-----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, B2Vpl7IA7DnxU6yCeFWyUwryACPD6sWhQpnlyYGnMOL2Tx5kO2WxDRojF+AiBCF7 kks75YE60QbqgAZh9kb8Ng== 0000912057-96-021591.txt : 19961002 0000912057-96-021591.hdr.sgml : 19961002 ACCESSION NUMBER: 0000912057-96-021591 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19961001 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUIZA FOODS CORP CENTRAL INDEX KEY: 0000931336 STANDARD INDUSTRIAL CLASSIFICATION: ICE CREAM & FROZEN DESSERTS [2024] IRS NUMBER: 752559681 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-13119 FILM NUMBER: 96637462 BUSINESS ADDRESS: STREET 1: 3811 TURTLE CREEK BLVD STREET 2: STE 1300 CITY: DALLAS STATE: TX ZIP: 75219 BUSINESS PHONE: 2145283368 MAIL ADDRESS: STREET 1: 3811 TURTLE CREEK BLVD STREET 2: SUITE 1300 CITY: DALLAS STATE: TX ZIP: 75219 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1996 Registration No. 333-_______ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- SUIZA FOODS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 2026 75-2559681 (State or other jurisdiction (Primary Standard (I.R.S. Employer of incorporation or Industrial Classification Identification No.) organization) Code Number) 3811 TURTLE CREEK BLVD. SUITE 1300 DALLAS, TEXAS 75219 (214) 528-0939 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) GREGG L. ENGLES COPIES TO: CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER WILLIAM A. MCCORMACK 3811 TURTLE CREEK BLVD. JON L. MOSLE SUITE 1300 HUGHES & LUCE, L.L.P. DALLAS, TEXAS 75219 1717 MAIN STREET (214) 528-0939 SUITE 2800 (Name, address, including zip code, and telephone DALLAS, TEXAS 75201 number, including area code, of agent for service) (214) 939-5500 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------- CALCULATION OF REGISTRATION FEE - ----------------------------------------------------------------------------------------------------------- TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE - ----------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value 625,000 17.75 $11,093,750 $3825.43 - -----------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee on the basis of the average of the high and low price paid per share of Common Stock, as reported on the Nasdaq National Market on Wednesday, September 25, 1996, in accordance with Rule 457(c) promulgated under the Securities Act of 1933, as amended. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUIZA FOODS CORPORATION CROSS REFERENCE SHEET ITEM OF FORM S-1 PROSPECTUS CAPTION OR LOCATION ---------------- ------------------------------ 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus . . . . . . . . Forepart of the Registration Statement and Outside Front Cover Page of the Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus . . . . . . . . Inside Front and Outside Back Cover Pages of the Prospectus; Additional Information 3. Summary Information, Risk Factors . Prospectus Summary; Risk Factors 4. Use of Proceeds . . . . . . . . . . Not Applicable 5. Determination of Offering Price . . Not Applicable 6. Dilution . . . . . . . . . . . . . Not Applicable 7. Selling Security Holders . . . . . Principal and Selling Stockholders 8. Plan of Distribution . . . . . . . Outside Front Cover Page of the Prospectus 9. Description of Securities to be Registered . . . . . . . . . . . . Description of Capital Stock 10. Interests of Named Experts and Counsel . . . . . . . . . . . . . . Not Applicable 11. Information with Respect to the Registrant . . . . . . . . . . . . Outside Front Cover Page; Prospectus Summary; Risk Factors; Price Range of Common Stock; Dividend Policy; Unaudited Pro Forma Consolidated Financial Data; Selected Consolidated Financial Data; Selected Pre-Acquisition Historical Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Relationships and Related Transactions; Principal and Selling Stockholders; Description of Capital Stock; Shares Eligible for Future Sale; Consolidated Financial Statements of Suiza Foods Corporation; Condensed Consolidated Financial Statements of Suiza Foods Corporation; Combined Financial Statements of Pre-Acquisition Suiza-Puerto Rico; Financial Statements of Pre-Acquisition Velda Farms; Consolidated Financial Statements of Garrido; Financial Statements of Swiss Dairy 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities . . . . . . . . . . . . Not Applicable Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there by any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED , 1996 PROSPECTUS 625,000 Shares SUIZA FOODS Common Stock -------------------- All of the 625,000 shares of Common Stock, $.01 par value per share (the "Common Stock"), offered hereby (the "Offering") are being sold by a stockholder of Suiza Foods Corporation ("Suiza Foods" or the "Company"). See "Principal and Selling Stockholders". The Company will not receive any of the proceeds from the sale of the shares offered hereby. The Common Stock is traded on the Nasdaq National Market under the symbol "SWZA". On September 25, 1996, the closing sale price of the Common Stock on the Nasdaq National Market was $17.75 per share. See "Price Range of Common Stock". ANY INVESTMENT IN THE SECURITIES OFFERED HEREIN INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6. -------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------------------- , 1996 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Reports, registration statements, proxy statements, and other information filed by the Company with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's Regional Offices: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New York, New York 10048. Copies of such materials can be obtained at prescribed rates from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies of reports, registration statements, proxy and information statements filed electronically by the Company and other information regarding the Company can be obtained from the Commission's address on the world-wide web: "http://www.sec.gov". The Company has filed with the Commission a Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act with respect to the Common Stock offered hereby. As used herein, the term "Registration Statement" means the initial Registration Statement and any and all amendments thereto. This Prospectus omits certain information contained in said Registration Statement as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement, including the exhibits thereto. Statements herein concerning the contents of any contract or other document are not necessarily complete and in each instance reference is made to such contract or other document filed with the Commission as an exhibit to the Registration Statement, or otherwise, each such statement being qualified by and subject to such reference in all respects. 2 PROSPECTUS SUMMARY AS USED IN THIS PROSPECTUS, EXCEPT AS OTHERWISE STATED OR UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERMS "SUIZA FOODS" AND THE "COMPANY" REFER TO SUIZA FOODS CORPORATION AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS AND THE HISTORICAL OPERATIONS AND ACTIVITIES OF CERTAIN ENTITIES (THE "COMBINED ENTITIES") THAT BECAME SUBSIDIARIES OF THE COMPANY IN MARCH 1995 PURSUANT TO A CORPORATE COMBINATION ACCOUNTED FOR AS A POOLING OF INTERESTS (THE "COMBINATION"). SEE "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS --HISTORIC RELATIONSHIPS AND RELATED TRANSACTIONS -- THE COMBINATION". THE COMPANY'S OPERATING SUBSIDIARIES ARE REFERRED TO INDIVIDUALLY HEREIN AS "SUIZA-PUERTO RICO", "SWISS DAIRY", "VELDA FARMS" AND "REDDY ICE". UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS GIVES EFFECT TO THE COMBINATION AND TO A 69-FOR-1 COMMON STOCK SPLIT THAT WAS EFFECTED ON FEBRUARY 29, 1996. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE HEREIN. THE COMPANY Suiza Foods is a leading manufacturer and distributor of fresh milk products, refrigerated ready-to-serve fruit drinks and coffee in Puerto Rico, fresh milk and related dairy products in California and Florida, and packaged ice in Florida and the southwestern United States. The Company has grown primarily through strategic and consolidating acquisitions. Through these acquisitions, the Company has realized regional economies of scale and operating efficiencies by consolidating manufacturing, distribution and/or purchasing and administrative operations in each of its core businesses. The Company conducts its dairy operations primarily through Suiza-Puerto Rico, Swiss Dairy and Velda Farms and its ice operations through Reddy Ice. Each of these subsidiaries is a strong regional competitor with an established reputation for customer service and product quality. These subsidiaries market their products through extensive distribution networks to a diverse group of customers, including convenience stores, grocery stores, schools and institutional food service customers. Through its Suiza-Puerto Rico subsidiary, the Company manufactures and distributes approximately 66% of the fresh milk sold in Puerto Rico and manufactures and markets a line of refrigerated ready-to-serve fruit drinks under its Suiza Fruit-TM- name, a leading brand in Puerto Rico. The Company is the largest of two fresh milk processors in Puerto Rico and distributes its products to grocery stores, retail outlets and schools, and also distributes third party brand name ice cream and other refrigerated and frozen foods principally to medium-sized and large grocery stores. In June 1994, the Company acquired Mayaguez Dairy, Inc. ("Mayaguez Dairy"), formerly the third largest dairy manufacturer and distributor in Puerto Rico. Since that acquisition, the Company has consolidated Mayaguez Dairy's production into its existing Puerto Rico facilities and has eliminated the fixed costs of Mayaguez Dairy's former manufacturing facility and duplicative administrative expenses. In July 1996, the Company acquired Garrido y Compania, Inc. ("Garrido"), a Puerto Rico processor and distributor of coffee and coffee related products. Garrido is also the largest provider of in-room gourmet coffee service in Puerto Rico, serving a majority of the hotels located in Puerto Rico. The acquisition of Garrido extends the Company's branded product line and management believes that it will be able to improve Garrido's operations by leveraging its existing distribution and administrative systems in Puerto Rico. Management also believes that Garrido's premium coffee export business offers additional opportunities for growth. Through Swiss Dairy, which was acquired by the Company in September 1996, the Company manufactures and distributes fresh milk and certain related products in Southern California and Nevada. Swiss Dairy's strategy is to focus its efforts on manufacturing and distributing a limited product line to high volume retailers, including grocery and club stores, which allows it to improve efficiencies and reduce costs. Swiss Dairy's manufacturing operation is conducted from a single facility located in Riverside, California. Through Velda Farms, the Company manufactures and distributes fresh milk, ice cream and related products throughout peninsular Florida under its own brand names and under brands licensed from third parties. The Company serves approximately 10,000 customers and focuses its distribution efforts on food service accounts, convenience stores, club stores and schools. Approximately one-half of the Company's net sales in Florida are to food service accounts, such as cruise ships, theme parks, hotels, restaurants and healthcare facilities. Management believes that the Company's long-standing client relationships, focus on service-intensive accounts and extensive distribution network 3 provide it with a competitive advantage. In November 1994, the Company acquired the Florida Division of Flav-O-Rich, Inc., a subsidiary of Mid-America Dairymen, Inc. ("Flav-O-Rich"). Located in St. Petersburg, Florida, Flav-O-Rich manufactured and distributed fresh dairy products in peninsular Florida. Since the acquisition, the Company has re-allocated production among its Florida facilities, consolidated Flav-O-Rich's distribution operations with its own and reduced Flav-O-Rich's personnel expenses. In January 1996, the Company acquired Skinners' Dairy, Inc. ("Skinners'") in Jacksonville, Florida. Skinners' manufactured and distributed fresh dairy products in peninsular Florida, primarily in the Jacksonville area. Since the acquisition, the Company has closed the Skinners' manufacturing plant, transferred Skinners' volume to the Company's Winter Haven facility, consolidated Skinners' distribution with its own and reduced Skinners' personnel expenses. The Company manufactures and distributes ice products for retail, commercial and industrial uses through its Reddy Ice subsidiary. The Company currently manufactures ice at 21 facilities and serves approximately 20,000 retail locations in Texas, Florida, Arizona, New Mexico, Nevada, Oklahoma and Utah. Since May 1988, the Company has acquired 27 ice manufacturing or distribution operations, including 14 acquired since January 1, 1995. Management believes that the Company is one of the largest manufacturers and distributors of packaged ice in the United States and that it has significant market share in each of the markets in which it operates. In April 1996, the Company completed an initial public offering of 3,795,000 shares of Common Stock at a price of $14.00 per share (the "IPO"). The net proceeds to the Company from the IPO were approximately $49.5 million, after deducting underwriting discounts and commissions and offering expenses. The Company used the net proceeds from the IPO to repay a portion of its outstanding senior and subordinated indebtedness. On August 7, 1996, the Company completed a private placement of 625,000 shares of Common Stock to T. Rowe Price Small-Cap Value Fund ("T. Rowe Price" or the "Selling Stockholder") for net proceeds of approximately $9.5 million. The Company utilized the proceeds from this private placement to retire outstanding indebtedness under the revolving credit portion of its Senior Credit Facility (as defined herein). All of the shares of Common Stock sold to T. Rowe Price are offered for sale to the public by the Selling Stockholder in this Offering. The Company was formed to become a holding company for Suiza-Puerto Rico, Velda Farms and Reddy Ice pursuant to the Combination. In the Combination, which was completed on March 31, 1995, all of the equity interests in the Combined Entities were converted into shares of Common Stock, or options to acquire shares of Common Stock, in a transaction accounted for as a pooling of interests. See "Certain Relationships and Related Transactions -- Historic Relationships and Related Transactions -- The Combination". The Company is a Delaware corporation with its principal offices located at 3811 Turtle Creek Boulevard, Suite 1300, Dallas, Texas 75219 (telephone number 214-528-0939). BUSINESS STRATEGY The Company's strategy is to continue to expand its dairy and ice operations primarily through consolidating acquisitions within its existing markets and through strategic acquisitions in new geographic markets. Management believes that the Company can continue to realize economies of scale and efficiencies from acquisitions through better utilization of production facilities, establishment of shorter and more dense distribution routes, consolidation of acquired brand names and more efficient human resource allocation. The Company has implemented its consolidation and acquisition strategy through the acquisition and integration of Mayaguez Dairy into Suiza-Puerto Rico, Flav-O-Rich and Skinners' into Velda Farms and a number of ice companies into Reddy Ice and through the acquisitions of Garrido and Swiss Dairy. Management believes that both the dairy and ice industries will continue to provide strategic acquisition and consolidation opportunities. The Company will also seek to expand its existing operations by adding new customers, extending its product lines and securing distribution rights for additional branded product lines. 4 SUMMARY CONSOLIDATED AND PRO FORMA FINANCIAL DATA (IN THOUSANDS, EXCEPT SHARE DATA) The following summary consolidated financial data for the three years ended December 31, 1995 has been derived from the audited consolidated financial statements of the Company. The summary consolidated financial data for the six-month periods ended June 30, 1995 and 1996 were derived from the unaudited financial statements of the Company, and include, in management's opinion, all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the results for such periods. The summary financial data do not purport to indicate results of operations as of any future date or for any future period. Effective with the Combination, the Company became the holding company for the operations of Suiza-Puerto Rico, Velda Farms and Reddy Ice. The Combination was accounted for using the pooling of interests method of accounting. Results of operations of Suiza-Puerto Rico and Velda Farms are included from the dates such operations were acquired in purchase business combinations (December 16, 1993 and April 10, 1994, respectively). The pro forma financial data give effect to the Swiss Dairy and Garrido acquisitions as if such transactions had been consummated as of January 1, 1995. The pro forma balance sheet data give effect to the Swiss Dairy and Garrido acquisitions as if such transactions had occurred as of June 30, 1996. See "Unaudited Pro Forma Financial Data". YEAR ENDED DECEMBER 31, UNAUDITED SIX MONTHS ENDED JUNE 30, ---------------------------------------------- -------------------------------------- UNAUDITED PRO FORMA PRO FORMA 1993 1994 1995 1995 1995 1996 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING DATA : Net sales ......................... $ 51,675 $ 341,108 $ 430,466 $ 583,339 $ 214,905 $ 225,307 $ 288,363 Gross profit ...................... 31,263 100,640 117,833 142,540 57,253 59,390 70,706 Operating income .................. 8,702 25,760 30,564 40,030 13,642 14,943 19,058 Interest expense, net ............. 7,697 19,279 19,921 25,401 10,437 8,488 10,978 Income (loss) before extraordinary loss ............................ 1,420 4,245 (1,576) 1,661 (7,557) 4,936 6,104 Net income (loss) (1) ............. 1,420 4,048 (10,038) 1,661 (16,019) 2,721 6,104 Weighted average shares outstanding ..................... 2,487,174 6,156,387 6,109,398 7,407,907 5,905,000 8,455,332 9,080,332 Earnings (loss) per share: Income (loss) before extraordinary loss ............................ $ .57 $ .69 $ (.26) $ .22 $ (1.28) $ .58 $ .67 Extraordinary loss .................. -- (.03) (1.38) -- (1.43) (.26) -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) (1) ............... $ .57 $ .66 $ (1.64) $ .22 $ (2.71) $ .32 $ .67 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
AS OF JUNE 30, 1996 -------------------------- ACTUAL PRO FORMA ------------ ----------- (UNAUDITED) BALANCE SHEET DATA: Working capital (2) ........................................................................ $ 9,748 $ 23,637 Total assets ............................................................................... 237,973 333,841 Total debt ................................................................................. 143,890 223,646 Total stockholders' equity ................................................................. 60,789 70,289
- ---------------- (1) Net income and the related per share amounts for 1994 reflect $1,857 ($1,799 net of associated income taxes) of nonrecurring and extraordinary charges consisting of $1,660 in nonrecurring costs related to the Combination and an uncompleted public offering of Common Stock and $197 of extraordinary losses from the early extinguishment of debt. Net loss and the related per share amounts for 1995 reflect $18,700 ($18,016 net of associated income taxes) of nonrecurring and extraordinary charges consisting of $8,838 in nonrecurring costs related to the Combination, $1,400 in nonrecurring costs related to an uncompleted debt offering and uncompleted acquisitions and $8,462 in extraordinary losses from the early extinguishment of debt. (2) Working capital means total current assets minus total current liabilities. 5 RISK FACTORS ANY INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY AND SHOULD CONSIDER, AMONG OTHER THINGS, THE RISKS AND THE SPECULATIVE FACTORS INHERENT IN AND AFFECTING THE COMPANY'S BUSINESS DESCRIBED BELOW AND THROUGHOUT THIS PROSPECTUS. POTENTIAL LIMITATIONS ON EXPANSION The Company intends to grow principally through acquisitions of dairy and ice operations or other food related businesses. The Company will evaluate specific acquisition opportunities based on market conditions and economic factors existing at the time and intends to pursue favorable opportunities as they arise. There can be no assurance that the Company will find suitable acquisition candidates or succeed in integrating any acquired business into the Company's existing business or in retaining key customers of acquired businesses. There can also be no assurance that the Company will have sufficient available capital resources to realize its acquisition strategy. See " --Substantial Indebtedness", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Business Strategy". COMPETITION The Company's dairy and ice businesses are subject to significant competition from regional dairy operations and large national food service distributors that operate in the Company's markets. Competition in the dairy processing, fruit drink and food distribution businesses is based primarily on service, price, brand recognition, quality and breadth of product line. Many of the Company's competitors are larger, better capitalized and have greater financial, operational and marketing resources than the Company. See "Business -- Competition -- Dairy". The dairy industry has excess capacity and has been in the process of consolidation for many years. Excess capacity has resulted from the development of more efficient manufacturing techniques, the establishment of captive dairy manufacturing operations by large grocery retailers and relatively little growth in the demand for fresh milk products. The increased use of captive dairy manufacturing operations by the Company's customers could have an adverse effect on the Company's operations. See "Business -- Industry Overview -- Dairy". The packaged ice business is also highly competitive. The Company faces a number of competitors in the packaged ice business, including smaller independent ice manufacturers, convenience and grocery retailers that operate captive commercial ice plants and retailers that manufacture and package ice at store locations. Competition exists primarily on a regional basis, with service, price and quality as the principal competitive factors. A significant increase in the utilization of captive commercial ice plants or on-site manufacturing by operators of large retail chains served by the Company could have an adverse effect on the Company's operations. See "Business -- Competition -- Ice". SUBSTANTIAL INDEBTEDNESS On June 30, 1996, the Company's total indebtedness and long-term debt (excluding current portion) were $143.9 million and $134.3 million, respectively. The Company's long-term debt (excluding current portion) represented 68.8% of the Company's total capitalization at June 30, 1996. On a pro forma basis after giving effect to the borrowings to fund the acquisitions of Garrido and Swiss Dairy and the repayment of outstanding indebtedness from the net proceeds of the private placement of Common Stock to the Selling Stockholder as if each such transaction had occurred on June 30, 1996, the Company would have had total indebtedness and long-term indebtedness (excluding current portion) of $223.6 million and $213.1 million, respectively. The Company's Senior Credit Facility, Subordinated Notes and related debt service obligations (i) limit the Company's ability to obtain additional financing in the future; (ii) require the Company to dedicate a significant portion of the Company's cash flow to the payment of principal and interest on its indebtedness, thereby reducing the funds available to the Company for other purposes; (iii) limit the Company's flexibility in planning for, or reacting to, changes in its business and market conditions; and (iv) impose additional financial and operational restrictions on the Company, including restrictions on dividends. 6 The Company's ability to make scheduled payments on its indebtedness depends on its financial and operating performance, which is subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond the Company's control. The Company has pledged substantially all its assets, including the stock of its operating subsidiaries (except for 35% of the capital stock of Garrido), to secure the Company's indebtedness under the Senior Credit Facility. The failure of the Company to comply with the financial and other restrictive covenants under the Senior Credit Facility or Subordinated Notes may result in an event of default which, if not cured or waived, could have a material adverse effect on the Company. The Company has entered into various interest rate agreements to reduce its exposure to interest rate fluctuations under the Senior Credit Facility. These agreements have the effect of fixing the Company's interest rate with respect to a portion of its indebtedness under the Senior Credit Facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources". GOVERNMENT REGULATION; RAW MATERIAL COSTS The supply and price of milk in Puerto Rico are regulated under Puerto Rico law. The government of Puerto Rico establishes an industry-wide production ceiling and sets the prices that may be charged for milk at the dairy farm level and the maximum prices that may be charged at the processor and retail levels. These prices are reviewed on an annual basis and remain fixed unless changed by the government. The price controls in Puerto Rico make the Company vulnerable to increases in the costs of manufacturing, packaging and distributing its products. There can be no assurance that the Company's operating results will not be adversely affected by price levels set by the government. See "Business -- Raw Materials and Supply -- Dairy" and "Business -- Government Regulation -- Puerto Rico Milk Industry Regulation". The price of raw milk in the mainland United States fluctuates based on supply and demand, with minimum support prices established monthly on a regional basis by federal and/or state government agencies. Congress has recently passed legislation to phase out support prices over a specified period. There can be no assurance that a material increase in milk prices in the mainland United States will not occur or that any such increase would not reduce the profitability of the Company's operations. See "Business -- Raw Materials and Supply -- Dairy" and "Business -- Government Regulation -- U.S. Dairy Support Program". The Company's operations are also subject to other federal, Puerto Rico, state and local governmental regulation. See "Business -- Government Regulation". SEASONALITY OF ICE BUSINESS The Company's ice business is seasonal, with its highest sales occurring during the second and third calendar quarters. Over the past two calendar years, the Company has recorded an average of approximately 69% of its annual net sales of ice during these two quarters. Because the Company's results of operations for its ice business depend significantly on sales during its peak season, adverse weather during this season (such as an unusually mild or rainy period) could have a disproportionate impact on the Company's results of operations for the full year. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Seasonality". DEPENDENCE ON KEY PERSONNEL The future success of the Company's business operations is dependent in part on the efforts and skills of certain key members of management. These persons include Gregg L. Engles, Chairman and Chief Executive Officer of the Company; Cletes O. Beshears, President of the Company; and William P. Brick, Chief Operating Officer of the Company. The loss of any of these persons could have an adverse effect on the Company. The Company has entered into employment agreements with each of Messrs. Engles and C.O. Beshears which extend until March 31, 1999 and which include certain compensation arrangements and non-compete provisions. The Company has not obtained key man life insurance with respect to any of its key members of management. See "Management -- Executive Compensation -- Employment Agreements and Other Arrangements". 7 LIMITATIONS ON FAVORABLE TAX TREATMENT Under Section 936 of the Internal Revenue Code of 1986, as amended, a portion of the Company's income derived from its dairy, fruit drink and plastic bottle operations in Puerto Rico qualifies for a tax credit that has the effect of reducing or eliminating United States income taxes on income derived from these operations. In the Revenue Reconciliation Act of 1993, the United States Congress imposed certain limitations on the availability of the Section 936 credit. In August 1996, Congress passed the Small Business Job Protection Act of 1996 which contains further restrictions on the availability of Section 936 credits and eliminates Section 936 altogether by December 31, 2005. These limitations, combined with certain other provisions in the tax code that govern the allocation among affiliated corporations of credits derived under Section 936, may limit the amount of the tax credit available to the Company prior to the expiration of Section 936. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Tax Benefits". CONTROL OF THE COMPANY As of August 31, 1996 the Company's executive officers and directors and their affiliates and related parties who are existing stockholders beneficially owned 34.0% of the outstanding shares of Common Stock. The Company's executive officers and directors acting in concert can influence the business, policies and affairs of the Company and may, together with their affiliates and related parties, be able to block approval of any proposed merger, combination or sale of substantially all the Company's assets. Such ownership may also make a tender offer or proxy contest involving the Company less likely. See "Principal and Selling Stockholders" and "Description of Capital Stock -- Certain Provisions Relating to Changes in Control". ANTITAKEOVER PROVISIONS The Company's charter and bylaws contain provisions that may delay, defer or prevent a change in control of the Company. Among other things, these provisions: (i) authorize the Board of Directors to issue preferred stock in series with the terms of each series to be fixed by the Board of Directors; (ii) divide the Board of Directors into three classes so that only approximately one-third of the total number of directors will be elected each year; (iii) permit directors to be removed only for cause; and (iv) specify advance notice requirements for stockholder proposals and director nominations. See "Description of Capital Stock -- Certain Provisions Relating to Changes in Control". SHARES ELIGIBLE FOR FUTURE SALE As of August 31, 1996, the Company had 10,739,729 shares of Common Stock outstanding. Of these shares, the 3,795,000 shares sold in the IPO are, and the 625,000 shares offered hereby will be, freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), except for any such shares purchased by affiliates of the Company. Of the remaining shares, 6,313,479 shares, which were issued in the Combination, and 6,250 shares of restricted stock, which were issued under the Company's Option and Restricted Stock Plan (as defined herein), will be eligible for sale in the public market upon expiration of the applicable holding periods, or sooner if registered under the Securities Act. The stockholders who received Common Stock in the Combination have three demand registration rights and unlimited incidental (or piggyback) registration rights, subject to certain limitations and conditions relating to the timing and size of the registrations and similar matters. The first two demand registration rights will be exercisable commencing six months and expiring three years and three months after completion of the IPO, but no demand registration right may be exercised less than one year after completion of the IPO unless the market price of the Common Stock at the time of exercise is at least $16.80 per share (120% of the IPO price). The third demand registration right may be exercised beginning three years and three months following completion of the IPO. The Company's officers and directors and the existing stockholders have agreed for a period of 180 days after April 17, 1996, the date of the final prospectus used in the IPO, not to offer, sell, agree to sell, grant any option to purchase or make any other disposition (excluding certain pledges) of any shares owned by them without the prior written consent of the representatives of the underwriters in the IPO. This agreement may be released by the representatives of the underwriters without notice to persons purchasing shares in the IPO or in this Offering and without notice to any market 8 on which the Common Stock is traded. Sales of substantial amounts of shares in the public market following the Offering could adversely affect the market price of the Common Stock. See "Certain Relationships and Related Transactions -- Historic Relationships and Related Transactions -- The Combination -- Registration Rights", "Shares Eligible for Future Sale". 9 PRICE RANGE OF COMMON STOCK The Common Stock began trading in the Nasdaq National Market on April 17, 1996. The following table sets forth, for the periods from April 17, 1996 to June 30, 1996, the high and low sales prices of the Common Stock as quoted on the Nasdaq National Market. On September 25, 1996, the last reported sale price of the Common Stock on the Nasdaq National Market was $17.75 per share. At September 26, 1996, there were approximately 34 record holders of Common Stock. PRICE RANGE OF COMMON STOCK ---------------- HIGH LOW ------ ------ Year Ended December 31, 1996: Second Quarter..................................... $18.75 $14.00 DIVIDEND POLICY The Company has never declared or paid a cash dividend on the Common Stock. Management intends to retain all earnings to cover working capital fluctuations and to fund capital expenditures, scheduled debt repayments and acquisitions and does not anticipate paying cash dividends on the Common Stock in the foreseeable future. The Company's Senior Credit Facility and Subordinated Notes prohibit the payment of dividends by the Company on any shares of Common Stock, other than dividends payable solely in Common Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources". 10 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA The following unaudited pro forma financial data have been derived by the application of pro forma adjustments to the financial statements of the Company. The pro forma statement of operations data represent income from continuing operations for the year ended December 31, 1995 and for the six months ended June 30, 1996 and give effect to: (i) the acquisition of Garrido; (ii) the acquisition of Swiss Dairy; (iii) the related borrowings to fund such acquisitions; and (iv) the sale of Common Stock to the Selling Stockholder in the private placement and the related repayment of indebtedness, as if such transactions had been consummated as of January 1, 1995. The pro forma balance sheet data give effect to: (i) the acquisition of Garrido; (ii) the acquisition of Swiss Dairy; (iii) the related borrowings to fund such acquisitions; and (iv) the sale of Common Stock to the Selling Stockholder in the private placement and the related repayment of indebtedness, as if such transactions had been consummated as of June 30, 1996. The pro forma adjustments, which are described in the accompanying notes, are based on available information and certain assumptions that management of the Company believes are reasonable. The pro forma financial data should not be considered indicative of actual results that would have been achieved if the transactions given pro forma effect had been consummated on the dates or for the periods indicated and do not purport to indicate results of operations as of any future date or for any future period. Because the fiscal year for Garrido ends on June 30 of each year, the financial data for the year ended December 31, 1995 was derived from the aggregation of the unaudited financial information of Garrido for the six month period ended June 30, 1995 in Garrido's 1995 fiscal year and the six month period ended December 31, 1995 in Garrido's 1996 fiscal year; and the financial data for the six months ended June 30, 1996 was derived from unaudited financial information for this six month period in Garrido's 1996 fiscal year. The unaudited pro forma financial data should be read in conjunction with the financial statements of the Company, Swiss Dairy and Garrido and the related notes appearing elsewhere herein. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT SHARE DATA) HISTORICAL ----------------------------------- The Swiss Pro Forma Company Garrido Dairy Adjustments Pro Forma ---------- ------- -------- ----------- --------- Net sales................................ $ 430,466 $26,226 $126,647 $ - $ 583,339 Cost of sales............................ 312,633 17,242 111,798 (874)(a),(b) 440,799 ---------- ------- -------- --------- Gross profit........................... 117,833 8,984 14,849 142,540 Operating expenses: Selling and distribution............... 64,289 2,506 7,852 (409)(a),(b) 74,238 General and administrative............. 19,277 2,041 2,483 (731)(a),(b) 23,070 Amortization of intangibles and other.. 3,703 -- -- 1,499 (c) 5,202 ---------- ------- -------- --------- Total operating costs and expenses... 87,269 4,547 10,335 102,510 ---------- ------- -------- --------- Income from operations................... 30,564 4,437 4,514 40,030 Other (income) expense: Interest expense, net.................. 19,921 349 -- 5,820 (d) 25,401 (689)(e) Merger and other costs................. 10,238 -- -- 10,238 Other income, net...................... (469) (110) (270) (849) ---------- ------- -------- --------- Total other (income) expense......... 29,690 239 (270) 34,790 ---------- ------- -------- --------- Income (loss) before income taxes........ 874 4,198 4,784 5,240 Income taxes............................. 2,450 589 65 213 (f) 3,579 262 (g) ---------- ------- -------- --------- Income (loss) from continuing operations. $ (1,576) $ 3,609 $ 4,719 $ 1,661 ---------- ------- -------- --------- ---------- ------- -------- --------- Income (loss) per share from continuing operations.............................. $ (0.26) $ 0.22 ---------- --------- ---------- --------- Weighted average shares outstanding...... 6,109,398 7,407,907 ---------- --------- ---------- ---------
