-----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, FusV7jwT/Wuf65ZL7N9DkTtcc1t37rbABVNcIlkc/N325H5yrtwyT3j7XwfW1xeY ACCBcVAQCP9M+IyM6+/x4A== 0000916641-97-000732.txt : 19970728 0000916641-97-000732.hdr.sgml : 19970728 ACCESSION NUMBER: 0000916641-97-000732 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19970427 FILED AS OF DATE: 19970725 SROS: NASD 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: DE FISCAL YEAR END: 0427 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02258 FILM NUMBER: 97645786 BUSINESS ADDRESS: STREET 1: 501 N CHURCH ST CITY: SMITHFIELD STATE: VA ZIP: 23430 BUSINESS PHONE: 8043574321 MAIL ADDRESS: STREET 1: 501 N CHURCH STREET CITY: SMITHFIELD STATE: VA ZIP: 23430 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 10-K 1 SMITHFIELD FOODS , INC. 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------ FORM 10-K ------------------------------------ (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended April 27, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number: 0-2258 SMITHFIELD FOODS, INC. (Exact name of registrant as specified in its charter) Delaware 52-0845861 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 999 Waterside Drive Suite 900 Norfolk, Virginia 23510 (Address of principal executive offices) (Zip Code) (757) 365-3000 (Registrant's telephone number, including area code) ------------------------------------ Securities registered pursuant to Section 12(b) of the Act: None (Title of Class) Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.50 par value per share (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the shares of Registrant's Common Stock held by non-affiliates as of July 11, 1997 was approximately $679,269,961. This figure was calculated by multiplying (i) the $52-1/8 last sales price of Registrant's Common Stock as reported on The Nasdaq National Market on July 11, 1997 by (ii) the number of shares of Registrant's Common Stock not held by any officer or director of the Registrant or any person known to the Registrant to own more than five percent of the outstanding Common Stock of the Registrant. Such calculation does not constitute an admission or determination that any such officer, director or holder of more than five percent of the outstanding shares of Common Stock of the Registrant is in fact an affiliate of the Registrant. At July 11, 1997, 18,763,681 shares of the Registrant's Common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates certain information by reference from the Registrant's definitive proxy statement to be filed with respect to its Annual Meeting of Stockholders to be held on August 27, 1997. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS ITEM NUMBER PAGE PART I 1. Business............................................................. 3 General............................................................ 3 Business Strategy.................................................. 3 Revenue by Source...................................................4 Fresh Pork Products ............................................... 5 Processed Meat Products............................................ 5 Raw Materials ..................................................... 5 Customers and Marketing ........................................... 6 Distribution....................................................... 7 Competition ....................................................... 7 Regulation ........................................................ 7 Employees ......................................................... 9 Other .............................................................9 2. Properties ..........................................................10 3. Legal Proceedings .................................................. 11 4. Submission of Matters to a Vote of Security Holders .................................... 11 4A. Executive Officers of the Company ...................................12 PART II 5. Market for Company's Common Equity and Related Stockholder Matters ..................................14 6. Selected Financial Data .............................................15 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ....................16 8. Financial Statements and Supplementary Data .........................19 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...........................19 PART III 10. Directors and Executive Officers of the Company .....................20 11. Executive Compensation ..............................................20 12. Security Ownership of Certain Beneficial Owners and Management ...................................................20 13. Certain Relationships and Related Transactions ......................20 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...........................................21 SIGNATURES ...............................................................S-1 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE ...........F-1 - 2 - PART I ITEM 1. BUSINESS General - ------- Smithfield Foods, Inc. (the "Company"), as a holding company, conducts its pork processing operations through five principal subsidiaries: Gwaltney of Smithfield, Ltd. ("Gwaltney") and The Smithfield Packing Company, Incorporated ("Smithfield Packing"), both based in Smithfield, Virginia; John Morrell & Co. ("John Morrell"), based in Cincinnati, Ohio; Patrick Cudahy Incorporated ("Patrick Cudahy"), based in Cudahy, Wisconsin; and Lykes Meat Group, Inc. ("Lykes"), based in Plant City, Florida. The Company also conducts hog production operations through its Brown's of Carolina, Inc. subsidiary ("Brown's") and through Smithfield-Carroll's, a joint hog production arrangement between the Company and Carroll's Foods of Virginia, Inc., an affiliate of Carroll's Foods, Inc. of Warsaw, North Carolina. Both Brown's and Smithfield-Carroll's produce hogs for the Company's pork processing plants in Bladen County, North Carolina and Smithfield, Virginia. The Company is also a participant in the Circle Four joint hog production arrangement with Carroll's Foods, Inc., Murphy Family Farms, Inc. and Prestage Farms, Inc., all large North Carolina hog producers, which conducts hog production operations in Milford, Utah. In this report, references to "Smithfield Foods" or the "Company" are to Smithfield Foods, Inc. together with all of its subsidiaries, unless the context otherwise indicates. The Company is one of the largest combined pork slaughterers and further processors in the United States, producing a wide variety of fresh pork and processed meat products which it markets domestically and to selected foreign markets, including Japan, Russia, Mexico and other countries. As consumers have become more health conscious, pork producers and processors, including the Company, have focused on providing leaner fresh pork products as well as fat-free, lower-fat and lower-salt processed meats. 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 for pork products. The Company has developed and is marketing a line of extremely lean, premium fresh pork products under the Smithfield Lean Generation Pork trademark to selected retail chains and institutional foodservice customers. Business Strategy - ----------------- Since 1975, when current management assumed control, Smithfield Foods has expanded both its production capacity and its markets through a combination of strong internal growth and the acquisition of regional and multi-regional companies with well-recognized brand identities. In fiscal 1982, the Company acquired Gwaltney, then Smithfield Packing's principal Mid-Atlantic competitor. This acquisition doubled the Company's sales and slaughter capacity and added several popular lines of branded products along with a state-of-the-art hot dog and lunch meats production facility. The proximity of Gwaltney 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. In fiscal 1985, the Company acquired Patrick Cudahy, which added a prominent line of dry sausage products to the Company's existing line of processed meats. In fiscal 1986, the Company acquired Esskay, Inc., a firm with a broad line of deli products having substantial brand loyalty in the Baltimore-Washington, D.C. metropolitan area. In fiscal 1991, the Company acquired the Mash's brand name and a ham processing plant in Landover, Maryland. In fiscal 1993, the Company acquired the Valleydale brand name and a bacon processing plant in Salem, Virginia. - 3 - In December 1995, the Company acquired John Morrell & Co., a major Midwestern pork processor with primary markets in the Midwest, Northeast and Western United States. This acquisition changed the Company's character from a large multi-regional pork processor to one with national distribution. It also doubled the Company's sales and slaughter capacity, added several popular lines of branded processed meat products along with four efficient processing facilities and more than doubled the Company's international sales. The Company believes that John Morrell's strength in smoked sausage, hot dogs, lunch meats, bacon and smoked hams complements the strong smoked meats, hot dog and bacon business of the Company's 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, the Company acquired the assets and businesses of the Lykes Meat Group of Lykes Bros. Inc. of Plant City, Florida. The Lykes Meat Group 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 June 1997, the Company acquired the assets and business of Curly's Foods, Inc., which operates a meat processing plant in Sioux City, Iowa. Curly's Foods, Inc. produces a variety of further processed meat products for customers, primarily food service, throughout the United States and internationally. The Company's business is based around five strategic initiatives: (i) capitalizing on the Company's new status as a major national pork processor; (ii) use of the leanest genetics commercially available to enable the Company to market highly differentiated pork products; (iii) vertical integration into state-of-the-art hog production through Company-owned hog production operations and long-term partnerships and alliances with large and efficient hog producers; (iv) continued growth through selective acquisitions of regional pork processors and brands; and (v) a heightened emphasis on expansion into international markets. As a complement to the Company's hog processing operations, the Company has vertically integrated into state-of-the-art hog production through Brown's and Smithfield-Carroll's. In addition, the Company is supplementing the hogs it obtains from these hog production operations with market-indexed, multi-year agreements with several of the nation's largest suppliers of high quality hogs, strategically located in North Carolina, including Carroll's Foods, Inc., Maxwell Foods, Inc., Murphy Family Farms, Inc., and Prestage Farms, Inc. In May 1991, Smithfield-Carroll's acquired from National Pig Development Company ("NPD"), a British firm, the exclusive United States franchise rights for genetic lines of specialized breeding stock. The NPD hogs produced by these superior genetic lines are significantly leaner than almost any other animals available in commercial volume in the United States. Management believes that the leanness and increased meat yields of these hogs will, over time, improve the Company's profitability with respect to both fresh pork and processed meat products and provide a competitive advantage over other domestic pork processors. In fiscal 1997, the Company processed 1.6 million NPD hogs and expects to increase that number substantially in future years. Revenues by Source - ------------------ The Company's sales are in one industry segment, meat processing. The following table shows for the fiscal periods indicated the percentages of the Company's revenues derived from fresh pork, processed meats, and other products. 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Fresh Pork................. 59% 59% 51% 48% 41% Processed Meats............ 37% 37% 45% 49% 55% Other Products............. 4% 4% 4% 3% 4% --- ---- ---- ---- ---- 100% 100% 100% 100% 100% === === === === === - 4 - The increase in percentage of revenues derived from fresh pork since fiscal 1992 resulted principally from an increase in the number of hogs slaughtered at its Bladen County, North Carolina plant. The meat industry is generally characterized by narrow margins; however, profit margins on processed meats are greater than profit margins on fresh pork and on other products. Fresh Pork Products - ------------------- The Company is the largest fresh pork processor in the United States. The Company slaughters hogs at five of its plants (three in the Southeast and two in the Midwest), with a current aggregate slaughter capacity of 73,000 per day. The Company is currently seeking permit authority to increase the slaughter capacity at its Bladen County plant by an additional 8,000 hogs per day. The Company owns a fourth plant in the Southeast not currently in operation, which has the capacity to slaughter an additional 6,500 hogs per day. The Company currently slaughters approximately 62,000 hogs daily. A substantial portion of the Company's fresh pork is sold to retail customers as unprocessed, trimmed cuts such as loins (including roasts and chops), butts, picnics and ribs. The Company also sells hams, bellies and trimmings to other further processors. The Company is putting greater emphasis on the sale of value-added, higher margin fresh pork products, such as boneless loins, hams, butts and picnics. In addition, the Company provides its own processing operations with raw material of much higher quality and freshness than that generally available through open market purchases. The Company is marketing an extensive product line of NPD fresh pork cuts (including boneless loins, shoulder cuts, chops, ribs and processed and cubed pork) under the Smithfield Lean Generation Pork trademark to selected retail chains and institutional foodservice customers. Smithfield Packing has also developed a case-ready pork program designed to supply supermarket chains with pre-packaged, weighed, labeled and 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 the Company's fresh pork products. Processed Meat Products - ----------------------- The Company manufactures a wide variety of processed meats, including smoked and boiled hams, bacon, sausage, hot dogs (pork, beef and chicken), deli and lunch meats and specialty products such as pepperoni and dry salami. The Company markets its processed meat products under labels that include, among others, Smithfield, Smithfield Premium, Gwaltney, Patrick Cudahy and John Morrell, as well as Dinner Bell, Esskay, Great, Jamestown, Kretschmar, Luter's, Lykes, Peyton's, Tobin's First Prize and Valleydale. The Company also sells a substantial quantity of processed meats as private label products. The Company believes it is one of the largest producers of smoked hams and picnics in the United States. In response to growing consumer preference for more nutritious and healthy meats, the Company has for several years emphasized production of more closely-trimmed, leaner and lower-salt processed meats, such as 40 percent-lower-fat bacon. The Company markets a lower-fat line of value-priced lunch meats, smoked sausage and hot dogs, as well as fat-free hot dogs and fat-free deli hams. Raw Materials - ------------- The Company'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 prices, weather and interest rates. - 5 - The Company produces its own hogs through Brown's and Smithfield-Carroll's and purchases hogs from several of the nation's largest hog producers strategically located in North Carolina, such as Carroll's Foods, Inc., Maxwell Foods, Inc., Murphy Family Farms, Inc. and Prestage Farms, Inc. as well as from other independent hog producers and dealers located in the East, Southeast and Midwest. The Company obtained 10.1% of the hogs it processed in fiscal 1997 from Brown's and Smithfield-Carroll's. The Company's raw material costs fall when hog production at Brown's and Smithfield-Carroll's is profitable and conversely rise when such production is unprofitable. The profitability of hog production is directly related to the market price of live hogs and the cost of corn. Hog producers such as Brown's and Smithfield-Carroll's generate higher profits when hog prices are high and corn prices are low, and lower profits (or losses) when hog prices are low and corn prices are high. Management believes that hog production at Brown's and Smithfield-Carroll's furthers the Company's strategic initiative of vertical integration and reduces the Company's exposure to fluctuations in profitability historically experienced by the pork processing industry. The Company has also established multi-year agreements with Carroll's Foods, Maxwell Foods, Murphy Family Farms and Prestage Farms which provide the Company with a stable supply of high-quality hogs at market-indexed prices. These producers supplied 51.6% of the hogs processed by the Company in fiscal 1997. The Company purchases its hogs on a daily basis at its Southeastern and Midwestern slaughter plants; at Company-owned buying stations in three Southeastern and five Midwestern states; from certain Canadian sources; and through certain exclusive dealer-operated buying stations in the Midwest. The Company also purchases fresh pork from other meat processors to supplement its processing requirements, and raw beef, poultry and other meat products to add to its sausage, hot dogs and lunch meats. Such 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 Company has dominant market shares in the Mid-Atlantic and Southeast and strong market positions in the Northeast, South, Midwest, Southwest and Western United States. The Company's 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 and 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. The Company uses both in-house salesmen as well as independent commission brokers to sell its products. In fiscal 1997, the Company sold its products to more than 3,500 customers, none of whom accounted for as much as 10% of the Company's revenues. The Company has 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 its registered trademarks have been important to the success of its branded processed meat products. The Company in recent years has placed major emphasis on growing and expanding its international sales. In fiscal 1997, international sales comprised approximately 6% of the Company's total dollar sales. The Company provides the Japanese market with a line of unique branded, as well as other chilled and frozen unbranded, fresh pork products. In connection with export sales to Japan, the Company maintains a distributorship arrangement with Sumitomo Corporation of America. The Company also had export sales to Russia, Mexico and to more than two dozen other foreign countries in fiscal 1997. The Company expects continued growth in its international sales for the foreseeable future. The Company is targeting Europe and attractive Pacific Rim markets such as Korea and China for international sales expansion. International sales are subject to factors beyond the Company's control, such as tariffs, exchange rate fluctuations and changes in governmental policies. The Company conducts all of its export sales in U.S. dollars and therefore bears no currency translation risk. The Company's processed meats business is somewhat seasonal in that, traditionally, the heavier periods of sales for hams are the holiday seasons such as Thanksgiving, Christmas and Easter, and the heavier periods of sales of smoked sausage, hot dogs and lunch meats are the summer months. The Company typically builds substantial inventories of hams in anticipation of its seasonal holiday business. - 6 - The Company uses recognized price risk management and hedging techniques to enhance sales and to reduce the effect of adverse price changes on the Company's profitability. The Company's price risk management and hedging activities currently are utilized in the areas of forward sales, hog production margin management, procurement of raw materials (ham and bacon) for seasonal demand peaks, inventory hedging, hog contracting and truck fleet fuel purchases. Distribution - ------------ The Company uses a private fleet of leased tractors and trailers, as well as 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. The Company coordinates deliveries and uses backhauling to reduce overall transportation costs. The Company distributes its products directly from certain of its plants and from leased distribution centers located in Connecticut, Indiana, Missouri, Kansas, Texas and California. During fiscal 1998, the Company expects to complete a distribution center adjacent to its plant in Sioux Falls, South Dakota. Competition - ----------- The protein industry generally, and the pork processing industry in particular, are highly competitive. The Company's products compete with a large number of other protein sources, including beef, chicken, turkey and seafood, but the Company's 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 the Company's 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 the Company. To the extent that their other operations generate profits, such companies may be able to subsidize their pork processing operations for a time. Regulation - ---------- REGULATION GENERALLY. 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 such as the Virginia State Water Control Board ("VSWCB"), the Virginia Department of Environmental Quality ("VDEQ"), the North Carolina Division of Environmental Management, the Iowa Department of Natural Resources, the South Dakota Department of Environment and Natural Resources, the United States Department of Agriculture and the Occupational Safety and Health Administration. Management believes that the Company complies with all such laws and regulations in all material respects, except as set forth immediately below, and that continued compliance with these standards will not have a material adverse effect on the Company's financial position or results of operations. PERMIT VIOLATIONS AT SMITHFIELD PACKING AND GWALTNEY PLANTS; ADMINISTRATIVE CONSENT ORDERS; CONNECTION TO HRSD SYSTEM. The wastewater discharge permit for Smithfield Packing's and Gwaltney's plants in Smithfield, Virginia, which was last reissued in 1992, imposed more stringent effluent limitations on phosphorus and two species of nitrogen (ammonia and total Keldjahl nitrogen) than the wastewater treatment facilities at those plants were designed to meet or can meet. To achieve compliance, the Company agreed in 1991 to discontinue its wastewater discharges into the Pagan River and connect its wastewater treatment facilities to the regional sewage collection and treatment system operated by the Hampton Roads Sanitation District ("HRSD"), when available. This agreement was embodied in a consent order issued by the VSWCB in 1991 (the "1991 Order"). The entry of the 1991 Order followed several years of extensive negotiations and litigation, including an application for a variance from the phosphorus limitations, and preceded the reissuance of the wastewater discharge permit in 1992. The 1991 Order excused the Company from compliance with the permit's phosphorus effluent limitations and allowed the Company to operate under less stringent - 7 - limitations on total Keldjahl nitrogen than the permit would otherwise require, pending connection of the two wastewater treatment facilities to the HRSD system. Another VSWCB consent order (the "1994 Order") excused the Company from compliance with certain other permit terms pending connection to the HRSD system. The Company connected its Gwaltney wastewater treatment facilities to the HRSD system in June 1996 and is connecting its Smithfield Packing facilities to that system in July 1997. The HRSD system was not available for the Company's use prior to these dates. The Company has made more than $2.7 million in capital expenditures to upgrade its existing wastewater treatment facilities (and must continue to operate these facilities) to produce a wastewater that is suitable for treatment by the HRSD system. In addition to these continuing operational costs, the Company expects to pay HRSD sewer use charges in excess of $1.5 million per year. The Company will account for these wastewater treatment costs as current period charges in the years in which such costs are incurred. Prior to connecting to the HRSD system, the Smithfield Packing and Gwaltney plants were operated under the 1991 Order and the 1994 Order. During a period from May 1994 to January 1995, the two plants had a number of violations of the permit and the consent orders. Although the Company corrected the conditions that caused these violations, the Company continued to experience intermittent exceedances and permit compliance problems at its Gwaltney and Smithfield Packing plants prior to connecting to the HRSD system. RECORD-KEEPING VIOLATIONS BY FORMER EMPLOYEE. The Company regularly conducts tests of its wastewater discharges to assure compliance with the provisions of its wastewater discharge permits. Federal and state laws require that records of tests be maintained for three years. Failure to maintain these records may result in the imposition of civil penalties and criminal sanctions may be imposed in the event of false reporting or destruction of records. In the course of a VSWCB inspection of its Smithfield Packing and Gwaltney plants in July 1994, it was discovered that records of certain tests conducted by the Company from 1991 through early 1994 could not be located. The employee responsible for the supervision of the tests and maintenance of the test records was replaced. The U.S. Department of Justice ("DOJ"), EPA and the Federal Bureau of Investigation undertook an investigation of possible criminal charges of false reporting and destruction of records. The Company cooperated fully with this federal investigation. On October 22, 1996, the former employee entered a guilty plea and was convicted in the United States District Court for the Eastern District of Virginia on 23 violations of the federal Clean Water Act, including making false reports. Eight of these violations related to his duties as the Company's employee at its Smithfield Packing and Gwaltney plants, while 15 violations were committed in connection with the former employee's outside consulting business activities for public and private entities unrelated to the Company. Neither the Company nor any of its other present or former employees has been charged with any criminal violation arising from this investigation. SUIT BY THE COMMONWEALTH OF VIRGINIA. On August 30, 1996, VDEQ filed a civil suit against the Company in the Circuit Court of the County of Isle of Wight, Virginia, concerning permit exceedances at the Company's Smithfield Packing and Gwaltney plant. This suit, which was filed under the Virginia State Water Control Law, concerns all permit violations, including record-keeping violations, from 1986 to date that were not excused by the 1991 Order and the 1994 Order, as well as several violations of effluent limitations that were prescribed by such orders. Each violation is subject to a maximum penalty of $25,000. In March 1997, the Virginia Attorney General filed a bill of particulars specifying approximately 23,000 alleged violations, the vast majority of which concern the requirement to conduct certain tests of chlorine levels at each plant on each hour of each day. The case was initially brought to trial in state court on July 7, 1997. At the initial trial, VDEQ contended that the Company received an economic benefit of $4 million, and that the Company should pay civil penalties in that amount plus $2 million for the violations. On July 9, 1997, VDEQ withdrew its suit against the Company, but stated its intention to refile the suit at a later time. On July 16, 1997, VDEQ refiled the suit in Isle of Wight County Circuit Court. The Company intends to defend this second suit vigorously, and expects to prove that essentially no economic benefit accrued to the Company and no environmental damage occurred as a result of the violations. - 8 - EPA SUIT. On December 16, 1996, DOJ, on behalf of EPA, filed a civil suit against the Company, Gwaltney and Smithfield Packing under the federal Clean Water Act in the United States District Court for the Eastern District of Virginia in Norfolk, Virginia. This action seeks to recover civil penalties against the Company for approximately 5,500 alleged violations of the federal Clean Water Act at the Company's Smithfield Packing and Gwaltney plants in Smithfield, Virginia. Each violation is subject to a civil penalty not to exceed $25,000. The vast majority of the alleged violations concern permit exceedances during the last five years that were expressly excused by the 1991 Order and the 1994 Order. The remaining alleged violations duplicate VDEQ's allegations. The Commonwealth of Virginia, acting through the VSWCB, which has primary enforcement responsibility in the Clean Water Act's cooperative federal-State permitting scheme, advised federal authorities of the 1991 Order and the 1994 Order when issued. Notwithstanding this, in its suit, EPA asserted that the State-issued administrative consent orders do not bar a federal action seeking relief for permit violations. In an opinion dated May 30, 1997, the District Court granted EPA's motion for summary judgment in part on liability issues, holding that the 1991 Order and the 1994 Order did not excuse the alleged permit violations and that the federal action was not otherwise precluded or barred by estoppel. In the initial suit by the Commonwealth of Virginia discussed above, however, the Circuit Court of the County of Isle of Wight, Virginia, based upon a cross claim filed by the Company, issued a judicial decree reforming the Company's permit and setting the compliance deadlines consistent with the Company's connection deadlines to the HRSD system. The EPA suit has been set for trial on July 21, 1997, on the liability issues and on the issue of appropriate civil penalties. In determining the civil penalties to be assessed, the federal Clean Water Act requires that the District Court consider the seriousness of the violations, the economic benefit (if any) resulting from the violations, any history of such violations, any good-faith efforts to comply with the applicable requirements, the economic impact of the penalties on the Company, and such other matters as justice may require. The Company intends to defend the suit vigorously. EPA is expected to contend at trial that the Company should have spent approximately $10 million in 1990 to comply with the phosphorus permit limitation in addition to connecting its facilities to the HRSD system when available. EPA is expected to seek civil penalties which include this claimed economic benefit plus an additional gravity-based amount for the permit violations. The Company expects to prove that no economic benefit accrued to the Company and that no environmental damage occurred as a result of the violations. The Company will also show that it has acted in good faith and has complied with the VSWCB's consent order requirements, at great expense, to connect to the HRSD system and discontinue its discharges into the Pagan River. Based on its knowledge, as summarized above, of the facts and circumstances surrounding the alleged violations in these suits, the Company believes that the ultimate resolution of the suits will not have a material adverse effect on the Company's financial position or annual results of operations. Employees - --------- The Company has approximately 17,500 employees, approximately 9,600 of whom are covered by collective bargaining agreements expiring between July 29, 1997, and February 5, 2002. The Company believes that its relationship with its employees is good. Other - ----- With the exception of the franchise agreement between Smithfield-Carroll's and NPD described above, the Company has no patents, licenses, franchises or concessions which it considers material to its business. The Company owns and uses numerous marks, which are registered trademarks of the Company or are otherwise subject to protection under applicable intellectual property laws. Such registrations may be kept in force in perpetuity through continued use of the marks and timely renewal. The Company considers these marks and the accompanying goodwill and customer recognition valuable and material to its business. - 9 - ITEM 2. PROPERTIES The following table summarizes information concerning the principal plants and other materially important physical properties of the Company:
APPROXIMATE LAND AREA FLOOR SPACE LOCATION OPERATION (ACRES) (SQ. FT.) - ------------------------------------------------------------------------------------------------------------------------- Smithfield Packing Plant No. 1* Slaughtering and cutting hogs; 25.5 457,000 501 North Church Street manufacture of bacon products, Smithfield, Virginia smoked meats, and dry salt meats; production of hams and picnics Smithfield Packing Plant No. 2 Production of bone-in and boneless 20.0 218,000 2501 West Vernon Avenue cooked and smoked ham and other Kinston, North Carolina smoked meat products Smithfield Packing Plant No. 3 Production of bone-in smoked ham 7.8 136,000 5801 Columbia Park Drive and other smoked meat products Landover, Maryland Smithfield Packing Plant No. 4* Slaughtering and cutting hogs; 860.0 966,000 Carolina Food Processors production of boneless hams and loins Division (Bladen County) Route #87 Tarheel, North Carolina Gwaltney Plant No. 1* Slaughtering and cutting hogs; 56.4 556,000 601 North Church Street production of boneless loins, bacon, Smithfield, Virginia sausage, bone-in and boneless cooked and smoked hams and picnics Gwaltney Plant No. 2 Production of hot dogs, lunch meats 13.1 200,000 3515 Airline Boulevard and sausage products Portsmouth, Virginia Gwaltney Plant No. 3 Manufacture of bacon, smoked 11.0 152,000 1013 Iowa Street sausage and boneless cooked hams Salem, Virginia John Morrell Plant No. 1* Slaughtering and cutting hogs and 88.0 2,350,000 1400 N. Weber Avenue lambs; production of boneless loins, Sioux Falls, South Dakota bacon, bot dogs, lunch meats, smoked and canned hams, and packaged lard John Morrell Plant No. 2 Slaughtering and cutting hogs; 22.0 243,000 1200 Bluff Road production of boneless hams, loins, Sioux City, Iowa butts and picnics John Morrell Plant No. 3 Production of hot dogs, lunch meats, 21.0 177,000 801 East Kemper Road smoked sausage and smoked hams Springdale, Ohio
- 10 -
APPROXIMATE LAND AREA FLOOR SPACE LOCATION OPERATION (ACRES) (SQ. FT.) - ------------------------------------------------------------------------------------------------------------------------- John Morrell Plant No. 4 Production of bacon and smoked hams 60.0 150,000 South 281 Highway Great Bend, Kansas Lykes Meat Group Plant No. 1 Production of hot dogs, lunch meats 55.0 206,763 4811 Lykes Road and sausage products Plant City, Florida Lykes Meat Group Plant No. 2 Production of hot dogs, lunch meats, 78.0 312,466 603 Cassidy Road cured meats, bacon, boneless cooked Thomasville, Georgia and smoked ham and other smoked bone-in meat products Patrick Cudahy Plant Manufacture of bacon, dry sausage, 60.0 1,090,000 3500 E. Barnard Avenue boneless cooked hams and refinery Cudahy, Wisconsin products
- ------------------------ * Pledged as collateral under various loan agreements. The Company, through John Morrell, leases John Morrell Plant No. 3 under the terms of a 20-year lease expiring in September 2000. The lease includes an option to purchase the property, which John Morrell exercised in January 1997. Completion of the purchase is expected to occur prior to October 1997. The Company, through Brown's, owns and leases hog production facilities in North Carolina and South Carolina, and through Smithfield-Carroll's, owns hog production facilities in North Carolina and Virginia. The Company operates hog buying stations in North Carolina, South Carolina and Virginia which have facilities for purchasing and loading hogs for shipment to the Company's plants in Smithfield, Virginia and Bladen County, North Carolina, and hog buying stations in Iowa, Kansas, Minnesota, Nebraska and South Dakota, which have facilities for purchasing and loading hogs for shipment to the Company's plants in Sioux City, Iowa and Sioux Falls, South Dakota. ITEM 3. LEGAL PROCEEDINGS Smithfield Foods and its subsidiaries and affiliates are parties in various lawsuits arising in the ordinary course of business, excluding certain matters discussed under "Business -- Regulation" above. In the opinion of management, any ultimate liability with respect to these matters will not have a material adverse effect on the Company's financial position or results of operations. For a discussion of certain other regulatory and environmental matters, see "Item 1. Business -- Regulation" above. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise. - 11 - ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth the name and age, position with the Company and business experience during the past five years of each of the executive officers of the Company. The Board of Directors elects executive officers to hold office until the next annual meeting of the Board or Directors or until their successors are elected, or until their resignation or removal.
POSITION BUSINESS EXPERIENCE NAME AND AGE WITH THE COMPANY DURING PAST FIVE YEARS - --------------------------------------------------------------------------------------------------------------------- Joseph W. Luter, III (58) Chairman of the Board and Mr. Luter has served as Chairman Chief Executive Officer of the of the Board and Chief Executive Company Officer since 1975. Prior to May 1995, he also served as President of the Company. Lewis R. Little (53) President and Chief Operating Mr. Little was elected President Officer of the Company and and Chief Operating Officer of the Smithfield Packing Company and Smithfield Packing in November 1996. From May 1993 until November 1996, he was President and Chief Operating Officer of Gwaltney. Prior to May 1993, Mr. Little served as Executive Vice President of Gwaltney. Timothy A. Seely (47) President and Chief Operating Mr. Seely was elected President Officer of Gwaltney and Chief Operating Officer of Gwaltney in November 1996. Prior to that time, he was Vice President, Sales and Marketing\ Fresh Meats, of Gwaltney. Roger R. Kapella (55) President and Chief Operating Mr. Kapella has served as Officer of Patrick Cudahy President and Chief Operating Officer of Patrick Cudahy since 1986. Joseph B. Sebring (50) President and Chief Operating Mr. Sebring has served as Officer of John Morrell President and Chief Operating Officer of John Morrell since May 1994. Between 1992 and May 1994, he served as President and Chief Executive Officer of Indiana Packers Company. Prior to 1992, Mr. Sebring was Executive Vice President of Fresh Mark, Inc.
- 12 -
POSITION BUSINESS EXPERIENCE NAME AND AGE WITH THE COMPANY DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------- Larry P. Swafford (50) President and Chief Operating Mr. Swafford has served as Officer of Lykes President and Chief Operating Officer of Lykes since November 1996. Between February 1996 and November 1996, he was Vice President, Sales and Marketing, of the Company. Between February 1995 and February 1996, he was President of the Wilson Foods Division of Foodbrands America, Inc. Prior to February 1995, Mr. Swafford served as Vice President of Sales and Marketing for the Bryan Foods Division of Sara Lee Corp. C. Larry Pope (42) Vice President and Controller Mr. Pope joined the Company as of the Company Controller in 1980. He was elected Vice President and Controller in August 1995. Aaron D. Trub (62) Vice President, Secretary and Mr. Trub has served as Vice Treasurer of the Company President, Secretary and Treasurer of the Company since 1978.
- 13 - PART II ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information - ------------------ The Common Stock of the Company is traded in the national over-the-counter market and is authorized for quotation on The Nasdaq National Market under the symbol "SFDS." The following table sets forth, for the fiscal periods indicated, the highest and lowest sales prices of the Common Stock on The Nasdaq National Market. Range of Sales Prices ------------------------------ High Low ------------------------------ Fiscal year ended April 28, 1996 First quarter ....................... 24.25 19.50 Second quarter ...................... 27.00 19.75 Third quarter ....................... 32.75 24.75 Fourth quarter ...................... 31.06 25.25 Fiscal year ended April 27, 1997 First quarter ....................... 30.00 22.62 Second quarter ...................... 32.50 23.25 Third quarter ....................... 38.62 28.50 Fourth quarter ...................... 49.50 32.37 Holders - ------- As of July 11, 1997, there were 1,160 record holders of the Common Stock. Dividends - --------- The Company has never paid a cash dividend on its Common Stock and does not anticipate paying cash dividends on its Common Stock in the foreseeable future. In addition, the terms of certain of the Company's debt agreements prohibit the payment of cash dividends on the Common Stock. The payment of cash dividends, if any, will be made only from assets legally available for that purpose, and will depend on the Company's financial condition, results of operations, current and anticipated capital requirements, restrictions under then existing debt instruments and other factors deemed relevant by the board of directors. - 14 - ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data set forth below for the fiscal years indicated were derived from the Company's audited consolidated financial statements. The information should be read in conjunction with the Company's consolidated financial statements (including the notes thereto) and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in, or incorporated by reference into, this report.
FISCAL YEAR ENDED -------------------------------------------------------------------------- April 27, April 28, April 30, May 1, May 2, 1997 1996 1995 1994 1993 -------------------------------------------------------------------------- (In thousands, except per share data) INCOME STATEMENT DATA: Sales........................................ $3,870,611 $2,383,893 $1,526,518 $1,403,485 $1,113,712 Cost of sales ............................... 3,549,673 2,203,626 1,380,586 1,287,880 1,037,628 -------------------------------------------------------------------------- Gross profit ................................ 320,938 180,267 145,932 115,605 76,084 Selling, general and administrative expenses .................................. 191,225 103,095 61,723 50,738 42,924 Depreciation expense......................... 35,825 25,979 19,717 21,327 18,418 Interest expense............................. 26,211 20,942 14,054 11,605 6,183 Plant closing costs.......................... - - - - 3,598 -------------------------------------------------------------------------- Income from continuing operations before income taxes and change in accounting for income taxes.......................... 67,677 30,251 50,438 31,935 4,961 Income taxes................................. 22,740 10,465 18,523 12,616 1,690 -------------------------------------------------------------------------- Income from continuing operations before change in accounting for income taxes.............................. 44,937 19,786 31,915 19,319 3,271 Income (loss) from discontinued operations... - (3,900) (4,075) 383 (420) Cumulative effect of change in accounting for income taxes.......................... - - - - 1,138 -------------------------------------------------------------------------- Net income................................ $ 44,937 $ 15,886 $ 27,840 $ 19,702 $ 3,989 ========================================================================== NET INCOME (LOSS) PER SHARE: Continuing operations before cumulative effect of change in accounting for income taxes.............................. $ 2.34 $ 1.06 $ 1.83 $ 1.11 $ .18 Discontinued operations...................... - (.22) (.24) .02 (.03) Cumulative effect of change in accounting for income taxes............... - - - - .07 -------------------------------------------------------------------------- Net income................................... $ 2.34 $ .84 $ .1.59 $ 1.13 $ .22 ========================================================================== Weighted average shares outstanding......... 18,685 17,530 17,059 16,768 16,372 BALANCE SHEET DATA: Working capital.............................. $ 158,601 $ 88,026 $ 60,911 $ 81,529 $ 64,671 Total assets................................. 995,254 857,619 550,225 452,279 399,567 Long term debt and capital lease obligations............................... 288,486 188,618 155,047 118,942 124,517 Stockholders' equity......................... 307,486 242,516 184,015 154,950 135,770 OPERATING DATA: Fresh pork sales (pounds).................... 2,280,729 1,635,300 955,290 820,203 588,284 Processed meats sales (pounds)............... 1,444,052 839,341 774,615 661,783 631,521 Total hogs purchased......................... 16,869 12,211 8,678 7,414 5,767
-15- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis set forth below should be read in conjunction with the Company's consolidated financial statements (including the notes thereto) appearing elsewhere in this Form 10-K. Operations - ---------- In December 1995, the Company acquired all of the capital stock of John Morrell & Co. ("John Morrell"). The Company's fiscal 1997 operating results include those of John Morrell for the full fiscal year compared to an 18-week period in fiscal 1996. In November 1996, the Company acquired the assets and business of the Lykes Meat Group, Inc. ("Lykes") from Lykes Bros. Inc. The fiscal 1997 operating results include those of Lykes for the 25-week period from its date of acquisition. Accordingly, the substantial increases in sales, cost of sales, gross profit, selling, general and administrative expenses, depreciation expense and interest expense in fiscal 1997 reflect the impact of these acquisitions. Fiscal 1997 Compared to Fiscal 1996 - ----------------------------------- Sales in fiscal 1997 increased $1.49 billion, or 62.4%, from fiscal 1996. This increase was due to the inclusion of the sales of John Morrell and Lykes, significant increases in unit sales prices of both fresh pork and processed meats and increased sales of fresh pork related to an increase in the number of hogs slaughtered at the Company's Bladen County, North Carolina plant. The increase in unit sales prices reflected the pass-through of higher raw material costs due to an 18.8% increase in live hog costs. The increase in sales reflected a 41.9% increase in fresh pork tonnage and a 45.2% increase in processed meats tonnage, primarily related to the John Morrell and Lykes acquisitions. Cost of sales increased $1.35 billion, or 61.1%, in fiscal 1997, reflecting the increased sales tonnage and increased live hog costs. Gross profit increased $140.7 million, or 78.0%, in fiscal 1997 compared to fiscal 1996, reflecting the inclusion of the operations of John Morrell and Lykes and increased overall margins at the Company's other operating subsidiaries. The increase in gross profit reflected significantly improved margins on sales of processed meats (37.3% of dollar sales) which were somewhat offset by lower margins on sales of fresh pork (58.9% of dollar sales). Fresh pork margins were adversely impacted by high hog costs due to a shortage of live hogs, excess industry slaughter capacity and strong competition at the retail level from comparatively lower-priced beef and chicken. This trend has persisted for the past two fiscal years and is continuing in the first quarter of fiscal 1998. Gross profit was also favorably affected by a $20.7 million reduction in cost of sales reflecting the profitability of the Company's hog production group in fiscal 1997 compared to a $10.8 million reduction in cost of sales in fiscal 1996. The Company's hog production group consists of Brown's of Carolina, Inc., an 86%-owned subsidiary of the Company ("Brown's"); a 50%-interest in the Smithfield-Carroll's joint hog production arrangement ("Smithfield-Carroll's"), and a 33%-interest in the Circle Four joint hog production arrangement ("Circle Four"). During fiscal 1997, the Company obtained 10.1% of the hogs it processed from Brown's and Smithfield-Carroll's. The hogs produced by Circle Four are sold to an unrelated party. The Company uses recognized price-risk management and hedging techniques to enhance sales and to reduce the effect of adverse price changes on the Company's profitability. The Company's price-risk management and hedging activities currently are utilized in the areas of forward sales, hog production margin management, procurement of raw materials (hams and bacon) for seasonal demand peaks and inventory hedging. The Company recognizes gains and losses resulting from hedging transactions when the related sales are made and the hedges are lifted. As of April 27, 1997, the Company had deferred $2.2 million of unrealized hedging gains on outstanding futures contracts pending delivery of hogs in the future and lifting of the related hedges, and the completion of open sales transactions and lifting of the related hedges. - 16 - Selling, general and administrative expenses increased $88.1 million, or 85.5%, in fiscal 1997. This increase was primarily due to the inclusion of the operations of John Morrell and Lykes. Depreciation expense increased $9.8 million, or 37.9%, in fiscal 1997. The increase was primarily due to the inclusion of the operations of John Morrell and Lykes. Interest expense increased $5.3 million, or 25.2%, in fiscal 1997, reflecting borrowings to finance the acquisition of Lykes, increased carrying costs on higher levels of inventories and accounts receivable related to higher live hog costs, and the higher cost of long-term debt placed during the fiscal year. The effective income tax rate in fiscal 1997 decreased to 33.6% from 34.6% in fiscal 1996, reflecting a lower tax rate on increased foreign sales and a reduction in the effective rate of state income taxes. The Company had no valuation allowance related to income tax assets as of April 27, 1997, and there was no change in the valuation allowance during fiscal 1997. Income from continuing operations increased $37.4 million in fiscal 1997, reflecting the operating results of John Morrell for the full fiscal year, significantly improved margins on processed meats and substantially increased profitability at the Company's hog production group. Reflecting the factors discussed above, net income increased to $44.9 million in fiscal 1997, up from $15.9 million in the prior fiscal year. Fiscal 1996 Compared to Fiscal 1995 - ----------------------------------- Sales in fiscal 1996 increased $857.4 million, or 56.2%, from fiscal 1995. The increase was primarily due to the inclusion of the sales of John Morrell for the 18-week period, an increase in unit sales prices of both fresh pork and processed meats and increased sales of fresh pork related to increased slaughter levels at the Bladen County plant. The increase in unit sales prices reflected the pass-through of higher raw material costs due to a 20.0% increase in live hog costs. The increase in sales tonnage reflected a 71.2% increase in fresh pork tonnage and an 8.4% increase in processed meats tonnage. Cost of sales increased $823.0 million, or 59.6%, in fiscal 1996, reflecting the increased sales tonnage, increased live hog costs and higher warehousing and distribution costs associated with the increase in sales tonnage. Gross profit increased $34.3 million, or 23.5%, in fiscal 1996 compared to fiscal 1995. The increase in gross profit resulted from the increased sales tonnage of both fresh pork (58.8% of dollar sales) and processed meats (36.7% of dollar sales), offset by lower sales margins on both fresh pork and processed meats. In addition, gross profit was favorably affected by a $10.8 million reduction in cost of sales reflecting the profitability of the Company's hog production group. In fiscal 1995, gross profit was adversely affected by a $0.2 million increase in cost of sales as a result of a loss at the group. During fiscal 1996, the Company obtained 11.3% of the hogs it processed from Brown's and Smithfield-Carroll's. As of April 28, 1996, the Company had deferred $2.2 million of unrealized hedging gains on outstanding futures contracts pending the completion of open sales transactions and lifting of the related hedges. Selling, general and administrative expenses increased $41.4 million, or 67.0%, in fiscal 1996. The increase was primarily due to the inclusion of the operations of John Morrell and higher selling and marketing costs associated with the increase in fresh pork tonnage. Depreciation expense increased $6.3 million, or 31.8%, in fiscal 1996. The increase was related to continued expansion at the Bladen County plant, additional hog production facilities at Brown's and the inclusion of the operations of John Morrell. Interest expense increased $6.9 million, or 49.0%, in fiscal 1996, reflecting increased carrying costs on long-term debt related to the funding of capital projects at the Bladen County plant and Brown's, higher short- and - 17 - long-term interest rates and interest costs associated with the cash portion of the purchase price related to the acquisition of John Morrell. The effective income tax rate in fiscal 1996 decreased to 34.6% from 36.7% in fiscal 1995, reflecting a lower tax rate on foreign sales and benefits related to certain insurance contracts. The Company had no valuation allowance related to income tax assets as of April 28, 1996, and there was no change in the valuation allowance during fiscal 1996. Income from continuing operations decreased $12.1 million in fiscal 1996, reflecting lower sales margins on both fresh pork and processed meats compared to fiscal 1995. The prior year's results reflected exceptionally strong margins on fresh pork due to unusually low hog prices. John Morrell made a significant contribution to the Company's overall profitability in fiscal 1996. In fiscal 1996, the Company completed the disposition of the assets and business of Ed Kelly, Inc., resulting in a loss from discontinued operations of $3.9 million. Reflecting the factors discussed above, net income decreased to $15.9 million in fiscal 1996 from $27.8 million in fiscal 1995. Financial Condition - ------------------- The pork processing industry is characterized by high sales tonnage and rapid turnover of inventories and accounts receivable. Because of the rapid turnover rate, the Company considers its inventories and accounts receivable highly liquid and readily convertible into cash. Borrowings under the Company's lines of credit 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 ham inventories are at their highest levels and borrowings are repaid in January when accounts receivable generated by sales of the hams are collected. As of April 27, 1997, the Company had credit facilities totaling $300 million, consisting of a 364-day $225 million revolving credit facility and a two-year $75 million revolving credit facility. The short-term facility is used for seasonal inventory and receivable needs, and the long-term facility is used for working capital and capital expenditures. Borrowings under the facilities are secured by substantially all of the Company's inventories and accounts receivable. Weighted average borrowings under the facilities were $165.1 million in fiscal 1997, $133.4 million in fiscal 1996 and $69.9 million in fiscal 1995, at weighted average interest rates of approximately 7%, 7% and 6%, respectively. Maximum borrowings were $215.0 million in fiscal 1997, $179.8 million in fiscal 1996 and $117.0 million in fiscal 1995. The outstanding balances under the facilities totaled $150.0 million and $151.3 million as of April 27, 1997 and April 28, 1996, respectively, at a weighted average interest rate of 7% for both years. The Company has recently negotiated $350 million of senior secured revolving credit facilities with a bank group which will replace its existing $300 million credit facilities. The new facilities will consist of a 5-year $300 million revolving credit facility and a 364-day $50 million revolving credit facility. This financing is scheduled to close in the first quarter of fiscal 1998. During fiscal 1997, the Company privately placed $140 million of senior secured notes with a group of institutional lenders. The placement consisted of $40 million of seven-year 8.34% notes and $100 million of 10-year 8.52% notes, secured by four of the Company's major processing plants. The proceeds of the financing were used to repay $65.2 million of long-term bank debt and reduce short-term borrowings. In conjunction with the placement of the senior secured notes, the Company refinanced $59.7 million of existing institutional long-term debt with the same institutional lenders. The refinancing resulted in revised maturity dates and repayment schedules for the refinanced debt; however, no additional proceeds resulted from this refinancing. - 18 - In November 1996, the Company acquired substantially all of the assets and business of Lykes from Lykes Bros. Inc. for $34.8 million in cash, which was borrowed under the Company's revolving credit facilities, and the assumption of $10.6 million of current liabilities. The Company expended $69.1 million in fiscal 1997, primarily for additional hog production facilities and a feedmill at Brown's and for plant renovation and expansion projects at certain of its processing plants. The capital expenditures were financed with internally generated funds and with a portion of the net proceeds from the placement of the $140 million of notes. During fiscal 1997, all of the Company's Series C 6.75% preferred stock was converted into 666,666 shares of the Company's common stock at $30.00 per share. In fiscal 1998, the Company plans to increase its processed meats and value-added fresh pork capacity at several of its processing plants and to continue to expand its hog production operations. The Company anticipates that these expansion plans will be financed with internally generated funds. The Company's various debt agreements contain covenants regarding working capital, current ratio, fixed charges coverage and net worth, and, among other restrictions, limit additional borrowings, the acquisition, disposition and leasing of assets and payment of dividends to stockholders. The Company and certain subsidiaries are defendants in two civil actions alleging violations of their wastewater discharge permits; one brought by the Virginia Department of Environmental Quality and the other by the Environmental Protection Agency. The Company believes that the ultimate resolution of these two suits will not have a material adverse effect on its financial position or annual results of operations. (See Note 12 to Consolidated Financial Statements for a full discussion of these cases.) Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 - -------------------------------------------------------------- This report may contain "forward-looking" information within the meaning of the federal securities laws. The forward-looking information may include, among other information, statements concerning the Company's outlook for fiscal 1998, volume trends, industry conditions and expectations for capital expenditures. There may also be other statements of exceptions, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking information and statements in this report are subject to risks and uncertainties, including availability and prices of raw materials, product pricing, competitive environment and related market conditions, operating efficiencies, access to capital and actions of governments, that could cause actual results to differ materially from those expressed in or implied by the information or statements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements listed in Item 14(a) hereof are incorporated herein by reference and are filed as a part of this report beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. - 19 - PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY (a) Information required by this Item regarding directors and all persons nominated or chosen to become directors is incorporated by reference from the Company's definitive proxy statement to be filed with respect to its Annual Meeting of Stockholders to be held on August 28, 1997. (b) Information required by this Item regarding the executive officers of the Company is included in Part I, Item 4A of this report. There is no family relationship between any of the persons named in response to Item 10. ITEM 11. EXECUTIVE COMPENSATION Information required by this Item is incorporated by reference from the Company's definitive proxy statement to be filed with respect to its Annual Meeting of Stockholders to be held on August 28, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this Item is incorporated by reference from the Company's definitive proxy statement to be filed with respect to its Annual Meeting of Stockholders to be held on August 28, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this Item is incorporated by reference from the Company's definitive proxy statement to be filed with respect to its Annual Meeting of Stockholders to be held on August 28, 1997. - 20 - PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. and 2. Index to Financial Statements and Financial Statement Schedule An "Index to Financial Statements and Financial Statement Schedule" has been filed as a part of this Form 10-K Annual Report on page F-1 hereof. 3. Exhibits Exhibit 3.1 -- Composite Certificate of Incorporation of the Company, as amended to date (incorporated by reference to Exhibit 3.1 to the Company's Form 10-K Annual Report for the fiscal year ended April 28, 1991). Exhibit 3.2 -- By-Laws of the Company, as amended to date (incorporated by reference to Exhibit 3.2 to the Company's Form 10-K Annual Report for the fiscal year ended April 28, 1996). Exhibit 4.1 -- Composite Certificate of Incorporation of the Company, as amended to date (see Exhibit 3.1 above). Exhibit 4.2 -- Form of Certificate representing the Company's Common Stock, par value $.50 per share (including Rights legend) (incorporated by reference to Exhibit 4.2 to the Company's Form 10-K Annual Report for the fiscal year ended April 28, 1991). Exhibit 4.3 -- Form of Certificate representing Rights (incorporated by reference to Exhibit 4 to the Company's Amendment No. 1 to Registration Statement on Form 8-A dated May 23, 1991). Exhibit 4.4 -- Rights Agreement dated as of May 8, 1991, as amended by Amendment No. 1 dated as of January 31, 1994, by and between the Company and First Union National Bank of North Carolina, Rights Agent (incorporated by reference to Exhibit 4.5 to the Company's Form 10- K Annual Report for the fiscal year ended May 1, 1994). Exhibit 4.5 -- Five-Year Credit Agreement dated as of July 10, 1997, among Smithfield Foods, Inc., the Subsidiary Guarantors party thereto, the Lenders party thereto, and The Chase Manhattan Bank, as Administrative Agent, relating to a $300,000,000 secured five-year revolving credit facility. Exhibit 4.5(a) -- 364-Day Credit Agreement dated as of July 10, 1997, among Smithfield Foods, Inc., the Subsidiary Guarantors party thereto, the Lenders party thereto, and The Chase Manhattan Bank, as Administrative Agent, relating to a $50,000,000 secured 364-day revolving credit facility. Exhibit 4.5(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 five-year revolving credit facility and its 364- day revolving credit facility. Exhibit 4.6 -- Note Purchase Agreement dated as of July 15, 1996, among Smithfield Foods, Inc. and each of the Purchasers listed on Annex 1 thereto, relating to $140,000,000 in senior secured notes (incorporated by reference to Exhibit 4.7 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. - 21 - Exhibit 4.6(a) -- 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 of this Form 10-K). Exhibit 4.6(b) -- 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. Exhibit 4.7 -- Master Lease Agreement dated May 14, 1993 between General Electric Capital Corporation and Brown's of Carolina, Inc. (incorporated by reference to Exhibit 4.12 to the Company's Form 10-K Annual Report for the fiscal year ended May 2, 1993). Exhibit 4.7(a) -- Corporate Guaranty by Smithfield Foods, Inc. dated May 14, 1993 (incorporated by reference to Exhibit 4.12(a) to the Company's Form 10-K Annual Report for the fiscal year ended May 2, 1993). Exhibit 10.1 -- Subscription Agreement dated September 3, 1992 between Smithfield Foods, Inc. and Carroll's Foods, Inc., covering 1,000,000 shares of Smithfield Foods, Inc. Common Stock (incorporated by reference to Exhibit 10.1 of the Company's Form 10-K Annual Report for the fiscal year ended May 2, 1993); and Amendment No. 1 to Subscription Agreement dated January 31, 1995. 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). 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). Exhibit 10.4 -- Smithfield Foods, Inc. Incentive Bonus Plan applicable to the Company's Chairman of the Board and Chief Executive Officer (incorporated by reference to Exhibit 10.8 to the Company's Form 10-K Annual Report for the fiscal year ended April 30, 1995). Exhibit 10.5 -- Smithfield Foods, Inc. 1997 Incentive Bonus Plan applicable to the Company's President and 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 28, 1996). Exhibit 10.6 -- Smithfield Foods, Inc. 1998 Incentive Bonus Plan applicable to the Company's Chief Operating Officer. Exhibit 11 -- Computation of Net Income Per Common Share. Exhibit 21 -- Subsidiaries of the Registrant. Exhibit 23 -- Consent of Independent Public Accountants. Exhibit 27 -- Financial Data Schedule. (b) Reports on Form 8-K None. - 22 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SMITHFIELD FOODS, INC. Date: July 23, 1997 By: /s/ JOSEPH W. LUTER, III --------------------------- Joseph W. Luter, III Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on July 23, 1997.
