. Regular meetings of the Board of Directors shall be held at such times and places as the Board of Directors may determine from time to time. Regular meetings of the Board of Directors may be held without notice. Special meetings of the Board of Directors shall be held upon notice of the date, time and place of the meeting as given to each Director orally, by telephone or in person, or in writing, by personal delivery or by mail, telegram, facsimile, or cablegram. Notice of special meetings shall be given no later than the day before the meeting, except that notice of a special meeting need not be given to any Director who signs and delivers to the Bank, either before or after the meeting, a waiver of notice. Attendance of a Director at a Board meeting shall constitute a waiver of notice of that meeting, as well as a waiver of any and all objections to the place of the meeting, the time of the meeting, or the manner in which it has been called or convened, except when a Director states, at the beginning of the meeting (or promptly upon his or her arrival), any such objection or objections to the transaction of business and thereafter does not vote for or assent to action taken at the meeting. The business to be transacted at, and the purpose of, any regular or special meeting of the Board of Directors need not be specified in the notice or waiver of notice of the meeting unless required by law or these Bylaws. A majority of the Directors present, whether or not a quorum exists, may adjourn any meeting of the Board of Directors to another time and place. No notice of 31 any adjourned meeting need be given. Meetings of the Board of Directors may be called by the Chairman of the Board, the President or any two Directors. SECTION 9. Action by Directors Without a Meeting; Participation in Meeting by Telephone. Except as limited by law, any action to be taken at a meeting of the Board, or by any committee of the Board, may be taken without a meeting if written consent, setting forth the action so taken, shall be signed by all the members of the Board or such Committee and shall be filed with the minutes of the proceedings of the Board or such committee. Such written consent shall have the same force and effect as a unanimous vote of the Board or such committee and any document executed on behalf of the Corporation may recite that the action was duly taken at a meeting of the Board or such committee. Participation at Board and committee meetings may occur by conference telephone or similar communication equipment so long as all persons participating in the meeting can hear and speak to one other, and such participation shall constitute personal presence at the meeting. SECTION 10. Directors' Compensation. The Board of Directors shall have authority to determine, from time to time, the amount of compensation paid to its members for attendance at meetings of, or services on, the Board or any committee thereof. The Board shall also have the power to reimburse Directors for reasonable expenses of attendance at Directors' meetings and committee meetings. ARTICLE IV OFFICERS SECTION 1. Executive Structure. The Board of Directors shall elect a Chairman of the Board, President, Chief Financial Officer, Corporate Secretary and Treasurer, and may elect one or more Vice Chairmen and Executive Vice Presidents as the Board of Directors may deem necessary. The Board of Directors shall designate a Chief Executive Officer from among these officers. The Chief Executive Officer shall designate duties of each designated officer and may appoint assistant officers, to assist one or more of the designated officers in discharging their duties. Titles of the assistant officers will be designated by the Chief Executive Officer as he or she deems appropriate. The Chief Executive Officer may also appoint other officers and may delegate the authority to appoint officers to other officers of the Bank. The local or regional boards or the local or regional chief executive officers or their designees may appoint officers of SunTrust Bank. Each officer elected by the Board and each officer appointed by the Chief Executive Officer or his or her designee shall serve until the next annual meeting of the Board, or until he or she earlier resigns, retires, dies or is removed from office. Any two or more offices may be held by the same person. SECTION 2. Chief Executive Officer. The Chief Executive Officer shall be the most senior officer of the Bank and all other officers and agents of the Bank shall be subject to his or her direction. He or she shall be accountable to the Board of Directors for the fulfillment of his or her duties and responsibilities and, in the performance and exercise of all such duties, responsibilities and powers, he or she shall be subject to the supervision and direction of, and any limitations imposed by, the Board of Directors. The Chief Executive Officer shall be responsible for interpretation and implementation of the policies of the Bank as determined and specified from time to time by the Board of Directors, and shall be responsible for the general management and direction of the business and affairs of the Bank. For the purpose of fulfilling his or her 32 duties and responsibilities and subject to these Bylaws and the direction of the Board, the Chief Executive Officer shall have plenary authorities and powers, including general executive powers, the authority to delegate and assign duties, responsibilities and authorities, and, in the name of the Bank and on its behalf, the authority to negotiate and make any agreements, waivers or commitments that do not require the express approval of the Board. SECT1ON 3. Chairman of the Board. The Chairman shall be a member of the Board of Directors and shall be entitled to preside at all meetings of the Board. SECTION 4. President. The President shall have such powers and perform such duties as may be assigned by the Board of Directors, the Chairman of the Board or the Chief Executive Officer. SECTION 5. Vice Chairman. Any Vice Chairman elected shall have such duties and authority as may be conferred upon him by the Board or delegated to him by the Chief Executive Officer. SECTION 6. Chief Financial Officer. The Chief Financial Officer shall have the care, custody, control and handling of the funds and assets of the Bank, and shall render a statement of the assets, liabilities and operations of the Bank to the Board at its regular meetings. SECTION 7. Treasurer. The Treasurer shall perform such duties as may be assigned to him or her and shall report to the Chief Financial Officer or, in the absence of the Chief Financial Officer, to the President. SECTION 8. Corporate Secretary. Due notice of all meetings of the shareholder and Directors shall be given by the Corporate Secretary or the person or persons calling such meeting. The Corporate Secretary shall report the proceedings of all meetings in a book of minutes and shall perform all the duties pertaining to his or her office, including authentication of corporate documents, and shall have custody of the Seal of the Bank. Each Assistant Corporate Secretary appointed by the Chief Executive Officer or his or her designee may perform all duties of the Corporate Secretary. SECTION 9. Bank Officers. Each officer, employee and agent of the Bank shall have the duties and authority conferred upon him or her by the Board of Directors or delegated to him or her by the Chief Executive Officer, or his or her designee. SECTION 10. Removal of Officers. Any officer may be removed by the Board of Directors with or without cause whenever, in its judgment, the best interests of the Bank will be served thereby. In addition, an officer of the Bank shall cease to be an officer upon ceasing to be an employee of the Bank or its affiliates. ARTICLE V STOCK SECTION 1. Stock Certificates. The shares of stock of the Bank shall be represented by certificates in such form as may be approved by the Board of Directors, which certificates shall be issued to the shareholder of the Bank and shall be signed by the Chairman of the Board, or the President, together with the Corporate Secretary or an Assistant Secretary of the Bank; and which shall be sealed with the seal of the Bank. The described signatures on any certificate may be a facsimile signature if the certificate is countersigned by a transfer agent or registrar other than the Bank itself or an employee of the Bank. No share certificates shall be issued until consideration for the shares 33 represented thereby has been fully paid. If any officer who has signed or whose facsimile signature has been placed upon a certificate ceases to be such officer before such certificate is issued, it may be issued by the Bank with the same effect as if he or she was such officer at the date of issue. SECTION 2. Transfer of Stock. Shares of stock of the Bank shall be transferred on the books of the Bank only upon surrender to the Bank of the certificate or certificates representing the shares to be transferred, accompanied by an assignment in writing of such shares, properly executed by the shareholder of record or his or her duly authorized attorney-in-fact, and after payment of all taxes due upon the transfer. The Bank may refuse any requested transfer until furnished evidence satisfactory to it that such transfer is proper. Upon the surrender of a certificate for transfer of stock, such certificate shall be marked on its face "Canceled". The Board of Directors may make such additional rules concerning the issuance, transfer and registration of stock and requirements regarding the establishment of lost, destroyed or wrongfully taken stock certificates (including any requirement of an indemnity bond prior to issuance of any replacement certificate and provision for appointment of a transfer agent and a registrar) as it deems appropriate. SECTION 3. Registered Shareholder. The Bank may deem and treat the holder of record of any stock as the absolute owner thereof for all purposes and shall not be required to take any notice of any right or claim of right of any other person. SECTION 4. Record Date. For the purpose of determining the shareholder entitled to notice of, or to vote at, any meeting of shareholder or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of the shareholder for any other purpose, the Board of Directors may fix, in advance, a date as the record date for determination of the shareholder. ARTICLE VI DEPOSITORIES, SIGNATURES AND SEAL SECTION 1. Depositories. All funds of the Bank shall be deposited in the name of the Bank in such bank, banks, or other financial institutions as the Board of Directors may from time to time designate and shall be drawn out on checks, drafts or other orders signed on behalf of the Bank by such person or persons as the Board, its Executive Committee or the Chief Executive Officer may, from time to time, direct. SECTION 2. Seal. The seal of the Bank shall be in such form as the Board of Directors may, from time to time, direct. Unless otherwise directed by the Board of Directors, the official seal of the Bank shall be as follows: If the seal is affixed to a document, the signature of the Corporate Secretary or his or her designee shall attest to the seal. The seal and its attestation may be lithographed or otherwise printed on any document and shall have, to the extent permitted by law, the same force and effect as if it has been affixed and attested manually. SECTION 3. Execution of Instruments. All bills, notes, checks, and other instruments for the payment of money, all agreements, indentures, mortgages, 34 deeds, conveyances, transfers, certificates, declarations, receipts, discharges, releases, satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds, undertakings, proxies and other instruments or documents may be signed, executed, acknowledged, verified, delivered, or accepted on behalf of the Bank by the Chairman of the Board, the President, any Vice Chairman, Executive Vice President, Senior Vice President or Vice President, the Secretary or the Treasurer. Any such instrument may also be signed, executed, acknowledged, verified, delivered or accepted on behalf of the Bank in such manner and by such other officers, employees or agents of the Bank as the Board of Directors, Executive Committee or Chief Executive Officer may, from time to time, direct. ARTICLE VII INDEMNIFICATION OF OFFICERS, DIRECTORS, AND EMPLOYEES SECTION 1. Definitions. The following terms are defined, for purposes of this Article, as: (A) "Bank" includes any domestic or foreign predecessor entity of this Bank in merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction. (B) "Director" means an individual who is or was a director of the Bank or an individual who, while a director of the Bank, is or was serving at the Bank's request as director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other entity. A Director is considered to be serving an employee benefit plan at the Bank's request if his or her duties to the Bank also impose duties on, or otherwise involve services by, him or her to the plan or to participants in or beneficiaries of the plan. Director includes, unless the context requires otherwise, the estate or personal representative of a Director. (C) "Disinterested Director" means a Director who, at the time of a vote referred to in Section 3(C) or a vote or selection referred to in Section 4(B), 4(C) or 7(A) is not: (I) a party to the proceedings; or (ii) an individual who is a party