11 - --------------------- (a) Excess of historical depreciation expense over the depreciation of the fair value of property and equipment acquired, as follows: Garrido Swiss Dairy Total ------- ----------- ------ Cost of sales $ (84) $(170) $(254) Selling and distribution (15) (149) (164) General and administration (13) (16) (29) ----- ----- ----- $(112) $(335) $(447) ----- ----- ----- ----- ----- ----- (b) Elimination of salaries and benefits paid primarily to former shareholders of Swiss Dairy whose employment was terminated as part of the purchase agreement, resulting in a pro forma reduction of historical costs of sales, selling and distribution and general and administrative costs of $620, $245 and $702, respectively. (c) Amortization of goodwill over 40 years. (d) Pro forma interest expense on the average outstanding balance of new borrowings used to fund the acquisitions at an assumed annual interest rate of 7.25%, net of the reduction of historical interest expense related to the historical debt repaid. (e) Pro forma reduction of interest expense related to the use of the net proceeds of $9.5 million from the sale of Common Stock to the Selling Stockholder in the private placement to repay outstanding indebtedness, at an assumed annual interest rate of 7.25%. (f) Estimated pro forma adjustment to reflect income taxes on pro forma pre-tax income for Garrido and Swiss Dairy at the Company's estimated effective tax rate of 4% for Garrido and 40% for Swiss Dairy. (g) Estimated pro forma increase in income taxes at the Company's effective tax rate of 38% for increased pro forma pre-tax income related to the reduced interest expense from the repayment of indebtedness using the net proceeds of the sale of Common Stock to the Selling Stockholder in the private placement. 12 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 (IN THOUSANDS, EXCEPT SHARE DATA) HISTORICAL ----------------------------------- The Swiss Pro Forma Company Garrido Dairy Adjustments Pro Forma ---------- ------- -------- ----------- --------- Net sales................................ $ 225,307 $13,228 $49,828 $ -- $ 288,363 Cost of sales............................ 165,917 8,982 43,285 (527)(a),(b) 217,657 ---------- ------- ------- --------- Gross profit........................... 59,390 4,246 6,543 70,706 Operating expenses: Selling and distribution............... 32,682 1,428 3,454 (279)(a),(b) 37,285 General and administrative............. 9,805 1,163 954 (270)(a),(b) 11,652 Amortization of intangibles and other.. 1,960 -- -- 751 (c) 2,711 ---------- ------- ------- --------- Total operating costs and expenses... 44,447 2,591 4,408 51,648 ---------- ------- ------- --------- Income from operations................... 14,943 1,655 2,135 19,058 Other (income) expense: Interest expense, net.................. 8,488 131 16 2,687 (d) 10,978 (344)(e) Merger and other costs................. -- -- -- Other income, net...................... (252) (237) (195) (684) ---------- ------- ------- --------- Total other (income) expense......... 8,236 (106) (179) 10,294 ---------- ------- ------- --------- Income before income taxes............... 6,707 1,761 2,314 8,764 Income taxes (benefit)................... 1,771 (478) 36 1,200 (f) 2,660 131 (g) ---------- ------- ------- --------- Income from continuing operations........ $ 4,936 $ 2,239 $ 2,278 $ 6,104 ---------- ------- ------- --------- ---------- ------- ------- --------- Income per share from continuing operations.............................. $ 0.58 $ 0.67 ---------- --------- ---------- --------- Weighted average shares outstanding...... 8,455,332 9,080,332 ---------- --------- ---------- ---------
- --------------------- (a) Excess of historical depreciation expense over the depreciation of the fair value of property and equipment acquired, as follows: Garrido Swiss Dairy Total ------- ----------- ------ Cost of sales $(42) $ (87) $(129) Selling and distribution (8) (75) (83) General and administration (6) (8) (14) ---- ----- ----- $(56) $(170) $(226) ---- ----- ----- ---- ----- ----- (b) Elimination of salaries and benefits paid primarily to former shareholders of Swiss Dairy whose employment was terminated as part of the purchase agreement, resulting in a pro forma reduction of historical costs of sales, selling and distribution and general and administrative costs of $398, $196 and $256, respectively. (c) Amortization of goodwill over 40 years. (d) Pro forma interest expense on the average outstanding balance of new borrowings used to fund the acquisitions at an assumed annual interest rate of 7.25%, net of the reduction of historical interest expense related to the historical debt repaid. (e) Pro forma reduction of interest expense related to the use of the net proceeds of $9.5 million from the sale of Common Stock to the Selling Stockholder in the private placement to repay outstanding indebtedness, at an assumed annual interest rate of 7.25%. (f) Estimated pro forma adjustment to reflect income taxes on pro forma pre-tax income for Garrido and Swiss Dairy at the Company's estimated effective tax rate of 4% for Garrido and 40% for Swiss Dairy. (g) Estimated pro forma increase in income taxes at the Company's effective tax rate of 38% for increased pro forma pre-tax income related to the reduced interest expense from the repayment of indebtedness using the net proceeds of the sale of Common Stock to the Selling Stockholder in the private placement. 13 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 (IN THOUSANDS) HISTORICAL ----------------------------------- The Swiss Pro Forma Company Garrido Dairy Adjustments Pro Forma ---------- ------- -------- ----------- --------- Current assets: Cash and cash equivalents.............. $ 1,179 $10,737 $ 972 $ (1,750)(a) $ 11,138 Accounts receivable, net............... 33,670 2,351 5,923 41,944 Inventories............................ 12,245 1,894 528 500 (b) 15,167 Prepaid expenses and other current assets................................ 1,644 29 259 1,932 Deferred income taxes.................. 1,587 -- -- 1,587 -------- ------- ------- -------- Total current assets................. 50,325 15,011 7,682 71,768 Property and equipment................... 95,955 1,528 8,069 5,028 (b) 110,580 Intangible and other assets.............. 91,693 132 -- 59,668 (b) 151,493 -------- ------- ------- -------- Total assets............................. $237,973 $16,671 $15,751 $333,841 -------- ------- ------- -------- -------- ------- ------- -------- Current liabilities: Accounts payable and accrued expenses.............................. $ 29,998 $ 1,083 $ 5,206 $ -- $ 36,287 Income taxes payable................... 1,023 265 -- 1,288 Current portion of long-term debt...... 9,556 3,015 -- (2,015)(a) 10,556 -------- ------- ------- -------- Total current liabilities............ 40,577 4,363 5,206 48,131 Long-term debt........................... 134,334 1,968 -- 86,288 (a) 213,090 (9,500)(c) Deferred income taxes.................... 2,273 34 -- 24 (b) 2,331 Stockholders' equity: Common stock........................... 101 59 65 (124)(b) 107 6 (c) Additional paid-in capital............. 79,593 -- 6 (6)(b) 89,087 9,494 (c) Retained earnings (deficit)............ (18,905) 10,247 10,474 (20,721)(b) (18,905) -------- ------- ------- -------- Total stockholders equity............ 60,789 10,306 10,545 70,289 -------- ------- ------- -------- Total liabilities and equity............. $237,973 $16,671 $15,751 $333,841 -------- ------- ------- -------- -------- ------- ------- --------
- --------------------- (a) On July 19, 1996, the Company completed the acquisition of all the outstanding Common Stock of Garrido for a total purchase price of approximately $31.0 million, including expenses and acquired cash, net of debt repaid; and on September 9, 1996, the Company completed the acquisition of substantially all the net assets of Swiss Dairy for a total purchase price of approximately $55.0 million, including expenses and acquired cash, as follows (in thousands): Garrido Swiss Dairy Total ------- ----------- ------- Cash $ 600 $ 1,150 $ 1,750 Credit agreement borrowings Current portion 1,000 1,000 Long-term portion 34,356 53,900 88,256 Repayment of existing indebtedness Current portion (3,015) (3,015) Long-term portion (1,968) -- (1,968) ------- ------- ------- Net purchase price $30,973 $55,050 $86,023 ------- ------- ------- ------- ------- ------- 14 (b) The above purchases resulted in an excess of the purchase price over the historical net assets acquired which was allocated to the net assets acquired as follows: Garrido Swiss Dairy Total ------- ----------- ------- Net purchase price $30,973 $55,050 $86,023 Historical carrying value of net assets acquired 10,306 10,545 20,851 ------- ------- ------- Excess of purchase price over historical carrying value $20,667 $44,505 $65,172 ------- ------- ------- ------- ------- ------- Allocation of excess purchase price: Excess fair value of inventory $ -- $ 500 $ 500 Excess fair value of property and equipment 861 4,167 5,028 Intangible assets, primarily goodwill 19,830 39,838 59,668 Deferred tax liabilities (24) -- (24) ------- ------- ------- $20,667 $44,505 $65,172 ------- ------- ------- ------- ------- ------- (c) On August 7, 1996 the Company sold 625,000 shares of Common Stock to the Selling Stockholder in a private placement, providing net proceeds to the Company of $9.5 million which was used to repay indebtedness. 15 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT SHARE DATA) The following table presents selected consolidated financial data of the Company for the five years ended December 31, 1995 derived from the Company's audited consolidated financial statements. The selected consolidated financial data for the six-month periods ended June 30, 1995 and 1996 are unaudited, and in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) that are necessary to present fairly the financial results for such periods. The selected financial data do not purport to indicate results of operations as of any future date or for any future period. Effective with the Combination, the Company became the holding company for the operations of Suiza-Puerto Rico, Velda Farms and Reddy Ice. The Combination has been accounted for using the pooling of interests method of accounting. Results of operations of Suiza-Puerto Rico and Velda Farms are included from the dates such operations were acquired in purchase business combinations (December 16, 1993 and April 10, 1994, respectively). The Selected Consolidated Financial Data should be read in conjunction with the Consolidated Financial Statements and related notes of the Company included elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations". SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ------------------------------------------------------------- ----------------------- 1991 1992 1993 1994 1995 1995 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (Unaudited) OPERATING DATA: Net sales .......................... $ 45,513 $ 44,452 $ 51,675 $ 341,108 $ 430,466 $ 214,905 $ 225,307 Costs of sales ..................... 15,016 14,586 20,412 240,468 312,633 157,652 165,917 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Gross profit ....................... 30,497 29,866 31,263 100,640 117,833 57,253 59,390 Operating costs and expenses: Selling and distribution ........... 14,806 14,483 15,434 54,248 64,289 31,391 32,682 General and administrative ......... 6,699 6,110 6,305 16,935 19,277 10,271 9,805 Amortization of intangibles and other ........................ 720 1,911 (1) 822 3,697 3,703 1,949 1,960 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total operating costs and expenses ...................... 22,225 22,504 22,561 74,880 87,269 43,611 44,447 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income from operations ............... 8,272 7,362 8,702 25,760 30,564 13,642 14,943 Other (income) expense: Interest expense, net ................ 9,212 8,495 7,697 19,279 19,921 10,437 8,488 Merger and other costs ............... 467 1,199 1,660 10,238 (2) 10,304 Other income, net .................... (245) (408) (419) (268) (469) (273) (252) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total other (income) expense ..... (1,162) 9,286 7,278 20,671 29,690 20,468 8,236 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes and extraordinary loss ............. (1,924) 1,424 5,089 874 (6,826) 6,707 Income taxes ......................... -- -- 4 844 2,450 731 1,771 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) before extraordinary loss ............................... (1,162) (1,924) 1,420 4,245 (1,576) (7,557) 4,936 Extraordinary loss from early extinguishment of debt ............. 1,272 2,491 -- 197 8,462 8,462 2,215 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) .................... $ (2,434) $ (4,415) $ 1,420 $ 4,048 $ (10,038) $ (16,019) $ 2,721 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Weighted average shares outstanding ........................ 1,763,502 1,763,502 2,487,174 6,156,387 6,109,398 5,905,000 8,455,332 Income (loss) before extraordinary loss per share ..................... $ (.66) $ (1.09) $ .57 $ .69 $ (.26) $ (1.28) $ 0.58 Extraordinary loss per share ......... (.72) (1.41) -- (.03) (1.38) (1.43) (0.26) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) per share .......... $ (1.38) $ (2.50) $ .57 $ .66 $ (1.64) $ (2.71) $ 0.32 ---------- ---------- ---------- ---------- ----------- ---------- ---------- BALANCE SHEET DATA (AT END OF PERIOD): Working capital (deficit) (3) ........ $ (3,851) $ 616 $ (3,609) $ (2,099) $ (1,554) $ (1,002) $ 9,748 Total assets ......................... 52,103 46,991 167,948 238,952 232,522 237,306 237,973 Long-term debt, net of current portion. 51,588 54,739 132,123 173,327 171,745 179,891 134,334 Total stockholders' equity (deficit) .. (9,469) (15,408) 162 9,887 9,460 3,735 60,789
- ----------- (1) Includes a noncash restructuring charge of $1,141 to write down the carrying value of certain property, plant and equipment to market value. (2) Includes $8,838 in nonrecurring costs related to the Combination and $1,400 in nonrecurring costs related to an uncompleted debt offering and uncompleted acquisitions. (3) Working capital means total current assets minus total current liabilities. 16 SELECTED PRE-ACQUISITION HISTORICAL FINANCIAL DATA (IN THOUSANDS) The following tables set forth selected historical financial data for Pre-Acquisition Suiza-Puerto Rico and Pre-Acquisition Velda Farms as of and for the periods indicated. The historical financial data for Pre-Acquisition Suiza-Puerto Rico and Pre-Acquisition Velda Farms is presented for periods prior to December 16, 1993 and April 10, 1994, respectively, their respective dates of acquisition. This information should be read in conjunction with the financial statements and related notes for Pre-Acquisition Suiza-Puerto Rico and Pre-Acquisition Velda Farms included elsewhere herein. PRE-ACQUISITION SUIZA-PUERTO RICO PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 15, ----------------------- 1993 1991 1992 (50 WEEKS) -------- -------- ---------- OPERATING DATA: Net sales ............................. $172,347 $184,022 $174,771 Operating income ...................... 12,438 14,178 11,720 Income from continuing operations (1).. 8,538 10,288 12,893 BALANCE SHEET DATA (AT END OF PERIOD): Total assets .......................... 68,139 65,110 68,357 Long-term debt ........................ 16,431 12,514 -- OTHER DATA: Cash dividends paid ................... 3,247 14,251 14,994 PRE-ACQUISITION VELDA FARMS PERIOD FROM YEAR ENDED DECEMBER 31, JANUARY 1, 1994 ------------------------------- TO 1991 1992 1993 APRIL 9, 1994 -------- -------- -------- --------------- OPERATING DATA: Net Sales ............................. $115,688 $123,774 $125,908 $38,269 Operating income (2) .................. 4,443 2,977 3,422 1,460 Income from continuing operations (2).. 1,274 379 910 730 BALANCE SHEET DATA (AT END OF PERIOD): Total assets .......................... 43,599 39,337 38,215 39,867 Long-term debt ........................ 30,556 30,506 30,497 30,517 OTHER DATA: Cash dividends paid ................... -- -- -- --
- ---------------- (1) Includes a deferred tax benefit in 1993 of $2,734 from the settlement of deferred tax liabilities with the Department of Treasury of the Commonwealth of Puerto Rico. (2) Includes non-recurring expenses for restructuring costs allocated by Velda Farms' former parent of $1,048 in 1992 and $1,023 in 1993. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Suiza Foods is a leading manufacturer and distributor of fresh milk products, refrigerated ready-to-serve fruit drinks and coffee in Puerto Rico, fresh milk and related dairy products in California and Florida, and packaged ice in Florida and the southwestern United States. The Company has grown primarily through strategic and consolidating acquisitions. Through these acquisitions, the Company has realized regional economies of scale and operating efficiencies by consolidating manufacturing, distribution and/or purchasing and administrative operations in each of its core businesses. The Company conducts its dairy operations primarily through Suiza-Puerto Rico, Swiss Dairy and Velda Farms and conducts its ice operations through Reddy Ice. Each of these subsidiaries is a strong regional competitor with an established reputation for customer service and product quality. These subsidiaries market their products through extensive distribution networks to a diverse group of customers, including convenience stores, grocery stores, other retail outlets, schools and institutional food service customers. RESULTS OF OPERATIONS Effective with the Combination, the Company became the holding company for the operations of Suiza-Puerto Rico, Velda Farms and Reddy Ice. The Combination has been accounted for using the pooling of interests method of accounting. Results of operations of Suiza-Puerto Rico and Velda Farms are included from the dates such operations were acquired in purchase business combinations (December 16, 1993 and April 10, 1994, respectively). These transactions and other consolidating acquisitions made throughout the periods presented increased the Company's combined sales from $51.7 million for the year ended December 31, 1993 to $430.5 million for the year ended December 31, 1995. The following table presents certain information concerning the Company's results of operations, including information presented as a percentage of net sales (dollars in thousands): YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, -------------------------------------------------------- --------------------------------------- 1993 1994 1995 1995 1996 ---------------- ------------------ ----------------- ------------------ ------------------- DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT ------- ------- -------- -------- --------- ------- --------- ------- --------- ------- Net Sales: Dairy .................... $ 6,587 $ 293,407 $ 379,959 $ 193,657 $ 202,090 Ice ...................... 45,088 47,701 50,507 21,248 23,217 ------- --------- --------- --------- --------- Net Sales .............. 51,675 100.0% 341,108 100.0% 430,466 100.0% 214,905 100.0% 225,307 100.0% Cost of Sales .............. 20,412 39.5 240,468 70.5 312,633 72.6 157,652 73.4 165,917 73.6 ------- ----- --------- ----- --------- ----- --------- ----- --------- ------ Gross profit ............. 31,263 60.5 100,640 29.5 117,833 27.4 57,253 26.6 59,390 26.4 Operating expenses: Selling and distribution.. 15,434 29.9 54,248 15.9 64,289 14.9 31,391 14.6 32,682 14.5 General and administrative ......... 6,305 12.2 16,935 5.0 19,277 4.5 10,271 4.8 9,805 4.4 Amortization of intangibles ............ 822 1.6 3,697 1.1 3,703 0.9 1,949 0.9 1,960 0.9 ------- ----- --------- ----- --------- ----- --------- ----- --------- ------ Total operating expenses ............... 22,561 43.7 74,880 22.0 87,269 20.3 43,611 20.3 44,447 19.8 Operating income: Dairy .................... 92 17,122 22,386 12,387 12,375 Ice ...................... 8,610 8,638 9,218 2,479 4,188 Corporate Office ......... -- -- (1,040) (1,224) (1,620) ------- ----- --------- ----- --------- ----- --------- ----- --------- ----- Operating income ....... $ 8,702 16.8% $ 25,760 7.6% $ 30,564 7.1% $ 13,642 6.3% $ 14,943 6.6% ------- ----- --------- ----- --------- ----- --------- ----- --------- ----- ------- ----- --------- ----- --------- ----- --------- ----- --------- -----
18 SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995 NET SALES. The Company's net sales increased by 4.8% for the first six months of 1996 when compared to the first six months of 1995. Net sales for the Company's dairy operations increased by 4.3% for the first six months of 1996 when compared to the same period in 1995, primarily due to (i) an increase in prices charged for milk to recoup increases in raw milk costs in the U.S. and (ii) the acquisition of Skinner's Dairy in January 1996. Net sales for the Company's ice operations increased by 9.3% for the first six months of 1996 when compared to the first six months of 1995 due to the addition of new customers and the acquisition of twelve small ice businesses during 1995 and the first six months of 1996. COST OF SALES. The Company's cost of sales margin was 73.6% for the first six months of 1996 compared to 73.4% for the same period in 1995. Cost of sales margins for dairy increased primarily due to higher raw milk costs. Cost of sales margins for ice decreased reflecting additional efficiencies realized from acquired business and increased volumes processed when compared to the same period in 1995. OPERATING EXPENSES. The operating expense ratio was 19.8% for the first six months of 1996 compared to 20.3% for the same period in 1995. Operating expense increases were experienced in both dairy and ice as the result of acquisitions made during the past eighteen months. Operating expense margins decreased in the six-month comparison because of increased dairy net sales resulting from higher milk costs, which had little impact on operating expense levels. OPERATING INCOME. The Company's operating income increased 9.5% to $14.9 million in the first six months of 1996 from $13.6 million in the first six months of 1995 as a result of increased sales levels and improved gross margins, primarily in the ice business. The Company's operating income margin increased to 6.6% in the first six months of 1996 from 6.3% in the first six months of 1995, due primarily to growth in the Company's ice business. OTHER (INCOME) EXPENSE. Interest expenses declined to $8.5 million during the first six months of 1996 from $10.4 million during the first six months of 1995 primarily due to lower debt levels following the IPO, which was completed in April 1996. The Company incurred $8.8 million in non-recurring merger expenses related to the Combination, and $1.4 million in other non-operating expenses related to several uncompleted acquisitions and to an uncompleted debt offering in the first six months of 1995. EXTRAORDINARY ITEMS. During the first six months of 1996, the Company incurred $2.2 million in extraordinary costs (net of a $0.9 million tax benefit) as a result of the early extinguishment of debt from the net cash proceeds of the IPO. These costs included $1.3 million for the write-off of deferred financing costs and $1.8 million in prepayment penalties. During the first six months of 1995, the Company incurred $8.5 million in extraordinary costs (net of $0.7 million tax benefit) to refinance the Company's debt in conjunction with the Combination, including the write-off of deferred financing costs and certain prepayment penalties. NET INCOME (LOSS). The Company reported net income of $2.7 million for the first six months of 1996 compared to a loss of $16.0 million for the first six months of 1995. The 1996 net income was impacted by higher income taxes and by a charge of $2.2 million for the extraordinary item mentioned above. The 1995 loss resulted from the $10.2 million in one-time non-operating charges related to the Combination and uncompleted acquisitions and to the $8.5 million extraordinary loss on early extinguishment of debt mentioned above. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 NET SALES. The Company's net sales increased 26.2% to $430.5 million in 1995 from $341.1 million in 1994. Net sales for the Company's dairy operations increased 29.5%, or $86.6 million, primarily due to (i) the acquisition of Velda Farms in April 1994, (ii) the acquisition of Mayaguez Dairy in June 1994, and (iii) the acquisition of Flav-O-Rich in November 1994. Net sales for the Company's ice operations increased 5.9%, or $2.8 million. Unit volumes of ice increased 5.2% from the addition of new customers and from four small acquisitions made during 1995. During the pre-acquisition periods during 1994, Velda Farms, Mayaguez Dairy and Flav-O-Rich reported sales of $38.3 million, $8.5 million and $32.7 million, respectively. 19 COST OF SALES. The cost of sales margin for the dairy business substantially exceeds that of its ice business because of higher raw material cost for dairy products compared to ice. The Company's cost of sales increased $72.2 million, resulting in an increase in the cost of sales margin to 72.6% in 1995 from 70.5% in 1994. The increase in cost of sales was due to (i) the inclusion of the operating results of Velda Farms, Flav-O-Rich and Mayaguez Dairy for the full year of 1995, (ii) an increase in dairy cost of sales of $1.3 million due to higher plastic resin costs and $4.7 million in higher milk costs, and (iii) an increase of $0.9 million in plastic bag costs in the ice business. Velda Farms, Flav-O-Rich and Mayaguez Dairy reported an aggregate of $62.7 million in cost of sales for their respective pre-acquisition periods in 1994. OPERATING EXPENSES. The Company's operating expenses increased $12.4 million in 1995, while the operating expense margin decreased to 20.3% in 1995 from 22.0% in 1994. The operating expense increase was due to the inclusion of a full year of operating expenses of Velda Farms, Flav-O-Rich and Mayaguez Dairy, which reported aggregate operating expenses of $16.3 million for their respective pre-acquisition periods in 1994. The operating expense margin declined primarily because the ice business, which has higher operating expense margins than the dairy business, became a smaller component of the Company. OPERATING INCOME. The Company's operating income increased 18.6% to $30.6 million in 1995 from $25.8 million in 1994 primarily as a result of the dairy acquisitions discussed above. The Company's operating income margin decreased from 7.6% in 1994 to 7.1% in 1995 primarily due to an increased proportion of net sales attributable to its dairy business. OTHER (INCOME) EXPENSE. Interest expense rose to $19.9 million in 1995 from $19.3 million in 1994 primarily due to the additional indebtedness incurred to finance the dairy acquisitions. The Company incurred $8.8 million in nonrecurring expenses in 1995 related to the Combination and $1.4 million related to negotiation and due diligence in connection with uncompleted acquisitions and an uncompleted debt offering. The Company incurred $1.7 million in nonrecurring costs in 1994 related to the Combination and to an uncompleted initial public offering. EXTRAORDINARY ITEMS. The Company incurred $8.5 million in extraordinary costs (net of a $0.7 million tax benefit) in 1995 to refinance the Company's debt in conjunction with the Combination, which costs included the write-off of deferred financing costs and certain prepayment penalties. The Company incurred $0.2 million in extraordinary costs in 1994 for the early retirement of debt related to its ice business. NET INCOME (LOSS). The Company reported a net loss of $10.0 million in 1995 compared to net income of $4.0 million in 1994. The primary causes of the 1995 net loss were $10.2 million in non-recurring merger and other costs and $8.5 million in extraordinary losses from the early retirement of debt. The Company incurred a $2.5 million income tax expense in 1995 on pre-tax income of $0.9 million due to the non-deductibility of certain nonrecurring merger costs. YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993 NET SALES. The Company's net sales increased to $341.1 million in 1994 from $51.7 million in 1993 due to the acquisitions of Suiza-Puerto Rico in December 1993 and Velda Farms in April 1994. The Company reported $293.4 million of dairy net sales during 1994, as compared to $6.6 million in 1993. Net sales of ice increased 5.8%, or $2.6 million. Unit volumes in the Company's ice business increased 6.6% as a result of generally warmer weather conditions and four small acquisitions completed during 1993 and 1994. COST OF SALES. The cost of sales margin for the Company's dairy business substantially exceeds that of its ice business because of the higher raw material cost for dairy products compared to ice. The Company's cost of sales increased $220.1 million, primarily due to the acquisitions of Suiza-Puerto Rico in December 1993 and Velda Farms in April 1994. The Company reported $224.3 million in dairy cost of sales in 1994, as compared to $5.3 million of dairy cost of sales in 1993. The cost of sales margin rose to 70.5% in 1994 from 39.5% in 1993, primarily due to the Company's increased dairy activity. 20 OPERATING EXPENSES. The Company's operating expenses increased $52.3 million, while the operating expense margin decreased to 22.0% in 1994 from 43.7% in 1993. The operating expense increase was due to the inclusion of $52.0 million of operating expenses for the Suiza-Puerto Rico and Velda Farms dairy operations acquired in December 1993 and April 1994, respectively, as compared to $1.2 million of operating expenses in 1993. The operating expense margin declined primarily because the Company's ice business, which has a higher operating expense margin than the dairy business, became a smaller component of the Company. OPERATING INCOME. The Company's operating income increased to $25.8 million in 1994 from $8.7 million in 1993 primarily due to the acquisitions discussed above. The Company's operating income margin decreased from 16.8% in 1993 to 7.6% in 1994 primarily due to an increased proportion of net sales attributable to its dairy business. OTHER (INCOME) EXPENSE. Interest expense rose to $19.3 million in 1994 from $7.7 million in 1993 primarily due to the additional indebtedness incurred to finance the acquisitions discussed above. The Company also expensed $1.7 million in nonrecurring costs in 1994 related to the Combination and to an uncompleted initial public offering. NET INCOME. Net income increased to $4.0 million in 1994 from $1.4 million in 1993 primarily due to increased operating income from the dairy business. Increased interest expense resulting from the acquisitions discussed above, income taxes and an extraordinary loss on the early retirement of refinanced debt partially offset this increased operating income. SEASONALITY The Company's ice business is seasonal with peak demand for its products occurring during the second and third calendar quarters. Over the past two calendar years, the Company has recorded an average of approximately 69% of its annual net sales of ice during these two quarters. While this percentage for the second and third quarters has remained relatively constant over recent years, the timing of the hottest summer weather can impact the distribution of sales between these two quarters. Because the Company's results of operations for its ice business depend significantly on sales generated during its peak season, adverse weather during this season (such as an unusually mild or rainy period) could have a disproportionate impact on the Company's results of operations for the full year. Management believes, however, that the geographic diversity of its ice business helps mitigate the potential for a significant impact from such adverse weather conditions. The Company's dairy operations are not subject to large seasonal sales fluctuations. The Company sells milk to schools, most of which are closed during the summer months. Approximately 8% of the Company's dairy sales were made to schools during 1995. The Company experiences a decrease in sales to schools during months when schools close for vacation. In addition, the Company has traditionally experienced slight shortages in its milk supply during the months of September and October each year. Management estimates that these shortages reduce dairy sales by less than 2% during these months. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1996, the Company had total stockholders' equity of $60.8 million and total indebtedness of $143.9 million (including long-term debt and the current portion of long-term debt). Substantially all of the Company's indebtedness was incurred or assumed in connection with the recent refinancing to effect the Combination. The Company is currently in compliance with all covenants and financial ratios contained in its debt agreements. CASH FLOW. The working capital needs of the Company historically have been met with cash flow from operations along with borrowings under revolving credit facilities. Net cash provided by operating activities was $23.0 million for 1995 and $24.9 million for 1994. Investing activities in 1995 included $10.4 million in capital expenditures, of which $6.7 million was spent on the Company's dairy operations and $3.6 million was spent on its ice operations. These capital expenditures included an expansion of the production capacity of the Company's Aguadilla, Puerto Rico milk facility, initial expenditures on the expansion of the Winter Haven, Florida milk distribution facility and expansions of the Albuquerque, New Mexico and Davie, Florida ice manufacturing facilities. Investing activities also included four ice acquisitions completed during the last seven months of 1995 totaling $2.4 million. Financing 21 activities for 1995 included financing incurred to effect the Combination on March 31, 1995. See "Certain Relationships and Related Transactions -- Historic Relationships and Related Transactions --The Combination". Net cash provided by operating activities was $6.8 million for the first six months of 1996 as contrasted with net cash provided by operations of $8.0 million for the first six months of 1995. Investing activities in the first six months of 1996 included $8.0 million in capital expenditures, of which $6.3 million was spent on the Company's dairy manufacturing and distribution facilities, $1.7 million was spent on the Company's ice facilities, and an additional $4.2 million was spent on acquisitions of small dairy and small ice operations. In April 1996, the Company completed the IPO, which provided net cash proceeds to the Company of approximately $49.5 million. Of this amount, $5.0 million was used to repay amounts outstanding under the revolving credit portion of the Senior Credit Facility, an aggregate of $26.5 million was used to repay current and long-term maturities under the term portion of the Senior Credit Facility, $15.7 million was used to repay the Company's 15% Subordinated Notes and $1.8 million was used to pay prepayment penalties related to the early extinguishment of the 15% Subordinated Notes. In July 1996, the Company purchased the stock of Garrido, a Puerto Rico processor and distributor of coffee and coffee related products, for approximately $35.0 million in cash, plus an earnout of up to an additional $5.5 million in cash. Funding for this purchase was provided by the Company's senior lending group through an amendment to its existing Senior Credit Facility. On August 7, 1996, the Company completed a private placement of 625,000 shares of Common Stock to the Selling Stockholder for net proceeds of approximately $9.5 million. The net proceeds from this sale were used to retire outstanding indebtedness under the revolving credit portion of the Senior Credit Facility. On September 9, 1996, the Company purchased the assets of Swiss Dairy, a regional dairy based in Riverside, California, for approximately $54 million in cash. Funding for this purchase was provided primarily by a new $90 million acquisition facility under the Senior Credit Facility. In September 1996, the Company sold certain tax credits generated pursuant to provisions of the Puerto Rico Agricultural Tax Incentives Act of 1995 for net proceeds of approximately $3.2 million, before provision for income taxes. See "--Tax Benefits." Management used the net proceeds from this sale to repay amounts outstanding under the acquisition facility of the Senior Credit Facility. In September 1996, hurricane Hortense struck Puerto Rico and caused a power outage that affected a portion of the island. As a result of the power outage, the Company's San Juan dairy manufacturing facility was shut down for approximately one week, resulting in the spoilage of inventory and a loss of sales that will impact the Company's results of operations for the third quarter of 1996. The Company is pursuing a claim under its business interruption insurance policy. FUTURE CAPITAL REQUIREMENTS. The Company intends to invest approximately $13.0 million in its manufacturing facilities and distribution capabilities during 1996, of which $8.0 million was spent during the first six months of 1996. Of this amount, the Company intends to spend approximately $10.8 million to expand and maintain its dairy manufacturing and distribution facilities and for fleet replacement and approximately $2.2 million to maintain and increase the production capacity of its ice facilities. The Company expects that cash flow from operations will be sufficient to meet the Company's requirements for the remainder of 1996 and for the foreseeable future. During the remainder of 1996 and in the future, the Company intends to pursue additional acquisitions in its existing regional markets and to seek strategic acquisition opportunities that are compatible with its core businesses. Management believes that the Company has the ability to secure additional financing to pursue its acquisition and consolidation strategy. There can be no assurance, however, that the Company will have sufficient available capital resources to realize its acquisition and consolidation strategy. CURRENT DEBT OBLIGATIONS. In September 1996, the Company amended its existing credit facility and entered into a supplemental credit facility with a group of lenders, including First Union National Bank of North Carolina, as agent, and The First National Bank of Chicago, as syndication agent, which provide for an aggregate senior credit facility (the "Senior Credit Facility") of $250.0 million comprised of: (i) a $130.0 million term loan; (ii) a $30.0 million revolving credit facility; and (iii) a $90.0 million acquisition facility. Under the terms of the Senior Credit Facility, the term loan is amortized over five and one-half years and the revolving credit facility expires on March 31, 2000. Any amounts drawn under the acquisition facility that are outstanding on September 30, 1998 will be amortized in fifteen quarterly installments. Amounts outstanding under the Senior Credit Facility bear interest at a rate per annum equal to one of the following rates, at the Company's option: (i) the sum of a base rate equal to the higher of the Federal Funds rate plus 50 basis points or First Union National Bank of North Carolina's prime commercial lending rate, plus a margin that varies from 0 to 75 basis points depending on the Company's ratio of defined indebtedness to EBITDA (as 22 defined in the Senior Credit Facility); or (ii) a LIBOR rate plus a margin that varies from 75 to 200 basis points depending on the Company's ratio of defined indebtedness to EBITDA. The Company pays a commitment fee on unused amounts of the revolving facility and the acquisition facility that ranges from 20 basis points to 37.5 basis points, based on the Company's ratio of defined indebtedness to EBITDA. As of September 10, 1996, the Company had $185.0 million of indebtedness outstanding at a blended interest rate of 7.1% and $65.0 million in unused borrowing capacity under the Senior Credit Facility. The Company may prepay loans outstanding under the Senior Credit Facility at any time in increments of $100,000 or, in the case of a LIBOR loan, $1 million (subject to a $500,000 minimum or, in the case of a LIBOR loan, a $2 million minimum), in whole or in part, without penalty. In addition, the Senior Credit Facility requires mandatory prepayments, subject to certain limitations, from the defined net proceeds of certain casualty events, certain sales of assets, equity issuances and from excess cash flow. The Company's Senior Credit Facility requires the Company to comply with the following financial covenants at all times: (i) the leverage ratio (defined as the ratio of aggregate debt to EBITDA) will not exceed 4.25 to 1 through June 29, 1997, declining thereafter to 2.75 to 1 by June 30, 1999; (ii) the leverage ratio for senior debt will not exceed 3.75 to 1 through June 29, 1997, declining