SIGNATURE TITLE --------- ----- Chairman of the Board and Chief Executive /s/ JOSEPH W. LUTER, III Officer and Director - ------------------------------------------------------- Joseph W. Luter, III President and Chief Operating Officer /s/ LEWIS R. LITTLE and Director - ------------------------------------------------------- Lewis R. Little Vice President, Secretary and Treasurer /s/ AARON D. TRUB and Director - ------------------------------------------------------- (Principal-Financial-Officer) Aaron D. Trub Vice President and Controller /s/ C. LARRY POPE (Principal Accounting Officer) - ------------------------------------------------------- C. Larry Pope /s/ ROBERT L. BURRUS, JR. Director - ------------------------------------------------------- Robert L. Burrus, Jr. /s/ F. J. FAISON, JR. Director - ------------------------------------------------------- F. J. Faison, Jr. /s/ JOEL W. GREENBERG Director - ------------------------------------------------------- Joel W. Greenberg Director - ------------------------------------------------------- Cecil W. Gwaltney - S-1 - /s/ GEORGE E. HAMILTON, JR. Director - ------------------------------------------------------- George E. Hamilton, Jr. /s/ RICHARD J. HOLLAND Director - ------------------------------------------------------- Richard J. Holland /s/ ROGER R. KAPELLA Director - ------------------------------------------------------- Roger R. Kapella /s/ H. GORDON MAXWELL, III Director - ------------------------------------------------------- H. Gordon Maxwell, III /s/ WENDELL H. MURPHY Director - ------------------------------------------------------- Wendell H. Murphy /s/ WILLIAM H. PRESTAGE Director - ------------------------------------------------------- William H. Prestage /s/ JOSEPH B. SEBRING Director - ------------------------------------------------------- Joseph B. Sebring
- S-2 - SMITHFIELD FOODS, INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page(s) ------- FINANCIAL STATEMENTS Report of Independent Public Accountants............................................... F-2 Consolidated Statements of Income for the Years Ended April 27, 1997, April 28, 1996, and April 30, 1995................................................. F-3 Consolidated Balance Sheets at April 27, 1997 and April 28, 1996....................... F-4 Consolidated Statements of Cash Flows for the Years ended April 27, 1997, April 28, 1996, and April 30, 1995 .......................................... F-5 Consolidated Statements of Stockholders' Equity for the Years ended April 27, 1997, April 28, 1996, and April 30, 1995 ................................ F-6 Notes to Consolidated Financial Statements............................................. F-7 to F-21 FINANCIAL STATEMENT SCHEDULE Independent Public Accountants' Report on Financial Statement Schedule................. F-22 Schedule I - Condensed Financial Information of Registrant ............................ F-23 to F-27
- F-1 - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE STOCKHOLDERS OF SMITHFIELD FOODS, INC.: We have audited the accompanying consolidated balance sheets of Smithfield Foods, Inc. (a Delaware corporation), and subsidiaries as of April 27, 1997, and April 28, 1996, and the related consolidated statements of income, cash flows, and stockholders' equity for each of the three years in the period ended April 27, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Smithfield Foods, Inc., and subsidiaries as of April 27, 1997, and April 28, 1996, and the results of their operations and their cash flows for each of the three years in the period ended April 27, 1997, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Richmond, Virginia June 6, 1997 F-2 SMITHFIELD FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
FISCAL YEARS ENDED ---------------------- APRIL 27, APRIL 28, 1997 1996 --------- --------- (IN THOUSANDS) ASSETS Current assets: Cash.............................................................................................. $ 25,791 $ 28,529 Accounts receivable less allowances of $1,499 and $1,084.......................................... 166,094 144,956 Inventories....................................................................................... 253,276 210,759 Net advances to joint hog production arrangements................................................. - 7,578 Prepaid expenses and other current assets......................................................... 43,217 28,585 --------- --------- Total current assets........................................................................... 488,378 420,407 --------- --------- Property, plant and equipment: Land.............................................................................................. 13,964 12,453 Buildings and improvements........................................................................ 205,523 146,545 Machinery and equipment........................................................................... 344,328 303,384 Construction in progress.......................................................................... 50,578 74,207 --------- --------- 614,393 536,589 Less accumulated depreciation..................................................................... (187,518) (163,866) --------- --------- Net property, plant and equipment.............................................................. 426,875 372,723 --------- --------- Other assets: Investments in partnerships....................................................................... 44,582 29,662 Deferred income taxes............................................................................. - 10,235 Other............................................................................................. 35,419 24,592 --------- --------- Total other assets............................................................................. 80,001 64,489 --------- --------- $ 995,254 $ 857,619 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable..................................................................................... $ 77,500 $ 110,563 Current portion of long-term debt and capital lease obligations................................... 7,800 13,392 Accounts payable.................................................................................. 132,268 113,344 Accrued expenses and other current liabilities.................................................... 106,498 95,082 --------- --------- Total current liabilities...................................................................... 324,066 332,381 --------- --------- Long-term debt and capital lease obligations........................................................ 288,486 188,618 --------- --------- Other noncurrent liabilities: Pension and postretirement benefits............................................................... 55,320 59,128 Deferred income taxes............................................................................. 7,260 - Other............................................................................................. 12,636 14,975 --------- --------- Total other noncurrent liabilities............................................................. 75,216 74,103 --------- --------- Commitments and contingencies Convertible preferred stock......................................................................... - 20,000 --------- --------- Stockholders' equity: Preferred stock, $1.00 par value, 1,000,000 authorized shares..................................... - - Common stock, $.50 par value, 25,000,000 authorized shares; 19,196,681 and 18,453,015 issued............................................................... 9,598 9,227 Additional paid-in capital........................................................................ 113,661 92,762 Retained earnings................................................................................. 191,870 148,171 Treasury stock, at cost, 437,000 shares........................................................... (7,643) (7,643) --------- --------- Total stockholders' equity..................................................................... 307,486 242,517 --------- --------- $ 995,254 $ 857,619 --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated balance sheets. F-3 SMITHFIELD FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEARS -------------------------------------- 1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Sales............................................................................... $3,870,611 $2,383,893 $1,526,518 Cost of sales....................................................................... 3,549,673 2,203,626 1,380,586 ---------- ---------- ---------- Gross profit...................................................................... 320,938 180,267 145,932 Selling, general and administrative expenses........................................ 191,225 103,095 61,723 Depreciation expense................................................................ 35,825 25,979 19,717 Interest expense.................................................................... 26,211 20,942 14,054 ---------- ---------- ---------- Income from continuing operations before income taxes............................... 67,677 30,251 50,438 Income taxes........................................................................ 22,740 10,465 18,523 ---------- ---------- ---------- Income from continuing operations................................................... 44,937 19,786 31,915 Loss from discontinued operations, net of tax....................................... - (3,900) (4,075) ---------- ---------- ---------- Net income.......................................................................... $ 44,937 $ 15,886 $ 27,840 ---------- ---------- ---------- ---------- ---------- ---------- Net income available to common stockholders......................................... $ 43,699 $ 14,734 $ 27,165 ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) per common share: Continuing operations............................................................. $ 2.34 $ 1.06 $ 1.83 Discontinued operations........................................................... - (.22) (.24) ---------- ---------- ---------- ---------- ---------- ---------- Net income........................................................................ $ 2.34 $ .84 $ 1.59 ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these consolidated statements. F-4 SMITHFIELD FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS -------------------------------------- 1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS) Cash flows from operating activities: Net income........................................................................ $ 44,937 $ 15,886 $ 27,840 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................................ 39,057 28,299 22,127 Increase in accounts receivable.............................................. (12,606) (9,251) (6,141) Increase in inventories...................................................... (30,008) (41,316) (1,717) (Increase) decrease in prepaid expenses and other current assets............. (1,605) 1,535 (2,802) (Increase) decrease in other assets.......................................... (10,410) 22,682 (8,121) Increase in accounts payable, accrued expenses and other liabilities......... 9,377 19,166 8,272 Increase (decrease) in deferred income taxes................................. 7,810 (27,059) 6,637 (Gain) loss on sale of property and equipment................................ (3,288) 2,168 1,130 ---------- ---------- ---------- Net cash provided by operating activities........................................... 43,264 12,110 47,225 ---------- ---------- ---------- Cash flows from investing activities: Capital expenditures.............................................................. (69,147) (74,888) (90,550) Business acquisitions, net of cash acquired....................................... (34,835) (14,079) - Investments in partnerships....................................................... (7,293) (2,486) (4,037) Net advances to joint hog production arrangements................................. (113) 6,464 (6,364) Proceeds from sale of property and equipment...................................... 4,141 82 969 ---------- ---------- ---------- Net cash used in investing activities............................................... (107,247) (84,907) (99,982) ---------- ---------- ---------- Cash flows from financing activities: Net (repayments) borrowings on notes payable...................................... (33,063) 33,592 17,560 Proceeds from issuance of long-term debt and capital lease obligations............ 171,250 50,000 50,000 Principal payments on long-term debt and capital lease obligations................ (76,974) (16,672) (13,588) Proceeds from issuance of preferred stock......................................... - 20,000 - Exercise of common stock options.................................................. 1,270 768 1,900 Dividends on preferred stock...................................................... (1,238) (1,152) (675) ---------- ---------- ---------- Net cash provided by financing activities........................................... 61,245 86,536 55,197 ---------- ---------- ---------- Net (decrease) increase in cash..................................................... (2,738) 13,739 2,440 Cash at beginning of year........................................................... 28,529 14,790 12,350 ---------- ---------- ---------- Cash at end of year................................................................. $ 25,791 $ 28,529 $ 14,790 ---------- ---------- ---------- ---------- ---------- ---------- Supplemental disclosures of cash flow information: Interest paid, net of amount capitalized.......................................... $ 25,751 $ 20,684 $ 14,630 ---------- ---------- ---------- Income taxes paid, net............................................................ $ 15,043 $ 1,685 $ 16,254 ---------- ---------- ---------- Non-cash investing and financing activities: Refinancing of long-term debt.................................................. $ 59,707 $ - $ - ---------- ---------- ---------- Conversion of preferred stock to common stock.................................. $ 20,000 $ 10,000 $ - ---------- ---------- ---------- Common stock issued for acquisition............................................ $ - $ 33,000 $ - ---------- ---------- ---------- Conversion of advances to joint hog production arrangements to investments in partnerships.................................................................. $ 7,691 $ - $ 12,500 ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these consolidated statements. F-5 SMITHFIELD FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL COMMON PAID-IN RETAINED TREASURY STOCK CAPITAL EARNINGS STOCK ------ ---------- -------- -------- (IN THOUSANDS) Balance, May 1, 1994............................................................ $8,357 $ 47,964 $106,272 $ (7,643) Net income.................................................................... - - 27,840 - Exercise of stock options..................................................... 60 1,840 - - Dividends on preferred stock.................................................. - - (675) - ------ ---------- -------- -------- Balance, April 30, 1995......................................................... 8,417 49,804 133,437 (7,643) Net income.................................................................... - - 15,886 - Common stock issued for acquisition of John Morrell & Co...................... 547 32,453 - - Conversion of preferred stock................................................. 233 9,767 - - Exercise of stock options..................................................... 30 738 - - Dividends on preferred stock.................................................. - - (1,152) - ------ ---------- -------- -------- Balance, April 28, 1996......................................................... 9,227 92,762 148,171 (7,643) Net income.................................................................... - - 44,937 - Conversion of preferred stock................................................. 333 19,667 - - Exercise of stock options..................................................... 38 1,232 - - Dividends on preferred stock.................................................. - - (1,238) - ------ ---------- -------- -------- Balance, April 27, 1997......................................................... $9,598 $ 113,661 $191,870 $ (7,643) ------ ---------- -------- -------- ------ ---------- -------- --------
The accompanying notes are an integral part of these consolidated statements. F-6 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Smithfield Foods, Inc. and subsidiaries (the "Company"). The Company's principal subsidiaries include Brown's of Carolina, Inc. ("Brown's"), Gwaltney of Smithfield, Ltd. ("Gwaltney"), John Morrell & Co. ("John Morrell"), Lykes Meat Group, Inc. ("Lykes"), Patrick Cudahy Incorporated ("Patrick Cudahy") and The Smithfield Packing Company, Incorporated ("Smithfield Packing"). All material intercompany balances and transactions have been eliminated. FISCAL YEAR The Company's fiscal year is the 52 or 53 week period which ends on the Sunday nearest April 30. All years presented were 52 week periods. INVENTORIES The Company's inventories are valued at the lower of first-in, first-out (FIFO) cost or market. Inventories consist of the following:
APRIL APRIL 27, 28, 1997 1996 -------- -------- (IN THOUSANDS) Fresh and processed meats................................................... $183,480 $156,232 Hogs on farms............................................................... 44,563 36,337 Manufacturing supplies...................................................... 15,732 12,686 Other....................................................................... 9,501 5,504 -------- -------- $253,276 $210,759 -------- -------- -------- --------
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 2 to 15 years. Repair 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 $2,640,000 in fiscal 1997, $2,021,000 in fiscal 1996 and $842,000 in fiscal 1995. Repair and maintenance expenses totaled $89,670,000, $59,951,000 and $50,975,000 in fiscal 1997, 1996 and 1995, respectively. OTHER ASSETS Cost in excess of net assets acquired is amortized over 40 years. Organization costs are amortized over a five-year period. Deferred debt issuance costs are amortized over the terms of the related loan agreements. Start-up costs associated with hog production are amortized over a three-year period. 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/or cleanups are probable and the cost can be reasonably estimated. Other than for assessments, the timing of these accruals coincides with the Company's commitment to a formal plan of action (See Note 12). F-7 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, 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. PRICE-RISK MANAGEMENT AND HEDGING The Company uses recognized price-risk management and hedging techniques to enhance sales and to reduce the effect of adverse price changes on the Company's profitability. The Company's price-risk management and hedging activities currently are utilized in the areas of forward sales, hog production margin management, procurement of raw materials (hams and bacon) for seasonal demand peaks and inventory hedging. Contracts related to sales or purchase commitments are accounted for as hedges. Gains and losses on these contracts are deferred and recorded to cost of sales when the sales or purchase commitments are fulfilled. As of April 27, 1997 and April 28, 1996, the Company had deferred unrealized hedging gains of $2,183,000 and $2,160,000, respectively, on outstanding futures contracts. As of April 27, 1997 and April 28, 1996, the Company had open futures contracts with contract values of $44,291,000 and $31,819,000, respectively. INCOME PER COMMON SHARE Income per common share is computed using the weighted average shares of common stock and dilutive common stock equivalents (options and convertible preferred stock) outstanding during the respective periods. Net income available to common stockholders is net income less dividends on preferred stock. The number of weighted average shares used in calculating income per common share was 18,685,000 in fiscal 1997, 17,530,000 in fiscal 1996 and 17,059,000 in fiscal 1995. STOCK OPTIONS In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). This new standard defines a fair value method of accounting for employee stock option plans. SFAS 123 allows the choice of recognizing compensation expense for stock option plans by adopting the new fair value standard or to continue measuring compensation using the intrinsic value approach of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). If APB 25 is elected, SFAS 123 requires supplemental disclosure to show the pro forma effects as if the new method was applied. The Company has elected to continue applying APB 25 to account for its stock option plans and adopt the supplemental disclosure requirements of SFAS 123 (see Note 7). Accordingly, SFAS 123 does not affect the Company's financial position or results of operations. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the Company's financial position and amounts reported in results of operations. Actual results could differ from those estimates. RECLASSIFICATIONS Certain prior year amounts have been restated to conform to 1997 presentations. NOTE 2 -- ACQUISITIONS In November 1996, the Company acquired substantially all of the assets and business of Lykes from Lykes Bros. Inc. for $34,835,000 in cash and the assumption of $10,616,000 of current liabilities. The following unaudited pro forma information combines the operating results of the Company and Lykes assuming the acquisition had been made as of the beginning of each of the periods presented. F-8 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 2 -- ACQUISITIONS -- Continued
1997 1996 -------------- -------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Sales............................................................................. $3,948,091 $2,630,031 Income from continuing operations................................................. 37,214 12,291 Net income........................................................................ 37,214 8,391 Income per common share: Continuing operations........................................................... $ 1.93 $ .61 Net income...................................................................... 1.93 .40
On December 20, 1995, the Company acquired all of the capital stock of John Morrell from Chiquita Brands International, Inc. ("Chiquita"), for $58,000,000, consisting of $25,000,000 in cash and $33,000,000 of the Company's common stock (1,094,273 shares), plus the assumption of all of John Morrell's liabilities. The following unaudited pro forma information combines the operating results of the Company and John Morrell assuming the acquisition had been made as of the beginning of each of the periods presented.
1996 1995 -------------- -------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Sales............................................................................. $3,414,561 $2,949,426 Income from continuing operations................................................. 25,094 49,257 Net income........................................................................ 21,194 45,182 Income per common share: Continuing operations........................................................... $ 1.31 $ 2.68 Net income...................................................................... 1.10 2.45
The Company accounted for these acquisitions using the purchase method of accounting. The results of operations of these acquired businesses are included in the accompanying consolidated statements of income from the respective dates of acquisition. The pro forma amounts above are not intended to be projections of future results or trends and do not purport to be indicative of what actual consolidated results of operations might have been if the acquisitions had been effective as of the beginning of the periods presented. NOTE 3 -- JOINT HOG PRODUCTION ARRANGEMENTS SMITHFIELD-CARROLL'S The Company has an arrangement with certain affiliates of Carroll's Foods, Inc. ("CFI") to produce hogs for the Company's meat processing plants in North Carolina and Virginia. The arrangement involves: (1) Smithfield-Carroll's Farms ("Smithfield-Carroll's"), a partnership owned jointly by the Company and Carroll's Farms of Virginia, Inc. ("CFAV"), which owns the hog raising facilities, and (2) a long-term purchase contract between the Company and Carroll's Foods of Virginia, Inc. ("CFOV"), which leases and operates the facilities, obligating the Company to purchase all the hogs produced by CFOV at prices equivalent to market at the time of delivery. A director of the Company is the president and a director of CFI, CFAV and CFOV. In addition, the Company has a long-term agreement to purchase hogs from CFI at prices which, in the opinion of management, are equivalent to market. As of April 27, 1997 and April 28, 1996, the Company had investments of $27,943,000 and $20,252,000, respectively, in the partnership which are accounted for using the equity method. Profits and losses are shared equally under the arrangement. During fiscal 1997 and 1995, the Company converted $7,691,000 and $12,500,000, respectively, of advances to partners' equity, which are included in the investments above. In addition, as of April 27, 1997, the Company had $1,414,000 of working capital loans outstanding to the partnership. These demand loans are expected to be repaid in fiscal 1998. F-9 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 3 -- JOINT HOG PRODUCTION ARRANGEMENTS -- Continued Substantially all revenues of the partnership consist of lease payments from CFOV which cover debt service, depreciation charges and other operating expenses. For the fiscal years 1997, 1996 and 1995, revenues were $8,227,000, $8,912,000 and $9,479,000, respectively. Pursuant to the long-term purchase contract, the Company purchased $93,049,000, $70,540,000 and $54,081,000 of live hogs from CFOV in fiscal years 1997, 1996 and 1995, respectively. The contract resulted in decreased raw material costs (as compared to market costs) of $5,245,000 and $2,617,000 in fiscal 1997 and 1996, respectively, and increased raw material costs of $2,615,000 in fiscal 1995. In fiscal 1997, the Company received $6,905,000 from CFOV in repayment of all outstanding demand loans. Pursuant to the agreement with CFI, the Company purchased $269,499,000, $201,878,000 and $134,937,000 of hogs in fiscal 1997, 1996 and 1995, respectively. CIRCLE FOUR The Company has an arrangement with three of its principal hog suppliers to produce hogs in the state of Utah for sale to an unrelated party. The chief executive officers of two of the suppliers and the president of another serve as directors of the Company. As of April 27, 1997, the Company had a 33% interest in the arrangement, which is accounted for using the equity method. As of April 27, 1997 and April 28, 1996, the Company had investments of $12,673,000 and $7,083,000, respectively, in the arrangement. B&G Brown's has an arrangement with a company owned by the daughter and son-in-law of the chairman and chief executive officer of the Company. The arrangement, B&G Farms LLC ("B&G"), involves the leasing of hog production facilities to Brown's and the production of hogs by Brown's on a contractual basis. In addition, the Company has a contract to purchase all of the hogs produced by B&G at prices, which in the opinion of management, are equivalent to market. Profits and losses are shared equally under the arrangement. As of April 27, 1997 and April 28, 1996, B&G had advanced $1,430,000 and $1,527,000, respectively, to Brown's for working capital. As of April 27, 1997 and April 28, 1996, the Company had investments of $1,291,000 and $1,260,000, respectively, in B&G. B&G's revenues consist of lease payments from Brown's, which cover debt service and depreciation charges, and the profits or losses on the sale of hogs. Pursuant to the contract, the Company purchased $6,439,000 and $7,990,000 of hogs in fiscal 1997 and 1996, respectively. The summarized unaudited financial information which follows represents an aggregation of the financial position of the unconsolidated hog production operations of Smithfield-Carroll's, Circle Four and B&G.
APRIL 27, APRIL 28, 1997 1996 -------------- -------------- (IN THOUSANDS) Current assets.......................................................... $ 17,116 $ 6,532 Property and equipment, net............................................. 134,937 107,996 Other assets............................................................ 6,978 6,094 -------------- -------------- $159,031 $120,622 -------------- -------------- -------------- -------------- Current liabilities..................................................... $ 15,721 $ 11,785 Long-term debt.......................................................... 71,094 54,926 Equity.................................................................. 72,216 53,911 -------------- -------------- $159,031 $120,622 -------------- -------------- -------------- --------------
F-10 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 4 -- DEBT Long-term debt consists of the following:
APRIL 27, APRIL 28, 1997 1996 --------- --------- (IN THOUSANDS) Notes payable to institutional lenders: 8.52% notes, payable through August 2006............................................................ $ 100,000 $ - 8.34% notes, payable through August 2003............................................................ 40,000 - 8.41% notes, payable through August 2004............................................................ 14,779 15,000 9.85% notes, payable through November 2006.......................................................... 13,000 14,333 8.41% notes, payable through August 2006............................................................ 9,853 10,000 10.75% notes, payable through August 2005........................................................... 8,500 9,500 9.80% notes, payable through August 2003............................................................ 8,437 9,187 6.24% notes, payable through November 1998.......................................................... 1,977 3,108 7.15% notes, payable through October 1997........................................................... 1,052 3,044 7.00% notes, payable through September 1998......................................................... 895 1,429 Notes payable to banks: Long-term credit facility, expiring July 1998....................................................... 75,000 43,750 Notes based on prime rate........................................................................... - 45,000 6.48% notes......................................................................................... - 20,700 7.10% notes......................................................................................... - 2,290 Other notes payable................................................................................... 112 407 --------- --------- 273,605 177,748 Less current portion.................................................................................. (5,949) (11,810) --------- --------- $ 267,656 $ 165,938 --------- --------- --------- ---------
Scheduled maturities of long-term debt are as follows:
(IN THOUSANDS) -------------- Fiscal year 1998....................................................................... $ 5,949 1999....................................................................... 79,253 2000....................................................................... 3,083 2001....................................................................... 3,084 2002....................................................................... 3,083 Thereafter................................................................. 179,153 -------------- $273,605 -------------- --------------
In fiscal 1997, the Company privately placed $140,000,000 of senior secured notes with a group of institutional lenders. The placement consisted of $40,000,000 of seven-year 8.34% notes and $100,000,000 of 10-year 8.52% notes secured by four of the Company's major processing plants. The proceeds of the financing were used to repay $65,200,000 of long-term bank debt and to reduce short-term borrowings. In conjunction with the placement of the senior secured notes, the Company refinanced $59,707,000 of existing institutional long-term debt with the same institutional lenders. The refinancing resulted in revised maturity dates and repayment schedules for the refinanced debt; however, no additional proceeds resulted from this refinancing. As of April 27, 1997, the Company had credit facilities totaling $300,000,000, consisting of a 364-day $225,000,000 revolving credit facility and a two-year $75,000,000 revolving credit facility. The short-term facility is used for seasonal inventory and receivable needs, and the long-term facility is used for working capital and capital expenditures. The line expires in July 1997 (the two-year facility expires in July 1998) and is expected to be refinanced in the first quarter of fiscal F-11 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 4 -- DEBT -- Continued 1998. The facilities have no compensating balance requirements but require commitment fees of one-quarter of one percent per annum on the unused portion. Weighted average borrowings under the facilities were $165,071,000 in fiscal 1997, $133,400,000 in fiscal 1996 and $69,900,000 in fiscal 1995 at weighted average interest rates of approximately 7%, 7% and 6%, respectively. Maximum borrowings were $215,000,000 in fiscal 1997, $179,800,000 in fiscal 1996 and $117,000,000 in fiscal 1995. The outstanding balances under the facilities totaled $150,000,000 and $151,300,000 as of April 27, 1997 and April 28, 1996, respectively, at a weighted average interest rate of 7% for both years. Notes payable to institutional lenders are secured by four of the Company's major processing plants and certain other property, plant and equipment. The credit facilities are collateralized with substantially all of the Company's inventories and accounts receivable. As of April 27, 1997, the fair value of long-term debt, based on the market value of debt with similar maturities and covenants, approximates recorded values. The Company's various debt agreements contain covenants regarding current ratio, fixed charges coverage, minimum net worth and, among other restrictions, limit additional borrowings, the acquisition, disposition and leasing of assets and payments of dividends to stockholders. NOTE 5 -- INCOME TAXES Total income tax expense (benefit) was allocated as follows:
1997 1996 1995 ------- ------- ------- (IN THOUSANDS) Income from continuing operations...................................... $22,740 $10,465 $18,523 Discontinued operations................................................ - (2,600) (2,716) ------- ------- ------- $22,740 $ 7,865 $15,807 ------- ------- ------- ------- ------- -------
Income tax expense attributable to income from continuing operations consists of the following:
1997 1996 1995 ------- ------- ------- (IN THOUSANDS) Current tax expense: Federal.............................................................. $12,765 $ 8,850 $10,373 State................................................................ 2,805 1,530 1,835 ------- ------- ------- 15,570 10,380 12,208 ------- ------- ------- Deferred tax expense (benefit): Federal.............................................................. 9,424 (129) 5,301 State................................................................ (2,254) 214 1,014 ------- ------- ------- 7,170 85 6,315 ------- ------- ------- $22,740 $10,465 $18,523 ------- ------- ------- ------- ------- -------
A reconciliation of taxes computed at the federal statutory rate to the provision for income taxes is as follows:
1997 1996 1995 ----- ----- ----- (IN THOUSANDS) Federal income taxes at statutory rate................................. 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit......................... 1.7 3.9 3.6 Other.................................................................. (3.1) (4.3) (1.9) ----- ----- ----- 33.6% 34.6% 36.7% ----- ----- ----- ----- ----- -----
F-12 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 APRIL 27, 28, 1997 1996 ------- ------- (IN THOUSANDS) Deferred tax assets: Employee benefits................................................................... $28,986 $35,925 Alternative minimum tax credit...................................................... 12,278 5,607 Tax credits, carryforwards and net operating losses................................. 11,807 12,523 Inventories......................................................................... 1,377 1,297 Other assets........................................................................ (903) 317 Accrued expenses.................................................................... 12,519 12,004 ------- ------- $66,064 $67,673 ------- ------- ------- ------- Deferred tax liabilities: Property, plant and equipment....................................................... $35,072 $33,643 Investments in subsidiaries......................................................... 3,154 574 Start-up costs...................................................................... 1,197 1,805 ------- ------- $39,423 $36,022 ------- ------- ------- -------
As of April 27, 1997 and April 28, 1996, the Company had $33,901,000 and $21,416,000, respectively, of net current deferred tax assets included in prepaid expenses and other current assets. The Company had no valuation allowance related to income tax assets as of April 27, 1997 or April 28, 1996, and there was no change in the valuation allowance during fiscal 1997 and 1996. The tax credits, carryforwards, and net operating losses expire from fiscal 1998 to 2011. The alternative minimum tax credits do not expire. NOTE 6 -- ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following:
APRIL 27, APRIL 28, 1997 1996 -------- -------- (IN THOUSANDS) Payroll and related benefits...................................................... $ 43,723 $ 42,737 Self-insurance reserves........................................................... 18,112 18,914 Pension and postretirement benefits............................................... 17,518 16,006 Other............................................................................. 27,145 17,425 -------- -------- $106,498 $ 95,082 -------- -------- -------- --------
NOTE 7 -- STOCKHOLDERS' EQUITY AND PREFERRED STOCK ISSUANCE OF COMMON STOCK In fiscal 1996, the Company issued 1,094,273 shares of its common stock to Chiquita as part of the acquisition of John Morrell (See Note 2). 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. F-13 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 7 -- STOCKHOLDERS' EQUITY AND PREFERRED STOCK -- Continued In fiscal 1996, the Company authorized and issued 2,000 shares of Series C 6.75% cumulative convertible redeemable preferred stock in a private transaction for $20,000,000. In fiscal 1997, all of these shares were converted into 666,666 shares of the Company's common stock at $30.00 per share. In fiscal 1996, all of the Series B 6.75% cumulative convertible redeemable preferred stock, totaling $10,000,000, was converted into 465,116 shares of the Company's common stock at $21.50 per share. STOCK OPTIONS In fiscal 1997, as discussed in Note 1, the Company adopted SFAS 123 and elected to continue to account for its stock option plans under APB 25. Under the Company's 1984 Stock Option Plan (the "1984 Plan"), officers and certain key employees were granted incentive and nonstatutory stock options to purchase shares of the Company's common stock for periods not exceeding 10 years at prices that were not less than the fair market value of the common stock on the date of grant. Stock appreciation rights which are exercisable upon a change in control of the Company are attached to the options granted pursuant to the 1984 Plan. The 1984 Plan has expired with the exception of outstanding options. Under the Company's 1992 Stock Incentive Plan (the "1992 Plan"), management and other key employees may be granted nonstatutory stock options to purchase shares of the Company's common stock exercisable five years after grant for periods not exceeding 10 years. The exercise price for options granted prior to August 31, 1994 was not less than 150% of the fair market value of the common stock on the date of grant. On August 31, 1994, the Company amended and restated the 1992 Plan, changing the exercise price of options granted on or after that date to not less than the fair market value of the common stock on the date of grant. The Company has reserved 1,250,000 shares of common stock under the 1992 Plan. As of April 27, 1997, there were 354,500 options available for grant under the 1992 Plan. The following is a summary of transactions for the 1984 Plan and the 1992 Plan during fiscal 1995, 1996 and 1997.