to a proceeding having a familial, financial, professional, or employment relationship with the Director whose indemnification or advance for expenses is the subject of the decision being made with respect to the proceeding, which relationship would, in the circumstances, reasonably be expected to exert an influence on the Director's judgement when voting on the decision being made. (D) "Employee" means an individual who is or was an employee of the Bank or an individual who, while an employee of the Bank, is or was serving at the Bank's request as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. An Employee is considered to be serving an employee benefit plan at the Bank's request if his or her duties to the Bank also imposes duties on, or otherwise involves services by, him or her to the plan or to participants in or beneficiaries of the plan. Employee includes, unless the context requires otherwise, the estate or personal representative of an Employee. (E) "Expenses" includes counsel fees. 35 (F) "Liability" means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), or reasonable expenses incurred with respect to a proceeding. (G) "Officer" means an individual who is or was an officer of the Bank, including an assistant officer, or an individual who, while an officer of the Bank, is or was serving at the Bank's request as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other entity. An Officer is considered to be serving an employee benefit plan at the Bank's request if his or her duties to the Bank also impose duties on, or otherwise involve services by, him or her to the plan or to participants in or beneficiaries of the plan. Officer includes, unless the context requires otherwise, the estate or personal representative of an Officer. (H) "Official Capacity" means: (i) when used with respect to a director, the office of a director in a corporation; and (ii) when used with respect to an officer, the office in a corporation held by the officer. Official Capacity does not include service for any other domestic or foreign corporation or any partnership, joint venture, trust, employee benefit plan, or other entity. (I) "Party" means an individual who was, is, or is threatened to be made, a named defendant or respondent in a proceeding. (J) "Proceeding" means any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, arbitrative or investigative and whether formal or informal. Section 2. Basic Indemnification Arrangement. (A) Except as provided in subsections 2(D) and 2(E) below and, if required by Section 4 below, upon a determination pursuant to Section 4 in the specific case that such indemnification is permissible in the circumstances under this subsection because the individual has met the standard of conduct set forth in this subsection (A), the Bank shall indemnify an individual who is made a party to a proceeding because he or she is or was a Director or Officer against liability incurred by him or her in the proceeding if he or she conducted himself or herself in good faith and, in the case of conduct in his or her official capacity, he or she reasonably believed such conduct was in the best interest of the Bank, or in all other cases, he or she reasonably believed such conduct was at least not opposed to the best interests of the Bank and, in the case of any criminal proceeding, he or she had no reasonable cause to believe the conduct was unlawful. (B) A person's conduct with respect to an employee benefit plan for a purpose he or she believes in good faith to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirement of subsection 2(A) above. (C) The termination of a proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, is not, of itself, determinative that the proposed indemnitee did not meet the standard of conduct set forth in subsection 2(A) above. (D) The Bank shall not indemnify a person under this Article (i) in connection with a proceeding by or in the right of the Bank, except for 36 reasonable expenses incurred in connection with the proceeding if it is determined that such person has met the relevant standard of conduct under this section, or (ii) with respect to conduct for which such person was adjudged liable on the basis that personal benefit was improperly received by him or her, whether or not involving action in his official capacity. SECTION 3. Advances for Expenses. (A) The Bank may advance funds to pay for or reimburse the reasonable expenses incurred by a Director or Officer who is a party to a proceeding because he or she is a Director or Officer in advance of final disposition of the proceeding if (i) such person furnishes the Bank a written affirmation of his or her good faith belief that he or she has met the relevant standard of conduct set forth in subsection 2(A) above or that the proceeding involves conduct for which liability has been eliminated under the Bank's Articles of Incorporation; and (ii) such person furnishes the Bank a written undertaking meeting the qualifications set forth below in subsection 3(B), executed personally or on his or her behalf, to repay any funds advanced if it is ultimately determined that he or she is not entitled to any indemnification under this Article or otherwise. (B) The undertaking required by subsection 3(A)(ii) above must be an unlimited general obligation of the Director or Officer but need not be secured and shall be accepted without reference to financial ability to make repayment. (C) Authorizations under this Section shall be made: (i) by the Board of Directors (a) when there are two or more Disinterested Directors, by a majority vote of all Disinterested Directors (a majority of whom shall for such purpose constitute a quorum) or by a majority of the members of a committee of two or more Disinterested Directors appointed by such a vote; or (b) when there are fewer than two Disinterested Directors, by a majority of the Directors present in a meeting in which Directors who do not qualify as Disinterested Directors may participate; or (ii) by the shareholder. SECTION 4. Authorization of and Determination of Entitlement to Indemnification. (A) The Bank shall not indemnify a Director or Officer under Section 2 above unless authorized thereunder and a determination has been made for a specific proceeding that indemnification of such person is permissible in the circumstances because he or she has met the relevant standard of conduct set forth in subsection 2(A) above; provided, however, that regardless of the result or absence of any such determination, to the extent that a Director or Officer has been wholly successful, on the merits or otherwise, in the defense of any proceeding to which he or she was a party because he or she is or was a Director or Officer, the Bank shall indemnify such person against reasonable expenses incurred by him or her in connection therewith. (B) The determination referred to in subsection 4(A) above shall be made (i) if there are two or more Disinterested Directors, by a majority vote of all the Disinterested Directors (a majority of whom shall for such purpose constitute a quorum) or by a majority of the members of a committee of two or more Disinterested Directors appointed by such a vote; (ii) by special legal counsel (1) selected by the Board of Directors or its committee in the manner prescribed in subdivision (i), or (2) if there are fewer than two Disinterested Directors, selected by the Board of Directors (in which selection Directors who do not qualify as Disinterested Directors may participate); or (iii) by the 37 shareholder; but shares owned by or voted under the control of a Director who at the time does not qualify as a Disinterested Director may not be voted on the determination. (C) Authorization of indemnification or an obligation to indemnify, and evaluation as to reasonableness of expenses of a Director or Officer in the specific case shall be made in the same manner as the determination that indemnification is permissible, as described in subsection 4(B) above, except that if there are fewer than two Disinterested Directors or if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subsection 4(B)(ii)(2) above to select counsel. (D) The Board of Directors, a committee thereof, or special legal counsel acting pursuant to subsection (B) above or Section 5 below, shall act expeditiously upon an application for indemnification or advances, and cooperate in the procedural steps required to obtain a judicial determination under Section 5 below. (E) The Bank may, by a provision in its Articles of Incorporation or Bylaws or in a resolution adopted or a contract approved by its Board of Directors or shareholder, obligate itself in advance of the act or omission giving rise to a proceeding to provide indemnification or advance funds to pay for or reimburse expenses consistent with this part. Any such obligatory provision shall be deemed to satisfy the requirements referred to in Section 3(C) or Section 4(C). SECTION 5. Court-Ordered Indemnification and Advances for Expenses. A Director or Officer who is a party to a proceeding because he or she is a Director or Officer may apply for indemnification or advances for expenses to the court conducting the proceeding or to another court of competent jurisdiction. After receipt of an application and after giving any notice it considers necessary, the court shall order indemnification or advances for expenses if it determines that: (i) the Director is entitled to indemnification under this part; or (ii) in view of all the relevant circumstances, it is fair and reasonable to indemnify the Director or Officer or to advance expenses to the Director or Officer, even if the Director or Officer has not met the relevant standard of conduct set forth in subsection 2(A) above, failed to comply with Section 3, or was adjudged liable in a proceeding referred to in subsections (i) or (ii) of Section 2(D), but if the Director or Officer was adjudged so liable, the indemnification shall be limited to reasonable expenses incurred in connection with the proceeding, unless the Articles of Incorporation of the Bank or a Bylaw, contract or resolution approved or ratified by the shareholder pursuant to Section 7 below provides otherwise. If the court determines that the Director or Officer is entitled to indemnification or an advance for expenses, it may also order the Bank to pay the Director's or Officer's reasonable expenses to obtain court-ordered indemnification or advance for expenses. SECTION 6. Indemnification of Officers and Employees. (A) Unless the Bank's Articles of Incorporation provide otherwise, the Bank shall indemnify and advance expenses under this Article to an employee of the Bank who is not a Director or Officer to the same extent, consistent with public policy, as to a Director or Officer. (B) The Bank may indemnify and advance expenses under this Article to an officer of the Bank who is a party to a proceeding because he or she is an 38 Officer of the Bank: (i) to the same extent as a Director; and (ii) if he is not a Director, to such further extent as may be provided by the Articles of Incorporation, the Bylaws, a resolution of the Board of Directors, or contract except for liability arising out of conduct that is enumerated in subsections (A)(i) through (A)(iv) of Section 7. The provisions of this Section shall also apply to an Officer who is also a Director if the sole basis on which he or she is made a party to the proceeding is an act or omission solely as an Officer. SECTION 7. Shareholder Approved Indemnification. (A) If authorized by the Articles of Incorporation or a Bylaw, contract or resolution approved or ratified by shareholder of the Bank, the Bank may indemnify or obligate itself to indemnify a person made a party to a proceeding, including a proceeding brought by or in the right of the Bank, without regard to the limitations in other sections of this Article, but shares owned or voted under the control of a Director who at the time does not qualify as a Disinterested Director with respect to any existing or threatened proceeding that would be covered by the authorization may not be voted on the authorization. The Bank shall not indemnify a person under this Section 7 for any liability incurred in a proceeding in which the person is adjudged liable to the Bank or is subjected to injunctive relief in favor of the Bank: (i) for any appropriation, in violation of his duties, of any business opportunity of the Bank; (ii) for acts or omissions which involve intentional misconduct or a knowing violation of law; (iii) for the types of liability set forth in Section 14-2-832 of the Georgia Business Corporation Code; or (iv) for any transaction from which he or she received an improper personal benefit. (B) Where approved or authorized in the manner described in subsection 7(A) above, the Bank may advance or reimburse expenses incurred in advance of final disposition of the proceeding only if: (i) the proposed indemnitee furnishes the Bank a written affirmation of his good faith belief that his or her conduct does not constitute behavior of the kind described in subsection 7(A)(i)-(iv) above; and (ii) the proposed indemnitee furnishes the Bank a written undertaking, executed personally, or on his or her behalf, to repay any advances if it is ultimately determined that he or she is not entitled to indemnification. SECTION 8. Liability Insurance. The Bank may purchase and maintain insurance on behalf of an individual who is a Director, Officer, Employee, or agent of the Bank or who, while a director, officer, employee, or agent of the Bank, is or was serving at the request of the Bank as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other entity against liability asserted against or incurred by him in that capacity or arising from his status as a director, officer, employee, or agent, whether or not the Bank would have power to indemnify him against the same liability under Section 2 or Section 3 above. SECTION 9. Witness Fees. Nothing in this Article shall limit the Bank's power to pay or reimburse expenses incurred by a person in connection with his appearance as a witness in a proceeding at a time when he is not a party. SECTION 10. Report to Shareholders. If the Bank indemnifies or advances expenses to a Director in connection with a proceeding by or in the right of the Bank, the Bank shall report the indemnification or advance, in writing, to the shareholder. 