thereafter to 2.25 to 1 by June 30, 1999; (iii) net worth will not be less than $63.0 million after September 10, 1996, plus 50% of net income for each quarter commencing on or after January 1, 1997, plus certain additional amounts as a result of public or private offerings of Common Stock by the Company; (iv) the fixed charges ratio will not be less than 1.05 to 1; (v) the interest coverage ratio will not be less than 2.20 to 1 through June 29, 1997, increasing thereafter to 3.75 to 1 by June 30, 2000; and (vi) the interest coverage ratio for senior debt will not be less than 3.50 to 1 through June 29, 1997, increasing thereafter to 5.00 to 1 by June 30, 2000. Without the consent of the lender, the Senior Credit Facility also: (i) prohibits the payment of cash dividends; (ii) prohibits capital expenditures in excess of specified amounts; (iii) prohibits acquisitions exceeding $30.0 million in a single transaction and limits the use of the revolving credit facility to fund acquisitions not exceeding $1.0 million in a single transaction or $5.0 million in the aggregate for any year; (iv) limits the incurrence of additional debt; and (v) limits transactions with affiliates. The Company has pledged all the capital stock of its subsidiaries (except for 35% of the capital stock of Garrido) to secure the Senior Credit Facility. Each of the Company's subsidiaries (other than Garrido) has guaranteed, and pledged substantially all its assets, and the proceeds therefrom, to secure the indebtedness under the term loans, revolving facility and/or the acquisition facility of the Senior Credit Facility. A default with respect to any loan under the Senior Credit Facility is a default with respect to all other loans under the Senior Credit Facility. The Senior Credit Facility includes various events of default customary for similar senior credit facilities, including defaults resulting from nonpayment of principal when due, nonpayment of interest and fees, material misrepresentations, default in the performance of any covenant and the expiration of any applicable grace period, bankruptcy or insolvency, certain judgments and a change in control of the Company (including certain changes in the board of directors, certain acquisitions of Common Stock by third parties or any reduction in Mr. Engles' beneficial ownership of Common Stock below 75% of the Common Stock he owned on June 1, 1996). The Company has six interest rate derivative agreements currently in place, which have been designated as hedges against the Company's variable interest rate exposure on its loans under the Senior Credit Facility. The first agreement, which has a notional amount of $40.0 million, matures in December 1996 and caps interest on LIBOR loans at 6.0%, plus the applicable LIBOR margin. The second agreement, which has a notional amount of $14.0 million, matures in May 1997 and caps interest on LIBOR loans at 7.5%, plus the applicable LIBOR margin. The third and fourth agreements, each of which has a notional amount of $27.5 million and matures in June 1998, fixes the interest rate on LIBOR loans at 6.0%, plus the applicable LIBOR margin. In the fifth agreement, which has a notional amount of $40.0 million and matures in December 1996, the Company established an interest rate floor at 6.0% LIBOR fixed for a premium of $250,000. The sixth agreement, which has a notional amount of $50.0 million and matures in December 1997, fixes the interest rate on LIBOR loans at 6.01%, plus the applicable LIBOR margin. These derivative agreements provide hedges for the term loans and the acquisition facility under the Senior Credit Facility by limiting or fixing the LIBOR loan rates on the amounts stated in the agreements until the indicated expiration dates. The original costs and premiums of these derivative agreements are being amortized on a straight-line basis as a component of 23 interest expense. There was no material income or expense attributable to the amortization or periodic settlements of the derivative agreements in 1995 or 1996. On March 31, 1995, the Company issued certain subordinated notes (collectively, the "Subordinated Notes") to replace certain of the existing subordinated notes of each of Suiza-Puerto Rico, Velda Farms and Reddy Ice. The Subordinated Notes that remain outstanding bear interest at rates of 12% and 13.5% (12.5% on a weighted average basis), payable semiannually in March and September of each year. The Subordinated Notes require semiannual principal payments in varying amounts commencing in 2001, with the remaining unpaid principal balances due at maturity on March 31, 2004. The Subordinated Notes are junior in right of payment to the loans under the Senior Credit Facility. The Subordinated Notes place restrictions on the Company similar to, but generally less stringent than, those imposed under the Senior Credit Facility. During the first six months of 1996, the Company used $15.7 million of the net proceeds from the IPO to repay the Company's 15% Subordinated Notes and $1.8 million to pay prepayment penalties related to the early extinguishment of the 15% Subordinated Notes. Concurrently with the consummation of the IPO and the application of the net proceeds therefrom, the Company expensed approximately $1.3 million during the first six months of 1996 to write off previously incurred deferred financing costs related to the indebtedness repaid with the proceeds from the IPO. This expense combined with the $1.8 million in prepayment penalties related to the 15% Subordinated Notes have been accounted for as an extraordinary loss on the early extinguishment of debt, which, net of income tax benefit, is approximately $2.2 million. In September 1996, the Company expensed approximately $570,000 for amendment fees in connection with the amendment of the Senior Credit Facility. TAX BENEFITS Management believes that the Company's effective tax rate will range from 25% to 35% for the next several years. The Company's effective tax rate is significantly affected by various tax advantages applicable to the Company's Puerto Rico based operations. Any additional acquisitions could affect this tax rate. The Company's Puerto Rico fruit drink and plastic bottle operations are 90% exempt from Puerto Rico income and property taxes. These operations are also 60% exempt from Puerto Rico municipal taxes. These exemptions were granted through ten-year exemption decrees issued pursuant to the Puerto Rico Tax Incentives Act. The decrees have eight and six years remaining for the fruit drink and plastic bottle entities, respectively. These types of grants are typically renewable beyond their initial ten-year terms at reduced rates of exemption. The Company's Puerto Rico dairy and coffee processing, sales and distribution operations are 90% exempt from Puerto Rico income taxes and 100% exempt from property, municipal, certain excise and other taxes and fees pursuant to the Puerto Rico Agricultural Tax Incentives Act of 1995. Dividends to the Company from Suiza-Puerto Rico will generally be subject to a ten percent "tollgate" tax in Puerto Rico. The Company currently is able to maintain the tax benefits from its dairy, fruit drink and plastic bottle operations described above through U.S. tax credits specified under Section 936 of the U.S. Internal Revenue Code of 1986, as amended. The Section 936 credit eliminates or reduces United States income taxes for U.S. corporations on certain income derived from Puerto Rico and is available to certain domestic corporations that earn 80% or more of their gross income from sources within Puerto Rico and earns 75% or more of their gross income from the active conduct of a trade or business in Puerto Rico over a three-year period (or such shorter period as may be applicable). Management believes that each of the operating subsidiaries based in Puerto Rico (except Garrido) satisfy these conditions. In the Revenue Reconciliation Act of 1993, Congress imposed certain limitations on the availability of the Section 936 credit. Pursuant to these limitations, the Section 936 credit for each eligible corporation generally cannot exceed the sum of 60% of certain wage and fringe benefit expenses and a portion of depreciation allowances for a taxable year or, if elected, a reduced credit computed without regard to these economic activity limitations. 24 The Puerto Rico Agricultural Tax Incentives Act of 1995 provides a 50% tax credit for certain "eligible investments" in qualified agricultural businesses in Puerto Rico. The Company is currently investigating whether its investment in Garrido or other recent transactions regarding its other Puerto Rico based operations will qualify for these credits. If the Company qualifies for such credits, there can be no assurances as to the amounts or timing of any benefits that the Company may realize. The Small Business Job Protection Act of 1996 (the "Job Protection Act") eliminated the Section 936 credit for corporations other than "existing credit claimants". As an existing credit claimant, the Company's Puerto Rico based dairy, fruit drink and plastic bottle operations will continue to realize the benefits of Section 936 through December 31, 2005, the year in which Section 936 will be eliminated. However, for tax years beginning after December 31, 2001 and before January 1, 2006, the total amount of the Company's Puerto Rico income that is eligible to be offset by the 936 credit cannot exceed the "base period income" of the Company as determined under the Job Protection Act. This limitation may reduce the amount of credits otherwise available to the Company. ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 14, "Financial Reporting for Segments of a Business Enterprise" requires disclosure related to an entity's operations in different industries, its foreign operations and export sales and its major customers. See Note 19 of Notes to Consolidated Financial Statements for information about the Company's operations in the dairy and ice businesses and in different geographic areas. During 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for Long-Lived Assets and for Long-Lived Assets to be Disposed of", which requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is evaluated by comparing future cash flows (undiscounted and without interest charges) expected to result from use of the asset and its eventual disposition to the carrying amount of the asset. The adoption of this pronouncement had no material impact on the Company's results of operations or financial condition. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options and other equity instruments to employees based on new fair value accounting rules. Although expense recognition for employee stock based compensation is not mandatory, SFAS 123 requires companies that choose not to adopt the new fair value accounting to disclose pro forma net income and earnings per share under the new method. During the fourth quarter of 1996, the Company will implement the disclosure requirements of this pronouncement only, and will not adopt the fair value accounting method. 25 BUSINESS GENERAL Suiza Foods is a leading manufacturer and distributor of fresh milk products, refrigerated ready-to-serve fruit drinks and coffee in Puerto Rico, fresh milk and related dairy products in California and Florida, and packaged ice in Florida and the southwestern United States. The Company has grown primarily through strategic and consolidating acquisitions. Through these acquisitions, the Company has realized regional economies of scale and operating efficiencies by consolidating manufacturing and distribution operations in each of its core businesses. The Company conducts its dairy operations primarily through Suiza-Puerto Rico, Swiss Dairy and Velda Farms and its ice operations through Reddy Ice. Each of these operating subsidiaries is a strong regional competitor with an established reputation for customer service and product quality. These subsidiaries market their products through extensive distribution networks to a diverse group of customers, including convenience stores, grocery stores, schools and institutional food service customers. BUSINESS STRATEGY The Company's strategy is to continue to expand its dairy and ice operations primarily through consolidating acquisitions within its existing markets and through strategic acquisitions of dairy, ice and related businesses in new geographic markets. The Company will seek to acquire regional dairy and ice operations that have significant market share and long-standing customer relationships. After entering new geographic markets through strategic acquisitions, the Company will pursue consolidating acquisitions where such opportunities exist. In addition, the Company will seek to expand its existing operations by adding new customers, extending its product lines and securing distribution rights for additional branded product lines. The following table details the Company's acquisition history (dollars in millions): Purchase Price ------------------------- Date Strategic Consolidating --------------- --------- ------------- Dairy Suiza-Puerto Rico December 1993 $99.4 Mayaguez July 1994 $7.6 Velda Farms April 1994 54.8 Flav-O-Rich October 1994 5.9 Skinners' Dairy January 1996 2.9 Garrido July 1996 35.4 Swiss Dairy September 1996 53.9 Ice Reddy Ice April 1988 23.7 Sparkle Ice October 1988 32.1 Various small ice companies (2) 1988 0.9 Various small ice companies (1) 1990 1.3 Various small ice companies (4) 1991 5.2 Various small ice companies (2) 1993 0.7 Various small ice companies (3) 1994 0.8 Various small ice companies (4) 1995 2.3 Various small ice companies (10) 1996 3.9 26 INDUSTRY OVERVIEW DAIRY According to published industry statistics, approximately $22.2 billion of fresh milk products were sold in 1994 at the wholesale level in the United States compared to $21.5 billion sold in 1988. Management believes that the dairy industry is mature in both the mainland United States and Puerto Rico. The dairy industry has excess capacity and has been in the process of consolidation for many years. Excess capacity has resulted from the development of more efficient manufacturing techniques, the establishment of captive dairy manufacturing operations by large grocery retailers and relatively little growth in the demand for fresh milk products. As the industry has consolidated, many smaller dairy processors have been eliminated and several large regional dairy processors have emerged. According to published industry statistics, in 1994 there were approximately 682 fresh milk processing plants in the United States, a decline of 509 from the 1,191 plants operating in 1982. The number of plants with 20 or more manufacturing employees declined from 792 to 466 over the same period. Management believes that this consolidation trend will continue. ICE The ice industry is highly fragmented and is regional because of the relatively high cost of transporting ice. Demand for ice is seasonal, with peak demand occurring in the second and third calendar quarters. The availability of ice during periods of high demand is important to grocery retailers and convenience stores. The ice industry has therefore emerged as a service oriented business requiring efficient manufacturing facilities and distribution systems capable of accommodating peak demand levels. PRODUCTS AND SERVICES The Company's largest product line is fresh milk products, which generated $5.3 million (or 10.3%), $227.9 million (or 66.8%) and $291.8 million (or 67.8%) of the Company's consolidated total net sales in 1993, 1994 and 1995, respectively. Ice, the Company's second largest product line, generated $45.1 million (or 87.3%), $47.7 million (or 14.0%) and $50.5 million (or 11.7%) of the Company's consolidated total net sales in 1993, 1994 and 1995, respectively. The change in the percentage of consolidated total net sales represented by sales of fresh milk and by sales of ice from 1993 to 1995 is primarily the result of the significant dairy acquisitions in December 1993 and in April 1994. DAIRY The Company's dairy operations manufacture and distribute fluid milk, coffee and related products under proprietary brand names and on a private-label basis for large customers. The Company also purchases and distributes certain other products such as yogurt, packaged ice cream and ice cream novelties. ICE The Company manufactures and distributes ice products for retail, commercial and institutional markets. The Company's primary product is cocktail ice in eight pound bags, which it sells principally to convenience and grocery stores. The Company also sells cocktail ice in various bag sizes ranging from three pounds to 40 pounds to restaurants, bars, stadiums, vendors and caterers. In addition, the Company sells block ice in ten and 300 pound sizes to commercial and industrial customers. 27 SALES AND DISTRIBUTION DAIRY The Company markets and sells its dairy product line to a variety of retail and food service outlets including grocery stores, club stores, convenience stores, gas stores, schools, restaurants, hotels and cruise ships. The Company's dairy operations serve over 20,000 customers in its markets utilizing a fleet of over 950 delivery vehicles. Suiza-Puerto Rico is the largest of two fresh milk processors in Puerto Rico and distributes its products to grocery stores, retail outlets and schools, and also distributes third party brand name ice cream and other refrigerated and frozen foods principally to medium-sized and large grocery stores. Swiss Dairy distributes fresh milk and a limited number of other products to high volume retailers, including grocery and club stores. More than 90% of Swiss Dairy's net sales during the first six months of 1996 were made to three large retailers. Velda Farms serves approximately 10,000 customers and focuses its distribution efforts on food service accounts, convenience stores, club stores and schools. ICE The Company markets its ice products to convenience and grocery stores for retail sales and, to a lesser extent, to business and institutional customers that utilize the Company's products in their operations. The Company serves approximately 20,000 sites from 21 ice manufacturing facilities and 5 distribution centers. The Company provides ice merchandisers to a substantial majority of these sites. During 1995, the Company's largest two ice customers accounted for approximately 23% of net ice sales. The Company's ice distribution fleet consists of approximately 170 delivery vehicles, the majority of which are owned. In order to meet peak demand, the Company expands its fleet during the summer season with short-term leased vehicles. RAW MATERIALS AND SUPPLY DAIRY The Company purchases milk, its primary raw material, from farmers and farm co-operatives under contractual arrangements. Certain aspects of the Company's milk supply arrangements are regulated by governmental authorities. See " -- Government Regulation -- Milk". Fluid milk is generally readily available. The Company has traditionally experienced slight shortages in its milk supply in Puerto Rico during the months of September and October each year. Management estimates that these shortages, when they occur, reduce its Puerto Rico dairy sales by less than 2% during these months. Other raw materials, such as juice concentrates, sweeteners, and packaging supplies are generally available from numerous suppliers and the Company is not dependent on any single supplier for these materials. Certain of these raw materials are purchased under long term contracts in order to obtain lower costs. ICE Except with respect to its water supply and electricity, the Company is not dependent upon any single supplier for materials used in the manufacturing and packaging of its ice products. The Company has not experienced any material supply problems in the past with respect to its ice business. COMPETITION The Company's businesses are highly competitive. The Company has a number of competitors in each of its major product, service and geographic markets, and many of these competitors are larger, more established and better capitalized than the Company. 28 DAIRY PUERTO RICO The Company owns and operates two of the three fresh milk manufacturing facilities in Puerto Rico. The Company's competitor, Vaqueria Tres Monjitas ("Tres Monjitas"), operates a single manufacturing plant. The Company manufactures and distributes approximately 66% of the fresh milk sold in Puerto Rico while Tres Monjitas, which is well capitalized and operates an efficient manufacturing plant, manufactures and distributes approximately 34%. The Company competes primarily on the basis of service, price, brand name recognition and quality. Because of the Company's size, the quality of its manufacturing facilities, the efficiency of its largely non-union work force, the strength of its distribution network and the strength of its brand name, management believes the Company can continue to compete effectively in the Puerto Rico dairy business. The Company does not presently face competition in the Puerto Rico fresh dairy business from outside Puerto Rico, nor does it expect to in the foreseeable future. The Company's fresh dairy business does, however, compete with shelf stable milk products, which are manufactured by one manufacturer in Puerto Rico and also imported from the mainland United States and Canada. Management believes that shelf stable milk competes with fresh milk primarily where the consumer lacks adequate refrigeration or in small quantity uses, such as coffee creamers. Management further believes that sales of shelf stable milk are approximately one-tenth as large as sales of fresh milk and that sales of shelf stable products have shown moderate volume increases in recent years. In the refrigerated ready-to-serve fruit drink segment, Tres Monjitas is the Company's largest direct competitor located in Puerto Rico. In addition to competition from other local manufacturers and distributors of refrigerated ready-to-serve fruit drinks, the Company competes against numerous other beverage companies, including large United States-based manufacturers and marketers of carbonated and non-carbonated beverages. These competitors are generally larger and better capitalized than the Company. Although management believes that competition will continue to grow from fruit drink and other beverage companies, management anticipates that the Company will be able to continue to compete effectively in the fruit drink segment because of the strength and efficiency of its distribution network, its recognizable brands and the established presence of its products in the dairy case. UNITED STATES The Company's competitors in its U.S. dairy processing and distribution business include other large, independent dairy processing companies and dairy processors owned by grocery chains, many of which are larger and better capitalized than the Company. Due to the cost of transporting fresh milk, competition in the fluid dairy business tends to be regional rather than national, with flexibility of service, price, breadth of product line and quality as the primary competitive factors. Within its U.S. markets, the Company focuses on tailoring its service to specific classes of trade such as convenience stores and institutional food service accounts in Florida and grocery stores in California. In addition to competition from other dairy manufacturers, the Company's Florida dairy operation competes with food service companies and other distributors of dairy products, many of which are large, well-capitalized, national companies. Although competition in the dairy and food distribution business is intense, management believes that the Company's focus on customer service and tailored product lines allow it to compete effectively. In its Florida ice cream distribution business, the Company competes with large integrated dairy and ice cream manufacturing companies and independent distributors of national ice cream brands. Because the Company offers brands manufactured by third parties as well as its own brand of ice cream products, the Company competes effectively in this market by offering convenience stores and other small retailers a broad line of ice cream products and frozen novelties. By carrying a broad line of popular national and other brands, the Company generates profitable sales volumes from retail sites that single line or other more limited distributors may find uneconomical to service. 29 ICE The Company competes primarily with smaller independent regional ice manufacturers and machines that manufacture and package ice at store locations. In addition to this direct competition, certain convenience and grocery retailers operate commercial ice plants for internal use or manufacture and bag ice at their store locations. During peak season, however, the Company frequently services retailers that manufacture their own ice. To further compete in this segment, the Company also offers ice machines that manufacture and package ice at customer locations. Competition in the ice business is based primarily on service, price and quality. In order to successfully compete, an ice manufacturer must be able to substantially increase production and distribution on a seasonal basis while maintaining cost efficiency. Management believes that the size and quality of the Company's ice facilities, its high regional market share and its route density allow it to compete effectively. Because only one ice manufacturer typically serves an individual retail site, the Company's ice products generally do not face competition at the retail level. Several major grocery chains within the Company's ice markets manufacture ice at their own ice plants. While the Company does not supply these and other vertically integrated grocery retailers/manufacturers, such companies generally manufacture ice products for internal use only and do not compete for third party accounts. However, a significant increase in the utilization of captive commercial ice plants or on-site manufacturing by retailers currently serviced by the Company could have an adverse effect on the Company's operations. FACILITIES The Company conducts its manufacturing and distribution operations from the following facilities: Manufacturing & Region Distribution Distribution Only --------------- ---------------- ------------------ DAIRY: Puerto Rico Aguadilla Adjuntas (coffee) Caguas (coffee) Anasco (coffee) Lares (coffee) Arecibo San Juan Ponce (2) San Juan (coffee) California Riverside Florida Miami Daytona Beach St. Petersburg Fort Myers Winterhaven Jacksonville Orlando Ocala Riviera Beach Tampa Vero Beach ICE: Arizona Phoenix Tucson Yuma Florida Auburndale St. Petersburg Crescent City Davie New Smyrna Beach Opa Locka Tampa Nevada Las Vegas New Mexico Albuquerque Oklahoma Ardmore Texas Austin Bryan Dallas Port Neches Fort Worth Houston (2) 30 Manufacturing & Region Distribution Distribution Only --------------- ---------------- ------------------ Killeen Pilot Point Rockwall Splendora Waco Utah Salt Lake City The Company maintains two administrative offices located in leased premises in Dallas, including its executive offices located at 3811 Turtle Creek Boulevard, Suite 1300, Dallas, Texas 75219. TRADEMARKS The Company has developed or acquired several trademarks and brand names for use in its dairy and ice businesses, including the following: Company-owned Licensed --------------------------------------------------- ------------------------------------------ DAIRY: Suiza Dairy & Design-TM- Quik-Registered Trademark- (Nestle) Suiza Fruit & Design-TM- Nestle-Registered Trademark- Neva-TM- Nestea-Registered Trademark- Borinquen Dairy-TM- Sunnydell-Registered Trademark- Suiza Premium-TM- Trimline-Registered Trademark- Mayaguez Dairy-TM- Farm Field-Registered Trademark- Puerto Rico Dairy-TM- Dairy Flower Design-Registered Trademark- Fruit Cooler-TM- Alto Grande and Design-Registered Trademark- Aroma Coffee Break and Design-Registered Trademark- Cafe Crema and Design-Registered Trademark- Cafe Adjuntas-TM- Unicaf-TM- Aromas de Yuaco-TM- Adjuntas AA-TM- Grand Lares-TM- Garrido Caracolillo-TM- Carbon Adjuntas-TM- Executive Coffee Break-TM- Lecherita-TM- Garrido Gourmet-TM- Garrido Blend-TM- Savings Office Supplies-TM- Grand Lares Super Premium Coffee-TM- The Coffee of Popes and Kings-TM- Velda Farms-Registered Trademark-
31 Company-owned Licensed --------------------------------------------------- ------------------------------------------ ICE: Reddy Ice-Registered Trademark- Sparkle Ice-Registered Trademark- Polar Party-Pak-Registered Trademark- The Ice Factory-Registered Trademark- Atlantic Ice Design-TM- Fun Time Ice-TM- The Ice Man-TM- All American Ice, Inc.-TM- Glacier Ice, Inc.-TM- Ice Cubes Limited-TM- Strawberry Festival-TM- Mountain Ice-TM- Artesian Ice-TM- Blue Star Ice-TM- New Smyrna Ice-TM-
Although the Company's trademarks help distinguish the Company's products, management does not believe that the loss of any of the Company's trademarks would have a material adverse effect on its operations. The Company also holds a patent on an ice machine that manufacturers and packages ice at store locations. GOVERNMENT REGULATION PUBLIC HEALTH As a manufacturer and distributor of food products, the Company is subject to the Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by the Food and Drug Administration ("FDA"). This comprehensive regulatory scheme governs the manufacture (including composition and ingredients), labeling, packaging and safety of food. The FDA regulates manufacturing practices for foods through its current good manufacturing practices regulations, specifies the standards of identity for certain foods, including many of the products sold by the Company, and prescribes the format and content of certain information required to appear on food product labels. In addition, the FDA enforces the Public Health Service Act and regulations issued thereunder, which authorize regulatory activity necessary to prevent the introduction, transmission or spread of communicable diseases. These regulations require, for example, pasteurization of milk and milk products. The Company and its products are also subject to state and local regulation through such measures as the licensing of dairy manufacturing facilities, enforcement by state and local health agencies of state standards for the Companys products, inspection of the Companys facilities and regulation of the Company's trade practices in connection with the sale of dairy products. The Company utilizes quality control laboratories to test milk and other ingredients and finished products. Product quality and freshness are essential to the successful retail distribution of dairy and refrigerated ready-to-serve fruit drinks. To monitor product quality at its facilities, the Company maintains quality control programs to test products during various processing stages. Management believes that the Companys dairy and ice facilities and manufacturing practices comply with applicable government regulations. EMPLOYEE SAFETY REGULATIONS The Company is subject to certain health and safety regulations including regulations issued pursuant to the Occupational Safety and Health Act. These regulations require the Company to comply with certain manufacturing, health and safety standards to protect its employees from accidents. 32 ENVIRONMENTAL REGULATIONS The Company is subject to certain federal, state and local environmental regulations. Certain of the Company's dairy facilities discharge biodegradable wastewater into municipal waste treatment facilities in excess of levels permitted under local regulations. The Company maintains above-ground or underground petroleum storage tanks at many of its facilities. These tanks are periodically inspected to determine compliance with applicable regulations. The Company may be required to make expenditures from time to time in order to maintain compliance of these tanks. The federal government has banned the production of a refrigerant used by the Company in its ice merchandisers. The continued use of this refrigerant, however, is permitted and there are sufficient quantities of the refrigerant available to meet the Company's needs for the next several years. The Company is taking steps to facilitate its conversion to new, reformulated refrigerants. Management does not anticipate that conversion costs will be material. Management does not expect environmental compliance to have a material impact on the Company's capital expenditures, earnings or competitive position in the foreseeable future. U.S. AND CALIFORNIA MILK INDUSTRY REGULATION The average price paid to producers for Grade A milk in most of the mainland United States is monitored by Federal Milk Marketing Orders. In California, milk prices are monitored by a state agency. In both the federal milk markets and the California milk market, raw milk prices are currently supported by the federal government through standing offers to buy storable forms of dairy products such as cheese, nonfat dry milk powder and butter. Congress has recently passed legislation to phase out federal support prices by December 31, 1999. PUERTO RICO MILK INDUSTRY REGULATION The milk industry in Puerto Rico is regulated under Puerto Rico law Number 34 of June 11, 1957. This statute establishes a production ceiling for milk production by dairy farmers in order to manage the supply and demand of milk products and to stabilize prices. In addition, the Puerto Rico statute provides that the government will establish maximum prices for the dairy farm, processor and retail levels and that such prices be reviewed at least once a year. The Office for the Regulation of the Milk Industry, an agency of the Puerto Rico Department of Agriculture, is charged with: (i) ensuring the quality of milk products; (ii) setting the price of milk at the dairy farm level and maximum prices at the processor and retail levels; and (iii) administering and managing licenses and other matters within the industry. As part of its review and price setting process, this agency examines the financial condition of each of the participants in the industry as well as overall economic trends within the industry. As a general rule, pricing at each of the industry levels reflects an attempt to provide a fair return to processors and farmers and maintain prices acceptable to consumers. The latest price increase for dairy manufacturers in Puerto Rico was in 1994 and, prior to that, in 1990. 33 EMPLOYEES As of September 9, 1996, the Company employed 2,322 employees in the following categories: Non-union Union Total --------- ----- ----- Dairy Puerto Rico 957 69 1,026 Florida 731 731 California 12 112 124 Ice 434 434 Corporate 7 7 ----- --- ----- Total 2,141 181 2,322 ----- --- ----- ----- --- ----- The Puerto Rico union employees are subject to two collective bargaining agreements that expire in July and October 1997. The California union employees are subject to a collective bargaining agreement that expires in August 1999. LEGAL PROCEEDINGS The Company is from time to time a party to legal proceedings that arise in the ordinary course of business. Management does not believe that the resolution of any threatened or pending legal proceedings will have a material adverse affect on the Company's operations. 34 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth the names, ages and positions of the executive officers and directors of the Company. Their respective backgrounds are described following the table. NAME AGE POSITION ---- --- -------- Gregg L. Engles (1) 39 Chairman of the Board and Chief Executive Officer Cletes O. Beshears (1)(2) 70 President and Director Hector M. Nevares (1) 45 President of Suiza-Puerto Rico and Director William P. Brick 45 Executive Vice President and Chief Operating Officer Tracy L. Noll 48 Vice President, Chief Financial Officer and Secretary John W. Madden 31 Vice President and Treasurer Robert Bartholomew (3) 49 Director Gayle O. Beshears (2) 67 Director Stephen L. Green (4)(5) 45 Director Robert L. Kaminski (4)(5) 45 Director P. Eugene Pender (3)(4)(5) 65 Director Robert Piccinini (3) 54 Director