AVERAGE PRICE STOCK OPTIONS PER SHARE ------------- ------------- (IN THOUSANDS) Outstanding at May 1, 1994..................................................................... 1,652,000 $ 14.79 Granted...................................................................................... 60,000 30.63 Exercised.................................................................................... (120,900) 7.89 Canceled..................................................................................... (25,000) 23.06 ------------- ------------- Outstanding at April 30, 1995.................................................................. 1,566,100 15.80 Granted...................................................................................... 345,000 25.30 Exercised.................................................................................... (59,600) 6.59 Canceled..................................................................................... (50,000) 23.06 ------------- ------------- Outstanding at April 28, 1996.................................................................. 1,801,500 17.72 Granted...................................................................................... 80,000 31.34 Exercised.................................................................................... (77,000) 6.22 Canceled..................................................................................... (270,000) 24.57 ------------- ------------- Outstanding at April 27, 1997.................................................................. 1,534,500 $ 17.81 ------------- ------------- ------------- -------------
As of April 27, 1997, April 28, 1996 and April 30, 1995, the number of options exercisable were 639,000, 716,000 and 775,600, respectively, at average per share exercise prices of $8.13, $7.92 and $7.82, respectively. F-14 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 7 -- STOCKHOLDERS' EQUITY AND PREFERRED STOCK -- Continued The following table summarizes information about stock options outstanding as of April 27, 1997. WEIGHTED STOCK OPTIONS AVERAGE WEIGHTED EXERCISE OUTSTANDING REMAINING AVERAGE PRICE RANGE APRIL 27, 1997 CONTRACTUAL LIFE EXERCISE PRICE - ---------------- -------------- ---------------- -------------- $ 8.13 639,000 2.1 $ 8.13 21.44 to 23.06 620,500 6.5 23.01 27.25 to 30.62 225,000 8.7 27.40 32.93 to 35.69 50,000 9.6 33.76 Stock options with an exercise price of $8.13 are the only options exercisable as of April 27, 1997. The fair value of each stock option granted in fiscal 1997 and 1996 is estimated using the Black-Scholes option pricing model with the following weighted average assumptions for both years: dividend yield of 0%, expected volatility of 35%, weighted average risk-free interest rate of 5.8% and expected lives of six years. The weighted average fair value of options granted is $15.23 and $12.02 for fiscal 1997 and 1996, respectively. Pro forma net income and income per share based on the fair value method as defined in SFAS 123 for fiscal 1997 and 1996 approximate recorded values. PREFERRED SHARE PURCHASE RIGHTS In fiscal 1992, the Company adopted a preferred share purchase 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 the Company is acquired in a merger or other business combination transaction, each Right will entitle its holder 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. In addition, if a person or group acquires 20% (or other applicable percentage, as summarized 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. Each Right will entitle its holder to buy five ten-thousandths of a share of Series A junior participating preferred stock, par value $1.00 per share, at an exercise price of $75 subject to adjustment. Each share of Series A junior participating preferred stock will entitle its holder to 1,000 votes and will have an aggregate dividend rate of 1,000 times the amount, if any, paid to holders of common stock. Currently, 25,000 shares of Series A junior participating preferred stock have been reserved. The Rights will expire in fiscal 2002 unless previously exercised or redeemed at the option of the board of directors for $.005 per Right. Generally, each share of common stock issued after May 31, 1991, will have one Right attached. NOTE 8 -- PENSION AND OTHER RETIREMENT PLANS The Company sponsors several defined benefit pension plans covering substantially all employees. Plans covering salaried employees provide benefits based on years of service and average salary levels. Plans covering hourly employees provide benefits of stated amounts for each year of service. The Company's funding policy is to contribute annually the minimum amount required under ERISA. The plans' assets are invested primarily in equities, debt securities, insurance contracts and money market funds. In connection with the John Morrell acquisition, the Company assumed the obligations under two non-contributory, defined benefit pension plans for substantially all full-time salaried and hourly employees. Benefit accrual for substantially all hourly employees under the defined benefit pension plan ceased as of March 1991. Current benefits for these employees are provided by a defined contribution plan covering both salaried and hourly employees. F-15 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 8 -- PENSION AND OTHER RETIREMENT PLANS -- Continued The status of the Company's plans and the components of pension expense are as follows:
APRIL 27, 1997 APRIL 28, 1996 ------------------------- ------------------------- OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED PLANS PLANS PLANS PLANS ---------- ----------- ---------- ----------- (IN THOUSANDS) Accumulated benefit obligation....................................... $ 30,974 $ 170,850 $ 29,548 $ 175,103 ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- Vested benefit obligation............................................ $ 26,483 $ 168,222 $ 25,591 $ 169,468 ---------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- Plan assets at fair value............................................ $ 47,179 $ 123,417 $ 39,127 $ 116,542 Projected benefit obligation......................................... (38,805) (177,114) (36,434) (181,306) ---------- ----------- ---------- ----------- Excess (deficiency) of plan assets over projected benefit obligation.................................. 8,374 (53,697) 2,693 (64,764) Items not recorded on balance sheets: Unrecognized net transition gain................................... (90) - (181) - Unrecognized net gain from experience differences.................. (6,799) (10,173) (3,356) (8,710) Unrecognized prior service cost.................................... 992 88 1,188 175 ---------- ----------- ---------- ----------- Prepaid (accrued) pension costs.................................... $ 2,477 $ (63,782) $ 344 $ (73,299) ---------- ----------- ---------- ----------- ---------- ----------- ---------- -----------
1997 1996 1995 ------- ------- ------- Net periodic pension cost included the following: Service costs for benefits earned........................................................... $ 4,054 $ 2,662 $ 2,079 Interest accrued on projected benefit obligation............................................ 16,299 7,532 3,089 Actual return on plan assets................................................................ (15,556) (6,691) (2,558) Net amortization and deferral............................................................... 878 (200) (304) ------- ------- ------- Net periodic pension cost................................................................ $ 5,675 $ 3,303 $ 2,306 ------- ------- ------- ------- ------- -------
In determining the projected benefit obligation in fiscal 1997 and 1996, the weighted average assumed discount rate was 8% and 7.75%, respectively, while the assumed rate of increase in future compensation was 5% in fiscal 1997 and 5% to 6% in fiscal 1996. The weighted average expected long-term rate of return on plan assets was 9% in fiscal 1997 and 1996. 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 status of the Company's plans are as follows:
APRIL 27, APRIL 28, 1997 1996 ------- ------- (IN THOUSANDS) Accumulated postretirement benefit obligation: Retirees and dependents...................................................................... $ 8,226 $ 8,996 Active plan participants..................................................................... 1,404 1,300 ------- ------- Total accumulated postretirement benefit obligation.......................................... 9,630 10,296 Unrecognized net gain........................................................................ 651 - ------- ------- Accrued postretirement benefit cost............................................................ $10,281 $10,296 ------- ------- ------- -------
In determining the accumulated postretirement benefit obligation in fiscal 1997 and 1996, the weighted average assumed discount rate was 8% and 7.75%, respectively. The assumed annual rate of increase in per capita cost of covered health care benefits is 7.5% for fiscal 1997, 6.5% for fiscal 1998 and 5.5% thereafter. F-16 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 8 -- PENSION AND OTHER RETIREMENT PLANS -- Continued The total cost of postretirement benefits was $1,072,000, $673,000 and $406,000 in fiscal 1997, 1996 and 1995, respectively. NOTE 9 -- LEASE OBLIGATIONS AND COMMITMENTS The Company leases transportation equipment under operating leases ranging from 1 to 10 years with options to cancel at earlier dates. In addition, the Company has a long-term maintenance agreement related to this equipment. Maintenance fees are based upon fixed monthly charges for each vehicle, as well as the maintenance facility itself and contingent fees based upon transportation equipment usage. The amounts shown below as minimum rental commitments do not include contingent maintenance fees. The Company has agreements, expiring in fiscal 2004 and 2008, to use two cold storage warehouses owned by a partnership, 50% of which is 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 of $3,600,000. In fiscal 1997, 1996 and 1995, the Company paid $5,372,000, $4,641,000 and $5,986,000, respectively, in fees for use of the facilities. As of April 27, 1997 and April 28, 1996, the Company had investments of $1,137,000 and $1,067,000, respectively, in the partnership which are accounted for using the equity method. Minimum rental commitments under all noncancelable operating leases and maintenance agreements are as follows:
(IN THOUSANDS) -------------- Fiscal year 1998............................................................................. $ 19,083 1999............................................................................. 16,995 2000............................................................................. 14,938 2001............................................................................. 12,970 2002............................................................................. 17,023 Thereafter....................................................................... 24,239 -------------- $105,248 -------------- --------------
Rental expense was $24,270,000 in fiscal 1997, $17,664,000 in fiscal 1996 and $15,025,000 in fiscal 1995. Rental expense in fiscal 1997, 1996 and 1995 included $3,593,000, $3,389,000 and $2,681,000 of contingent maintenance fees, respectively. The Company has a sale and leaseback arrangement for certain hog production facilities at Brown's. The arrangement provides for an early termination at predetermined amounts after 10 years. Property, plant, and equipment under capital leases as of April 27, 1997 consists of land of $2,659,000, buildings and improvements of $7,017,000 and machinery and equipment of $6,701,000, less accumulated depreciation of $5,361,000. F-17 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 9 -- LEASE OBLIGATIONS AND COMMITMENTS -- Continued Future minimum lease payments for assets under capital leases and the present value of the net minimum lease payments are as follows:
(IN THOUSANDS) -------------- Fiscal year 1998............................................................................. $ 3,876 1999............................................................................. 3,991 2000............................................................................. 4,046 2001............................................................................. 3,672 2002............................................................................. 3,190 Thereafter....................................................................... 12,793 -------------- 31,568 Less amounts representing interest............................................... (8,888) -------------- Present value of net minimum obligations......................................... 22,680 Less current portion............................................................. (1,851) -------------- Long-term capital lease obligations.............................................. $ 20,829 -------------- --------------
As of April 27, 1997, the Company had outstanding commitments for construction of hog production facilities and plant expansion projects of approximately $20,964,000. NOTE 10 -- RELATED PARTY TRANSACTIONS A director of the Company is the chairman and chief executive officer and a director of Murphy Family Farms, Inc. ("MFF"). The Company has a long-term agreement to purchase hogs from MFF at prices, which in the opinion of management, are equivalent to market. Pursuant to this agreement with MFF, the Company purchased $433,861,000, $330,033,000 and $232,130,000 of hogs in fiscal 1997, 1996 and 1995, respectively. A director of the Company is the chairman, president and chief executive officer and a director of Prestage Farms, Inc. ("PFI"). The Company has a long-term agreement to purchase hogs from PFI at prices, which in the opinion of management, are equivalent to market. Pursuant to this agreement with PFI, the Company purchased $182,576,000, $129,577,000 and $79,292,000 of hogs in fiscal 1997, 1996 and 1995, respectively. A director of the Company is a director and owns 50% of the voting stock of Maxwell Foods, Inc. ("MFI"). The Company has a long-term agreement to purchase hogs from MFI at prices, which in the opinion of management, are equivalent to market. Pursuant to this agreement with MFI, the Company purchased $109,470,000, $76,448,000 and $7,784,000 of hogs in fiscal 1997, 1996 and 1995, respectively. In fiscal 1997, 1996 and 1995, the Company purchased raw materials totaling $12,772,000, $10,069,000 and $7,535,000, respectively, from a company which is 48% owned by the chairman and chief executive officer's children. In the opinion of management, these purchases are made at prices which are equivalent to market. The Company is engaged in hog production arrangements with several related parties. See Note 3 for additional information regarding these arrangements. NOTE 11 -- DISCONTINUED OPERATIONS In fiscal 1996, the Company completed the disposition of the assets and business of Ed Kelly, Inc., its former retail electronics subsidiary, which is reported separately as discontinued operations in the consolidated statements of income. A loss from discontinued operations of $3,900,000 and $4,100,000 is reflected in fiscal 1996 and 1995, respectively. F-18 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 such as the Virginia State Water Control Board ("VSWCB"), the Virginia Department of Environmental Quality ("VDEQ"), the United States Department of Agriculture and the Occupational Safety and Health Administration. Management believes that the Company complies with all such laws and regulations in all material respects, except as set forth immediately below. The wastewater discharge permit for Smithfield Packing's and Gwaltney's plants in Smithfield, Virginia, which was last reissued in 1992, imposed more stringent effluent limitations on phosphorus and two species of nitrogen (ammonia and total Keldjahl nitrogen) than the wastewater treatment facilities at those plants were designed to meet or can meet. To achieve compliance, the Company agreed in 1991 to discontinue its wastewater discharges into the Pagan River and connect its wastewater treatment facilities to the regional sewage collection and treatment system operated by the Hampton Roads Sanitation District ("HRSD"), when available. This agreement was embodied in a consent order issued by the VSWCB in 1991 (the "1991 Order"). The entry of the 1991 Order followed several years of extensive negotiations and litigation, including an application for a variance from the phosphorus limitations, and preceded the reissuance of the wastewater discharge permit in 1992. The 1991 Order excused the Company from compliance with the permit's phosphorus effluent limitations and allowed the Company to operate under less stringent limitations on total Keldjahl nitrogen than the permit would otherwise require, pending connection of the two wastewater treatment facilities to the HRSD system. Another VSWCB consent order (the "1994 Order") excused the Company from compliance with certain other permit terms pending connection to the HRSD system. The Company connected its Gwaltney wastewater treatment facilities to the HRSD system in June 1996 and is connecting its Smithfield Packing facilities to that system in July 1997. The HRSD system was not available for the Company's use prior to these dates. The Company has made more than $2,700,000 in capital expenditures to upgrade its existing wastewater treatment facilities (and must continue to operate these facilities) to produce a wastewater that is suitable for treatment by the HRSD system. In addition to these continuing operational costs, the Company expects to pay HRSD sewer use charges in excess of $1,500,000 per year. The Company will account for these wastewater treatment costs as current period charges in the years in which such costs are incurred. Prior to connecting to the HRSD system, the Smithfield Packing and Gwaltney plants were operated under the 1991 Order and the 1994 Order. During a period from May 1994 to January 1995, the two plants had a number of violations of the permit and the consent orders. Although the Company corrected the conditions that caused these violations, the Company continued to experience intermittent exceedances and permit compliance problems at its Gwaltney and Smithfield Packing plants prior to connecting to the HRSD system. The Company regularly conducts tests of its wastewater discharges to assure compliance with the provisions of its wastewater discharge permits. Federal and state laws require that records of tests be maintained for three years. Failure to maintain these records may result in the imposition of civil penalties, and criminal sanctions may be imposed in the event of false reporting or destruction of records. In the course of a VSWCB inspection of the Smithfield Packing and Gwaltney plants in July 1994, it was discovered that records of certain tests conducted by the Company from 1991 through early 1994 could not be located. The employee responsible for the supervision of the tests and maintenance of the test records was replaced. The U.S. Department of Justice ("DOJ"), EPA and the Federal Bureau of Investigation undertook an investigation of possible criminal charges of false reporting and destruction of records. The Company cooperated fully with this federal investigation. On October 22, 1996, the former employee entered a guilty plea and was convicted in the United States District Court for the Eastern District of Virginia on 23 violations of the federal Clean Water Act, including making false reports. Eight of these violations related to his duties as the Company's employee at its Smithfield Packing and Gwaltney plants, while 15 violations were committed in connection with the former employee's outside consulting business activities for public and private entities unrelated to the Company. Neither the Company nor any of its other present or former employees has been charged with any criminal violation arising from this investigation. On August 30, 1996, VDEQ filed a civil suit against the Company in the Circuit Court of the County of Isle of Wight, Virginia, concerning permit exceedances at the Company's Smithfield Packing and Gwaltney plants. This suit, which was F-19 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 12 -- REGULATION AND LITIGATION -- Continued filed under the Virginia State Water Control Law, concerns all permit violations, including record-keeping violations, from 1986 to date that were not excused by the 1991 Order and the 1994 Order, as well as several violations of effluent limitations that were prescribed by such orders. Each violation is subject to a maximum penalty of $25,000. In March 1997, the Virginia Attorney General filed a bill of particulars specifying approximately 23,000 alleged violations, the vast majority of which concern the requirement to conduct certain tests of chlorine levels at each plant on each hour of each day. The case was initially brought to trial in state court on July 7, 1997. The VDEQ contended that the Company received an economic benefit of $4,000,000, and should pay civil penalties in that amount plus $2,000,000 for the violations. On July 9, 1997, the VDEQ withdrew its suit against the Company, but stated its intention to refile the suit at a later time. The Company intends to defend the suit vigorously, and expects to prove that essentially no economic benefit accrued to the Company and no environmental damage occurred as a result of the violations. On December 16, 1996, the DOJ, on behalf of the EPA, filed a civil suit against the Company, Gwaltney and Smithfield Packing under the federal Clean Water Act in the United States District Court for the Eastern District of Virginia in Norfolk, Virginia. This action seeks to recover civil penalties against the Company for approximately 5,500 alleged federal Clean Water Act violations at the Company's Smithfield Packing and Gwaltney plants in Smithfield, Virginia. Each violation is subject to a civil penalty not to exceed $25,000. The vast majority of the alleged violations concern permit exceedances during the last five years that were expressly excused by the 1991 Order and the 1994 Order. The remaining alleged violations duplicate the VDEQ's allegations. The Commonwealth of Virginia, acting through the VSWCB, which has primary enforcement responsibility in the Clean Water Act's cooperative federal-State permitting scheme, advised federal authorities of the 1991 Order and the 1994 Order when issued. Not-withstanding this, in its suit, the EPA asserted that the State-issued administrative consent orders do not bar a federal action seeking relief for permit violations. In an opinion dated May 30, 1997, the District Court granted the EPA's motion for summary judgment in part on liability issues, holding that the 1991 Order and the 1994 Order did not excuse the alleged permit violations and that the federal action was not otherwise precluded or barred by estoppel. In the suit by the Commonwealth of Virginia discussed above, however, the Circuit Court of the County of Isle of Wight, Virginia, based upon a cross claim filed by the Company, issued a judicial decree reforming the Company's permit and setting the compliance deadlines consistent with the Company's connection deadlines to the HRSD system. This matter has been set for trial on July 21, 1997, on the liability issues and on the issue of appropriate civil penalties. In determining the civil penalties to be assessed, the federal Clean Water Act requires that the District Court consider the seriousness of the violations, the economic benefit (if any) resulting from the violations, any history of such violations, any good-faith efforts to comply with the applicable requirements, the economic impact of the penalties on the Company, and such other matters as justice may require. The Company intends to defend the suit vigorously. The EPA is expected to contend that the Company should have spent approximately $10,000,000 in 1990 to comply with the phosphorus permit limitation in addition to connecting its facilities to the HRSD system when available. The EPA is expected to seek civil penalties which include this claimed economic benefit plus an additional gravity-based amount for the permit violations. The Company expects to prove that no economic benefit accrued to the Company and that no environmental damage occurred as a result of the violations. The Company will also show that it has acted in good faith and has complied with the VSWCB's consent order requirements, at great expense, to connect to the HRSD system and discontinue its discharges into the Pagan River. Based on its knowledge, as summarized above, of the facts and circumstances surrounding the alleged violations in these suits, the Company believes that the ultimate resolution of the suits will not have a material adverse effect on the Company's financial position or annual results of operations. F-20 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 13 -- QUARTERLY RESULTS OF OPERATIONS (Unaudited)
FIRST SECOND THIRD FOURTH -------- -------- ---------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 Sales...................................................................... $892,870 $969,226 $1,080,979 $927,536 Gross profit............................................................. 58,762 73,577 88,704 99,895 Net income................................................................. 746 9,017 15,734 19,440 Net income per common share................................................ .02 .46 .82 1.01 1996 Sales...................................................................... $367,328 $455,799 $ 687,000 $873,766 Gross profit............................................................. 21,023 35,412 56,319 67,513 Income (loss) from continuing operations................................... (2,594) 4,615 10,787 6,978 Discontinued operations.................................................... (1,800) - (2,100) - Net income (loss).......................................................... (4,394) 4,615 8,687 6,978 Income (loss) per common share: Continuing operations.................................................... $ (.16) $ .26 $ .58 $ .35 Discontinued operations.................................................. (.11) - (.12) - Net income (loss)........................................................ (.27) .26 .46 .35
F-21 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE TO THE STOCKHOLDERS OF SMITHFIELD FOODS, INC. We have audited in accordance with generally accepted auditing standards the financial statements included in the Form 10-K Annual Report of Smithfield Foods, Inc. for the fiscal year ended April 27, 1997, and have issued our report thereon dated June 6, 1997. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed on the Index to Financial Statements and Financial Schedule filed as a part of the Company's Form 10-K Annual Report is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Richmond, Virginia June 6, 1997 - F-22 - SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT SMITHFIELD FOODS, INC. PARENT COMPANY BALANCE SHEETS As of April 27, 1997 and April 28, 1996
APRIL 27, APRIL 28, ASSETS 1997 1996 - -------------------------------------------------------------------- ---------------------------------------- (in thousands) Current assets: Cash $ 38 $ 563 Accounts receivable 3,675 2,346 Receivables from related parties 1,414 9,150 Deferred income taxes 33,901 6,857 Other 5,137 1,770 ---------------------------------------- Total current assets 44,165 20,686 ---------------------------------------- Investments in and net advances to subsidiaries, at cost plus equity in undistributed earnings 444,149 303,642 ---------------------------------------- Other assets: Investments in partnerships 41,753 28,402 Property, plant and equipment, net 9,838 8,612 Other 16,476 15,071 ---------------------------------------- Total other assets 68,067 52,085 ---------------------------------------- $556,381 $376,413 ======================================== LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------------------- Current liabilities: Note payable $ 2,500 $ 3,000 Current portion of long-term debt 4,263 3,304 Accounts payable 5,167 1,325 Accrued expenses 28,617 16,763 Income taxes payable 1,789 229 ---------------------------------------- Total current liabilities 42,336 24,621 ---------------------------------------- Long-term debt 192,384 64,836 ---------------------------------------- Deferred income taxes and other noncurrent liabilities 14,175 24,439 ---------------------------------------- Redeemable preferred stock - 20,000 ---------------------------------------- Stockholders' equity 307,486 242,517 ---------------------------------------- $556,381 $376,413 ========================================
The accompanying notes are an integral part of these balance sheets F-23 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT SMITHFIELD FOODS, INC. PARENT COMPANY STATEMENTS OF OPERATIONS
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED APRIL 27, APRIL 28, APRIL 30, 1997 1996 1995 --------------------------------------------------------- (in thousands) Sales $ - $ - $ - Cost of sales 1,820 (2,540) (1,368) --------------------------------------------------------- Gross profit (1,820) 2,540 1,368 General and administrative expenses, net of allocation to subsidiaries 10,911 5,780 2,680 Depreciation expense 903 892 496 Interest expense 16,434 2,556 2,596 ------------------------------------------------------- Loss before income taxes and equity in earnings of subsidiaries (30,068) (6,688) (4,404) Income tax benefit (12,562) (2,400) (1,003) -------------------------------------------------------- Loss before equity in earnings of subsidiaries (17,506) (4,288) (3,401) Equity in earnings of subsidiaries 62,443 20,174 31,241 -------------------------------------------------------- Net income $ 44,937 $15,886 $27,840 =======================================================
The accompanying notes are an integral part of these statements F-24 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT SMITHFIELD FOODS, INC. PARENT COMPANY STATEMENTS OF CASH FLOWS
52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED APRIL 27, APRIL 28, APRIL 30, 1997 1996 1995 -------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income $ 44,937 $ 15,886 $ 27,840 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,040 1,162 619 Gain on sale of property and equipment (2,328) (1) (5) Change in deferred income taxes and other noncurrent liabilities (37,308) 5,343 6,748 Increase in accounts receivable (1,329) (2,171) (55) Decrease (increase) in receivables from related parties 45 6,615 (9,431) (Increase) decrease in other current assets (3,367) (1,318) 65 Increase in accounts payable and accrued expenses 15,696 260 546 (Increase) decrease in refundable income taxes - 3,458 (3,458) Increase (decrease) in income taxes payable 1,560 229 (3,154) Increase in other assets (1,541) (4,778) (8,558) -------------------------------------------------------------- Net cash provided by operating activities 17,405 24,685 11,157 -------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (3,226) (2,987) (4,534) Proceeds from sale of property, plant and equipment 3,424 38 7 Increase in investments in and advances to subsidiaries, net of common stock issued to acquire John Morrell & Co. (80,800) (36,649) (49,669) Investment in partnerships (5,660) (2,376) (4,123) -------------------------------------------------------------- Net cash used in investing activities (86,262) (41,974) (58,319) ------------------------------------------------------------ Cash flows from financing activities: Proceeds from issuance of short-term debt (500) 500 2,500 Proceeds from issuance of long-term debt 140,000 - 50,000 Principal payments on long-term debt (71,200) (2,420) (6,738) Exercise of options 1,270 767 1,901 Issuance of preferred stock - 20,000 - Preferred dividends (1,238) (1,152) (675) -------------------------------------------------------------- Net cash provided by financing activities 68,332 17,695 46,988 -------------------------------------------------------------- Net (decrease) increase in cash (525) 406 (174) Cash at beginning of year 563 157 331 ------------------------------------------------------------ Cash at end of year $ 38 $ 563 $ 157 ============================================================
The accompanying notes are an integral part of these statements F-25 SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT SMITHFIELD FOODS, INC. NOTES TO PARENT COMPANY FINANCIAL STATEMENTS April 27, 1997 and April 28, 1996 1. The Notes to Parent Company Financial Statements should be read in conjunction with the Notes to Registrant's Consolidated Financial Statements included herein. 2. Restricted assets of Registrant: Existing loan covenants contain provisions which limit the amount of funds available for transfer from the subsidiaries to Smithfield Foods, Inc. without the consent of certain lenders. 3. Accrued expenses as of April 27, 1997 and April 28, 1996 are as follows: (In thousands) 1997 1996 -------------- ---- ---- Self-insurance reserves $14,151 $ 8,784 Payroll and related benefits 6,465 5,696 Interest expense 4,162 402 Other 3,839 1,881 ------- ------- $28,617 $16,763 ======= ======= 4. Long-Term Debt: In fiscal 1997, the Registrant privately placed $140,000,000 of senior secured notes. The proceeds of the financing were used to repay $65,200,000 of long-term bank debt and for investments in and advances to subsidiaries. In conjunction with the placement of these notes, the Registrant refinanced $59,707,000 of existing long-term debt previously recorded by its subsidiaries. The result of the refinancing was to transfer debt to the parent and revise maturity dates and repayment schedules for the refinanced debt. No additional proceeds resulted from this refinancing. As of April 27, 1997, the Registrant is guaranteeing $20,173,000 of capital lease obligations of its subsidiaries and lines of credit aggregating $300,000,000 of which $150,000,000 is outstanding. Scheduled maturities of the Registrant's long-term debt consists of the following: Fiscal Year (In thousands) ----------- --------- 1998 $ 4,263 1999 3,981 2000 3,083 2001 3,083 2002 3,083 Thereafter 179,154 --------- $196,647 ========= 5. The amount of dividends received from subsidiaries in fiscal 1997 and 1996 was $65,316,000 and $5,000,000, respectively. 6. In fiscal 1997, all of the Series C 6.75% cumulative convertible redeemable preferred stock, totaling $20,000,000, was converted into the Registrant's common stock. F-26 7. Supplemental disclosures of cash flow information (in thousands):
1997 1996 1995 ---- ---- ---- Interest paid, net of amount capitalized $11,106 $ 1,807 $ 2,403 ======= ======= ======= Income taxes $15,043 $ 1,685 $16,254 ======= ======= ======= Noncash investing and financing activities: Refinancing of long-term debt $59,707 $ - $ - ======= ======= ======= Conversion of preferred stock to common stock $20,000 $10,000 $ - ======= ======= ======= Common stock issued for acquisition $ - $33,000 $ - ======= ======= ======= Conversion of receivables from related parties to investments in partnerships $ 7,691 $ - $12,500 ======= ======= =======
F-27 EX-4 2 EXHIBIT 4.5 EXHIBIT 4.5 Execution Counterpart ============================================================================ FIVE-YEAR CREDIT AGREEMENT dated as of July 15, 1997 among SMITHFIELD FOODS, INC., THE SUBSIDIARY GUARANTORS PARTY HERETO, THE LENDERS PARTY HERETO and THE CHASE MANHATTAN BANK, as Administrative Agent ------------------------- CHASE SECURITIES INC., as Arranger and COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH, as Co-Agent ============================================================================= FIVE-YEAR CREDIT AGREEMENT dated as of July 15, 1997, among SMITHFIELD FOODS, INC., a Delaware corporation (the "Borrower"), each of the Subsidiaries of the Borrower identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages hereto or that, pursuant to Section 5.09 hereof, shall become a "Subsidiary Guarantor" hereunder (individually, a "Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors" and, together with the Borrower, the "Obligors"), each of the lenders that is a party hereto identified under the caption "LENDERS" on Schedule 2.01 hereto or that, pursuant to Sections 2.08 or 10.04 hereof, shall become a "Lender" hereunder (individually, a "Lender" and, collectively, the "Lenders") and THE CHASE MANHATTAN BANK, in its capacity as administrative agent for the Lenders hereunder (the "Administrative Agent"). The Borrower and its subsidiaries are engaged as an integrated group in the business of pork production, hog farming, pork processing and manufacturing spices and chemicals, and in related businesses, and in furnishing the required supplies, services, equipment, credit and other facilities for such integrated operation. The integrated operation requires financing on such a basis that credit supplied to the Borrower be made available from time to time to the Subsidiary Guarantors, as required for the continued successful operation of the Obligors, separately, and the integrated operation as a whole. In that connection, the Obligors have requested that the Lenders extend credit to the Borrower (to be made available by the Borrower directly or indirectly to the Subsidiary Guarantors and other of its Subsidiaries in the circumstances specified herein) in an aggregate principal or face amount not exceeding $300,000,000 to refinance certain existing indebtedness of the Obligors and to finance the working capital needs and for other general corporate purposes of the Borrower and its subsidiaries in the ordinary course of business. To induce the Lenders to extend such credit, the Obligors, the Lenders and the Administrative Agent propose to enter into this Agreement pursuant to which the Lenders will make loans to the Borrower, and issue letters of credit for account of the Obligors, and each Subsidiary Guarantor will guarantee the credit so extended to the Borrower and each of the Obligors will agree to execute and deliver a security agreement providing for security interests and liens to be granted by the Obligors on certain of their respective properties as collateral security for the obligations of the Obligors to the Lenders and the Administrative Agent hereunder and, in the case of each Obligor (other than the Borrower) as collateral security for the payment of certain of the Intercompany Notes (as defined below). Each of the Obligors expects to derive benefit, directly or indirectly, from the credit so extended to the Borrower and each other Subsidiary Guarantor, both in its separate capacity and as a member of the integrated group, since the successful operation of each of the Obligors is dependent on the continued successful performance of the functions of the integrated group as a whole. Accordingly, the parties hereto agree as follows: ARTICLE I Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Acquisition" means any transaction, or any series of related transactions, consummated after the date of this Agreement, by which the Borrower and/or any of its Subsidiaries (a) acquires any going business or all or substantially all of the assets of any Person, whether through purchase of assets, merger or otherwise, (b) directly or indirectly acquires control of at least a majority (in number of votes) of the securities of a corporation that have ordinary voting power for the election of directors or (c) directly or indirectly acquires control of at least a majority of the partner, member or other ownership interests of any Person that is not a corporation. "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Aggregate Consideration" means, in connection with any Acquisition, an amount equal to (a) the aggregate consideration, in whatever form (including, without limitation, cash payments, the principal amount of promissory notes and Indebtedness assumed, the aggregate amounts payable to acquire, extend and exercise any option, the aggregate amount payable under non- competition agreements and management agreements, and the fair market value of other property delivered) paid, delivered or assumed by the Borrower and its Subsidiaries for such Acquisition minus (b) the amount, if any, of any increase in the Consolidated Borrowing Base resulting from such Acquisition on the date of the Consummation thereof. "Alternate Base Rate" means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. "Applicable Percentage" means, with respect to any Lender, the percentage of the Total Commitment represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Total Commitment most recently in effect, giving effect to any assignments. "Applicable Rate" means, with respect to any ABR Loan, Eurodollar Revolving Loan, Federal Funds Loan or Swingline Loan, or with respect to the Commitment Fees payable hereunder, for each Rate Period (as defined below), the respective rate per annum indicated below for Loans of such Type or Commitment Fees, as applicable, opposite the applicable Interest Coverage Ratio (as defined below) indicated below for such Rate Period: Applicable Rate for Eurodollar Loans, Federal Applicable Funds Loans and Interest Coverage Rate for Letters of Commitment Ratio ABR Loans Credit Fees - ----------------- ---------- --------------- ---------- Greater than or -0- 0.750% 0.200% equal to 5.0 to 1 ("Tier I") Less than 5.0 to 1 -0- 0.875% 0.225% and greater than or equal to 4.5 to 1 ("Tier II") Less than 4.5 to 1 -0- 1.000% 0.250% and greater than or equal to 4.0 to 1 ("Tier III") Less than 4.0 to 1 0.125% 1.125% 0.275% and greater than or equal to 3.5 to 1 ("Tier IV") Less than 3.5 to 1 0.250% 1.250% 0.300% ("Tier V") For purposes hereof, (i) a "Rate Period" means (x) initially, the period commencing on the date hereof to but not including the first Rate Reset Date (as defined below) thereafter and (y) thereafter, the period commencing on a Rate Reset Date to but not including the immediately following Rate Reset Date; (ii) a "Rate Reset Date" means, with respect to any fiscal quarter or fiscal year, the earlier of (x) the date on which the Borrower delivers the certificate referred to in Section 5.01(c) (a "Compliance Certificate") in respect of such fiscal quarter or fiscal year, as the case may be, and (y) the date on which the Borrower is required to have delivered the financial statements under Section 5.01(a) or (b) in respect of such fiscal quarter or fiscal year, as the case may be (provided that the first Rate Reset Date shall be determined by reference to the fiscal quarter of the Borrower ending on October 30, 1997); and (iii) "Interest Coverage Ratio" means, for any Rate Period, the ratio of Consolidated EBITDA for the period of four fiscal quarters of the Borrower ending on or most recently prior to the first day of such Rate Period to Consolidated Interest Expense for such period of four consecutive fiscal quarters. Anything in this Agreement to the contrary notwithstanding, but subject to Section 2.12(d), the Applicable Rate shall be (i) the applicable rate provided for in Tier V in the table set forth above in this definition (x) during any period when an Event of Default shall have occurred and be continuing, or (y) if the applicable Compliance Certificate shall not be delivered within the time that the applicable financial statements are required to be delivered by Section 5.01(a) or (b), as the case may be (but only, in the case of this clause (y), with respect to the portion of such Rate Period prior to the delivery of such Compliance Certificate) and (ii) subject to the preceding clause (i), the applicable rate provided for in Tier III in the table set forth above in this definition during the first Rate Period. "Arranger" means Chase Securities Inc. "Assessment Rate" means, for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in dollars at the offices of such member in the United States; provided that if, as a result of any change in any law, rule or regulation, it is no longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall be determined by the Administrative Agent to be representative of the cost of such insurance to the Lenders. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent. "Assuming Lender" has the meaning assigned to such term in Section 2.08(d). "Availability Period" means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments. "Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrowing" means (a) Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect or (b) a Swingline Loan. "Borrowing Base" means, at any time for any First Tier Subsidiary, an amount equal to (a) 75% of the result obtained from the following calculation: (i) the aggregate amount of Eligible Inventory (valued at the lower of (x) cost, on a first- in-first-out basis or (y) fair market value) of such First Tier Subsidiary and its subsidiaries that are Subsidiary Guarantors, determined on a consolidated basis, plus (ii) the aggregate amount of Eligible Receivables of such First Tier Subsidiary and its subsidiaries that are Subsidiary Guarantors at such time, in each case as reflected in the Borrowing Base Certificate then most recently received by the Administrative Agent hereunder minus (iii) reserves maintained by such First Tier Subsidiary and its subsidiaries that are Subsidiary Guarantors in respect of Eligible Receivables relating to discounts, advertising, allowances and similar items minus (b) the aggregate amount of outstanding checks for the purchase of Farm Products (as defined in the Security Agreement) drawn by such First Tier Subsidiary and its Subsidiaries that have not cleared. "Borrowing Base Certificate" means a certificate substantially in the form of Exhibit B hereto signed by a Financial Officer. "Borrowing Request" means a request by the Borrower for a Revolving Borrowing in accordance with Section 2.03. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Expenditures" means, with respect to any Person, for any period, all expenditures made and liabilities incurred during such period for the acquisition of assets (including any replacement in the ordinary course of business without reduction for sales, retirements or replacements) which are not, in accordance with GAAP, treated as expense items for such Person in the year made or incurred or as a prepaid expense applicable to a future year or years, and shall include (i) all Capital Lease Obligations and (ii) an amount (not less than zero) equal to any net increase from the beginning of such period through the end of such period in the aggregate outstanding principal amount of advances to hog production operations (other than Subsidiaries) in which the Borrower or any of its Subsidiaries has invested as a joint venturer or partner. The amount of Capital Expenditures in any period shall be calculated without duplication in accordance with GAAP. Notwithstanding the foregoing, with respect to the acquisition of replacement sows by the Borrower or any of its Subsidiaries in the ordinary course of business, the amount included in Capital Expenditures shall be the acquisition cost of such sows, reduced by the proceeds received by the Borrower or any of its Subsidiaries from the sale of the replaced sows. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Cash Flow" means, for any period, the sum, for the Borrower and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) Consolidated Net Income plus (b) depreciation and amortization (to the extent deducted in determining Consolidated Net Income) for such period. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than 25% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated; or (c) the acquisition of direct or indirect Control of the Borrower by any Person or group. "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or Issuing Bank (or, for purposes of Section 2.14(b), by any lending office of such Lender or by such Lender's or Issuing Bank's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Chase" means The Chase Manhattan Bank. "Class", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Swingline Loans. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Collateral Agent" means Chase, as collateral agent under the Security Agreement. "Commitment" means, with respect to each Lender, the commitment of such Lender to make Revolving Loans and to acquire participations in Letters of Credit and Swingline Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder, as such commitment may be (a) reduced or increased from time to time pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 10.04. The initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. The initial aggregate amount of the Total Commitment is $300,000,000. "Commitment Fee" means the fees payable at the Applicable Rate pursuant to Section 2.11(a). "Commitment Increase" has the meaning assigned to such term in Section 2.08(d). "Commitment Increase Date" has the meaning assigned to such term in Section 2.08(d). "Competitive Loan" means a Loan made pursuant to Section 2.04. "Consolidated Borrowing Base" means, at any time, the aggregate amount of the Borrowing Bases at such time of the First Tier Subsidiaries that are Subsidiary Guarantors. "Consolidated Current Ratio" means, on any date, the ratio of (i) the consolidated current assets of the Borrower and its Subsidiaries on such date to (ii) the sum on such date (without duplication) of the consolidated current liabilities of the Borrower and its Subsidiaries plus the aggregate outstanding principal amount of the Loans and Pari Passu Debt plus the aggregate principal amount of Indebtedness of the Borrower and its Subsidiaries that would be characterized as current liabilities but for the existence of the Commitments hereunder or any commitments of lenders to make Pari Passu Debt available to the Borrower or any of its Subsidiaries. "Consolidated EBITDA" means, for any period, an amount equal to (a) the sum for such period of Consolidated Net Income and, to the extent subtracted in determining such Consolidate Net Income, provisions for (i) taxes based on income, (ii) Consolidated Interest Expense and (iii) depreciation and amortization expense minus (b) any items of gain (or plus any items of loss) which were included in determining such Consolidated Net Income and were (i) not realized in the ordinary course of business or (ii) the result of any sale of assets. "Consolidated Fixed Charges" means, on any date, the sum (without duplication) of (i) the aggregate amount of all Capital Expenditures and the Aggregate Consideration for all Acquisitions by the Borrower and its Subsidiaries during the preceding four quarters plus (ii) scheduled principal payments on Indebtedness of the Borrower and its Subsidiaries due within the succeeding four quarters (including any principal payments to be made as a result of mandatory reductions under revolving credit facilities, but excluding principal payments at maturity of Pari Passu Debt) plus (iii) the gross interest accrued on such Indebtedness during the preceding four quarters plus (iv) the aggregate amount of any dividends paid or other distributions made during the preceding four quarters. "Consolidated Intangible Assets" means, on any date, the aggregate amount of Intangible Assets of the Borrower and its Subsidiaries, determined on a consolidated basis at such time. "Consolidated Interest Expense" means, for any period, the consolidated interest expense of the Borrower and its Subsidiaries (whether cash or non-cash interest expense or deferred or accrued interest expense and the interest portion of all Capital Lease Obligations during such period). "Consolidated Net Income" means, for any period, the net income (or deficit) of the Borrower and its Subsidiaries; provided, however, that there shall be excluded from Consolidated Net Income (i) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Borrower or such Person's assets are acquired by the Borrower, (ii) the income (or deficit) of any Person (other than a consolidated Subsidiary) in which the Borrower has an ownership interest, except to the extent that any such income has been actually received by the Borrower in the form of dividends or similar distributions, (iii) the undistributed earnings of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions of such Subsidiary is restricted and (iv) any income or gain resulting from any write-up or revaluation of the assets of the Borrower or its Subsidiaries. "Consolidated Shareholders' Equity" means, on any date, the aggregate amount of shareholders' equity of the Borrower and its Subsidiaries on such date, determined on a consolidated basis. "Consolidated Tangible Net Worth" means, on any date, the excess of Consolidated Shareholders' Equity over Consolidated Intangible Assets on such date. "Consolidated Total Liabilities" means, on any date, the aggregate amount at which all liabilities of the Borrower and its Subsidiaries (including, without limitation, (a) all Guarantees of Indebtedness by such Persons and (b) all amounts attributable to Mandatorily Redeemable Stock of the Borrower and its Subsidiaries to the extent that such Mandatorily Redeemable Stock is redeemable within one year of such date) would be shown on a consolidated balance sheet of such Persons at such time. "Consolidated Working Capital" means, on any date, the excess of (i) the consolidated current assets of the Borrower and its Subsidiaries on such date over (ii) the sum on such date (without duplication) of the consolidated current liabilities of the Borrower and its Subsidiaries plus the aggregate outstanding principal amount of the Loans and Pari Passu Debt plus the aggregate principal amount of any commercial paper or other short-term Indebtedness of the Borrower and its Subsidiaries that would be characterized as current liabilities but for the existence of the Commitments hereunder or any commitments of lenders to make Pari Passu Debt available to the Borrower or any of its Subsidiaries. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Debt Issuance" means any issuance or incurrence by the Borrower or any of its Subsidiaries of any Indebtedness. "Debt Service" means, for any period, the sum, for the Borrower and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) all regularly scheduled payments or prepayments of principal of Indebtedness made during such period plus (b) all Interest Expense for such period. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.06. "Disposition" means any sale, assignment, transfer or other disposition of any property (whether now owned or hereafter acquired) by the Borrower or any of its Subsidiaries to any other Person excluding any sale, assignment, transfer or other disposition of any property sold or disposed of in the ordinary course of business or the revenue from which would otherwise be included in the calculation of Cash Flow. "dollars" or "$" refers to lawful money of the United States of America. "Effective Date" means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 10.02). "Eligible Inventory" means, as at any date with respect to any Person, all Inventory (i) that is owned by (and in the possession or under the control of) such Person as at such date, (ii) that is located in a jurisdiction in the United States of America, (iii) as to which (before the Security Termination Date) appropriate Uniform Commercial Code financing statements have been filed naming such Person as "debtor" and the Collateral Agent as "secured party", and over which (before the Security Termination Date) the Collateral Agent has a perfected security interest subject to no prior or equal Lien (other than the pari passu security interest securing the Pari Passu Debt), subject to Section 10.13, (iv) that meets all standards imposed by any governmental agency or department or division thereof having regulatory authority over such inventory, its use or sale, (v) for which such Person has made full and final payment and (vi) that is currently usable in the manufacturing process or saleable in the normal course of such Person's business without any notice to, or consent of, any governmental agency or department or division thereof (excluding however, except to the extent that the Required Lenders otherwise agree with respect to any specific customer or third-party processor, any such Inventory that has been shipped to a customer of such Person, including third-party processors, even if on a consignment or "sale or return" basis, and excluding repair and replacement parts for machinery and equipment). Notwithstanding anything in clause (vi) of the foregoing sentence to the contrary (but subject to clauses (i) through (v) of the foregoing sentence), Eligible Inventory shall include but not be limited to all barrows, gilts, boars, sows, feeder pigs, suckling pigs, nursery pigs and commercial sows and boars, multiplier hogs, nucleus hogs and other hogs (collectively, "Hogs") at the time of determination owned and being raised at facilities owned by such Person or at facilities subject to an exclusive contract with such Person (i.e., the operator of such facility has no similar contract with any other Person) for the feeding and raising of Hogs. "Eligible Receivables" means, as at any date with respect to any Person, the aggregate amount of all accounts (as defined in the Uniform Commercial Code) of such Person arising from the sale by such Person of Inventory in the ordinary course of its business and (before the Security Termination Date) over which the Collateral Agent has a perfected security interest subject to no prior or equal Lien (other than the pari passu security interest securing the Pari Passu Debt), subject to Section 10.13, other than the following (determined without duplication): (a) any account not payable in Dollars, (b) any account that is not paid within 60 days (subject to the last sentence of this definition of "Eligible Receivables") after the date of the invoice for the related inventory, (c) any account owing from a subsidiary or Affiliate of such Person, (d) any account (other than an LC-Backed Receivable) owing from an account debtor whose principal place of business is located outside of the United States of America, provided that the aggregate amount of accounts that are not excluded from the definition of "Eligible Receivables" pursuant to this clause (d) by virtue of their constituting LC-Backed Receivables (other than LC-Backed Receivables the related letter of credit for which has been delivered to the Collateral Agent in pledge under the Security Agreement) may not exceed 10% of the Consolidated Borrowing Base, (e) any account owing from an account debtor that is insolvent or the subject of a bankruptcy case, (f) any account that is more than 28 days (subject to the last sentence of this definition of "Eligible Receivables") past due, (g) all accounts of any account debtor if more than 20% of the aggregate amount of the accounts owing from such account debtor are more than 28 days (subject to the last sentence of this definition of "Eligible Receivables") past due, (h) all accounts owing from any account debtor if the accounts owing from such account debtor and its Affiliates at the time exceed 10% of all accounts then payable to the Obligors, (i) any account as to which there is any unresolved dispute with the respective account debtor (but only to the extent of the amount thereof in dispute), (j) any account evidenced by an instrument (as defined in the Uniform Commercial Code) not in the possession of the Collateral Agent and containing all necessary endorsements, (k) any account representing an obligation for goods sold on consignment, approval or a sale-or-return basis or subject to any other repurchase, return or offset arrangement, (l) any amount as to which there is an offsetting liability from the Borrower, any Subsidiary or any Affiliate of the Borrower (but only to the extent of the amount of such offsetting liability), and (m) all amounts reserved by any Subsidiary or Affiliate of the Borrower related to advertising and promotional programs for the respective account debtor (excluding general promotional reserves that are not reserved on a specific account basis). In recognition of the fact that, on the date of this Agreement, the accounting systems of certain Subsidiaries are unable to track the number of days specified in clauses (b), (f) and (g) above, such numbers of days for each such Subsidiary shall be deemed for purposes hereof to be the number of days that the accounting system of such Subsidiary can track that is closest to such specified number of days, provided that (i) if such specified number of days is exactly equidistant from two numbers of days that can be so tracked, such specified number of days shall be deemed to be the lower of such two numbers, (ii) if the closest such number of days that can be so tracked is more than seven days higher than such specified number of days, such specified number of days shall be deemed to be the closest number of days that can be so tracked that is lower than such number of specified days and (iii) this sentence shall cease to have any effect after the date falling six months after the date hereof. "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "Equity Issuance" means any issuance or sale by the Borrower after the Effective Date of any of its capital stock. "Equity Rights" means, with respect to any Person, any outstanding subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, any stockholders' or voting trust agreements) for the issuance, sale, registration or voting of, or outstanding securities convertible into, any additional shares of capital stock of any class, or partnership or other ownership interests of any type in, such Person. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "Event of Default" has the meaning assigned to such term in Article VII. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender, the Issuing Banks or any other recipient of any payment to be made by or on account of any obligation of the Obligors hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which an Obligor is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Obligors under Section 2.18(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 2.16(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.16(a). "Existing Credit Agreement" means the Fourth Amended, Restated and Continued Revolving Credit Agreement, dated as of April 30, 1996, among the Subsidiary Guarantors, Rabobank Nederland, as agent, and the banks referred to therein, as amended. "Existing Letters of Credit" means all letters of credit issued by Rabobank under the Existing Credit Agreement that are outstanding as of the Effective Date and listed on Schedule 1.01 hereto. "Federal Funds", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Federal Funds Rate. "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Federal Funds Rate" means the "offered rate", as determined by the Administrative Agent, for overnight federal funds. "Financial Officer" means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower. "First Tier Subsidiary" means (i) a Subsidiary all of the issued and outstanding capital stock of which is owned directly by the Borrower or (ii) Brown's of Carolina, Inc. "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "GAAP" means generally accepted accounting principles in the United States of America. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" means any swap agreement, cap agreement, collar agreement, put or call, futures contract, forward contract or similar agreement or arrangement entered into in respect of interest rates, foreign exchange rates or prices of commodities. "Increasing Lender" has the meaning assigned to such term in Section 2.08(d). "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. The Indebtedness of a Person shall not include obligations of such Person to pay rent under operating leases to the extent that such obligations do not constitute Capital Lease Obligations. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Intangible Assets" means, with respect to any Person on any date, the following: (a) patents, copyrights, trademarks, trade names, service marks, brand names, franchises, goodwill, experimental expenses and other similar intangibles; (b) deferred assets (other than prepaid taxes, prepaid insurance, prepaid contract payments, prepaid license fees and other prepaid expenses which are refundable); (c) unamortized debt discount and expense; and (d) all other property or assets (whether real, personal or mixed, and whether tangible or intangible) which would be considered to be intangible under GAAP. "Intercompany Note" has the meaning assigned to such term in Section 5.08(a). "Intercreditor Agreement" means an intercreditor agreement substantially in the form of Exhibit G hereto, as the same shall be modified and supplemented and in effect from time to time. "Interest Election Request" means a request by the Borrower to convert or continue a Revolving Borrowing in accordance with Section 2.07. "Interest Expense" means, for any period, the sum, for the Borrower (determined without duplication in accordance with GAAP), of the following: (a) all interest in respect of Indebtedness accrued or capitalized during such period (whether or not actually paid during such period) plus (b) the net amounts payable (or minus the net amounts receivable) under Hedging Agreements related to interest and accrued during such period (whether or not actually paid or received during such period). "Interest Payment Date" means (a) with respect to any ABR Revolving Loan, the last day of each March, June, September and December, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period, (c) with respect to any Federal Funds Revolving Loan, the last day of each month and (d) with respect to any Swingline Loan, the day that such Loan is required to be repaid. "Interest Period" means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Inventory" means, collectively, "Inventory" and "Farm Products" as defined in the Security Agreement. "Investment" means, for any Person: (a) the acquisition (whether for cash, property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of any other Person or any agreement to make any such acquisition (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such short sale); (b) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such Person, but excluding any such advance, loan or extension of credit having a term not exceeding 90 days representing the purchase price of programming, advertising, inventory or supplies sold in the ordinary course of business); (c) the entering into of any Guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person or (d) any Hedging Agreement having the commercial effect of a synthetic or derivative Investment. "Issuing Bank" means Chase or Rabobank, in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.05(i). Chase may, in its discretion, arrange for one or more Letters of Credit to be issued by its Affiliates, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate. Any references herein to the "relevant" Issuing Bank shall mean the issuer of the related Letter of Credit. "LC-Backed Receivable" means an account (as defined in the Uniform Commercial Code) to the extent that the payment thereof is backed by a letter of credit issued for account of the related account debtor, or confirmed, by a domestic office of a commercial bank organized under the laws of the United States of America or any state thereof the short term deposits of which are rated A-1 or better by S&P or P-1 by Moody's. "LC Disbursement" means a payment made by an Issuing Bank pursuant to a Letter of Credit. "LC Exposure" means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of any Obligor at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time. "Letter of Credit" means any letter of credit issued pursuant to this Agreement and any Existing Letter of Credit. "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. The interest of a lessor in any property leased pursuant to an operating lease shall not constitute a Lien over such property securing obligations of the related lessee to pay rent under such lease to the extent that such obligations do not constitute Capital Lease Obligations. "Loan Documents" means this Agreement, any promissory notes evidencing Loans hereunder, any Intercompany Notes, and the Security Documents. "Loans" means the loans made by the Lenders to the Borrower pursuant to this Agreement. "Mandatorily Redeemable Stock" means, with respect to any Person, each share of such Person's capital stock to the extent that it is (a) redeemable, payable or required to be purchased or otherwise retired or extinguished, or convertible into Indebtedness of such Person (i) at a fixed or determinable date, whether by operation of a sinking fund or otherwise, (ii) at the option of any Person other than such Person or (iii) upon the occurrence of a condition not solely within the control of such Person, such as redemption required to be made out of future earnings or (b) convertible into other Mandatorily Redeemable Stock of such Person. "Margin Stock" means margin stock within the meaning of Regulations G, U and X. "Material Adverse Effect" means a material adverse effect on (a) the Transactions, (b) the business, assets, operations, property, prospects or condition, financial or otherwise, of the Obligors taken as a whole, (c) the ability of any Obligor to perform any of its obligations under this Agreement or the other Loan Documents or (d) the rights of or benefits available to the Lenders under this Agreement or the other Loan Documents. "Material Indebtedness" means Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one or more Hedging Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $5,000,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of the Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. "Maturity Date" means the fifth anniversary of the date hereof. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Funds Flow" means, on any date, the amount (not less than zero) resulting from the following calculation (without duplication): (i) Cash Flow for the period commencing on June 30, 1997 and ending on the last day of the fiscal quarter of the Borrower ending on or most recently ended prior to such date plus (ii) the proceeds of any Debt Issuance (other than Indebtedness incurred hereunder or Pari Passu Debt) or Equity Issuance received during the period (the "Calculation Period") commencing on the date hereof and ending on such date plus (iii) the aggregate amount of proceeds of Dispositions received by the Borrower and its Subsidiaries during the Calculation Period (in the case of each of (i), (ii) and (iii) above, to the extent the proceeds thereof have been applied to reduce Indebtedness incurred hereunder or Pari Passu Debt) minus (iv) Restricted Payments made in cash during the Calculation Period to any Person other than the Borrower or any wholly-owned Subsidiary minus (v) Capital Expenditures and the Aggregate Consideration for all Acquisitions to the extent paid in cash during the Calculation Period (except to the extent made directly from the proceeds of Indebtedness incurred hereunder or Pari Passu Debt) minus (vi) the aggregate principal amount of all payments or prepayments of Indebtedness (other than Indebtedness incurred hereunder or Pari Passu Debt) of the Borrower and its Subsidiaries made during the Calculation Period. "Obligors" means the Borrower and the Subsidiary Guarantors. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "Pari Passu Debt" means any Indebtedness (a) in respect of which the Borrower is primarily liable as the borrower and the Subsidiary Guarantors (but no other Subsidiary) are liable as guarantors, (b) that is secured, and only secured, by the Lien created by the Security Agreement and (c) that all of the Lenders consent to as being treated as Pari Passu Debt. All of the requirements set forth in the preceding clauses (a), (b) and (c) must be satisfied in order for any Indebtedness to be Pari Passu Debt. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.04; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.04; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary; (f) Liens securing judgments to the extent, for an amount and for a period not resulting in an Event of Default under Article VII(k); and (g) Liens created under the Federal Packers and Stockyards Act, as amended; provided that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness. "Permitted Investments" means: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody's; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000; and (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prime Rate" means the rate of interest per annum publicly announced from time to time by Chase as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Rabobank" means COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A., "Rabobank Nederland", New York Branch. "Register" has the meaning set forth in Section 9.04. "Regulations G, U and X" means, respectively, Regulations G, U and X of the Board, as the same may be amended from time to time. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Issuing Banks" means Chase, in its capacity as the Issuing Bank and, for so long as any Existing Letters of Credit of Rabobank are then outstanding, Rabobank. "Required Lenders" means, at any time, Lenders having Revolving Credit Exposures and unused Commitments representing more than 50% of the sum of the total Revolving Credit Exposures and unused Commitments at such time. "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such shares of capital stock of the Borrower or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Borrower or any Subsidiary. "Revolving Credit Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Revolving Loans and its LC Exposure and Swingline Exposure at such time. "Revolving Loan" means a Loan made pursuant to Section 2.03. "Solvent" has the meaning assigned to such term in Section 4.01(1). "S&P" means Standard & Poor's Ratings Services. "Security Agreement" means a Collateral Agency, Pledge and Security Agreement substantially in the form of Exhibit C hereto between the Borrower, the Subsidiary Guarantors, the Administrative Agent, the agent for the holders from time to time of the Pari Passu Debt, and the Collateral Agent, as the same shall be modified and supplemented and in effect from time to time. "Security Documents" means the Security Agreement and all Uniform Commercial Code financing statements required by the Security Agreement to be filed with respect to the security interests in personal property created pursuant to the Security Agreement. "Security Termination Date" means the date, if any, that the Security Agreement is terminated in accordance with Section 10.02(c)(ii). "Senior Note Documents" means (i) the Note Purchase Agreement dated as of July 15, 1996 among the Borrower and the Purchasers referred to therein and (ii) the Joint and Several Guaranty, the Notes and the Security Documents referred to in said Note Purchase Agreement, in each of the cases referred to in the foregoing clauses (i) and (ii), as the same shall, subject to Section 6.09, be modified and supplemented and in effect from time to time. "Special Counsel" means Milbank, Tweed, Hadley & McCloy, in its capacity as special counsel to Chase, as Administrative Agent of the credit facility contemplated hereby. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to (i) three months, in the case of the Base CD Rate, and (b) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Subsidiary" means any subsidiary of the Borrower. "Swingline Exposure" means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Lender at any time shall be its Applicable Percentage of the total Swingline Exposure at such time. "Swingline Lender" means Chase, in its capacity as lender of Swingline Loans hereunder. "Swingline Loan" means a Loan made pursuant to Section 2.04. "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Three-Month Secondary CD Rate" means, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day is not a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day) or, if such rate is not so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day is not a Business Day, on the next preceding Business Day) by the Administrative Agent from three negotiable certificate of deposit dealers of recognized standing selected by it. "Total Commitment" means, at any time, the aggregate amount of the Lenders' Commitments as in effect at such time. "Transactions" means (i) with respect to the Borrower, the execution, delivery and performance by the Borrower of Loan Documents to which it is a party, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder and (ii) with respect to any Obligor (other than the Borrower), the execution, delivery and performance by such Obligor of the Loan Documents to which it is a party. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate, the Alternate Base Rate or the Federal Funds Rate. "Unguaranteed Exposure" means, on any date, the amount (not less than zero) resulting from the following calculation: (i) the aggregate principal amount of all Loans made to the Borrower that are outstanding on such date to the extent that the proceeds thereof (without double-counting) have been advanced, directly or indirectly, by First Tier Subsidiaries to Subsidiaries that are not Subsidiary Guarantors plus (ii) the aggregate LC Exposure relating to Letters of Credit issued for account of Subsidiaries that are not Subsidiary Guarantors that are outstanding on such date minus the Net Funds Flow on such date. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving Borrowing"). SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. ARTICLE II The Credits SECTION 2.01. Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount (i) that will not result in such Lender's Revolving Credit Exposure exceeding such Lender's Commitment and (ii) that will not result in the sum of the aggregate amount of the Revolving Credit Exposures of all of the Lenders plus the aggregate principal amount of all Pari Passu Debt then outstanding exceeding the Consolidated Borrowing Base. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans. SECTION 2.02. Loans and Borrowings. (a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.13, each Revolving Borrowing shall be comprised entirely of ABR Loans, Federal Funds Loans or Eurodollar Loans as the Borrower may request in accordance herewith and each Swingline Loan shall be comprised of a Federal Funds Loan for the period commencing on the date such Loan is made and ending on the fourth Business Day thereafter, and from and after the fifth Business Day following such date shall (automatically and without further action by any Person) be comprised of an ABR Loan. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR Borrowing and each Federal Funds Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000; provided that an ABR Borrowing or a Federal Funds Borrowing may be in an aggregate amount that is equal to the entire unused balance of the Total Commitment or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.05(e). Each Swingline Loan shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of 3 Eurodollar Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. SECTION 2.03. Requests for Revolving Loan. To request a Revolving Loan, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing, (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of the proposed Borrowing or (c) in the case of a Federal Funds Borrowing, not later than 12:00 noon, New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be an ABR Borrowing, a Federal Funds Borrowing or a Eurodollar Borrowing; (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.06. If no election as to the Type of Revolving Borrowing is specified, then the requested Revolving Borrowing shall be a Federal Funds Borrowing. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.04. Swingline Loans. (a) Subject to the terms and conditions set forth herein, the Swingline Lender agrees to make Swingline Loans to the Borrower from time to time during the Availability Period, in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of outstanding Swingline Loans exceeding $15,000,000, (ii) the sum of the aggregate amount of the Revolving Credit Exposures of all of the Lenders plus the aggregate principal amount of all Pari Passu Debt then outstanding exceeding the Consolidated Borrowing Base or (iii) the sum of the total Revolving Credit Exposures exceeding the Total Commitment; provided that the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Loan. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Swingline Loans. (b) To request a Swingline Loan, the Borrower shall notify the Administrative Agent of such request by telephone (confirmed by telecopy), not later than 3:00 p.m., New York City time, on the day of a proposed Swingline Loan. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day) and amount of the requested Swingline Loan. The Administrative Agent will promptly advise the Swingline Lender of any such notice received from the Borrower. The Swingline Lender shall make each Swingline Loan available to the Borrower by means of a credit to the general deposit account of the Borrower with the Swingline Lender (or, in the case of a Swingline Loan made to finance the reimbursement of an LC Disbursement as provided in Section 2.05(e), by remittance to the relevant Issuing Bank) by 4:00 p.m., New York City time, on the requested date of such Swingline Loan. (c) The Swingline Lender may by written notice given to the Administrative Agent not later than 10:00 a.m., New York City time, on any Business Day require the Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline Loans in which Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give notice thereof to each Lender, specifying in such notice such Lender's Applicable Percentage of such Swingline Loan or Loans. Each Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Administrative Agent, for the account of the Swingline Lender, such Lender's Applicable Percentage of such Swingline Loan or Loans. Each Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Lenders. The Administrative Agent shall notify the Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph, and thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent and not to the Swingline Lender. Any amounts received by the Swingline Lender from the Borrower (or other party on behalf of the Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Administrative Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the Administrative Agent to the Lenders that shall have made their payments pursuant to this paragraph and to the Swingline Lender, as their interests may appear. The purchase of participations in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower of any default in the payment thereof. Notwithstanding the foregoing, a Lender shall not have any obligation to acquire a participation in a Swingline Loan pursuant to this paragraph if an Event of Default shall have occurred and be continuing at the time such Swingline Loan was made and such Lender shall have notified the Swingline Lender in writing, at least one Business Day prior to the time such Swingline Loan was made, that such Event of Default has occurred and that such Lender will not acquire participations in Swingline Loans made while such Event of Default is continuing. SECTION 2.05. Letters of Credit. (a) General. Subject to the terms and conditions set forth herein, the Borrower may request the issuance of Letters of Credit by either of the Issuing Banks for its own account or for the account of any Subsidiary Guarantor, in a form reasonably acceptable to the Administrative Agent and the relevant Issuing Bank, at any time and from time to time during the Availability Period, provided that notwithstanding anything contained herein to the contrary (a) in no event shall Rabobank issue any Letters of Credit after the date hereof, the Letters of Credit of Rabobank hereunder being comprised solely of the Existing Letters of Credit issued by Rabobank, and (b) Rabobank shall not extend, renew or increase the amount of any Letter of Credit issued by it, or permit any such Letter of Credit to be extended or renewed or the amount of any thereof to be increased. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the Issuing Banks relating to any Letter of Credit, the terms and conditions of this Agreement shall control. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the relevant Issuing Bank) to the relevant Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the relevant Issuing Bank, the Borrower also shall submit a letter of credit application on the such Issuing Bank's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed $40,000,000, (ii) the sum of the aggregate amount of the Revolving Credit Exposures of all of the Lenders plus the aggregate principal amount of all Pari Passu Debt then outstanding shall not exceed the Consolidated Borrowing Base and (iii) the sum of the total Revolving Credit Exposures shall not exceed the Total Commitment. (c) Expiration Date. Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Maturity Date. (d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof), or, in the case of the Existing Letters of Credit by maintaining such Letter of Credit, and without any further action on the part of either of the Issuing Banks or the Lenders, each Issuing Bank hereby grants to each Lender (other than such Issuing Bank), and each Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of each Issuing Bank, such Lender's Applicable Percentage of each LC Disbursement made by such Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If an Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 12:00 noon, New York City time, on the date that such LC Disbursement is made, if the Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 12:00 noon, New York City time, on (i) the Business Day that the Borrower receives such notice, if such notice is received prior to 10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day immediately following the day that the Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; provided that the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 or 2.04 that such payment be financed with an ABR Revolving Borrowing, a Federal Funds Borrowing or Swingline Loan in an equivalent amount and, to the extent so financed, the Borrower's obligation to make such payment shall be discharged and replaced by the resulting ABR Revolving Borrowing, Federal Funds Borrowing or Swingline Loan. If the Borrower fails to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Lender's Applicable Percentage thereof. Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the relevant Issuing Bank, the amounts so received by it from the Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to the relevant Issuing Bank or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse such Issuing Bank, then to such Lenders and such Issuing Bank, as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse an Issuing Bank for any LC Disbursement (other than the funding of ABR Revolving Loans, Federal Funds Loans or a Swingline Loan as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement. (f) Obligations Absolute. The Borrower's obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of: (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or this Agreement; (iii) the existence of any claim, setoff, defense or other right that the Borrower, any other party guaranteeing, or otherwise obligated with, the Borrower, any Subsidiary or other Affiliate thereof or any other Person may at any time have against the beneficiary under any Letter of Credit, either Issuing Bank, the Administrative Agent or any Lender or any other Person, whether in connection with this Agreement or any other related or unrelated agreement or transaction; (iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect; (v) payment by an Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply strictly with the terms of such Letter of Credit; and (vi) any other act or omission to act or delay of any kind of either Issuing Bank, the Lenders, the Administrative Agent or any other Person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the Borrower's obligations hereunder. Neither the Administrative Agent, the Lenders, the Issuing Banks, nor any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of either Issuing Bank; provided that the foregoing shall not be construed to excuse either Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by such Issuing Bank's failure to exercise the standard of care agreed hereunder (as set forth in the next sentence) to be applicable when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that each Issuing Bank shall be deemed to have exercised the agreed standard of care in the absence of gross negligence or wilful misconduct on the part of such Issuing Bank when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof, and shall be deemed to have failed to exercise the agreed standard of care only if it shall have engaged in gross negligence or wilful misconduct when making such determination (as determined by a court of competent jurisdiction). In furtherance of the foregoing and without limiting the generality thereof, it is understood that each Issuing Bank may accept documents that appear on their face to be in substantial compliance with the terms of a Letter of Credit without responsibility for further investigation, regardless of any notice or information to the contrary, and may make payment upon presentation of documents that appear on their face to be in substantial compliance with the terms of such Letter of Credit; provided that, notwithstanding the foregoing, each Issuing Bank shall have the right, in its sole discretion, to decline to accept such documents and to make such payment if such documents are not in strict compliance with the terms of such Letter of Credit. (g) Disbursement Procedures. Each Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit issued by it. Each Issuing Bank shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether such Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Lenders with respect to any such LC Disbursement. (h) Interim Interest. If an Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Loans; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.12(e) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the relevant Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to paragraph (e) of this Section to reimburse such Issuing Bank shall be for the account of such Lender to the extent of such payment. (i) Replacement of the Issuing Bank. An Issuing Bank may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall notify the Lenders of any such replacement of an Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.11(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit. (j) Cash Collateralization. If (i) any Event of Default shall have occurred and be continuing, (ii) the aggregate amount of Revolving Credit Exposure of all Lenders hereunder exceeds $300,000,000, (iii) the sum of the aggregate amount of Revolving Credit Exposure of all Lenders hereunder plus the aggregate principal amount of all Pari Passu Debt then outstanding exceeds the then-current Consolidated Borrowing Base on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, or (iv) the Existing Letters of Credit remain outstanding more than 30 days after the Effective Date, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash equal to (w) the LC Exposure as of such date (in the case of the foregoing clause (i)), (x) the amount of the relevant excess (in the case of the foregoing clause (ii)), (y) the lesser of the Revolving Credit Exposure or the amount of the relevant excess (in the case of the foregoing clause (iii)), or (z) the portion of the LC Exposure related to such outstanding Existing Letters of Credit (in the case of the foregoing clause (iv)), plus (in each of the cases referred to in the foregoing clauses (i), (ii), (iii) and (iv)) any accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Article VII. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement, provided that, such deposit made pursuant to clause (iv) of the first sentence of this Section 2.05(j), shall only be used as a collateral for the payment and performance of the obligations of the Borrower to Rabobank under Section 2.05(e). The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower's risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the relevant Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with LC Exposure representing greater than 50% of the total LC Exposure), be applied to satisfy other obligations of the Obligors under this Agreement, provided that such moneys attributable to a deposit made pursuant to clause (iv) of the first sentence of this Section 2.05(j), shall only be used to satisfy the obligations of the Borrower to Rabobank under Section 2.05(e). If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default or the renewal of a Letter of Credit or an excess of the Revolving Credit Exposure (either in and of itself or together with the Pari Passu Debt), as the case may be, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived or, in the case of a renewal of a Letter of Credit that would cause the expiration date of such Letter of Credit to extend beyond the Maturity Date, after all amounts drawn or able to be drawn under Letters of Credit have been reimbursed by the Borrower or, in the case of an excess of the Revolving Credit Exposure, after such excess has been eliminated. SECTION 2.06. Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 1:00 p.m., New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders; provided that Swingline Loans shall be made as provided in Section 2.04. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request; provided that ABR Revolving Loans or Federal Funds Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.05(e) shall be remitted by the Administrative Agent to the relevant Issuing Bank. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) for the first three Business Days, (A) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (B) in the case of the Borrower, the Federal Funds Rate and (ii) thereafter, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. SECTION 2.07. Interest Elections. (a) Each Revolving Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Revolving Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Revolving Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings, which may not be converted or continued. (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing, a Federal Funds Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Revolving Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to a Federal Funds Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Revolving Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Revolving Borrowing shall be converted to a Federal Funds Borrowing at the end of the Interest Period applicable thereto. SECTION 2.08. Termination, Reduction and Increase of Commitments. (a) Unless previously terminated, the Commitments shall terminate on the Maturity Date. (b) The Borrower may at any time terminate, or from time to time reduce, the Commitments; provided that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of $5,000,000 and not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.10, the sum of the Revolving Credit Exposures would exceed the Total Commitment. (c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments. (d) The Borrower may at any time, by notice to the Administrative Agent, propose that the Total Commitment be increased by having one or more Lenders agree to increase the amount of such Lender's Commitment hereunder or by having one or more banks or other financial institutions become a "Lender" party to this Agreement (or by a combination of the foregoing), in each case effective as of a date more than 45 days prior to the then-current date of termination of the Commitments (a "Commitment Increase Date"); provided that (i) the Borrower may not propose more than two Commitment Increase Dates occurring in any period of 12 months ending on an anniversary of the Effective Date, (ii) the addition of any bank or other financial institution to this Agreement that is not already a Lender shall be subject to the consent of the Administrative Agent (which consent shall not be unreasonably withheld) and the Issuing Bank in its sole discretion, (iii) the increase in the Commitment of any Lender already party to this Agreement shall in each case be subject to the agreement of the affected Lender in its sole discretion and to the consent of the Issuing Bank in its sole discretion, (iv) in no event shall the Total Commitment at any time exceed $450,000,000, (v) the Commitment of any bank or other financial institution becoming a "Lender" party to this Agreement (an "Assuming Lender") shall be in an amount not less than $20,000,000 which is an integral multiple of $1,000,000, (vi) any increase in the amount of the Commitment of any Lender already party to this Agreement (an "Increasing Lender"), shall be in an amount not less than $10,000,000 which is an integral multiple of $1,000,000 and (vii) no such increase may result in any Lender holding more than 25% of the Commitments and no Lender that holds more than 25% of the Commitments may be an Increasing Lender. The Administrative Agent shall notify the Lenders thereof promptly upon its receipt of such notice. (e) Any increase in the Total Commitment pursuant to Section 2.08(d) (a "Commitment Increase") shall be effective only upon the execution and delivery to the Borrower and the Administrative Agent of a commitment increase letter, which commitment increase letter shall be delivered to the Administrative Agent not fewer than five Business Days prior to the Commitment Increase Date and shall specify (i) the amount of the Commitment of any Assuming Lender and of any increase in the Commitment of any Increasing Lender and (ii) the Commitment Increase Date. (f) On the applicable Commitment Increase Date, (i) each Increasing Lender and each Assuming Lender shall make available to the Administrative Agent, in same day funds, in the case of such Assuming Lender, an amount equal to such Assuming Lender's ratable portion of the Borrowings then outstanding (calculated based on its Commitment as a percentage of the Total Commitment outstanding after giving effect to the relevant Commitment Increase) and, in the case of such Increasing Lender, an amount equal to the excess of (A) such Increasing Lender's ratable portion of the Revolving Loans then outstanding (calculated based on its Commitment as a percentage of the Total Commitment outstanding after giving effect to the relevant Commitment Increase) over (B) such Increasing Lender's pro rata share of the Revolving Loans then outstanding (calculated based on its Commitment (without giving effect to the relevant Commitment Increase) as a percentage of a Total Commitment (without giving effect to the relevant Commitment Increase) and (ii) the amounts of the participations held by all of the Lenders under Section 2.05(d) shall automatically and without any further action on the part of the Issuing Bank or the Lenders be adjusted to reflect their Applicable Percentages (after giving effect to the relevant Commitment Increases). After the Administrative Agent's receipt of such funds from each such Increasing Lender and each such Assuming Lender, the Administrative Agent will promptly thereafter cause to be distributed like funds to the other Lenders in an amount to each other Lender such that the aggregate amount of the outstanding Revolving Loans owing to each Lender after giving effect to such distribution equals such Lender's pro rata share of the Revolving Loans then outstanding (calculated based on its Applicable Percentage after giving effect to the relevant Commitment Increase). Interest accrued to but excluding the Commitment Increase Date shall be paid by the Borrower in respect of any principal so distributed. After giving effect to the foregoing, each Lender (including each Assuming Lender) shall be deemed to hold its pro rata share, based on its Applicable Percentage (after giving effect to the relevant Commitment Increase) of each outstanding Borrowing hereunder. Any payments in respect of Eurodollar Loans received by a Lender under this Section other than on the last day of the Interest Period relating thereto shall be subject to indemnification by the Borrower pursuant to the provisions of Section 2.15. (g) Any Commitment Increase shall not be effective unless: (i) the representations and warranties set forth in Article III shall be true and correct in all material respects on and as of the Commitment Increase Date with the same effect as though made on and as of such date, excep to the extent such representations and warranties expressly relate to an earlier date; (ii) on the Commitment Increase Date, no Default shall have occurred and be continuing; (iii) no notice of borrowing of Eurodollar Loans shall have been or be outstanding, in each case, on and as of such Commitment Increase Date; (iv) each Assuming Lender shall have delivered to the Administrative Agent and the Issuing Bank an assumption agreement in form and substance reasonably satisfactory to the Administrative Agent and the Issuing Bank, duly executed by such Assuming Lender and the Borrower pursuant to which such Assuming Lender agrees to become a "Lender" party hereto; (v) each Increasing Lender shall have delivered to the Administrative Agent a confirmation in writing satisfactory to the Administrative Agent as to its increased Commitment; (vi) each Subsidiary Guarantor shall have delivered to the Administrative Agent a consent in form and substance reasonably satisfactory to the Administrative Agent, pursuant to which such Subsidiary Guarantor consents to such Commitment Increase; and (vii) the Administrative Agent shall have received (with sufficient copies for each of the Lenders) documents consistent with those delivered on the Closing Date under clauses (b) and (e) of Section 4.01 as to such Commitment Increase. Each notice requesting a Commitment Increase shall constitute a certification to the effect set forth in clauses (i) and (ii) of the preceding sentence. SECTION 2.09. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Maturity Date and (ii) to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of the Maturity Date and the first date after such Swingline Loan is made that is the 15th or last day of a calendar month and is at least two Business Days after such Swingline Loan is made; provided that on each date that a Revolving Borrowing is made, the Borrower shall repay all Swingline Loans then outstanding. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 10.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). SECTION 2.10. Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section and provided that the aggregate principal amount of any prepayment that does not result in the prepayment of a Borrowing in full shall be in an integral multiple of $1,000,000. (b) Until the Maturity Date, the Borrower shall from time to time prepay the Revolving Loans and Swingline Loans (and/or provide cover for LC Exposures as specified in Section 2.05(j)) in such amounts as shall be necessary so that at all times the sum of the aggregate outstanding amount of Revolving Credit Exposure plus the aggregate principal amount of Pari Passu Debt then outstanding shall not exceed the Consolidated Borrowing Base, such amounts to be applied, first, to Swingline Loans outstanding, second, to Revolving Loans outstanding and, third, as cover for LC Exposures outstanding. (c) The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Revolving Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment, (ii) in the case of prepayment of an ABR Revolving Borrowing or a Federal Funds Revolving Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 12:00 noon, New York City time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.08, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.08. Promptly following receipt of any such notice relating to a Revolving Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Revolving Borrowing shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Revolving Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.12. SECTION 2.11. Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a Commitment Fee, which shall accrue at the Applicable Rate on the daily unused amount of the Commitment of such Lender during the period from and including the date hereof to but excluding the date on which such Commitment terminates. For purposes of this Section 2.11(a) only, Swingline Loans shall not be deemed to constitute a use of any Lender's Commitment. Accrued Commitment Fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof; provided that any Commitment Fees accruing after the date on which the Commitments terminate shall be payable on demand. All Commitment Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) The Borrower agrees to pay (i) to the Administrative Agent for the account of each Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the Applicable Rate for Letters of Credit on the average daily amount of such Lender's LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Lender's Commitment terminates and the date on which such Lender ceases to have any LC Exposure, (ii) to the Issuing Bank a fronting fee, which shall accrue at the rate of 1/8 of 1% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any LC Exposure, (iii) to Rabobank a fronting fee in the amount of $5,000 if there are any Existing Letters of Credit outstanding as of the Effective Date, and (iv) to the relevant Issuing Bank its standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the Effective Date; provided that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand. Any other fees payable to either Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (c) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent. (d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent (or to the relevant Issuing Bank, in the case of fees payable to it) for distribution, in the case of Commitment Fees and participation fees, to the Lenders. Fees paid shall not be refundable under any circumstances. SECTION 2.12. Interest. (a) The Loans comprising each ABR Borrowing (including each Swingline Loan comprised of an ABR Borrowing in accordance with Section 2.02(b)) shall bear interest at the Alternate Base Rate plus the Applicable Rate. (b) The Loans comprising each Federal Funds Borrowing (including each Swingline Loan comprised of a Federal Funds Borrowing in accordance with Section 2.02(b)) shall bear interest at the Federal Funds Rate plus the Applicable Rate. (c) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate. (d) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section. (e) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and upon termination of the Commitments; provided that (i) interest accrued pursuant to paragraph (d) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan or a Federal Funds Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Revolving Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (f) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Federal Funds Rate and Adjusted LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.13. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Revolving Borrowing, such Borrowing shall be made as an ABR Borrowing. SECTION 2.14. Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or any Issuing Bank; or (ii) impose on any Lender or any Issuing Bank or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or Issuing Bank hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender or the relevant Issuing Bank such additional amount or amounts as will compensate such Lender or the relevant Issuing Bank for such additional costs incurred or reduction suffered. (b) If any Lender or Issuing Bank determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's or Issuing Bank's capital or on the capital of such Lender's or Issuing Bank's holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a level below that which such Lender, such Issuing Bank or such Lender's or Issuing Bank's holding company could have achieved but for such Change in Law (taking into consideration such Lender's or such Issuing Bank's policies and the policies of such Lender's or such Issuing Bank's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or Issuing Bank such additional amount or amounts as will compensate such Lender or Issuing Bank or such Lender's or Issuing Bank's holding company for any such reduction suffered. (c) A certificate of a Lender or an Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of any Lender or Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's or Issuing Bank's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender or an Issuing Bank pursuant to this Section 2.14 for any increased costs or reductions incurred more than 270 days prior to the date that such Lender or Issuing Bank, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's or Issuing Bank's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof. SECTION 2.15. Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Revolving Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.10(b) and is revoked in accordance therewith) or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.18, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. SECTION 2.16. Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent, each Lender and each Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent, such Lender or such Issuing Bank, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or an Issuing Bank, or by the Administrative Agent on its own behalf or on behalf of a Lender or an Issuing Bank, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Borrower shall make each payment required to be made by it hereunder and under the other Loan Documents (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.14, 2.15 or 2.16, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, except payments to be made directly to an Issuing Bank or the Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.14, 2.15, 2.16 and 10.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans or participations in LC Disbursements or Swingline Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and participations in LC Disbursements and Swingline Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans and participations in LC Disbursements and Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans and participations in LC Disbursements and Swingline Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by any Obligor pursuant to and in accordance with the express terms of this Agreement or the other Loan Documents or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Each Obligor consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Obligor in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Banks hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the relevant Issuing Bank, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Banks, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.04(c), 2.05(d) or (e), 2.06(b) or 2.17(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.18. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.14, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.14 or 2.16 as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If any Lender requests compensation under Section 2.14, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 10.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent (and, if a Commitment is being assigned, the Issuing Bank and the Swingline Lender), which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements and Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.14 or payments required to be made pursuant to Section 2.16, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. ARTICLE III Representations and Warranties The Borrower represents and warrants to the Lenders that: SECTION 3.01. Organization; Powers. Each of the Borrower and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. SECTION 3.02. Authorization; Enforceability. The Transactions are within each Obligor's corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action. Each of this Agreement and the other Loan Documents has been duly executed and delivered by each Obligor and constitutes a legal, valid and binding obligation of each Obligor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except for filings and recordings in respect of the Liens created pursuant to the Security Documents, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries, and (d) except for the Lien created by the Security Documents, will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lenders (i) its consolidated balance sheet, statements of income, stockholders equity and cash flows and pro forma information as of and for the fiscal year ended April 28, 1996, reported on by Arthur Andersen LLP, independent public accountants and (ii) its consolidated balance sheet, statements of income, stockholders equity and cash flows and pro forma information as of and for the three fiscal periods ended January 26, 1997. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above. (b) Since April 28, 1996, there has been no event, development or circumstance that has had or could reasonably be expected to have a Material Adverse Effect, except as reflected in the financial statements referred to in Section 3.04(a) as of and for the three fiscal periods ended January 26, 1997. (c) The Borrower does not have on the date of this Agreement any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments in each case that are material, except as referred to or reflected in the balance sheets as at April 28, 1996 and January 26, 1997 referred to above. SECTION 3.05. Properties. (a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not materially interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes. (b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.06. Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which an adverse determination is reasonably likely and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve this Agreement, the other Loan Documents or the Transactions. (b) Except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. (c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. As of the date hereof, the Borrower does not believe that the Disclosed Matters individually or in the aggregate are reasonably likely to have a Material Adverse Effect. SECTION 3.07. Compliance with Laws and Agreements. Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. SECTION 3.08. Investment and Holding Company Status. Neither the Borrower nor any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 3.09. Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $50,000,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $50,000,000 the fair market value of the assets of all such underfunded Plans. SECTION 3.11. Disclosure. The Borrower and its Subsidiaries have disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which they are subject, and all other matters known to them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Obligors to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Obligors represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. SECTION 3.12. Regulations G, U and X. Neither the Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock and no part of the proceeds of any extension of credit hereunder will be used to buy or carry any Margin Stock. SECTION 3.13. Material Agreements and Liens. (a) Part A of Schedule 3.13 hereto is a complete and correct list, as of the date of this Agreement, of each credit agreement, loan agreement, indenture, note purchase agreement, guarantee, letter of credit or other arrangement providing for or otherwise relating to any Indebtedness or any extension of credit (or commitment for any extension of credit) to, or guarantee by, the Borrower or any of its Subsidiaries (other than the Existing Credit Agreement and the Senior Note Documents) the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $100,000 and the aggregate principal or face amount outstanding or that may become outstanding under each such arrangement is correctly described in Part A of said Schedule 3.13. (b) Part B of Schedule 3.13 hereto is a complete and correct list, as of the date of this Agreement, of each Lien securing Indebtedness of any Person covering any property of the Borrower or any of its Subsidiaries, and the aggregate Indebtedness secured (or which may be secured) by each such Lien and the property covered by each such Lien is correctly described in Part B of said Schedule 3.13. SECTION 3.14. Subsidiaries, Etc. (a) Set forth in Part A of Schedule 3.14 hereto is a complete and correct list, as of the date hereof, of all of the Subsidiaries of the Borrower, together with, for each Subsidiary, (i) the jurisdiction of organization of such Subsidiary, (ii) each Person holding ownership interests in such Subsidiary and (iii) the nature of the ownership interests held by each such Person and the percentage of ownership of such Subsidiary represented by such ownership interests. Except as disclosed in Part A of Schedule 3.14 hereto, (x) each of the Borrower and its Subsidiaries owns, free and clear of Liens (other than Liens created pursuant to the Security Documents), and has the unencumbered right to vote, all outstanding ownership interests in each Person shown to be held by it in Part A of Schedule 3.14 hereto, (y) all of the issued and outstanding capital stock of each such Person organized as a corporation is validly issued, fully paid and nonassessable and (z) there are no outstanding Equity Rights with respect to such Person. (b) Set forth in Part B of Schedule 3.14 hereto is a complete and correct list, as of the date of this Agreement, of all Investments (other than Investments disclosed in Part A of said Schedule 3.14 hereto) held by the Borrower or any of its Subsidiaries in Person and, for each such Investment, (x) the identity of the Person or Persons holding such Investment and (y) the nature of such Investment. Except as disclosed in Part B of Schedule 3.14 hereto, each of the Borrower and its Subsidiaries owns, free and clear of all Liens (other than Liens created pursuant to the Security Documents), all such Investments. SECTION 3.15. Solvency. On and as of the Effective Date, immediately prior to and after consummation of the Transactions and after giving effect to all Loans and other obligations and liabilities being incurred on such date in connection therewith, and on the date of each subsequent Loan or other extension of credit hereunder and after giving effect to application of the proceeds thereof in accordance with the terms of the Loan Documents, the Borrower and its Subsidiaries, taken as a whole, are, and each Obligor is, and will be Solvent (as defined in Section 4.01(l)). ARTICLE IV Conditions SECTION 4.01. Effective Date. The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 10.02): (a) The Administrative Agent (or Special Counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement. (b) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of each Obligor, the authorization of the Transactions and any other legal matters relating to each Obligor, this Agreement, the other Loan Documents or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. (c) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02. (d) The Administrative Agent shall have received a Borrowing Base Certificate not more than 3 days prior to the Effective Date. (e) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of McGuire Woods Battle & Boothe LLP, counsel for the Obligors, substantially in the form of Exhibit D, and covering such other matters relating to the Obligors, this Agreement, the other Loan Documents or the Transactions as the Required Lenders shall reasonably request (and the Borrower hereby requests such counsel to deliver such opinion). (f) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of Special Counsel substantially in the form of Exhibit E hereto (and the Administrative Agent hereby requests such counsel to deliver such opinion). (g) The Administrative Agent shall have received evidence satisfactory to it of the execution by each First Tier Subsidiary required to do so of an Intercompany Note. (h) The Administrative Agent (or Special Counsel) shall have received a counterpart of the Security Agreement duly executed and delivered by all of the Persons stated to be parties thereto. (i) The Administrative Agent (or Special Counsel) shall have received a counterpart of copies of duly completed and executed Uniform Commercial Code Financing Statements covering the personal property subject to the Liens created by the Security Agreement, together with evidence that such Financing Statements have been duly filed in all jurisdictions in which such filing is necessary or appropriate. (j) The Administrative Agent (or Special Counsel) shall have received a counterpart of the results of Uniform Commercial Code, tax and judgment searches as may be requested by the Administrative Agent and which searches reveal no liens on any asset of the Borrower except for liens permitted under this Agreement. (k) The Administrative Agent (or Special Counsel) shall have received evidence that the principal of and any interest on, and all other amounts owing in respect of, the Indebtedness outstanding under the Existing Credit Agreement shall have been (or shall be simultaneously) repaid in full, that all commitments to extend credit under the Existing Credit Agreement shall have been canceled or terminated and that Liens securing any such Indebtedness shall have been released; and such Uniform Commercial Code termination statements and other instruments, in each case in proper form for recording, as the Administrative Agent shall have requested to release and terminate of record any Liens securing such Indebtedness. (l) The Administrative Agent (or Special Counsel) shall have received a certificate of the Borrower, to the effect that, as of the Effective Date (after giving effect to the Transactions), (a) the aggregate value of all properties of the Borrower and its Subsidiaries at their present fair saleable value (i.e., the amount which may be realized within a reasonable time, considered to be six months to one year, either through collection or sale at the regular market value, regular market value to mean the amount which could be obtained for the property in question within such period by a capable and diligent business person from an interested buyer who is willing to purchase under ordinary selling conditions), exceed the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) of the Borrower and its Subsidiaries, (b) the Borrower and its Subsidiaries will not, on a consolidated basis, have an unreasonably small capital with which to conduct its business operations as contemplated to be conducted and (c) the Borrower and its Subsidiaries will have, on a consolidated basis, sufficient cash flow to enable them to pay their debts as they mature (satisfaction of items (a) through (c) of this paragraph (m) is herein referred to as being "Solvent"). (m) The Administrative Agent shall have received evidence satisfactory to it that the Joint and Several Guaranty included in the Senior Note Documents shall have been amended in a manner satisfactory to the Administrative Agent to provide that (i) the Lenders shall be entitled to benefit from Section 2.9 of the Joint and Several Guaranty, on a pro rata basis, to the same extent as the holders of the senior secured notes under the Note Purchase Agreements included in the Senior Note Documents and (ii) for purposes of Section 2.18 of the Joint and Several Guaranty, the full amount of the Loans shall be deemed to have been borrowed on the date of issuance of the senior secured notes and to have remained continuously outstanding thereafter. (n) The Administrative Agent shall have received a satisfactory independent audit prepared by Chase's Specialized Due Diligence Group or another firm of national standing with respect to such matters, as to the accounts receivable and inventory of the Borrower and its Subsidiaries, both on an individual and a consolidated basis. (o) The Administrative Agent, the Lenders and the Arranger shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Obligors hereunder. (p) The Administrative Agent (or Special Counsel) shall have received a counterpart of the Intercreditor Agreement duly executed and delivered by all of the Persons stated to be parties thereto. (q) The Administrative Agent shall have received such other documents as the Administrative Agent or any Lender or Special Counsel may reasonably request. The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 10.02) at or prior to 3:00 p.m., New York City time, on July 15, 1997 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). SECTION 4.02. Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Obligors set forth in this Agreement and the other Loan Documents shall be true and correct on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable. (b) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing. Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. ARTICLE V Affirmative Covenants Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that: SECTION 5.01. Financial Statements and Other Information. The Borrower will furnish to the Administrative Agent and each Lender: (a) within 90 days after the end of each fiscal year of the Borrower, (i) its audited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Arthur Andersen LLP or other independent public accountants of recognized national standing (without a "going concern" or like modification, qualification or exception and without any modification, qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied and (ii) its consolidating balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidating basis in accordance with GAAP consistently applied; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, (i) its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year and (ii) its consolidating balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis or consolidating basis, as the case may be, in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrower (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations of the Interest Coverage Ratio as at the last day of the fiscal quarter or fiscal year, as the case may be, in respect of which such financial statements are delivered, and demonstrating compliance with Section 6.12 and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (d) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines); (e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be; (f) as soon as available and in any event within 5 Business Days after the end of each monthly accounting period, a Borrowing Base Certificate certifying, in the case of the Borrower, as to the Consolidated Borrowing Base, and, in the case of each First Tier Subsidiary, as to its Borrowing Base, as at the last day of such accounting period; (g) as soon as available, and in any event within 90 days, after the end of each fiscal year of the Borrower a report (prepared at the expense of the Borrower) of an independent collateral auditor (which may be, or be affiliated with, one of the Lenders) approved by the Administrative Agent with respect to the Receivables and Inventory components included in the Consolidated Borrowing Base as at the end of such fiscal year which report shall indicate that, based upon a review by such auditors of the Receivables (including, without limitation, verification with respect to the amount, aging, identity and credit of the respective account debtors and the billing practices of the Borrower and its Subsidiaries) and Inventory (including, without limitation, verification as to the value, location and respective types), the information set forth in the Borrowing Base Certificate delivered by the Borrower as at the end of such fiscal year is accurate and complete in all material respects; and (h) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request. SECTION 5.02. Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $250,000; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 5.03. Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03. SECTION 5.04. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.05. Maintenance of Properties; Insurance. The Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. SECTION 5.06. Books and Records; Inspection Rights. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. SECTION 5.07. Compliance with Laws. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority, including all Environmental Laws, and with all other material obligations, applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.08. Use of Proceeds and Letters of Credit. (a) The proceeds of each Loan shall be lent by the Borrower to First Tier Subsidiaries that are Subsidiary Guarantors, provided that the aggregate principal amount of loans owing by each First Tier Subsidiary to the Borrower shall not exceed the Borrowing Base of such First Tier Subsidiary. All such loans made to each First Tier Subsidiary shall be evidenced by a single demand promissory note executed and delivered by such First Tier Subsidiary to the Borrower substantially in the form of Exhibit F hereto (each, an "Intercompany Note"), and pledged by the Borrower to the Collateral Agent under the Security Agreement for the benefit of the Secured Parties referred to in the Security Agreement. Each First Tier Subsidiary shall use the proceeds of such loans for its own working capital and other general corporate purposes and (subject to Section 6.13) to make advances to the Borrower and Subsidiaries. In the event that the Borrower receives any payment of principal of any Intercompany Note, it shall immediately lend the proceeds of such payment to another First Tier Subsidiary (to be evidenced by an Intercompany Note of such other First Tier Subsidiary that has been pledged by the Borrower to the Collateral Agent under the Security Agreement for the benefit of the Secured Parties referred to in the Security Agreement), or pay or prepay the Loans and/or the Pari Passu Debt, such that at no time will the aggregate outstanding principal amount of the Loans and the Pari Passu Debt exceed the aggregate outstanding principal amount of the Intercompany Notes. (b) Subject to the foregoing paragraph (a), the proceeds of the Loans will be used only (i) to pay Indebtedness outstanding under the Existing Credit Agreement and (ii) for working capital and other general corporate purposes of the Borrower and its Subsidiaries. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations G, U and X. (c) Subject to the paragraph (a) above, Letters of Credit will be issued only to support obligations of the Borrower and its Subsidiaries. SECTION 5.09. Additional Subsidiary Guarantors. The Borrower will take such action, and will cause each of its Subsidiaries to take such action, from time to time as shall be necessary to ensure that each Subsidiary the inventory or receivables of which are included in the calculation of the Consolidated Borrowing Base is a Subsidiary Guarantor and, thereby, an "Obligor" hereunder and under the Security Agreement pursuant to documentation satisfactory to the Administrative Agent in form and substance. In addition, the Borrower may cause any of its other Subsidiaries to become a Subsidiary Guarantor and, thereby, an "Obligor" hereunder and under the Security Agreement pursuant to documentation satisfactory to the Administrative Agent in form and substance. Each such new Subsidiary Guarantor shall deliver such proof of corporate action, incumbency of officers, opinions of counsel and other documents as is consistent with those delivered by each other Obligor pursuant to Section 4.01 or as any Lender or the Administrative Agent shall have reasonably requested. ARTICLE VI Negative Covenants Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that: SECTION 6.01. Indebtedness. The Borrower will not, and will not permit any Subsidiary to, create, incur or assume any Indebtedness, except: (a) Indebtedness created hereunder; (b) Pari Passu Debt; (c) any extensions, renewals or replacements of any Indebtedness existing on the date hereof and set forth in Schedule 6.01, provided that the aggregate principal amount of such Indebtedness is not thereby increased; (d) Indebtedness of the Borrower to any Subsidiary and of any Subsidiary to the Borrower or any other Subsidiary; (e) other Indebtedness in an aggregate principal amount not exceeding $20,000,000 created, incurred or assumed in any fiscal year of the Borrower; and (f) other Indebtedness provided that, on the date (the "Incurrence Date") such Indebtedness is created, incurred or assumed (as the case may be), the Borrower furnishes to the Administrative Agent reasonable projections demonstrating in reasonable detail that the Borrower will be in compliance with Section 6.12(e) on the last day of each of the next succeeding four fiscal quarters of the Borrower that end after the Incurrence Date after giving effect to such creation, incurrence or assumption, together with a certificate of a Financial Officer to the effect that such projections are based upon reasonable assumptions and reflect the Borrower's best estimate as to the matters covered thereby. For purposes of the foregoing paragraphs (e) and (f), the Acquisition of any Person shall be deemed to constitute the assumption of the Indebtedness of such Person by a Subsidiary of the Borrower at the time of the consummation of such Acquisition. SECTION 6.02. Liens. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Permitted Encumbrances; (b) Liens created by the Senior Note Documents as in effect on the date hereof; provided that there shall be no Lien securing any obligations under the Senior Note Documents at any time after the Security Termination Date; (c) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof and set forth in Schedule 6.02 (other than Liens created by the Senior Note Documents); provided that (i) such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof; (d) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Borrower or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be; (e) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Subsidiary; provided that (i) such security interests secure Indebtedness incurred to finance such acquisition, construction or improvement, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed 80% of the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of the Borrower or any Subsidiary; (f) the Lien created by the Security Agreement; provided that there shall be no Lien securing any Pari Passu Debt at any time after the Security Termination Date; (g) any extensions, renewals or replacements of any of the Liens permitted by the foregoing clauses (a) through (f) effected in connection with any extension, renewal or replacement of the Indebtedness secured thereby; provided that (i) the aggregate principal amount of such Indebtedness is not thereby increased, (ii) such Lien shall not be extended to cover any additional property and (iii) there shall be no Lien securing any extension, renewal or replacement of the Pari Passu Debt or any obligations under the Senior Note Documents at any time after the Security Termination Date; and (h) other Liens that (whether before or after the Security Termination Date) do not cover any Collateral (as defined in the Security Agreement). Notwithstanding anything contained herein to the contrary, the aggregate amount of obligations of the Borrower and its Subsidiaries secured by Liens permitted by any of clauses (c), (d), (e), (g) (to the extent extending, renewing or replacing any of the Liens permitted by any of clauses (c), (d) and (e)) and (h) shall not exceed 15% of Consolidated Tangible Net Worth at any time on or after the Security Termination Date. SECTION 6.03. Fundamental Changes. (a) The Borrower will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) any Subsidiary may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (ii) any Subsidiary may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary, provided that if any such transaction shall be between a Subsidiary Guarantor and a Subsidiary not a Subsidiary Guarantor, and such Subsidiary Guarantor is not the continuing or surviving corporation, then the continuing or surviving corporation shall have assumed all of the obligations of such Subsidiary Guarantor hereunder and under the other Loan Documents pursuant to documentation satisfactory to the Administrative Agent in form and substance, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of its assets to the Borrower or to another Subsidiary, provided that if any such transaction shall be between a Subsidiary Guarantor and a Subsidiary not a Subsidiary Guarantor, and if such Subsidiary Guarantor is not the continuing or surviving corporation, then the continuing or surviving corporation shall have assumed all of the obligations of such Subsidiary Guarantor hereunder and under the other Loan Documents pursuant to documentation satisfactory to the Administrative Agent in form and substance, (iv) any Subsidiary may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders; provided that any such merger that would otherwise be permitted by this Section 6.03 involving a Person that is not a wholly owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 6.04 and (v) the Borrower may merge into a newly formed, "shell" corporation organized under the laws of the Commonwealth of Virginia in a transaction intended merely to "reincorporate" the Borrower as a Virginia corporation, provided that (i) the continuing or surviving corporation shall have assumed all of the obligations of the Borrower hereunder and under the other Loan Documents pursuant to documentation satisfactory to the Administrative Agent in form and substance, (ii) no Default shall have occurred and be continuing or would result therefrom and (iii) the Lenders shall have received a legal opinion from counsel to the Borrower acceptable to the Administrative Agent and in form, scope and substance acceptable to the Administrative Agent as to such merger and such assumption. (b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto. SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions. The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (a) Permitted Investments; (b) investments by the Borrower existing on the date hereof in the capital stock of its Subsidiaries; (c) loans or advances made by the Borrower to any Subsidiary and made by any Subsidiary to the Borrower or any other Subsidiary; (d) Guarantees constituting Indebtedness permitted by Section 6.01; (e) Investments constituting Acquisitions permitted by Section 6.12(f); (f) Investments in an aggregate amount not exceeding $10,000,000 at any one time outstanding in a cold storage warehouse and distribution center in Sioux Falls, South Dakota constituting a joint venture between Freezer Services Inc., the Borrower and John Morrell & Co.; and (g) other Investments not exceeding $5,000,000 in the aggregate amount outstanding at any time. SECTION 6.05. Hedging Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities. SECTION 6.06. Restricted Payments. The Borrower will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (a) the Borrower may declare and pay dividends with respect to its capital stock payable solely in additional shares of its common stock, (b) Subsidiaries may declare and pay dividends ratably with respect to their capital stock and (c) the Borrower may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries. SECTION 6.07. Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Borrower and its Subsidiaries not involving any other Affiliate and (c) any Restricted Payment permitted by Section 6.06. SECTION 6.08. Restrictive Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower or any Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets, or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to the Borrower or any other Subsidiary or to Guarantee Indebtedness of the Borrower or any other Subsidiary; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement or any of the other Loan Documents, (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 6.08 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement or any of the other Loan Documents if such restrictions or conditions apply only to the property or assets securing such Indebtedness, (v) clause (a) of the foregoing shall not apply to customary provisions in leases restricting the assignment thereof and (vi) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement under which the Indebtedness governed by the Senior Note Documents is refinanced, provided that such restrictions or conditions are not materially more restrictive than those contained in the Senior Note Documents on the date hereof (and, if such agreement does not provide that the Indebtedness created thereunder will be secured by Liens on property or assets of the Borrower or any Subsidiary, such agreement may contain restrictions or conditions limiting Liens on property or assets of the Borrower or any Subsidiary which are not the subject of Liens granted under the Security Agreement and such restrictions or conditions shall not be deemed more onerous than those contained in the Senior Note Documents on the date hereof). SECTION 6.09. Senior Note Documents. Promptly following the execution thereof, the Borrower will supply each Lender with a copy of any modification, supplement or waiver to a Senior Note Document. SECTION 6.10. Limitation on Sale and Leaseback Transactions. The Borrower will not, and will not permit any of its Subsidiaries to, enter into, renew or extend any transaction or series of related transactions pursuant to which the Borrower or such Subsidiary sells or transfers any property in connection with the leasing, or the release against installment payments, or as part of an arrangement involving the leasing or resale against installment payments, of such property to the seller or transferor. SECTION 6.11. Fiscal Periods. If the Borrower changes the manner of determining the last day of its fiscal year or the last days of the first three fiscal quarters in each of its fiscal years, the parties hereto shall negotiate in good faith to agree to modify any financial calculations and determinations hereunder to reflect their original intent in light of such changes, and if they fail so to agree all such financial calculations determinations hereunder shall continue to be made as if such change had not occurred. SECTION 6.12. Financial Covenants. (a) The Borrower will not permit the Consolidated Current Ratio to be less than 1.05 to 1 at any time. (b) The Borrower will not permit Consolidated Working Capital to be less than $35,000,000 at any time. (c) The Borrower will not permit the ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth on any date to be more than the ratio set forth below opposite the period during which such date falls: Period Ratio From the Effective Date through May 2, 1998 3.00 to 1 From May 3, 1998 and thereafter 2.75 to 1 (d) The Borrower will not permit Consolidated Tangible Net Worth on any date (the "Determination Date") to be less than the sum of (i) $225,000,000 plus (ii) 50% of the aggregate amount of Consolidated Net Income for each quarter that ends after the Effective Date and on or before the Determination Date in respect of which Consolidated Net Income is greater than zero plus (iii) 50% of the aggregate amount of increases in Consolidated Tangible Net Worth after the Effective Date and on or before the Determination Date resulting from the issuance by it of capital stock as consideration in Acquisitions made by it and its Subsidiaries. (e) The Borrower will not permit the ratio of Consolidated EBITDA to Consolidated Fixed Charges for any period of four consecutive fiscal quarters of the Borrower to be less than the ratio set forth below opposite the period during which the last day of such period of four consecutive fiscal quarters falls: Period Ratio From the Effective Date through January 31, 1998 0.85 to 1 From February 1, 1998 through July 31, 1999 1.00 to 1 From August 1, 1999 and thereafter 1.10 to 1 (f) The Borrower will not permit the sum (without duplication) of (i) Capital Expenditures made by the Borrower and its Subsidiaries in any fiscal year of the Borrower plus (ii) the Aggregate Consideration for all Acquisitions made by the Borrower and its Subsidiaries in such fiscal year to exceed the higher of (x) the sum of Consolidated Net Income plus depreciation for the Borrower and its Subsidiaries for such fiscal year or (y) $100,000,000. SECTION 6.13. Unguaranteed Exposure. Notwithstanding anything contained herein to the contrary, the Borrower will not permit the Unguaranteed Exposure to exceed $30,000,000. ARTICLE VII Events of Default If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement or any other Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three or more Business Days; (c) any representation or warranty made or deemed made by or on behalf of any Obligor in or in connection with this Agreement or any other Loan Document or any amendment or modification hereof or thereof or waiver hereunder or thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any other Loan Document or any amendment or modification hereof or thereof or waiver hereunder or thereunder, shall prove to have been incorrect in any material respect when made or deemed made; (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02, 5.03 (with respect to the existence of the Borrower or any Subsidiary) or 5.08 or in Article VI; (e) any Obligor shall fail to observe or perform any covenant, condition or agreement contained in this Agreement or any other Loan Document (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender); (f) the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable; (g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) the Borrower or any Subsidiary shall become unable, admit in writing or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $5,000,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any such judgment; (l) the Borrower or any Subsidiary receives any notice, notification, demand, request for information, citation, summons or order or there has been filed any compliant or any penalty has been assessed or an investigation or review is pending or threatened by any governmental or other entity, in each case with respect to any alleged failure by the Borrower or any of its Subsidiaries to have any environmental, health or safety permit, license or other authorization required under any Environmental Law in connection with the conduct of the business of the Borrower or any of its Subsidiaries or with respect to any generation, treatment, storage, recycling, transportation, discharge or disposal, or any release of any Hazardous Materials generated by the Borrower or any of its Subsidiaries, in each case which could reasonably be expected to result in a Material Adverse Effect. (m) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding (i) $2,000,000 in any year or (ii) $10,000,000 for all periods; (n) any of the following shall occur: (i) subject to Section 10.13, the Lien created by any Security Document shall at any time cease to constitute a valid and perfected Lien on the collateral intended to be covered thereby before the Security Termination Date; (ii) subject to Section 10.13, except for expiration in accordance with its terms, any Security Document shall for whatever reason be terminated, or shall cease to be in full force and effect before the Security Termination Date; or (iii) subject to Section 10.13, the actual or asserted invalidity of any Security Document or of any guarantee under Article VIII hereof or the validity of any Security Document or of any guarantee under Article VIII hereof or the validity of any subordination provision contained in Article VIII hereof shall be contested by any party before (in the case of any Security Document) the Security Termination Date; or (o) a Change in Control shall occur; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Obligors accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Obligors. ARTICLE VIII Guarantee SECTION 8.01 The Guarantee. The Subsidiary Guarantors hereby jointly and severally guarantee to each Lender and the Administrative Agent and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Loans (and, in the case of Letters of Credit, LC Disbursements) made by the Lenders to the Borrower and all other amounts from time to time owing to the Lenders or the Administrative Agent by the Borrower under this Agreement and by any Obligor under any of the other Loan Documents, and all obligations of the Borrower to any Lender in respect of any Hedging Agreement, in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the "Guaranteed Obligations"). The Subsidiary Guarantors hereby further jointly and severally agree that if the Borrower shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Subsidiary Guarantors will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. SECTION 8.02 Obligations Unconditional. The obligations of the Subsidiary Guarantors under Section 8.01 hereof are absolute and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Borrower under this Agreement or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 8.02 that the obligations of the Subsidiary Guarantors hereunder shall be absolute and unconditional, joint and several, under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Subsidiary Guarantors hereunder which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to the Subsidiary Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of this Agreement or any other agreement or instrument referred to herein or therein shall be done or omitted; (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under this Agreement or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or (iv) any lien or security interest granted to, or in favor of, the Administrative Agent or any Lender or Lenders as security for any of the Guaranteed Obligations shall fail to be perfected. The Subsidiary Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Administrative Agent or any Lender exhaust any right, power or remedy or proceed against the Borrower under this Agreement or any other agreement or instrument referred to herein or therein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. SECTION 8.03 Reinstatement. The obligations of the Subsidiary Guarantors under this Article VIII shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Borrower in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise and the Subsidiary Guarantors jointly and severally agree that they will indemnify the Administrative Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, fees of counsel) incurred by the Administrative Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. SECTION 8.04 Subrogation. The Subsidiary Guarantors hereby jointly and severally agree that until the payment and satisfaction in full of all Guaranteed Obligations and the expiration and termination of the Commitments and Letters of Credit under this Agreement they shall not exercise any right or remedy arising by reason of any performance by them of their guarantee in Section 8.01 hereof, whether by subrogation or otherwise, against the Borrower or any other guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations. SECTION 8.05 Remedies. The Subsidiary Guarantors jointly and severally agree that, as between the Subsidiary Guarantors and the Lenders, the obligations of the Borrower under this Agreement may be declared to be forthwith due and payable as provided in Article VII hereof (and shall be deemed to have become automatically due and payable in the circumstances provided in said Article VII) for purposes of Section 8.01 notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against the Borrower and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by the Borrower) shall forthwith become due and payable by the Subsidiary Guarantors for purposes of said Section 8.01. SECTION 8.06 Instrument for the Payment of Money. Each Subsidiary Guarantor hereby acknowledges that the guarantee in this Article VIII constitutes an instrument for the payment of money, and consents and agrees that any Lender or the Administrative Agent, at its sole option, in the event of a dispute by such Subsidiary Guarantor in the payment of any moneys due hereunder, shall have the right to bring motion-action under New York CPLR Section 3213. SECTION 8.07 Continuing Guarantee. The guarantee in this Article VIII is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. SECTION 8.08 Rights of Contribution. The Subsidiary Guarantors hereby agree, as between themselves, that if any Subsidiary Guarantor shall become an Excess Funding Guarantor (as defined below) by reason of the payment by such Subsidiary Guarantor of any Guaranteed Obligations, each other Subsidiary Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the next sentence), pay to such Excess Funding Guarantor an amount equal to such Subsidiary Guarantor's Pro Rata Share (as defined below and determined, for this purpose, without reference to the Properties, debts and liabilities of such Excess Funding Guarantor) of the Excess Payment (as defined below) in respect of such Guaranteed Obligations. The payment obligation of a Subsidiary Guarantor to any Excess Funding Guarantor under this Section 8.08 shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Subsidiary Guarantor under the other provisions of this Article VIII and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations. For purposes of this Section 8.08, (i) "Excess Funding Guarantor" means, in respect of any Guaranteed Obligations, a Subsidiary Guarantor that has paid an amount in excess of its Pro Rata Share of such Guaranteed Obligations, (ii) "Excess Payment" means, in respect of any Guaranteed Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro Rata Share of such Guaranteed Obligations and (iii) "Pro Rata Share" means, for any Subsidiary Guarantor, the ratio (expressed as a percentage) of (x) the amount by which the aggregate present fair saleable value of all properties of such Subsidiary Guarantor (excluding any shares of stock of any other Subsidiary Guarantor) exceeds the amount of all the debts and liabilities of such Subsidiary Guarantor (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of such Subsidiary Guarantor hereunder and any obligations of any other Subsidiary Guarantor that have been Guaranteed by such Subsidiary Guarantor) to (y) the amount by which the aggregate fair saleable value of all properties of all of the Subsidiary Guarantors exceeds the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of the Borrower and the Subsidiary Guarantors hereunder and under the other Loan Documents) of all of the Subsidiary Guarantors, determined (A) with respect to any Subsidiary Guarantor that is a party hereto on the Effective Date, as of the Effective Date, and (B) with respect to any other Subsidiary Guarantor, as of the date such Subsidiary Guarantor becomes a Subsidiary Guarantor hereunder. SECTION 8.09 General Limitation on Guarantee Obligations. In any action or proceeding involving any state corporate law, or any state or Federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Subsidiary Guarantor under Section 8.01 would otherwise, taking into account the provisions of Section 8.08, be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under said Section 8.01, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by such Subsidiary Guarantor, any Lender, the Administrative Agent or any other Person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding. ARTICLE IX The Administrative Agent Each of the Lenders and the Issuing Banks hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.02), and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.02) or in the absence of its own gross negligence or wilful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall take such action (subject to Section 10.02(b) hereof and subject to the right of the Administrative Agent to receive further assurances to its satisfaction from the Lenders of their indemnification obligations under Section 10.03(c) hereof against any and all liability and expense that may be incurred by it by reason of taking or continuing to take such action) with respect to the notice of a Default referred to in the preceding paragraph as shall be directed by the Required Lenders, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such notice of Default as it shall deem advisable in the best interest of the Lenders except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only with the consent or upon the authorization of the Required Lenders or all of the Lenders. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such subagent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders, the Required Issuing Banks and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders and the Required Issuing Banks, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 10.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder. The Arranger identified on the cover page of this Agreement shall have no duties or responsibilities hereunder. The Co-Agent identified on the cover page of this Agreement shall have no duties or responsibilities hereunder other than as a Lender and as an Issuing Bank hereunder. ARTICLE X Miscellaneous SECTION 10.01. Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Borrower, to it at Smithfield Foods, Inc. at 900 Dominion Tower, 999 Waterside Drive, Norfolk, VA, 23510, Attention: Mr. Aaron D. Trub (Telecopy No. 757- 365-3017) and Michael H. Cole (Telecopy No. 757-365-3023); (b) if to any Subsidiary Guarantor, at the address for notices to the Borrower as provided herein; (c) if to the Administrative Agent or the Collateral Agent, to The Chase Manhattan Bank, Agent Bank Services Group, 1 Chase Manhattan Plaza, New York, New York 10017, Attention of Sandra Miklave (Telecopy No. 212-552-5658), with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017, Attention of Sue Herzog (Telecopy No. 212-344-0246); (d) if to Chase in its capacity as Issuing Bank, to it at 1 Chase Manhattan Plaza, New York, New York 10017, Attention of Rashdy Botros, Supervisor L/C, (Telecopy No. 212-638-8200); (e) if to the Swingline Lender, to The Chase Manhattan Bank, Agent Bank Services Group, 1 Chase Manhattan Plaza, New York, New York 10017, Attention of Pam Lambiese (Telecopy No. 212-344-0246); and (f) if to any other Lender (including to Rabobank in its capacity as the Issuing Bank), to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 10.02. Waivers; Amendments. (a) No failure or delay by the Administrative Agent, any Issuing Bank or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Banks and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by any Obligor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or any Issuing Bank may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any provision hereof, nor the Intercreditor Agreement nor any provision thereof, may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Obligors and the Required Lenders or by the Obligors and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.17(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender, (vi) change the reference to 75% in the definition of "Borrowing Base" to a higher percentage without the written consent of each Lender; or (vii) release all or substantially all of the Subsidiary Guarantors from their obligations in respect of their Guarantee hereunder without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, either Issuing Bank or the Swingline Lender hereunder without the prior written consent of the Administrative Agent, such Issuing Bank or the Swingline Lender, as the case may be. (c) Neither any Security Document nor any provision thereof may be waived, amended or modified, nor may any collateral thereunder be released, except pursuant to an agreement or agreements in writing entered into by the Obligors party thereto, and by the Administrative Agent with the consent of the Lenders. Notwithstanding the foregoing, the Administrative Agent shall, at the request of the Borrower, (i) agree to release from the Lien of the Security Agreement any property that is the subject of a permitted sale hereunder to a Person other than the Borrower or a Subsidiary and (ii) agree to terminate the Security Agreement if (w) at the time of such release, the aggregate amount of obligations of the Borrower and its Subsidiaries secured by Liens permitted by any of clauses (c), (d), (e), (g) (to the extent extending, renewing or replacing any of the Liens permitted by any of clauses (c), (d) and (e)) and (h) does not exceed 15% of Consolidated Tangible Net Worth, (x) the long term senior, unsecured debt of the Borrower is rated at least Baa3 by Moody's and is rated at least BBB- by S&P, (y) no Default has occurred and is continuing and (z) all collateral security provided with respect to the Senior Note Documents and the Pari Passu Debt shall have been released. SECTION 10.03. Expenses; Indemnity: Damage Waiver. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder, (iii) all reasonable out-of-pocket expenses incurred by Rabobank in connection with any demand for payment under any Existing Letter of Credit and (iv) all out-of-pocket expenses incurred by the Administrative Agent, either Issuing Bank or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent, any Issuing Bank or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement and the other Loan Documents, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. (b) The Borrower shall indemnify the Administrative Agent, each Issuing Bank and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or the other Loan Documents or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by the an Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent, an Issuing Bank or the Swingline Lender under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent, such Issuing Bank or the Swingline Lender, as the case may be, such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent, such Issuing Bank or the Swingline Lender in its capacity as such. (d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable promptly after written demand therefor. SECTION 10.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), except that an Obligor may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by such Obligor without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the relevant Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, each of the Borrower and the Administrative Agent (and, in the case of an assignment of all or a portion of a Commitment or any Lender's obligations in respect of its LC Exposure or Swingline Exposure, the Required Issuing Banks and the Swingline Lender) must give their prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $10,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500, and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; provided further that any consent of the Borrower otherwise required under this paragraph shall not be required if an Event of Default under clause (h) or (i) of Article VII has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.15, 2.16 and 10.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent, the Required Issuing Banks and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, the Required Issuing Banks and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Borrower, the Administrative Agent, the Issuing Banks or the Swingline Lender, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Issuing Banks and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 10.02(b) that affects such Participant. Subject to paragraph (f) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.14, 2.15 and 2.16 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.17(c) as though it were a Lender. (f) A Participant shall not be entitled to receive any greater payment under Section 2.14 or 2.16 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.16 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.16(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. SECTION 10.05. Survival. All covenants, agreements, representations and warranties made by the Obligors herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement and the other Loan Documents shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, either Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.14, 2.15, 2.16 and 10.03 and Article IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. SECTION 10.06. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 10.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 10.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of any Obligor against any of and all the obligations of such Obligor now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. (b) EACH OBLIGOR HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent, either Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Obligor or its properties in the courts of any jurisdiction. (c) Each Obligor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 10.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 10.12. Confidentiality. Each of the Administrative Agent, the Issuing Banks and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement or the other Loan Documents, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the other Loan Documents or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or the other Loan Documents, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, either Issuing Bank or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" means all information received from any Obligor relating to such Obligor or its business, other than any such information that is available to the Administrative Agent, either Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by the Borrower; provided that, in the case of information received from any Obligor after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. SECTION 10.13. Perfection of Security Interests. Notwithstanding anything contained herein or in any Security Document to the contrary, neither the Borrower nor any of its Subsidiaries shall be responsible for the failure of the Lien created by the Security Agreement to be perfected (a) to the extent that such failure results from the failure by the Collateral Agent to file continuation statements under the Uniform Commercial Code in respect of such Lien, (b) to the extent that such failure relates to Liens over letters of credit supporting LC-Backed Receivables, provided that the aggregate amount of LC-Backed Receivables in respect of which such Liens over the related letters of credit are not perfected does not exceed 10% of the Consolidated Borrowing Base, (c) to the extent that such failure relates to Liens over Inventory stored in warehouses, provided that the amount of the Consolidated Borrowing Base attributable to such Inventory shall not exceed $250,000 for any single warehouse and that the amount of the Consolidated Borrowing Base attributable to such Inventory and to Eligible Receivables referred to in the following clause (d) shall not exceed $20,000,000 in the aggregate or (d) to the extent that such failure relates to Liens over Eligible Receivables and results from such Eligible Receivables being due from Governmental Authorities, provided that the amount of the Consolidated Borrowing Base attributable to such Eligible Receivables and to Inventory referred to in the preceding clause (c) shall not exceed $20,000,000 in the aggregate. If the amount of Collateral subject to any such failure exceeds any relevant amount referred to in clause (a), (b) or (c) of the preceding sentence, then, (i) on the date (the "Trigger Date") that the Borrower determines that such excess exists, the Borrower shall immediately notify the Administrative Agent and the Collateral Agent of such event, (ii) the Borrower shall furnish to the Administrative Agent on the Trigger Date a Borrowing Base Certificate calculated on the basis of the Borrowing Base Certificate most recently furnished hereunder but recalculating the Borrowing Base with pro forma adjustments reflecting the exclusion of such excess Collateral from the Eligible Receivables or Eligible Inventory, as the case may be, (iii) the Borrower shall forthwith on the Trigger Date comply with its obligations under Section 2.10(b) after giving effect to the Borrowing Base as so calculated and (iv) not later than 30 days following the Trigger Date, the Borrower shall have taken such action as shall be necessary to eliminate such excess. If the Borrower is in compliance with the preceding sentence, then (x) except as expressly provided in the preceding sentence, no account or Inventory shall be excluded from Eligible Receivables or Eligible Inventory, as the case may be, (y) no Obligor shall be deemed to have breached any covenant or made any untrue representation or warranty and (z) no Default or Event of Default shall be deemed to have occurred or be continuing, in each of the cases referred to in the foregoing clauses (x), (y) and (z) solely because any Lien created by the Security Agreement shall fail to be perfected if such failure is described in clause (a), (b) or (c) of the first sentence or this Section 10.13; except that, notwithstanding the preceding provisions of this Section 10.13, the Borrower shall from time to time upon the request of the Administrative Agent or the Required Lenders deliver or cause to be delivered to the Collateral Agent in pledge under the Security Agreement the letters of credit supporting LC-Backed Receivables. SECTION 10.14. Acknowledgements. Each Obligor hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) neither the Administrative Agent nor any Lender or Issuing Bank has any fiduciary relationship with or fiduciary duty to any Obligor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Administrative Agent, the Lenders and the Issuing Banks, on the one hand, and the Obligors, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among any party or parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. SMITHFIELD FOODS, INC. By_________________________ Name: Aaron D. Trub Title: Vice-President, Secretary and Treasurer THE SMITHFIELD PACKING COMPANY, INCORPORATED By_________________________ Name: Aaron D. Trub Title: Secretary GWALTNEY OF SMITHFIELD, LTD. By_________________________ Name: Aaron D. Trub Title: Secretary PATRICK CUDAHY INCORPORATED By_________________________ Name: Aaron D. Trub Title: Secretary JOHN MORRELL & CO. By_________________________ Name: Aaron D. Trub Title: Secretary LYKES MEAT GROUP, INC. By_________________________ Name: Aaron D. Trub Title: Secretary BROWN'S OF CAROLINA, INC. By_________________________ Name: Aaron D. Trub Title: Secretary HANCOCK'S OLD FASHIONED COUNTRY HAMS, INC. By_________________________ Name: Aaron D. Trub Title: Secretary VALLEYDALE FOODS, INC. By_________________________ Name: Aaron D. Trub Title: Secretary COPAZ PACKING CORPORATION By_________________________ Name: Aaron D. Trub Title: Secretary SUNNYLAND, INC. By_________________________ Name: Aaron D. Trub Title: Secretary SMITHFIELD PACKING-LANDOVER, INC. By_________________________ Name: Aaron D. Trub Title: Secretary THE CHASE MANHATTAN BANK, individually and as Administrative Agent, By_________________________ Name: Michael D. Peist Title: Vice President COOPERATIEVE CENTRALE RAIFFEISEN - BOERENLEENBANK B.A. "RABOBANK NEDERLAND", NEW YORK BRANCH, By_________________________ Name: Title: By_________________________ Name: Title: AGRIBANK, FCB, By_________________________ Name: Title: CAISSE NATIONALE DE CREDIT AGRICOLE, By_________________________ Name: Title: DG BANK, DEUTSCHE GENOSSENSCHAFTSBANK, CAYMAN ISLANDS BRANCH, By_________________________ Name: Title: By_________________________ Name: Title: NATIONSBANK OF TEXAS, N.A., By_________________________ Name: Title: NATIONSBANK, N.A., By_________________________ Name: Title: BOATMEN'S FIRST NATIONAL BANK OF KANSAS CITY, By_________________________ Name: Title: FBS AG CREDIT, INC., By_________________________ Name: Title: SUNTRUST BANK, ATLANTA, By_________________________ Name: Title: By_________________________ Name: Title: BANK OF TOKYO-MITSUBISHI, By_________________________ Name: Title: DRESDNER BANK AG, By_________________________ Name: Title: FARM CREDIT SERVICES OF THE MIDLANDS, PCA, By_________________________ Name: Title: HARRIS TRUST AND SAVINGS BANK, By_________________________ Name: Title: SANWA BANK LIMITED, By_________________________ Name: Title: SUMITOMO BANK, LIMITED, NEW YORK BRANCH, By_________________________ Name: Title: [SCHEDULES AND EXHIBITS OMITTED] EX-4 3 EXHIBIT 4.5(A) EXHIBIT 4.5(a) Execution Counterpart ============================================================ 364-DAY CREDIT AGREEMENT dated as of July 15, 1997 among SMITHFIELD FOODS, INC., THE SUBSIDIARY GUARANTORS PARTY HERETO, THE LENDERS PARTY HERETO and THE CHASE MANHATTAN BANK, as Administrative Agent ------------------------- CHASE SECURITIES INC., as Arranger and COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH, as Co-Agent ============================================================ Exhibit G -- Intercreditor Agreement 364-DAY CREDIT AGREEMENT dated as of July 15, 1997, among SMITHFIELD FOODS, INC., a Delaware corporation (the "Borrower"), each of the Subsidiaries of the Borrower identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages hereto or that, pursuant to Section 5.09 hereof, shall become a "Subsidiary Guarantor" hereunder (individually, a "Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors" and, together with the Borrower, the "Obligors"), each of the lenders that is a party hereto identified under the caption "LENDERS" on Schedule 2.01 hereto or that, pursuant to Section 10.04 hereof, shall become a "Lender" hereunder (individually, a "Lender" and, collectively, the "Lenders") and THE CHASE MANHATTAN BANK, in its capacity as administrative agent for the Lenders hereunder (the "Administrative Agent"). The Borrower and its subsidiaries are engaged as an integrated group in the business of pork production, hog farming, pork processing and manufacturing spices and chemicals, and in related businesses, and in furnishing the required supplies, services, equipment, credit and other facilities for such integrated operation. The integrated operation requires financing on such a basis that credit supplied to the Borrower be made available from time to time to the Subsidiary Guarantors, as required for the continued successful operation of the Obligors, separately, and the integrated operation as a whole. In that connection, the Obligors have requested that the Lenders make loans (to be made available by the Borrower directly or indirectly to the Subsidiary Guarantors and other of its Subsidiaries in the circumstances specified herein) in an aggregate principal or face amount not exceeding $50,000,000 to refinance certain existing indebtedness of the Obligors and to finance the working capital needs and for other general corporate purposes of the Borrower and its subsidiaries in the ordinary course of business. To induce the Lenders to extend such credit, the Obligors, the Lenders and the Administrative Agent propose to enter into this Agreement pursuant to which the Lenders will make loans to the Borrower and each Subsidiary Guarantor will guarantee the credit so extended to the Borrower and each of the Obligors will agree to execute and deliver a security agreement providing for security interests and liens to be granted by the Obligors on certain of their respective properties as collateral security for the obligations of the Obligors to the Lenders and the Administrative Agent hereunder and, in the case of each Obligor (other than the Borrower) as collateral security for the payment of certain of the Intercompany Notes (as defined below). Each of the Obligors expects to derive benefit, directly or indirectly, from the credit so extended to the Borrower and each other Subsidiary Guarantor, both in its separate capacity and as a member of the integrated group, since the successful operation of each of the Obligors is dependent on the continued successful performance of the functions of the integrated group as a whole. Accordingly, the parties hereto agree as follows: ARTICLE I Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Acquisition" means any transaction, or any series of related transactions, consummated after the date of this Agreement, by which the Borrower and/or any of its Subsidiaries (a) acquires any going business or all or substantially all of the assets of any Person, whether through purchase of assets, merger or otherwise, (b) directly or indirectly acquires control of at least a majority (in number of votes) of the securities of a corporation that have ordinary voting power for the election of directors or (c) directly or indirectly acquires control of at least a majority of the partner, member or other ownership interests of any Person that is not a corporation. "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Aggregate Consideration" means, in connection with any Acquisition, an amount equal to (a) the aggregate consideration, in whatever form (including, without limitation, cash payments, the principal amount of promissory notes and Indebtedness assumed, the aggregate amounts payable to acquire, extend and exercise any option, the aggregate amount payable under non-competition agreements and management agreements, and the fair market value of other property delivered) paid, delivered or assumed by the Borrower and its Subsidiaries for such Acquisition minus (b) the amount, if any, of any increase in the Consolidated Borrowing Base resulting from such Acquisition on the date of the Consummation thereof. "Alternate Base Rate" means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. "Applicable Percentage" means, with respect to any Lender, the percentage of the Total Commitment represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Total Commitment most recently in effect, giving effect to any assignments. "Applicable Rate" means, with respect to any ABR Loan, Eurodollar Loan or Federal Funds Loan, or with respect to the Commitment Fees payable hereunder, for each Rate Period (as defined below), the respective rate per annum indicated below for Loans of such Type or Commitment Fees, as applicable, opposite the applicable Interest Coverage Ratio (as defined below) indicated below for such Rate Period: Interest Coverage Applicable Applicable Rate Ratio Rate for for Eurodollar ABR Loans Loans and Commitment Federal Funds Fees Loans - ----------------- ---------- ---------------- ---------- Greater than or -0- 0.750% 0.100% equal to 5.0 to 1 ("Tier I") Less than 5.0 to 1 -0- 0.875% 0.110% and greater than or equal to 4.5 to 1 ("Tier II") Less than 4.5 to 1 -0- 1.000% 0.125% and greater than or equal to 4.0 to 1 ("Tier III") Less than 4.0 to 1 0.125% 1.125% 0.140% and greater than or equal to 3.5 to 1 ("Tier IV") Less than 3.5 to 1 0.250% 1.250% 0.150% ("Tier V") For purposes hereof, (i) a "Rate Period" means (x) initially, the period commencing on the date hereof to but not including the first Rate Reset Date (as defined below) thereafter and (y) thereafter, the period commencing on a Rate Reset Date to but not including the immediately following Rate Reset Date; (ii) a "Rate Reset Date" means, with respect to any fiscal quarter or fiscal year, the earlier of (x) the date on which the Borrower delivers the certificate referred to in Section 5.01(c) (a "Compliance Certificate") in respect of such fiscal quarter or fiscal year, as the case may be, and (y) the date on which the Borrower is required to have delivered the financial statements under Section 5.01(a) or (b) in respect of such fiscal quarter or fiscal year, as the case may be (provided that the first Rate Reset Date shall be determined by reference to the fiscal quarter of the Borrower ending on October 30, 1997); and (iii) "Interest Coverage Ratio" means, for any Rate Period, the ratio of Consolidated EBITDA for the period of four fiscal quarters of the Borrower ending on or most recently prior to the first day of such Rate Period to Consolidated Interest Expense for such period of four consecutive fiscal quarters. Anything in this Agreement to the contrary notwithstanding, but subject to Section 2.12(d), the Applicable Rate shall be (i) the applicable rate provided for in Tier V in the table set forth above in this definition (x) during any period when an Event of Default shall have occurred and be continuing, or (y) if the applicable Compliance Certificate shall not be delivered within the time that the applicable financial statements are required to be delivered by Section 5.01(a) or (b), as the case may be (but only, in the case of this clause (y), with respect to the portion of such Rate Period prior to the delivery of such Compliance Certificate) and (ii) subject to the preceding clause (i), the applicable rate provided for in Tier III in the table set forth above in this definition during the first Rate Period. "Arranger" means Chase Securities Inc. "Assessment Rate" means, for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in dollars at the offices of such member in the United States; provided that if, as a result of any change in any law, rule or regulation, it is no longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall be determined by the Administrative Agent to be representative of the cost of such insurance to the Lenders. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent. "Availability Period" means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments. "Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrowing" means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "Borrowing Base" means, at any time for any First Tier Subsidiary, an amount equal to (a) 75% of the result obtained from the following calculation: (i) the aggregate amount of Eligible Inventory (valued at the lower of (x) cost, on a first- in-first-out basis or (y) fair market value) of such First Tier Subsidiary and its subsidiaries that are Subsidiary Guarantors, determined on a consolidated basis, plus (ii) the aggregate amount of Eligible Receivables of such First Tier Subsidiary and its subsidiaries that are Subsidiary Guarantors at such time, in each case as reflected in the Borrowing Base Certificate then most recently received by the Administrative Agent hereunder minus (iii) reserves maintained by such First Tier Subsidiary and its subsidiaries that are Subsidiary Guarantors in respect of Eligible Receivables relating to discounts, advertising, allowances and similar items minus (b) the aggregate amount of outstanding checks for the purchase of Farm Products (as defined in the Security Agreement) drawn by such First Tier Subsidiary and its Subsidiaries that have not cleared. "Borrowing Base Certificate" means a certificate substantially in the form of Exhibit B hereto signed by a Financial Officer. "Borrowing Request" means a request by the Borrower for a Borrowing in accordance with Section 2.03. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Expenditures" means, with respect to any Person, for any period, all expenditures made and liabilities incurred during such period for the acquisition of assets (including any replacement in the ordinary course of business without reduction for sales, retirements or replacements) which are not, in accordance with GAAP, treated as expense items for such Person in the year made or incurred or as a prepaid expense applicable to a future year or years, and shall include (i) all Capital Lease Obligations and (ii) an amount (not less than zero) equal to any net increase from the beginning of such period through the end of such period in the aggregate outstanding principal amount of advances to hog production operations (other than Subsidiaries) in which the Borrower or any of its Subsidiaries has invested as a joint venturer or partner. The amount of Capital Expenditures in any period shall be calculated without duplication in accordance with GAAP. Notwithstanding the foregoing, with respect to the acquisition of replacement sows by the Borrower or any of its Subsidiaries in the ordinary course of business, the amount included in Capital Expenditures shall be the acquisition cost of such sows, reduced by the proceeds received by the Borrower or any of its Subsidiaries from the sale of the replaced sows. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Cash Flow" means, for any period, the sum, for the Borrower and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) Consolidated Net Income plus (b) depreciation and amortization (to the extent deducted in determining Consolidated Net Income) for such period. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than 25% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated; or (c) the acquisition of direct or indirect Control of the Borrower by any Person or group. "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.14(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Chase" means The Chase Manhattan Bank. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Collateral Agent" means Chase, as collateral agent under the Security Agreement. "Commitment" means, with respect to each Lender, the commitment of such Lender to make Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 10.04. The initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. The initial aggregate amount of the Total Commitment is $50,000,000. "Commitment Fee" means the fees payable at the Applicable Rate pursuant to Section 2.11(a). "Consolidated Borrowing Base" means, at any time, the aggregate amount of the Borrowing Bases at such time of the First Tier Subsidiaries that are Subsidiary Guarantors. "Consolidated Current Ratio" means, on any date, the ratio of (i) the consolidated current assets of the Borrower and its Subsidiaries on such date to (ii) the sum on such date (without duplication) of the consolidated current liabilities of the Borrower and its Subsidiaries plus the aggregate outstanding principal amount of the Loans and Pari Passu Debt plus the aggregate principal amount of Indebtedness of the Borrower and its Subsidiaries that would be characterized as current liabilities but for the existence of the Commitments hereunder or any commitments of lenders to make Pari Passu Debt available to the Borrower or any of its Subsidiaries. "Consolidated EBITDA" means, for any period, an amount equal to (a) the sum for such period of Consolidated Net Income and, to the extent subtracted in determining such Consolidate Net Income, provisions for (i) taxes based on income, (ii) Consolidated Interest Expense and (iii) depreciation and amortization expense minus (b) any items of gain (or plus any items of loss) which were included in determining such Consolidated Net Income and were (i) not realized in the ordinary course of business or (ii) the result of any sale of assets. "Consolidated Fixed Charges" means, on any date, the sum (without duplication) of (i) the aggregate amount of all Capital Expenditures and the Aggregate Consideration for all Acquisitions by the Borrower and its Subsidiaries during the preceding four quarters plus (ii) scheduled principal payments on Indebtedness of the Borrower and its Subsidiaries due within the succeeding four quarters (including any principal payments to be made as a result of mandatory reductions under revolving credit facilities, but excluding principal payments at maturity of Pari Passu Debt) plus (iii) the gross interest accrued on such Indebtedness during the preceding four quarters plus (iv) the aggregate amount of any dividends paid or other distributions made during the preceding four quarters. "Consolidated Intangible Assets" means, on any date, the aggregate amount of Intangible Assets of the Borrower and its Subsidiaries, determined on a consolidated basis at such time. "Consolidated Interest Expense" means, for any period, the consolidated interest expense of the Borrower and its Subsidiaries (whether cash or non-cash interest expense or deferred or accrued interest expense and the interest portion of all Capital Lease Obligations during such period). "Consolidated Net Income" means, for any period, the net income (or deficit) of the Borrower and its Subsidiaries; provided, however, that there shall be excluded from Consolidated Net Income (i) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Borrower or such Person's assets are acquired by the Borrower, (ii) the income (or deficit) of any Person (other than a consolidated Subsidiary) in which the Borrower has an ownership interest, except to the extent that any such income has been actually received by the Borrower in the form of dividends or similar distributions, (iii) the undistributed earnings of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions of such Subsidiary is restricted and (iv) any income or gain resulting from any write-up or revaluation of the assets of the Borrower or its Subsidiaries. "Consolidated Shareholders' Equity" means, on any date, the aggregate amount of shareholders' equity of the Borrower and its Subsidiaries on such date, determined on a consolidated basis. "Consolidated Tangible Net Worth" means, on any date, the excess of Consolidated Shareholders' Equity over Consolidated Intangible Assets on such date. "Consolidated Total Liabilities" means, on any date, the aggregate amount at which all liabilities of the Borrower and its Subsidiaries (including, without limitation, (a) all Guarantees of Indebtedness by such Persons and (b) all amounts attributable to Mandatorily Redeemable Stock of the Borrower and its Subsidiaries to the extent that such Mandatorily Redeemable Stock is redeemable within one year of such date) would be shown on a consolidated balance sheet of such Persons at such time. "Consolidated Working Capital" means, on any date, the excess of (i) the consolidated current assets of the Borrower and its Subsidiaries on such date over (ii) the sum on such date (without duplication) of the consolidated current liabilities of the Borrower and its Subsidiaries plus the aggregate outstanding principal amount of the Loans and Pari Passu Debt plus the aggregate principal amount of any commercial paper or other short-term Indebtedness of the Borrower and its Subsidiaries that would be characterized as current liabilities but for the existence of the Commitments hereunder or any commitments of lenders to make Pari Passu Debt available to the Borrower or any of its Subsidiaries. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Credit Exposure" means, with respect to any Lender, at any time, the aggregate outstanding principal amount of such Lender's Loans at such time. "Debt Issuance" means any issuance or incurrence by the Borrower or any of its Subsidiaries of any Indebtedness. "Debt Service" means, for any period, the sum, for the Borrower and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) all regularly scheduled payments or prepayments of principal of Indebtedness made during such period plus (b) all Interest Expense for such period. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.06. "Disposition" means any sale, assignment, transfer or other disposition of any property (whether now owned or hereafter acquired) by the Borrower or any of its Subsidiaries to any other Person excluding any sale, assignment, transfer or other disposition of any property sold or disposed of in the ordinary course of business or the revenue from which would otherwise be included in the calculation of Cash Flow. "dollars" or "$" refers to lawful money of the United States of America. "Effective Date" means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 10.02). "Eligible Inventory" means, as at any date with respect to any Person, all Inventory (i) that is owned by (and in the possession or under the control of) such Person as at such date, (ii) that is located in a jurisdiction in the United States of America, (iii) as to which (before the Security Termination Date) appropriate Uniform Commercial Code financing statements have been filed naming such Person as "debtor" and the Collateral Agent as "secured party", and over which (before the Security Termination Date) the Collateral Agent has a perfected security interest subject to no prior or equal Lien (other than the pari passu security interest securing the Pari Passu Debt), subject to Section 10.13, (iv) that meets all standards imposed by any governmental agency or department or division thereof having regulatory authority over such inventory, its use or sale, (v) for which such Person has made full and final payment and (vi) that is currently usable in the manufacturing process or saleable in the normal course of such Person's business without any notice to, or consent of, any governmental agency or department or division thereof (excluding however, except to the extent that the Required Lenders otherwise agree with respect to any specific customer or third-party processor, any such Inventory that has been shipped to a customer of such Person, including third-party processors, even if on a consignment or "sale or return" basis, and excluding repair and replacement parts for machinery and equipment). Notwithstanding anything in clause (vi) of the foregoing sentence to the contrary (but subject to clauses (i) through (v) of the foregoing sentence), Eligible Inventory shall include but not be limited to all barrows, gilts, boars, sows, feeder pigs, suckling pigs, nursery pigs and commercial sows and boars, multiplier hogs, nucleus hogs and other hogs (collectively, "Hogs") at the time of determination owned and being raised at facilities owned by such Person or at facilities subject to an exclusive contract with such Person (i.e., the operator of such facility has no similar contract with any other Person) for the feeding and raising of Hogs. "Eligible Receivables" means, as at any date with respect to any Person, the aggregate amount of all accounts (as defined in the Uniform Commercial Code) of such Person arising from the sale by such Person of Inventory in the ordinary course of its business and (before the Security Termination Date) over which the Collateral Agent has a perfected security interest subject to no prior or equal Lien (other than the pari passu security interest securing the Pari Passu Debt), subject to Section 10.13, other than the following (determined without duplication): (a) any account not payable in Dollars, (b) any account that is not paid within 60 days (subject to the last sentence of this definition of "Eligible Receivables") after the date of the invoice for the related inventory, (c) any account owing from a subsidiary or Affiliate of such Person, (d) any account (other than an LC-Backed Receivable) owing from an account debtor whose principal place of business is located outside of the United States of America, provided that the aggregate amount of accounts that are not excluded from the definition of "Eligible Receivables" pursuant to this clause (d) by virtue of their constituting LC-Backed Receivables (other than LC-Backed Receivables the related letter of credit for which has been delivered to the Collateral Agent in pledge under the Security Agreement) may not exceed 10% of the Consolidated Borrowing Base, (e) any account owing from an account debtor that is insolvent or the subject of a bankruptcy case, (f) any account that is more than 28 days (subject to the last sentence of this definition of "Eligible Receivables") past due, (g) all accounts of any account debtor if more than 20% of the aggregate amount of the accounts owing from such account debtor are more than 28 days (subject to the last sentence of this definition of "Eligible Receivables") past due, (h) all accounts owing from any account debtor if the accounts owing from such account debtor and its Affiliates at the time exceed 10% of all accounts then payable to the Obligors, (i) any account as to which there is any unresolved dispute with the respective account debtor (but only to the extent of the amount thereof in dispute), (j) any account evidenced by an instrument (as defined in the Uniform Commercial Code) not in the possession of the Collateral Agent and containing all necessary endorsements, (k) any account representing an obligation for goods sold on consignment, approval or a sale-or-return basis or subject to any other repurchase, return or offset arrangement, (l) any amount as to which there is an offsetting liability from the Borrower, any Subsidiary or any Affiliate of the Borrower (but only to the extent of the amount of such offsetting liability), and (m) all amounts reserved by any Subsidiary or Affiliate of the Borrower related to advertising and promotional programs for the respective account debtor (excluding general promotional reserves that are not reserved on a specific account basis). In recognition of the fact that, on the date of this Agreement, the accounting systems of certain Subsidiaries are unable to track the number of days specified in clauses (b), (f) and (g) above, such numbers of days for each such Subsidiary shall be deemed for purposes hereof to be the number of days that the accounting system of such Subsidiary can track that is closest to such specified number of days, provided that (i) if such specified number of days is exactly equidistant from two numbers of days that can be so tracked, such specified number of days shall be deemed to be the lower of such two numbers, (ii) if the closest such number of days that can be so tracked is more than seven days higher than such specified number of days, such specified number of days shall be deemed to be the closest number of days that can be so tracked that is lower than such number of specified days and (iii) this sentence shall cease to have any effect after the date falling six months after the date hereof. "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "Equity Issuance" means any issuance or sale by the Borrower after the Effective Date of any of its capital stock. "Equity Rights" means, with respect to any Person, any outstanding subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, any stockholders' or voting trust agreements) for the issuance, sale, registration or voting of, or outstanding securities convertible into, any additional shares of capital stock of any class, or partnership or other ownership interests of any type in, such Person. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "Event of Default" has the meaning assigned to such term in Article VII. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Obligors hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which an Obligor is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Obligors under Section 2.18(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 2.16(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.16(a). "Existing Credit Agreement" means the Fourth Amended, Restated and Continued Revolving Credit Agreement, dated as of April 30, 1996, among the Subsidiary Guarantors, Rabobank Nederland, as agent, and the banks referred to therein, as amended. "Federal Funds", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Federal Funds Rate. "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Federal Funds Rate" means the "offered rate", as determined by the Administrative Agent, for overnight federal funds. "Financial Officer" means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower. "First Tier Subsidiary" means (i) a Subsidiary all of the issued and outstanding capital stock of which is owned directly by the Borrower or (ii) Brown's of Carolina, Inc. "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "GAAP" means generally accepted accounting principles in the United States of America. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" means any swap agreement, cap agreement, collar agreement, put or call, futures contract, forward contract or similar agreement or arrangement entered into in respect of interest rates, foreign exchange rates or prices of commodities. "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. The Indebtedness of a Person shall not include obligations of such Person to pay rent under operating leases to the extent that such obligations do not constitute Capital Lease Obligations. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Intangible Assets" means, with respect to any Person on any date, the following: (a) patents, copyrights, trademarks, trade names, service marks, brand names, franchises, goodwill, experimental expenses and other similar intangibles; (b) deferred assets (other than prepaid taxes, prepaid insurance, prepaid contract payments, prepaid license fees and other prepaid expenses which are refundable); (c) unamortized debt discount and expense; and (d) all other property or assets (whether real, personal or mixed, and whether tangible or intangible) which would be considered to be intangible under GAAP. "Intercompany Note" has the meaning assigned to such term in Section 5.08(a). "Intercreditor Agreement" means an intercreditor agreement substantially in the form of Exhibit G hereto, as the same shall be modified and supplemented and in effect from time to time. "Interest Election Request" means a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.07. "Interest Expense" means, for any period, the sum, for the Borrower (determined without duplication in accordance with GAAP), of the following: (a) all interest in respect of Indebtedness accrued or capitalized during such period (whether or not actually paid during such period) plus (b) the net amounts payable (or minus the net amounts receivable) under Hedging Agreements related to interest and accrued during such period (whether or not actually paid or received during such period). "Interest Payment Date" means (a) with respect to any ABR Loan, the last day of each March, June, September and December, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period and (c) with respect to any Federal Funds Loan, the last day of each month. "Interest Period" means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Inventory" means, collectively, "Inventory" and "Farm Products" as defined in the Security Agreement. "Investment" means, for any Person: (a) the acquisition (whether for cash, property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of any other Person or any agreement to make any such acquisition (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such short sale); (b) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such Person, but excluding any such advance, loan or extension of credit having a term not exceeding 90 days representing the purchase price of programming, advertising, inventory or supplies sold in the ordinary course of business); (c) the entering into of any Guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person or (d) any Hedging Agreement having the commercial effect of a synthetic or derivative Investment. "LC-Backed Receivable" means an account (as defined in the Uniform Commercial Code) to the extent that the payment thereof is backed by a letter of credit issued for account of the related account debtor, or confirmed, by a domestic office of a commercial bank organized under the laws of the United States of America or any state thereof the short term deposits of which are rated A-1 or better by S&P or P-1 by Moody's. "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. The interest of a lessor in any property leased pursuant to an operating lease shall not constitute a Lien over such property securing obligations of the related lessee to pay rent under such lease to the extent that such obligations do not constitute Capital Lease Obligations. "Loan Documents" means this Agreement, any promissory notes evidencing Loans hereunder, any Intercompany Notes, and the Security Documents. "Loans" means the loans made by the Lenders to the Borrower pursuant to this Agreement. "Mandatorily Redeemable Stock" means, with respect to any Person, each share of such Person's capital stock to the extent that it is (a) redeemable, payable or required to be purchased or otherwise retired or extinguished, or convertible into Indebtedness of such Person (i) at a fixed or determinable date, whether by operation of a sinking fund or otherwise, (ii) at the option of any Person other than such Person or (iii) upon the occurrence of a condition not solely within the control of such Person, such as redemption required to be made out of future earnings or (b) convertible into other Mandatorily Redeemable Stock of such Person. "Margin Stock" means margin stock within the meaning of Regulations G, U and X. "Material Adverse Effect" means a material adverse effect on (a) the Transactions, (b) the business, assets, operations, property, prospects or condition, financial or otherwise, of the Obligors taken as a whole, (c) the ability of any Obligor to perform any of its obligations under this Agreement or the other Loan Documents or (d) the rights of or benefits available to the Lenders under this Agreement or the other Loan Documents. "Material Indebtedness" means Indebtedness (other than the Loans), or obligations in respect of one or more Hedging Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $5,000,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of the Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. "Maturity Date" means July 14, 1998. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Funds Flow" means, on any date, the amount (not less than zero) resulting from the following calculation (without duplication): (i) Cash Flow for the period commencing on June 30, 1997 and ending on the last day of the fiscal quarter of the Borrower ending on or most recently ended prior to such date plus (ii) the proceeds of any Debt Issuance (other than Indebtedness incurred hereunder or Pari Passu Debt) or Equity Issuance received during the period (the "Calculation Period") commencing on the date hereof and ending on such date plus (iii) the aggregate amount of proceeds of Dispositions received by the Borrower and its Subsidiaries during the Calculation Period (in the case of each of (i), (ii) and (iii) above, to the extent the proceeds thereof have been applied to reduce Indebtedness incurred hereunder or Pari Passu Debt) minus (iv) Restricted Payments made in cash during the Calculation Period to any Person other than the Borrower or any wholly-owned Subsidiary minus (v) Capital Expenditures and the Aggregate Consideration for all Acquisitions to the extent paid in cash during the Calculation Period (except to the extent made directly from the proceeds of Indebtedness incurred hereunder or Pari Passu Debt) minus (vi) the aggregate principal amount of all payments or prepayments of Indebtedness (other than Indebtedness incurred hereunder or Pari Passu Debt) of the Borrower and its Subsidiaries made during the Calculation Period. "Obligors" means the Borrower and the Subsidiary Guarantors. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "Pari Passu Debt" means any Indebtedness (a) in respect of which the Borrower is primarily liable as the borrower and the Subsidiary Guarantors (but no other Subsidiary) are liable as guarantors, (b) that is secured, and only secured, by the Lien created by the Security Agreement and (c) that all of the Lenders consent to as being treated as Pari Passu Debt. All of the requirements set forth in the preceding clauses (a), (b) and (c) must be satisfied in order for any Indebtedness to be Pari Passu Debt. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.04; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.04; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary; (f) Liens securing judgments to the extent, for an amount and for a period not resulting in an Event of Default under Article VII(k); and (g) Liens created under the Federal Packers and Stockyards Act, as amended; provided that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness. "Permitted Investments" means: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody's; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000; and (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prime Rate" means the rate of interest per annum publicly announced from time to time by Chase as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Register" has the meaning set forth in Section 9.04. "Regulations G, U and X" means, respectively, Regulations G, U and X of the Board, as the same may be amended from time to time. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Lenders" means, at any time, Lenders having Credit Exposures and unused Commitments representing more than 50% of the sum of the total Credit Exposures and unused Commitments at such time. "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of capital stock of the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such shares of capital stock of the Borrower or any Subsidiary or any option, warrant or other right to acquire any such shares of capital stock of the Borrower or any Subsidiary. "Solvent" has the meaning assigned to such term in Section 4.01(1). "S&P" means Standard & Poor's Ratings Services. "Security Agreement" means a Collateral Agency, Pledge and Security Agreement substantially in the form of Exhibit C hereto between the Borrower, the Subsidiary Guarantors, the Administrative Agent, the agent for the holders from time to time of the Pari Passu Debt, and the Collateral Agent, as the same shall be modified and supplemented and in effect from time to time. "Security Documents" means the Security Agreement and all Uniform Commercial Code financing statements required by the Security Agreement to be filed with respect to the security interests in personal property created pursuant to the Security Agreement. "Security Termination Date" means the date, if any, that the Security Agreement is terminated in accordance with Section 10.02(c)(ii). "Senior Note Documents" means (i) the Note Purchase Agreement dated as of July 15, 1996 among the Borrower and the Purchasers referred to therein and (ii) the Joint and Several Guaranty, the Notes and the Security Documents referred to in said Note Purchase Agreement, in each of the cases referred to in the foregoing clauses (i) and (ii), as the same shall, subject to Section 6.09, be modified and supplemented and in effect from time to time. "Special Counsel" means Milbank, Tweed, Hadley & McCloy, in its capacity as special counsel to Chase, as Administrative Agent of the credit facility contemplated hereby. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to (i) three months, in the case of the Base CD Rate, and (b) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Subsidiary" means any subsidiary of the Borrower. "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Three-Month Secondary CD Rate" means, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day is not a Business Day, the next preceding Business Day) by the Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day) or, if such rate is not so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day is not a Business Day, on the next preceding Business Day) by the Administrative Agent from three negotiable certificate of deposit dealers of recognized standing selected by it. "Total Commitment" means, at any time, the aggregate amount of the Lenders' Commitments as in effect at such time. "Transactions" means (i) with respect to the Borrower, the execution, delivery and performance by the Borrower of Loan Documents to which it is a party, the borrowing of Loans hereunder and the use of the proceeds thereof and (ii) with respect to any Obligor (other than the Borrower), the execution, delivery and performance by such Obligor of the Loan Documents to which it is a party. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate, the Alternate Base Rate or the Federal Funds Rate. "Unguaranteed Exposure" means, on any date, an amount equal to the aggregate principal amount of all Loans made to the Borrower that are outstanding on such date to the extent that the proceeds thereof (without double-counting) have been advanced, directly or indirectly, by First Tier Subsidiaries to Subsidiaries that are not Subsidiary Guarantors. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans and Borrowings may be classified and referred to by Type (e.g., a "Eurodollar Loan" or a "Federal Funds Borrowing"). SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. ARTICLE II The Credits SECTION 2.01. Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount (i) that will not result in such Lender's Credit Exposure exceeding such Lender's Commitment and (ii) that will not result in the sum of the aggregate amount of the Credit Exposures of all of the Lenders plus the aggregate principal amount of all Pari Passu Debt then outstanding exceeding the Consolidated Borrowing Base. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Loans. SECTION 2.02. Loans and Borrowings. (a) Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.13, each Borrowing shall be comprised entirely of ABR Loans, Federal Funds Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR Borrowing and each Federal Funds Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000; provided that an ABR Borrowing or a Federal Funds Borrowing may be in an aggregate amount that is equal to the entire unused balance of the Total Commitment. Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of 3 Eurodollar Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. SECTION 2.03. Requests for Loan. To request a Loan, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing, (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of the proposed Borrowing or (c) in the case of a Federal Funds Borrowing, not later than 12:00 noon, New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be an ABR Borrowing, a Federal Funds Borrowing or a Eurodollar Borrowing; (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.06. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be a Federal Funds Borrowing. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.04. [INTENTIONALLY OMITTED] SECTION 2.05. [INTENTIONALLY OMITTED] SECTION 2.06. Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 1:00 p.m., New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) for the first three Business Days, (A) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (B) in the case of the Borrower, the Federal Funds Rate and (ii) thereafter, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. SECTION 2.07. Interest Elections. (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing, a Federal Funds Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to a Federal Funds Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to a Federal Funds Borrowing at the end of the Interest Period applicable thereto. SECTION 2.08. Termination and Reduction of Commitments. (a) Unless previously terminated, the Commitments shall terminate on the Maturity Date. (b) The Borrower may at any time terminate, or from time to time reduce, the Commitments; provided that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of $5,000,000 and not less than $10,000,000 and (ii) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.10, the sum of the Credit Exposures would exceed the Total Commitment. (c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments. SECTION 2.09. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan on the Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 10.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). SECTION 2.10. Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section and provided that the aggregate principal amount of any prepayment that does not result in the prepayment of a Borrowing in full shall be in an integral multiple of $1,000,000. (b) Until the Maturity Date, the Borrower shall from time to time prepay the Loans in such amounts as shall be necessary so that at all times the sum of the aggregate outstanding amount of Credit Exposure plus the aggregate principal amount of Pari Passu Debt then outstanding shall not exceed the Consolidated Borrowing Base. (c) The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Borrowing or a Federal Funds Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.08, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.08. Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.12. SECTION 2.11. Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a Commitment Fee, which shall accrue at the Applicable Rate on the daily unused amount of the Commitment of such Lender during the period from and including the date hereof to but excluding the date on which such Commitment terminates. Accrued Commitment Fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof; provided that any Commitment Fees accruing after the date on which the Commitments terminate shall be payable on demand. All Commitment Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent. (c) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of Commitment Fees, and participation fees, to the Lenders. Fees paid shall not be refundable under any circumstances. SECTION 2.12. Interest. (a) The Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate plus the Applicable Rate. (b) The Loans comprising each Federal Funds Borrowing shall bear interest at the Federal Funds Rate plus the Applicable Rate. (c) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate. (d) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section. (e) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and upon termination of the Commitments; provided that (i) interest accrued pursuant to paragraph (d) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Loan or a Federal Funds Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (f) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Federal Funds Rate and Adjusted LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.13. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing. SECTION 2.14. Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. (b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by such Lender, to a level below that which such Lender, or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section 2.14 for any increased costs or reductions incurred more than 270 days prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof. SECTION 2.15. Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.10(b) and is revoked in accordance therewith) or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.18, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. SECTION 2.16. Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent or such Lender, as the case may be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Borrower shall make each payment required to be made by it hereunder and under the other Loan Documents (whether of principal, interest or fees, or of amounts payable under Section 2.14, 2.15 or 2.16, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, except that payments pursuant to Sections 2.14, 2.15, 2.16 and 10.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by any Obligor pursuant to and in accordance with the express terms of this Agreement or the other Loan Documents or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Each Obligor consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Obligor in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.06(b) or 2.17(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.18. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.14, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.14 or 2.16 as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If any Lender requests compensation under Section 2.14, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 10.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.14 or payments required to be made pursuant to Section 2.16, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. ARTICLE III Representations and Warranties The Borrower represents and warrants to the Lenders that: SECTION 3.01. Organization; Powers. Each of the Borrower and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. SECTION 3.02. Authorization; Enforceability. The Transactions are within each Obligor's corporate powers and have been duly authorized by all necessary corporate and, if required, stockholder action. Each of this Agreement and the other Loan Documents has been duly executed and delivered by each Obligor and constitutes a legal, valid and binding obligation of each Obligor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except for filings and recordings in respect of the Liens created pursuant to the Security Documents, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries, and (d) except for the Lien created by the Security Documents, will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lenders (i) its consolidated balance sheet, statements of income, stockholders equity and cash flows and pro forma information as of and for the fiscal year ended April 28, 1996, reported on by Arthur Andersen LLP, independent public accountants and (ii) its consolidated balance sheet, statements of income, stockholders equity and cash flows and pro forma information as of and for the three fiscal periods ended January 26, 1997. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above. (b) Since April 28, 1996, there has been no event, development or circumstance that has had or could reasonably be expected to have a Material Adverse Effect, except as reflected in the financial statements referred to in Section 3.04(a) as of and for the three fiscal periods ended January 26, 1997. (c) The Borrower does not have on the date of this Agreement any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments in each case that are material, except as referred to or reflected in the balance sheets as at April 28, 1996 and January 26, 1997 referred to above. SECTION 3.05. Properties. (a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not materially interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes. (b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.06. Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which an adverse determination is reasonably likely and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve this Agreement, the other Loan Documents or the Transactions. (b) Except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. (c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. As of the date hereof, the Borrower does not believe that the Disclosed Matters individually or in the aggregate are reasonably likely to have a Material Adverse Effect. SECTION 3.07. Compliance with Laws and Agreements. Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. SECTION 3.08. Investment and Holding Company Status. Neither the Borrower nor any of its Subsidiaries is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 3.09. Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $50,000,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $50,000,000 the fair market value of the assets of all such underfunded Plans. SECTION 3.11. Disclosure. The Borrower and its Subsidiaries have disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which they are subject, and all other matters known to them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Obligors to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Obligors represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. SECTION 3.12. Regulations G, U and X. Neither the Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock and no part of the proceeds of any extension of credit hereunder will be used to buy or carry any Margin Stock. SECTION 3.13. Material Agreements and Liens. (a) Part A of Schedule 3.13 hereto is a complete and correct list, as of the date of this Agreement, of each credit agreement, loan agreement, indenture, note purchase agreement, guarantee, letter of credit or other arrangement providing for or otherwise relating to any Indebtedness or any extension of credit (or commitment for any extension of credit) to, or guarantee by, the Borrower or any of its Subsidiaries (other than the Existing Credit Agreement and the Senior Note Documents) the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $100,000 and the aggregate principal or face amount outstanding or that may become outstanding under each such arrangement is correctly described in Part A of said Schedule 3.13. (b) Part B of Schedule 3.13 hereto is a complete and correct list, as of the date of this Agreement, of each Lien securing Indebtedness of any Person covering any property of the Borrower or any of its Subsidiaries, and the aggregate Indebtedness secured (or which may be secured) by each such Lien and the property covered by each such Lien is correctly described in Part B of said Schedule 3.13. SECTION 3.14. Subsidiaries, Etc. (a) Set forth in Part A of Schedule 3.14 hereto is a complete and correct list, as of the date hereof, of all of the Subsidiaries of the Borrower, together with, for each Subsidiary, (i) the jurisdiction of organization of such Subsidiary, (ii) each Person holding ownership interests in such Subsidiary and (iii) the nature of the ownership interests held by each such Person and the percentage of ownership of such Subsidiary represented by such ownership interests. Except as disclosed in Part A of Schedule 3.14 hereto, (x) each of the Borrower and its Subsidiaries owns, free and clear of Liens (other than Liens created pursuant to the Security Documents), and has the unencumbered right to vote, all outstanding ownership interests in each Person shown to be held by it in Part A of Schedule 3.14 hereto, (y) all of the issued and outstanding capital stock of each such Person organized as a corporation is validly issued, fully paid and nonassessable and (z) there are no outstanding Equity Rights with respect to such Person. (b) Set forth in Part B of Schedule 3.14 hereto is a complete and correct list, as of the date of this Agreement, of all Investments (other than Investments disclosed in Part A of said Schedule 3.14 hereto) held by the Borrower or any of its Subsidiaries in Person and, for each such Investment, (x) the identity of the Person or Persons holding such Investment and (y) the nature of such Investment. Except as disclosed in Part B of Schedule 3.14 hereto, each of the Borrower and its Subsidiaries owns, free and clear of all Liens (other than Liens created pursuant to the Security Documents), all such Investments. SECTION 3.15. Solvency. On and as of the Effective Date, immediately prior to and after consummation of the Transactions and after giving effect to all Loans and other obligations and liabilities being incurred on such date in connection therewith, and on the date of each subsequent Loan or other extension of credit hereunder and after giving effect to application of the proceeds thereof in accordance with the terms of the Loan Documents, the Borrower and its Subsidiaries, taken as a whole, are, and each Obligor is, and will be Solvent (as defined in Section 4.01(l)). ARTICLE IV Conditions SECTION 4.01. Effective Date. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 10.02): (a) The Administrative Agent (or Special Counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement. (b) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of each Obligor, the authorization of the Transactions and any other legal matters relating to each Obligor, this Agreement, the other Loan Documents or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. (c) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02. (d) The Administrative Agent shall have received a Borrowing Base Certificate not more than 3 days prior to the Effective Date. (e) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of McGuire Woods Battle & Boothe LLP, counsel for the Obligors, substantially in the form of Exhibit D, and covering such other matters relating to the Obligors, this Agreement, the other Loan Documents or the Transactions as the Required Lenders shall reasonably request (and the Borrower hereby requests such counsel to deliver such opinion). (f) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of Special Counsel substantially in the form of Exhibit E hereto (and the Administrative Agent hereby requests such counsel to deliver such opinion). (g) The Administrative Agent shall have received evidence satisfactory to it of the execution by each First Tier Subsidiary required to do so of an Intercompany Note. (h) The Administrative Agent (or Special Counsel) shall have received a counterpart of the Security Agreement duly executed and delivered by all of the Persons stated to be parties thereto. (i) The Administrative Agent (or Special Counsel) shall have received a counterpart of copies of duly completed and executed Uniform Commercial Code Financing Statements covering the personal property subject to the Liens created by the Security Agreement, together with evidence that such Financing Statements have been duly filed in all jurisdictions in which such filing is necessary or appropriate. (j) The Administrative Agent (or Special Counsel) shall have received a counterpart of the results of Uniform Commercial Code, tax and judgment searches as may be requested by the Administrative Agent and which searches reveal no liens on any asset of the Borrower except for liens permitted under this Agreement. (k) The Administrative Agent (or Special Counsel) shall have received evidence that the principal of and any interest on, and all other amounts owing in respect of, the Indebtedness outstanding under the Existing Credit Agreement shall have been (or shall be simultaneously) repaid in full, that all commitments to extend credit under the Existing Credit Agreement shall have been canceled or terminated and that Liens securing any such Indebtedness shall have been released; and such Uniform Commercial Code termination statements and other instruments, in each case in proper form for recording, as the Administrative Agent shall have requested to release and terminate of record any Liens securing such Indebtedness. (l) The Administrative Agent (or Special Counsel) shall have received a certificate of the Borrower, to the effect that, as of the Effective Date (after giving effect to the Transactions), (a) the aggregate value of all properties of the Borrower and its Subsidiaries at their present fair saleable value (i.e., the amount which may be realized within a reasonable time, considered to be six months to one year, either through collection or sale at the regular market value, regular market value to mean the amount which could be obtained for the property in question within such period by a capable and diligent business person from an interested buyer who is willing to purchase under ordinary selling conditions), exceed the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) of the Borrower and its Subsidiaries, (b) the Borrower and its Subsidiaries will not, on a consolidated basis, have an unreasonably small capital with which to conduct its business operations as contemplated to be conducted and (c) the Borrower and its Subsidiaries will have, on a consolidated basis, sufficient cash flow to enable them to pay their debts as they mature (satisfaction of items (a) through (c) of this paragraph (m) is herein referred to as being "Solvent"). (m) The Administrative Agent shall have received evidence satisfactory to it that the Joint and Several Guaranty included in the Senior Note Documents shall have been amended in a manner satisfactory to the Administrative Agent to provide that (i) the Lenders shall be entitled to benefit from Section 2.9 of the Joint and Several Guaranty, on a pro rata basis, to the same extent as the holders of the senior secured notes under the Note Purchase Agreements included in the Senior Note Documents and (ii) for purposes of Section 2.18 of the Joint and Several Guaranty, the full amount of the Loans shall be deemed to have been borrowed on the date of issuance of the senior secured notes and to have remained continuously outstanding thereafter. (n) The Administrative Agent shall have received a satisfactory independent audit prepared by Chase's Specialized Due Diligence Group or another firm of national standing with respect to such matters, as to the accounts receivable and inventory of the Borrower and its Subsidiaries, both on an individual and a consolidated basis. (o) The Administrative Agent, the Lenders and the Arranger shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Obligors hereunder. (p) The Administrative Agent (or Special Counsel) shall have received a counterpart of the Intercreditor Agreement duly executed and delivered by all of the Persons stated to be parties thereto. (q) The Administrative Agent shall have received such other documents as the Administrative Agent or any Lender or Special Counsel may reasonably request. The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 10.02) at or prior to 3:00 p.m., New York City time, on July 15, 1997 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). SECTION 4.02. Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Obligors set forth in this Agreement and the other Loan Documents shall be true and correct on and as of the date of such Borrowing. (b) At the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing. Each Borrowing shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. ARTICLE V Affirmative Covenants Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Borrower covenants and agrees with the Lenders that: SECTION 5.01. Financial Statements and Other Information. The Borrower will furnish to the Administrative Agent and each Lender: (a) within 90 days after the end of each fiscal year of the Borrower, (i) its audited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Arthur Andersen LLP or other independent public accountants of recognized national standing (without a "going concern" or like modification, qualification or exception and without any modification, qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied and (ii) its consolidating balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidating basis in accordance with GAAP consistently applied; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, (i) its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year and (ii) its consolidating balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis or consolidating basis, as the case may be, in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrower (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations of the Interest Coverage Ratio as at the last day of the fiscal quarter or fiscal year, as the case may be, in respect of which such financial statements are delivered, and demonstrating compliance with Section 6.12 and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (d) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines); (e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be; (f) as soon as available and in any event within 5 Business Days after the end of each monthly accounting period, a Borrowing Base Certificate certifying, in the case of the Borrower, as to the Consolidated Borrowing Base, and, in the case of each First Tier Subsidiary, as to its Borrowing Base, as at the last day of such accounting period; (g) as soon as available, and in any event within 90 days, after the end of each fiscal year of the Borrower a report (prepared at the expense of the Borrower) of an independent collateral auditor (which may be, or be affiliated with, one of the Lenders) approved by the Administrative Agent with respect to the Receivables and Inventory components included in the Consolidated Borrowing Base as at the end of such fiscal year which report shall indicate that, based upon a review by such auditors of the Receivables (including, without limitation, verification with respect to the amount, aging, identity and credit of the respective account debtors and the billing practices of the Borrower and its Subsidiaries) and Inventory (including, without limitation, verification as to the value, location and respective types), the information set forth in the Borrowing Base Certificate delivered by the Borrower as at the end of such fiscal year is accurate and complete in all material respects; and (h) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request. SECTION 5.02. Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $250,000; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 5.03. Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03. SECTION 5.04. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.05. Maintenance of Properties; Insurance. The Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. SECTION 5.06. Books and Records; Inspection Rights. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. SECTION 5.07. Compliance with Laws. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority, including all Environmental Laws, and with all other material obligations, applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.08. Use of Proceeds. (a) The proceeds of each Loan shall be lent by the Borrower to First Tier Subsidiaries that are Subsidiary Guarantors, provided that the aggregate principal amount of loans owing by each First Tier Subsidiary to the Borrower shall not exceed the Borrowing Base of such First Tier Subsidiary. All such loans made to each First Tier Subsidiary shall be evidenced by a single demand promissory note executed and delivered by such First Tier Subsidiary to the Borrower substantially in the form of Exhibit F hereto (each, an "Intercompany Note"), and pledged by the Borrower to the Collateral Agent under the Security Agreement for the benefit of the Secured Parties referred to in the Security Agreement. Each First Tier Subsidiary shall use the proceeds of such loans for its own working capital and other general corporate purposes and (subject to Section 6.13) to make advances to the Borrower and Subsidiaries. In the event that the Borrower receives any payment of principal of any Intercompany Note, it shall immediately lend the proceeds of such payment to another First Tier Subsidiary (to be evidenced by an Intercompany Note of such other First Tier Subsidiary that has been pledged by the Borrower to the Collateral Agent under the Security Agreement for the benefit of the Secured Parties referred to in the Security Agreement), or pay or prepay the Loans and/or the Pari Passu Debt, such that at no time will the aggregate outstanding principal amount of the Loans and the Pari Passu Debt exceed the aggregate outstanding principal amount of the Intercompany Notes. (b) Subject to the foregoing paragraph (a), the proceeds of the Loans will be used only (i) to pay Indebtedness outstanding under the Existing Credit Agreement and (ii) for working capital and other general corporate purposes of the Borrower and its Subsidiaries. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations G, U and X. SECTION 5.09. Additional Subsidiary Guarantors. The Borrower will take such action, and will cause each of its Subsidiaries to take such action, from time to time as shall be necessary to ensure that each Subsidiary the inventory or receivables of which are included in the calculation of the Consolidated Borrowing Base is a Subsidiary Guarantor and, thereby, an "Obligor" hereunder and under the Security Agreement pursuant to documentation satisfactory to the Administrative Agent in form and substance. In addition, the Borrower may cause any of its other Subsidiaries to become a Subsidiary Guarantor and, thereby, an "Obligor" hereunder and under the Security Agreement pursuant to documentation satisfactory to the Administrative Agent in form and substance. Each such new Subsidiary Guarantor shall deliver such proof of corporate action, incumbency of officers, opinions of counsel and other documents as is consistent with those delivered by each other Obligor pursuant to Section 4.01 or as any Lender or the Administrative Agent shall have reasonably requested. ARTICLE VI Negative Covenants Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, the Borrower covenants and agrees with the Lenders that: SECTION 6.01. Indebtedness. The Borrower will not, and will not permit any Subsidiary to, create, incur or assume any Indebtedness, except: (a) Indebtedness created hereunder; (b) Pari Passu Debt; (c) any extensions, renewals or replacements of any Indebtedness existing on the date hereof and set forth in Schedule 6.01, provided that the aggregate principal amount of such Indebtedness is not thereby increased; (d) Indebtedness of the Borrower to any Subsidiary and of any Subsidiary to the Borrower or any other Subsidiary; (e) other Indebtedness in an aggregate principal amount not exceeding $20,000,000 created, incurred or assumed in any fiscal year of the Borrower; and (f) other Indebtedness provided that, on the date (the "Incurrence Date") such Indebtedness is created, incurred or assumed (as the case may be), the Borrower furnishes to the Administrative Agent reasonable projections demonstrating in reasonable detail that the Borrower will be in compliance with Section 6.12(e) on the last day of each of the next succeeding four fiscal quarters of the Borrower that end after the Incurrence Date after giving effect to such creation, incurrence or assumption, together with a certificate of a Financial Officer to the effect that such projections are based upon reasonable assumptions and reflect the Borrower's best estimate as to the matters covered thereby. For purposes of the foregoing paragraphs (e) and (f), the Acquisition of any Person shall be deemed to constitute the assumption of the Indebtedness of such Person by a Subsidiary of the Borrower at the time of the consummation of such Acquisition. SECTION 6.02. Liens. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Permitted Encumbrances; (b) Liens created by the Senior Note Documents as in effect on the date hereof; provided that there shall be no Lien securing any obligations under the Senior Note Documents at any time after the Security Termination Date; (c) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof and set forth in Schedule 6.02 (other than Liens created by the Senior Note Documents); provided that (i) such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof; (d) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Borrower or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be; (e) Liens on fixed or capital assets acquired, constructed or improved by the Borrower or any Subsidiary; provided that (i) such security interests secure Indebtedness incurred to finance such acquisition, construction or improvement, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed 80% of the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of the Borrower or any Subsidiary; (f) the Lien created by the Security Agreement; provided that there shall be no Lien securing any Pari Passu Debt at any time after the Security Termination Date; (g) any extensions, renewals or replacements of any of the Liens permitted by the foregoing clauses (a) through (f) effected in connection with any extension, renewal or replacement of the Indebtedness secured thereby; provided that (i) the aggregate principal amount of such Indebtedness is not thereby increased, (ii) such Lien shall not be extended to cover any additional property and (iii) there shall be no Lien securing any extension, renewal or replacement of the Pari Passu Debt or any obligations under the Senior Note Documents at any time after the Security Termination Date; and (h) other Liens that (whether before or after the Security Termination Date) do not cover any Collateral (as defined in the Security Agreement). Notwithstanding anything contained herein to the contrary, the aggregate amount of obligations of the Borrower and its Subsidiaries secured by Liens permitted by any of clauses (c), (d), (e), (g) (to the extent extending, renewing or replacing any of the Liens permitted by any of clauses (c), (d) and (e)) and (h) shall not exceed 15% of Consolidated Tangible Net Worth at any time on or after the Security Termination Date. SECTION 6.03. Fundamental Changes. (a) The Borrower will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) any Subsidiary may merge into the Borrower in a transaction in which the Borrower is the surviving corporation, (ii) any Subsidiary may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary, provided that if any such transaction shall be between a Subsidiary Guarantor and a Subsidiary not a Subsidiary Guarantor, and such Subsidiary Guarantor is not the continuing or surviving corporation, then the continuing or surviving corporation shall have assumed all of the obligations of such Subsidiary Guarantor hereunder and under the other Loan Documents pursuant to documentation satisfactory to the Administrative Agent in form and substance, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of its assets to the Borrower or to another Subsidiary, provided that if any such transaction shall be between a Subsidiary Guarantor and a Subsidiary not a Subsidiary Guarantor, and if such Subsidiary Guarantor is not the continuing or surviving corporation, then the continuing or surviving corporation shall have assumed all of the obligations of such Subsidiary Guarantor hereunder and under the other Loan Documents pursuant to documentation satisfactory to the Administrative Agent in form and substance, (iv) any Subsidiary may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders; provided that any such merger that would otherwise be permitted by this Section 6.03 involving a Person that is not a wholly owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 6.04 and (v) the Borrower may merge into a newly formed, "shell" corporation organized under the laws of the Commonwealth of Virginia in a transaction intended merely to "reincorporate" the Borrower as a Virginia corporation, provided that (i) the continuing or surviving corporation shall have assumed all of the obligations of the Borrower hereunder and under the other Loan Documents pursuant to documentation satisfactory to the Administrative Agent in form and substance, (ii) no Default shall have occurred and be continuing or would result therefrom and (iii) the Lenders shall have received a legal opinion from counsel to the Borrower acceptable to the Administrative Agent and in form, scope and substance acceptable to the Administrative Agent as to such merger and such assumption. (b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto. SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions. The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (a) Permitted Investments; (b) investments by the Borrower existing on the date hereof in the capital stock of its Subsidiaries; (c) loans or advances made by the Borrower to any Subsidiary and made by any Subsidiary to the Borrower or any other Subsidiary; (d) Guarantees constituting Indebtedness permitted by Section 6.01; (e) Investments constituting Acquisitions permitted by Section 6.12(f); (f) Investments in an aggregate amount not exceeding $10,000,000 at any one time outstanding in a cold storage warehouse and distribution center in Sioux Falls, South Dakota constituting a joint venture between Freezer Services Inc., the Borrower and John Morrell & Co.; and (g) other Investments not exceeding $5,000,000 in the aggregate amount outstanding at any time. SECTION 6.05. Hedging Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities. SECTION 6.06. Restricted Payments. The Borrower will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that (a) the Borrower may declare and pay dividends with respect to its capital stock payable solely in additional shares of its common stock, (b) Subsidiaries may declare and pay dividends ratably with respect to their capital stock and (c) the Borrower may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries. SECTION 6.07. Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Borrower and its Subsidiaries not involving any other Affiliate and (c) any Restricted Payment permitted by Section 6.06. SECTION 6.08. Restrictive Agreements. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower or any Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets, or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to the Borrower or any other Subsidiary or to Guarantee Indebtedness of the Borrower or any other Subsidiary; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement or any of the other Loan Documents, (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 6.08 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement or any of the other Loan Documents if such restrictions or conditions apply only to the property or assets securing such Indebtedness, (v) clause (a) of the foregoing shall not apply to customary provisions in leases restricting the assignment thereof and (vi) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement under which the Indebtedness governed by the Senior Note Documents is refinanced, provided that such restrictions or conditions are not materially more restrictive than those contained in the Senior Note Documents on the date hereof (and, if such agreement does not provide that the Indebtedness created thereunder will be secured by Liens on property or assets of the Borrower or any Subsidiary, such agreement may contain restrictions or conditions limiting Liens on property or assets of the Borrower or any Subsidiary which are not the subject of Liens granted under the Security Agreement and such restrictions or conditions shall not be deemed more onerous than those contained in the Senior Note Documents on the date hereof). SECTION 6.09. Senior Note Documents. Promptly following the execution thereof, the Borrower will supply each Lender with a copy of any modification, supplement or waiver to a Senior Note Document. SECTION 6.10. Limitation on Sale and Leaseback Transactions. The Borrower will not, and will not permit any of its Subsidiaries to, enter into, renew or extend any transaction or series of related transactions pursuant to which the Borrower or such Subsidiary sells or transfers any property in connection with the leasing, or the release against installment payments, or as part of an arrangement involving the leasing or resale against installment payments, of such property to the seller or transferor. SECTION 6.11. Fiscal Periods. If the Borrower changes the manner of determining the last day of its fiscal year or the last days of the first three fiscal quarters in each of its fiscal years, the parties hereto shall negotiate in good faith to agree to modify any financial calculations and determinations hereunder to reflect their original intent in light of such changes, and if they fail so to agree all such financial calculations determinations hereunder shall continue to be made as if such change had not occurred. SECTION 6.12. Financial Covenants. (a) The Borrower will not permit the Consolidated Current Ratio to be less than 1.05 to 1 at any time. (b) The Borrower will not permit Consolidated Working Capital to be less than $35,000,000 at any time. (c) The Borrower will not permit the ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth on any date to be more than the ratio set forth below opposite the period during which such date falls: Period Ratio ------ ----- From the Effective Date through May 2, 1998 3.00 to 1 From May 3, 1998 and thereafter 2.75 to 1 (d) The Borrower will not permit Consolidated Tangible Net Worth on any date (the "Determination Date") to be less than the sum of (i) $225,000,000 plus (ii) 50% of the aggregate amount of Consolidated Net Income for each quarter that ends after the Effective Date and on or before the Determination Date in respect of which Consolidated Net Income is greater than zero plus (iii) 50% of the aggregate amount of increases in Consolidated Tangible Net Worth after the Effective Date and on or before the Determination Date resulting from the issuance by it of capital stock as consideration in Acquisitions made by it and its Subsidiaries. (e) The Borrower will not permit the ratio of Consolidated EBITDA to Consolidated Fixed Charges for any period of four consecutive fiscal quarters of the Borrower to be less than the ratio set forth below opposite the period during which the last day of such period of four consecutive fiscal quarters falls: Period Ratio ------ ------- From the Effective Date through January 31, 1998 0.85 to 1 From February 1, 1998 through July 31, 1999 1.00 to 1 From August 1, 1999 and thereafter 1.10 to 1 (f) The Borrower will not permit the sum (without duplication) of (i) Capital Expenditures made by the Borrower and its Subsidiaries in any fiscal year of the Borrower plus (ii) the Aggregate Consideration for all Acquisitions made by the Borrower and its Subsidiaries in such fiscal year to exceed the higher of (x) the sum of Consolidated Net Income plus depreciation for the Borrower and its Subsidiaries for such fiscal year or (y) $100,000,000. SECTION 6.13. Unguaranteed Exposure. Notwithstanding anything contained herein to the contrary, the Borrower will not permit the Unguaranteed Exposure to exceed $30,000,000. ARTICLE VII Events of Default If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement or any other Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three or more Business Days; (c) any representation or warranty made or deemed made by or on behalf of any Obligor in or in connection with this Agreement or any other Loan Document or any amendment or modification hereof or thereof or waiver hereunder or thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any other Loan Document or any amendment or modification hereof or thereof or waiver hereunder or thereunder, shall prove to have been incorrect in any material respect when made or deemed made; (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02, 5.03 (with respect to the existence of the Borrower or any Subsidiary) or 5.08 or in Article VI; (e) any Obligor shall fail to observe or perform any covenant, condition or agreement contained in this Agreement or any other Loan Document (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender); (f) the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable; (g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) the Borrower or any Subsidiary shall become unable, admit in writing or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $5,000,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any such judgment; (l) the Borrower or any Subsidiary receives any notice, notification, demand, request for information, citation, summons or order or there has been filed any compliant or any penalty has been assessed or an investigation or review is pending or threatened by any governmental or other entity, in each case with respect to any alleged failure by the Borrower or any of its Subsidiaries to have any environmental, health or safety permit, license or other authorization required under any Environmental Law in connection with the conduct of the business of the Borrower or any of its Subsidiaries or with respect to any generation, treatment, storage, recycling, transportation, discharge or disposal, or any release of any Hazardous Materials generated by the Borrower or any of its Subsidiaries, in each case which could reasonably be expected to result in a Material Adverse Effect. (m) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding (i) $2,000,000 in any year or (ii) $10,000,000 for all periods; (n) any of the following shall occur: (i) subject to Section 10.13, the Lien created by any Security Document shall at any time cease to constitute a valid and perfected Lien on the collateral intended to be covered thereby before the Security Termination Date; (ii) subject to Section 10.13, except for expiration in accordance with its terms, any Security Document shall for whatever reason be terminated, or shall cease to be in full force and effect before the Security Termination Date; or (iii) subject to Section 10.13, the actual or asserted invalidity of any Security Document or of any guarantee under Article VIII hereof or the validity of any Security Document or of any guarantee under Article VIII hereof or the validity of any subordination provision contained in Article VIII hereof shall be contested by any party before (in the case of any Security Document) the Security Termination Date; or (o) a Change in Control shall occur; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Obligors accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Obligors. ARTICLE VIII Guarantee SECTION 8.01 The Guarantee. The Subsidiary Guarantors hereby jointly and severally guarantee to each Lender and the Administrative Agent and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Loans made by the Lenders to the Borrower and all other amounts from time to time owing to the Lenders or the Administrative Agent by the Borrower under this Agreement and by any Obligor under any of the other Loan Documents, and all obligations of the Borrower to any Lender in respect of any Hedging Agreement, in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the "Guaranteed Obligations"). The Subsidiary Guarantors hereby further jointly and severally agree that if the Borrower shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Subsidiary Guarantors will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. SECTION 8.02 Obligations Unconditional. The obligations of the Subsidiary Guarantors under Section 8.01 hereof are absolute and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Borrower under this Agreement or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 8.02 that the obligations of the Subsidiary Guarantors hereunder shall be absolute and unconditional, joint and several, under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Subsidiary Guarantors hereunder which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to the Subsidiary Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of this Agreement or any other agreement or instrument referred to herein or therein shall be done or omitted; (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under this Agreement or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or (iv) any lien or security interest granted to, or in favor of, the Administrative Agent or any Lender or Lenders as security for any of the Guaranteed Obligations shall fail to be perfected. The Subsidiary Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Administrative Agent or any Lender exhaust any right, power or remedy or proceed against the Borrower under this Agreement or any other agreement or instrument referred to herein or therein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. SECTION 8.03 Reinstatement. The obligations of the Subsidiary Guarantors under this Article VIII shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Borrower in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise and the Subsidiary Guarantors jointly and severally agree that they will indemnify the Administrative Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, fees of counsel) incurred by the Administrative Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. SECTION 8.04 Subrogation. The Subsidiary Guarantors hereby jointly and severally agree that until the payment and satisfaction in full of all Guaranteed Obligations and the expiration and termination of the Commitments under this Agreement they shall not exercise any right or remedy arising by reason of any performance by them of their guarantee in Section 8.01 hereof, whether by subrogation or otherwise, against the Borrower or any other guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations. SECTION 8.05 Remedies. The Subsidiary Guarantors jointly and severally agree that, as between the Subsidiary Guarantors and the Lenders, the obligations of the Borrower under this Agreement may be declared to be forthwith due and payable as provided in Article VII hereof (and shall be deemed to have become automatically due and payable in the circumstances provided in said Article VII) for purposes of Section 8.01 notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against the Borrower and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by the Borrower) shall forthwith become due and payable by the Subsidiary Guarantors for purposes of said Section 8.01. SECTION 8.06 Instrument for the Payment of Money. Each Subsidiary Guarantor hereby acknowledges that the guarantee in this Article VIII constitutes an instrument for the payment of money, and consents and agrees that any Lender or the Administrative Agent, at its sole option, in the event of a dispute by such Subsidiary Guarantor in the payment of any moneys due hereunder, shall have the right to bring motion-action under New York CPLR Section 3213. SECTION 8.07 Continuing Guarantee. The guarantee in this Article VIII is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. SECTION 8.08 Rights of Contribution. The Subsidiary Guarantors hereby agree, as between themselves, that if any Subsidiary Guarantor shall become an Excess Funding Guarantor (as defined below) by reason of the payment by such Subsidiary Guarantor of any Guaranteed Obligations, each other Subsidiary Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the next sentence), pay to such Excess Funding Guarantor an amount equal to such Subsidiary Guarantor's Pro Rata Share (as defined below and determined, for this purpose, without reference to the Properties, debts and liabilities of such Excess Funding Guarantor) of the Excess Payment (as defined below) in respect of such Guaranteed Obligations. The payment obligation of a Subsidiary Guarantor to any Excess Funding Guarantor under this Section 8.08 shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Subsidiary Guarantor under the other provisions of this Article VIII and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations. For purposes of this Section 8.08, (i) "Excess Funding Guarantor" means, in respect of any Guaranteed Obligations, a Subsidiary Guarantor that has paid an amount in excess of its Pro Rata Share of such Guaranteed Obligations, (ii) "Excess Payment" means, in respect of any Guaranteed Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro Rata Share of such Guaranteed Obligations and (iii) "Pro Rata Share" means, for any Subsidiary Guarantor, the ratio (expressed as a percentage) of (x) the amount by which the aggregate present fair saleable value of all properties of such Subsidiary Guarantor (excluding any shares of stock of any other Subsidiary Guarantor) exceeds the amount of all the debts and liabilities of such Subsidiary Guarantor (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of such Subsidiary Guarantor hereunder and any obligations of any other Subsidiary Guarantor that have been Guaranteed by such Subsidiary Guarantor) to (y) the amount by which the aggregate fair saleable value of all properties of all of the Subsidiary Guarantors exceeds the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of the Borrower and the Subsidiary Guarantors hereunder and under the other Loan Documents) of all of the Subsidiary Guarantors, determined (A) with respect to any Subsidiary Guarantor that is a party hereto on the Effective Date, as of the Effective Date, and (B) with respect to any other Subsidiary Guarantor, as of the date such Subsidiary Guarantor becomes a Subsidiary Guarantor hereunder. SECTION 8.09 General Limitation on Guarantee Obligations. In any action or proceeding involving any state corporate law, or any state or Federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Subsidiary Guarantor under Section 8.01 would otherwise, taking into account the provisions of Section 8.08, be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under said Section 8.01, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by such Subsidiary Guarantor, any Lender, the Administrative Agent or any other Person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding. ARTICLE IX The Administrative Agent Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.02), and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.02) or in the absence of its own gross negligence or wilful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall take such action (subject to Section 10.02(b) hereof and subject to the right of the Administrative Agent to receive further assurances to its satisfaction from the Lenders of their indemnification obligations under Section 10.03(c) hereof against any and all liability and expense that may be incurred by it by reason of taking or continuing to take such action) with respect to the notice of a Default referred to in the preceding paragraph as shall be directed by the Required Lenders, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such notice of Default as it shall deem advisable in the best interest of the Lenders except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only with the consent or upon the authorization of the Required Lenders or all of the Lenders. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such subagent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 10.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder. The Arranger identified on the cover page of this Agreement shall have no duties or responsibilities hereunder. The Co-Agent identified on the cover page of this Agreement shall have no duties or responsibilities hereunder other than as a Lender hereunder. ARTICLE X Miscellaneous SECTION 10.01. Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Borrower, to it at Smithfield Foods, Inc. at 900 Dominion Tower, 999 Waterside Drive, Norfolk, VA, 23510, Attention: Mr. Aaron D. Trub (Telecopy No. 757- 365-3017) and Michael H. Cole (Telecopy No. 757-365-3023); (b) if to any Subsidiary Guarantor, at the address for notices to the Borrower as provided herein; (c) if to the Administrative Agent, or the Collateral Agent, to The Chase Manhattan Bank, Agent Bank Services Group, 1 Chase Manhattan Plaza, New York, New York 10017, Attention of Sandra Miklave (Telecopy No. 212-552-5658), with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017, Attention of Sue Herzog (Telecopy No. 212-344-0246); and (d) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 10.02. Waivers; Amendments. (a) No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by any Obligor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any provision hereof, nor the Intercreditor Agreement nor any provision thereof, may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Obligors and the Required Lenders or by the Obligors and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.17(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender, (vi) change the reference to 75% in the definition of "Borrowing Base" to a higher percentage without the written consent of each Lender; or (vii) release all or substantially all of the Subsidiary Guarantors from their obligations in respect of their Guarantee hereunder without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. (c) Neither any Security Document nor any provision thereof may be waived, amended or modified, nor may any collateral thereunder be released, except pursuant to an agreement or agreements in writing entered into by the Obligors party thereto, and by the Administrative Agent with the consent of the Lenders. Notwithstanding the foregoing, the Administrative Agent shall, at the request of the Borrower, (i) agree to release from the Lien of the Security Agreement any property that is the subject of a permitted sale hereunder to a Person other than the Borrower or a Subsidiary and (ii) agree to terminate the Security Agreement if (w) at the time of such release, the aggregate amount of obligations of the Borrower and its Subsidiaries secured by Liens permitted by any of clauses (c), (d), (e), (g) (to the extent extending, renewing or replacing any of the Liens permitted by any of clauses (c), (d) and (e)) and (h) does not exceed 15% of Consolidated Tangible Net Worth, (x) the long term senior, unsecured debt of the Borrower is rated at least Baa3 by Moody's and is rated at least BBB- by S&P, (y) no Default has occurred and is continuing and (z) all collateral security provided with respect to the Senior Note Documents and the Pari Passu Debt shall have been released. SECTION 10.03. Expenses; Indemnity: Damage Waiver. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) all reasonable out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement and the other Loan Documents, including its rights under this Section, or in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans. (b) The Borrower shall indemnify the Administrative Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or the other Loan Documents or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such. (d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable promptly after written demand therefor. SECTION 10.