39 SECTION 11. Severability. In the event that any of the provisions of this Article (including any provision within a single section, subsection, division or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions of this Article shall remain enforceable to the fullest extent permitted by law. SECTION 12. Indemnification Not Exclusive. The rights of indemnification provided in this Article VII shall be in addition to any rights which any such Director, Officer, Employee or other person may otherwise be entitled by contract or as a matter of law. ARTICLE VIII AMENDMENTS OF BYLAWS SECTION 1. Amendments. The Board of Directors shall have the power to alter, amend or repeal the Bylaws or adopt new Bylaws, but any Bylaws adopted by the Board of Directors may be altered, amended or repealed and new Bylaws adopted by the shareholder. Action by the Directors with respect to the Bylaws shall be taken by an affirmative vote of a majority of all of the Directors then elected and serving, unless a greater vote is required by law, the Articles of Incorporation or these Bylaws. ARTICLE IX EMERGENCY TRANSFER OF RESPONSIBILITY SECTION 1. Emergency Defined. In the event of a national emergency threatening national security or a major disaster declared by the President of the United States or the person performing his functions, which directly or severely affects the operations of the Bank, the officers and employees of the Bank will continue to conduct the affairs of the Bank under such guidance from the Directors as may be available except as to matters which by law or regulation require specific approval of the Board of Directors and subject to conformance with any applicable laws, regulations, and governmental directives during the emergency. SECTION 2. Officers Pro Tempore. The Board of Directors shall have the power, in the absence or disability of any officer, or upon the refusal of any officer to act as a result of said national emergency directly and severely affecting the operations of the Bank, to delegate and prescribe such officer's powers and duties to any other officer, or to any Director. In the event of a national emergency or state of disaster of sufficient severity to prevent the conduct and management of the affairs and business of the Bank by its Directors and officers as contemplated by the Bylaws, any two or more available members or alternate members of the then incumbent Executive Committee shall constitute a quorum of such Committee for the full conduct and management of the Bank in accordance with the provisions of Articles II and III of the Bylaws. If two members or alternate members of the Executive Committee cannot be expeditiously located, then three available Directors shall constitute the Executive Committee for the full conduct and management of the affairs and business of the Bank until the then remaining Board can be convened. These provisions shall be subject to implementation by resolutions of the Board of 40 Directors passed from time to time, and any provisions of the Bylaws (other than this Section) and any resolutions which are contrary to the provisions of this Section or the provisions of any such implementary resolutions shall be suspended until it shall be determined by any such interim Executive Committee acting under this Section that it shall be to the advantage of this Corporation to resume the conduct and management of its affairs and business under all of the other provisions of these Bylaws. SECTION 3. Officer Succession. If, in the event of a national emergency or disaster which directly and severely affects the operations of the Bank, the Chief Executive Officer cannot be located expeditiously or is unable to assume or to continue normal duties, then the authority and duties of the office shall be automatically assumed, without Board of Directors action, in order of title, and subject only to willingness and ability to serve, by the Chairman of the Board, President, Vice Chairman, Executive Vice President, Senior Vice President, Vice President, Corporate Secretary or their successors in office at the time of the emergency or disaster. Where two or more officers hold equivalent titles and are willing and able to serve, seniority in title controls initial appointment. If, in the same manner, the Corporate Secretary or Treasurer cannot be located or is unable to assume or continue normal duties, the responsibilities attached thereto shall, in like manner as described immediately above, be assumed by any Executive Vice President, Senior Vice President, or Vice President. Any officer assuming authority and position hereunder shall continue to serve until the earlier of his resignation or the elected officer or a more senior officer shall become available to perform the duties of the position of Chief Executive Officer, Corporate Secretary, or Treasurer. SECTION 4. Certification of Authority. In the event of a national emergency or disaster that directly and severely affects the operations of the Bank, anyone dealing with the Bank shall accept a certification by the Corporate Secretary or any three officers that a specified individual is acting as Chairman of the Board, Chief Executive Officer, President, Corporate Secretary, or Treasurer, in accordance with these Bylaws; and that anyone accepting such certification shall continue to consider it in force until notified in writing of a change, such notice of change to carry the signature of the Corporate Secretary or three officers of the Bank. SECTION 5. Alternative Locations. In the event of a national emergency or disaster which destroys, demolishes, or renders the Bank's offices or facilities unserviceable, or which causes, or in the judgment of the Board of Directors or the Executive Committee probably will cause, the occupancy or use thereof to be a clear and imminent hazard to personal safety, the Bank shall temporarily lease or acquire sufficient facilities to carry on its business as may be designated by the Board of Directors. Any temporarily relocated place of business of this Bank shall be returned to its legally authorized location as soon as practicable and such temporary place of business shall then be discontinued. SECTION 6. Amendments to Article IX. At any meeting called in accordance with Section 2 of this Article IX, the Board of Directors or Executive Committee, as the case may be, may modify, amend or add to the provisions of this Article IX so as to make any provision that may be practical or necessary for the circumstances of the emergency. 41 EXHIBIT 5 TO FORM T-1 (INTENTIONALLY OMITTED. NOT APPLICABLE.) 42 EXHIBIT 6 TO FORM T-1 CONSENT OF TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, in connection with the proposed issuance of up to $300,000,000 of 8% Senior Notes, Series B due 2009 of Smithfield Foods, Inc., SunTrust Bank hereby consents that reports of examinations by Federal, State, Territorial or District Authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. SUNTRUST BANK By: /s/ Jack Ellerin --------------------------- Jack Ellerin Assistant Vice President 43 EXHIBIT 7 TO FORM T-1 REPORT OF CONDITION (ATTACHED) 44 SunTrust Bank FFIEC 031 303 PEACHTREET STREET, NORTHEAST Consolidated Report of Condition ATLANTA , GA 30308 for June 30, 2001 Certificate Number: 867 - -------------------------------------------------------------------------------- Consolidated Report of Condition for Insured Commercial and State-Chartered Savings Banks for June 30, 2001 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding as of the last business day of the quarter. Schedule RC--Balance Sheet
Dollar Amounts in Thousands ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A) a. Noninterest-bearing balances and currency and coin/1/ RCFD 0081 4,029,295 b. Interest-bearing balances/2/ RCFD 0071 108,872 2. Securities: a. Held-to-maturity securities (from Schedule RC-B, column A) RCFD 1754 0 b. Available-for-sale securities (from Schedule RC-B, column D) RCFD 1773 15,927,784 3. Federal funds sold and securities purchased under agreements to resell RCFD 1350 2,428,869 4. Loans and lease financing receivables (from Schedule RC-C): a. Loans and leases held for sale RCFD 5369 3,126,942 b. Loans and leases, net of unearned income RCFD B528 68,709,512 c. LESS: Allowance for loan and lease losses RCFD 3123 848,294 d. Loans and leases, net of unearned income and allowance (item 4.b RCFD B529 67,861,218 minus 4.c) 5. Trading assets (from Schedule RC-D) RCFD 3545 484,294 6. Premises and fixed assets (including capitalized leases) RCFD 2145 1,298,098 7. Other real estate owned (from Schedule RC-M) RCFD 2150 31,250 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) RCFD 2130 0 9. Customers' liability to this bank on acceptances outstanding RCFD 2155 89,475 10. Intangible assets: a. Goodwill RCFD 3163 241,499 b. Other intangible assets (from Schedule RC-M) RCFD 0426 379,965 11. Other assets (from Schedule RC-F) RCFD 2160 2,086,020 12. Total assets (sum of items 1 through 11) RCFD 2170 98,093,581\
45 LIABILITIES 13. Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RCON 2200 60,291,519 RC-E, part I) (1) Noninterest-bearing/3/ RCON6631 8,743,385 (2) Interest-bearing RCON6636 51,548,134 b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from RCFN2200 3,658,760 Schedule RC-E, part II) (1) Noninterest-bearing RCFN6631 0 (2) Interest-bearing RCFN6636 3,658,760 14. Federal funds purchased and securities sold under agreements to repurchase RCFD 2800 12,161,227 15. Trading liabilities (from Schedule RC-D) RCFD 3548 0 16. Other borrowed money (includes mortgage indebtedness and obligations under capitalized RCFD 3190 9,411,416 leases) (from Schedule RC-M) 17. Not applicable 18. Bank's liability on acceptances executed and outstanding RCFD 2920 89,475 19. Subordinated notes and debentures/4/ RCFD 3200 1,493,103 20. Other liabilities (from Schedule RC-G) RCFD 2930 2,403,914 21. Total liabilities (sum of items 13 through 20) RCFD 2948 89,509,414 22. Minority interest in consolidated subsidiaries RCFD 3000 166,493 EQUITY CAPITAL 23. Perpetual preferred stock and related surplus RCFD 3838 0 24. Common stock RCFD 3230 21,600 25. Surplus (exclude all surplus related to preferred stock) RCFD 3839 2,516,538 26. a. Retained earnings RCFD 3632 4,919,946 b. Accumulated other comprehensive income/5/ RCFD B530 959,590 27. Other equity capital components/6/ RCFD A130 0 28. Total equity capital (sum of items 23 through 27) RCFD 3210 8,417,674 29. Total liabilities, minority interest, and equity capital (sum of items 21, 22, and 28) RCFD 3300 98,093,581
Memorandum To be reported with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that Number best describes the most comprehensive level of auditing work performed for the bank by independent external auditors as of any date during 2000 RCFD 6724 N/A
1 = Independent audit of the bank conducted in 4 = Directors' examination of the bank conducted in accordance with generally accepted auditing accordance with generally accepted auditing standards by a certified public accounting firm standards by a certified public accounting firm which submits a report on the bank (may be required by state chartering authority)
46 2 = Independent audit of the bank's parent holding 5 = Directors' examination of the bank performed by company conducted in accordance with generally other external auditors (may be required by accepted auditing standards by a certified state chartering authority) public accounting firm which submits a report 6 = Review of the bank's financial statements by on the consolidated holding company (but not on external auditors the bank separately) 7 = Compilation of the bank's financial statements by external auditors 3 = Attestation on bank management's assertion on 8 = Other audit procedures (excluding tax the effectiveness of the bank's internal 9 = No external audit work control over financial reporting by a certified public accounting firm preparation work)
- ---------- /1/ Includes cash items in process of collection and unposted debits. /2/ Includes time certificates of deposit not held for trading. /3/ Includes total demand deposits and noninterest-bearing time and savings deposits. /4/ Includes limited-life preferred stock and related surplus. /5/ Includes net unrealized holding gains (losses) on available-for-sale securities, accumulated net gains (losses) on cash flow hedges, cumulative foreign currency translation adjustments, and minimum pension liability adjustments. /6/ Includes treasury stock and unearned Employee Stock Ownership Plan shares.