- ------------------------ (1) Member of the Executive Committee of the Board of Directors. (2) Cletes O. Beshears and Gayle O. Beshears are brothers. (3) Member of the Audit Committee of the Board of Directors. (4) Member of the Compensation Committee of the Board of Directors. (5) Member of the Stock Option Committee of the Board of Directors. GREGG L. ENGLES. Mr. Engles joined the Company in October 1994 as Chairman of the Board and Chief Executive Officer. Mr. Engles has served as Chairman of the Board and Chief Executive Officer of Reddy Ice since May 1988, Chairman of the Board of Suiza-Puerto Rico since December 1993, and Chairman of the Board of Velda Farms since April 1994. In addition, Mr. Engles has served as President of Kaminski Engles Capital Corporation ("KECC") since May 1988 and as President of Engles Management Corporation ("EMC") since February 1993. KECC and EMC are investment banking and consulting firms. Mr. Engles was also President of Engles Capital Corporation, an investment banking and consulting firm, from May 1989 to October 1992. Mr. Engles is a director and member of the compensation committee of Columbus Realty Trust, a public real estate investment trust. CLETES O. BESHEARS. Mr. C.O. Beshears joined the Company in October 1994 as director, President and Chief Operating Officer. Mr. C.O. Beshears served as President and Chief Executive Officer of Velda Farms from April 1994 to April 1995. From March 1988 to April 1994, Mr. C.O. Beshears provided consulting services to companies pursuing acquisitions of dairy companies. From 1980 to 1988, Mr. C.O. Beshears served as Vice President of The Southland Corporation and Chief Operating Officer of its Dairy Group. From 1965 to 1980, Mr. C. O. Beshears served as Division Manager of several of The Southland Corporation's regional dairies, including Velda Farms. Mr. Beshears will relinquish the Chief Operating Officer title in October 1996. HECTOR M. NEVARES. Mr. Nevares joined the Company as a director in October 1994. Mr. Nevares has served as President of Suiza-Puerto Rico since June 1983, having served in additional executive capacities at Suiza-Puerto Rico since June 1974. Mr. Nevares is a director of First Federal Savings Bank, a public company, in San Juan, Puerto Rico. WILLIAM P. BRICK. Mr. Brick joined the Company in July 1996 as Executive Vice President and will become Chief Operating Officer of the Company in October 1996. Prior to joining the Company, Mr. Brick served as Vice President - Sales and Marketing for the Metropoulos Management Group from February 1996 until June 1996. From 35 August 1995 until January 1996, Mr. Brick served as Vice President - Sales and Marketing for Ultra Products. From April 1995 until August 1995, Mr. Brick owned and operated a private golf course in Ontario, Canada. Mr. Brick served in various marketing capacities, including Vice President of Sales, for The Morningstar Group, Inc. from October 1991 until December 1994. Beginning in 1988 until August 1991, Mr. Brick served in various marketing capacities for Palm Dairies Inc. in Calgary, Alberta. TRACY L. NOLL. Mr. Noll joined the Company in October 1994 as Vice President, Chief Financial Officer and Secretary. Prior to joining the Company, Mr. Noll served as Controller of Foxmeyer Corporation from June 1994 until September 1994. From March 1988 until June 1994, Mr. Noll served as Vice President and Chief Financial Officer of The Morningstar Group Inc., the parent company of Velda Farms until its acquisition by the Company in April 1994. JOHN W. MADDEN. Mr. Madden joined the Company in October 1994 as Vice President and Treasurer. From November 1990 to October 1994, Mr. Madden was employed by and associated during various periods with KECC, EMC and Engles Capital Corporation. From July 1988 to July 1990, Mr. Madden was employed as an analyst with Bankers Trust Company. ROBERT BARTHOLOMEW. Mr. Bartholomew was elected to the Company's Board of Directors in October 1994. Since June 1990, Mr. Bartholomew has been a principal of Pacific Mezzanine Investors, L.P. ("PMI") and an officer of Pacific Mezzanine Associates, Inc., the general partner of PMI and an indirect, wholly owned subsidiary of Pacific Mutual Life Insurance Company, a principal stockholder of the Company. GAYLE O. BESHEARS. Mr. G.O. Beshears joined the Company as a director in October 1994. Mr. G.O. Beshears served as President of Reddy Ice from May 1988 until September 1996. From January 1985 to May 1988, Mr. G.O. Beshears served as Division Manager of the Reddy Ice division of The Southland Corporation. Prior to January 1985, Mr. G. O. Beshears served in a number of capacities for The Southland Corporation's Dairy Group, including Division Manager of Midwest Farms Dairy. STEPHEN L. GREEN. Mr. Green was elected to the Company's Board of Directors in October 1994. Mr. Green has served as a General Partner of Canaan Capital Partners, L.P., the general partner of Canaan Capital Limited Partnership and Canaan Capital Offshore Limited Partnership, C.V., principal stockholders of the Company, since November 1991. From October 1985 until November 1991, Mr. Green served as Managing Director of GE Capital Corporation's Corporate Finance Group. Mr. Green is a director of Chartwell Re Corporation and CapMAC Holdings Inc., each of which is a public company. ROBERT L. KAMINSKI. Mr. Kaminski was elected to the Company's Board of Directors in November 1994. Mr. Kaminski has served as President of Robert Kaminski Interests, Inc. since 1984 and has been a principal in KECC since 1988. Robert Kaminski Interests, Inc. and KECC are both investment banking and consulting firms. P. EUGENE PENDER. Mr. Pender was elected to the Company's Board of Directors in October 1994. Prior to his retirement in December 1987, Mr. Pender served as Vice President and Controller of The Southland Corporation. Thereafter, Mr. Pender served as a consultant to The Southland Corporation until March 1991. ROBERT PICCININI. Mr. Piccinini was elected to the Company's Board of Directors in November 1995. Mr. Piccinini has served as Chairman of the Board and Chief Executive Officer of Save Mart Supermarkets since 1985. Prior to 1985, Mr. Piccinini served in a number of capacities at Save Mart, including President from 1981 to 1985 and Vice President from 1971 to 1981. The Company's Certificate of Incorporation divides the Board of Directors into three classes, with regular three-year staggered terms. C.O. Beshears, Hector M. Nevares, and Robert Bartholomew will serve until the annual meeting of stockholders in 1997, Gregg L. Engles, P. Eugene Pender and Robert Piccinini will serve until the annual meeting of stockholders in 1998, and G.O. Beshears, Robert L. Kaminski and Stephen Green will serve until the annual meeting of stockholders in 1999. 36 Upon completion of the Combination, the Company entered into employment agreements with Messrs. Engles and C.O. Beshears and agreed to nominate and support their election as members of the Board of Directors during the term of their employment with the Company. Additionally, the Company agreed to nominate and support Mr. Engles' election as Chairman of the Board. The executive officers of the Company are appointed by and serve at the discretion of the Board of Directors. DIRECTOR COMPENSATION The Company pays its unaffiliated outside directors an annual fee of $15,000, payable quarterly, plus a fee of $1,000 for each board meeting attended. (As referred to herein, an unaffiliated outside director is a director who is not an employee or officer of the Company or any of its subsidiaries, nor a beneficial owner of 345,000 or more shares of Common Stock, nor an employee or affiliate of a beneficial owner of 345,000 or more shares of Common Stock; the Company's current unaffiliated outside directors are Messrs. Pender and Piccinini). The Company also pays its unaffiliated outside directors $1,000 annually for serving on a board committee and an additional $2,000 annually for chairing any such committee. The Company reimburses its directors for expenses incurred in attending board and committee meetings. Directors are eligible to receive stock options and restricted stock awards pursuant to the Suiza Foods Corporation 1995 Stock Option and Restricted Stock Plan (the "Option and Restricted Stock Plan"). On March 31, 1995, Mr. Pender received nonqualified stock options to purchase 3,450 shares of Common Stock at $10.51 per share, and on January 1, 1996 Mr. Piccinini received nonqualified stock options to purchase 3,450 shares of Common Stock at $12.32 per share. The Option and Restricted Stock Plan provides that each unaffiliated outside director will automatically receive nonqualified stock options to purchase 3,450 shares of Common Stock on the date such person becomes a director of the Company and on each June 30 thereafter that such person continues to serve as a director. These options vest immediately and are exercisable at fair market value on the date of grant, as determined by the Board of Directors. Directors receive stock options and restricted stock awards as described in "-- Executive Compensation -- Option and Restricted Stock Plan". COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Compensation decisions concerning the executive officers of the Company for 1995 were made by the Board of Directors. Messrs. Engles, C.O. Beshears and Nevares participated in deliberations but abstained from voting with respect to their own employment agreements. Pursuant to the Combination: (i) certain directors and stockholders affiliated with certain directors received shares of Common Stock or options to acquire Common Stock in amounts based on their percentage ownership interest (or right to acquire such ownership interest) in Suiza-Puerto Rico, Velda Farms and Reddy Ice; (ii) stockholders of the Company, including certain directors, received certain registration rights with respect to their shares of Common Stock; (iii) Messrs. Engles and C.O. Beshears received Common Stock in exchange for certain profit interests granted as compensation for services related to the acquisition of Suiza-Puerto Rico and Velda Farms; (iv) Mr. Nevares was paid the redemption value of certain preferred stock of Suiza-Puerto Rico; and (v) Mr. Kaminski entered into a new noncompetition and consulting agreement with the Company and received a one-time fee in connection with the termination of a preexisting consulting agreement. During the first three months of 1995, Messrs. Engles and Kaminski were paid an aggregate of $150,000 by the Company and EMC (an affiliate of Mr. Engles) was paid an aggregate of $87,500 by the Company under management consulting agreements that were terminated at the time of the Combination. In addition, at the time of the Combination, Reddy Ice sold its minority equity interest in a plastic bag manufacturer to an entity formed by the stockholders of Reddy Ice, including Messrs. Engles and Kaminski. Pacific Mutual (which is affiliated with one current director of the Company and with a director who served through November 1995) held $5.0 million of the Company's Subordinated Notes at June 30, 1996. For a more detailed description of each of these transactions and relationships, see "Certain Relationships and Related Transactions -- Historic Relationships and Related Transactions". Velda Farms purchases a portion of its requirements for frozen concentrated orange juice from an entity in which Messrs. Engles, Kaminski and Madden collectively own a minority limited partner interest. Purchases by Velda Farms from this supplier totaled approximately $1.3 million in 1995. For a more detailed description of these transactions and this relationship, see "Certain Relationships and Related Transactions -- Current Relationships and Related Transactions". 37 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE Prior to the completion of the Combination in March 1995, the executive officers of the Company did not receive any compensation from the Company, although certain of these officers received compensation from Suiza-Puerto Rico, Velda Farms or Reddy Ice. Messrs. Engles, C.O. Beshears and Noll now receive compensation from Suiza Management Corporation, a wholly owned subsidiary of the Company, in accordance with their respective employment agreements. Mr. Nevares receives compensation from Suiza-Puerto Rico; and Mr. G.O. Beshears receives compensation from Reddy Ice. The following table sets forth the annual cash compensation paid or accrued by the Company to its Chief Executive Officer and its other four most highly compensated executive officers for the year ended December 31, 1995. ANNUAL COMPENSATION ------------------------------------ LONG-TERM OTHER ANNUAL COMPENSATION ALL OTHER NAME AND SALARY BONUS COMPENSATION SHARES UNDERLYING COMPENSATION PRINCIPAL POSITION YEAR ($) ($) ($) (1) OPTIONS (#) ($) (2) - ------------------ ---- -------- -------- ------------ ----------------- ------------ Gregg L. Engles (3)......... 1995 $299,467 $180,000 -- 138,000 -- Chairman of the Board and Chief Executive Officer Cletes O. Beshears.......... 1995 291,509 175,300 -- 138,000 -- President and Chief Operating Officer Hector M. Nevares........... 1995 280,000 92,400 -- 34,500 -- President of Suiza-Puerto Rico Gayle O. Beshears........... 1995 216,711 95,172 -- 34,500 $9,019 President of Reddy Ice Tracy L. Noll............... 1995 160,000 43,200 -- 77,625 -- Vice President and Chief Financial Officer
- ------------------------- (1) In each case, the aggregate value of perquisites and other personal benefits does not exceed the lesser of $50,000 or 10% of the total annual salary and bonus reported for the named executive officer. (2) The amounts shown in the "All Other Compensation" column consist of contributions by the Company to a 401(k) plan on behalf of the named executive. (3) Reflects only payments for the nine months following completion of the Combination prior to which no compensation was paid by any of the Combined Entities. OPTION AND RESTRICTED STOCK PLAN In March 1995, the Board of Directors of the Company adopted the Option and Restricted Stock Plan, which provides for grants of incentive and nonqualified stock options and awards of restricted stock to directors and key employees of the Company and its subsidiaries. The Option and Restricted Stock Plan permits grants and awards covering up to 1,069,500 shares of Common Stock, provided that no more than 379,500 shares may be awarded as restricted stock. Any shares subject to unexercised portions of stock options that terminate or subject to restricted stock awards that fail to vest and are forfeited may be reissued under new stock option grants or restricted stock awards. At August 31, 1996, options to purchase an aggregate of 785,078 shares of Common Stock and 6,250 shares of restricted stock were outstanding under the Option and Restricted Stock Plan and an additional 278,172 shares were available for future grants. The Option and Restricted Stock Plan is administered by a committee of disinterested directors (the "Stock Option Committee"), which has the authority to determine who will receive stock options or restricted stock, the number of shares of Common Stock subject to such stock options or restricted stock awards, and the terms of such stock options or restricted stock awards, including the exercise price of the stock options and any vesting periods. In accordance with the Option and Restricted Stock Plan, the exercise price of stock options will not be less than the fair market value of the Common Stock on the date of grant, as determined by the Stock Option Committee, 38 and in the case of an incentive stock option granted to an employee owning 10% of the Common Stock of the Company on the date of grant, not less than 110% of the fair market value. The Option and Restricted Stock Plan permits the exercise of stock options by delivery of shares of Common Stock owned by the optionee in lieu of or in addition to cash or by financing made available by the Company. The Option and Restricted Stock Plan also permits the Stock Option Committee to grant stock options with terms that provide for acceleration of vesting upon a change in control. During 1995, options to purchase an aggregate of 477,825 shares of Common Stock at $10.51 per share were granted under the Option and Restricted Stock Plan. The following table provides information regarding stock options granted during 1995 to the executive officers of the Company named in the Summary Compensation Table. OPTION GRANTS DURING 1995 INDIVIDUAL GRANTS POTENTIAL REALIZABLE --------------------------------------------------------- VALUE AT ASSUMED % OF TOTAL ANNUAL RATES OF STOCK NUMBER OF OPTIONS PRICE APPRECIATION SECURITIES GRANTED TO EXERCISE FOR OPTION TERM (2) UNDERLYING OPTIONS EMPLOYEES PRICE EXPIRATION --------------------- NAME GRANTED (#)(1) DURING 1995 ($/SHARE) DATE 5% ($) 10% ($) - ---- ------------------ ----------- --------- ---------- -------- ---------- Gregg L. Engles..... 138,000 29.1% $10.51 3/31/2005 $911,897 $2,310,927 Cletes O. Beshears.. 138,000 29.1 10.51 3/31/2005 911,897 2,310,927 Hector M. Nevares... 34,500 7.3 10.51 3/31/2005 227,974 577,732 Gayle O. Beshears... 34,500 7.3 10.51 3/31/2005 227,974 577,732 Tracy L. Noll....... 77,625 16.4 10.51 3/31/2005 512,942 1,299,896
___________ (1) Excludes options granted in the Combination pursuant to the Exchange Plan in exchange for the cancellation of options granted in prior years by the Combined Entities. See "Certain Relationships and Related Transactions -- Historical Relationships and Related Transactions -- The Combination -- Stock Options". (2) The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by the rules of the Securities and Exchange Commission. The actual value, if any, an executive officer may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised. There is no assurance the value realized by an executive officer will be at or near the assumed 5% or 10% levels. The following table provides information regarding the exercise of stock options during 1995 and the year-end option values. AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS SHARES OPTIONS AT YEAR END (#) AT YEAR END ($)(1) ACQUIRED ON VALUE -------------------------- --------------------------- NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ------------ ------------ ----------- ------------- ----------- ------------- Gregg L. Engles -- -- -- 138,000 $ -- $250,000 Cletes O. Beshears -- -- 1,766 145,065 9,757 289,028 Hector M. Nevares -- -- -- 34,500 -- 62,500 Gayle O. Beshears -- -- 281,645 34,500 3,362,596 62,500 Tracy L. Noll -- -- -- 77,625 -- 140,625
___________ (1) The value of in-the-money options at year-end is based on the fair market value of $12.32 per share of Common Stock, as determined by the Stock Option Committee of the Board of Directors in connection with the grant of options under the Option and Restricted Stock Plan as of January 1, 1996. EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS The Company entered into employment agreements with Messrs. Engles and C.O. Beshears in March 1995, pursuant to which Mr. Engles serves as Chairman of the Board and Chief Executive Officer of the Company and Mr. C.O. Beshears serves as President and Chief Operating Officer of the Company. The employment agreements 39 provide that Messrs. Engles and C.O. Beshears will receive annual base salaries of $400,000 and $350,000, respectively, as well as incentive cash bonuses. If certain minimum levels of net income are met, Mr. Engles and Mr. C.O. Beshears may earn an incentive cash bonus of up to 100% and 90%, respectively, of their respective annual base salaries. Based on the Company's net income during 1995, Mr. Engles received an incentive cash bonus of $180,000 and Mr. C.O. Beshears received an incentive cash bonus of $141,750. The Board of Directors is required to review cash compensation arrangements for Messrs. Engles and C.O. Beshears annually and provide for such increases as may be warranted in accordance with the Company's policies. The employment agreements of Messrs. Engles and C.O. Beshears had initial terms of three years, but have been extended until March 31, 1999. These agreements may be terminated by the Company prior to completion of the term upon the death or disability of the employee, "with cause", or in the event the employee materially breaches the agreement. As defined in the employment agreements, the term "with cause" means any termination of the employee for: (i) commission of an act of fraud or embezzlement against the Company; (ii) conviction of a felony or a crime involving moral turpitude; (iii) gross negligence or willful misconduct in performing the employee's duties; or (iv) breach of fiduciary duty in connection with the employee's employment. Messrs. Engles' and C.O. Beshears' employment agreements also contain two-year non-compete provisions, which apply if the respective employee is terminated with cause or in the event the employee materially breaches the agreement. Hector M. Nevares serves as President of Suiza-Puerto Rico and receives an annual base salary of $280,000 and an annual bonus equal to 33% of his base salary, pursuant to an employment agreement entered into in December 1993 and amended in March 1995. Mr. Nevares may earn up to an additional 27% (or a combined maximum of up to 60%) of his annual base salary if certain minimum levels of operating income are met at Suiza-Puerto Rico. Based on operating income at Suiza-Puerto Rico during 1995, Mr. Nevares received an incentive cash bonus of $92,400 for 1995. The Company is required to review Mr. Nevares' cash compensation arrangements annually and provide for such increases as may be warranted in accordance with the Company's policies. The agreement had an initial term expiring on December 15, 1996, but has been extended until March 31, 1999. This Agreement is terminable by the Company prior to the completion of its term only upon the death or disability of Mr. Nevares or "for cause". As defined in Mr. Nevares' employment agreement, the term "for cause" means any termination of the employee for: (i) misconduct or action damaging or detrimental to the Company; (ii) engaging in conduct that would constitute a crime; (iii) the use, possession, sale, transportation, distribution or being under the influence of a controlled substance other than as prescribed by a licensed physician; or (iv) misappropriation of the Company's funds or conviction of a crime involving a felony. Mr. Nevares' employment agreement contains a five-year non-compete provision, which applies upon termination of his employment agreement for any reason. Mr. G.O. Beshears has agreed to a three-year noncompetition covenant, which applies if he is terminated for any reason. Mr. G.O. Beshears ceased serving as the President of Reddy Ice in September 1996. LIMITATION OF LIABILITY AND INDEMNIFICATION The Company's Certificate of Incorporation provides, consistent with the provisions of the Delaware General Corporation Law, that no director of the Company will be personally liable to the Company or any of its stockholders for monetary damages arising from the director's breach of fiduciary duty as a director. This does not apply, however, with respect to any action for unlawful payments of dividends, stock purchases or redemptions, nor does it apply if the director: (i) has breached his duty of loyalty to the Company and its stockholders; (ii) does not act in good faith or, in failing to act, does not act in good faith; (iii) has acted in a manner involving intentional misconduct or a knowing violation of law or, in failing to act, has acted in a manner involving intentional misconduct or a knowing violation of law; or (iv) has derived an improper personal benefit. The provisions of the Certificate of Incorporation eliminating liability of directors for monetary damages do not affect the standard of conduct to which directors must adhere, nor do such provisions affect the availability of equitable relief. In addition, such limitations on personal liability do not affect the availability of monetary damages under causes of action based on federal law. The Company's Certificate of Incorporation provides for indemnification of its officers and directors to the fullest extent permitted by the Delaware General Corporation Law. In addition, the Company intends to purchase and 40 maintain insurance on behalf of its directors and executive officers insuring them against any liability asserted against them in their capacities as directors or executive officers or arising out of such status. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CURRENT RELATIONSHIPS AND RELATED TRANSACTIONS As of June 30, 1996, John Hancock and Pacific Mutual held $31.0 million and $5.0 million, respectively, of the Company's outstanding Subordinated Notes. In April 1996, John Hancock Mutual Life Insurance Company and an affiliate ("John Hancock") and Pacific Mutual Life Insurance Company and an affiliate ("Pacific Mutual") were paid approximately $14.0 million (including approximately $1.4 million in prepayment penalties) and approximately $3.5 million (including approximately $0.4 million in prepayment penalties), respectively, from the net proceeds from the IPO in repayment of the 15% Subordinated Notes, together with accrued interest on the principal amounts repaid. The Company purchases plastic bags for use in its ice business from a plastic bag manufacturer in which certain affiliates of the Company own a minority equity interest. The seller principally manufactures bread bags. The Company's purchases from this supplier totaled approximately $341,000 through August 31, 1996 and the Company had outstanding purchase orders from this supplier totaling approximately $82,000 as of that date. Management believes that the terms of the purchase orders are at least as favorable to the Company as could have been obtained in an arms'-length transaction with an unaffiliated third party. See "-- Historic Relationships and Related Transactions -- Other Historic Relationships and Related Transactions". Velda Farms purchases a portion of its requirements for frozen concentrated orange juice from an entity in which Messrs. Engles, Kaminski and Madden collectively own a minority limited partner interest. Velda Farms has no written agreement with this supplier, and all purchases are based on purchase orders. Management of Velda Farms monitors the market price for frozen concentrated orange juice by maintaining contact with a number of potential suppliers and purchases the product from the supplier offering the lowest price, inclusive of delivery and other service charges. Management believes that the terms of the purchase orders are at least as favorable to the Company as could be obtained in an arms'-length transaction with an unaffiliated third party. Purchases by Velda Farms from this supplier totaled approximately $457,000 in 1994, $1.3 million in 1995 and $1.2 million through August 1996. In connection with the Combination, the Company granted certain registration rights to the Predecessor Owners (defined below) and issued new options in exchange for options previously granted by the Combined Entities. The Company will have ongoing obligations with respect to these registration rights and stock options. See "-- Historic Relationships and Related Transactions -- The Combination -- Registration Rights" and "-- Historic Relationships and Related Transactions -- The Combination -- Stock Options". HISTORIC RELATIONSHIPS AND RELATED TRANSACTIONS ACQUISITIONS In December 1993, Suiza Holdings, L.P. (the "Suiza Partnership") (one of the Combined Entities) purchased Suiza-Puerto Rico from the Nevares family. The total purchase price was $99.4 million, which included: (i) a cash payment of $85.9 million to the Nevares family; (ii) the payment of certain liabilities to third parties at closing; (iii) preferred stock of Suiza-Puerto Rico with an aggregate liquidation preference of $5.0 million, which was issued to Mr. Nevares and his sister; and (iv) preferred stock of Suiza-Puerto Rico with an aggregate annual dividend of $50,000, which was issued to Mr. Nevares. The cash portion of the purchase price and payments made to third parties at closing were financed with the proceeds from the following: (i) the issuance by the Suiza Partnership and its general partner of $15.0 million of equity to certain investors (collectively, the "Predecessor Owners"), including John Hancock, Pacific Mutual, Canaan Capital Limited Partnership and an affiliate ("Canaan") and Messrs. Engles, C.O. Beshears, Nevares and Madden, each of whom is a director and/or executive officer of the Company; (ii) the issuance by the Suiza Partnership of $25.0 million in principal amount of subordinated indebtedness (including lender warrants), to John Hancock and Pacific Mutual; and (iii) a portion of the proceeds from an aggregate $72.0 million senior term loan and revolving line of credit provided by The Chase Manhattan Bank, N.A. to Suiza-Puerto Rico. The $15.0 million of 41 equity issued by the Suiza Partnership and its general partner to the Predecessor Owners included limited partnership interests of the Suiza Partnership and shares of common stock of its general partner. The $15.0 million purchase price paid by the Predecessor Owners for this equity was determined through arms'-length negotiations among the Predecessor Owners. In April 1994, Velda Holdings, L.P. (the "Velda Partnership") (one of the Combined Entities) and its general partner purchased Velda Farms from The Morningstar Group Inc. The total purchase price was $54.8 million, which included: (i) a cash payment of $48.4 million; and (ii) preferred stock of Velda Farms with a liquidation preference of $3.0 million. The cash portion of the purchase price was financed with the proceeds from the following: (i) the issuance by the Velda Partnership, its general partner and one of its subsidiaries of $6.2 million of equity to the Predecessor Owners, including John Hancock, Pacific Mutual, Canaan, and Messrs. Engles, C.O. Beshears, Nevares and Madden; (ii) the issuance by the Velda Partnership of $14.0 million in principal amount of subordinated indebtedness (including lender warrants) to John Hancock and Pacific Mutual; and (iii) a portion of the proceeds from an aggregate $34.5 million senior term loan and revolving line of credit provided by a group of banks to Velda Farms. The $6.2 million of equity issued by the Velda Partnership, its general partner and one of its subsidiaries included limited partnership interests of the Velda Partnership, shares of common stock of its general partner and shares of common stock of a subsidiary of the Velda Partnership. The $6.2 million purchase price for this equity was determined through arms'-length negotiations among the Predecessor Owners. THE COMBINATION As a result of the Combination, the Company became a holding company for Suiza-Puerto Rico, Velda Farms and Reddy Ice. The Combined Entities were corporations and partnerships originally formed to acquire Suiza-Puerto Rico, Velda Farms and Reddy Ice. The Combined Entities and Predecessor Owners entered into an agreement (the "Combination Agreement") pursuant to which certain mergers, exchanges and related transactions were consummated simultaneously. Pursuant to the Combination Agreement, all of the Predecessor Owner's equity interests in the Combined Entities were converted into shares of Common Stock, or options to acquire shares of Common Stock, of the Company. The exchange ratios for conversion or exchange in the Combination of the pre-existing equity interests in the Combined Entities were determined through negotiations among the Combined Entities and the Predecessor Owners as to the relative values of Suiza-Puerto Rico, Velda Farms and Reddy Ice. These relative values, expressed as a percentage of the value of the Company, are as follows: Suiza-Puerto Rico..................... 51.02% Velda Farms........................... 13.74% Reddy Ice............................. 35.24% Based on these relative values, the Predecessor Owners of Suiza-Puerto Rico received shares of Common Stock and options to acquire shares of Common Stock in the Combination in an aggregate amount equal to 51.02% of the 6,900,002 shares of Common Stock outstanding or subject to options immediately after the Combination (excluding options granted under the Option and Restricted Stock Plan). The Predecessor Owners of Velda Farms and Reddy Ice likewise received shares of Common Stock and options to acquire shares of Common Stock in an aggregate amount equal to 13.74% and 35.24%, respectively, of such 6,900,002 shares. Each of the Predecessor Owners received shares or options to acquire shares of Common Stock in an amount equal to such Predecessor Owner's percentage ownership interest or right to acquire such ownership interest on a fully diluted basis in Suiza-Puerto Rico, Velda Farms or Reddy Ice, multiplied by the aggregate number of shares of Common Stock and shares of Common Stock subject to options to be received by the Predecessor Owners in Suiza-Puerto Rico, Velda Farms and Reddy Ice, as applicable. The options held in Suiza-Puerto Rico, Velda Farms or Reddy Ice were exchanged for options to acquire the same number of shares of Common Stock as the holders of the predecessor options would have acquired if they had exercised such options prior to the Combination and then exchanged the equity acquired upon such exercise for shares of Common Stock in the Combination. Each of the new options has substantially the same terms as the predecessor option for which it was exchanged, with the same aggregate exercise price and vesting schedule. See "-- Stock Options". 42 As discussed in more detail in the following table, certain executive officers, directors and 5% stockholders of the Company received certain benefits in connection with the Combination. COMMON STOCK RECEIVED IN THE COMBINATION The following table reflects, for each of the executive officers, directors and 5% stockholders of the Company, for all such officers, directors and 5% stockholders as a group and for all the Predecessor Owners as a group: (i) the number of shares of Common Stock received (of record and beneficially) in the Combination for his or its equity interests in the Combined Entities; (ii) the aggregate cost to such person or group of the shares of Common Stock received in the Combination (which is the aggregate amount of the investment by such person or group in the Combined Entities); and (iii) the resulting average cost per share of the shares of Common Stock received in the Combination by each such person or group for his or its equity interests in the Combined Entities: SHARES OF AGGREGATE COST COMMON STOCK OF SHARES OF RECEIVED IN THE COMMON STOCK AVERAGE COST NAME COMBINATION RECEIVED PER SHARE - ---- --------------- -------------- ------------ Gregg L. Engles............... 1,352,169(1) $ 932,500 $0.69 Cletes O. Beshears............ 50,489 220,000 4.36 Hector M. Nevares............. 317,767 2,100,000 6.61 Gayle O. Beshears............. 16,370 45,000 2.75 Tracy L. Noll................. -- -- -- James Green................... 5,887 40,000 6.79 John W. Madden................ 51,495(2) 71,000 1.38 Robert L. Kaminski............ 865,367(1) 52,000 0.06 P. Eugene Pender.............. -- -- -- Robert Bartholomew............ -- (3) -- -- Robert Piccinini.............. -- -- -- Stephen L. Green.............. 847,379(4) 5,600,000 6.61 John Hancock.................. 1,542,418(5) 9,008,543 5.84 Pacific Mutual................ 968,745(6) 6,281,363 6.48 Canaan........................ 847,379(7) 5,600,000 6.61 All executive officers, directors and 5% stockholders as a group...... 6,018,086 24,350,406 4.05 All Predecessor Owners as a group................... 6,313,479 25,592,520 4.05 ____________________ (1) Includes 11,757 shares that are held subject to an option in favor of Mr. Madden. (2) Excludes 11,757 shares held by each of Messrs. Engles and Kaminski subject to options in favor of Mr. Madden. (3) Excludes 879,941 shares held by Pacific Mutual Life Insurance Company and 88,804 shares held by PM Group Life Insurance Company, each of which exercises independent voting and investment power with respect to such shares. Mr. Bartholomew, who is an officer of Pacific Mezzanine Associates, Inc., an indirect, wholly owned subsidiary of Pacific Mutual Life Insurance Company, disclaims beneficial ownership of such shares. (4) Consists solely of shares owned by Canaan Capital Limited Partnership and Canaan Capital Offshore Limited Partnership, C.V. Mr. Green may be deemed to share beneficial ownership of such shares since he serves as a general partner of the general partner of such entities and shares voting and investment power with the other general partners of the general partner of such entities. (5) Includes 1,515,977 shares held by John Hancock Mutual Life Insurance Company and 26,441 shares held by John Hancock Life Insurance Company of America, an indirect, wholly owned subsidiary of John Hancock Mutual Life Insurance Company. (6) Includes 879,941 shares held by Pacific Mutual Life Insurance Company and 88,804 shares held by PM Group Life Insurance Co., an indirect, wholly owned subsidiary of Pacific Mutual Life Insurance Company, each of which exercises independent voting and investment power with respect to such shares. (7) Includes 90,520 shares held by Canaan Capital Limited Partnership and 756,859 shares held by Canaan Capital Offshore Limited Partnership, C.V. Canaan Capital Partners, L.P., the general partner of both such entities, exercises sole voting and investment power with respect to such shares. 43 REGISTRATION RIGHTS Pursuant to the Combination Agreement, the Predecessor Owners received three demand registration rights and incidental (or piggyback) registration rights with respect to their shares of Common Stock, subject to certain limitations. See "Shares Eligible for Future Sale". STOCK OPTIONS In connection with the Combination, the Company's Board of Directors adopted the Suiza Foods Corporation Exchange Stock Option and Restricted Stock Plan (the "Exchange Plan"). Pursuant to the Exchange Plan, outstanding stock options granted by certain of the Combined Entities (the "Predecessor Options"), including Predecessor Options granted to certain executive officers and directors of the Company, were converted into options to acquire an aggregate of 586,523 shares of Common Stock of the Company, representing the number of shares of Common Stock that the holders of such Predecessor Options would have acquired if they had exercised such Predecessor Options prior to the Combination and then exchanged the equity acquired upon such exercise for shares of Common Stock in the Combination. Each option granted under the Exchange Plan has substantially the same terms as the Predecessor Option for which it was exchanged, with the same aggregate exercise price and vesting schedule. See "-- Stock Options". Pursuant to the Exchange Plan, the Company granted Messrs. C.O. Beshears, James Green and G.O. Beshears options to purchase 8,831 shares, 3,679 shares and 281,645 shares of Common Stock at a per share exercise price of $6.79 per share, $6.79 per share and $0.03 per share, respectively. The options granted to Messrs. C.O. Beshears and James Green are subject to certain vesting requirements. In addition, under the Exchange Plan, restricted stock in OC Holdings, Inc. (one of the Combined Entities) previously granted to certain executive officers, directors and employees of the Company was converted into a total of 35,321 shares of Common Stock of the Company, which shares are subject to certain restrictions on transfer. Messrs. Engles, C.O. Beshears and James Green received 9,566 shares, 11,774 shares and 5,887 shares, respectively, of restricted stock in the Company in exchange for the restricted stock in OC Holdings, Inc. owned by each of them. All shares of restricted stock awarded under the Exchange Option and Restricted Stock Plan vested immediately on grant. No additional options will be granted and no additional shares of restricted stock will be awarded under the Exchange Option and Restricted Stock Plan. PROFITS INTERESTS At the time of the Combination, Engles Dairy Holdings, Inc. ("EDH"), which was partially owned by Messrs. Engles and C.O. Beshears, received shares of Common Stock in exchange for EDH's profits interests in the Suiza Partnership and its general partner and the Velda Partnership and its general partner. These profits interests were granted to EDH as compensation for the services of EMC (Engles Management Corporation, an affiliate of Mr. Engles), in identifying, structuring and negotiating the Suiza-Puerto Rico and Velda Farms acquisitions. EDH's profits interests in such entities were fixed by mutual agreement of the partners of the Suiza Partnership and the Velda Partnership. Following the Combination, EDH was dissolved and the shares of Common Stock it received in the Combination were distributed to its stockholders. As a result, Messrs. Engles, C.O. Beshears and Madden received 359,364 shares, 17,530 shares and 40,902 shares of Common Stock, respectively. REPAYMENT OF DEBT At the time of the Combination, along with $1.0 million in prepayment penalties, the Company repaid $16.5 million in principal amount of senior indebtedness and $500,000 in principal amount of junior subordinated indebtedness owed to John Hancock by Reddy Ice, including interest accrued thereon through the date of the Combination. In addition, Suiza Foods assumed the obligations of the Combined Entities to John Hancock and Pacific Mutual with respect to an aggregate of approximately $50.7 million in principal amount of subordinated notes pursuant to a restated note purchase agreement. A portion of these notes will be repaid out of the net proceeds of the Offering. See "Use of Proceeds". 