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that an Obligor may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by such Obligor without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, each of the Borrower and the Administrative Agent must give their prior written consent to such assignment (which consent shall not be unreasonably withheld or delayed), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $10,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500, and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; provided further that any consent of the Borrower otherwise required under this paragraph shall not be required if an Event of Default under clause (h) or (i) of Article VII has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.14, 2.15, 2.16 and 10.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 10.02(b) that affects such Participant. Subject to paragraph (f) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.14, 2.15 and 2.16 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.17(c) as though it were a Lender. (f) A Participant shall not be entitled to receive any greater payment under Section 2.14 or 2.16 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.16 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.16(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. SECTION 10.05. Survival. All covenants, agreements, representations and warranties made by the Obligors herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement and the other Loan Documents shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.14, 2.15, 2.16 and 10.03 and Article IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof. SECTION 10.06. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 10.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 10.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of any Obligor against any of and all the obligations of such Obligor now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. (b) EACH OBLIGOR HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Obligor or its properties in the courts of any jurisdiction. (c) Each Obligor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 10.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 10.12. Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement or the other Loan Documents, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the other Loan Documents or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or the other Loan Documents, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" means all information received from any Obligor relating to such Obligor or its business, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Borrower; provided that, in the case of information received from any Obligor after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. SECTION 10.13. Perfection of Security Interests. Notwithstanding anything contained herein or in any Security Document to the contrary, neither the Borrower nor any of its Subsidiaries shall be responsible for the failure of the Lien created by the Security Agreement to be perfected (a) to the extent that such failure results from the failure by the Collateral Agent to file continuation statements under the Uniform Commercial Code in respect of such Lien, (b) to the extent that such failure relates to Liens over letters of credit supporting LC-Backed Receivables, provided that the aggregate amount of LC-Backed Receivables in respect of which such Liens over the related letters of credit are not perfected does not exceed 10% of the Consolidated Borrowing Base, (c) to the extent that such failure relates to Liens over Inventory stored in warehouses, provided that the amount of the Consolidated Borrowing Base attributable to such Inventory shall not exceed $250,000 for any single warehouse and that the amount of the Consolidated Borrowing Base attributable to such Inventory and to Eligible Receivables referred to in the following clause (d) shall not exceed $20,000,000 in the aggregate or (d) to the extent that such failure relates to Liens over Eligible Receivables and results from such Eligible Receivables being due from Governmental Authorities, provided that the amount of the Consolidated Borrowing Base attributable to such Eligible Receivables and to Inventory referred to in the preceding clause (c) shall not exceed $20,000,000 in the aggregate. If the amount of Collateral subject to any such failure exceeds any relevant amount referred to in clause (a), (b) or (c) of the preceding sentence, then, (i) on the date (the "Trigger Date") that the Borrower determines that such excess exists, the Borrower shall immediately notify the Administrative Agent and the Collateral Agent of such event, (ii) the Borrower shall furnish to the Administrative Agent on the Trigger Date a Borrowing Base Certificate calculated on the basis of the Borrowing Base Certificate most recently furnished hereunder but recalculating the Borrowing Base with pro forma adjustments reflecting the exclusion of such excess Collateral from the Eligible Receivables or Eligible Inventory, as the case may be, (iii) the Borrower shall forthwith on the Trigger Date comply with its obligations under Section 2.10(b) after giving effect to the Borrowing Base as so calculated and (iv) not later than 30 days following the Trigger Date, the Borrower shall have taken such action as shall be necessary to eliminate such excess. If the Borrower is in compliance with the preceding sentence, then (x) except as expressly provided in the preceding sentence, no account or Inventory shall be excluded from Eligible Receivables or Eligible Inventory, as the case may be, (y) no Obligor shall be deemed to have breached any covenant or made any untrue representation or warranty and (z) no Default or Event of Default shall be deemed to have occurred or be continuing, in each of the cases referred to in the foregoing clauses (x), (y) and (z) solely because any Lien created by the Security Agreement shall fail to be perfected if such failure is described in clause (a), (b) or (c) of the first sentence or this Section 10.13; except that, notwithstanding the preceding provisions of this Section 10.13, the Borrower shall from time to time upon the request of the Administrative Agent or the Required Lenders deliver or cause to be delivered to the Collateral Agent in pledge under the Security Agreement the letters of credit supporting LC-Backed Receivables. SECTION 10.14. Acknowledgements. Each Obligor hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or fiduciary duty to any Obligor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Administrative Agent and the Lenders, on the one hand, and the Obligors, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among any party or parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. SMITHFIELD FOODS, INC. By_________________________ Name: Aaron D. Trub Title: Vice-President, Secretary and Treasurer THE SMITHFIELD PACKING COMPANY, INCORPORATED By_________________________ Name: Aaron D. Trub Title: Secretary GWALTNEY OF SMITHFIELD, LTD. By_________________________ Name: Aaron D. Trub Title: Secretary PATRICK CUDAHY INCORPORATED By_________________________ Name: Aaron D. Trub Title: Secretary JOHN MORRELL & CO. By_________________________ Name: Aaron D. Trub Title: Secretary LYKES MEAT GROUP, INC. By_________________________ Name: Aaron D. Trub Title: Secretary BROWN'S OF CAROLINA, INC. By_________________________ Name: Aaron D. Trub Title: Secretary HANCOCK'S OLD FASHIONED COUNTRY HAMS, INC. By_________________________ Name: Aaron D. Trub Title: Secretary VALLEYDALE FOODS, INC. By_________________________ Name: Aaron D. Trub Title: Secretary COPAZ PACKING CORPORATION By_________________________ Name: Aaron D. Trub Title: Secretary SUNNYLAND, INC. By_________________________ Name: Aaron D Trub Title: Secretary SMITHFIELD PACKING-LANDOVER, INC. By_________________________ Name: Aaron D. Trub Title: Secretary THE CHASE MANHATTAN BANK, individually and as Administrative Agent, By_________________________ Name: Michael D. Peist Title: Vice President COOPERATIEVE CENTRALE RAIFFEISEN - BOERENLEENBANK B.A. "RABOBANK NEDERLAND", NEW YORK BRANCH, By_________________________ Name: Title: By_________________________ Name: Title: AGRIBANK, FCB, By_________________________ Name: Title: CAISSE NATIONALE DE CREDIT AGRICOLE, By_________________________ Name: Title: DG BANK, DEUTSCHE GENOSSENSCHAFTSBANK, CAYMAN ISLANDS BRANCH, By_________________________ Name: Title: By_________________________ Name: Title: NATIONSBANK OF TEXAS, N.A., By_________________________ Name: Title: NATIONSBANK, N.A., By_________________________ Name: Title: BOATMEN'S FIRST NATIONAL BANK OF KANSAS CITY, By_________________________ Name: Title: FBS AG CREDIT, INC., By_________________________ Name: Title: SUNTRUST BANK, ATLANTA, By_________________________ Name: Title: By_________________________ Name: Title: BANK OF TOKYO-MITSUBISHI, By_________________________ Name: Title: DRESDNER BANK AG, By_________________________ Name: Title: FARM CREDIT SERVICES OF THE MIDLANDS, PCA, By_________________________ Name: Title: HARRIS TRUST AND SAVINGS BANK, By_________________________ Name: Title: SANWA BANK LIMITED, By_________________________ Name: Title: SUMITOMO BANK, LIMITED, NEW YORK BRANCH, By_________________________ Name: Title: [SCHEDULES AND EXHIBITS OMITTED] EX-4 4 EXHIBIT 4.5(B) EXHIBIT 4.5(b) EXECUTION COUNTERPART COLLATERAL AGENCY, PLEDGE AND SECURITY AGREEMENT COLLATERAL AGENCY, PLEDGE AND SECURITY AGREEMENT dated as of July 15, 1997 (the "Agreement") among SMITHFIELD FOODS, INC., a corporation duly organized and validly existing under the laws of the State of Delaware (the "Borrower"); each of the Subsidiaries of the Borrower identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages hereof (individually, a "Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors" and, together with the Borrower, the "Obligors"); and THE CHASE MANHATTAN BANK, as collateral agent for the Secured Parties referred to below (in such capacity, together with its successors in such capacity, the "Collateral Agent"). WHEREAS, the Borrower, the Subsidiary Guarantors, certain lenders (the "Five-Year Lenders") and The Chase Manhattan Bank, as agent for the Five-Year Lenders (in such capacity, together with its successors in such capacity, the "Five-Year Agent") are parties to a Five-Year Credit Agreement dated as of July 15, 1997 (as modified and supplemented and in effect from time to time, the "Five-Year Credit Agreement"), providing, subject to the terms and conditions thereof, for extensions of credit (by making loans and issuing letters of credit) to be made by the Five-Year Lenders to the Borrower in an aggregate principal or face amount not exceeding $300,000,000, the Borrower may use the proceeds of such loans to make advances to Subsidiary Guarantors that are First Tier Subsidiaries (as hereinafter defined) (and such First Tier Subsidiaries may lend the proceeds of such advances to other Subsidiaries of the Borrower and the Borrower may use such letters of credit to support obligations of its Subsidiaries; WHEREAS, the Borrower, the Subsidiary Guarantors, certain lenders (the "364-Day Lenders" and, together with the Five-Year Lenders, the "Lenders") and The Chase Manhattan Bank, as agent for the 364-Day Lenders (in such capacity, together with its successors in such capacity, the "364-Day Agent") are parties to a 364-Day Credit Agreement dated as of July 15, 1997 (as modified and supplemented and in effect from time to time, the "364-Day Credit Agreement" and, together with the Five-Year Credit Agreement, the "Credit Agreements"), providing, subject to the terms and conditions thereof, for loans to be made by the 364-Day Lenders to the Borrower in an aggregate principal amount not exceeding $50,000,000, and the Borrower may use the proceeds of such loans to make advances to Subsidiary Guarantors that are First Tier Subsidiaries (and such First Tier Subsidiaries may lend the proceeds of such advances to other Subsidiaries of the Borrower; WHEREAS, the First Tier Subsidiaries of the Borrower that are Subsidiary Guarantors have executed and delivered to the Borrower Intercompany Notes (as hereinafter defined) to evidence their respective obligations to repay such advances to the Borrower; WHEREAS, one or more of the Lenders may enter into one or more Hedging Agreements (as hereinafter defined) with the Borrower; WHEREAS, to induce the Five-Year Lenders to enter into the Five-Year Credit Agreement and to extend credit thereunder, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Obligor has agreed to pledge and grant a security interest in the Collateral (as hereinafter defined) owned by it, as security for the Secured Obligations (as hereinafter defined) owing by it thereunder; WHEREAS, to induce the 364-Day Lenders to enter into the 364-Day Credit Agreement and to extend credit thereunder, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Obligor has agreed to pledge and grant a security interest in the Collateral owned by it, as security for the Secured Obligations owing by it thereunder; WHEREAS, to induce the Borrower to make advances to each First Tier Subsidiary that is a party hereto, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, such First Tier Subsidiary and each subsidiary of such First Tier Subsidiary that is itself a Subsidiary Guarantor has agreed to pledge and grant a security interest in the Collateral owned by it, as security for such Intercompany Note (each of which Intercompany Notes and the Collateral securing the same is being pledged and assigned by the Borrower hereunder as security for the Secured Obligations owing by the Borrower); WHEREAS, to induce the Lenders to enter into Hedging Agreements with the Borrower, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower has agreed to pledge and grant a security interest in the Collateral owned by it, as security for the obligations owing by it under all Hedging Agreements entered into by it with one or more of the Lenders; and WHEREAS, for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto have agreed to enter into this Agreement; NOW, THEREFORE, the parties hereto hereby agree as follows: Section 1. Definitions. Terms that are defined identically in the Credit Agreements and that are not otherwise defined herein are used herein as defined therein; and if any such definitions cease to be identical or if the Secured Obligations under either Credit Agreement are paid in full, such terms shall have the meanings herein as in effect immediately prior to their ceasing to be identical or such payment in full, as the case may be. In addition, as used herein: "Accounts" shall have the meaning ascribed thereto in Section 3(c) hereof. "Collateral" shall have the meaning ascribed thereto in Section 3 hereof. "Collateral Account" shall have the meaning ascribed thereto in Section 4.01 hereof. "Default" shall mean a "Default" under, and as defined in, either Credit Agreement. "Documents" shall have the meaning ascribed thereto in Section 3(h) hereof. "Event of Default" shall mean an "Event of Default" under, and as defined in, either Credit Agreement. "Farm Products" shall have the meaning ascribed thereto in Section 3(f) hereof. "First Tier Subsidiaries" shall mean, collectively, the "First Tier Subsidiaries" referred to in the Credit Agreements. "Hedging Agreement" shall mean any swap agreement, cap agreement, collar agreement, put or call, futures contract, forward contract or similar agreement or arrangement entered into in respect of interest rates, foreign exchange rates or prices of commodities. "Hedging Obligations" shall mean all obligations of the Borrower owing to one or more of the Lenders under Hedging Agreements. "Instruments" shall have the meaning ascribed thereto in Section 3(d) hereof. "Intercompany Notes" shall mean, collectively, the "Intercompany Notes" referred to in the Credit Agreements. "Inventory" shall have the meaning ascribed thereto in Section 3(e) hereof. "Proceeds" of any Collateral shall mean cash, securities and other property realized in respect of, and distributions in kind of, Collateral, including any thereof received under any reorganization, liquidation or adjustment of debt of the Obligors or any issuer of or obligor on any of the Collateral. "Required Secured Parties" shall mean (i) the Lenders holding more than a majority of the loans under the Credit Agreements, unutilized commitments to extend credit under the Credit Agreements that remain outstanding, and participations (or, in the case of the issuer of letters of credit, retained interests) in outstanding letters of credit, and unreimbursed drawings under letters of credit, issued under the Five-Year Credit Agreement (collectively, "Credit Agreement Obligations") or (ii) if no Credit Agreement Obligations are outstanding, Lenders holding a majority of the obligations of the Borrower owing to the Lenders under Hedging Agreements (calculated by reference to the liquidated amounts that are then due or would be due if such Hedging Agreements were then terminated by reason of a default thereunder by the Borrower). "Secured Obligations" shall mean (a) in the case of the Borrower, (i) the principal of and interest on the loans made by the Five-Year Lenders to the Borrower under the Five-Year Credit Agreement, the reimbursement obligations owing by the Borrower in respect of letters of credit issued under the Five-Year Credit Agreement and all other amounts from time to time owing by the Borrower to the Five-Year Lenders or the Five-Year Agent under the "Loan Documents" referred to in the Five-Year Credit Agreements, (ii) the principal of and interest on the loans made by the 364-Day Lenders to the Borrower under the 364-Day Credit Agreement and all other amounts from time to time owing by the Borrower to the 364-Day Lenders or the 364-Day Agent under the "Loan Documents" referred to in the 364-Day Credit Agreement and (iii) the Hedging Obligations, (b) in the case of each Subsidiary Guarantor, (i) all obligations of such Subsidiary Guarantor under the Five-Year Credit Agreement (including, without limitation, in respect of its Guarantee under Article VIII of the Five-Year Credit Agreement) and the other "Loan Documents" referred to in the Five-Year Credit Agreement, (ii) all obligations of such Subsidiary Guarantor under the 364-Day Credit Agreement (including, without limitation, in respect of its Guarantee under Article VIII of the 364-Day Credit Agreement) and the other "Loan Documents" referred to in the 364-Day Credit Agreement and (iii) all obligations owing under the Intercompany Note executed and delivered by such Subsidiary Guarantor or, if such Subsidiary Guarantor is not a First Tier Subsidiary, the Intercompany Note executed and delivered by the First Tier Subsidiary of which such Subsidiary Guarantor is a subsidiary and (d) in the case of each Obligor, all obligations of such Obligor to the Secured Parties hereunder. "Secured Parties" shall mean the Five-Year Agent, the 364-Day Agent, the Collateral Agent, the Five-Year Lenders, the 364-Day Lenders and the Borrower. "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York. Section 2. Representations and Warranties. Each Obligor represents and warrants to the Lenders and the Collateral Agent that: (a) Such Obligor is the sole beneficial owner of the Collateral in which it purports to grant a security interest pursuant to Section 3 hereof and no Lien exists or will exist upon such Collateral at any time (and no right or option to acquire the same exists in favor of any other Person), except for the pledge and security interest in favor of the Collateral Agent for the benefit of the Secured Parties created or provided for herein, which pledge and security interest constitute a first priority perfected pledge and security interest in and to all of such Collateral, except (i) as permitted by the Credit Agreements or (ii) subject to no other Lien except Liens created under the Federal Packers and Stockyards Act, as amended. (b) Annex 1 hereto is a complete and accurate list of all Intercompany Notes outstanding on the date hereof. The Intercompany Notes are legal valid and binding obligations of the respective makers thereof. No Intercompany Note is overdue, has been dishonored, is subject to any defense to payment or is subject to any claim by any Person other than the Borrower and the Collateral Agent for the benefit of the Secured Parties. (c) Any goods now or hereafter produced by such Obligor included in the Collateral have been and will be produced in compliance with the requirements of the Fair Labor Standards Act, as amended. Section 3. Collateral. As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations owing by such Obligor, each Obligor hereby pledges and grants to the Collateral Agent for the benefit of the Secured Parties a security interest in all of such Obligor's right, title and interest in the following property, whether now owned by such Obligor or hereafter acquired and whether now existing or hereafter coming into existence (all being collectively referred to herein as "Collateral"): (a) all Intercompany Notes; (b) all moneys due or to become due to the Borrower in respect of the loans evidenced by the Intercompany Notes and all collateral security provided hereunder for the payment of the Intercompany Notes; (c) all accounts and general intangibles (each as defined in the Uniform Commercial Code) of such Obligor constituting any right to the payment of money in respect of any loans or advances or for Inventory, Farm Products or other goods sold or leased or for services rendered, all moneys due and to become due to such Obligor under any guarantee (including a letter of credit) of any such account or general intangible (such accounts, general intangibles and moneys due and to become due being herein called collectively "Accounts"); (d) all instruments, chattel paper or letters of credit (each as defined in the Uniform Commercial Code) of such Obligor evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Accounts, including (but not limited to) promissory notes, drafts, bills of exchange and trade acceptances (herein collectively called "Instruments"); (e) all inventory (as defined in the Uniform Commercial Code) of such Obligor, in all of its forms, wherever located, now or hereafter existing (including, but not limited to, (i) all livestock purchased in the ordinary course of business and held for slaughter and resale, meat, meat products and raw materials and work in process therefor, finished goods thereof, and materials used or consumed in the manufacture or production thereof including packaging and processing supplies, (ii) goods in which such Obligor has an interest in mass or a joint or other interest or right of any kind (including, without limitation, goods in which such Obligor has an interest or right as consignee), (iii) goods which are returned to or repossessed by such Obligor and all accessions thereto and products thereof and documents therefor, and (iv) all goods obtained by such Obligor in exchange for such inventory, and any products made or processed from such inventory including all substances, if any, commingled therewith or added thereto (any and all such inventory, accessions, products and documents herein collectively called "Inventory"); (f) all farm products (as defined in the Uniform Commercial Code) of such Obligor, in all of their respective forms, wherever located, now or hereafter existing, including but not limited to (i) livestock, meat and products thereof and (ii) all agricultural supplies used or consumed in such Obligor's operations, including without limitation, all feed, meal, ingredients, seeds, drugs, medications, vaccines, supplements and other chemicals used in feeding, maintaining, growing, preserving or producing any farm products, and (iii) all accessions to and products of and documents for any of the foregoing (any and all such farm products, accessions, products and documents herein collectively called "Farm Products"); (g) each contract and other agreement of such Obligor relating to the sale or other disposition of Inventory or Farm Products; (h) all documents of title (as defined in the Uniform Commercial Code) or other receipts of such Obligor covering, evidencing or representing Inventory or Farm Products (herein collectively called "Documents"); (i) all rights, claims and benefits of such Obligor against any Person arising out of, relating to or in connection with Inventory or Farm Products purchased by such Obligor, including, without limitation, any such rights, claims or benefits against any Person storing, raising, breeding or transporting such Inventory or Farm Products; (j) the balance from time to time in the Collateral Account; and (k) all proceeds, products, offspring (including unborn offspring), accessions, rents, profits, income, benefits, substitutions and replacements of and to any of the property of such Obligor described in the preceding clauses of this Section 3 (including, without limitation, any proceeds of insurance thereon and all causes of action, claims and warranties now or hereafter held by any Obligor in respect of any of the items listed above) and, to the extent related to any property described in said clauses or such proceeds, products and accessions, all books, correspondence, credit files, records, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of such Obligor or any computer bureau or service company from time to time acting for such Obligor. Section 4. Cash Proceeds of Collateral. 4.01 Collateral Account. There is hereby established with the Collateral Agent a cash collateral account (the "Collateral Account") in the name and under the control of the Collateral Agent into which there shall be deposited from time to time the cash Proceeds of any of the Collateral (including proceeds of insurance thereon) required to be delivered to the Collateral Agent pursuant hereto and into which the Obligors may from time to time deposit any additional amounts that any of them wishes to pledge to the Collateral Agent for the benefit of the Lenders as additional collateral security hereunder. The balance from time to time in the Collateral Account shall constitute part of the Collateral hereunder and shall not constitute payment of the Secured Obligations until applied as hereinafter provided. Except as expressly provided in the next sentence, the Collateral Agent shall remit the collected balance outstanding to the credit of the Collateral Account to or upon the order of the respective Obligor as such Obligor through the Borrower shall from time to time instruct. However, at any time following the occurrence and during the continuance of an Event of Default, the Collateral Agent may (and, if instructed by the Required Secured Parties, shall) in its (or their) discretion apply or cause to be applied (subject to collection) the balance from time to time outstanding to the credit of the Collateral Account to the payment of the Secured Obligations in the manner specified in Section 5.09 hereof. The balance from time to time in the Collateral Account shall be subject to withdrawal only as provided herein. 4.02 Proceeds of Accounts. Each Obligor shall, upon request of the Collateral Agent made at any time that an Event of Default exists, instruct all account debtors and other Persons obligated in respect of all Accounts to make all payments in respect of the Accounts either (a) directly to the Collateral Agent (by instructing that such payments be remitted to a post office box which shall be in the name and under the control of the Collateral Agent) or (b) to one or more other banks in the United States of America (by instructing that such payments be remitted to a post office box which shall be in the name and under the control of the Collateral Agent) under arrangements, in form and substance satisfactory to the Collateral Agent pursuant to which such Obligor shall have irrevocably instructed such other bank (and such other bank shall have agreed) to remit all proceeds of such payments directly to the Collateral Agent for deposit into the Collateral Account. All payments made to the Collateral Agent, as provided in the preceding sentence, shall be immediately deposited in the Collateral Account. In addition to the foregoing, each Obligor agrees that if the Proceeds of any Collateral hereunder (including the payments made in respect of Accounts) shall be received by it at any time after the Collateral Agent makes such request, such Obligor shall as promptly as possible deposit such Proceeds into the Collateral Account. Until so deposited, all such Proceeds shall be held in trust by such Obligor for and as the property of the Collateral Agent and shall not be commingled with any other funds or property of such Obligor. 4.03 Investment of Balance in Collateral Account. Amounts on deposit in the Collateral Account shall be invested from time to time in such Permitted Investments as the respective Obligor through the Borrower (or, after the occurrence and during the continuance of an Event of Default, the Collateral Agent) shall determine, which Permitted Investments shall be held in the name and be under the control of the Collateral Agent, provided that (i) at any time after the occurrence and during the continuance of an Event of Default, the Collateral Agent may (and, if instructed by the Required Secured Parties, shall) in its (or their) discretion at any time and from time to time elect to liquidate any such Permitted Investments and to apply or cause to be applied the proceeds thereof to the payment of the Secured Obligations in the manner specified in Section 5.09 hereof and (ii) if requested by the respective Obligor through the Borrower, such Permitted Investments may be held in the name and under the control of one or more of the Lenders (and in that connection each Lender, pursuant to a Credit Agreement) has agreed that such Permitted Investments shall be held by such Lender as a collateral sub-agent for the Collateral Agent hereunder). 4.04 Cover for Letter of Credit Liabilities. Amounts deposited into the Collateral Account as cover for Letter of Credit Liabilities under the Five-Year Credit Agreement pursuant to Section 2.10(b) or Article VII thereof shall be held by the Collateral Agent in a separate sub-account (designated "Letter of Credit Liabilities Sub-Account") and subject to Section 2.05(j) of the Five-Year Credit Agreement, all amounts held in such sub-account shall constitute collateral security first for the Letter of Credit Liabilities (as defined in the Five-Year Credit Agreement) outstanding from time to time and second as collateral security for the other Secured Obligations hereunder. Section 5. Further Assurances; Remedies. In furtherance of the grant of the pledge and security interest pursuant to Section 3 hereof, the Obligors hereby jointly and severally agree with each Secured Party and the Collateral Agent as follows: 5.01 Delivery and Other Perfection. Each Obligor shall: (a) if any Intercompany Notes are received by such Obligor, forthwith transfer and deliver to the Collateral Agent such Intercompany Notes so received by such Obligor (together with undated bond powers duly executed in blank), all of which thereafter shall be held by the Collateral Agent, pursuant to the terms of this Agreement, as part of the Collateral; (b) deliver and pledge to the Collateral Agent any and all Instruments and Documents, endorsed and/or accompanied by such instruments of assignment and transfer in such form and substance as the Collateral Agent may request; provided, that so long as no Event of Default shall have occurred and be continuing, such Obligor may retain for presentation in the ordinary course any Instruments or Documents received by such Obligor in the ordinary course of business and the Collateral Agent shall, promptly upon request of such Obligor through the Borrower, make appropriate arrangements for making any Instrument or Document pledged by such Obligor available to such Obligor for purposes of presentation, collection or renewal (any such arrangement to be effected, to the extent deemed appropriate by the Collateral Agent, against trust receipt or like document); (c) give, execute, deliver, file and/or record any financing statement, notice, instrument, document, agreement or other papers that may be necessary or desirable (in the judgment of the Collateral Agent) to create, preserve, perfect or validate the security interest granted pursuant hereto or to enable the Collateral Agent to exercise and enforce its rights hereunder with respect to such pledge and security interest, provided that notices to account debtors in respect of any Accounts or Instruments shall be subject to the provisions of clause (f) below; (d) keep full and accurate books and records relating to the Collateral, and stamp or otherwise mark such books and records in such manner as the Collateral Agent may reasonably require in order to reflect the security interests granted by this Agreement; (e) permit representatives of the Collateral Agent, upon reasonable notice, at any time during normal business hours to inspect and make abstracts from its books and records pertaining to the Collateral, and permit representatives of the Collateral Agent to be present at such Obligor's place of business to receive copies of all communications and remittances relating to the Collateral, and forward copies of any notices or communications received by such Obligor with respect to the Collateral, all in such manner as the Collateral Agent may require; and (f) upon the occurrence and during the continuance of any Event of Default, upon request of the Collateral Agent, promptly notify (and such Obligor hereby authorizes the Collateral Agent so to notify) each account debtor in respect of any Accounts or Instruments that such Collateral has been assigned to the Collateral Agent hereunder, and that any payments due or to become due in respect of such Collateral are to be made directly to the Collateral Agent. 5.02 Other Financing Statements. No Obligor shall file or suffer to be on file, or authorize or permit to be filed or to be on file, in any jurisdiction, any financing statement or like instrument with respect to the Collateral in which the Collateral Agent is not named as the sole secured party for the benefit of the Secured Parties. 5.03 Preservation of Rights. The Collateral Agent shall not be required to take steps necessary to preserve any rights against prior parties to any of the Collateral. 5.04 Special Provisions Relating to Intercompany Notes. (a) Each maker of an Intercompany Note shall make each payment required to be made by it thereunder without set-off or counterclaim. Upon the request of the Collateral Agent at any time that an Event of Default has occurred and is continuing, each such maker hereby unconditionally and irrevocably agrees that it shall make each such payment to the Collateral Agent and waives any defense that it may have against the Borrower in respect of such maker's obligations thereunder; (b) The date and amount of each loan evidenced by an Intercompany Note, and each payment made on account of the principal thereof, shall be recorded by the Borrower on its books and, prior to any enforcement of such Intercompany Note, endorsed by the Borrower on the schedule attached to such Intercompany Note or any continuation thereof; provided that the failure of the Borrower to make any such recordation or endorsement shall not affect the obligations of the maker of such Intercompany Note to make a payment when due of any amount owing thereunder; (c) The Borrower and each maker of an Intercompany Note shall promptly respond to all reasonable requests of the Collateral Agent regarding any information with respect to Intercompany Notes or any other records or information kept in accordance with the preceding clause (b), or any confirmations with respect thereof; (d) The Borrower and each maker of an Intercompany Note hereby authorize the Collateral Agent, but the Collateral Agent shall not be required, to make entries in accordance with Section 5.04(b) on a schedule attached to such Intercompany Note, or any continuation thereof; and (e) Until such time as an Event of Default shall exist, the Borrower shall have the right to collect, enforce and account for all proceeds in respect of the Intercompany Notes, except that it may not (without the consent of the Collateral Agent) grant any compromise or discharge thereof except for amounts actually received by it. 5.05 Events of Default, Etc. During the period during which an Event of Default shall have occurred and be continuing: (a) each Obligor shall, at the request of the Collateral Agent, assemble the Collateral owned by it at such place or places, reasonably convenient to both the Collateral Agent and such Obligor, designated in its request; (b) the Collateral Agent may make any reasonable compromise or settlement deemed desirable with respect to any of the Collateral and may extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, any of the Collateral; (c) the Collateral Agent shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not said Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including, without limitation, the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if the Collateral Agent were the sole and absolute owner thereof (and each Obligor agrees to take all such action as may be appropriate to give effect to such right); (d) the Collateral Agent in its discretion may, in its name or in the name of the Obligors or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so; and (e) the Collateral Agent may, upon ten business days' prior written notice to the Obligors of the time and place, with respect to the Collateral or any part thereof that shall then be or shall thereafter come into the possession, custody or control of the Collateral Agent, any Secured Party or any of their respective agents, sell, lease, assign or otherwise dispose of all or any part of such Collateral, at such place or places as the Collateral Agent deems best, and for cash or for credit or for future delivery (without thereby assuming any credit risk), at public or private sale, without demand of performance or notice of intention to effect any such disposition or of the time or place thereof (except such notice as is required above or by applicable statute and cannot be waived), and the Collateral Agent or any Lender or anyone else may be the purchaser, lessee, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale) and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of the Obligors, any such demand, notice and right or equity being hereby expressly waived and released. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the sale may be so adjourned. The proceeds of each collection, sale or other disposition under this Section 5.05 shall be applied in accordance with Section 5.09 hereof. 5.06 Deficiency. If the Proceeds of sale, collection or other realization of or upon the Collateral pursuant to Section 5.05 hereof are insufficient to cover the costs and expenses of such realization and the payment in full of the Secured Obligations owing by it, each Obligor shall remain liable for any deficiency. 5.07 Removals, Etc. Without at least 30 days' prior written notice to the Collateral Agent, no Obligor shall (i) maintain any of its books and records with respect to the Collateral at any office or maintain its principal place of business at any place, (ii) except as permitted by Section 10.13 of each Credit Agreement, permit any Inventory or Farm Products to be located anywhere, other than at the address indicated beneath the signature of the Borrower to the Credit Agreement or at one of the locations identified in Annex 2 hereto under its name or in transit from one of such locations to another location or (iii) change its name, or the name under which it does business, from the name shown on the signature pages hereto. 5.08 Private Sale. The Collateral Agent and the Lenders shall incur no liability as a result of the sale of the Collateral, or any part thereof, at any private sale pursuant to Section 5.05 hereof conducted in a commercially reasonable manner. Each Obligor hereby waives any claims against the Collateral Agent or any Lender arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price that might have been obtained at a public sale or was less than the aggregate amount of the Secured Obligations, even if the Collateral Agent accepts the first offer received and does not offer the Collateral to more than one offeree. 5.09 Application of Proceeds. Except as otherwise herein expressly provided and except as provided below in this Section 5.09, the Proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by the Collateral Agent under Section 4 hereof or this Section 5, shall be applied by the Collateral Agent: First, to the payment of the costs and expenses of such collection, sale or other realization, including reasonable out-of-pocket costs and expenses of the Collateral Agent and the fees and expenses of its agents and counsel, and all expenses incurred and advances made by the Collateral Agent in connection therewith; Second, to the payment of the costs and expenses of such collection, sale or other realization, including reasonable out-of-pocket costs and expenses of the Five-Year Agent and the 364-Day Agent and the fees and expenses of its agents and counsel, and all expenses incurred and advances made by the them in connection therewith, pro rata in accordance with the respective amounts owing to them; Third, to the payment in full of the Secured Obligations other than the Hedging Obligations (including the Guarantees thereof by the Subsidiary Guarantors under Article VIII of each Credit Agreement), pro rata in accordance with the respective amounts thereof; Fourth, to the payment in full of the Hedging Obligations, pro rata in accordance with the respective amounts thereof; and Fifth, to the payment to the respective Obligor, or their respective successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining. Notwithstanding the foregoing, (a) the Proceeds of any Collateral that secures both an Intercompany Note and other Secured Obligations may be applied under clause Third above first either to such Intercompany Note or to such other Secured Obligations, as the Required Secured Parties may elect, and next to such other Secured Obligations or to the Intercompany Note, as the case may be, and (b) the Proceeds of any cash or other amounts held in the "Letter of Credit Liabilities Sub-Account" of the Collateral Account pursuant to Section 4.04 hereof shall be applied first to the Letter of Credit Liabilities outstanding from time to time and second to the other Secured Obligations in the manner provided above in this Section 5.09. All payments required to be made hereunder shall be made (i) if to the Five-Year Lenders, to the Five-Year Agent for account of the Lenders; (ii) if to the 364-Day Lenders, to the 364-Day Administrative Agent for account of the 364-Day Lenders; and (iii) if to any other Secured Party, to the trustee, paying agent or other similar representative for such other Secured Party or, in the absence of such a representative, directly to such other Secured Party. For purposes of applying payments received in accordance with this Section 5, the Collateral Agent shall be entitled to rely upon the Five-Year Agent and the 364-Day Administrative Agent or directly on any other Secured Party as necessary for a determination of the outstanding Secured Obligations owed as the case may be. Each Secured Party hereby agrees to provide, or to cause its representative to provide, on any date requested by the Collateral Agent a certificate as to the outstanding Secured Obligations owed to such Secured Party. 5.10 Attorney-in-Fact. Without limiting any rights or powers granted by this Agreement to the Collateral Agent while no Event of Default has occurred and is continuing, upon the occurrence and during the continuance of any Event of Default the Collateral Agent is hereby appointed the attorney-in-fact of each Obligor for the purpose of carrying out the provisions of this Section 5 and taking any action and executing any instruments that the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, so long as the Collateral Agent shall be entitled under this Section 5 to make collections in respect of the Collateral, the Collateral Agent shall have the right and power to receive, endorse and collect all checks made payable to the order of any Obligor representing any dividend, payment or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same. 5.11 Perfection. Prior to or concurrently with the execution and delivery of this Agreement, each Obligor shall (i) file such financing statements and other documents in such offices as the Collateral Agent may request to perfect the security interests granted by Section 3 of this Agreement and (ii) the Borrower shall deliver to the Collateral Agent all Intercompany Notes identified in Annex 1 hereto, accompanied by undated bond powers duly executed in blank. 5.12 Termination. When all Secured Obligations owing under the Credit Agreements and under Hedging Agreements shall have been paid in full, the commitments of the Lenders to extend further credit under the Credit Agreements have terminated, the letters of credit issued under Five-Year Credit Agreement have expired or been canceled and all Hedging Agreements between the Borrower and the Lenders have terminated, and irrespective of whether any Intercompany Notes remain outstanding, this Agreement shall terminate, and the Collateral Agent shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect thereof, to or on the order of the respective Obligor. The Collateral Agent shall also execute and deliver to the respective Obligor upon such termination such Uniform Commercial Code termination statements and such other documentation as shall be reasonably requested by the respective Obligor to effect the termination and release of the Liens on the Collateral. 5.13 Prompt Payment to Livestock Sellers. Each Obligor who purchases livestock, for whatever purpose, shall promptly deliver to the seller of such livestock or his duly authorized representative the full amount of the purchase price and such obligations shall not remain outstanding for more than three Business Days unless such amount is in dispute. Such Obligors shall also file and maintain a bond with the United States Department of Agriculture for the benefit of unpaid sellers in an amount required by the Federal Packers and Stockyards Act, as amended, and the regulations promulgated thereunder. 5.14 Further Assurances. Each Obligor agrees that, from time to time upon the written request of the Collateral Agent, such Obligor will execute and deliver such further documents and do such other acts and things as the Collateral Agent may reasonably request in order fully to effect the purposes of this Agreement. Section 6. The Collateral Agent and the Secured Parties Each of the Five-Year Agent, on behalf of itself, and the Five-Year Lenders, the 364-Day Administrative Agent, on behalf of itself and the 364-Day Lenders, and the Borrower hereby irrevocably appoints the Collateral Agent as its agent and authorizes the Collateral Agent to take such actions on its behalf and to exercise such powers as are delegated to the Collateral Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The bank serving as the Collateral Agent hereunder shall have the same rights and powers in its capacity as a Secured Party as any other Secured Party and may exercise the same as though it were not the Collateral Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Collateral Agent hereunder. The Collateral Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing (a) the Collateral Agent shall not be subject to any fiduciary or other implied duties, regardless of whether an Event of Default has occurred and is continuing, (b) the Collateral Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby, and (c) except as expressly set forth herein, the Collateral Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Collateral Agent or any of its Affiliates in any capacity. The Collateral Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Secured Parties or in the absence of its own gross negligence or wilful misconduct. The Collateral Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Collateral Agent by the Borrower or a Secured Party, and the Collateral Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, or (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, instrument or document, other than to confirm receipt of items expressly required to be delivered to the Collateral Agent. The Collateral Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Collateral Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Collateral Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Collateral Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Collateral Agent. The Collateral Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Collateral Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Collateral Agent. Subject to the appointment and acceptance of a successor Collateral Agent as provided in this paragraph, the Collateral Agent may resign at any time by notifying the Secured Parties and the Borrower. Upon any such resignation, the Secured Parties shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Secured Parties and shall have accepted such appointment within 30 days after the retiring Collateral Agent gives notice of its resignation, then the retiring Collateral Agent may, on behalf of the Secured Parties, appoint a successor Collateral Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Collateral Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent and the retiring Collateral Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Collateral Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Collateral Agent's resignation hereunder, the provisions of this Section 6 and Section 7.03 shall continue in effect for the benefit of such retiring Collateral Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Collateral Agent. The Required Secured Parties shall have no responsibility or liability to any of the other Secured Parties for any determinations made or instructions given by them hereunder, except for any indemnities expressly provided for herein or in either Credit Agreement in favor of the Collateral Agent, the Five-Year Agent or the 364-Day Agent. Section 7. Miscellaneous. 7.01 No Waiver. No failure on the part of the Collateral Agent or any Secured Party to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Collateral Agent or any Lender of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. 7.02 Notices. All notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Borrower, to it at Smithfield Foods, Inc. at 900 Dominion Tower, 999 Waterside Drive, Norfolk, VA, 23510, Attention: Mr. Aaron D. Trub (Telecopy No. 757- 365-3017) and Michael H. Cole (Telecopy No. 757-365-3023); (b) if to any Subsidiary Guarantor, at the address for notices to the Borrower as provided herein; (c) if to the Five-Year Agent, to The Chase Manhattan Bank, Agent Bank Services Group, 1 Chase Manhattan Plaza, New York, New York 10017, Attention of Sandra Miklave Telecopy No. (212-552-5658), with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017, Attention of Sue Herzog (Telecopy No. 212-344-0246); (d) if to the 364-Day Agent, to The Chase Manhattan Bank, Agent Bank Services Group, 1 Chase Manhattan Plaza, New York, New York 10017, Attention of Sandra Miklave Telecopy No. (212-552-5658), with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017, Attention of Sue Herzog (Telecopy No. 212-344-0246); and (e) if to the Collateral Agent, to The Chase Manhattan Bank, Agent Bank Services Group, 1 Chase Manhattan Plaza, New York, New York 10017, Attention of Sandra Miklave Telecopy No. (212-552-5658), with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017, Attention of Sue Herzog (Telecopy No. 212-344-0246). Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. 7.03 Expenses. The Obligors jointly and severally agree to reimburse each of the Secured Parties (other than the Borrower) for all reasonable costs and expenses of the Secured Parties (other than the Borrower) (including, without limitation, the reasonable fees and expenses of legal counsel) in connection with (i) any Event of Default and any enforcement or collection proceeding resulting therefrom, including, without limitation, all manner of participation in or other involvement with (w) performance by the Collateral Agent of any obligations of the Obligors in respect of the Collateral that the Obligors have failed or refused to perform, (x) bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation proceedings, or any actual or attempted sale, or any exchange, enforcement, collection, compromise or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of the Collateral Agent in respect thereof, by litigation or otherwise, including expenses of insurance, (y) judicial or regulatory proceedings and (z) workout, restructuring or other negotiations or proceedings (whether or not the workout, restructuring or transaction contemplated thereby is consummated) and (ii) the enforcement of this Section 7.03, and all such costs and expenses shall be Secured Obligations entitled to the benefits of the collateral security provided pursuant to Section 3 hereof. 7.04 Amendments, Etc. The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by the parties hereto. Any such amendment or waiver shall be binding upon each holder of any of the Secured Obligations and each Obligor. 7.05 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto and each holder of any of the Secured Obligations (provided, however, that no Obligor shall assign or transfer its rights hereunder without the prior written consent of the Collateral Agent). 7.06 Captions. The captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 7.07 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 7.08 Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. 7.09 Agents and Attorneys-in-Fact. The Collateral Agent may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. 7.10 Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Collateral Agent and the Lenders in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. IN WITNESS WHEREOF, the parties hereto have caused this Collateral Agency, Pledge and Security Agreement to be duly executed and delivered as of the day and year first above written. SMITHFIELD FOODS, INC. By _________________________ Name: Aaron D. Trub Title: Vice-President, Secretary and Treasurer SUBSIDIARY GUARANTORS THE SMITHFIELD PACKING COMPANY, INCORPORATED By_________________________ Name: Aaron D. Trub Title: Secretary GWALTNEY OF SMITHFIELD, LTD. By_________________________ Name: Aaron D. Trub Title: Secretary PATRICK CUDAHY INCORPORATED By_________________________ Name: Aaron D. Trub Title: Secretary JOHN MORRELL & CO. By_________________________ Name: Aaron D. Trub Title: Secretary LYKES MEAT GROUP, INC. By_________________________ Name: Aaron D. Trub Title: Secretary BROWN'S OF CAROLINA, INC. By_________________________ Name: Aaron D. Trub Title: Secretary HANCOCK'S OLD FASHIONED COUNTRY HAMS, INC. By_________________________ Name: Aaron D. Trub Title: Secretary VALLEYDALE FOODS, INC. By_________________________ Name: Aaron D. Trub Title: Secretary COPAZ PACKING CORPORATION By_________________________ Name: Aaron D. Trub Title: Secretary SUNNYLAND, INC. By_________________________ Name: Aaron D. Trub Title: Secretary SMITHFIELD PACKING-LANDOVER, INC. By_________________________ Name: Aaron D. Trub Title: Secretary THE CHASE MANHATTAN BANK as Collateral Agent By _________________________ Name: Michael D. Peist Title: Vice President THE CHASE MANHATTAN BANK as Five-Year Agent By _________________________ Name: Michael D. Peist Title: Vice President THE CHASE MANHATTAN BANK as 364-Day Agent By _________________________ Name: Michael D. Peist Title: Vice President [ANNEXES OMITTED] EX-4 5 EXHIBIT 4.6 EXHIBIT 4.6 ================================================================================ -------------- SMITHFIELD FOODS, INC. -------------- AMENDMENT NUMBER ONE TO NOTE PURCHASE AGREEMENT DATED AS OF JULY 15, 1996 AMENDMENT DATED AS OF JULY 15, 1997 ================================================================================ AMENDMENT NUMBER ONE AMENDMENT NUMBER ONE (this "Agreement"), dated as of July 15, 1997, to the separate Note Purchase Agreements, each dated as of July 15, 1996, between SMITHFIELD FOODS, INC., a Delaware corporation (the "Company") and each of the Persons listed on Annex 1 thereto (collectively, the "Purchasers"). RECITALS: A. The Company entered into those certain separate Note Purchase Agreements, each dated as of July 15, 1996, (as amended from time to time and as in effect immediately prior to the effectiveness of this Agreement, the "Existing Note Purchase Agreement," and, as amended by this Agreement, the "Amended Note Purchase Agreement"), with the Purchasers, pursuant to which the Company authorized, issued and sold, and certain of the Purchasers purchased (as set forth on Annex 1 thereto): (a) $2,825,000 in aggregate principal amount of its six and twenty-four one-hundredths percent (6.24%) Series A Senior Secured Notes Due November 1, 1998 (as amended, restated or otherwise modified from time to time, the "Series A Notes"), (b) $9,852,942 in aggregate principal amount of its eight and forty-one one-hundredths percent (8.41%) Series B Senior Secured Notes Due August 1, 2006 (as amended, restated or otherwise modified from time to time, the "Series B Notes"), (c) $40,000,000 in aggregate principal amount of its eight and thirty-four one-hundredths percent (8.34%) Series C Senior Secured Notes Due August 1, 2003 (as amended, restated or otherwise modified from time to time, the "Series C Notes"), (d) $9,000,000 in aggregate principal amount of its nine and eighty one-hundredths percent (9.80%) Series D Senior Secured Notes Due August 1, 2003 (as amended, restated or otherwise modified from time to time, the "Series D Notes"), (e) $9,250,000 in aggregate principal amount of its ten and seventy five one-hundredths percent (10.75%) Series E Senior Secured Notes Due August 1, 2005 (as amended, restated or otherwise modified from time to time, the "Series E Notes"), (f) $100,000,000 in aggregate principal amount of its eight and fifty-two one-hundredths percent (8.52%) Series F Senior Secured Notes Due August 1, 2006 (as amended, restated or otherwise modified from time to time, the "Series F Notes"), (g) $14,000,000 in aggregate principal amount of its nine and eighty-five one-hundredths percent (9.85%) Series G Senior Secured Notes Due November 1, 2006 (as amended, restated or otherwise modified from time to time, the "Series G Notes"), and (h) $14,779,412 in aggregate principal amount of its eight and forty-one-hundredths percent (8.41%) Series H Senior Secured Notes Due August 1, 2004 (as amended, restated or otherwise modified from time to time, the "Series H Notes"). The Series A Notes, the Series B Notes, the Series C Notes, the Series D Notes, the Series E Notes, the Series F Notes, the Series G Notes and the Series H Notes are herein referred to, individually, as a "Note," and collectively, as the "Notes". B. As of the Effective Date (defined below), the Purchasers are the holders of all of the outstanding Notes; the holders of the Notes on the Effective Date are herein referred to as the "Holders." C. Gwaltney of Smithfield, Ltd., John Morrell & Co., The Smithfield Packing Company, Incorporated, SFFC, Inc., Patrick Cudahy Incorporated and Brown's of Carolina, Inc. (collectively, the "Guarantors"), each a Wholly-Owned Subsidiary, are guarantors of the obligations of the Company in respect of, among other things, the Notes, pursuant to that certain Joint and Several Guaranty dated as of July 15, 1996. D. The Company has requested that the Holders agree to amend certain provisions of the Existing Note Purchase Agreement. E. Subject to the terms and conditions set forth in this Agreement, the Company and the Holders are willing to agree to amend the Existing Note Purchase Agreement in the manner specified on certain Exhibits hereto and as more particularly set forth herein. AGREEMENT: NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Holders agree as follows: SECTION 1. WARRANTIES AND REPRESENTATIONS. To induce the Holders to enter into this Agreement, the Company and each of the Guarantors represent and warrant to each of the Holders that as of the Effective Date (as hereinafter defined): 1.1 Corporate Organization and Authority. The Company and each Subsidiary: (a) is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation; (b) has all legal and corporate power and authority to own and operate its Properties and to carry on its business as now conducted and as presently proposed to be conducted; (c) has all necessary licenses, certificates and permits to own and operate its Properties and to carry on its business as now conducted and as presently proposed to be conducted, except where the failure to have such licenses, certificates and permits, in the aggregate, could not reasonably be expected to have a Material Adverse Effect; and (d) has duly qualified or has been duly licensed, and is authorized to do business and is in good standing, as a foreign corporation, in each state in the United States of America and in each other jurisdiction where the failure to be so qualified or licensed and authorized and in good standing, in the aggregate for all such failures, could reasonably be expected to have a Material Adverse Effect. 1.2 Authorization, etc. (a) This Agreement has been duly authorized by all necessary corporate action on the part of the Company and each of the Guarantors. Each of this Agreement, the Amended Note Purchase Agreement and each other Financing Document (as defined in the Amended Note Purchase Agreement, the "Financing Documents") constitutes a legal, valid and binding obligation of the Company or the Guarantors, as applicable, enforceable, in each case, against the Company or such Guarantor, as applicable, in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (b) The Holders are the record owners of all of the outstanding Notes. 1.3 Litigation. There are no proceedings pending, or, to the knowledge of the Company or the Guarantors, threatened, against or affecting the Company, any Guarantor or any other Subsidiary, or any of their respective Properties in any court or before any governmental authority or arbitration board or tribunal that, either individually or in the aggregate, conflict with or interfere with the ability of the Company or any of the Guarantors to execute and deliver this Agreement and to perform their respective obligations hereunder, under the Amended Note Purchase Agreement and under each of the other Financing Documents. 1.4 No Conflicts, etc. The execution and delivery by the Company and the Guarantors of this Agreement and the performance by the Company and the Guarantors of their respective obligations under each of this Agreement, the Amended Note Purchase Agreement and the other Financing Documents to which they are a party do not conflict with, result in any breach in any of the provisions of, constitute a default under, violate or result in the creation of any Lien upon any Property of the Company or any Subsidiary under the provisions of: (a) any charter document, agreement with shareholders or bylaws of the Company or any Subsidiary; (b) any agreement, instrument or conveyance by which the Company or any Subsidiary or any of their respective Properties may be bound or affected; or (c) any statute, rule or regulation or any order, judgment or award of any court, tribunal or arbitrator by which the Company or any Subsidiary or any of their respective Properties may be bound or affected. 1.5 Governmental Consent. The execution and delivery by the Company and the Guarantors of this Agreement and the performance by the Company and the Guarantors of their respective obligations hereunder, under the Amended Note Purchase Agreement and the other Financing Documents to which they are a party do not require any consents, approvals or authorizations of, or filings, registrations or qualifications with, any governmental authority on the part of the Company or any Subsidiary under the circumstances and conditions contemplated by this Agreement, the Amended Note Purchase Agreement or the other Financing Documents. 1.6 Compliance with Law. Neither the Company nor any Subsidiary: (a) is in violation of any law, ordinance, governmental rule or regulation to which it is subject; or (b) has failed to obtain any license, permit, franchise or other governmental authorization necessary to the ownership of its Property or to the conduct of its business; which violation or failure to obtain might, either individually or in the aggregate, have a material adverse effect on the business, prospects, profits, Properties or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or the ability of the Company or the Guarantors to perform any of their respective obligations set forth in this Agreement, the Amended Note Purchase Agreement or the other Financing Documents. 1.7 Existence of Defaults. Immediately prior to, and after giving effect to, the Note Purchase Agreement Amendment (as such term is defined in Section 2 hereof), no condition exists that would constitute a Default or an Event of Default under the Note Purchase Agreement or the Amended Note Purchase Agreement, as the case may be. 1.8 Disclosure. Neither this Agreement nor any written statement furnished by the Company or any Guarantor to any Holder in connection herewith contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained therein or herein not misleading. There is no fact that the Company has not disclosed to the Holders in writing that has had or, so far as the Company can now reasonably foresee, could reasonably be expected to have a material adverse effect on the business, prospects, profits, Properties or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or the ability of the Company or any Guarantor to perform any of their respective obligations set forth in this Agreement, the Amended Note Purchase Agreement or the other Financing Documents. 1.9 True and Correct Copies. The Company has delivered to the Holders or their special counsel true and correct copies of (i) the Five-Year Credit Agreement dated as of July 15, 1997, among the Company, certain of the Subsidiaries, certain lenders (the "Five-Year Lenders"), and The Chase Manhattan Bank, as agent for the Five-Year Lenders (the "Five-Year Credit Agreement"), and (ii) the 364-day Credit Agreement among the Company, certain of the Subsidiaries, certain lenders (the "364-Day Lenders"), and The Chase Manhattan Bank, as agent for the 364-Day Lenders (the "364-Day Credit Agreement" and, together with the Five-Year Credit Agreement, the "Credit Agreements"), including all schedules and exhibits to the Credit Agreements and all agreements delivered in connection with the Credit Agreements as in effect on the Effective Date (the Five Year Credit Agreement and the 364-Day Credit Agreement herein collectively referred to as "Credit Agreements"). SECTION 2. AMENDMENT TO EXISTING DOCUMENTS; AFFIRMATION. 