EX-1 2 v04472_ex-1.txt [Graphic Appears Here] Confirmation of Prepaid Variable Share Forward Merrill Lynch, Pierce, Fenner & Smith Incorporated 4 World Financial Center, 5th Floor New York, NY 10080 Dated: March 22, 2004 MLPFS Ref.: 0481225 To: SKM LEGACY LLC ("Counterparty") 4134 Highway 117 P.O. BOX 970 Rose Hill, NC 28458 cc: Roger Hunt E-mail: Roger_Hunt@ml.com From: Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPFS") Tel: (212) 449-8675 Fax: (646) 805-2780 -------------------------------------------------------------------------------- Dear Sir/Madam: The purpose of this letter agreement (this "Confirmation") is to confirm the terms and conditions of the above referenced transaction entered into between Counterparty and MLPFS, on the Trade Date specified below (the "Transaction"). This Confirmation constitutes a "Confirmation" as referred to in the Master Agreement specified below. The definitions and provisions contained in the 2000 ISDA Definitions (the "Swap Definitions") and the 2002 ISDA Equity Derivatives Definitions (the "Equity Definitions" and together with the Swap Definitions, the "Definitions") in each case as published by the International Swaps and Derivatives Association, Inc., are incorporated into this Confirmation. In the event of any inconsistency between the Swap Definitions and the Equity Definitions, the Equity Definitions will govern and in the event of any inconsistency between the Definitions and this Confirmation, this Confirmation will govern. This Confirmation supplements, forms part of, and is subject to, the Master Agreement (including the Schedule thereto and the Credit Support Annex incorporated therein), dated as of March 15, 2004 as amended and supplemented from time to time (the "Agreement"), between you and us. All provisions contained in the Agreement govern this Confirmation except as expressly modified below. The terms of the particular Transaction to which this Confirmation relates are as follows: General Terms: Trade Date: March 22, 2004 Seller: Counterparty Buyer: MLPFS Shares: The common stock of Smithfield Foods, Inc. (security symbol: SFD) Number of Shares: 182,471 Forward Price: The Settlement Price, subject to the Forward Floor Price and the Forward Cap Price. Prepayment Amount: USD 4,107,422.02 Prepayment Date: March 25, 2004 Forward Floor Price: USD 25.86 Forward Cap Price: USD 33.62 Exchange: New York Stock Exchange Related Exchange: All Exchanges Valuation: Valuation Time: The Scheduled Closing Time of the Exchange. Valuation Date: March 22, 2007 Settlement Terms: Settlement Method Election: Applicable Electing Party: Seller Settlement Method Election Date: On or before the date that is ten (10) Scheduled Trading Days prior to the Valuation Date. Default Settlement Method: Physical Settlement, if Conditions to Physical Settlement are satisfied. Cash Settlement Provisions: Settlement Price: The price per Share as of the Valuation Time on the Valuation Date in accordance with Section 7.3 of the Equity Definitions. Forward Cash Settlement Amount: An amount determined by the Calculation Agent equal to the product of the Number of Shares multiplied by one of the following, as the ---------- case may be: (i) if the Settlement Price is less than or equal to the Forward Floor Price: the Settlement Price, (ii) if the Settlement Price is greater than the Forward Floor Price but less than or equal to the Forward Cap Price: the Forward Floor Price; or (iii) if the Settlement Price is greater than the Forward Cap Price: [Forward Floor Price + (Settlement Price - Forward Cap Price)] Cash Settlement Payment Date: Three (3) Exchange Business Days following the Valuation Date. Settlement Currency: USD Physical Settlement Provisions: Settlement Date: Three (3) Exchange Business Days following the Valuation Date. 2 Number of Shares to be Delivered: An amount determined by the Calculation Agent equal to the following, as the case may be: (i) if the Settlement Price is less than or equal to the Forward Floor Price: the Number of Shares, (ii) if the Settlement Price is greater than the Forward Floor Price but less than or equal to the Forward Cap Price, the product of (a) the Number of Shares ------- multiplied by (b) the following ---------- fraction: Forward Floor Price --------------------; or Settlement Price (iii) if the Settlement Price is greater than the Forward Cap Price the product ------- of (a) the Number of Shares multiplied ---------- by (b) the following fraction: Forward Floor Price + (Settlement Price - Forward Cap Price) --------------------------------------- Settlement Price Conditions to Physical Settlement: Notwithstanding anything contained herein to the contrary, unless all of the provisions in Section 9.11 of the Equity Definitions are satisfied, as determined by the Calculation Agent, Cash Settlement shall apply to this Transaction. Physical Settlement Fees and Expenses: Counterparty will pay to MLPFS a Physical Settlement Fee on the Settlement Date equal to any fees, commissions or markdowns that MLPFS would receive or charge if Counterparty were selling the Shares for cash to or through MLPFS, as determined by MLPFS. If the Transaction involves restricted or control stock, such fees will include, without limitation, costs associated with purchases and sales of Shares that in the determination of MLPFS are necessary or advisable in order to comply with applicable law or regulatory requirements. Dividends: Notwithstanding anything to the contrary in Article 10 of the Equity Definitions, Seller shall pay to the Buyer the Dividend Amount on the Dividend Payment Date. Dividend Amount: An amount equal to the product of (i) 100% of the gross cash dividend