44 REDEMPTION OF PREFERRED STOCK Pursuant to the Combination, the Company paid an aggregate of approximately $5.0 million to redeem the shares of preferred stock issued to Hector M. Nevares and his sister and additional shares of preferred stock issued to Mr. Nevares by certain operating subsidiaries of Suiza-Puerto Rico in December 1993. The Company also paid accrued dividends on these shares of preferred stock. INVESTMENT BANKING AND CONSULTING FEES In connection with the acquisition of Suiza-Puerto Rico in 1993, EMC received a transaction fee of $2.0 million. EMC is an investment banking and consulting firm owned by Gregg L. Engles. EMC and Cletes O. Beshears received transaction fees in 1994 of $1.0 million and $150,000, respectively, in connection with the acquisition of Velda Farms. EMC paid an aggregate of $225,000 from the transaction fees it received in the Suiza-Puerto Rico and Velda Farms acquisitions to John W. Madden for his services in connection with such acquisitions. EMC received an additional fee of $50,000 in November 1994 in connection with the acquisition of Flav-O-Rich by Velda Farms. Since the Combination, the Company has not paid any investment banking or consulting fees to EMC, and the Company does not intend to pay any such fees in the future. STRATEGIC SERVICES AND MANAGEMENT CONSULTING AGREEMENTS At the time of the acquisition of Suiza-Puerto Rico in 1993, EMC entered into a Strategic Services Agreement with Suiza-Puerto Rico pursuant to which Suiza-Puerto Rico agreed to pay EMC an annual consulting fee of $200,000 for an initial term of three years ending in December 1996. During the period from December 16, 1993 to December 29, 1993, the year ended December 31, 1994 and during the three months ended March 31, 1995, Suiza-Puerto Rico paid approximately $8,000, $200,000 and $50,000, respectively, under this agreement. Pursuant to this agreement, EMC provided management consulting services relating to strategic and financial matters, including consultation regarding strategic acquisitions, business strategies and financial planning. EMC entered into a similar agreement with Velda Farms pursuant to which Velda Farms agreed to pay EMC an annual consulting fee of $150,000 for an initial term of three years ending in April 1997. During the period from April 10, 1994 to December 31, 1994 and during the three months ended March 31, 1995, Velda Farms paid approximately $107,500 and $37,500 under this agreement. As part of the Combination, EMC terminated these agreements. In connection with the merger of Reddy Ice with an affiliate and the related debt financing in September 1992, Reddy Ice entered into management consulting agreements with Gregg L. Engles and Robert L. Kaminski pursuant to which Reddy Ice paid each of them a consulting fee of $25,000 per month for an initial term of ten years, ending in September 2002. Under the agreements, Messrs. Engles and Kaminski provided management consulting services similar to those provided by EMC to Suiza-Puerto Rico and Velda Farms. Reddy Ice paid Messrs. Engles and Kaminski an aggregate of $600,000 during each of the years ended December 31, 1993 and 1994 and paid an aggregate of $150,000 during the three-month period ended March 31, 1995 under the agreements, which were terminated at the time of the Combination. In connection with the Combination, Mr. Kaminski entered into a new noncompetition and consulting agreement with the Company pursuant to which he received $12,500 per month in exchange for consulting services, including assisting the Company in identifying acquisition or merger candidates engaged in the business of manufacturing, distributing or selling fragmentary or block ice and in negotiating and completing such acquisitions or mergers. This agreement terminated upon completion of the IPO. The Company paid Mr. Kaminski a one-time fee of $500,000 in connection with the termination of his preexisting management consulting agreement and the execution of his new noncompetition and consulting agreement. OTHER HISTORIC RELATIONSHIPS AND RELATED TRANSACTIONS Prior to the acquisition of Suiza-Puerto Rico by the Company, Suiza-Puerto Rico paid dividends in an aggregate amount of $9.3 million in 1993 to Hector M. Nevares and his family. 45 Prior to the acquisition of Suiza-Puerto Rico by the Company in December 1993, Suiza-Puerto Rico entered into certain privately negotiated, related party transactions with the Nevares family, which transactions do not necessarily reflect terms that could have been achieved in arms'-length negotiations. Suiza-Puerto Rico paid Mr. Hector G. Nevares, the founder of Suiza-Puerto Rico and Hector M. Nevares' father, a salary of approximately $8,900 per month for consulting services provided after his retirement in April 1988 and until the acquisition of Suiza-Puerto Rico in December 1993 by the Company. In December 1989, Suiza-Puerto Rico loaned $540,000 at a 6% fixed annual interest rate to Suiza Realty S.E., a partnership owned by Hector G. Nevares, for the purchase of real estate. The loan was repaid, together with accrued and unpaid interest of $128,000, in December 1993. In connection with the formation in June 1994 of a bread bag manufacturer in which Reddy Ice was a minority investor, KECC received a transaction fee of $200,000 and a profits interest in the manufacturer. In addition, Reddy Ice issued $1.5 million in aggregate principal amount of junior subordinated pay-in-kind notes and lender warrants to purchase shares of common stock of Reddy Ice to John Hancock. The proceeds from these notes were used primarily to finance Reddy Ice's investment in the bread bag manufacturer. The warrants entitled John Hancock to purchase an aggregate of 34,127 shares of Reddy Ice common stock for an exercise price of $20.00 per share, subject to adjustment. John Hancock exercised these Reddy Ice lender warrants immediately prior to the Combination and exchanged the shares of Reddy Ice common stock acquired upon such exercise for 80,243 shares of the Company's Common Stock. Contemporaneously with the completion of the Combination, Reddy Ice sold its interest in the bread bag manufacturer to an entity formed by the equity owners of Reddy Ice at the same price Reddy Ice paid for such interest, including expenses related to the investment. In connection with this sale, this entity assumed the $1.7 million in junior subordinated pay-in-kind notes previously issued to John Hancock. John Hancock and Messrs. Engles, Kaminski, G.O. Beshears and Madden (as former equity owners of Reddy Ice) now beneficially own minority interests in the bag manufacturer. See "-- Current Relationships and Related Transactions". Reddy Ice paid approximately $55,000 and $54,000 in life insurance premiums for Gregg L. Engles during 1993 and 1994, respectively, and approximately $62,000 and $64,000 in life insurance premiums for Robert L. Kaminski during the same periods, respectively. Pursuant to a buy-sell provision contained in a shareholders' agreement, Reddy Ice, as beneficiary under the policies, was required to utilize the proceeds of such policies to purchase Mr. Engles' and Mr. Kaminski's equity interests in Reddy Ice from their estates. As part of the Combination, this agreement was terminated. FUTURE TRANSACTIONS Although the Company has no present intention to do so, it may in the future enter into other transactions and agreements incident to its business with its directors, officers, principal stockholders and other affiliates. The Company has no current procedure to resolve conflicts of interest arising from affiliated transactions; however, the Company intends for all such transactions and agreements to be on terms no less favorable to the Company than those obtainable from unaffiliated third parties on an arms'-length basis. In addition, all such transactions will be approved by a majority of the Company's disinterested directors. 46 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth the beneficial ownership of the Company's Common Stock by: (i) each stockholder beneficially owning more than 5% of the Company's outstanding Common Stock; (ii) each director of the Company; (iii) each executive officer named in the Summary Compensation Table; (iv) all executive officers and directors as a group; and (v) the Selling Stockholder as of August 31, 1996 and as adjusted to reflect the sale of shares in the Offering. PERCENT OF CLASS (1) --------------------- NUMBER OF SHARES BEFORE THE AFTER THE NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING - ------------------------ ------------------ ---------- --------- Gregg L. Engles............................. 1,361,944(2) 12.6 12.6 Cletes O. Beshears.......................... 117,271(3) 1.1 1.1 Hector M. Nevares........................... 329,267(4) 3.1 3.1 Tracy L. Noll............................... 32,775(5) * * Gayle O. Beshears........................... 309,515(6) 2.8 2.8 Robert L. Kaminski.......................... 684,518(7) 6.4 6.4 P. Eugene Pender............................ 7,400(8) * * Robert Bartholomew.......................... -- (9) * * Robert Piccinini............................ 6,900(10) * * Stephen L. Green............................ 847,379(11) 7.9 7.9 John Hancock................................ 1,723,267(12) 16.1 16.1 Pacific Mutual.............................. 968,745(13) 9.0 9.0 Canaan...................................... 847,379(14) 7.9 7.9 All executive officers and directors as a group (12 persons).......................... 3,837,355 34.0 34.0 SELLING STOCKHOLDER - ------------------- T. Rowe Price............................... 625,000(15) 5.8 --
- ------------------------ * Less than 1% (1) Percentages are based on the total number of shares outstanding, plus the total number of outstanding options that are exercisable within 60 days. (2) Includes 46,000 shares subject to options granted under the Option and Restricted Stock Plan that are exercisable within 60 days and 11,757 shares subject to an option granted by Mr. Engles in favor of John W. Madden. Mr. Engles' address is 3811 Turtle Creek Blvd., Suite 1300, Dallas, Texas 75219. (3) Includes 49,532 shares subject to options granted under the Option and Restricted Stock Plan and the Exchange Plan that are exercisable within 60 days. (4) Includes 69,264 shares held by Neva Holdings, Inc., a company wholly owned by Mr. Nevares and his family, and 11,500 shares subject to options granted under the Option and Restricted Stock Plan that are exercisable within 60 days. (5) Includes 25,875 shares subject to options granted under the Option and Restricted Stock Plan that are exercisable within 60 days. (6) Includes 293,145 shares subject to options granted under the Option and Restricted Stock Plan and the Exchange Plan that are exercisable within 60 days. (7) Includes 11,757 shares subject to an option granted by Mr. Kaminski in favor of John W. Madden. Mr. Kaminski's address is 3811 Turtle Creek Blvd., Suite 1300, Dallas, Texas 75219. (8) Includes 6,900 shares subject to options granted under the Option and Restricted Stock Plan that are exercisable within 60 days. (9) Excludes 879,941 shares held by Pacific Mutual Life Insurance Company and 88,804 shares held by PM Group Life Insurance Company, each of which exercises independent voting and investment power with respect to such shares. Mr. Bartholomew, who is an officer of Pacific Mezzanine Associates, Inc., an indirect, wholly owned subsidiary of Pacific Mutual Life Insurance Company, disclaims beneficial ownership of such shares. (10) Consists of shares subject to options granted under the Option and Restricted Stock Plan that are exercisable within 60 days. (11) Consists solely of shares owned by Canaan Capital Limited Partnership and Canaan Capital Offshore Limited Partnership, C.V. Mr. Green may be deemed to share beneficial ownership of such shares since he serves as a general partner of the general partner of such entities and shares voting and investment power with the other general partners of the general partner of such entities. Mr. Green's address is c/o Canaan Capital, 105 Rowayton Avenue, Rowayton, Connecticut 06853. 47 (12) Includes 1,694,447 shares held by John Hancock Mutual Life Insurance Company and 28,820 shares held by John Hancock Life Insurance Company of America, an indirect, wholly owned subsidiary of John Hancock Mutual Life Insurance Company. John Hancock's address is T-50th Floor, 200 Clarendon Street, Boston, Massachusetts 02117. (13) Includes 879,941 shares held by Pacific Mutual Life Insurance Company and 88,804 shares held by PM Group Life Insurance Co., an indirect, wholly owned subsidiary of Pacific Mutual Life Insurance Company, each of which exercises independent voting and investment power with respect to such shares. Pacific Mutual's address is 700 Newport Center Drive, Newport Beach, California 92660. (14) Includes 90,520 shares held by Canaan Capital Limited Partnership and 756,859 shares held by Canaan Capital Offshore Limited Partnership, C.V. Canaan Capital Partners, L.P., the general partner of both such entities, exercises sole voting and investment power with respect to such shares. Canaan's address is 105 Rowayton Avenue, Rowayton, Connecticut 06853. (15) T. Rowe Price's address is 100 East Pratt Street, Baltimore, Maryland 21202. 48 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 21,000,000 shares, of which 20,000,000 shares are Common Stock, par value $.01 per share, and 1,000,000 shares are Preferred Stock, par value $.01 per share. As of August 31, 1996 there were 10,739,729 shares of Common Stock issued and outstanding and 579,760 shares reserved for issuance upon exercise of options granted pursuant to the Exchange Plan. In addition, 1,069,500 shares of Common Stock are reserved for issuance upon exercise of options or as grants of restricted stock under the Option and Restricted Stock Plan, of which options to purchase a total of 791,978 shares of Common Stock have been granted and 6,250 shares of restricted stock have been awarded. No shares of Preferred Stock are currently outstanding. COMMON STOCK All outstanding shares of Common Stock, including the shares of Common Stock offered hereby, are duly authorized, validly issued, fully paid and nonassessable. Subject to the rights of the holders of any outstanding shares of preferred stock and any restrictions that may be imposed by any lender to the Company, holders of Common Stock are entitled to receive such dividends, if any, as may be declared by the Board of Directors out of legally available funds. In the event of the liquidation, dissolution or winding up of the Company, holders of Common Stock are entitled to share equally and ratably, based on the number of shares held, in the assets, if any, remaining after payment of all of the Company's debts and liabilities and the liquidation preference of any outstanding preferred stock. Holders of Common Stock are entitled to one vote per share for each share held of record on any matter submitted to the holders of Common Stock for a vote. Because holders of Common Stock do not have cumulative voting rights, the holders of a majority of the shares of Common Stock represented at a meeting can elect all the directors. The shares of Common Stock are neither redeemable nor convertible, and the holders thereof have no preemptive rights to subscribe for or purchase any additional shares of capital stock issued by the Company. PREFERRED STOCK The Company is authorized to issue shares of Preferred Stock in one or more series, and to designate the rights, preferences, limitations and restrictions of and upon shares of each series, including voting, redemption and conversion rights. The Board of Directors also may designate dividend rights and preferences in liquidation. It is not possible to state the actual effect of the authorization and issuance of additional series of Preferred Stock upon the rights of holders of Common Stock until the Board of Directors determines the specific terms, rights and preferences of a series of Preferred Stock. Such effects, however, might include, among other things, granting the holders of Preferred Stock priority over the holders of Common Stock with respect to the payment of dividends; diluting the voting power of the Common Stock; or granting the holders of Preferred Stock preference with respect to liquidation rights. In addition, under certain circumstances, the issuance of Preferred Stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of the Company's securities or the removal of incumbent management. SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW The Company is subject to Section 203 of the Delaware General Corporation Law ("Section 203"), which prohibits certain persons ("Interested Stockholders") from engaging in a "business combination" with a Delaware corporation for three years following the date such persons become Interested Stockholders. Interested Stockholders generally include: (i) persons who are the beneficial owners of 15% or more of the outstanding voting stock of the corporation; and (ii) persons who are affiliates or associates of the corporation and who hold 15% or more of the corporation's outstanding voting stock at any time within three years before the date on which such person's status as an Interested Stockholder is determined. Subject to certain exceptions, a "business combination" includes, among other things: (i) mergers or consolidations; (ii) the sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets having an aggregate market value equal to 10% or more of either the aggregate market value of all assets of the corporation determined on a consolidated basis or the aggregate market value of all the outstanding stock of the corporation; (iii) transactions that result in the issuance or transfer by the corporation of any stock of the corporation to the Interested Stockholder, except pursuant to a transaction that effects a pro rata distribution to all stockholders of the 49 corporation; (iv) any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series, or securities convertible into the stock of any class or series, of the corporation that is owned directly or indirectly by the Interested Stockholder; or (v) any receipt by the Interested Stockholder of the benefit (except proportionately as a stockholder) of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. Section 203 does not apply to a business combination if: (i) before a person becomes an Interested Stockholder, the board of directors of the corporation approves the transaction in which the Interested Stockholder became an Interested Stockholder or approved the business combination; (ii) upon consummation of the transaction that resulted in the Interested Stockholder becoming an Interested Stockholder, the Interested Stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commences (other than certain excluded shares); or (iii) following a transaction in which the person became an Interested Stockholder, the business combination is (a) approved by the board of directors of the corporation, and (b) authorized at a regular or special meeting of stockholders (and not by written consent) by the affirmative vote of the holders of at least two-thirds of the outstanding voting stock of the corporation not owned by the Interested Stockholder. CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL The Company's Certificate of Incorporation and Bylaws contain several provisions that could have the effect of delaying, deterring or preventing the acquisition of control of the Company by means of tender offer, open market purchases, a proxy contest or otherwise. Set forth below is a description of those provisions. CLASSIFIED BOARD OF DIRECTORS The Certificate of Incorporation divides the Board of Directors into three classes, with one class having an initial term of one year, one class having an initial term of two years and one class having an initial term of three years. Each class is as nearly equal in number as possible. At each annual meeting of stockholders, commencing with the annual meeting of stockholders held in 1995, directors will be elected to succeed those directors whose terms have expired, and each newly elected director will serve for a three-year term. The Company believes that a classified Board of Directors will help assure the continuity and stability of the Company's Board of Directors and the Company's business strategies and policies. The classified board provision could increase the likelihood that, in the event of a takeover of the Company, incumbent directors will retain their positions. In addition, the classified board provision will help ensure that the Company's board of directors, if confronted with an unsolicited proposal from a third party that has acquired a block of the voting stock of the Company, will have sufficient time to review the proposal and appropriate alternatives and to seek the best available result for all stockholders. NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES The Bylaws provide that the exact number of directors shall be fixed from time to time by the Board of Directors. With a classified board, directors may only be removed "for cause" and only by the affirmative vote of a majority of the stockholders entitled to vote. As defined in the Company's Bylaws, "for cause" means: (i) commission of an act of fraud or embezzlement against the Company; (ii) conviction of a felony or a crime involving moral turpitude; (iii) gross negligence or willful misconduct in performing the director's duties to the Company or its stockholders; or (iv) breach of fiduciary duty owed to the Company. The Bylaws also provide that vacant directorships may be filled by the Board of Directors. SPECIAL MEETINGS OF STOCKHOLDERS The Company's Bylaws provide that special meetings of stockholders may be called only by the Chief Executive Officer, and shall be called by the Chief Executive Officer or the Secretary at the written request of a majority of the Board of Directors. Special meetings may not be called by the stockholders. 50 ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS The Company's Bylaws establish advance notice procedures with regard to stockholder proposals and the nomination, other than by or at the direction of the Board of Directors or a committee thereof, of candidates for election as directors. These procedures provide that the notice of stockholder proposals and stockholder nominations for the election of directors at an annual meeting must be in writing and received by the Secretary of the Company no later than March 1 of any calendar year (or if less than 35 days' notice of a meeting of stockholders is given, stockholder nominations must be delivered to the Secretary of the Company no later than the close of business on the seventh day following the day notice was mailed). Stockholder proposals and nominations for the election of directors at a special meeting must be in writing and received by the Secretary of the Company no later than the close of business on the tenth day following the day on which notice of the meeting was mailed or public disclosure of the date of the meeting was made, whichever occurs first. The notice of stockholder nominations must set forth certain information with respect to each nominee who is not an incumbent director. CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK Under the Certificate of Incorporation, there will be as of the closing of the Offering 7,617,261 unissued and unreserved shares of Common Stock and 1,000,000 unissued and unreserved shares of Preferred Stock, after giving effect to the reservation of 579,760 shares pursuant to the Company's Exchange Plan and the reservation of 1,069,500 shares of Common Stock for issuance upon exercise of options or as grants of restricted stock under the Option and Restricted Stock Plan. The unissued and unreserved shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital and for facilitating corporate acquisitions. Except pursuant to certain employee benefit plans described in this Prospectus, the Company does not currently have any plans to issue additional shares of Common Stock or Preferred Stock. One of the effects of unissued and unreserved shares of capital stock may be to enable the Board of Directors to render more difficult or discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise, and thereby to protect the continuity of the Company's management. If, in the due exercise of its fiduciary obligations, for example, the Board of Directors determines that a takeover proposal was not in the Company's best interests, such shares could be issued by the Board of Directors without stockholder approval in one or more private transactions or other transactions that might prevent or render more difficult or costly the completion of the takeover transaction by diluting the voting or other rights of the proposed acquiror or insurgent stockholder group, by creating a substantial voting block in institutional or other hands that might undertake to support the position of the incumbent board of directors, by effecting an acquisition that might complicate or preclude the takeover, or otherwise. TRANSFER AGENT AND REGISTRAR Harris Trust and Savings Bank is the transfer agent and registrar for the Common Stock. NASDAQ NATIONAL MARKET QUOTATION The Common Stock is quoted on the Nasdaq National Market under the symbol "SWZA". SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offering, the Company will have 10,739,729 shares of Common Stock outstanding. Of these shares, the 3,795,000 shares sold in the IPO are, and the 625,000 shares sold in this Offering will be, freely tradable without restriction or further registration under the Securities Act, except for shares purchased by affiliates of the Company. The 6,313,479 shares issued in the Combination and the 6,250 shares of restricted stock issued under the Option and Restricted Stock Plan are "restricted securities" subject to holding period, volume and other resale restrictions under Rule 144 of the Securities Act ("Rule 144"). These shares will be eligible for sale in the public market upon expiration of the applicable holding periods under Rule 144 or sooner if registered under the Securities Act. 51 Under Rule 144 as currently in effect, any person (or persons whose shares are aggregated) who has beneficially owned restricted securities for at least two years is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of: (i) 1% of the then outstanding shares of the Company's Common Stock (107,397 shares immediately after the Offering); or (ii) the average weekly trading volume during the four calendar weeks immediately preceding the date on which notice of the sale is filed with the Securities and Exchange Commission. Sales pursuant to Rule 144 are also subject to certain requirements relating to the manner of sale, notice and availability of current public information about the Company. The Predecessor Owners, all of whom received shares of Common Stock or options to purchase shares of Common Stock (collectively, the "Subject Shares") in the Combination, have an aggregate of three demand registration rights requiring the Company to use its best efforts to effect the registration of their shares under the Securities Act and applicable state securities laws. The Predecessor Owners have the right to exercise two demand registration rights commencing six months and expiring three years and three months after the date of completion of the IPO, and the right to exercise one additional demand registration right commencing three years and three months and expiring five years after the date of completion of the IPO. The Company is also obligated to offer the Predecessor Owners the right to include the Subject Shares owned by them in certain registration statements filed by the Company for a period commencing six months and expiring five years after the date of completion of the IPO. The first demand registration right may be exercised by Predecessor Owners that collectively own at least 1,380,000 of the Subject Shares so long as at least 1,380,000 of the Subject Shares are offered for sale in an underwritten public offering. In order to exercise the first demand registration right between six months and one year after the date of completion of the IPO, the price of the Company's Common Stock in the public market at the time of exercise must be at least 120% of the initial public offering price. The second demand registration right may be exercised by Predecessor Owners that collectively own at least 1,035,000 of the Subject Shares so long as at least 1,035,000 of the Subject Shares are offered for sale in an underwritten public offering. No offering may be conducted upon exercise of the second demand registration right sooner than nine months after completion of the offering conducted upon exercise of the first demand registration right. The third demand registration right may be exercised by Predecessor Owners that collectively own at least 1,035,000 of the Subject Shares so long as at least 1,035,000 of the Subject Shares are offered for sale in an underwritten public offering. No offering may be conducted upon exercise of the third demand registration right sooner than nine months after completion of the offering conducted upon exercise of the second demand registration right. The third demand registration right will expire when none of the Predecessor Owners, other than Gregg L. Engles, owns more than 5% of the then-current fully diluted shares of Common Stock. The Company will have a prior right to conduct public offerings for corporate purposes and may pre-empt any registration undertaken upon exercise by the Predecessor Owners of their demand registration rights. If the Company pre-empts any demand registration, the registration will not be counted as a demand registration. If the Company pre-empts the third demand registration right so that Predecessor Owners are unable to exercise such right within the five-year period described above, then such five-year period will be extended until nine months after completion of the Company's public offering. The Company will choose the underwriter or underwriters to conduct the public offering of any Subject Shares upon exercise of the demand registration rights. The Company will indemnify the Predecessor Owners and their respective officers, directors and controlling persons for securities law liabilities in connection with any such offering, other than liabilities resulting from information furnished in writing by the Predecessor Owners. Except in certain limited instances, the Company is obligated to pay all expenses incidental to a demand registration, excluding underwriters' discounts and commissions. The Company has agreed with the Underwriters of the IPO not to offer, issue, sell, agree to sell, grant any option for the sale of or otherwise dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (except for options granted pursuant to the Option and Restricted Stock Plan) for a period of 180 days after April 17, 1996, the date of the final prospectus used in the IPO, without the prior written consent of the Representatives of the Underwriters. 52 The officers and directors of the Company and the Predecessor Owners have also agreed that for a period of 180 days after April 17, 1996, the date of the final prospectus used in the IPO, they will not offer, sell, agree to sell, grant any option to purchase or make any other disposition (excluding certain pledges) of any shares owned by them without the prior written consent of the Representatives of the Underwriters. Prior to April 1996, there has been no public market for the Common Stock, and no prediction can be made as to the effect, if any, that sales of shares of Common Stock in this Offering or otherwise, or the availability of such shares for future sale will have on the market price of the Common Stock prevailing from time to time. Sales of substantial amounts of Common Stock in the public market, or the perception that such sales could occur, could adversely affect the prevailing market price for the Common Stock. Such sales may also make it more difficult for the Company to sell equity securities or equity-related securities in the future at a time and price that it deems appropriate. LEGAL MATTERS The validity of the Common Stock will be passed upon for the Company by Hughes & Luce, L.L.P., Dallas, Texas. William A. McCormack, a partner with Hughes & Luce, L.L.P., beneficially owns 41,795 shares of Common Stock. EXPERTS The consolidated financial statements of Suiza Foods Corporation as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995; the combined financial statements of Pre-Acquisition Suiza-Puerto Rico as of December 15, 1993 and for the period from December 31, 1992 to December 15, 1993; the financial statements of Pre-Acquisition Velda Farms as of April 9, 1994 and December 31, 1993 and for the period from January 1, 1994 to April 9, 1994 and for the year ended December 31, 1993; and the financial statements of Swiss Dairy, a Corporation, as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995 appearing in this Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein. The consolidated financial statements of Garrido & Compania, Inc. as of June 30, 1996 and 1995 and for each of the years in the three year period ended June 30, 1996 have been audited by KPMG Peat Marwick LLP, independent auditors, as stated in their report appearing herein. Such financial statements are included herein in reliance upon the respective reports of such firms given upon their authority as experts in accounting and auditing. 53 INDEX TO FINANCIAL STATEMENTS PAGE ---- SUIZA FOODS CORPORATION Report of Independent Auditors - Deloitte & Touche LLP............. F-2 Consolidated Balance Sheets........................................ F-3 Consolidated Statements of Operations.............................. F-4 Consolidated Statements of Stockholders' Equity.................... F-5 Consolidated Statements of Cash Flows.............................. F-6 Notes to Consolidated Financial Statements......................... F-7 SUIZA FOODS CORPORATION Condensed Consolidated Balance Sheet (Unaudited)................... F-23 Condensed Consolidated Statements of Operations (Unaudited)........ F-24 Consolidated Statements of Cash Flows (Unaudited).................. F-25 Notes to Condensed Consolidated Financial Statements............... F-26 PRE-ACQUISITION SUIZA-PUERTO RICO Report of Independent Auditors - Deloitte & Touche LLP............. F-29 Combined Balance Sheet............................................. F-30 Combined Statement of Operations................................... F-31 Combined Statement of Stockholders' Equity......................... F-32 Combined Statement of Cash Flows................................... F-33 Notes to Combined Financial Statements............................. F-34 PRE-ACQUISITION VELDA FARMS Report of Independent Auditors - Deloitte & Touche LLP............. F-39 Balance Sheets..................................................... F-40 Statements of Operations........................................... F-41 Statements of Stockholders' Equity................................. F-42 Statements of Cash Flows........................................... F-43 Notes to Financial Statements...................................... F-44 GARRIDO & COMPANIA, INC. Report of Independent Auditors - KPMG Peat Marwick LLP............. F-50 Consolidated Balance Sheets........................................ F-52 Consolidated Statements of Earnings................................ F-53 Consolidated Statements of Changes in Stockholders' Equity......... F-54 Consolidated Statements of Cash Flows.............................. F-55 Notes to Consolidated Financial Statements......................... F-56 SWISS DAIRY Report of Independent Auditors - Deloitte & Touche LLP............. F-64 Balance Sheets..................................................... F-65 Statements of Earnings and Retained Earnings....................... F-66 Statements of Cash Flows........................................... F-67 Notes to Financial Statements...................................... F-68 F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors Suiza Foods Corporation Dallas, Texas We have audited the accompanying consolidated balance sheets of Suiza Foods Corporation and subsidiaries (the "Company") as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The consolidated financial statements give retroactive effect to the Combination of Suiza-Puerto Rico, Velda Farms and Reddy Ice, which has been accounted for as a pooling-of-interests, as described in Note 1 of the Notes to Consolidated Financial Statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Suiza Foods Corporation and subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Dallas, Texas February 18, 1996 (February 29, 1996, as to Note 13) F-2 SUIZA FOODS CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1994 AND 1995 ASSETS 1994 1995 ---------- ---------- (IN THOUSANDS) CURRENT ASSETS: Cash and cash equivalents........................ $ 5,395 $ 3,177 Accounts receivable.............................. 29,164 31,045 Inventories...................................... 10,747 11,346 Prepaid expenses and other current assets........ 1,821 1,380 Deferred income taxes............................ 866 1,448 ---------- ---------- Total current assets........................... 47,993 48,396 PROPERTY, PLANT AND EQUIPMENT...................... 90,874 92,715 INTANGIBLE AND OTHER ASSETS........................ 100,085 91,411 ---------- ---------- TOTAL.............................................. $ 238,952 $ 232,522 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses............ $ 30,945 $ 31,957 Income taxes payable............................. 266 2,415 Current portion of long-term debt................ 14,683 15,578 ---------- ---------- Total current liabilities...................... 45,894 49,950 LONG-TERM DEBT..................................... 173,327 171,745 DEFERRED INCOME TAXES.............................. 1,199 1,367 COMMITMENTS AND CONTINGENCIES MINORITY INTEREST IN SUBSIDIARIES.................. 8,645 STOCKHOLDERS' EQUITY (Note 13): Preferred stock, par value $.01; 1,000,000 shares authorized, no shares issued and outstanding..................................... Common stock, par value $.01; 20,000,000 shares authorized, 6,313,479 shares issued and outstanding, as adjusted........................ 1 63 Additional paid-in capital....................... 20,894 31,023 Warrants......................................... 580 Retained earnings (deficit)...................... (11,588) (21,626) ---------- ---------- Total stockholders' equity....................... 9,887 9,460 ---------- ---------- TOTAL.............................................. $ 238,952 $ 232,522 ---------- ---------- ---------- ---------- See notes to consolidated financial statements. F-3 SUIZA FOODS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
1993 1994 1995 ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) NET SALES......................................... $ 51,675 $ 341,108 $ 430,466 COST OF SALES..................................... 20,412 240,468 312,633 ---------- ---------- ---------- Gross profit.................................. 31,263 100,640 117,833 OPERATING COSTS AND EXPENSES: Selling and distribution........................ 15,434 54,248 64,289 General and administrative...................... 6,305 16,935 19,277 Amortization of intangibles..................... 822 3,697 3,703 ---------- ---------- ---------- Total operating costs and expenses............ 22,561 74,880 87,269 ---------- ---------- ---------- INCOME FROM OPERATIONS............................ 8,702 25,760 30,564 OTHER (INCOME) EXPENSE: Interest expense, net........................... 7,697 19,279 19,921 Merger and other costs.......................... 1,660 10,238 Other income, net............................... (419) (268) (469) ---------- ---------- ---------- Total other expense........................... 7,278 20,671 29,690 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS. 1,424 5,089 874 INCOME TAXES...................................... 4 844 2,450 ---------- ---------- ---------- INCOME (LOSS) BEFORE EXTRAORDINARY LOSS........... 1,420 4,245 (1,576) EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT........................... 197 8,462 ---------- ---------- ---------- NET INCOME (LOSS)................................. $ 1,420 $ 4,048 $ (10,038) ---------- ---------- ---------- ---------- ---------- ---------- NET EARNINGS (LOSS) PER SHARE: Income (loss) before extraordinary loss......... $ 0.57 $ 0.69 $ (0.26) Extraordinary loss.............................. (0.03) (1.38) ---------- ---------- ---------- Net income (loss)............................... $ 0.57 $ 0.66 $ (1.64) ---------- ---------- ---------- ---------- ---------- ---------- WEIGHTED AVERAGE SHARES OUTSTANDING............... 2,487,174 6,156,387 6,109,398 ---------- ---------- ---------- ---------- ---------- ----------
See notes to consolidated financial statements. F-4 SUIZA FOODS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
COMMON STOCK ADDITIONAL RETAINED ----------------------- PAID-IN EARNINGS SHARES AMOUNT CAPITAL WARRANTS (DEFICIT) TOTAL ---------- ----------- ----------- ----------- ---------- ---------- (DOLLARS IN THOUSANDS) BALANCE, JANUARY 1, 1993.................... 25,558 $ -- $ 1,068 $ 276 $ (16,752) $ (15,408) Issuance of common stock.................. 42,150 1 14,149 14,150 Issuance of warrants...................... 247 (247) -- Net income................................ 1,420 1,420 ---------- ----- ----------- ----- ---------- ---------- BALANCE, DECEMBER 31, 1993.................. 67,708 1 15,217 523 (15,579) 162 Issuance of common stock.................. 11,960 5,677 5,677 Increase in market value of warrants...... 57 (57) -- Net income................................ 4,048 4,048 ---------- ----- ----------- ----- ---------- ---------- BALANCE, DECEMBER 31, 1994.................. 79,668 1 20,894 580 (11,588) 9,887 Issuance of common stock.................. 11,832 5,080 (580) 4,500 Capital contribution (Note 13)............ 5,111 5,111 Net loss.................................. (10,038) (10,038) 69 for 1 stock split (Note 13)............ 6,221,979 62 (62) -- ---------- ----- ----------- ----- ---------- ---------- BALANCE, DECEMBER 31, 1995.................. 6,313,479 $ 63 $ 31,023 $ -- $ (21,626) $ 9,460 ---------- ----- ----------- ----- ---------- ---------- ---------- ----- ----------- ----- ---------- ----------