47 EXHIBIT 8 TO FORM T-1 (INTENTIONALLY OMITTED. NOT APPLICABLE.) 48 EXHIBIT 9 TO FORM T-1 (INTENTIONALLY OMITTED. NOT APPLICABLE.) 49 EX-99.1 11 dex991.txt FORM OF LETTER OF TRANSMITTAL EXHIBIT 99.1 Smithfield Foods, Inc. 200 Commerce Street Smithfield, Virginia 23430 Letter Of Transmittal For 8% Senior Notes, Series A, Due 2009 Pursuant To The Prospectus Dated , 2001 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2002 The Exchange Agent is: Suntrust Bank By Facsimile: By Registered or Certified Mail: By Hand/Overnight Delivery: (404) 588-7335 SunTrust Bank SunTrust Bank Corporate Trust Depart. (mc008) Corporate Trust Depart. (mc008) 25 Park Place, 24th Floor Park Place, 24th Floor Atlanta, Georgia 30303-290025 Atlanta, Georgia 30303-2900 Attention: Jack Ellerin Attention: Jack Ellerin Confirm by telephone: (404) 588-7296 For Information Call: (404) 588-7296
DELIVERY OF THIS INSTRUMENT 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. The undersigned acknowledges receipt of the Prospectus dated , 2001 (the "Prospectus") of Smithfield Foods, Inc., a Virginia corporation (the "Company" or the "Issuer") and this Letter of Transmittal of 8% Senior Notes, Series A, due 2009, which may be amended from time to time (the "Letter"), which together constitute the Issuer's offer to exchange (the "Exchange Offer"), up to $300,000,000 in aggregate principal amount of its 8% Senior Notes, Series B, due 2009 (the "Exchange Notes") for up to $300,000,000 in aggregate principal amount of its outstanding 8% Senior Notes, Series A, due 2009 that were issued and sold in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Senior Notes" and, together with the Exchange Notes, the "Notes"). The undersigned has completed, executed and delivered this Letter to indicate the action he or she desires to take with respect to the Exchange Offer. All holders of Senior Notes who wish to tender their Senior Notes must, prior to the Expiration Date; (1) complete, sign, date and mail or otherwise deliver this Letter to the Exchange Agent, in person or to the address set forth above; and (2) tender his or her Senior Notes or, if a tender of Senior Notes is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company (the "Book- Entry Transfer Facility"), 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. Holders of Senior 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 to be delivered to the Exchange Agent on or prior to the Expiration Date, must tender their Senior Notes according to the guaranteed delivery procedures set forth under the caption "The Exchange Offer -- How to Tender" in the Prospectus. (See Instruction 1). The Instructions included with this Letter must be followed in their entirety. Questions and requests for assistance or for additional copies of the Prospectus or this Letter may be directed to the Exchange Agent, at the address listed above, or Michael H. Cole, Secretary of the Company, at (757) 365-3000, 200 Commerce Street, Smithfield, Virginia 23430. PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE INSTRUCTIONS TO THIS LETTER, CAREFULLY BEFORE CHECKING ANY BOX BELOW Capitalized terms used in this Letter and not defined herein shall have the respective meanings ascribed to them in the Prospectus. List in Box 1 below the Senior Notes of which you are the holder. If the space provided in Box 1 is inadequate, list the certificate numbers and principal amount of Senior Notes on a separate signed schedule affixed hereto. BOX 1--TO BE COMPLETED BY ALL TENDERING HOLDERS - --------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s) (Please Fill in Certificate(s) Tendered (Attach Additional if Blank) Signed List, If Necessary) - ----------------------------------------------------------------- Principal Amount of Senior Notes Principal Amount Certificate Represented by of Senior Notes Number(s)(1) Certificate(s) Tendered(2) ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- Total - -----------------------------------------------------------------
(1) Need not be completed if Senior Notes are being tendered by book-entry transfer. (2) Unless otherwise indicated, the entire principal amount of Senior Notes represented by a certificate or Book-Entry Confirmation delivered to the Exchange Agent will be deemed to have been tendered. Senior Notes tendered hereby must be in a principal amount of $1,000 and integral multiples thereof. 2 Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned tenders to the Issuer the principal amount of Senior Notes indicated above. Subject to, and effective upon the acceptance for exchange of the Senior Notes tendered with this Letter, the undersigned exchanges, assigns and transfer to, or upon the order of, the Issuer all right, title and interest in and to the Senior Notes tendered. The undersigned constitutes and appoints the Exchange Agent as his or her agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Issuer) with respect to the tendered Senior Notes, with full power of substitution, to: (a) deliver certificates for such Senior Notes; (b) deliver Senior Notes and all accompanying evidence of transfer and authenticity to or upon the order of the Issuer upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the undersigned is entitled upon the acceptance by the issuer of the Senior Notes tendered under the Exchange Offer; and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of the Senior Notes, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed irrevocable and coupled with an interest. The undersigned hereby represents and warrants that he or she has full power and authority to tender, exchange, assign and transfer the Senior Notes tendered hereby and that the Issuer 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 will, upon request, execute and deliver any additional documents deemed by the Issuer to be necessary or desirable to complete the assignment and transfer of the Senior Notes tendered. The undersigned has read and agrees to all of the terms of the Exchange Offer. The undersigned agrees that acceptance of any tendered Senior Notes by the Issuer and the issuance of Exchange Notes in exchange therefor shall constitute performance in full by the issuer of its obligations under the Exchange and Registration Rights Agreement (as defined in the Prospectus) and that, upon the issuance of the Exchange Notes, the Issuer will have no further obligations or liabilities thereunder (except in certain limited circumstances). By tendering Senior Notes, the undersigned certifies (a) that it is not an "affiliate" of the Issuer within the meaning of Rule 405 under the Securities Act, that it is not a broker-dealer that owns Senior Notes acquired directly from the Issuer or an affiliate of the Issuer, that it is acquiring the Exchange Notes in the ordinary course of the undersigned's business and that the undersigned has no arrangement with any person to participate in the distribution of the Exchange Notes or (b) that it is an "affiliate" (as so defined) of the Issuer or of the initial purchasers in the original offering of the Senior Notes, and that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable to it. The undersigned acknowledges that, if it is a broker-dealer that will receive Exchange Notes for its own account, it will deliver a prospectus in connection with any resale of such Exchange Notes. 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. The undersigned understands that the Issuer 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. All authority conferred or agreed to be conferred by this Letter shall survive the death or incapacity of the undersigned, and every obligation of the undersigned under this Letter shall be binding upon the undersigned's heirs, personal representatives, successors and assigns. Tenders may be withdrawn only in accordance with the procedures set forth in the Instructions contained in this Letter. Unless otherwise indicated under "Special Delivery Instructions" below, the Exchange Agent will deliver Exchange Notes (and, if applicable, a certificate for any Senior Notes not tendered but represented by a certificate also encompassing Senior Notes which are tendered) to the undersigned at the address set forth in Box 1. 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, the Prospectus shall prevail. 3 [_]CHECK HERE IF TENDERED SENIOR NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK- ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: _________________________________ DTC Account Number: ___________________________________________ Transaction Code Number: ______________________________________ [_]CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED SENIOR NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s): _______________________________ Date of Execution of Notice of Guaranteed Delivery _____________ Window Ticket Number (if available) ____________________________ Name of Institution which Guaranteed Delivery: _________________ If Guaranteed Delivery is to be made by Book-Entry Transfer: ___ Name of Tendering Institution: ________________________________ DTC Account Number _____________________________________________ Transaction Code Number ________________________________________ [_]CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED SENIOR SECURITIES ARE TO BE RETURNED BY CREDITING THE ACCOUNT NUMBER SET FORTH ABOVE. [_]CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE SENIOR SECURITIES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR THERETO. Name: _________________________________________________________ Address: ______________________________________________________ ---------------------------------------------------------- PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY 4 BOX 2 PLEASE SIGN HERE WHETHER OR NOT SENIOR NOTES ARE BEING PHYSICALLY TENDERED HEREBY X_____________________________ ------------------------------ X_____________________________ ------------------------------ Signature(s) of Owner(s) or Date Authorized Signatory Area Code and Telephone Number: _________________________________ This box must be signed by registered holder(s) of Senior Notes as their name(s) appear(s) on certificate(s) for Senior Notes, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Letter. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. (See Instruction 3.) Name(s) _________________________________________________________ ----------------------------------------------------------------- (PLEASE PRINT) Capacity ________________________________________________________ Address _________________________________________________________ ----------------------------------------------------------------- (Include Zip Code) Tax Identification or Social Security Number(s) _________________ Signature(s) ____________________________________________________ Guaranteed by an (AUTHORIZED SIGNATURE) Eligible Institution: (If required by Instruction 3) _________________________________________________________________ (Title) _________________________________________________________________ (Name of Firm) 5 Box 3 - ------------------------------------------------------------------------------- Part I-TIN - Please provide Part II - Awaiting TIN - If Your TIN In the Space Pro- you have not been issued a vided and Certify By Sign- TIN but have applied for ing and Dating Below. one, or intend to apply for one in the near future, please check the box provided and certify by signing and dating Part IV and the "Certificate Of Taxpayer Awaiting Identification Number" below. SUBSTITUTE Form W-9 Department of the Treasury Internal Revenue Service ---------------------------- Social Security Number or Employer Identification Number ------------------------------------------------------------------- Part III - Exempt Holders - If you are exempt from backup withholding (e.g. a corporation), you must still certify your TIN by completing Part I and by signing and dating be- low. Please indicate your exempt status by writing "EXEMPT" in the space provided to the right. Payor's [_] Awaiting TIN Request for Taxpayer Identification Number (TIN) ------------------------------------------------------------------- Part IV - Certification - Under penalties of perjury, I cer- tify that: (1) The number shown on this form is my correct TIN (or I am waiting for a TIN 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 failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Certification Instructions - You must cross out item (2) above if you have been notified by the IRS that you are sub- ject to backup withholding because of under reporting inter- est or dividends on your tax return. However, if you have since been notified by the IRS that you are no longer sub- ject to backup withholding, do not cross out item (2). SIGNATURE Date NOTE: Failure to complete and return this form may result in backup withholding of 31% of cash received by you pursuant to the exchange offer. Please review the attached guidelines for certification of taxpayer identification number on substitute Form W-9 for additional details. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART II OF SUBSTITUTE FORM W-9 ABOVE CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION 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 or 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 within sixty (60) days, 31% of all reportable payments made to me thereafter will be withheld until I provide a TIN. SIGNATURE _______________________________________________ Date _________ 6 Box 4 Box 5 SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (See Instructions 3 and 4) (See Instructions 3 and 4) To be completed ONLY if certifi- To be completed ONLY if certifi- cates for Senior Notes in a prin- cates for Senior Notes in a prin- cipal amount not exchanged or Ex- cipal amount not exchanged, or change Notes, are to be issued in Exchange Notes, are to be sent to the name of someone other than someone other than the person the person whose signature ap- whose signature appears in Box 2 pears in Box 2, or if Senior or to an address other than that Notes delivered by book-entry shown in Box 1. transfer which are not accepted for exchange are to be returned by credit to an account main- tained at the Book-Entry Transfer Facility other than the account indicated above. [_] Senior Notes not tendered [_] Exchange Notes, to: Name _____________________________ [_] Senior Notes not tendered (Please Print) [_] Exchange Notes, to: Address __________________________ Name _____________________________ __________________________________ (Please Print) Address __________________________ Please complete the Substitute Form W-9 at Box 3 Tax I.D. or Social Security Number: __________________________________ ---------------------------------- Please complete the Substitute Form W-9 at Box 3 Tax I.D. or Social Security Number: ---------------------------------- 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. Delivery of this Letter and Certificates. Certificates for Senior Notes or a Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed copy of this Letter and any other documents required by this Letter, must be received by the Exchange Agent at one of its addresses set forth herein on or before the Expiration Date. The method of delivery of this Letter, certificates for Senior Notes or a Book-Entry Confirmation, as the case may be, and any other required documents is at the election and risk of the tendering holder, but, except as otherwise provided below, the delivery will be deemed made when actually received by the Exchange Agent. If delivery is by mail, the use of registered mail with return receipt requested, properly insured, is suggested. Holders whose Senior Notes are not immediately available or who cannot deliver their Senior Notes or a Book-Entry Confirmation, as the case may be, and all other required documents to the Exchange Agent on or before the Expiration Date may tender their Senior Notes pursuant to the guaranteed delivery procedures set forth in the Prospectus. Pursuant to such procedure: (i) tender must be made by or through an Eligible Institution (as described in the Prospectus under the caption "The Exchange Offer"); (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 telegram, telex, facsimile transmission, overnight mail or hand delivery) (x) setting forth the name and address of the holder, the description of the Senior Notes and the principal amount of Senior Notes tendered, (y) stating that the tender is being made thereby and (z) guaranteeing that, within three (3) New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, this Letter together with the certificates representing the Senior Notes or a Book-Entry Confirmation, as the case may be, and any other documents required by this Letter will be deposited by the Eligible Institution with the Exchange Agent; and (iii) the certificates for all tendered Senior Notes or a Book-Entry Confirmation, as the case may be, as well as all other documents required by this Letter, must be received by the Exchange Agent within ten (10) New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in the Prospectus under the caption "The Exchange Offer--How to Tender." All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Senior Notes will be determined by the Issuer, whose determination will be final and binding. The Issuer reserves the absolute right to reject any or all tenders that are not in proper form or the acceptance of which, in the opinion of the Issuer's counsel, would be unlawful. The Issuer also reserves the right to waive any irregularities or conditions of tender as to particular Senior Notes. All tendering holders, by execution of this Letter, waive any right to receive notice of acceptance of their Senior Notes. Neither the Issuer, the Exchange Agent nor any other person shall be obligated to give notice of defects or irregularities in any tender, nor shall any of them incur any liability for failure to give any such notice. 2. Partial Tenders (not Applicable to Holders Who Tender By Book-entry Transfer); Withdrawals. If less than the entire principal amount of any Senior Note evidenced by a submitted certificate or by a Book-Entry Confirmation is tendered, the tendering holder must fill in the principal amount tendered in the Box 1 above. ALL OF THE SENIOR NOTES REPRESENTED BY A CERTIFICATE OR BY A BOOK-ENTRY CONFIRMATION DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED. A certificate for Senior Notes not tendered will be sent to the holder, unless otherwise provided in Box 5, as soon as practicable after the Expiration Date, in the event that less than the entire principal amount of Senior Notes represented by a submitted certificate is tendered (or, in the case of Senior Notes tendered by book-entry transfer, such non-exchanged Senior Notes will be credited to an account maintained by the holder with the Book-Entry Transfer Facility). If not yet accepted, a tender pursuant to the Exchange Offer may be withdrawn prior to the Expiration Date. To be effective with respect to the tender of Senior Notes, a notice of withdrawal must: (i) be received by the Exchange Agent before the Issuer notifies the Exchange Agent that it has accepted the tender of Senior Notes pursuant to the Exchange Offer; (ii) specify the name of the person who tendered the Senior Notes; (iii) contain a description of the Senior Notes to 8 be withdrawn, the certificate numbers shown on the particular certificate evidencing such Senior Notes and the principal amount of Senior Notes represented by such certificates; and (iv) be signed by the holder in the same manner as the original signature on this Letter (including any required signature guarantee). 3. Signatures on this Letter; Assignments; Guarantee of Signatures. If this Letter is signed by the holder(s) of Senior Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the certificate(s) for such Senior Notes, without alteration, enlargement or any change whatsoever. If any of the Senior Notes tendered hereby are owned by two or more joint owners, all owners must sign this Letter. If any tendered Senior Notes are held in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter as there are names in which certificates are held. If this Letter is signed by the holder of record and (i) the entire principal amount of the Holder's Senior Notes are tendered; and/or (ii) untendered Senior Notes, if any, are to be issued to the holder of record, then the holder of record need not endorse any certificates for tendered Senior Notes, nor provide a separate bond power. In any other case, the holder of record must transmit a separate bond power with this Letter. If this Letter or any certificate or assignment is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and proper evidence satisfactory to the Issuer of their authority to so act must be submitted, unless waived by the Issuer. Signatures on this Letter must be guaranteed by an Eligible Institution, unless Senior Notes are tendered: (i) by a holder who has not completed the Box entitled "Special Issuance Instructions" or "Special Deliver Instructions" on this Letter; or (ii) for the account of an Eligible Institution. In the event that the signatures in this Letter or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by an eligible guarantor institution which is a member of The Securities Transfer Agents Medallion Program (STAMP), The New York Stock Exchanges Medallion Signature Program (MSP) or The Stock Exchanges Medallion Program (SEMP) (collectively, "Eligible Institutions"). If Senior Notes are registered in the name of a person other than the signer of this Letter, the Senior Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Issuer, in its sole discretion, duly executed by the registered holder with the signature thereon guaranteed by an Eligible Institution. 4. Special Issuance and Delivery Instructions. Tendering holders should indicate, in Box 4 or 5, as applicable, the name and address to which the Exchange Notes or certificates for Senior Notes not exchanged are to be issued or sent, if different from the name and address of the person signing this Letter. In the case of issuance in a different name, the tax identification number of the person named must also be indicated. Holders tendering Senior Notes by book-entry transfer may request that Senior Notes not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such holder may designate. 5. Tax Identification Number. Federal income tax law requires that a holder whose tendered Senior Notes are accepted for exchange must provide the Exchange Agent (as payor) with his or her correct taxpayer identification number ("TIN"), which, in the case of a holder who is an individual, is his or her social security number. If the Exchange Agent is not provided with the correct TIN, the holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, delivery to the holder of the Exchange Notes pursuant to the Exchange Offer may be subject to back-up withholding. (If withholding results in overpayment of taxes, a refund may be obtained.) Exempt holders (including, among others, all corporations and certain foreign individuals) are not subject to these back-up withholding and reporting requirements. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. Under federal income tax laws, payments that may be made by the Issuer on account of Exchange Notes issued pursuant to the Exchange Offer may be subject to back-up withholding at a rate of 31%. In order to 9 prevent back-up withholding, each tendering holder must provide his or her correct TIN by completing the "Substitute Form W-9" referred to above, certifying that the TIN provided is correct (or that the holder is awaiting a TIN) and that: (i) the holder has not been notified by the Internal Revenue Service that he or she is subject to back-up withholding as a result of failure to report all interest or dividends; or (ii) the Internal Revenue Service has notified the holder that he or she is no longer subject to back-up withholding; or (iii) certify in accordance with the Guidelines that such holder is exempt from back-up withholding. If the Senior Notes are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for information on which TIN to report. 6. Transfer Taxes. The Issuer will pay all transfer taxes, if any, applicable to the transfer of Senior Notes to it or its order pursuant to the Exchange Offer. If, however, the Exchange Notes or certificates for Senior Notes not exchanged are to be delivered to, or are to be issued in the name of, any person other than the record holder, or if tendered certificates are recorded in the name of any person other than the person signing this Letter, or if a transfer tax is imposed by any reason other than the transfer of Senior Notes to the Issuer or its order pursuant to the Exchange Offer, then the amount of such transfer taxes (whether imposed on the record holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of taxes or exemption from taxes is not submitted with this Letter, the amount of transfer taxes will be billed directly to the tendering holder. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificates listed in this Letter. 7. Waiver of Conditions; No Conditional Tenders. The Issuer reserves the absolute right to amend or waive any of the specified conditions in the Exchange Offer in the case of any Senior Notes tendered. No alternative, conditional, irregular or contingent tenders will be accepted. 8. Mutilated, Lost, Stolen or Destroyed Certificates. Any holder whose certificates for Senior Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above, for further instructions. 9. Requests for Assistance or Additional Copies. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus or this Letter, may be directed to the . IMPORTANT: THIS LETTER (OR A FACSIMILE THEREOF), TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, ON OR PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. 10 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number to Give the Payer. Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the proper identification number to give. - --------------------------------------- ---------------------------------------