per Share relating to each date the Shares trade ex-dividend on the Exchange during the Dividend Period; multiplied by (ii) the Number of Shares. ---------- Dividend Period: The period from but excluding the Trade Date to and including the Valuation Date. Dividend Payment Date: Paid when received by a U.S. shareholder of record. SHARE ADJUSTMENTS: 3 Method of Adjustment: Calculation Agent Adjustment Extraordinary Events: Consequences of Merger Events: Share-for-Share: Modified Calculation Agent Adjustment Share-for-Other: Cancellation and Payment Share-for-Combined: Component Adjustment Determining Party: The Calculation Agent Tender Offer: Applicable Consequences of Tender Offers: Share-for-Share: Modified Calculation Agent Adjustment Share-for-Other: Cancellation and Payment Share-for-Combined: Component Adjustment Determining Party: The Calculation Agent Nationalization, Insolvency or Delisting: Cancellation and Payment; provided that in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it shall also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, the American Stock Exchange or NASDAQ (or their respective successors). Determining Party: The Calculation Agent Additional Disruption Events: Change in Law: Applicable; provided that the following shall be added to the definition of Change in Law in Section 12.9(a)(ii) of the Equity Definitions after "under" and before "such" in the eighth line thereof: "or in initially hedging, maintaining a hedge on, or unwinding a hedge in respect of" Failure to Deliver: Applicable Insolvency Filing: Applicable Loss of Stock Borrow: Applicable Maximum Stock Loan Rate: 3.00% Increased Cost of Stock Borrow: Applicable Initial Stock Loan Rate: 1.00%; provided that (i) any Price Adjustment will be made to reflect the change in the stock loan rate from the 4 Trade Date Stock Loan Rate, not the Initial Stock Loan Rate, and (ii) paragraph 12.9(b)(v) of the Equity Definitions shall be amended by substituting "Trade Date Stock Loan Rate" for "Initial Stock Loan Rate" in subparagraphs (X) and (Y). Trade Date Stock Loan Rate means 0.40%. Determining Party: The Calculation Agent For the purposes of Loss of Stock Borrow and Increased Cost of Stock Borrow, the Stock Loan Rate at any time shall be the amount equal to the relevant overnight USD-LIBOR-BBA rate, less the interest rate received by the Hedging Party, or plus the interest rate paid by the Hedging Party, as the case may be,in respect of cash collateral that the Hedging Party is required to post in connection with any stock loan arrangement with a stock lender for this Transaction ("Stock Loan"), plus the borrow fee, if any, under the Stock Loan. The Hedging Party in respect of this Transaction shall be MLPFS. Calculation Agent: MLPFS Non-Reliance: Applicable Agreements and Acknowledgments Regarding Hedging Activities: Applicable Additional Acknowledgements: Applicable Eligible Contract Participant: Each party represents to the other party that it is an "eligible contract participant" as defined in the U.S. Commodity Exchange Act (as amended). Governing Law: The laws of the State of New York (without reference to choice of law doctrine). Collateral: Independent Amount: Independent Amount with respect to Counterparty and this Transaction under the Credit Support Annex which forms part of the Agreement (the "CSA") means Shares in an amount equal to the Number of Shares (the "Pledged Shares"). Eligible Collateral: The Pledged Shares will constitute Eligible Collateral with respect to this Transaction with a Valuation Percentage of 100%. Exposure: This Transaction will be disregarded for purposes of determining the Secured Party's Exposure under the CSA. Representations of Counterparty: In addition to the acknowledgments and agreements contained in Article 13 of the Equity Definitions, Counterparty represents that it (a) has such knowledge and experience in financial and business affairs as to be capable of evaluating the merits and risks of entering into the Transaction; (b) qualifies as an "accredited investor" under Regulation D of the Securities Act of 1933, as amended (the "Securities Act"); (c) has consulted with its own legal, financial, accounting and tax advisors in connection with the Transaction; (d) is entering into the Transaction for a bona fide business purpose to hedge an existing position; (e) acknowledges that in return for downside protection against a decline in the market price of the Shares below the Forward Floor Price, Counterparty is foregoing the upside value of an increase in the market price of the Shares above the Forward Cap Price; and (f) in exchange for prepayment of the purchase price under the 5 Transaction, Counterparty agrees to sell (and physically deliver) the Shares to MLPFS on the Settlement Date (unless Counterparty elects Cash Settlement in the manner specified herein). Counterparty has no knowledge of any non-public material information regarding the Issuer of the Shares. Counterparty has furnished MLPFS with copies of all material agreements or contracts to which it is a party, by which it is bound, or by which the Pledged Shares are bound, that relate to the Pledged Shares. Please confirm that the foregoing correctly sets forth the terms of our agreement by executing the copy of this Confirmation enclosed for that purpose and returning it to us by facsimile transmission to telecopier no. 646-805-2780. Very truly yours, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: /s/ Marcella Vullo -------------------------------- Name: Marcella Vullo Title: Authorized Signatory Accepted and confirmed as of the date first above written, SKM LEGACY LLC By: -------------------------------- Name: Title: 6