See notes to consolidated financial statements. F-5 SUIZA FOODS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
1993 1994 1995 ---------- ---------- ----------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss).......................................................... $ 1,420 $ 4,048 $ (10,038) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............................................ 3,476 8,244 9,258 Amortization of intangible assets, including deferred financing costs.... 995 4,876 4,686 Gain on the sale of assets............................................... (16) (177) (265) Extraordinary loss from early extinguishment of debt..................... 197 8,462 Merger and other nonrecurring costs...................................... 1,660 10,238 Noncash and imputed interest............................................. 54 483 1,087 Minority interests....................................................... 8 556 101 Deferred income taxes.................................................... 333 (414) Changes in operating assets and liabilities: Accounts and notes receivable.......................................... (259) (108) (1,881) Inventories............................................................ (344) (73) (599) Prepaid expenses and other assets...................................... 199 (222) 1,007 Accounts payable and other accrued expenses............................ 262 4,862 716 Income tax payable..................................................... (16) 254 649 ---------- ---------- ----------- Net cash provided by operating activities............................ 5,779 24,933 23,007 ---------- ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment................................. (1,207) (4,784) (10,392) Proceeds from sale of property, plant and equipment........................ 129 245 691 Sales (purchases) of cash investments and marketable securities............ 10,880 (277) Increase in investments and other assets................................... (10) (1,331) Cash outflows for acquisitions............................................. (82,783) (61,357) (2,425) ---------- ---------- ----------- Net cash used in investing activities................................ (72,991) (67,504) (12,126) ---------- ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of debt......................................... 90,500 67,585 154,505 Repayment of debt.......................................................... (33,520) (30,906) (154,387) Payments of deferred financing, debt restructuring and merger costs........ (1,660) (8,972) Issuance of common stock, net of expenses.................................. 14,150 5,677 4,087 Investments by (distributions to) minority interests....................... 151 (61) (63) Purchase of subsidiary preferred stock..................................... (8,269) ---------- ---------- ----------- Net cash provided by (used in) financing activities.................. 71,281 40,635 (13,099) ---------- ---------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................................................. 4,069 (1,936) (2,218) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................... 3,262 7,331 5,395 ---------- ---------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD..................................... $ 7,331 $ 5,395 $ 3,177 ---------- ---------- ----------- ---------- ---------- -----------
See notes to consolidated financial statements. F-6 SUIZA FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 1. THE COMBINATION Suiza Foods Corporation (the "Company" or "Suiza Foods") is a Delaware corporation, incorporated on September 19, 1994, for the sole purpose of entering into certain mergers, exchanges and related transactions (the "Combination"). On March 31, 1995, the Company completed the Combination pursuant to which the Company acquired Suiza Holdings, L.P. and subsidiaries ("Suiza-Puerto Rico"), Velda Holdings, L.P., Velda Holdings, Inc. and subsidiaries ("Velda Farms"), and Reddy Ice Corporation ("Reddy Ice") (collectively, the "Combined Entities") by engaging in certain mergers, exchanges and related transactions. Pursuant to the Combination, the Company issued 6,313,479 shares, as adjusted, of its common stock in exchange for all of the outstanding equity interests of Suiza-Puerto Rico, Velda Farms and Reddy Ice. The Company has accounted for the Combination using the pooling of interests method of accounting, whereby the assets acquired and liabilities assumed are reflected in the consolidated financial statements of the Company at the historical amounts of the Combined Entities. The operations of Suiza-Puerto Rico and Velda Farms are only included in the results of operations from the dates they were acquired in purchase business combinations (December 16, 1993, for Suiza-Puerto Rico and April 10, 1994, for Velda Farms). In connection with the Combination, the equity accounts of Suiza-Puerto Rico, Velda Farms and Reddy Ice were adjusted to allocate partners' capital and additional paid-in capital between common stock, additional paid-in capital and retained earnings based on each of the companies' historical results and the number of shares of the Company's common stock issued in the Combination. The Company had no operations until its acquisition of Suiza-Puerto Rico, Velda Farms and Reddy Ice in the Combination. Separate results of the Combined Entities preceding the Combination were as follows: UNAUDITED THREE MONTHS ENDED MARCH 1993 1994 31, 1995 --------- ---------- ------------- (IN THOUSANDS) Revenues: Suiza-Puerto Rico..................... $ 6,587 $ 191,334 $ 52,229 Velda Farms........................... 102,073 46,235 Reddy Ice............................. 45,088 47,701 6,412 --------- ---------- ------------- Total............................... $ 51,675 $ 341,108 $ 104,876 --------- ---------- ------------- --------- ---------- ------------- Net income (loss): Suiza Foods........................... $ -- $ -- $ (7,024) Suiza-Puerto Rico..................... (130) 2,211 (4,806) Velda Farms........................... 544 (219) Reddy Ice............................. 1,550 1,293 (5,941) --------- ---------- ------------- Total............................... $ 1,420 $ 4,048 $ (17,990) --------- ---------- ------------- --------- ---------- ------------- Included in net income of Reddy Ice for the year ended December 31, 1994, is an extraordinary loss from early extinguishment of debt of $.2 million. In addition, included in net losses of Suiza-Puerto Rico, Velda Farms and Reddy Ice for the three-month period ended March 31, 1995 are extraordinary losses from the early extinguishment of debt of $5.0 million (net of income tax benefit of $.1 million), $.9 million (net of income tax benefit of $.5 million) and $2.6 million, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS -- Effective with the Combination, the Company became the parent company for the operations of Suiza-Puerto Rico, Velda Farms and Reddy Ice. Suiza-Puerto Rico, which includes Suiza Dairy F-7 SUIZA FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Corporation ("Suiza Dairy"), Suiza Fruit Corporation ("Suiza Fruit") and Neva Plastics Manufacturing Corp. ("Neva Plastics"), manufactures and distributes fluid milk products and refrigerated ready-to-serve fruit drinks, and distributes refrigerated and frozen foods to various customers, including grocery stores, retail outlets and schools throughout Puerto Rico. Velda Farms manufactures and distributes fresh milk, ice cream and related products throughout peninsular Florida under its own brand names and under brands licensed from third parties. Velda Farms customers include food service accounts, convenience stores, club stores and schools. Reddy Ice manufactures and distributes ice products for retail, commercial and industrial use in Texas, Florida, Arizona, New Mexico and Nevada. The Company and its subsidiaries provide credit terms to customers generally ranging up to 30 days, perform ongoing credit evaluations of their customers and maintain allowances for potential credit losses based on historical experience. The preparation of financial statements requires the use of significant estimates and assumptions by management; actual results could differ from these estimates. PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Suiza Dairy, Suiza Fruit, Neva Plastics, Velda Farms and Reddy Ice. All significant intercompany balances and transactions are eliminated in consolidation. INVENTORIES -- Pasteurized and raw milk inventories are stated at the lower of average cost or market. Raw materials, spare parts and supplies and merchandise for resale inventories are stated at the lower of cost, using the first-in, first-out ("FIFO") method, or market. Manufactured finished goods inventories are stated at the lower of average production cost or market. Production costs include raw materials, direct labor and indirect production and overhead costs. PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, as follows:
ASSET USEFUL LIFE - ---------------------------------------------- ---------------------------------------------- Buildings and improvements.................... Ten to 40 years Machinery and equipment....................... Five to 20 years Motor vehicles................................ Five to 15 years Furniture and fixtures........................ Three to ten years
Capitalized lease assets are amortized over the shorter of their lease term or their estimated useful lives. Expenditures for repairs and maintenance which do not improve or extend the life of the assets are expensed as incurred. INTANGIBLE ASSETS -- Intangible assets include the following intangibles which are amortized over their related useful lives:
INTANGIBLE ASSET USEFUL LIFE - ---------------------------------------------- ---------------------------------------------- Goodwill...................................... Straight-line method over 20 to 40 years Identifiable intangible assets: Customer list............................... Straight-line method over seven to ten years Trademarks/trade names...................... Straight-line method over 30 years Noncompetition agreements................... Straight-line method over five to ten years Deferred financing costs...................... Interest method over the terms of the related debt (ranging from seven to 11 years) Organization costs............................ Straight-line method over five years
F-8 SUIZA FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The Company periodically assesses the net realizable value of its intangible assets, as well as all other assets, by comparing the expected future net operating cash flows, undiscounted and without interest charges, to the carrying amount of the underlying assets. The Company would evaluate a potential impairment if the recorded value of these assets exceeded the associated future net operating cash flows. Any potential impairment loss would be measured as the amount by which the carrying value exceeds the fair value of the asset. Fair value of assets would be measured by market value, if an active market exists, or by a forecast of expected future net operating cash flows, discounted at a rate commensurate with the risk involved. INTEREST RATE AGREEMENTS -- Interest rate swaps, caps and floors are entered into as a hedge against interest exposure of variable rate debt. Differences between amounts to be paid or received on these interest rate agreements designated as hedges are included in interest expense as payments are made or received. Amounts paid to acquire interest rate caps and amounts received for interest rate floors are amortized as an adjustment to interest expense over the life of the related agreement. REVENUE -- Revenue is recognized when the product is shipped to the customer. INCOME TAXES -- At the Combination date, the Company became the parent company of Suiza Dairy, Suiza Fruit, Neva Plastics, Velda Farms and Reddy Ice. Velda Farms and Reddy Ice are now included in the consolidated tax return of the Company. The Company's Puerto Rico subsidiaries, Suiza Dairy, Suiza Fruit and Neva Plastics, which are organized as Delaware companies, will be required to file separate U.S. and Puerto Rico income tax returns. Since their operations are in Puerto Rico, they are eligible for Section 936 tax credits which may reduce or eliminate U.S. income taxes due. Prior to the Combination, Suiza-Puerto Rico, Velda Farms and Reddy Ice were separate taxpayers and income taxes were provided for in the financial statements, where applicable, based on each company's separate income tax return. Suiza-Puerto Rico was organized as a U.S. limited partnership, which was not subject to income taxes, with its operating subsidiaries, Suiza Dairy, Suiza Fruit and Neva Plastics, organized under the laws of the Commonwealth of Puerto Rico. As a result, each of its operating subsidiaries was required to file a separate income tax return in Puerto Rico. Both before and after the Combination, Suiza Fruit and Neva Plastics were eligible through grants, with certain qualifications, for partial exemptions from Puerto Rico income, property and municipal taxes. The grants were originally made for ten-year terms and provide for a 90% exemption from income and property taxes and 60% exemption from municipal taxes. Reddy Ice historically qualified as a small business corporation under Section 1372 of Subchapter S of the Internal Revenue Code. Accordingly, no provision for income taxes or income tax liabilities were recorded in its financial statements since such amounts, if any, were the responsibility of the individual stockholders. Since prior to the Combination, certain of Suiza-Puerto Rico's operations were organized as a partnership and Reddy Ice's operations were organized as a small business corporation under Subchapter S, no income taxes were provided in the financial statements. However, had these operations been subject to corporate income taxes, available net operating losses would have been sufficient to eliminate any corporate income taxes due. Deferred income taxes are provided for temporary differences in the financial statement and tax bases of assets and liabilities using current tax rates. Deferred tax assets, including the benefit of net operating loss carryforwards, are evaluated based on the guidelines for realization and may be reduced by a valuation allowance. CASH EQUIVALENTS -- The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. F-9 SUIZA FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EARNINGS (LOSS) PER SHARE -- The Company computes earnings per share based on the weighted average number of common shares outstanding during the year, as adjusted for the stock split (Note 13), including common equivalent shares, when dilutive. Fully diluted earnings per share are not presented since the assumed exercise of stock options and warrants would not result in a material dilutive effect. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is evaluated by comparing future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition to the carrying amount of the asset. This new accounting principle is effective for the Company's fiscal year ending December 31, 1996. The Company believes that this new accounting principle will not have a material impact on its financial position. Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options and other equity instruments to employees based on new fair value accounting rules. Although expense recognition for employee stock based compensation is not mandatory, SFAS 123 requires companies that choose not to adopt the new fair value accounting to disclose pro forma net income and earnings per share under the new method. This new accounting principle is effective for the Company's fiscal year ending December 31, 1996. The Company intends to comply with the disclosure requirements of this new accounting principle and will not adopt fair value accounting expense recognition provisions. 3. ACQUISITIONS Effective December 16, 1993, the Company, through its Suiza-Puerto Rico subsidiaries, acquired all of the outstanding common and preferred stock of Suiza Dairy, Suiza Fruit and Neva Plastics. The total purchase price, including related acquisition and financing costs, was approximately $99.4 million, which was funded with the proceeds from partners' capital contributions, the proceeds from the issuance of subordinated notes payable of $25.0 million, term loan and revolving credit facility advances directly to the subsidiaries of $67.0 million and preferred stock issued to the seller of $5.0 million. In connection with the refinancing of debt on March 31, 1995, the term loan, revolving credit facility advances and preferred stock were repaid as part of the Combination. Effective April 10, 1994, the Company, through its Velda Farms subsidiary, acquired all of the outstanding common stock of Velda Farms, Inc., a wholly owned subsidiary of The Morningstar Group, Inc. The total purchase price, including related acquisition and financing costs, was approximately $54.8 million, which was funded with the net proceeds from the issuance of common stock, the proceeds from the issuance of subordinated notes, term loan and revolving credit facility advances, and preferred stock issued to the seller. In connection with the refinancing of debt at the date of the Combination, the term loan, revolving credit facility advances and preferred stock were repaid. Effective June 29, 1994, Suiza Dairy acquired Mayaguez Dairy, Inc. for a total purchase price, including costs and expenses, of approximately $7.6 million, which was funded primarily by additional term loan borrowings of $7.0 million. Effective November 1, 1994, Velda Farms acquired all of the net assets of the Florida Division of Flav-O-Rich, Inc. The total purchase price, including related acquisition and financing costs, was approximately $5.9 million, which was funded with revolving credit agreement borrowings, along with a subordinated note payable to the seller and an amount payable to the seller upon the final purchase price settlement, which was paid subsequent to year-end. F-10 SUIZA FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS (CONTINUED) During 1993, 1994 and 1995, the Company's Reddy Ice subsidiary entered into noncompetition arrangements and acquired certain property, plant and equipment of eight separate ice companies for cash, including costs and expenses, of approximately $.4 million in 1993, $.3 million in 1994 and $2.4 million in 1995, along with the issuance of notes payable to the sellers of approximately $.4 million in 1993, $.4 million in 1994 and $.1 million in 1995. The above acquisitions were accounted for using the purchase method of accounting as of their respective acquisition dates, and accordingly, only the results of operations of the acquired companies subsequent to their respective acquisition dates are included in the consolidated financial statements of the Company. At the acquisition date, the purchase price was allocated to assets acquired, including identifiable intangibles, and liabilities assumed based on their fair market values. The excess of the total purchase prices over the fair values of the net assets acquired represented goodwill. In connection with the acquisitions, assets were acquired and liabilities were assumed as follows: 1993 1994 1995 ---------- ---------- --------- (IN THOUSANDS) Purchase prices: Cash paid for capital stock........... $ 82,783 $ 61,357 $ 2,425 Subsidiary preferred stock issued..... 5,000 3,000 Notes and amounts payable to seller... 365 4,495 91 Cash acquired in acquisitions......... 12,035 142 ---------- ---------- --------- Total purchase prices................... 100,183 68,994 2,516 Fair values of net assets acquired: Fair values of assets acquired........ 92,680 53,590 2,317 Liabilities assumed................... (43,400) (10,924) ---------- ---------- --------- Total net assets acquired............... 49,280 42,666 2,317 ---------- ---------- --------- Goodwill................................ $ 50,903 $ 26,328 $ 199 ---------- ---------- --------- ---------- ---------- --------- The following table presents unaudited pro forma results of operations of the Company for the year ended December 31, 1994, as if the above 1994 acquisitions had occurred at the beginning of 1994. There was no material pro forma impact of the acquisitions in 1995. (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales............................................. $ 426,626 ------------- ------------- Income before extraordinary loss...................... $ 7,447 ------------- ------------- Net income............................................ $ 7,250 ------------- ------------- Earnings per share.................................... $ 1.14 ------------- ------------- The unaudited pro forma results of operations are not necessarily indicative of what the actual results of operations of the Company would have been had the acquisitions occurred at the beginning of 1994, nor do they purport to be indicative of the future results of operations of the Company. Subsequent to year-end, the Company, through its Velda Farms subsidiary, acquired certain assets of Skinners' Dairy, Inc. for a purchase price of $2.7 million. The acquisition was funded with additional term loan borrowings under the Senior Credit Facility. There was no material pro forma impact of the acquisition. F-11 SUIZA FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. ACCOUNTS RECEIVABLE 1994 1995 --------- --------- (IN THOUSANDS) Trade customers, including route receivables...... $ 24,731 $ 28,435 Milk industry and milk price stabilization fund... 3,539 1,839 Suppliers......................................... 497 604 Customer financing receivables.................... 516 353 Officers and employees............................ 388 425 Other............................................. 709 737 --------- --------- 30,380 32,393 Less allowance for doubtful accounts.............. (1,216) (1,348) --------- --------- $ 29,164 $ 31,045 --------- --------- --------- --------- 5. INVENTORIES 1994 1995 --------- --------- (IN THOUSANDS) Pasteurized and raw milk and raw materials....... $ 3,725 $ 4,278 Parts and supplies............................... 3,075 3,105 Finished goods................................... 3,458 3,355 Merchandise purchased for resale................. 489 608 --------- --------- $ 10,747 $ 11,346 --------- --------- --------- --------- 6. PROPERTY, PLANT AND EQUIPMENT 1994 1995 ---------- ---------- (IN THOUSANDS) Land.............................................. $ 15,587 $ 15,582 Buildings and improvements........................ 30,392 33,264 Machinery and equipment........................... 42,338 47,119 Motor vehicles.................................... 9,140 9,994 Furniture and fixtures............................ 16,421 18,219 ---------- ---------- 113,878 124,178 Less accumulated depreciation and amortization.... (23,004) (31,463) ---------- ---------- $ 90,874 $ 92,715 ---------- ---------- ---------- ---------- 7. INTANGIBLE AND OTHER ASSETS 1994 1995 ---------- --------- (IN THOUSANDS) Goodwill.......................................... $ 78,304 $ 78,503 Identifiable intangibles.......................... 16,552 13,374 Deferred financing costs.......................... 9,964 6,018 Organization costs................................ 745 Investments....................................... 1,936 89 Deposits and other................................ 1,488 905 ---------- --------- 108,989 98,889 Less accumulated amortization..................... (8,904) (7,478) ---------- --------- $ 100,085 $ 91,411 ---------- --------- ---------- --------- F-12 SUIZA FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. INTANGIBLE AND OTHER ASSETS (CONTINUED) In 1994, the Company's Reddy Ice subsidiary invested $1.2 million, including expenses, to acquire a less than 20% partnership interest in a plastic bread bag manufacturer which was accounted for using the cost method whereby no earnings or losses are recognized until distributions are made. This investment was funded through $1.5 million of junior subordinated notes, a portion of which was required to be maintained in an investment collateral account. Immediately prior to the Combination, Reddy Ice distributed this investment to an entity formed by the stockholders of Reddy Ice at its carrying value in consideration for cash and the assumption by this entity of the existing junior subordinated note and the related investment collateral account used to fund the investment. 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES 1994 1995 --------- --------- (IN THOUSANDS) Accounts payable.................................. $ 19,949 $ 21,689 Accrued payroll and benefits...................... 3,468 6,965 Accrued interest.................................. 3,274 1,845 Amount payable for acquisition.................... 1,672 Other............................................. 2,582 1,458 --------- --------- $ 30,945 $ 31,957 --------- --------- --------- --------- 9. LONG-TERM DEBT 1994 1995 ---------- ---------- (IN THOUSANDS) Senior credit facility: Revolving loan facility......................... $ -- $ 10,900 Term loans...................................... 123,750 Senior and subordinated debt subsequently repaid.. 135,142 Subordinated notes................................ 50,430 51,101 Capital lease obligations and other............... 2,438 1,572 ---------- ---------- 188,010 187,323 Less current portion.............................. (14,683) (15,578) ---------- ---------- $ 173,327 $ 171,745 ---------- ---------- ---------- ---------- SENIOR CREDIT FACILITY -- Simultaneously with the Combination, the Company entered into a senior credit facility (the "Senior Credit Facility") with a syndicate of banks with the Chase Manhattan Bank, N.A., as agent, providing for an aggregate senior credit facility of $160.0 million, which included: (i) a $57.0 million term loan for its mainland United States operations; (ii) a $78.0 million term loan for its Puerto Rico operations; (iii) a $20.0 million revolving credit facility for its mainland United States operations; and (iv) a $5.0 million revolving credit facility for its Puerto Rico operations. Under the terms of the Senior Credit Facility, each term loan is amortized over seven years. The revolving credit facilities expire at the end of five years. Amounts outstanding under the Senior Credit Facility bear interest at a rate per annum equal to one of the following rates, at the Company's option: (i) a base rate (Base Rate) equal to the higher of the Federal Funds rate plus 50 basis points or the Chase Manhattan Bank's prime commercial lending rate plus a margin that varies from 0 to 75 basis points depending on the Company's ratio of defined indebtedness to EBITDA (as defined in the Senior Credit Facility); or (ii) a LIBOR rate plus a margin that varies from 75 to 200 basis points depending on the Company's ratio of defined indebtedness to EBITDA. The Company pays F-13 SUIZA FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. LONG-TERM DEBT (CONTINUED) a commitment fee on unused amounts of the revolving facility that ranges from 20 basis points to 37.5 basis points, based on the Company's ratio of debt to EBITDA. The blended interest rate in effect at December 31, 1995, on the Senior Credit Facility was 7.8%. Interest is payable quarterly, and scheduled principal installments on the term loan facilities are due in quarterly installments of approximately $3.8 million through March 1997, $4.4 million for each quarter thereafter through March 1998, $5.0 million for each quarter thereafter through March 2000, $5.6 million for each quarter thereafter through March 2001 and $6.3 million for each quarter thereafter through March 2002. Loans under the Senior Credit Facility are collateralized by substantially all assets. Borrowings under the revolving credit facility are limited to 85% of eligible accounts receivable and 50% of eligible inventories. The proceeds from this Senior Credit Facility were used to repay outstanding senior and certain subordinated debt of the Company's subsidiaries, including Suiza-Puerto Rico's and Velda Farms' term loan and revolving credit facility advances, and Reddy Ice's senior secured notes, subordinated notes, certain junior subordinated notes, senior bridge loan and certain other debt, and to redeem the outstanding preferred stock of Suiza-Puerto Rico and Velda Farms. SUBORDINATED NOTES -- On March 31, 1995, the Company issued subordinated notes in the Combination to replace certain of the existing subordinated notes of each of Suiza-Puerto Rico, Velda Farms and Reddy Ice. The subordinated notes bear interest at rates ranging from 12% to 15% (13.2% on a weighted average basis), payable on a semiannual basis in March and September of each year, with semi-annual principal installments due in varying amounts commencing in 2001, with the remaining unpaid principal balances due at maturity on March 31, 2004. Certain of the subordinated notes contain provisions which allow the Company to pay a portion of the interest through the issuance of additional notes. The notes are subordinated to the loans under the Senior Credit Facility. OTHER DEBT -- Other debt includes a mortgage note payable which was collateralized by one of the Reddy Ice properties, various promissory notes for the purchase of property, plant and equipment and capital lease obligations. The mortgage note payable provided for interest at the prime interest rate, plus 1%, payable monthly with principal payments through January 1996. The various promissory notes payable provided for interest at rates ranging from 10% to prime plus 1% and were payable in monthly installments of principal and interest until maturity, when the remaining principal balance was due. Capital lease obligations represent machinery and equipment financing obligations which are payable in monthly installments of principle and interest and are collateralized by the related assets financed. INTEREST RATE AGREEMENTS -- During 1994, the Company entered into interest rate cap agreements to hedge against future impacts of increases in interest rates. The cap agreements have three-year terms and notional values of $40.0 million and $14.0 million, and cap the interest rate on LIBOR loans at 6% plus the LIBOR margin and 7.5% plus the LIBOR margin, respectively. In July 1995, the Company entered into an interest rate floor agreement and received an up-front payment of $250,000. The floor agreement expires in December 1996, has a notional value of $40.0 million and sets an interest floor of 6% plus the LIBOR margin. The up-front payment is being amortized over the life of the floor agreement. During 1995, the Company also entered into two interest rate swap agreements, which mature on June 30, 1998, to fix the interest on a notional amount of $55.0 million at a fixed cost of 6% plus the LIBOR margin. The Company has designated these interest rate agreements as hedges against its interest rate exposure on its variable rate loans under the Senior Credit Facility. The Company is exposed to market risk under these swap arrangements due to the possibility of exchanging a lower interest rate for a higher interest rate. The counterparties are major financial institutions and the risk of incurring losses related to credit risk is considered by the Company to be remote. F-14 SUIZA FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. LONG-TERM DEBT (CONTINUED) DEBT COVENANTS -- The Company's Senior Credit Facility contains various financial and other restrictive covenants and requirements that the Company maintain certain financial ratios, including leverage (computed as the ratio of the aggregate outstanding principal amount of defined indebtedness to EBITDA, as defined), fixed charges (computed as the ratio of EBITDA to defined fixed charges), interest coverage (computed as the ratio of EBITDA to defined interest expense) and minimum net worth. The Senior Credit Facility also contains limitations on capital expenditures, investments, the payment of dividends and the incurrence of additional indebtedness and requires certain mandatory prepayments from the proceeds of certain dispositions of property. SCHEDULED MATURITIES -- The scheduled maturities of long-term debt, which include capitalized lease obligations, at December 31, 1995, were as follows (in thousands): 1996.............................................. $ 15,578 1997.............................................. 17,401 1998.............................................. 19,648 1999.............................................. 20,129 2000.............................................. 21,895 Thereafter........................................ 92,672 --------- $ 187,323 --------- --------- 10. LEASES The Company leases certain property, plant and equipment used in its operations under both capital and operating lease agreements. Such leases, which are primarily for machinery and equipment and vehicles, have lease terms ranging from two to nine years. Certain of the operating lease agreements require the payment of additional rentals for maintenance, based on miles driven or units produced. Rent expense, including additional rent, was $.6 million, $4.5 million and $6.3 million for the years ended December 31, 1993, 1994 and 1995, respectively. The composition of capital leases which are reflected as property, plant and equipment in the balance sheets at December 31, 1994 and 1995, is as follows: 1994 1995 --------- --------- (IN THOUSANDS) Machinery and equipment........................... $ 2,854 $ 2,518 Less accumulated amortization..................... (573) (814) --------- --------- $ 2,281 $ 1,704 --------- --------- --------- --------- F-15 SUIZA FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. LEASES (CONTINUED) Future minimum payments at December 31, 1995, under noncancelable capital and operating leases with terms in excess of one year are summarized below (in thousands): CAPITAL OPERATING LEASES LEASES ----------- ----------- 1996.............................................. $ 470 $ 4,310 1997.............................................. 185 4,146 1998.............................................. 151 3,270 1999.............................................. 112 2,293 2000.............................................. 2,057 Thereafter........................................ 3,071 ----- ----------- Total minimum lease payments.................. 918 $ 19,147 ----------- ----------- Less amount representing imputed interest......... (69) ----- Present value of capitalized lease obligations.... $ 849 ----- ----- 11. INCOME TAXES There is no material provision for income taxes during 1993 primarily as a result of Reddy Ice's S corporation election and net operating losses. The provision for income taxes for the years ended December 31, 1994 and 1995, excluding the tax benefit of $669,000 applicable to the extraordinary loss during 1995, are as follows: 1994 1995 --------- --------- (IN THOUSANDS) Current taxes payable (refundable): Federal......................................... $ 491 $ 2,763 State........................................... 20 101 Deferred income taxes............................. 333 (414) --------- --------- $ 844 $ 2,450 --------- --------- --------- --------- The following is a reconciliation of income taxes reported in the statements of operations: DECEMBER 31, -------------------- 1994 1995 --------- --------- Tax expense at statutory rates.................... $ 1,959 $ 306 Tax benefit from tax-exempt earnings.............. (2,745) (1,532) Tax expense from losses not subject to taxes at the corporate level........................... 1,612 Minority interest................................. 84 35 Net operating loss carryforwards.................. 1,344 188 Nondeductible expenses............................ 202 1,841 --------- --------- $ 844 $ 2,450 --------- --------- --------- --------- F-16 SUIZA FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. INCOME TAXES (CONTINUED) The tax effects of temporary differences giving rise to deferred income tax assets and liabilities were: DECEMBER 31, -------------------- 1994 1995 --------- --------- Deferred income tax assets: Asset valuation reserves........................ $ 157 $ 326 Nondeductible accruals.......................... 1,024 1,122 Net operating loss carryforwards................ 914 1,989 Valuation allowance............................. (1,229) (1,989) --------- --------- 866 1,448 --------- --------- Deferred income tax liabilities: Depreciation.................................... (203) 312 Amortization of intangibles..................... (996) (1,185) Foreign distributions and other................. (494) --------- --------- 1,199 1,367 --------- --------- Net deferred income tax asset (liability)....... $ (333) $ 81 --------- --------- --------- --------- The Company has established a valuation allowance for deferred tax assets of the Company's Suiza Dairy subsidiary in Puerto Rico. The deferred tax assets of this subsidiary represent primarily net operating loss carryforwards, which, under Puerto Rico law, are only available for utilization against future taxable income of this subsidiary. Because of the continuing operating losses of this subsidiary, the Company has been unable to determine that it is more likely than not that the net deferred tax assets of this subsidiary will be realized. Should the Company's Suiza Dairy subsidiary become profitable in future periods, this valuation allowance may be reduced or eliminated. The Company will continue to review this valuation allowance on a quarterly basis and make adjustments as appropriate. During 1995, the Company increased the valuation allowance as a result of operating losses incurred and reversals of deferred tax assets by its Suiza Dairy subsidiary in 1995 which increased this subsidiary's net operating loss carryforwards. 12. MINORITY INTEREST Prior to the Combination, minority interest included common equity interests of approximately $.4 million representing an interest in the common stock of certain subsidiaries, along with shares of preferred stock of certain subsidiaries with cumulative liquidation values aggregating $8.0 million plus cumulative unpaid dividends of between 5% and 9% annually. The charges for minority interest in the statements of operations, which are reflected in other income, were $.6 million and $.1 million for the years ended December 31, 1994 and 1995, respectively, and represented accrued dividends and the minority shareholders interest in net income of the respective subsidiary. In connection with the Combination, the Company acquired the remaining outstanding shares of certain of its subsidiaries, redeemed outstanding preferred stock and paid cumulative dividends. 