Give the name and SOCIAL SECURITY For this type of account: number of-- - ----------------------------------------------- 1. Individual's account The individual 2. Two or more individuals The actual owner (joint account) of the account or, if combined funds, the first individual on the account(1) 3. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 4. a. The usual revocable The grantor- savings trust (grantor trustee(1) is also trustee) b. The so-called trust The actual account that is not a owner(1) legal or valid trust under state law 5. Sole proprietorship The owner(4) 6. A valid trust, estate or The legal entity pension trust (do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(4)
Give the name and EMPLOYER IDENTIFICATION For this type of account: number of-- --------------------------------------------------- 7. Corporation The corporation 8. Association, club, The organization religious, charitable, educational or other tax- exempt organization 9. Partnership The partnership 10. A broker or registered The broker or nominee nominee 11. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
- -------------------------------------------------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your social security number or employer identification number. (4) List first and circle the name of the legal trust, estate or pension trust. Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9 Page 2 Obtaining a Number If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. Payees Exempt from Backup Withholding . An organization exempt from tax under section 501(a) or an individual retirement plan, or a custodial account under section 403(b)(7). . The United States or any agency or instrumentality thereof. . A state, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. . A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. . An international organization or any agency or instrumentality thereof. Payees that may be Exempt from Backup Withholding . A corporation. . A foreign central bank of issue. . A dealer in securities or commodities registered in the United States or a possession of the United States. . A futures commodities merchant registered with the Commodity Futures Trading Commission. . A real estate investment trust. . An entity registered at all times under the Investment Company Act of 1940. . A common trust fund operated by a bank under section 584(a). . A financial institution. . A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominees List. . A trust exempt from tax under section 664 or described in section 4947. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the United States and which have at least one nonresident partner. . Payments made by certain foreign organizations. Payments of interest not generally subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. . Payments of tax-exempt interest (including exempt-interest dividends under section 852). . Payments described in section 6049(b) to nonresident aliens. . Payments on tax-free covenant bonds under section 1451. . Payments made by certain foreign organizations. . Mortgage interest paid to you. Exempt payees described above should file Substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A, 6042, 6044, 6045, 6050A and 6050N. Privacy Act Notice--Section 6109 requires most recipients of dividends, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. The IRS uses the number for identification purposes and help verify the accuracy of your return. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. Penalties (1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) Civil Penalty for False Information With Respect to Withholding.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) Criminal Penalty for Falsifying Information.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE EX-99.2 12 dex992.txt FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2 Form of Notice of Guaranteed Delivery (Not to be used for Signature Guarantees) Smithfield Foods, Inc. Exchange Offer To Holders of Their 8% Senior Notes, Series A, Due 2009 Notice of Guaranteed Delivery As set forth in the Prospectus dated , 2001 (the "Prospectus") of Smithfield Foods, Inc. (the "Issuer") under "The Exchange Offer--How To Tender" and in the Letter of Transmittal for 8% Senior Notes, Series A, due 2009 (the "Letter of Transmittal"), this form or one substantially equivalent hereto must be used to accept the Exchange Offer (as defined below) of the Issuer if: (i) certificates for the above-referenced Notes (the "Senior Notes") are not immediately available; or (ii) time will not permit all required documents to reach the Exchange Agent (as defined below) on or prior to the Expiration Date of the Exchange Offer. Such form may be delivered by hand or transmitted by telegram, telex, facsimile transmission or letter to the Exchange Agent. THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 2002 The Exchange Agent is: Suntrust Bank By Facsimile: By Registered or Certified Mail: By Hand/Overnight Delivery: (404) 588-7335 SunTrust Bank SunTrust Bank Corporate Trust Depart. (mc008) Corporate Trust Depart. (mc008) 25 Park Place, 24th Floor 25 Park Place, 24th Floor Atlanta, Georgia 30303-2900 Atlanta, Georgia 30303-2900 Attention: Jack Ellerin Attention: Jack Ellerin
Confirm by telephone: (404) 588-7296 For Information Call: (404) 588-7296 Delivery of this Instrument to an address other than as set forth above or transmittal of this Instrument to a facsimile other than as set forth above does not constitute a valid delivery. Ladies and Gentlemen: The undersigned hereby tenders to the Issuer, upon the terms and conditions set forth in the Prospectus and the Letter of Transmittal (which together constitute the "Exchange Offer"), receipt of which are hereby acknowledged, the aggregate principal amount of Senior Notes set forth below pursuant to the guaranteed delivery procedure described in the Prospectus and the Letter of Transmittal. Sign Here _____________________________________________ Principal Amount of Senior Notes Tendered*__________________________________ Signature(s) _______________________________________________________________ -------------------------------------------------------------------- Please Print the Following Information: Certificate Nos. (if available) ____________________________________________ Name(s) ____________________________________________________________________ ---------------------------------------------------------------------- Total Principal Amount Represented by Senior Notes: Certificate(s) _____________________________________________________________ Address ____________________________________________________________________ ----------------------------------------------------------------------- Area Code and Tel. No(s). __________________________________________________ Account Number _____________________________________________________________ Dated: ____________________________, 2002 ---------------- *Must be in denominations of principal amount at maturity of $1,000 and any integral multiple thereof. The undersigned, an Eligible Institution within the meaning of Rule 17(A) (d)-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees that delivery to the Exchange Agent of certificates tendered hereby, in proper form for transfer, or delivery of such certificates pursuant to the procedure for book-entry transfer, in either case with delivery of a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other required documents, is being made within three New York Stock Exchange trading days after the date of execution of a Notice of Guaranteed Delivery of the above-named person. Name of Firm _______________________________________________________________ ---------------------------------------------------------------------------- Authorized Signature Number and Street or P.O. Box ______________________________________________ ____________________________________________________________________________ City State Zip Code Area Code and Tel. No. _____________________________________________________ Dated: _____________________________, 2002 EX-99.3 13 dex993.txt FORM OF LETTERS TO CLIENTS EXHIBIT 99.3 SMITHFIELD FOODS, INC. OFFER TO EXCHANGE $300,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF 8% SENIOR NOTES, SERIES B, DUE 2009 IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED FOR UP TO $300,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF ITS OUTSTANDING 8% SENIOR NOTES, SERIES A, DUE 2009 To Our Clients: Enclosed for your consideration is a Prospectus dated , 2001 (as the same may be amended or supplemented from time to time, the "Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by Smithfield Foods, Inc. (the "Issuer") to exchange up to $300,000,000 in aggregate principal amount of its 8% Senior Notes, Series A, due 2009 in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Senior Notes"), for $300,000,000 in aggregate principal amount of its 8% Senior Notes, Series B, due 2009 (the "Exchange Notes"). The material is being forwarded to you as the beneficial owner of Senior Notes carried by us for your account or benefit but not registered in your name. A tender of any Senior Notes may be made only by us as the registered holder and pursuant to your instructions. Therefore, the Issuer urges beneficial owners of Senior Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee to contact such registered holder promptly if they wish to tender Senior Notes in the Exchange Offer. Accordingly, we request instructions as to whether you wish us to tender any or all Senior Notes, pursuant to the terms and conditions set forth in the Prospectus and Letter of Transmittal. We urge you to read carefully the Prospectus and Letter of Transmittal before instructing us to tender your Senior Notes. YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED AS PROMPTLY AS POSSIBLE IN ORDER TO PERMIT US TO TENDER SENIOR NOTES ON YOUR BEHALF IN ACCORDANCE WITH THE PROVISIONS OF THE EXCHANGE OFFER. The Exchange Offer will expire at 5:00 p.m., New York City time, on [ ], 2002, unless extended (the "Expiration Date"). Senior Notes tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time prior to the Expiration Date. If you wish to have us tender any or all of your Senior Notes held by us for your account or benefit, please so instruct us by completing, executing and returning to us the instruction form that appears below. The accompanying Letter of Transmittal is furnished to you for informational purposes only and may not be used by you to tender Senior Notes held by us and registered in our name for your account or benefit. INSTRUCTIONS The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer of Smithfield Foods, Inc. This will instruct you to tender the principal amount of Senior Notes indicated below held by you for the account or benefit of the undersigned pursuant to the terms of and conditions set forth in the Prospectus and the Letter of Transmittal. 