2.1 Amendment to Existing Documents. The Company and the Guarantors, and, subject to the satisfaction of the conditions set forth in Section 3 hereof, the Holders, each hereby consent and agree that: (a) the Existing Note Purchase Agreement is hereby amended in the manner and as specified in Exhibit A to this Agreement (such amendment provided for in Exhibit A is herein collectively referred to as the "Note Purchase Agreement Amendment"); and (b) Section 2.18 of the Joint and Several Guaranty is hereby amended to read in full as follows: "(a) Notwithstanding anything in Section 2.1 or elsewhere in this Guaranty or any other Financing Document to the contrary, the obligations of each Guarantor under this Guaranty shall at each point in time be limited to an aggregate amount equal to the greatest amount that would not result in such obligations being subject to avoidance, or otherwise result in such obligations being unenforceable, at such time under applicable law (including, without limitation, to the extent, and only to the extent, applicable to each Guarantor, Section 548 of the Bankruptcy Code of the United States of America and any comparable provisions of the law of any other jurisdiction, any capital preservation law of any jurisdiction and any other law of any jurisdiction that at such time limits the enforceability of the obligations of such Guarantor under this Guaranty). (b) For purposes of determining the obligations of the Guarantors under this Guaranty it shall be assumed that: (i) any and all stated obligations of any one or more of Guarantors in favor of one or more commercial banks existing at any time on or after the Closing Date and prior to July 15, 1997 were fully satisfied with the proceeds of loans made under the Credit Facility and such loans were made on the Closing Date; (ii) the Guarantors received $350,000,000 of the proceeds of loans made pursuant to the Credit Facility on the Closing Date and such loans remained outstanding at all times after the Closing Date until all obligations under the Credit Facility shall have been fully satisfied; and (iii) on the Closing Date the Guarantors were relieved of obligations in an aggregate amount equal to the aggregate principal amounts of the Notes issued on the Closing Date in consideration for such Guarantors entering into this Guaranty." 2.2 Affirmation of Obligations under Amended Note Purchase Agreement and Notes. The Company hereby acknowledges and affirms all of its obligations under the terms of the Amended Note Purchase Agreement, the Notes and each of the other Financing Documents to which it is a party. 2.3 Affirmation of Obligations under Joint and Several Guaranty and Financing Documents. Each of the Guarantors hereby acknowledges and affirms all of its obligations under the terms of the Joint and Several Guaranty and each other Financing Document to which it is a party. SECTION 3. CONDITIONS TO EFFECTIVENESS OF NOTE PURCHASE AGREEMENT AMENDMENT. The Note Purchase Agreement Amendment shall not become effective unless all of the following conditions precedent shall have been satisfied in full on or before 5:00 p.m. (Hartford, Connecticut time) on July 15, 1997 (the date of such satisfaction being herein referred to as the "Effective Date"): 3.1 Execution and Delivery of this Agreement. The Company and each of the Guarantors shall have executed and delivered to each of the Holders an original counterpart of this Agreement. 3.2 No Defaults; Warranties and Representations True. No Default or Event of Default shall exist, and the warranties and representations set forth in Section 1 hereof shall be true and correct on the Effective Date. 3.3 Authorization of Transactions. The Company and each of the Guarantors shall have authorized, by all necessary corporate action, the execution and delivery of this Agreement and the performance of all obligations of, and the satisfaction of all conditions pursuant to this Section 3 by, and the consummation of all transactions contemplated by the Amended Note Purchase Agreement and the other Financing Documents by, the Company and each of the Guarantors. 3.4 Intercreditor Agreement; Additional Guaranties. (a) The lenders party to the Credit Agreements on the Effective Date shall have entered into an intercreditor agreement with the Holders in form and substance satisfactory to the Holders. (b) The Company shall have caused certain of its Subsidiaries to have executed and delivered the Joint and Several Guaranty substantially in the form of Exhibit C hereto. 3.5 Legal Opinions. The Holders shall have received legal opinions as to such matters as the Holders and their special counsel shall request in connection with the transactions contemplated by this Agreement. 3.6 Expenses. The Company shall have paid all costs and expenses of the Holders relating to this Agreement in accordance with Section 4.5 hereof. 3.7 Confirmation of Holders' Satisfaction. Each of the Holders shall have delivered to the Company a written statement substantially in the form of Exhibit B hereto (and the Company shall have acknowledged and agreed to such statement) confirming such Holder's satisfaction with respect to the conditions specified in this Section 3. SECTION 4. MISCELLANEOUS. 4.1 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, INTERNAL VIRGINIA LAW, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. 4.2 Duplicate Originals. Two or more duplicate originals of this Agreement may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts that, collectively, show execution by each party hereto shall constitute one duplicate original. 4.3 Waivers and Amendments. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated orally, or by any action or inaction, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 4.4 Section Headings. The titles of the Sections hereof appear as a matter of convenience only, do not constitute a part of this Agreement and shall not affect the construction hereof. 4.5 Costs and Expenses. The Company shall pay all costs and expenses of the Holders relating to this Agreement, including, but not limited to, the statement for reasonable fees and disbursements of the Holders' special counsel presented to the Company on the Effective Date. The Company will also pay, upon receipt thereof, each additional statement for reasonable fees and disbursements of the Holders' special counsel rendered after the Effective Date in connection with this Agreement or the Financing Documents. 4.6 Survival. All warranties, representations, certifications and covenants made by the Company or any of the Guarantors in this Agreement shall be considered to have been relied upon by the Holders and shall survive the execution and delivery of this Agreement, regardless of any investigation made by or on behalf of the Holders. 4.7 Time of Essence. Time is and shall be of the essence in the satisfaction of all the conditions set forth in Section 3 of this Agreement. 4.8 Defined Terms. Capitalized terms used herein and not defined herein shall have the meanings assigned to them in the Amended Note Purchase Agreement. [Remainder of page intentionally left blank; next page is signature page.] IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf by a duly authorized officer or agent thereof. SMITHFIELD FOODS, INC. By:________________________________ Name: Title: GWALTNEY OF SMITHFIELD, LTD. By________________________________ Name: Title: JOHN MORRELL & CO. By________________________________ Name: Title: THE SMITHFIELD PACKING COMPANY, INCORPORATED By________________________________ Name: Title: SFFC, INC. By________________________________ Name: Title: PATRICK CUDAHY INCORPORATED By________________________________ Name: Title: BROWN'S OF CAROLINA, INC. By________________________________ Name: Title: [HOLDERS] By:________________________________ Name: Title: EXHIBIT A AMENDMENT TO EXISTING NOTE PURCHASE AGREEMENT ss.1. Section 6.11 of the Existing Note Purchase Agreement is hereby amended to read in its entirety as follows: (a) Total Liabilities. The Company shall not at any time permit the ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth to exceed the applicable ratio set forth with respect to such time in the following table: If such time is: the applicable ratio is: =============================================================== On or before October 27, 1996 2.85 to 1.00 After October 27, 1996 and on or 2.75 to 1.00 before July 15, 1997 After July 15, 1997 and before May 3, 3.00 to 1.00 1998 On or after May 3, 1998 2.75 to 1.00 =============================================================== ss.2. The definition of "Consolidated Current Liabilities" in Section 9.1 of the Existing Note Purchase Agreement is hereby amended to read in its entirety as follows: Consolidated Current Liabilities -- means, at any time, the aggregate amount at which the current liabilities of the Company and the Subsidiaries would be shown on a consolidated balance sheet for such Persons at such time, provided that such liabilities (a) shall exclude (to the extent otherwise included therein) liabilities in respect of Deemed Funded Debt and (b) shall include, without duplication, liabilities in respect of Excluded Funded Debt. ss.3. The definition of "Funded Debt" in Section 9.1 of the Existing Note Purchase Agreement is hereby amended to read in its entirety as follows: Funded Debt -- means, at any time, with respect to any Person, without duplication: (a) all Debt of such Person (including, without limitation, the current portion thereof) that by its terms or by the terms of any instrument or agreement relating thereto matures, or that is otherwise payable or unpaid, more than one (1) year from, or is directly or indirectly renewable or extendible at the option of such Person to a date more than one (1) year (including, without limitation, an option of the debtor under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one (1) year) from, the date of the creation of such Debt (notwithstanding that such Debt may under certain contingencies be payable on demand or within one (1) year after such date of creation), provided that, with respect to the Company and the Subsidiaries, such Debt (i) shall exclude (to the extent otherwise included therein) Excluded Funded Debt and (ii) shall include, without duplication, Deemed Funded Debt; (b) all Capital Lease Obligations of such Person; and (c) all Debt of such Person of the type specified in clause (e) of the definition of "Debt," provided that such Debt of such Person is in respect of or in support of Funded Debt of another Person. ss.4. The definition of "Revolving Credit Agreement" in Section 9.1 of the Existing Note Purchase Agreement is hereby amended to read in its entirety as follows: Revolving Credit Agreement -- means, with respect to the Company or any Subsidiary, a credit or loan agreement to which the Company or such Subsidiary is a party and pursuant to which the Company or such Subsidiary is entitled to obtain working capital loans or other loans from the commercial bank or commercial banks party thereto, and shall include, without limitation, the Credit Facility. ss.5. Section 9.1 of the Existing Note Purchase Agreement is hereby amended to add the following definition of "Credit Facility" in the appropriate alphabetical position in such Section: Credit Facility -- means, collectively, that certain Five-Year Credit Agreement and that certain 364-Day Credit Agreement, in each case among the Company, certain of the Subsidiaries, The Chase Manhattan Bank as administrative agent and the lenders party thereto, providing for an aggregate amount of up to $350,000,000 in loans to the Company, and in each case as amended from time to time. ss.6. Section 9.1 of the Existing Note Purchase Agreement is hereby amended to add the following definition of "Deemed Funded Debt" in the appropriate alphabetical position in such Section: Deemed Funded Debt -- means, at any time, the lesser of (a) the aggregate amount of Debt of the Company and the Subsidiaries outstanding under the Credit Facility at such time and (b) $75,000,000. ss.7. Section 9.1 of the Existing Note Purchase Agreement is hereby amended to add the following definition of "Excluded Funded Debt" in the appropriate alphabetical position in such Section: Excluded Funded Debt -- means, at any time, the excess (if any) of (a) the aggregate amount of Debt of the Company and the Subsidiaries outstanding under the Credit Facility at such time over (b) $75,000,000. [EXHIBITS B AND C OMITTED] EX-4 6 EXHIBIT 4.6(B) EXHIBIT 4.6(b) JOINT AND SEVERAL GUARANTY THIS JOINT AND SEVERAL GUARANTY, dated as of July 15, 1997 (as amended or restated from time to time, this "Guaranty"), by each of Lykes Meat Group, Inc., a Delaware corporation (together with its successors and assigns, "Lykes"), Hancock's Old Fashioned Country Hams, Inc., a Delaware corporation (together with its successors and assigns, "Country Hams"), Valleydale Foods, Inc., a Delaware corporation, (together with its successors and assigns, "Valleydale"), Copaz Packing Corporation, an Ohio corporation (together with its successors and assigns, "Copaz"), Sunnyland, Inc., a Georgia corporation (together with its successors and assigns, "Sunnyland"), Smithfield Packing- Landover, Inc., a Delaware corporation (together with its successors and assigns, "Landover", and together with Lykes, Country Hams, Valleydale, Copaz and Sunnyland, individually, a "Guarantor" and collectively, the "Guarantors"), in favor of each of the Noteholders (as such term is hereinafter defined). 1. PRELIMINARY STATEMENT. 1.1 Smithfield Foods, Inc. (together with its successors and assigns, the "Company"), a Delaware corporation, has authorized, pursuant to those certain Note Purchase Agreements (collectively, as may be amended or restated from time to time, the "Note Purchase Agreement"), each dated as of July 15, 1996, entered into separately between the Company and, respectively, each of the purchasers of the Notes named on Annex 1 to the Note Purchase Agreement (the "Purchasers"), the issuance of: (a) $2,825,000 in aggregate principal amount of its six and twenty-four one-hundredths percent (6.24%) Series A Senior Secured Notes Due November 1, 1998 (as they may be amended, restated or otherwise modified from time to time, the "Series A Notes," such term to include each Series A Note delivered from time to time in accordance with any of the Note Purchase Agreements); (b) $9,852,942 in aggregate principal amount of its eight and forty-one one-hundredths percent (8.41%) Series B Senior Secured Notes Due August 1, 2006 (as they may be amended, restated or otherwise modified from time to time, the "Series B Notes," such term to include each Series B Note delivered from time to time in accordance with any of the Note Purchase Agreements); (c) $40,000,000 in aggregate principal amount of its eight and thirty-four one-hundredths percent (8.34%) Series C Senior Secured Notes Due August 1, 2003 (as they may be amended, restated or otherwise modified from time to time, the "Series C Notes," such term to include each Series C Note delivered from time to time in accordance with any of the Note Purchase Agreements); (d) $9,000,000 in aggregate principal amount of its nine and eighty one-hundredths percent (9.80%) Series D Senior Secured Notes Due August 1, 2003 (as they may be amended, restated or otherwise modified from time to time, the "Series D Notes," such term to include each Series D Note delivered from time to time in accordance with any of the Note Purchase Agreements); (e) $9,250,000 in aggregate principal amount of its ten and seventy five one-hundredths percent (10.75%) Series E Senior Secured Notes Due August 1, 2005 (as they may be amended, restated or otherwise modified from time to time, the "Series E Notes," such term to include each Series E Note delivered from time to time in accordance with any of the Note Purchase Agreements); (f) $100,000,000 in aggregate principal amount of its eight and fifty-two one-hundredths percent (8.52%) Series F Senior Secured Notes Due August 1, 2006 (as they may be amended, restated or otherwise modified from time to time, the "Series F Notes," such term to include each Series F Note delivered from time to time in accordance with any of the Note Purchase Agreements); (g) $14,000,000 in aggregate principal amount of its nine and eighty-five one-hundredths percent (9.85%) Series G Senior Secured Notes Due November 1, 2006 (as they may be amended, restated or otherwise modified from time to time, the "Series G Notes," such term to include each Series G Note delivered from time to time in accordance with any of the Note Purchase Agreements); and (h) $14,779,412 in aggregate principal amount of its eight and forty-one one-hundredths percent (8.41%) Series H Senior Secured Notes Due August 1, 2004 (as they may be amended, restated or otherwise modified from time to time, the "Series H Notes," such term to include each Series H Note delivered from time to time in accordance with any of the Note Purchase Agreements). The Series A Notes, the Series B Notes, the Series C Notes, the Series D Notes, the Series E Notes, the Series F Notes, the Series G Notes and the Series H Notes are herein referred to, individually, as a "Note," and collectively, as the "Notes." 1.2 The Company has agreed, pursuant to the Note Purchase Agreement, that the Guarantors are required to guaranty unconditionally all of the obligations of the Company under and in respect of the Notes and the Note Purchase Agreement pursuant to the terms and provisions hereof. 1.3 The Guarantors and the Company are operated as part of one consolidated business entity and are directly dependent upon each other for and in connection with their respective business activities and their respective financial resources. Each Guarantor will receive direct and indirect economic, financial and other benefits from the indebtedness incurred under the Note Purchase Agreement and the Notes by the Company, and under this Guaranty by such Guarantor, and the incurrence of such indebtedness is in the best interests of such Guarantor. The Company and the Guarantors have explicitly induced the Purchasers to purchase the Notes based on and in reliance on the consolidated financial condition of the Company and its subsidiaries, including the Guarantors. 1.4 All acts and proceedings required by law and by the certificates or articles of incorporation, as the case may be, and bylaws of each Guarantor necessary to constitute this Guaranty a valid and binding agreement for the uses and purposes set forth herein in accordance with its terms have been done and taken, and the execution and delivery hereof has been in all respects duly authorized by each Guarantor. 2. GUARANTY AND OTHER RIGHTS AND UNDERTAKINGS 2.1 Guarantied Obligations. Each Guarantor, in consideration of the execution and delivery of the Note Purchase Agreement by the Purchasers and the purchase of the Notes and/or exchange of certain promissory notes previously issued by certain of the Guarantors for the Notes, hereby irrevocably, unconditionally, absolutely, jointly and severally guarantees, on a continuing basis, to each Noteholder, as and for such Guarantor's own debt, until final and indefeasible payment has been made: (a) the due and punctual payment by the Company of the principal of, and interest, and the Make-Whole Amount (if any) on, the Notes at any time outstanding and the due and punctual payment of all other amounts payable, and all other indebtedness owing, by the Company to the Noteholders under the Note Purchase Agreement and the Notes, in each case when and as the same shall become due and payable, whether at maturity, pursuant to mandatory or optional prepayment, by acceleration or otherwise, all in accordance with the terms and provisions hereof and thereof; it being the intent of each Guarantor that the guaranty set forth herein shall be a continuing guaranty of payment and not a guaranty of collection; and (b) the punctual and faithful performance, keeping, observance, and fulfillment by the Company of all duties, agreements, covenants and obligations of the Company contained in the Note Purchase Agreement and the Notes. All of the obligations set forth in subsection (a) and subsection (b) of this Section 2.1 are referred to herein as the "Guarantied Obligations" and the guaranty thereof contained herein is referred to herein as the "Unconditional Guaranty". This Unconditional Guaranty is a primary, original and immediate obligation of each Guarantor and is an absolute, unconditional, continuing and irrevocable guaranty of payment and performance and shall remain in full force and effect until the full, final and indefeasible payment of the Guarantied Obligations. 2.2 Performance Under the Note Purchase Agreement. In the event the Company fails to pay, perform, keep, observe, or fulfill any Guarantied Obligation in the manner provided in the Notes or in the Note Purchase Agreement, each of the Guarantors shall cause forthwith to be paid the moneys, or to be performed, kept, observed, or fulfilled each of such obligations, in respect of which such failure has occurred in accordance with the terms and provisions of the Note Purchase Agreement and the Notes. In furtherance of the foregoing, if an Event of Default shall exist, all of the Guarantied Obligations shall, in the manner and subject to the limitations provided in the Note Purchase Agreement for the acceleration of the maturity of the Notes, forthwith become due and payable without notice, regardless of whether the acceleration of the maturity of the Notes shall be stayed, enjoined, delayed or otherwise prevented. 2.3 Undertakings in Note Purchase Agreement. Each of the Guarantors will comply with each of the undertakings of the Company in the Note Purchase Agreement in respect of which the Company undertakes to cause the Guarantors (in their capacity as Guarantors and as Subsidiaries) to comply with such undertakings, as if such undertakings (as they apply to the Guarantors) were set forth at length herein as the undertakings of each such Guarantor. 2.4 Releases. Each of the Guarantors consents and agrees that, without any notice whatsoever to or by the Guarantors and without impairing, releasing, abating, deferring, suspending, reducing, terminating or otherwise affecting the obligations of any of the Guarantors hereunder, each Noteholder, by action or inaction, may: (a) compromise or settle, renew or extend the period of duration or the time for the payment, or discharge the performance of, or may refuse to, or otherwise not, enforce, or may, by action or inaction, release all or any one or more parties to, any one or more of this Guaranty, the Notes, the Note Purchase Agreement, any other guaranty or agreement or instrument related thereto or hereto; (b) assign, sell or transfer, or otherwise dispose of, any one or more of the Notes; (c) grant waivers, extensions, consents and other indulgences of any kind whatsoever to the Company or any other guarantor in respect of any one or more of this Guaranty, the Notes, the Note Purchase Agreement, any other guaranty or any agreement or instrument related thereto or hereto; (d) amend, modify or supplement in any manner whatsoever and at any time (or from time to time) any one or more of the Notes, the Note Purchase Agreement, any other guaranty or any agreement or instrument related hereto; (e) release or substitute any one or more of the endorsers or guarantors of the Guarantied Obligations, whether parties hereto or not; and (f) sell, exchange, release, surrender or enforce, by action or inaction, any Property at any time pledged or granted as security in respect of the Guarantied Obligations in accordance with the terms and conditions of the agreements and instruments pursuant to which such Property was pledged or granted (as such agreements and instruments may be amended from time to time, and without any requirement of notice of such amendment to any Guarantor), whether so pledged or granted by the Company, any Guarantor or another guarantor of the Company's obligations under the Note Purchase Agreement, the Notes, any other guaranty or any agreement or instrument related hereto. 2.5 Waivers. To the fullest extent permitted by law, each of the Guarantors does hereby waive: (a) any notice of (i) acceptance of this Unconditional Guaranty; (ii) any purchase of the Notes under the Note Purchase Agreement, or the creation, existence or acquisition of any of the Guarantied Obligations, or the amount of the Guarantied Obligations, subject to the Guarantors' right to make inquiry of each Noteholder to ascertain the amount of the Guarantied Obligations owing to such Noteholder at any reasonable time, provided that the Guarantors will look solely to the Company for the determination of the identities of the Noteholders; (iii) any transfer of Notes from one holder to another; (iv) any adverse change in the financial condition of the Company or any other fact that might increase, expand or affect any of the Guarantors' risk hereunder; (v) presentment for payment, demand, protest, and notice thereof as to the Notes or any other instrument; (vi) any Default or Event of Default; and (vii) any kind or nature whatsoever to which any of the Guarantors might otherwise be entitled, other than those specifically required to be given to each of such Guarantors pursuant to the terms of this Guaranty; (b) the right by statute or otherwise to require any Noteholder to institute suit against the Company, any Guarantor, or any other guarantor or to exhaust the rights and remedies of any Noteholder against the Company, any Guarantor or any other guarantor; (c) the benefit of any stay (except in connection with a pending appeal), valuation, appraisal, redemption or extension law now or at any time hereafter in force which, but for this waiver, might be applicable to any sale of Property of any Guarantor made under any judgment, order or decree based on this Guaranty, and each Guarantor covenants that it will not at any time insist upon or plead, or in any manner claim or take the benefit or advantage of such law; (d) any defense or objection to the absolute, primary, continuing nature, or the validity, enforceability or amount, of this Unconditional Guaranty, including, without limitation, any defense based on (and the primary, continuing nature, and the validity, enforceability and amount, of this Unconditional Guaranty shall be unaffected by), any of the following: (i) any change in future conditions; (ii) any change of law; (iii) any invalidity or irregularity with respect to the issuance or assumption of any obligations (including, without limitation, the Note Purchase Agreement, the Notes or any agreement or instrument related hereto) by the Company or any other Person; (iv) the execution and delivery of any agreement at any time hereafter (including, without limitation, the Note Purchase Agreement, the Notes or any agreement or instrument related hereto) of the Company or any other Person, (v) the genuineness, validity, regularity or enforceability of any of the Guarantied Obligations; (vi) any default, failure or delay, willful or otherwise, in the performance of any obligations by the Company or any Guarantor; (vii) any creditors' rights, bankruptcy, receivership or other insolvency proceeding of the Company or any Guarantor, or sequestration or seizure of any Property of the Company or any Guarantor, or any merger, consolidation, reorganization, dissolution, liquidation or winding up or change in corporate constitution or corporate identity or loss of corporate identity of the Company or any Guarantor; (viii) any disability or other defense of the Company or any Guarantor to payment and performance of all Guarantied Obligations other than the defense that the Guarantied Obligations shall have been fully and finally performed and indefeasibly paid; (ix) the cessation from any cause whatsoever of the liability of the Company or any Guarantor in respect of the Guarantied Obligations; (x) impossibility or illegality of performance on the part of the Company or any Guarantor under the Note Purchase Agreement, the Notes or this Guaranty; (xi) any change in the circumstances of the Company, any Guarantor or any other Person, whether or not foreseen or foreseeable, whether or not imputable to the Company or any Guarantor, including, without limitation, impossibility of performance through fire, explosion, accident, labor disturbance, floods, droughts, embargoes, wars (whether or not declared), civil commotions, acts of God or the public enemy, delays or failure of suppliers or carriers, inability to obtain materials, economic or political conditions, or any other causes affecting performance, or any other force majeure, whether or not beyond the control of the Company or any Guarantor and whether or not of the kind hereinbefore specified; (xii) any attachment, claim, demand, charge, Lien, order, process, encumbrance or any other happening or event or reason, similar or dissimilar to the foregoing, or any withholding or diminution at the source, by reason of any taxes, assessments, expenses, indebtedness, obligations or liabilities of any character, foreseen or unforeseen, and whether or not valid, incurred by or against any Person, or any claims, demands, charges, Liens or encumbrances of any nature, foreseen or unforeseen, incurred by any Person, or against any sums payable under the Note Purchase Agreement or the Notes or any agreement or instrument related hereto so that such sums would be rendered inadequate or would be unavailable to make the payment as herein provided; (xiii) any change in the ownership of the equity securities of the Company, any Guarantor or any other Person liable in respect of the Notes; or (xiv) any other action, happening, event or reason whatsoever that shall delay, interfere with, hinder or prevent, or in any way adversely affect, the performance by the Company or any Guarantor of any of its obligations under the Note Purchase Agreement, the Notes or this Guaranty. 2.6 Certain Waivers of Subrogation, Reimbursement and Indemnity. Until the Guarantied Obligations have been finally and indefeasibly paid, none of the Guarantors shall have any right of subrogation, reimbursement, or indemnity whatsoever in respect of the Guarantied Obligations, and no right of recourse to or with respect to any assets or Property of the Company or any other Guarantor. 2.7 Invalid Payments. To the extent the Company makes a payment or payments to any Noteholder, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required, for any of the foregoing reasons or for any other reason, to be repaid or paid over to a custodian, trustee, receiver or any other party or officer under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, state or federal law, or any common law or equitable cause, then to the extent of such payment or repayment, the obligation or part thereof intended to be satisfied shall be revived and continued in full force and effect as if said payment had not been made and each Guarantor shall be primarily liable for such obligation. 2.8 Marshaling. Neither any Noteholder nor any Person acting for the benefit of any Noteholder shall be under any obligation to marshal any assets in favor of any of the Guarantors or against or in payment of any or all of the Guarantied Obligations. 2.9 Subordination. In the event that, for any reason whatsoever, the Company or a Person obligated in respect of the Guarantied Obligations pursuant to another agreement, is now or hereafter becomes indebted to any Guarantor in any manner (such indebtedness referred to as an "Affiliate Obligation"), the amount of such Affiliate Obligation, interest thereon, and all other amounts due with respect thereto, shall, at all times during the existence of a Default or an Event of Default, be subordinate as to time of payment and in all other respects to all the Guarantied Obligations, and such Guarantor shall not be entitled to enforce or receive payment thereof until all sums then due and owing to the Noteholders in respect of the Guarantied Obligations shall have been paid in full, except that such Guarantor may enforce (and shall enforce, at the request of the Required Holders, and at such Guarantor's expense) any obligations in respect of any such Affiliate Obligation owing to such Guarantor from the Company or such indebted Person so long as all proceeds in respect of any recovery from such enforcement shall be held by such Guarantor in trust for the benefit of the Noteholders, to be paid to the Noteholders as promptly as reasonably possible. If any other payment, other than pursuant to the immediately preceding sentence, shall have been made to any Guarantor by the Company or such indebted Person on any such Affiliate Obligation during any time that a Default or an Event of Default exists and there are Guarantied Obligations outstanding, such Guarantor shall hold in trust all such payments for the benefit of the Noteholders, to be paid to the Noteholders as promptly as reasonably possible. 2.10 Setoff, Counterclaim or Other Deductions. Except as otherwise required by law, each payment by any one or more of the Guarantors shall be made without setoff, counterclaim or other deduction. 2.11 Election by Guarantors to Perform Obligations. Any election by any one or more of the Guarantors to pay or otherwise perform any of the obligations of the Company under the Notes, the Note Purchase Agreement or any agreement or instrument related hereto shall not release the Company, any of the Guarantors or any other guarantor from such obligations or any of such Person's other obligations under the Notes, the Note Purchase Agreement or any agreement or instrument related hereto. 2.12 No Election of Remedies by Noteholders. To the extent provided in the Note Purchase Agreement, each Noteholder shall, individually or collectively, have the right to seek recourse against each of the Guarantors to the fullest extent provided for herein for such Guarantor's obligations under this Guaranty in respect of the Guarantied Obligations. No election to proceed in one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of such Noteholder's right to proceed in any other form of action or proceeding or against other parties unless such Noteholder has expressly waived such right in writing. Specifically, but without limiting the generality of the foregoing, no action or proceeding by any Noteholder against the Company or any Guarantor under any document or instrument evidencing obligations of the Company or any Guarantor to such Noteholder shall serve to diminish the liability of any Guarantor under this Guaranty, except to the extent that such Noteholder finally and unconditionally shall have realized payment by such action or proceeding. 2.13 Separate Action; Other Enforcement Rights. Each of the rights and remedies granted under this Guaranty to each Noteholder in respect of the Notes held by such Noteholder may be exercised by such Noteholder without notice by such Noteholder to, or the consent of or any other action by, any other Noteholder. Each Noteholder may proceed to protect and enforce this Unconditional Guaranty by suit or suits or proceedings in equity, at law or in bankruptcy, and whether for the specific performance of any covenant or agreement contained herein or in execution or aid of any power herein granted or for the recovery of judgment for the obligations hereby guarantied or for the enforcement of any other proper, legal or equitable remedy available under applicable law. 2.14 Noteholder Setoff. Each Noteholder shall have, to the fullest extent permitted by law and this Guaranty, a right of set-off against any and all credits and any and all other Property of each or all of the Guarantors, now or at any time whatsoever, with or in the possession of, such Noteholder, or anyone acting for such Noteholder, to ensure the full performance of any and all obligations of the Guarantors hereunder. 2.15 Delay or Omission; No Waiver. No course of dealing on the part of any Noteholder and no delay or failure on the part of any such Person to exercise any right hereunder shall impair such right or operate as a waiver of such right or otherwise prejudice such Person's rights, powers and remedies hereunder. Every right and remedy given by this Unconditional Guaranty or by law to any Noteholder may be exercised from time to time as often as may be deemed expedient by such Person. 2.16 Restoration of Rights and Remedies. If any Noteholder shall have instituted any proceeding to enforce any right or remedy under this Unconditional Guaranty or under any Note held by such Noteholder, and such proceeding shall have been dismissed, discontinued or abandoned for any reason, or shall have been determined adversely to such Noteholder, then and in every such case each such Noteholder, the Company and each of the Guarantors shall, except as may be limited or affected by any determination (including, without limitation, any determination in connection with any such dismissal) in such proceeding, be restored severally and respectively to its respective former positions hereunder and thereunder, and thereafter, subject as aforesaid, the rights and remedies of such Noteholders shall continue as though no such proceeding had been instituted. 2.17 Cumulative Remedies. No remedy under this Guaranty, the Note Purchase Agreement or the Notes is intended to be exclusive of any other remedy, but each and every remedy shall be cumulative and in addition to any and every other remedy given pursuant to this Guaranty, the Note Purchase Agreement, the Notes or the other Financing Documents. 2.18 Limitation on Guarantied Obligations. (a) Notwithstanding anything in Section 2.1 or elsewhere in this Guaranty or any other Financing Document to the contrary, the obligations of each Guarantor under this Guaranty shall at each point in time be limited to an aggregate amount equal to the greatest amount that would not result in such obligations being subject to avoidance, or otherwise result in such obligations being unenforceable, at such time under applicable law (including, without limitation, to the extent, and only to the extent, applicable to each Guarantor, Section 548 of the Bankruptcy Code of the United States of America and any comparable provisions of the law of any other jurisdiction, any capital preservation law of any jurisdiction and any other law of any jurisdiction that at such time limits the enforceability of the obligations of such Guarantor under this Guaranty). (b) For purposes of determining the obligations of the Guarantors under this Guaranty it shall be assumed that: (i) any and all stated obligations of any one or more of Guarantors in favor of one or more commercial banks existing at any time on or after the Closing Date and prior to July 15, 1997 were fully satisfied with the proceeds of loans made under the Credit Facility and such loans were made on July 15, 1997; (ii) the Guarantors received $350,000,000 of the proceeds of loans made pursuant to the Credit Facility on July 15, 1997 and such loans remained outstanding at all times after the Closing Date until all obligations under the Credit Facility shall have been fully satisfied; and (iii) on July 15, 1997 the Guarantors were relieved of obligations in an aggregate amount equal to the aggregate principal amounts of the Notes issued on the Closing Date in consideration for such Guarantors entering into this Guaranty." 2.19 Maintenance of Offices. Each Guarantor will maintain an office at its address set forth in Section 5.3 where notices, presentations and demands in respect of this Guaranty may be made upon it. Each Guarantor will maintain its office at such address until such time as such Guarantor shall notify the Noteholders of any change of location of such office. 2.20 Further Assurances. Each Guarantor will cooperate with the Noteholders and execute such further instruments and documents as the Required Holders shall reasonably request to carry out, to the reasonable satisfaction of the Required Holders, the transactions contemplated by the Note Purchase Agreements, the Notes, this Guaranty and the documents and instruments related thereto. 3. INTERPRETATION OF THIS GUARANTY 3.1 Terms Defined. As used in this Guaranty, capitalized terms have the meaning specified in the Note Purchase Agreement unless otherwise specified below or set forth in the section of this Guaranty referred to immediately following such term (such definitions, unless otherwise expressly provided, to be equally applicable to both the singular and plural forms of the terms defined): Affiliate Obligation -- Section 2.9. Company -- Section 1.1. Copaz -- has the meaning assigned to such term in the first paragraph hereof. Country Hams -- has the meaning assigned to such term in the first paragraph hereof. Guaranteeing Subsidiaries -- Section 4.3. Guarantied Obligations -- Section 2.1. Guarantor -- has the meaning assigned to such term in the first paragraph hereof. Guaranty, this -- has the meaning assigned to such term in the first paragraph hereof. Landover -- has the meaning assigned to such term in the first paragraph hereof. Lykes -- has the meaning assigned to such term in the first paragraph hereof. Note Purchase Agreement -- Section 1.1. Noteholder -- means, at any time, each Person that is the holder of any Note at such time. Notes -- Section 1.1. Purchasers -- Section 1.1. Series A Notes -- Section 1.1. Series B Notes -- Section 1.1. Series C Notes -- Section 1.1. Series D Notes -- Section 1.1. Series E Notes -- Section 1.1. Series F Notes -- Section 1.1. Series G Notes -- Section 1.1. Series H Notes -- Section 1.1. Sunnyland -- has the meaning assigned to such term in the first paragraph hereof. Unconditional Guaranty -- Section 2.1. Valleydale -- has the meaning assigned to such term in the first paragraph hereof. 3.2 Section Headings and Construction. (a) Section Headings, etc. The titles of the Sections appear as a matter of convenience only, do not constitute a part hereof and shall not affect the construction hereof. The words "herein," "hereof," "hereunder" and "hereto" refer to this Guaranty as a whole and not to any particular Section or other subdivision. Unless otherwise specified, references to Sections are to Sections of this Agreement and references to Annexes are to Annexes to this Agreement. (b) Construction. Each covenant contained herein shall be construed (absent an express contrary provision herein) as being independent of each other covenant contained herein, and compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with one or more other covenants. 4. WARRANTIES AND REPRESENTATIONS Each Guarantor represents and warrants to each Purchaser, as of the date hereof, as follows: 4.1 Generally. (a) Such Guarantor is fully aware of the financial condition of the Company and is delivering this Guaranty based solely upon its own independent investigation and in no part upon any representation or statement of any Noteholder with respect thereto. Such Guarantor is in a position to obtain, and hereby assumes full responsibility for obtaining, any additional information concerning the financial condition of the Company as such Guarantor may deem material to its obligations hereunder, and such Guarantor is not relying upon, nor expecting, any Noteholder to furnish it any information concerning the financial condition of the Company. (b) As of the date of the execution and delivery of this Guaranty, the fair salable value of the assets of such Guarantor, taken as a whole, exceeds its liabilities, taken as a whole; such Guarantor is able to pay and discharge all of its debts (including, without limitation, its current liabilities) as they become due and after giving effect to the transactions contemplated by this Guaranty, such Guarantor will not become unable to pay and discharge such debts as they become due; there are no presently pending material court or administrative proceedings or undischarged judgments against the Guarantor; and no tax Liens have been filed or threatened against such Guarantor, nor is such Guarantor in default or claimed default under any agreement for borrowed money. (c) Such Guarantor is a corporation duly organized and validly existing and in good standing under the laws of its jurisdiction of incorporation. Such Guarantor has the corporate power to own its Properties and carry on its business as it is now being conducted. Such Guarantor has the valid authority and the corporate power to enter into and perform, and has taken all necessary action to authorize the entry into, and the performance and delivery of, this Guaranty and the transactions contemplated hereby. (d) This Guaranty has been duly authorized by all necessary action on the part of such Guarantor, has been duly executed and delivered by duly authorized officers of such Guarantor, and constitutes a legal, valid and binding obligation of such Guarantor. (e) The entry into and performance of this Guaranty and the transactions contemplated hereby do not and will not conflict with any applicable law or regulation or official or judicial order, conflict with the articles or certificate of incorporation, or bylaws, of such Guarantor, conflict with any agreement or document to which such Guarantor is a party or that is binding upon it or any of its Properties, or result in the creation or imposition of any Lien on any of its Properties pursuant to the provisions of any agreement or document. 4.2 Nature of Business of Company and Subsidiaries. The Company, the Guarantors, and all of the other Subsidiaries are, and will be, as to financing and capital raising activities, operated as part of one consolidated business entity and each Guarantor is directly or indirectly dependent upon each other Guarantor and each other Subsidiary and the Company for and in connection with its business activities and its financial resources. The Company and the Subsidiaries have sought and obtained the sale of the Notes and the related transactions based on their consolidated financial position and the Company and the Subsidiaries understand that the Purchasers are relying on the consolidated financial condition of the Company and the Subsidiaries in purchasing the Notes. 4.3 Solvency. The fair value of the business and assets of each of the Company and each of the Guarantors will be in excess of the amount that will be required to pay its liabilities (including, without limitation, contingent, subordinated, unmatured and unliquidated liabilities on existing debts, as such liabilities may become absolute and matured), in each case after giving effect to the transactions contemplated by this Guaranty and the other the Financing Documents. Neither the Company nor any Guarantor, after giving effect to the transactions contemplated by the Financing Documents, will be engaged in any business or transaction, or about to engage in any business or transaction, for which such Person has unreasonably small assets or capital (within the meaning of applicable law, including, without limitation, Section 548 of the United States Bankruptcy Code), and neither the Company nor any Guarantor has any intent to (a) hinder, delay or defraud any entity to which it is, or will become, on or after the Closing Date, indebted, or (b) incur debts that would be beyond its ability to pay as they mature. 5. MISCELLANEOUS 5.1 Successors and Assigns. (a) Whenever any Guarantor or any of the parties to the Note Purchase Agreement is referred to, such reference shall be deemed to include the successors and assigns of such party, and all the covenants, promises and agreements contained in this Guaranty by or on behalf of any Guarantor shall bind the successors and assigns of such Guarantor and shall inure to the benefit of each of the Noteholders from time to time whether so expressed or not and whether or not an assignment of the rights hereunder shall have been delivered in connection with any assignment or other transfer of Notes. (b) Each of the Guarantors agrees to take such action as may be reasonably requested by any Noteholder in connection with the transfer of the Notes of such Noteholder in accordance with the requirements of the Note Purchase Agreement in connection with providing an executed copy of this Guaranty to the new Noteholder or Noteholders of such Notes, provided that no additional obligations of the Guarantors shall thereby be created but rather that the existing obligations of the Guarantors shall be more particularly stated in respect of one or more future Noteholders that are the subject of this Guaranty. 5.2 Partial Invalidity. The unenforceability or invalidity of any provision or provisions hereof shall not render any other provision or provisions contained herein unenforceable or invalid. 5.3 Communications. (a) Method; Address. All communications hereunder shall be in writing, shall be delivered in the manner required by the Note Purchase Agreement, and shall be addressed, if to the Guarantors, at their respective addresses as set forth in the Note Purchase Agreement, and if to any of the Noteholders (i) if such Noteholder is a Purchaser, at the address set forth on Schedule A to the Note Purchase Agreement for such Noteholder, and further including any parties referred to on such Schedule A which are required to receive notices in addition to such Noteholder, and (ii) if such Noteholder is not a Purchaser, at the address set forth in the register for the registration and transfer of Notes maintained pursuant to Section 5.1 of the Note Purchase Agreement for such Noteholder, or to any such party at such other address as such party may designate by notice duly given in accordance with this Section 5.3. (b) When Given. Any communication so addressed and deposited in the United States mail, postage prepaid, by registered or certified mail (in each case, with return receipt requested) shall be deemed to be received on the third (3rd) succeeding Business Day after the day of such deposit (not including the date of such deposit). Any communication so addressed and delivered otherwise shall be deemed to be received when actually received at the address of the addressee. 5.4 Governing Law. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL VIRGINIA LAW, EXCLUDING CHOICE-OF-LAW PROVISIONS OF SUCH COMMONWEALTH THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH COMMONWEALTH. 5.5 Effective Date. This Guaranty shall be effective as of the date hereof. 5.6 Benefits of Guaranty Restricted. Nothing express or implied in this Guaranty is intended or shall be construed to give to any Person other than the Guarantors, the Noteholders and the Security Trustee any legal or equitable right, remedy or claim under or in respect hereof or any covenant, condition or provision herein contained; and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Guarantors, the Noteholders and the Security Trustee. 5.7 Survival of Representations and Warranties; Entire Agreement. All representations and warranties contained herein or made in writing by the Guarantors in connection herewith shall survive the execution and delivery hereof. 5.8 Expenses. (a) The Guarantors shall pay when billed the reasonable costs and expenses (including reasonable attorneys' fees) incurred by the Noteholders and the Security Trustee in connection with the consideration, negotiation, preparation or execution of any amendments, waivers, consents, standstill agreements and other similar agreements with respect hereto (whether or not any such amendments, waivers, consents, standstill agreements or other similar agreements are executed). (b) At any time when any one or more of the Company or the Guarantors and the Noteholders are conducting restructuring or workout negotiations in respect hereof, or a Default or Event of Default exists, the Guarantors shall pay when billed the reasonable costs and expenses (including reasonable attorneys' fees and the reasonable fees of professional advisors) incurred by the Noteholders in connection with the assessment, analysis or enforcement of any rights or remedies that are or may be available to the Noteholders. (c) If any of the Guarantors shall fail to pay when due any principal of, or Make-Whole Amount or interest on, any Note, each of the Guarantors shall pay to each Noteholder, to the extent permitted by law, such amounts as shall be sufficient to cover the costs and expenses, including but not limited to reasonable attorneys' fees, incurred by such Noteholder in collecting any sums due on the Notes. 5.9 Amendment. This Guaranty may be amended only in a writing executed by each Guarantor and the Required Holders. 5.10 Survival. So long as the Guarantied Obligations and all payment obligations of the Guarantors hereunder shall not have been fully and finally performed and indefeasibly paid, the obligations of the Guarantors hereunder shall survive the transfer and payment of any Note and the payment in full of all the Notes. 5.11 Entire Agreement. This Guaranty constitutes the final written expression of all of the terms hereof and is a complete and exclusive statement of those terms. 5.12 Duplicate Originals, Execution in Counterpart. Two or more duplicate originals hereof may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. This Guaranty may be executed in one or more counterparts and shall be effective when at least one counterpart shall have been executed by each party hereto, and each set of counterparts that, collectively, show execution by each party hereto shall constitute one duplicate original. [Remainder of page intentionally blank. Next page is signature page.] IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be executed on its behalf by a duly authorized officer of such Guarantor. LYKES MEAT GROUP, INC. By________________________________ Name: Title: HANCOCK'S OLD FASHIONED COUNTRY HAMS, INC. By________________________________ Name: Title: VALLEYDALE FOODS, INC. By________________________________ Name: Title: COPAZ PACKING CORPORATION By________________________________ Name: Title: SUNNYLAND, INC. By________________________________ Name: Title: SMITHFIELD PACKING-LANDOVER, INC. By________________________________ Name: Title: EX-10 7 EXHIBIT 10.6 Exhibit 10.6 SMITHFIELD FOODS, INC. 1998 INCENTIVE BONUS PLAN 1. PURPOSE. Smithfield Foods, Inc. hereby establishes an Incentive Bonus Plan (the "Plan") applicable to any person serving as Chief Operating Officer of the Company ("Executive"). The Company intends to provide Executive with incentive bonuses that are related to and measured by the Company's performance under a program intended to meet the requirements of Code section 162(m) and regulations thereunder. The Plan was adopted by the Committee and ratified by the Board on June 13, 1997, and is subject to approval of the Company's stockholders. The Plan is effective as of April 28, 1997. 2. DEFINITIONS. As used in the Plan, the following terms have the meanings indicated. (a) "Auditor" means the independent public accounting firm then employed by the Company to prepare the Company's financial statements. (b) "Beneficiary" means the person or persons designated by Executive in a writing filed with the Company to receive his Bonus Payment upon his death. (c) "Board" means the board of directors of the Company. (d) "Bonus Base" means the consolidated net income of the Company and its subsidiaries prepared in accordance with generally accepted accounting principles before (i) Bonus Payments to Executive, (ii) accounting for minority ownership interests in subsidiaries, (iii) incentive payments due officers based on income approved by the Board, and (iv) applicable federal and state income taxes. (e) "Bonus Payment" means the amount due Executive under the Plan, as computed by the Company, and certified by the Committee. (f) "Cause" means (i) continued neglect by Executive of his employment duties (as reasonably determined by the Company's Board of Directors) after delivery of written notice thereof to Executive specifying with particularity the duties Executive has neglected, (ii) willful misconduct in connection with the performance of Executive's duties, including by way of example but without limitation, intentional misappropriation of funds or property of the Company or any of its subsidiaries, or securing or attempting to secure personally any profit in connection with any transaction entered into on behalf of the Company or any of its subsidiaries, (iii) conduct by Executive that would result in material injury to the reputation of the Company or any of its subsidiaries (whether publicly known or unknown), including by way of example but without limitation, pleading guilty to or conviction of a felony involving moral turpitude, or (iv) certification by a physician that Executive is unable to regularly perform his duties hereunder by reason of Executive's addiction to alcohol or a controlled substance. (g) "Code" means the Internal Revenue Code of 1986, as amended, and regulations thereunder. (h) "Committee" means two or more directors appointed by the Board who are "outside directors" within the meaning of section 162(m) of the Internal Revenue Code. The Committee shall be a sub-committee of the Compensation Committee of the Board consisting of the outside directors serving on the Compensation Committee unless otherwise determined by the Board. (i) "Company" means Smithfield Foods, Inc., a Delaware corporation. (j) "Disability" means, in general, the inability to perform the services for which Executive was employed. The Committee shall determine whether a Disability exists and such determination shall be conclusive. (k) "Executive" means the person serving at any time as Chief Operating Officer of the Company, including any successor to the person currently serving in that office. (l) "Retirement" means the termination of employment at or after age 65 or at or after such earlier date as designated by the Committee. 3. INCENTIVE BONUSES. (a) Subject to the remaining provisions of this section 3 and to section 5, Executive shall be entitled to receive as a Bonus Payment with respect to the fiscal year beginning April 28, 1997, and each fiscal year thereafter, and until the Plan is terminated by the Company, an amount in cash equal to one percent (1.0%) of the Bonus Base for such fiscal year. (b) If Executive is elected or appointed to serve as President and Chief Operating Officer of the Company after the beginning of a fiscal year for which a Bonus Payment is payable, such Bonus Payment shall be equal to (i) one percent (1%) of the Bonus Base for the entire fiscal year, if Executive assumed such office within ninety (90) days after the beginning of the fiscal year and if no Bonus Payment is to be paid to the person or persons serving in such office prior to Executive with respect to that portion of the fiscal year preceding the date Executive is elected or appointed to serve in such office or (ii) if clause (i) above is not applicable, one percent (1%) of the Bonus Base for the period commencing on the date Executive is elected or appointed to serve in such office and ending on the last day of such fiscal year. (c) The Committee may establish such other threshold and percentage requirements for receipt of a Bonus Payment as the Committee shall deem appropriate prior to the ninetieth (90th) day of the fiscal year or other period with respect to which the Bonus Base and any corresponding Bonus Payment is to be calculated. (d) Notwithstanding the foregoing provisions of this section 3, the Committee expressly reserves the right to reduce or eliminate entirely any Bonus Payment if the Committee determines in its sole discretion that it is in the best interests of the Company to do so. Such determination shall be conclusive and binding. 4. PAYMENT OF INCENTIVE BONUSES. The Bonus Payment will be made (i) after the date the Company's audited financial statements have been certified by the Auditor for the relevant fiscal year of computation, except as otherwise provided in subsection 5(a), (ii) after the Committee has certified that the performance criteria have been met, and (iii) before the date by which the Bonus Payment must be made to be otherwise deductible by the Company. 5. TERMINATION OF EMPLOYMENT. If Executive ceases to be employed, his right to receive a Bonus Payment shall be governed by the following principles: (a) If the termination of employment occurs as a result of death, Disability, Retirement or termination by the Company without Cause, Executive (or the Executive's Beneficiary in the event of death) shall be entitled to receive an amount equal to the Bonus Payment Executive would have received if the last day of the fiscal year coincided with the date of Executive's termination of employment, computed based on unaudited financial information. (b) If the termination of employment occurs for Cause or voluntarily by Executive (other than due to Disability or Retirement), Executive shall forfeit all rights to a Bonus Payment for the fiscal year in which such termination of employment occurs. 6. ADMINISTRATION. (a) The Plan shall be administered by the Committee. (b) The Board from time to time may appoint members previously appointed and may fill vacancies, however caused, in the Committee. (c) If any member of the Committee fails to qualify as an "outside director" or otherwise meet the requirements of this section, such person shall immediately cease to be a member of the Committee solely for purposes of the Plan and shall not take part in future Committee deliberations. (d) The Committee may adopt rules and regulations for carrying out the Plan, and the Committee may take such actions as it deems appropriate to ensure that the Plan is administered in the best interests of the Company. The Committee has the authority to construe and interpret the Plan, resolve any ambiguities, and make determinations with respect to the eligibility for or amount of any award. The interpretation, construction and administration of the Plan by the Committee shall be final and conclusive. The Committee may consult with counsel, who may be counsel to the Company, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel. 7. RIGHTS. Participation in the Plan and the right to receive cash awards under the Plan shall not give Executive any proprietary interest in the Company, any subsidiary or any of their assets. No trust fund shall be created in connection with the Plan, and there shall be no required funding of amounts that may become payable under the Plan. Executive shall for all purposes be a general creditor of the Company. The interests of Executive cannot be assigned, anticipated, sold, encumbered or pledged and shall not be subject to the claims of his creditors. Nothing in the Plan shall confer upon Executive the right to continue in the employ of the Company or any subsidiary or shall interfere with or restrict in any way the right of the Company and its subsidiaries to discharge Executive at any time for any reason whatsoever, with or without cause. 8. SUCCESSORS. The Plan shall be binding on Executive and his personal representatives. If the Company becomes a party to any merger, consolidation, reorganization or other corporate transaction, the Plan shall remain in full force and effect as an obligation of the Company or its successor in interest. 9. AMENDMENT AND TERMINATION. The Board may amend or terminate the Plan at any time as it deems appropriate; provided that (a) no amendment or termination of the Plan after the end of a fiscal year or other period for which a Bonus Payment is payable may increase the Bonus Payment for the period just ended, and (b) to the extent required to meet the requirements of Code section 162(m) for performance-based compensation, any amendment that makes a material change to the Plan must be approved by the stockholders of the Company. The Board is specifically authorized to amend the Plan and take such other action as necessary or appropriate to comply with Code section 162(m) and regulations issued thereunder, and to comply with or avoid administration of the Plan in a manner that could cause any participant to incur liability under Section 16(b) of the Securities Exchange Act of 1934 and regulations issued thereunder. 10. CONSTRUCTION. The Plan shall be construed in accordance with the laws of the Commonwealth of Virginia without regard to the conflict of law principles thereof. The headings in this Plan have been inserted for convenience of reference only and are to be ignored in any construction of the provisions. Pronouns and other terms expressed in a particular gender shall be deemed to include the other gender. If a provision of this Plan is not valid, that invalidity does not affect other provisions. EX-11 8 EXHIBIT 11 EXHIBIT 11 SMITHFIELD FOODS, INC. COMPUTATION OF NET INCOME PER COMMON SHARE Income and the number of shares used in the computation of net income per common and common equivalent shares were computed as follows:
52 Weeks 52 Weeks 52 Weeks Ended Ended Ended Income April 27, 1997 April 28, 1996 April 30, 1995 - ------ -------------- -------------- -------------- Income from continuing operations, $44,937,000 $19,786,000 $31,915,000 Dividends on preferred stock 1,238,000 1,152,000 675,000 ----------- ----------- ----------- Income from continuing operations available to common shareholders 43,699,000 18,634,000 31,240,000 Loss from discontinued operations - (3,900,000) (4,075,000) Net income available to common shareholders $43,699,000 $14,734,000 $27,165,000 =========== =========== =========== Shares - ------ Weighted average common shares: Outstanding 18,113,000 16,962,000 16,397,000 Incremental common share equilavents for stock options and dilutive preferred shares 572,000 568,000 662,000 ----------- ----------- ----------- Weighted average common shares used for computation 8,685,000 17,530,000 17,059,000 =========== =========== =========== Income (loss) per common share: Continuing operations $ 2.34 $ 1.06 $ 1.83 Discontinued operations (.22) (.24) ----------- ----------- ----------- - Net income $ 2.34 $ .84 $ 1.59 =========== =========== ===========
EX-21 9 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Set forth below is a list of each of the subsidiaries of Smithfield Foods, Inc. (other than subsidiaries whose names have been omitted in accordance with Regulation S-K Item 601(21)(ii)) and their respective jurisdictions of organization. JURISDICTION NAME OF SUBSIDIARY OF ORGANIZATION ------------------ --------------- Brown's of Carolina, Inc. North Carolina Gwaltney of Smithfield, Ltd. Delaware John Morrell & Co. Delaware Lykes Meat Group, Inc. Delaware Patrick Cudahy Incorporated Delaware The Smithfield Packing Company, Incorporated Virginia EX-23 10 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated June 6, 1997, included in this Form 10-K Annual Report, into the Company's previously filed Registration Statements: Registration Form: Number: Relating to: - ----------------------------------------------------------------------------- S-8 33-53024 Smithfield Foods, Inc. 401(k) Plan for Salaried Employees S-8 33-14219 1984 Stock Option Plan ARTHUR ANDERSEN LLP Richmond, Virginia July 23, 1997 EX-27 11 EXHIBIT 27
5 1,000 12-MOS APR-27-1997 APR-27-1997 25,791 0 167,593 1,499 253,276 488,378 614,393 187,518 995,254 324,066 288,486 0 0 9,598 297,888 995,254 3,870,611 3,870,611 3,549,673 3,549,673 0 0 26,211 67,677 22,740 44,937 0 0 0 44,937 2.34 0
-----END PRIVACY-ENHANCED MESSAGE-----