13. STOCKHOLDERS' EQUITY CAPITAL SHARES -- Authorized capital shares of the Company include 10,000 shares (1,000,000 shares as of February 29, 1996) of preferred stock with a par value of $.01 per share and 200,000 shares (20,000,000 shares as of February 29, 1996) of common stock with a par value of $.01 per share. There have been no shares of preferred stock issued by the Company. The rights and preferences of preferred stock are F-17 SUIZA FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. STOCKHOLDERS' EQUITY (CONTINUED) established by the Company's board of directors upon issuance. In connection with the Combination, the Company issued 1,973,049 shares of common stock in exchange for outstanding equity interests held by Reddy Ice investors; 3,415,558 shares of common stock in exchange for outstanding equity interests held by Suiza-Puerto Rico investors; and 924,872 shares of common stock in exchange for outstanding equity interests held by Velda Farms investors. The Company also granted the previous owners two demand registration rights as well as incidental registration rights and additional registration rights, effective upon the Company becoming eligible for registration on Form S-3, with respect to their shares of common stock, subject to certain limitations. Effective upon the closing of the Company's first underwritten public offering, these registration rights will terminate and the previous owners will receive three new demand registration rights and incidental registration rights subject to certain limitations. In connection with the acquisitions of Suiza-Puerto Rico and Velda Farms, profits interests were granted to certain individuals, through an affiliate, as compensation for services in identifying, structuring and negotiating these acquisitions. Immediately prior to the Combination, the existing owners of Suiza-Puerto Rico and Velda Farms fixed this profits interest by mutual agreement and exchanged equity interests among investors and these individuals. In connection with this exchange, the Company recorded a compensation expense charge to merger expense of $5.1 million, which approximated the fair value of these interests, and resulted in a capital contribution in the same amount. COMMON STOCK SPLIT -- On February 28, 1996, the Company's Board of Directors authorized a 69 for 1 stock split in the form of a common stock dividend payable to stockholders of record on February 29, 1996. In addition, on the same date, the Board of Directors authorized the increase in the number of authorized shares of preferred and common stock to 1,000,000 shares and 20,000,000 shares, respectively. All references in the consolidated financial statements to number of common shares outstanding and per share amounts, and all references to common stock issued, stock options and related prices in the notes to the consolidated financial statements have been restated to reflect the split. STOCK OPTION AND RESTRICTED STOCK PLANS -- In connection with the Combination, the Company adopted an exchange option and restricted stock plan, whereby the outstanding stock options granted by the Combined Entities were converted into options to acquire 586,523 shares of common stock on substantially the same terms as the prior options. These options are exercisable at prices ranging from $.03 to $6.79 per share, which approximated the fair market value of such shares at the date of original grant. At December 31, 1995, 579,760 of such options were outstanding, of which 480,450 were exercisable at prices ranging from $.03 to $6.79 per share. The options vest ratably in five annual increments and may be exercised, to the extent vested, over the ten-year period following the award date. Concurrently with the Combination, the Company adopted the Option and Restricted Stock Plan (the "Plan"), which provides for grants of incentive and nonqualified stock options and awards of restricted stock to directors and key employees of the Company or its subsidiaries of up to 1,069,500 shares, provided that no more than 379,500 shares may be awarded as restricted stock. Under the terms of the Plan, the options vest ratably over a three year period, except for options granted to outside directors, which vest immediately. The Plan also provides that the exercise price of stock options will not be less than the fair market value on the date of grant, and in the case of an incentive stock option granted to an employee owning more than 10% of the common stock of the Company on the date of grant, not less than 110% of the fair market value. In connection with the Combination, on March 31, 1995, the Company's Board of Directors granted 474,375 options pursuant to the Plan at an exercise price per share of $10.51. In addition, during the remainder of 1995, the Company granted options for an additional 3,450 shares at the same exercise price per share. At F-18 SUIZA FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. STOCKHOLDERS' EQUITY (CONTINUED) December 31, 1995, 477,825 options were outstanding at an exercise price of $10.51 per share, of which 3,450 shares were exercisable. Subsequent to December 31, 1995, the Board of Directors authorized the grant of options for 159,253 shares at an exercise price of $12.32 per share. WARRANTS -- Prior to the Combination, Suiza-Puerto Rico, Velda Farms and Reddy Ice had entered into various warrant agreements with their subordinated and junior subordinated noteholders which granted such holders the right to purchase equity interests in each of the companies. These warrants were exercisable, in whole or in part, at various dates through December 31, 2005. Immediately prior to the Combination, all warrant holders exercised their warrants to acquire equity interests in Suiza-Puerto Rico, Velda Farms and Reddy Ice in consideration for aggregate proceeds of $4.1 million. As a result, such warrant holders became equity holders of each of Suiza-Puerto Rico, Velda Farms and Reddy Ice, and received shares of the Company's common stock in the Combination. 14. EMPLOYEES SAVINGS AND PROFIT SHARING PLAN The Company's subsidiaries each sponsor an employees savings and profit sharing plan. Employees who have completed one or more years of service and have met other requirements pursuant to the plans are eligible to participate in the plans. The employees participating in the plan can generally make contributions to the plan of between 6% and 8% of their annual compensation, and each of the subsidiaries can elect to match such contributions. During the years ended December 31, 1994 and 1995, the Company expensed contributions to the plan of approximately, $.8 million and $.8 million, respectively. There were no material contributions during 1993. 15. MERGER AND OTHER COSTS MERGER AND OTHER COSTS -- During 1994 and 1995, in connection with the Combination, the Company incurred merger and other costs of $1.7 million and $10.2 million, respectively, which consisted of the costs associated with the negotiation of the merger and preparation of related merger documents and agreements, financial consulting costs and other costs related to the Combination of $1.4 million and $8.8 million in 1994 and 1995, respectively; and other non-operating costs of $.3 million and $1.4 million, respectively. During 1995, these other merger costs related to the Combination included a one-time $.5 million payment to cancel an existing management consulting agreement; a one-time tax cost of $1.5 million to convert the Company's Puerto Rico operating subsidiaries to United States corporations; the write-off of $.4 million in unamortized organization costs; and $5.1 million to recognize compensation expense related to the issuance of common stock in exchange for the profits interest in Suiza-Puerto Rico and Velda Farms (Note 13), which resulted in a capital contribution in the same amount. Other non-operating costs included $.3 million of bank fees in 1994 related to the funding of bridge loans to repay certain indebtedness prior to the Combination, and during 1995, $.7 million of costs associated with several uncompleted acquisitions and $.7 million of costs associated with an uncompleted debt offering. EXTRAORDINARY LOSS -- During 1994 and 1995, as a result of the repayment of outstanding indebtedness, the Company expensed approximately $.2 million and $8.5 million (net of income tax benefit of $.7 million), respectively, of debt issuance, legal and other costs associated with extinguishment of prior credit facilities. These amounts have been classified as an extraordinary loss in accordance with the provisions of Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses From the Extinguishment of Debt." F-19 SUIZA FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. SUPPLEMENTAL CASH FLOW INFORMATION
DECEMBER 31, ------------------------------- 1993 1994 1995 --------- --------- --------- (IN THOUSANDS) Cash paid for interest.................................................. $ 6,136 $ 16,929 $ 17,226 Cash paid for taxes..................................................... 362 1,432 Noncash transactions: Issuance of subsidiary preferred stock in connection with acquisitions......................................................... 5,000 3,000 Issuance of subordinated notes and amounts payable to the seller in connection with acquisitions......................................... 365 4,495 91 Dividends payable or paid in additional preferred stock on subsidiary stock................................................................ 10 197 Distribution of investment and related debt in a bread bag manufacturer to stockholders of Reddy Ice............................ 1,534 Acquisition of minority interest common stock and exercise of warrants............................................................. 993 Compensation expense recorded as a capital contribution............... 5,111 Subordinated notes issued in lieu of interest......................... 430 671
17. COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries are parties, in the ordinary course of business, to certain claims and litigation. In management's opinion, the settlement of such matters is not expected to have a material impact on the consolidated financial statements. In connection with the Combination, the Company entered into employment agreements with certain officers which provided for minimum compensation levels and incentive bonuses along with provisions for termination of benefits in certain circumstances. The Company also entered into a consulting and noncompetition arrangement with a former officer for a period of three years providing for monthly payments of $12,500 for services to be rendered in the future. 18. RELATED PARTY TRANSACTIONS Prior to the Combination, the Company had consulting agreements with certain stockholders and affiliates requiring the payment of monthly consulting fees, plus expenses, in consideration for financial advisory and oversight services provided to it by such stockholders. These consulting agreements, which were cancelable only at the option of such stockholders over their term, were canceled in the Combination. During the years ended December 31, 1993, 1994 and 1995, the Company expensed $.6 million, $.9 million and $.2 million, respectively, plus expenses under the provisions of these agreements, which are included in general and administrative expenses. In addition, the Company paid an affiliate of one of its stockholders investment banking fees of $2.0 million and $1.1 million, along with related expenses, during the years ended December 31, 1993 and 1994, respectively, for acquisition and financing services, which were included as part of the costs and expenses of the acquisition. F-20 SUIZA FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. BUSINESS AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS Information about the Company's operations in the Dairy and Ice businesses and in different geographic areas for the three years ended December 31, 1995, is as follows:
1993 1994 1995 ---------- ---------- ---------- (IN THOUSANDS) Net sales to unaffiliated customers: Dairy: United States................................. $ -- $ 102,073 $ 175,553 Puerto Rico................................... 6,587 191,334 204,406 ---------- ---------- ---------- 6,587 293,407 379,959 Ice -- United States............................ 45,088 47,701 50,507 ---------- ---------- ---------- Total....................................... $ 51,675 $ 341,108 $ 430,466 ---------- ---------- ---------- ---------- ---------- ---------- Operating income: Dairy: United States................................. $ -- $ 4,848 $ 8,772 Puerto Rico................................... 92 12,274 13,614 ---------- ---------- ---------- 92 17,122 22,386 Ice -- United States............................ 8,610 8,638 9,218 Corporate....................................... (1,040) ---------- ---------- ---------- Total....................................... $ 8,702 $ 25,760 $ 30,564 ---------- ---------- ---------- ---------- ---------- ---------- Identifiable assets (at end of period): Dairy: United States................................. $ -- $ 68,781 $ 68,852 Puerto Rico................................... 121,501 125,207 119,977 ---------- ---------- ---------- 121,501 193,988 188,829 Ice -- United States............................ 46,447 44,964 40,519 Corporate....................................... 3,174 ---------- ---------- ---------- Total....................................... $ 167,948 $ 238,952 $ 232,522 ---------- ---------- ---------- ---------- ---------- ---------- Capital expenditures: Dairy........................................... $ 312 $ 3,364 $ 6,676 Ice............................................. 895 1,420 3,573 Corporate....................................... 143 ---------- ---------- ---------- Total....................................... $ 1,207 $ 4,784 $ 10,392 ---------- ---------- ---------- ---------- ---------- ---------- Depreciation expense: Dairy........................................... $ 217 $ 4,943 $ 5,995 Ice............................................. 3,259 3,301 3,263 ---------- ---------- ---------- Total....................................... $ 3,476 $ 8,244 $ 9,258 ---------- ---------- ---------- ---------- ---------- ----------
20. FAIR VALUE OF FINANCIAL INSTRUMENTS Pursuant to SFAS No. 107, "Disclosure About Fair Value of Financial Instruments", the Company is required to disclose an estimate of the fair value of the Company's financial instruments as of December 31, 1994 and 1995. Differences between the historical presentation and estimated fair values can occur for many reasons, including taxes, commissions, prepayment penalties, make-whole provisions and other restrictions as well as the inherent limitations in any estimation technique. F-21 SUIZA FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) Due to their near-term maturities, the carrying amounts of accounts receivable and accounts payable are considered equivalent to fair value. In addition, because the interest rates on the Company's revolving credit and term loan facilities and certain other debt are variable, their fair values approximate their carrying values. Certain of the Company's long-term debt bears fixed interest rates and is privately placed with unique terms and no active market. The fair value of such long-term debt was determined by discounting future cash flows at current market yields. In addition, the Company has entered into various interest rate agreements to reduce the Company's sensitivity to changes in interest rates on its variable rate debt. The fair values of these instruments were determined based on current values for similar instruments with similar terms. The following is a summary of the asset (liability) values for both the carrying values and fair values of such instruments: DECEMBER 31, ---------------------------------------------- 1994 1995 ---------------------- ---------------------- HISTORICAL HISTORICAL CARRYING CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE ---------- ---------- ---------- ---------- (IN THOUSANDS) (IN THOUSANDS) Fixed rate debt............... $ (91,929) $ (85,121) $ (52,472) $ (53,621) Interest rate agreements...... 333 630 -- (1,220) F-22 SUIZA FOODS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS December 31, June 30, 1995 1996 ------------ ----------- (Unaudited) (In thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,177 $ 1,179 Accounts receivable 31,045 33,670 Inventories 11,346 12,245 Prepaid expenses and other current assets 1,380 1,644 Deferred income taxes 1,448 1,587 -------- -------- Total current assets 48,396 50,325 PROPERTY, PLANT AND EQUIPMENT 92,715 95,955 INTANGIBLE AND OTHER ASSETS 91,411 91,693 -------- -------- TOTAL $232,522 $237,973 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 31,957 $ 29,998 Income Taxes Payable 2,415 1,023 Current portion of long-term debt 15,578 9,556 -------- -------- Total current liabilities 49,950 40,577 LONG-TERM DEBT 171,745 134,334 DEFERRED INCOME TAXES 1,367 2,273 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, par value $.01; 20,000,000 shares authorized, 10,108,479 shares issued and outstanding, as adjusted 63 101 Additional paid-in capital 31,023 79,593 Retained earnings (deficit) (21,626) (18,905) -------- -------- Total stockholders' equity 9,460 60,789 -------- -------- TOTAL $232,522 $237,973 -------- -------- -------- -------- See notes to condensed consolidated financial statements F-23 SUIZA FOODS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 1995 1996 1995 1996 --------- --------- --------- --------- (Dollars in thousands, except share data) NET SALES $ 110,029 $ 116,272 $ 214,905 $ 225,307 COST OF SALES 78,983 83,302 157,652 165,917 --------- --------- --------- --------- GROSS PROFIT 31,046 32,970 57,253 59,390 OPERATING COSTS AND EXPENSES: Selling and distribution 15,997 17,180 31,391 32,682 General and Administration 5,112 4,884 10,271 9,805 Amortization of intangibles 914 1,023 1,949 1,960 --------- --------- --------- --------- Total operating costs and expenses 22,023 23,087 43,611 44,447 --------- --------- --------- --------- INCOME FROM OPERATIONS 9,023 9,883 13,642 14,943 OTHER (INCOME) EXPENSE: Interest expense, net 5,088 3,872 10,437 8,488 Merger and other costs 1,466 10,304 Other income, net (83) (172) (273) (252) --------- --------- --------- --------- Total other expense 6,471 3,700 20,468 8,236 --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 2,552 6,183 (6,826) 6,707 INCOME TAXES 220 1,630 731 1,771 --------- --------- --------- --------- INCOME (LOSS) BEFORE EXTRAORDINARY LOSS 2,332 4,553 (7,557) 4,936 EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBT - (2,215) (8,462) (2,215) --------- --------- --------- --------- NET INCOME (LOSS) $ 2,332 $ 2,338 $ (16,019) $ 2,721 --------- --------- --------- --------- --------- --------- --------- --------- NET EARNINGS (LOSS) PER SHARE: Income (loss) before extraordinary loss $ 0.37 $ 0.46 $ (1.28) $ 0.58 Extraordinary loss 0.00 (0.22) (1.43) (0.26) --------- --------- --------- --------- Net Income (loss) $ 0.37 $ 0.24 $ (2.71) $ 0.32 --------- --------- --------- --------- --------- --------- --------- --------- WEIGHTED AVERAGE SHARES OUTSTANDING 6,313,000 9,921,715 5,905,000 8,455,332 --------- --------- --------- --------- --------- --------- --------- --------- See notes to condensed consolidated financial statements F-24 SUIZA FOODS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six months ended June 30, (Dollars in thousands) ------------------------- 1995 1996 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (16,019) $ 2,721 Operating activities: Depreciation and amortization 4,571 4,479 Amortization of intangible assets, including deferred financing costs 2,617 2,297 (Gain) loss on the sales of assets (150) 20 Extraordinary loss from early extinguishment of debt 8,462 2,215 Merger costs 10,304 Noncash and imputed interest 670 236 Minority interests 101 Deferred income taxes (1,083) 767 Changes in operating assets and liabilities: Accounts receivable (5,333) (2,625) Inventories (602) (899) Prepaid expenses and other assets (482) 37 Accounts payable and other accrued expenses 2,738 (1,959) Income tax payable 2,207 (511) --------- -------- Net cash provided by operating activities 8,001 6,778 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (5,264) (7,984) Proceeds from the sale of property, plant and equipment 286 245 Cash outflows for acquisitions (1,520) (4,176) --------- -------- Net cash used in investing activities (6,498) (11,915) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of debt 146,700 8,653 Repayment of debt (139,405) (52,322) Payment of deferred financing, debt restructuring and merger costs (8,972) (1,800) Issuance of common stock, net of expenses 4,087 48,608 Distributions to minority interests (63) Purchase of subsidiary preferred stock (8,269) - --------- -------- Net cash (used in) provided by financing activities (5,922) 3,139 --------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (4,419) (1,998) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,395 3,177 --------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 976 $ 1,179 --------- -------- --------- -------- See notes to condensed consolidated financial statements F-25 SUIZA FOODS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated financial statements as of June 30, 1996 and for the three-month and six-month periods ended June 30, 1996 have been prepared by Suiza Foods Corporation (the "Company" or "Suiza Foods") without audit. In the opinion of management, all necessary adjustments (which include only normal recurring adjustments) to present fairly, in all material respects, the consolidated financial position, results of operations and cash flows as of and for the three-month and six-month periods ended June 30, 1996 have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. These financial statements should be read in conjunction with the Company's 1995 financial statements contained in its Form S-1 as filed with the Securities and Exchange Commission on March 1, 1996, as amended. 2. INVENTORIES June 30, 1996 -------- Pasteurized and raw milk and raw materials $ 4,018 Parts and supplies 3,966 Finished goods 4,261 -------- $ 12,245 -------- -------- 3. LONG-TERM DEBT June 30, 1996 -------- Senior credit facility: Revolving loan facility $ 12,298 Term loans 94,544 Subordinated notes 36,000 Capital lease obligations and other debt 1,048 -------- 143,890 Less: current portion (9,556) -------- $134,334 -------- -------- On April 22, 1996, the Company issued 3,795,000 shares of common stock, $.01 par value per share, in a public offering (the "Offering") at an issue price of $14 per share. The Offering F-26 SUIZA FOODS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 1996 3. LONG-TERM DEBT (Continued) provided net cash proceeds to the Company of approximately $49 million. Of this amount, $31.5 million was used to repay senior debt, $15.7 million was used to repay the Company's 15% subordinated notes and $1.8 million was used to pay prepayment penalties related to the early extinguishment of the 15% subordinated notes. As a result of these transactions, the Company recorded a $2.2 million extraordinary loss from extinguishment of debt which included $1.8 million in prepayment penalties and $1.3 million for the write-off of deferred financing costs related to the repaid debt, net of a tax benefit of $0.9 million. On July 19, 1996, the Company amended its senior credit facilities to borrow $35 million to complete the Garrido acquisition (see footnote 5, "Subsequent Events"). Pursuant to this amendment, the Company's term loans were combined into a single, $130 million U.S. based facility. Quarterly amortization payments beginning September 30, 1996 will be $2.5 million, increasing to: 1) $3.75 million on September 30, 1997; 2) $5.0 million on September 30, 1998; 3) $5.375 million on September 30, 1999; 4) $6.0 million on September 30, 2000; 5) $9.875 on September 30, 2001 with a final installment of $19.75 due on March 3, 2002. 4. ACQUISITIONS During the quarter, the Company paid approximately $2.7 million to acquire seven small ice businesses. Estimated annual sales of these seven ice companies was $2.4 million. 5. STOCKHOLDERS' EQUITY On April 22, 1996, the Company issued 3,795,000 shares of common stock, $.01 par value per share, in a public offering at a price to the public of $14.00 per share. Following this offering, the Company had 10,108,479 shares of common stock issued and outstanding. On August 7, 1996, the Company issued 625,000 shares of common stock, $.01 par value per share (see footnote 6, "Subsequent Events"). Following this private sale, the Company had 10,739,729 shares of common stock issued and outstanding. 6. SUBSEQUENT EVENTS On July 19, 1996, the Company acquired the common stock of Garrido y Compania, Inc. ("Garrido"). The total purchase price was approximately $35 million (inclusive of acquired cash) which was paid at closing plus an additional future cash payment of up to $5.5 million if certain earnings criteria are met during the first eighteen months of Garrido's post-acquisition operating results. The cash paid at closing was funded by additional borrowings under senior loan facilities. This acquisition was accounted for using the purchase method of accounting as of the effective date, and accordingly, only the results of operations of Garrido subsequent to the F-27 SUIZA FOODS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) June 30, 1996 6. SUBSEQUENT EVENTS (Continued) acquisition date will be included in the consolidated financial statements of the Company. The Puerto Rico Agricultural Tax Incentives Act of 1995 provides a 50% tax credit for certain "eligible investments" in qualified agricultural businesses in Puerto Rico. The Company is currently investigating whether its investment in Garrido or other recent transactions regarding its other Puerto Rico based operations will qualify for these tax credits. If the Company qualifies for such tax credits, there can be no assurance as to the amounts or timing of any benefits that the Company may realize. On July 31, 1996, the Company announced that it had signed a non-binding letter of intent to acquire Swiss Dairy Corporation of Riverside, California. There are no assurances that this acquisition will be consummated. It is the Company's plan to finance this potential acquisition with additional borrowings from it senior lenders by obtaining an amendment to its existing credit facilities. On August 7, 1996, the Company issued 625,000 shares of common stock, $.01 par value per share, in a private sale to an institutional investor an issue price of $16.00 per share. The private sale provided net cash proceeds to the Company of approximately $9.5 million, which was used to repay a portion of the amounts borrowed under the Company's revolving credit facility. The Company has agreed to file a registration statement with respect to these shares within 60 days of issuance. F-28 INDEPENDENT AUDITORS' REPORT To the Board of Directors Suiza Dairy Corporation Suiza Fruit Corporation Neva Plastics Manufacturing Corp. We have audited the accompanying combined balance sheet of Suiza Dairy Corporation and subsidiary, Borinquen Dairy, Inc., Suiza Fruit Corporation and Neva Plastics Manufacturing Corp. (collectively referred to as "Pre-acquisition Suiza-Puerto Rico") as of December 15, 1993, and the related combined statements of operations, stockholders' equity and cash flows for the period from December 31, 1992 to December 15, 1993. These financial statements are the responsibility of Pre-acquisition Suiza-Puerto Rico's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the combined financial position of Pre-acquisition Suiza-Puerto Rico as of December 15, 1993, and the results of their combined operations and cash flows for the period from December 31, 1992 to December 15, 1993, in conformity with generally accepted accounting principles. On December 16, 1993, as discussed in Note 1, the Pre-acquisition Suiza-Puerto Rico companies were acquired by Suiza Holdings, L.P. DELOITTE & TOUCHE LLP Dallas, Texas April 15, 1994 F-29 PRE-ACQUISITION SUIZA-PUERTO RICO COMBINED BALANCE SHEET DECEMBER 15, 1993 ASSETS CURRENT ASSETS: Cash............................................ $11,303,709 Marketable securities........................... 9,788,501 Accounts receivable (Note 2).................... 10,017,470 Inventories (Note 3)............................ 3,987,522 Prepaid expenses and other current assets....... 1,561,185 ---------- Total current assets.......................... 36,658,387 PROPERTY, PLANT AND EQUIPMENT (Note 4)............ 31,134,998 INTANGIBLE AND OTHER ASSETS (Note 5).............. 564,082 ---------- TOTAL............................................. $68,357,467 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Revolving credit facility advances (Note 7)..... $17,565,233 Accounts payable and accrued expenses (Note 6).. 10,940,482 Income tax payable (Note 9)..................... 28,029 Current portion of long-term debt (Note 7)...... 13,074,206 ---------- Total current liabilities..................... 41,607,950 COMMITMENTS AND CONTINGENCIES (Notes 8 and 12) COMBINED STOCKHOLDERS' EQUITY: Preferred stock................................. 6,922,700 Common stock.................................... 8,998,741 Additional paid-in capital...................... Retained earnings............................... 10,828,076 ---------- Total equity.................................. 26,749,517 ---------- TOTAL............................................. $68,357,467 ---------- ---------- See notes to combined financial statements. F-30 PRE-ACQUISITION SUIZA-PUERTO RICO COMBINED STATEMENT OF OPERATIONS PERIOD FROM DECEMBER 31, 1992 TO DECEMBER 15, 1993 PERIOD ENDED DECEMBER 15, 1993 (50 WEEKS) -------------- NET SALES................................................ $ 174,770,747 COST OF SALES............................................ 135,020,164 -------------- GROSS PROFIT............................................. 39,750,583 OPERATING EXPENSES: Selling and distribution............................... 21,664,253 General and administrative............................. 6,263,115 Amortization of intangibles............................ 103,529 -------------- Total operating expenses............................. 28,030,897 -------------- OPERATING INCOME......................................... 11,719,686 OTHER (INCOME) EXPENSE: Interest expense, including amortization of deferred financing costs.............................. 2,407,316 Interest income........................................ (1,228,133) Other.................................................. (106,640) -------------- Total other expense.................................. 1,072,543 -------------- INCOME BEFORE INCOME TAXES............................... 10,647,143 INCOME TAX BENEFIT (Note 9).............................. (2,246,209) -------------- NET INCOME............................................... $ 12,893,352 -------------- -------------- See notes to combined financial statements. F-31 PRE-ACQUISITION SUIZA-PUERTO RICO COMBINED STATEMENT OF STOCKHOLDERS' EQUITY PERIOD FROM DECEMBER 31, 1992 TO DECEMBER 15, 1993
ADDITIONAL PREFERRED PAID-IN RETAINED STOCK COMMON STOCK CAPITAL EARNINGS TOTAL ------------ ------------ ----------- ------------- ------------- BALANCE, DECEMBER 31, 1992................ $ 6,922,700 $ 8,529,306 $ 439,694 $ 7,279,515 $ 23,171,215 Distribution of net assets of the fruit business of Suiza Dairy Corporation to form Suiza Fruit Corporation........... 469,435 (439,694) (29,741) -- Net income for the period ended December 15, 1993............................... 12,893,352 12,893,352 Dividends............................... (9,315,050) (9,315,050) ------------ ------------ ----------- ------------- ------------- BALANCE, DECEMBER 15, 1993................ $ 6,922,700 $ 8,998,741 $ -- $ 10,828,076 $ 26,749,517 ------------ ------------ ----------- ------------- ------------- ------------ ------------ ----------- ------------- -------------
See notes to combined financial statements. F-32 PRE-ACQUISITION SUIZA-PUERTO RICO COMBINED STATEMENT OF CASH FLOWS PERIOD FROM DECEMBER 31, 1992 TO DECEMBER 15, 1993 PERIOD ENDED DECEMBER 15, 1993 (50 WEEKS) ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................... $ 12,893,352 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 4,874,100 Amortization of intangibles and other assets, including deferred financing costs.................... 103,529 Change in deferred income taxes........................ (2,734,497) Gain on sale of marketable securities.................. (679,112) Changes in operating assets and liabilities: Accounts receivable.................................. 2,590,937 Inventories.......................................... 99,600 Prepaid expenses and other assets.................... (467,560) Accounts payable and other accrued expenses.......... (600,638) Income tax payable................................... (3,703,506) ------------- Net cash provided by operating activities.......... 12,376,205 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities....................... (9,819,875) Proceeds from sale of marketable securities.............. 11,290,693 Capital expenditures..................................... (3,758,983) Collection of note receivable............................ 540,000 ------------- Net cash used in investing activities.............. (1,748,165) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of debt....................... 16,702,291 Repayments of debt....................................... (4,315,389) Cash dividends........................................... (14,994,428) ------------- Net cash used in financing activities.............. (2,607,526) ------------- INCREASE IN CASH........................................... 8,020,514 CASH AT BEGINNING OF PERIOD................................ 3,283,195 ------------- CASH AT END OF PERIOD...................................... $ 11,303,709 ------------- ------------- See notes to combined financial statements. F-33 PRE-ACQUISITION SUIZA-PUERTO RICO NOTES TO COMBINED FINANCIAL STATEMENTS PERIOD FROM DECEMBER 31, 1992 TO DECEMBER 15, 1993 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BUSINESS -- Suiza Dairy Corporation and its wholly owned subsidiary, Borinquen Dairy, Inc., Suiza Fruit Corporation (formed effective January 1, 1993, through the distribution of the net assets of the fruit business of Suiza Dairy Corporation) and Neva Plastics Manufacturing Corp. (collectively, "Pre-Acquisition Suiza-Puerto Rico" or "Suiza-Puerto Rico") were affiliated companies in Puerto Rico under common control and management. Accordingly, combined financial statements are presented for the operations of these affiliated companies. All significant intercompany balances and transactions were eliminated in combination. Effective December 16, 1993, Pre-Acquisition Suiza-Puerto Rico was acquired by Suiza Holdings, L.P. (a limited partnership) which was organized under the laws of the State of Delaware in December 1993 as a holding company for its Puerto Rico subsidiaries, Suiza Dairy Corporation (formerly Engles Acquisition D, Inc.), Suiza Fruit Corporation (formerly Engles Acquisition F, Inc.) and Neva Plastics Manufacturing Corp. (formerly Engles Acquisition P, Inc.) to effect the acquisition of the combined companies. Suiza-Puerto Rico manufactures and distributes fluid milk products and refrigerated ready-to-serve fruit drinks, and distributes refrigerated and frozen foods to various customers, including grocery stores, retail outlets and schools throughout Puerto Rico. Suiza-Puerto Rico provides credit terms to certain customers generally ranging from 15 to 30 days, performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses based on historical experience. MARKETABLE SECURITIES -- Marketable securities consist principally of U.S. government securities and are stated at the lower of cost or market at the balance sheet date. Dividends and interest income are accrued as earned. The cost of marketable securities sold is determined on the specific identification method for recognizing realized gains or losses on sales of marketable securities. INVENTORIES -- Pasteurized and raw milk inventories are stated at the lower of average cost or market. Raw materials, spare parts and supplies, and merchandise for resale inventories are stated at the lower of cost, using the first-in, first-out ("FIFO") method, or market. Manufactured finished goods inventories are stated at the lower of average production cost or market. Production costs include raw materials, direct labor and indirect production and overhead costs. PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, as follows: ASSET USEFUL LIFE - -------------------------------------------------- --------------------- Buildings and improvements........................ Ten to 40 years Machinery and equipment........................... Five to 20 years Motor vehicles.................................... Five to 15 years Furniture and fixtures............................ Three to ten years Capitalized lease assets are amortized over the shorter of their lease term or their estimated useful lives. Expenditures for repairs and maintenance which do not improve or extend the life of the assets are expensed as incurred. INTANGIBLES AND OTHER ASSETS -- Intangibles and other assets include primarily goodwill which is amortized over 40 years using the straight-line method. Suiza-Puerto Rico periodically assesses the net realizable value of its intangible assets, as well as all other assets, by comparing the expected future net operating cash flows, undiscounted and without interest charges, to the carrying amount of the underlying assets. Suiza-Puerto Rico would evaluate a potential impairment if the recorded value of these assets exceeded the associated future net operating cash flows. F-34 PRE-ACQUISITION SUIZA-PUERTO RICO NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Any potential impairment loss would be measured as the amount by which the carrying value exceeds the fair value of the asset. Fair value of assets would be measured by market value, if an active market exists, or by a forecast of expected future net operating cash flows, discounted at a rate commensurate with the risk involved. REVENUE -- Revenue is recognized when the product is shipped to the customer. INCOME TAXES -- Suiza Dairy Corporation, Suiza Fruit Corporation and Neva Plastics Manufacturing Corp. were all organized under the laws of the Commonwealth of Puerto Rico, and as a result, each is required to file a separate income tax return in Puerto Rico. Accordingly, Puerto Rico income taxes are provided for in the combined financial statements based on each company's separate Puerto Rico tax returns. Suiza Fruit Corporation and Neva Plastics Manufacturing Corp. have been granted, with certain qualifications, partial exemptions from Puerto Rico income, property and municipal taxes. The grants were originally made to extend for a period of ten years and provide for a 90% exemption from income and property taxes and a 60% exemption from municipal taxes. Deferred income taxes are provided for in the combined financial statements for temporary differences in the financial statement and tax bases of assets and liabilities using current tax rates in effect in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." There are no material temporary differences which give rise to deferred income taxes. CASH EQUIVALENTS -- Suiza-Puerto Rico considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. 2. ACCOUNTS RECEIVABLE DECEMBER 15, 1993 ----------------- Trade customers, including route receivables............... $ 7,811,936 Milk industry and milk price stabilization fund............ 750,406 Suppliers.................................................. 292,058 Customer financing receivables............................. 683,207 Officers and employees..................................... 330,578 Other...................................................... 499,285 ----------------- 10,367,470 Less allowance for doubtful accounts....................... (350,000) ----------------- $ 10,017,470 ----------------- ----------------- Trade customers accounts receivable include $1,656,000 of route receivables. 3. INVENTORIES DECEMBER 15, 1993 ----------------- Pasteurized and raw milk................................... $ 771,571 Raw materials.............................................. 821,606 Spare parts and supplies................................... 