1. [_Please]tender my Senior Notes held by you for my account or benefit. If I wish to tender less than all of my Senior Notes, I identified on a signed schedule attached hereto the principal amount of Senior Notes to be tendered, in integral multiples of $1,000. 2. [_Please]do not tender my Senior Notes. Date:[ ], 2001 ------------------------------------- ------------------------------------- Signature(s) ------------------------------------- ------------------------------------- Please print name(s) here If you have marked Box Number 1 above, unless a specific contrary instruction is given in a signed Schedule attached hereto, your signature(s) hereon shall constitute an instruction to us to tender all your Senior Notes. EX-99.4 14 dex994.txt FORM OF LETTER OF NOMINEES EXHIBIT 99.4 SMITHFIELD FOODS, INC. OFFER TO EXCHANGE $300,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF 8% SENIOR NOTES, SERIES B, DUE 2009 IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED FOR UP TO $300,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF ITS OUTSTANDING 8% SENIOR NOTES, SERIES A, DUE 2009 To Securities Dealers, Commercial Banks Trust Companies and Other Nominees: Enclosed for your consideration is a Prospectus dated , 2001 (as the same may be amended or supplemented from time to time, the "Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by Smithfield Foods, Inc. (the "Issuer") to exchange up to $300,000,000 in aggregate principal amount of its 8% Senior Notes, Series A, due 2009 in reliance upon an exemption from registration under the Securities Act of 1933, as amended (the "Senior Notes"), for up to $300,000,000 in aggregate principal amount of its 8% Senior Notes, Series B, due 2009 (the "Exchange Notes"). We are asking you to contact your clients for whom you hold Senior Notes registered in your name or in the name of your nominee. In addition, we ask you to contact your clients who, to your knowledge, hold Senior Notes registered in their own name. The Issuer will not pay any fees or commissions to any broker, dealer or other person in connection with the solicitation of tenders pursuant to the Exchange Offer. You will, however, be reimbursed by the Issuer directly for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. The Issuer will pay all transfer taxes, if any, applicable to the tender of Senior Notes to it or its order, except as otherwise provided in the Prospectus and the Letter of Transmittal. Enclosed are copies of the following documents: 1. The Prospectus; 2. A Letter of Transmittal for your use in connection with the tender of Senior Notes and for the information of your clients; 3. A form of letter that may be sent to your clients for whose accounts you hold Senior Notes registered in your name or the name of your nominee, with space provided for obtaining the clients' instructions with regard to the Exchange Offer; 4. A form of Notice of Guaranteed Delivery; and 5. Guidelines for Certification of Taxpayer Identification Number on Form W-9. Your prompt action is requested. The Exchange Offer will expire at 5:00 p.m., New York City time, on , 2002, unless extended (the "Expiration Date"). Senior Notes tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time prior to the Expiration Date. To tender Senior Notes, certificates for Senior Notes or a Book-Entry Confirmation, a duly executed and properly completed Letter of Transmittal or a facsimile thereof, and any other required documents, must be received by the Exchange Agent as provided in the Prospectus and the Letter of Transmittal. Additional copies of the enclosed material may be obtained from the Exchange Agent, [ ]. NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF THE ISSUER OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS AND THE LETTER OF TRANSMITTAL. 2 EX-99.5 15 dex995.txt FORM OF EXCHANGE AGENT AGREEMENT EXHIBIT 99.5 FORM OF EXCHANGE AGENT AGREEMENT -------------------------------- [Date] SunTrust Bank 25 Park Place, 24th Floor Atlanta, Georgia 30303 Ladies and Gentlemen: Smithfield Foods, Inc., a Virginia corporation (the "Company"), proposes to make an offer (the "Exchange Offer") to exchange (i) an aggregate principal amount of up to $300,000,000 of the Company's 8% Senior Notes Due, Series B, 2009 (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of its issued and outstanding 8% Senior Notes, Series A, ("Senior Notes"). The terms and conditions of the Exchange Offer as currently contemplated are set forth in a Prospectus, dated December __, 2001 (the "Prospectus"), distributed to all record holders of the Senior Notes on December __, 2001. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Prospectus. The Company hereby appoints SunTrust Bank to act as exchange agent (the "Exchange Agent") in connection with the Exchange Offer. References hereinafter to "you" shall refer to SunTrust Bank. The Exchange Offer is expected to be commenced by the Company on or about December __, 2001. The Letter of Transmittal accompanying the Prospectus (or in the case of book-entry securities, the ATOP System (as defined below)) is to be used by the holders of the Senior Notes to accept the Exchange Offer and contains certain instructions with respect to (i) the delivery of certificates for the Exchange Notes tendered in connection therewith and (ii) the book-entry transfer of Exchange Notes to the Exchange Agent's account at the Depository Trust Company ("DTC"). The Exchange Offer shall expire at 5:00 p.m., New York City time, on January __, 2002 or on such later date or time to which the Company may extend the Exchange Offer (the "Expiration Date"). Subject to the terms and conditions set forth in the Prospectus, the Company expressly reserves the right to extend the Exchange Offer from time to time by giving written notice to you no later than 5:00 p.m., New York City time, on the business day following the previously scheduled Expiration Date. The Company expressly reserves the right to amend or terminate the Exchange Offer, and not to accept for exchange any Senior Notes not theretofore accepted for exchange, upon the occurrence of any of the conditions to the Exchange Offer specified in the Prospectus under the caption "The Exchange Offer -- Conditions to the Exchange Offer." The Company will give written notice of any amendment, termination or nonacceptance of Senior Notes to you as promptly as practicable. In carrying out your duties as Exchange Agent, you are to act in accordance with the following instructions: 1. You will perform such duties and only such duties as are specifically set forth herein; provided, however, that in no event will your general duty to act in good faith be discharged by the foregoing. 2. You will establish or cause to be established a book-entry account with respect to the Senior Notes at DTC (the "Book-Entry Transfer Facility") for purposes of the Exchange Offer within two business days after the date of the Prospectus, and any financial institution that is a participant in the Book- Entry Transfer Facility's systems may make book-entry delivery of the Senior Notes by causing the Book-Entry Transfer Facility to transfer such Senior Notes into your account in accordance with the Book-Entry Transfer Facility's procedure for such transfer. All tenders to you shall be accomplished in accordance with DTC's Agent Tenders Over PTS ("ATOP System"), unless for any reason you are prevented from using the ATOP System in connection with the exchange of the Exchange Notes for the Senior Notes. The parties hereto acknowledge and agree that in accordance with the ATOP System, neither the Company nor the Exchange Agent will receive any documents executed by Holders in connection with the Exchange Offer, including, without limitation, any Letters of Transmittal, Notices of Guaranteed Delivery and Agent's Messages (collectively, the "Exchange Documents"). Thus, neither the Company nor the Exchange Agent shall be required to obtain, review or otherwise inspect any of such Exchange Documents or verify the execution of the same unless the ATOP System is not utilized or its utilization is discontinued in connection with the Exchange Offer, and during the period the ATOP System is being utilized in connection with the Exchange Offer, the provisions of this Agreement to the contrary shall be deemed inapplicable and ineffective. 3. You are to examine each of the Letters of Transmittal, certificates for Senior Notes (or confirmations of book-entry transfers into your account at the Book-Entry Transfer Facility), Notices of Guaranteed Delivery and any Agent's Message or other documents delivered or mailed to you by or for holders of the Senior Notes to ascertain whether: (i) the Letters of Transmittal, Notices of Guaranteed Delivery, Agent's Messages and any such other documents are duly executed and properly completed in accordance with instructions set forth therein and (ii) the Senior Notes have otherwise been properly tendered. In each case where the Letter of Transmittal, Notice of Guaranteed Delivery, Agent's Message or any other document has been improperly completed or executed or any of the certificates for Senior Notes are not in proper form for transfer or some other irregularity in connection with the acceptance of the Exchange Offer exists, you will endeavor to inform the presenters of the need for fulfillment of all requirements and to take any other action as may be necessary or advisable to cause such irregularity to be corrected. 2 4. Final determination of all questions as to the validity, form, eligibility and acceptance for exchange of any tender of Senior Notes shall be made by the Company in its sole discretion, which determination shall be final and binding. The Company reserves the absolute right to reject any or all tenders of Senior Notes determined by it not to be timely or in proper form or the acceptance of or exchange for which may, in the opinion of the Company's counsel, be unlawful and to waive any of the conditions of the Exchange Offer or any defect or irregularity in the tender of the Senior Notes, and the Company's interpretation of the terms and conditions of the Exchange Offer will be final. Upon notification by any person designated in writing by the Company (a "Designated Officer") (such approval, if given orally, to be confirmed in writing) or any other party designated by any such Designated Officer in writing, you are authorized to waive any irregularities in connection with any tender of Senior Notes pursuant to the Exchange Offer. 5. Tenders of Senior Notes may be made only as set forth in the Letter of Transmittal and in the section of the Prospectus captioned "The Exchange Offer - --How to Tender" and Senior Notes shall be considered properly tendered to you only when tendered in accordance with the procedures set forth therein. Notwithstanding the provisions of this paragraph 5, Senior Notes which any Designated Officer of the Company shall approve as having been properly tendered shall be considered to be properly tendered (such approval, if given orally, shall be confirmed in writing). 6. You shall advise the Company with respect to any Senior Notes delivered subsequent to the Expiration Date and accept its instructions with respect to disposition of such Senior Notes. 7. You shall accept tenders: (a) in cases where the Senior Notes are registered in two or more names only if signed by all named holders; (b) in cases where the signing person (as indicated on the Letter of Transmittal) is acting in a fiduciary or a representative capacity only when proper evidence of such person's authority to so act is submitted; and (c) from persons other than the registered holder of Senior Notes, provided that customary transfer requirements, including payment of any applicable transfer taxes, are fulfilled. You shall accept partial tenders of Senior Notes where so indicated and as permitted in the Letter of Transmittal and deliver certificates for Senior Notes to the transfer agent for split-up and return any untendered Senior Notes to the holder (or to such other person as may be designated in the Letter of Transmittal) as promptly as practicable after expiration or termination of the Exchange Offer. 3 8. Upon satisfaction or waiver of all of the conditions to the Exchange Offer, the Company will notify you in writing of the Company's acceptance, promptly after the Expiration Date, of all Senior Notes properly tendered and you, on behalf of the Company, will exchange such Senior Notes for Exchange Notes and cause such Senior Notes to be canceled. Delivery of Exchange Notes will be made on behalf of the Company by you at the rate of $1,000 principal amount of Exchange Notes for each $1,000 principal amount of the Senior Notes tendered, promptly after notice in writing of acceptance of said Senior Notes by the Company, provided, however, that in all cases, Senior Notes tendered pursuant to the Exchange Offer will be exchanged only after timely receipt by you of certificates for such Senior Notes (or confirmation of book-entry transfer into your account at the Book-Entry Transfer Facility), a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees (or an Agent's Message in lieu thereof) and any other required documents unless otherwise waived by the Company. You shall accept tendered Senior Notes and issue Exchange Notes only in denominations of $1,000 or any integral multiple thereof. 9. Tenders pursuant to the Exchange Offer are irrevocable, except that, subject to the terms and upon the conditions set forth in the Prospectus and the Letter of Transmittal, Senior Notes tendered pursuant to the Exchange Offer may be withdrawn at any time on or prior to the Expiration Date. 10. The Company shall not be required to accept for exchange any Senior Notes tendered if any of the conditions set forth in the Exchange Offer are not met. Notice of any decision by the Company not to exchange any Senior Notes tendered shall be given in writing by the Company to you. 11. If, pursuant to the terms of the Exchange Offer, the Company does not accept for exchange all or part of the Senior Notes tendered because of an invalid tender, the occurrence of certain other events set forth in the Prospectus under the caption "The Exchange Offer -- Conditions to the Exchange Offer" or otherwise, you shall as soon as practicable after the expiration or termination of the Exchange Offer return certificates for those unaccepted Senior Notes (or effect the appropriate book-entry transfer of the unaccepted Senior Notes), together with any related required documents and the Letter of Transmittal relating thereto that are in your possession, to the persons who deposited them. 12. All certificates for reissued Senior Notes, unaccepted Senior Notes or for Exchange Notes shall be forwarded by (a) first-class mail, return receipt requested, under a blanket surety bond protecting you and the Company from loss or liability arising out of the non-receipt or non-delivery of such certificates or (b) by registered mail insured separately for the replacement value of each of such certificates. 13. You are not authorized to pay or offer to pay any concessions, commissions or solicitation fees to any broker, dealer, bank or other persons or to engage or utilize any person to solicit tenders. 14. As Exchange Agent hereunder you: 4 (a) will be regarded as making no representations and having no responsibilities as to the validity, sufficiency, value or genuineness of any of the certificates or the Senior Notes represented thereby deposited with you pursuant to the Exchange Offer, and will not be required to and will make no representation as to the validity, value or genuineness of the Exchange Offer; provided, however, that in no event will your general duty to act in good faith be discharged by the foregoing; (b) shall not be obligated to take any legal action hereunder which might in your reasonable judgment involve any expense or liability, unless you shall have been furnished with reasonable indemnity satisfactory to you; (c) may conclusively rely on and shall be fully protected in acting in good faith in reliance upon any certificate, instrument, opinion, notice, letter, facsimile or other document or security delivered to you and reasonably believed by you to be genuine and to have been signed by the proper party or parties; (d) may conclusively act upon any tender, statement, request, agreement or other instrument whatsoever not only as to its due execution and validity and effectiveness of its provisions, but also as to the truth and accuracy of any information contained therein, which you shall in good faith reasonably believe to be genuine or to have been signed or represented by a proper person or persons; (e) may conclusively rely on and shall be fully protected in acting upon written or oral instructions from any Designated Officer of the Company with respect to the Exchange Offer; (f) shall not advise any person tendering Senior Notes pursuant to the Exchange Offer as to the wisdom of making such tender or as to the market value or decline or appreciation in market value of any Senior Notes; and (g) may consult with your counsel with respect to any questions relating to your duties and responsibilities, and the written opinion or advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by you hereunder in good faith and in accordance with such written opinion of such counsel. 15. You shall take such action as may from time to time be requested by any Designated Officer of the Company (and such other action as you may reasonably deem appropriate) to furnish copies of the Prospectus, and supplements thereto, the Letter of Transmittal and the Notice of Guaranteed Delivery, or such other forms as may be approved from time to time by the Company, to all persons requesting such documents and to accept and comply with telephone requests for information relating to the Exchange Offer, provided that such information shall relate only to the procedures for accepting (or withdrawing from) the Exchange Offer. The Company will furnish you with copies of such documents at your request. 5 16. You shall advise by facsimile transmission or telephone, and promptly thereafter confirm in writing to Michael H. Cole, Esquire, Secretary and Associate General Counsel of the Company, and such other person or persons as the Company may request, weekly (and more frequently during the week immediately preceding the Expiration Date and if otherwise requested) up to and including the Expiration Date, as to the principal amount of the Senior Notes which have been tendered pursuant to the Exchange Offer and the items received by you pursuant to this Agreement, separately reporting and giving cumulative totals as to items properly received and items improperly received and items covered by Notices of Guaranteed Delivery. In addition, you will inform, and cooperate in making available to, the Company or any other person or persons identified to you by the Company from time to time up to and including to the Expiration Date of such other information as they or such persons reasonably request. Such cooperation shall include, without limitation, the granting by you to the Company and such persons identified to you by the Company of access to those persons on your staff who are responsible for receiving tenders, in order to ensure that immediately prior to the Expiration Date, the Company shall have received information in sufficient detail to enable it to decide whether to extend the Exchange Offer. You shall prepare a list of persons who failed to tender or whose tenders were not accepted and the aggregate principal amount of Senior Notes not tendered or Senior Notes not accepted and deliver said list to the Company at least seven days prior to the Expiration Date. You shall also promptly prepare a final list of all persons whose tenders were accepted, the aggregate principal amount of Senior Notes tendered and the aggregate principal amount of Senior Notes accepted and promptly deliver said list to the Company. 17. Letters of Transmittal and Notices of Guaranteed Delivery shall be stamped by you as to the date and the time of receipt thereof and shall be preserved by you for a period of time at least equal to the period of time you preserve other records pertaining to the transfer of securities. You shall dispose of unused Letters of Transmittal and other surplus materials by returning them to the Company at the address set forth below for notices. 18. For services rendered as Exchange Agent hereunder, you shall be entitled to such reimbursement of reasonable out-of-pocket expenses as are set forth on Schedule 1 attached hereto. 19. You hereby acknowledge receipt of the Prospectus and the Letter of Transmittal and further acknowledge that you have examined each of them to the extent necessary to perform your duties hereunder. Any inconsistency between this Agreement, on the one hand, and the Prospectus and the Letter of Transmittal (as they may be amended from time to time), on the other hand, shall be resolved in favor of the latter two documents except with respect to the duties, liabilities and indemnification of you as Exchange Agent, which shall be controlled by this Agreement. 20. The Company agrees to indemnify and hold you (and your officers, directors, employees and agents) harmless in your capacity as Exchange Agent hereunder against any liability, cost or expense, including reasonable 6 attorneys' fees, arising out of or in connection with the performance of your duties hereunder, other than those losses resulting from your negligence, bad faith or willful misconduct. 21. This Agreement and your appointment as Exchange Agent hereunder shall be construed and enforced in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such state, and without regard to conflicts of law principles, and shall inure to the benefit of, and the obligations created hereby shall be binding upon, the successors and assigns of each of the parties hereto. 22. All communications, including notices, required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered personally with receipt acknowledged, (ii) transmitted by facsimile (which shall be confirmed by telephone and by a writing sent by registered or certified mail on the business day that such facsimile is sent) or (iii) sent by recognized overnight courier for next business day delivery, addressed to the parties at the addresses or facsimile numbers as any party shall hereafter specify by communication to the other parties in the manner provided herein: Company: Smithfield Foods, Inc. 200 Commerce Street Smithfield, Virginia 23430 Fax No.: (757) 365-3025 Attention: Michael H. Cole with a copy to: McGuireWoods LLP One James Center 901 East Cary Street Richmond, Virginia 23219 Fax No.: (804) 698-2170 Attention: Jane Whitt Sellers, Esquire Exchange Agent: SunTrust Bank Corporate Trust Division 25 Park Place, 24th Floor Atlanta, Georgia 30303 Fax No.: (404) 588-7335 Attention: Jack Ellerin with a copy to: Alston & Bird LLP One Atlantic Center 1201 West Peachtree Street Atlanta, GA 30309 Fax No.: (404) 881-7777 Attention: Glenn R. Thomson 7 23. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 24. In case any provision of this Agreement 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. Please acknowledge receipt of this Agreement and confirm the arrangements herein provided by signing and returning the enclosed copy. SMITHFIELD FOODS, INC. By: ______________________________________ Name: Michael H. Cole Title: Secretary and Associate General Counsel Accepted as of the date first above written SUNTRUST BANK, as Exchange Agent By: ______________________________________ Name: Title: By: ______________________________________ Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----