1,573,743 Manufactured finished goods................................ 306,860 Merchandise purchased for resale........................... 513,742 ----------------- $ 3,987,522 ----------------- ----------------- F-35 PRE-ACQUISITION SUIZA-PUERTO RICO NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 4. PROPERTY, PLANT AND EQUIPMENT DECEMBER 15, 1993 ----------------- Land....................................................... $ 997,112 Buildings and improvements................................. 12,888,499 Machinery and equipment.................................... 24,355,356 Motor vehicles............................................. 9,770,939 Furniture and fixtures..................................... 3,059,807 ----------------- 51,071,713 Less accumulated depreciation and amortization............. (19,936,715) ----------------- $ 31,134,998 ----------------- ----------------- 5. INTANGIBLE AND OTHER ASSETS DECEMBER 15, 1993 ----------------- Goodwill................................................... $ 722,187 Deposits and other......................................... 2,100 -------- 724,287 Less accumulated amortization.............................. (160,205) -------- $ 564,082 -------- -------- 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES DECEMBER 15, 1993 ----------------- Accounts payable........................................... $ 8,318,021 Accrued payroll and benefits............................... 1,638,505 Accrued interest........................................... 41,672 Other...................................................... 942,284 ----------------- $ 10,940,482 ----------------- ----------------- 7. DEBT DECEMBER 15, 1993 ----------------- Revolving credit facility advances......................... $ 17,565,233 ----------------- ----------------- Long-term debt: Debt repaid upon acquisition............................. $ 12,279,991 Capitalized lease obligations (Note 8)................... 794,215 ----------------- 13,074,206 Less current portion....................................... (13,074,206) ----------------- $ -- ----------------- ----------------- In connection with the acquisition by Suiza Holdings, L.P. described in Note 1, the Pre-acquisition Suiza-Puerto Rico debt, including revolving credit facility advances, were assumed and repaid on December 16, 1993. CAPITAL LEASE OBLIGATIONS AND OTHER -- Capital lease obligations represent primarily machinery and equipment financing obligations which are payable in monthly installments of principal and interest and are collateralized by the related assets financed. F-36 PRE-ACQUISITION SUIZA-PUERTO RICO NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 8. LEASES Suiza-Puerto Rico leases certain property, plant and equipment used in its operations under both capital and operating lease agreements. Such leases, which are primarily for equipment and vehicles, have lease terms ranging from five to seven years. Certain of the operating lease agreements require the payment of additional rentals based on units produced. Rent expense, including additional rent, was $351,000 for the period from December 31, 1992 to December 15, 1993. 9. INCOME TAXES The following is a reconciliation of income taxes reported in the combined statements of operations: PERIOD ENDED DECEMBER 15, 1993 (50 WEEKS) ------------- Tax expense at statutory rates............................. $ 4,473,031 Tax benefit from tax-exempt earnings....................... (4,348,317) Deferred tax benefit....................................... (2,734,497) Other...................................................... 363,574 ------------- $ (2,246,209) ------------- ------------- During 1993, the Department of Treasury of the Commonwealth of Puerto Rico completed an examination of Suiza Dairy Corporation's income tax returns through fiscal year 1992. As the result of this examination, the Department of Treasury assessed Suiza Dairy Corporation additional taxes to recapture tax deductions taken for flexible depreciation in prior years. During the period ended December 15, 1993, an agreement was reached with the Department of Treasury of the Commonwealth of Puerto Rico whereby Suiza Dairy Corporation agreed to pay $3,000,000 (including interest assessed of $604,000) to settle all claims related to flexible depreciation and to eliminate any temporary differences related to depreciation in the future. As a result of this settlement of all flexible depreciation claims, excess deferred tax liabilities of $2,734,497 were recognized as a tax benefit. 10. EMPLOYEES SAVINGS AND PROFIT SHARING PLAN The companies sponsor an employees savings and profit sharing plan. Employees who are both 21 years of age and have completed one or more years of service are eligible to participate in the plan. The employees participating in the plan can make contributions to the plan of up to 8% of their annual compensation, and the companies can elect to match such contributions, at the discretion of the boards of directors. The matching amount during 1993 was set at a rate of $.75 for each dollar contributed by the employees. In addition, the companies can make an additional profit sharing contribution at the discretion of the companies' boards of directors. During the period from December 31, 1992 to December 15, 1993, Suiza-Puerto Rico accrued profit sharing expense of $828,000. 11. SUPPLEMENTAL CASH FLOW INFORMATION Cash used to pay interest during the period from December 31, 1992 to December 15, 1993, amounted to approximately $2,313,000. Cash used to pay taxes during the period from December 31, 1992 to December 15, 1993, amounted to approximately $1,084,000. Noncash transactions during the period ended December 15, 1993, included the distribution of the net assets of the fruit business of Suiza Dairy Corporation to stockholders and the contribution of such net assets to Suiza Fruit Corporation in exchange for the issuance of common stock in the amount of $548,358. F-37 PRE-ACQUISITION SUIZA-PUERTO RICO NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 12. COMMITMENTS AND CONTINGENCIES The companies are a party, in the ordinary course of business, to certain claims and litigation. In management's opinion, the settlement of such matters is not expected to have a material impact on the combined financial statements. F-38 INDEPENDENT AUDITORS' REPORT To the Board of Directors Velda Farms, Inc. Dallas, Texas We have audited the accompanying balance sheets of Velda Farms, Inc. (a wholly owned subsidiary of The Morningstar Group, Inc. ("Pre-acquisition Velda Farms")) as of April 9, 1994 and December 31, 1993, and the related statements of operations, equity (deficit) and cash flows for the period from January 1, 1994 to April 9, 1994, and for the year ended December 31, 1993. These financial statements are the responsibility of Pre-acquisition Velda Farms' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Pre-acquisition Velda Farms at April 9, 1994 and December 31, 1993 and the results of its operations and its cash flows for the period from January 1, 1994 to April 9, 1994 and the year ended December 31, 1993 in conformity with generally accepted accounting principles. Effective April 10, 1994, as discussed in Note 1, Pre-acquisition Velda Farms was acquired by Velda Holdings, Inc. and Velda Holdings, L.P. DELOITTE & TOUCHE LLP Dallas, Texas November 4, 1994 F-39 PRE-ACQUISITION VELDA FARMS BALANCE SHEETS DECEMBER 31, 1993 AND APRIL 9, 1994 ASSETS DECEMBER 31, 1993 APRIL 9, 1994 ------------- ------------- CURRENT ASSETS: Cash........................................... $ 2,219 $ 1,425 Accounts receivable (Note 2)................... 10,066,504 12,072,851 Inventories (Note 3)........................... 4,063,307 3,925,354 Prepaid expenses and other current assets...... 31,882 228,627 ------------- ------------- Total current assets......................... 14,163,912 16,228,257 PROPERTY, PLANT AND EQUIPMENT (Note 4)........... 13,627,432 13,425,470 INTANGIBLE AND OTHER ASSETS (Note 5)............. 10,423,366 10,213,730 ------------- ------------- TOTAL............................................ $ 38,214,710 $ 39,867,457 ------------- ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable and accrued expenses (Note 6). $ 8,597,223 $ 9,398,931 Intercompany payables to parent................ 899,021 1,010,578 Current portion of long-term debt (Note 7)..... 87,021 76,061 ------------- ------------- Total current liabilities.................... 9,583,265 10,485,570 LONG-TERM DEBT (Note 7).......................... 30,497,325 30,517,346 COMMITMENTS AND CONTINGENCIES (Notes 8 and 12) STOCKHOLDERS' EQUITY (DEFICIT): Common stock, par value $1.00 per share; 1,000 shares authorized, issued and outstanding....... 1,000 1,000 Retained earnings (deficit).................... (1,866,880) (1,136,459) ------------- ------------- Total equity (deficit)....................... (1,865,880) (1,135,459) ------------- ------------- TOTAL............................................ $ 38,214,710 $ 39,867,457 ------------- ------------- ------------- ------------- See notes to financial statements. F-40 PRE-ACQUISITION VELDA FARMS STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1993 PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1994 PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1993 1994 -------------- ------------- NET SALES...................................... $ 125,907,847 $ 38,268,830 COST OF SALES.................................. 95,145,659 29,462,819 -------------- ------------- Gross profit............................... 30,762,188 8,806,011 OPERATING EXPENSES: Selling and distribution..................... 20,459,855 5,901,185 General and administrative................... 3,789,260 1,009,012 Amortization of intangibles.................. 797,174 178,449 Parent administrative allocation............. 1,270,937 257,720 Parent restructuring allocation.............. 1,022,761 -------------- ------------- Total operating expenses................... 27,339,987 7,346,366 -------------- ------------- INCOME FROM OPERATIONS......................... 3,422,201 1,459,645 OTHER (INCOME) EXPENSE: Interest expense, including amortization of deferred financing costs................. 2,546,343 639,058 Other........................................ (34,260) 90,166 -------------- ------------- Total other expense........................ 2,512,083 729,224 -------------- ------------- INCOME BEFORE INCOME TAXES..................... 910,118 730,421 INCOME TAXES (Note 9).......................... -------------- ------------- NET INCOME..................................... $ 910,118 $ 730,421 -------------- ------------- -------------- ------------- See notes to financial statements. F-41 PRE-ACQUISITION VELDA FARMS STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEAR ENDED DECEMBER 31, 1993 AND PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1994
ADDITIONAL RETAINED COMMON PAID-IN EARNINGS STOCK CAPITAL (DEFICIT) TOTAL ----------- ----------- ------------- ------------- BALANCE, JANUARY 1, 1993......................... $ 1,000 $ -- $ (2,776,998) $ (2,775,998) Net income..................................... 910,118 910,118 ----------- ----------- ------------- ------------- BALANCE, DECEMBER 31, 1993....................... 1,000 -- (1,866,880) (1,865,880) Net income for the period from January 1, 1994 to April 9, 1994......................... 730,421 730,421 ----------- ----------- ------------- ------------- BALANCE, APRIL 9, 1994........................... $ 1,000 $ -- $ (1,136,459) $ (1,135,459) ----------- ----------- ------------- ------------- ----------- ----------- ------------- -------------
See notes to financial statements. F-42 PRE-ACQUISITION VELDA FARMS STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, 1993 AND PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1994
PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1993 1994 ------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................................................ $ 910,118 $ 730,421 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................................... 1,308,366 344,728 Amortization of intangible assets, including deferred financing costs........... 913,626 210,034 Changes in operating assets and liabilities: Accounts receivable........................................................... (848,604) (2,006,347) Inventories................................................................... 148,046 137,953 Prepaid expenses and other assets............................................. (3,048) (197,143) Accounts payable and other accrued expenses................................... 975,773 801,708 ------------- ------------- Net cash provided by operating activities................................... 3,404,277 21,354 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures.............................................................. (336,023) (122,745) ------------- ------------- Net cash used in investing activities....................................... (336,023) (122,745) CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of debt................................................................ (57,157) (10,960) Net repayments of intercompany payables........................................... (3,010,703) 111,557 ------------- ------------- Net cash provided by (used in) financing activities......................... (3,067,860) 100,597 ------------- ------------- INCREASE (DECREASE) IN CASH......................................................... 394 (794) CASH AT BEGINNING OF PERIOD......................................................... 1,825 2,219 ------------- ------------- CASH AT END OF PERIOD............................................................... $ 2,219 $ 1,425 ------------- ------------- ------------- -------------
See notes to financial statements. F-43 PRE-ACQUISITION VELDA FARMS NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1993 AND PERIOD FROM JANUARY 1, 1994 TO APRIL 9, 1994 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BUSINESS -- Velda Farms, Inc. ("Pre-acquisition Velda Farms" or "Velda Farms") was a wholly owned subsidiary of The Morningstar Group Inc. (the "Parent"). Effective April 10, 1994, Velda Holdings, Inc. and Velda Holdings, L.P. (a limited partnership) acquired Velda Farms, Inc. from the Parent. Velda Farms manufactures and distributes fresh milk, ice cream and related products throughout peninsular Florida under its own brand names and under brands licensed from third parties to various customers, including food service accounts, convenience stores, club stores and schools. Velda Farms provides credit terms to customers generally ranging to up to 30 days, performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses based on historical experience. INVENTORIES -- Pasteurized and raw milk inventories are stated at the lower of average cost or market. Raw material, packaging material and case and container inventories are stated at the lower of cost, using the first-in, first-out ("FIFO") method, or market. Manufactured finished goods inventories are stated at the lower of average production cost or market. Production costs include raw materials, direct labor and indirect production and overhead costs. PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at cost. Depreciation and amortization is provided using the straight-line method over the estimated useful lives of the assets, as follows:
ASSET USEFUL LIFE - ----------------------------------------------------------------------- --------------------- Buildings and improvements............................................. Ten to 40 years Machinery and equipment................................................ Five to 20 years Furniture and fixtures................................................. Three to ten years
Capitalized lease assets are amortized over the shorter of their lease term or their estimated useful lives. Expenditures for repairs and maintenance which do not improve or extend the life of the assets are expensed as incurred. INTANGIBLE ASSETS -- Intangible assets include the following intangibles which are amortized over their related useful lives:
INTANGIBLE ASSET USEFUL LIFE - ------------------------------------- ------------------------------------------------------- Goodwill............................. Straight-line method over 40 years Customer list........................ Straight-line method over eight years Other identifiable intangibles....... Straight-line method over five to 15 years Deferred financing costs............. Interest method over the terms of the related debt
Velda Farms periodically assesses the net realizable value of its intangible assets as well as all other assets by comparing the expected future net operating cash flows, undiscounted and without interest charges, to the carrying amount of the underlying assets. Velda Farms would evaluate a potential impairment if the recorded value of these assets exceeded the associated future net operating cash flows. Any potential impairment loss would be measured as the amount by which the carrying value exceeds the fair value of the asset. Fair value of assets would be measured by market value, if an active market exists, or by a forecast of expected future net operating cash flows, discounted at a rate commensurate with the risk involved. REVENUE -- Revenue is recognized when the product is shipped to the customer. INCOME TAXES -- Pre-acquisition Velda Farms was included in the consolidated tax return of the Parent. Current and deferred income tax expense was allocated to Pre-acquisition Velda Farms by the Parent in F-44 PRE-ACQUISITION VELDA FARMS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) accordance with the provisions of Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under SFAS 109, deferred income taxes are provided for temporary differences in the financial statement and tax bases of assets and liabilities using the current tax rates in effect. Deferred tax assets, including the benefit for net operating loss carryforwards, are evaluated based on the guidelines in SFAS 109 for realization and may be reduced by a valuation allowance. As of December 31, 1993 and April 9, 1994, there were no material amounts of current or deferred income tax liabilities included in the Pre-acquisition Velda Farms intercompany payable account. CORPORATE ALLOCATIONS -- The Parent has allocated certain assets and liabilities, such as goodwill, deferred financing costs, other intangibles and debt, to Pre-acquisition Velda Farms in accordance with the Pre-acquisition Velda Farms' pro rata share of such assets and liabilities. In addition, the Parent has allocated significant expenses to Pre-acquisition Velda Farms using the following allocation bases:
EXPENSE ALLOCATION BASE - ------------------------------------------ --------------------------------------------------------------------- Interest expense.......................... 8% on the balance of the note payable to Parent Amortization of intangibles............... As described in "Intangible Assets" above Corporate, general and administrative expense.................................. Corporate overhead costs for accounting and finance, executive, human resources, legal, management information systems and certain other corporate departments, which consist primarily of salary costs, were allocated based on the percentage of sales, property, employees, specific product sales and number of data processing users of Pre-acquisition Velda Farms to the Parent's consolidated amounts Profit sharing expense.................... Determined by the Parent based on its overall performance and allocated to Pre-acquisition Velda Farms based on its employees' participation Restructuring expense..................... Estimated charges of the Parent for severance pay, a chairman's contract and the Parent's data processing conversion were allocated to Pre-acquisition Velda Farms as determined by the Parent Income taxes.............................. As described in "Income Taxes" above Relocation costs.......................... At a rate of $7,500 per month for normal personnel relocations within the operations group Data processing charges................... The Parent's outside data processing service bureau charges were allocated based on Pre-acquisition Velda Farms' usage as a proportion of the total consolidated usage Employee benefits expense................. Costs as estimated by the Parent for employee benefits such as medical and dental care, term life insurance and long-term disability coverages under the Parent's plans Workers' compensation expense............. As estimated by the Parent based on the Parent's overall cost and the experience of Pre-acquisition Velda Farms
F-45 PRE-ACQUISITION VELDA FARMS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXPENSE ALLOCATION BASE - ------------------------------------------ --------------------------------------------------------------------- Insurance expense: General and other liability............. Based on the percentage of Pre-acquisition Velda Farms' sales to consolidated sales Automobile liability...................... Based on historical claims and losses Property liability........................ Based on actual property values of Pre-acquisition Velda Farms
CASH EQUIVALENTS -- Velda Farms considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. 2. ACCOUNTS RECEIVABLE DECEMBER 31, APRIL 9, 1993 1994 ------------- ------------- Trade customers.................................. $ 10,187,723 $ 12,308,914 Other............................................ 51,833 74,199 ------------- ------------- 10,239,556 12,383,113 Less allowance for doubtful accounts............. (173,052) (310,262) ------------- ------------- $ 10,066,504 $ 12,072,851 ------------- ------------- ------------- ------------- 3. INVENTORIES DECEMBER 31, APRIL 9, 1993 1994 ------------ ------------ Raw materials.................................... $ 503,238 $ 450,845 Packaging materials.............................. 325,882 310,422 Finished goods................................... 2,500,914 2,440,614 Cases and containers............................. 733,273 723,473 ------------ ------------ $4,063,307 $ 3,925,354 ------------ ------------ ------------ ------------ 4. PROPERTY, PLANT AND EQUIPMENT DECEMBER 31, APRIL 9, 1993 1994 ------------- ------------- Land............................................. $ 3,918,876 $ 3,918,876 Buildings and improvements....................... 6,610,137 6,621,091 Machinery and equipment.......................... 8,082,235 8,269,883 Furniture and fixtures........................... 2,107,911 2,081,448 ------------- ------------- 20,719,159 20,891,298 Less accumulated depreciation and amortization... (7,091,727) (7,465,828) ------------- ------------- $ 13,627,432 $ 13,425,470 ------------- ------------- ------------- ------------- F-46 PRE-ACQUISITION VELDA FARMS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. INTANGIBLE AND OTHER ASSETS DECEMBER 31, APRIL 9, 1993 1994 ------------- ------------- Goodwill......................................... $ 6,405,880 $ 6,405,880 Customer list.................................... 2,332,067 2,332,067 Other identifiable intangibles................... 3,093,920 3,093,920 Deferred financing costs......................... 588,414 588,414 Deposits and other............................... 197,930 198,328 ------------- ------------- 12,618,211 12,618,609 Less accumulated amortization.................... (2,194,845) (2,404,879) ------------- ------------- $ 10,423,366 $ 10,213,730 ------------- ------------- ------------- ------------- 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES DECEMBER 31, APRIL 9, 1993 1994 ------------ ------------ Accounts payable................................. $6,740,086 $ 7,675,488 Accrued payroll and benefits..................... 1,459,441 1,221,303 Other............................................ 397,696 502,140 ------------ ------------ $8,597,223 $ 9,398,931 ------------ ------------ ------------ ------------ Trade accounts payable at December 31, 1993, and April 9, 1994, includes $707,929 and $441,505, respectively, due to Bancroft Dairy, which is a wholly owned subsidiary of the Parent. 7. DEBT DECEMBER 31, APRIL 9, 1993 1994 ------------- ------------- Long-term debt: Note payable to the Parent..................... $ 30,373,652 $ 30,373,652 Capitalized lease obligations (Note 8)......... 210,694 219,755 ------------- ------------- 30,584,346 30,593,407 Less current portion............................. (87,021) (76,061) ------------- ------------- $ 30,497,325 $ 30,517,346 ------------- ------------- ------------- ------------- The note payable to the Parent was not assumed in the acquisition described in Note 1. Capital lease obligations represent machinery and equipment financing obligations which are payable in monthly installments of principal and interest and are collateralized by the related assets financed. 8. LEASES Velda Farms leases certain property, plant and equipment used in its operations under both capital and operating lease agreements. Such leases, which are primarily for machinery and equipment and vehicles, have lease terms ranging from two to nine years. Certain of the operating lease agreements require the payment of additional rentals for maintenance based on miles driven or units produced. Rent expense, including additional rent, was $4,440,454 and $1,238,823 for the year ended December 31, 1993, and the period from January 1, 1994 to April 9, 1994, respectively. F-47 PRE-ACQUISITION VELDA FARMS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 8. LEASES (CONTINUED) The composition of capital leases which are reflected as property, plant and equipment in the balance sheets is as follows: DECEMBER 31, APRIL 9, 1993 1994 ------------ ----------- Machinery and equipment.......................... $ 382,125 $ 382,125 Less accumulated amortization.................... (103,622) (113,176) ------------ ----------- $ 278,503 $ 268,949 ------------ ----------- ------------ ----------- 9. INCOME TAXES There is no current or deferred income tax expense for the year ended December 31, 1993, or for the period ended April 9, 1994, as a result of available net operating loss carryforwards in sufficient amounts to eliminate any deferred income tax liabilities. The following is a reconciliation of income taxes reported in the statements of operations: PERIOD FROM JANUARY 1, 1994 TO DECEMBER 31, APRIL 9, 1993 1994 ------------ ----------- Tax expense at statutory rates................... $ 350,000 $ 281,000 Net operating loss carryforwards................. (415,000) (299,000) Other............................................ 65,000 18,000 ------------ ----------- $ -- $ -- ------------ ----------- ------------ ----------- 10. EMPLOYEES SAVINGS AND PROFIT SHARING PLAN Velda Farms sponsors an employees savings and profit sharing plan. Employees of Velda Farms who have completed one or more years of service are eligible to participate in the plan. The employees participating in the plan can make contributions to the plan of up to 6% of their annual compensation and Velda Farms can elect, on a discretionary basis, to match such contributions. During the year ended December 31, 1993, and the period from January 1, 1994 to April 9, 1994, the accrued profit sharing expense was $218,000 and $60,000, respectively. 11. SUPPLEMENTAL CASH FLOW INFORMATION Cash used to pay interest, primarily to the Parent, which was cleared through the intercompany payable account, was approximately $2.4 million for the year ended December 31, 1993, and for the period from January 1, 1994 to April 9, 1994, was approximately $607,000. Noncash transactions of Pre-acquisition Velda Farms during the year ended December 31, 1993, included the acquisition of equipment through capital lease obligations of $60,305. 12. COMMITMENTS AND CONTINGENCIES Velda Farms is a party in the ordinary course of business to certain claims and litigation. In management's opinion, the settlement of such matters is not expected to have a material impact on the financial statements. 13. MAJOR CUSTOMER Velda Farms is a party to a supply contract with The Southland Corporation ("Southland") which requires certain of Southland's retail sites to purchase their product requirements from the Company at formula prices. Sales under this supply contract, which expires in December 1996, approximated $22.9 million, or 18% of net sales, for the year ended December 31, 1993; and $6.1 million, or 16% of net sales, for the period from January 1, 1994 to April 9, 1994. F-48 PRE-ACQUISITION VELDA FARMS NOTES TO FINANCIAL STATEMENTS (CONTINUED) 14. RELATED PARTY TRANSACTIONS As discussed in Note 1, significant costs and expenses were allocated to Pre-acquisition Velda Farms by the Parent. The following is a summary of such corporate allocations and their classification in the statements of operations: PERIOD FROM JANUARY 1, YEAR ENDED 1994 TO DECEMBER 31, APRIL 9, 1993 1994 ------------- ------------ Cost of sales: Workers' compensation.......................... $ 279,488 $ 62,360 Employee benefits.............................. 576,304 130,956 Insurance...................................... 303,585 83,489 ------------- ------------ 1,159,377 276,805 ------------- ------------ Selling and distribution: Workers' compensation.......................... 579,303 134,215 Employee benefits.............................. 1,122,780 281,852 Insurance...................................... 531,600 146,190 ------------- ------------ 2,233,683 562,257 ------------- ------------ General and administrative: Workers' compensation.......................... 127,921 26,113 Employee benefits.............................. 245,751 54,838 Relocation..................................... 87,888 22,500 EDP services................................... 703,403 227,678 ------------- ------------ 1,164,963 331,129 ------------- ------------ Parent administrative costs...................... 1,270,937 257,720 Restructuring costs.............................. 1,022,761 Amortization of intangibles...................... 797,174 178,449 Interest expense................................. 2,546,343 639,058 ------------- ------------ Total allocated costs and expenses........... $ 10,195,238 $ 2,245,418 ------------- ------------ ------------- ------------ Management believes that the above allocated costs and expenses were reasonable costs of the Parent which were allocated to all of the Parent's subsidiaries. However, management believes that the Parent administrative costs and the restructuring costs allocated to Velda Farms by the Parent are costs which Velda Farms would not have incurred on a stand-alone basis. Management believes the remaining allocated costs are competitive with costs to acquire similar services. F-49 INDEPENDENT AUDITORS' REPORT Board of Directors Garrido & Compania, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of Garrido & Compania, Inc. and Subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of earnings, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in note 1 to the consolidated financial statements, effective July 19, 1996, Garrido & Compania, Inc.'s wholly-owned subsidiaries, Garrido Alto Grande Corp., Alto Grande Export Corp. and Guest Choice, Inc. merged with and into Garrido & Compania, Inc. Simultaneously on the same date, Garrido & Compania, Inc. was acquired by G Acquisition Corp., who changed its name to Garrido & Compania, Inc. These mergers and acquisition result in a new accounting entity whose financial statements are not included herewith. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Garrido & Compania, Inc. and Subsidiaries as of June 30, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1996 in conformity with generally accepted accounting principles. (Continued) F-50 As discussed in notes 1 and 7 to the consolidated financial statements, effective July 1, 1993, Garrido & Compania, Inc. and Subsidiaries changed their method of accounting for income taxes to adopt the provisions of Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. KPMG Peat Marwick, LLP San Juan, Puerto Rico August 23, 1996 Stamp No. 1353935 of the Puerto Rico Society of Certified Public Accountants was affixed to the record copy of this report. F-51 GARRIDO & COMPANIA, INC. AND SUBSIDIARIES Consolidated Balance Sheets June 30, 1996 and 1995 ASSETS 1996 1995 ------ ------------- ------------ Current assets: Cash and cash equivalents of $8,694,471 in 1996 and $4,830,762 in 1995 (note 1) $ 10,736,810 $ 4,969,014 ------------- ------------ Accounts receivable: Trade (note 5) 2,420,152 2,756,225 Other 31,010 106,788 ------------- ------------ 2,451,162 2,863,013 Less allowance for doubtful accounts 100,000 - ------------- ------------ Accounts receivable, net 2,351,162 2,863,013 Inventories (notes 3 and 5) 1,893,681 2,141,911 Other prepaid expenses 29,149 187,554 ------------- ------------ Total current assets 15,010,802 10,161,492 ------------- ------------ Investments in government securities 11,229 14,062 ------------- ------------ Property and equipment, at cost (notes 2, 4 and 5) 4,099,079 5,193,094 Less accumulated depreciation and amortization 2,570,627 3,341,099 ------------- ------------ Property and equipment, net 1,528,452 1,851,995 Other assets, including unamortized cost of intangibles of $97,335 in 1996 and $129,896 in 1995 (note 2) 121,245 177,913 ------------- ------------ $ 16,671,728 $ 12,205,462 ------------- ------------ ------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to banks (notes 1 and 5) $ 2,115,000 $ 217,616 Current installments of long-term debt (notes 1 and 5) 711,429 711,428 Current portion of notes payable to former stockholders (notes 1 and 5) 188,314 143,759 Accounts payable and accrued expenses (note 2) 1,083,607 736,368 Income taxes payable (note 7) 265,088 90,849 ------------- ------------ Total current liabilities 4,363,438 1,900,020 Long-term debt, excluding current installments (notes 1 and 5) 1,499,523 2,210,952 Notes payable to former stockholders, excluding current portion (notes 1 and 5) 469,269 664,853 Deferred income taxes (note 7) 34,277 788,598 Other liabilities (note 2) - 85,000 ------------- ------------ Total liabilities 6,366,507 5,649,423 ------------- ------------ Stockholders' equity: Common stock, $100 par value. Authorized 10,000 shares; 586 shares issued and outstanding (note 5) 58,600 58,600 Retained earnings 10,246,621 6,497,439 ------------- ------------ Total stockholders' equity 10,305,221 6,556,039 Commitments and contingencies (notes 6, 7 and 8) ------------- ------------ $ 16,671,728 $ 12,205,462 ------------- ------------ ------------- ------------
See accompanying notes to consolidated financial statements. F-52 GARRIDO & COMPANIA, INC. AND SUBSIDIARIES Consolidated Statements of Earnings Years ended June 30, 1996, 1995 and 1994 1996 1995 1994 ----------- ----------- ----------- Net sales $26,219,899 $25,803,634 $24,747,415 Cost of sales 17,793,564 18,200,625 17,571,451 ----------- ----------- ----------- Gross profit 8,426,335 7,603,009 7,175,964 Selling, general and administrative expenses (notes 6 and 8) 5,034,182 4,493,311 4,968,225 ----------- ----------- ----------- Operating income 3,392,153 3,109,698 2,207,739 Other income/(expenses): Interest expense (notes 2 and 5) (299,885) (353,439) (422,965) Other, net 327,450 56,028 12,610 ----------- ----------- ----------- Total other income/ (expense), net 27,565 (297,411) (410,355) ----------- ----------- ----------- Earnings before income taxes and cumulative effect of change in accounting principle 3,419,718 2,812,287 1,797,384 ----------- ----------- ----------- Income taxes (note 7) Current (424,857) (336,077) (254,358) Deferred 754,321 (134,260) (34,910) ----------- ----------- ----------- 329,464 (470,337) (289,268) ----------- ----------- ----------- Earnings before cumulative effect of change in accounting principle 3,749,182 2,341,950 1,508,116 ----------- ----------- ----------- Cumulative effect at July 1, 1993 of change in accounting principle (notes 1 and 7) - - (103,074) ----------- ----------- ----------- Net earnings $ 3,749,182 $ 2,341,950 $ 1,405,042 ----------- ----------- ----------- ----------- ----------- ----------- Earnings per share of common stock (note 1): Before cumulative effect of change in accounting principle $ 6,398 $ 3,997 $ 2,356 Cumulative effect of change in accounting principle (notes 1 and 7) - - (161) ----------- ----------- ----------- Net earnings per share (note 1) $ 6,398 $ 3,997 $ 2,195 ----------- ----------- ----------- ----------- ----------- ----------- See accompanying notes to consolidated financial statements. F-53 GARRIDO & COMPANIA, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity June 30, 1996, 1995 and 1994 Total Common Retained Stockholders' Stock Earnings Equity ------- ----------- ------------- Balance at June 30, 1993 $65,100 $ 3,493,947 $ 3,559,047 Net earnings - 1,405,042 1,405,042 Acquisition and cancellation of 65 shares of common stock (note 5) (6,500) (743,500) (750,000) ------- ----------- ------------- Balance at June 30, 1994 58,600 4,155,489 4,214,089 Net earnings - 2,341,950 2,341,950 ------- ----------- ------------- Balance at June 30, 1995 58,600 6,497,439 6,556,039 Net earnings - 3,749,182 3,749,182 ------- ----------- ------------- Balance at June 30, 1996 $58,600 $10,246,621 $10,305,221 ------- ----------- ------------- ------- ----------- ------------- See accompanying notes to consolidated financial statements. F-54 GARRIDO & COMPANIA, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended June 30, 1996, 1995 and 1994 Increase/(Decrease) in Cash and Cash Equivalents 1996 1995 1994 ----------- ----------- ----------- Cash flows from operating activities: Net earnings $ 3,749,182 $ 2,341,950 $ 1,405,042 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 543,277 633,298 656,814 Deferred income taxes (754,321) 134,260 137,984 Net gain/(loss) in disposition of property and equipment 8,144 - (1,800) Amortization on discount on notes payable to former stockholders 10,092 10,396 10,613 Change in assets and liabilities: Decrease/(increase) in accounts receivable, net 511,851 (427,983) (252,874) Decrease/(increase) in inventories 248,230 4,371,240 (1,954,132) Decrease in prepaid income tax - 23,357 Decrease/(increase) in other prepaid expenses 158,405 111,003 (70,319) Decrease/(increase) in other assets 48,144 (37,071) 4,668 Increase/(decrease) in accounts payable and accrued expenses 347,239 (49,710) 205,368 Decrease in obligation under capital lease - (19,266) (19,202) Increase/(decrease) in other liabilities (85,000) (85,000) (149,876) Increase in income tax payable 174,239 1,373 89,476 ----------- ----------- ----------- Total adjustments 1,210,300 4,642,540 (1,319,923) ----------- ----------- ----------- Net cash provided by operating activities 4,959,482 6,984,490 85,119 ----------- ----------- ----------- Cash flows from investing activities: Principal returns on investment in government securities 2,833 3,343 2,765 Proceeds on sale of property and equipment 1,000 8,600 3,100 Capital expenditures for additions to property and equipment (220,354) (312,544) (261,299) ----------- ----------- ----------- Net cash used in investing activities (216,521) (300,601) (255,434) ----------- ----------- ----------- Cash flows from financing activities: Net borrowings under various lines of credit agreements and demand notes payable 8,048,242 1,700,000 962,269 Payments of long-term debt and note payable to bank (6,862,287) (3,215,049) (565,476) Payments on principal of notes payable to former stockholders (161,120) (351,370) (46,886) Acquisition and cancellation of common stock - - (269,123) ----------- ----------- ----------- Net cash provided by/(used in) financing activities 1,024,835 (1,866,419) 80,784 ----------- ----------- ----------- Net increase/(decrease) in cash (note 9) 5,767,796 4,817,470 (89,531) Cash and cash equivalents at beginning of year 4,969,014 151,544 241,075 ----------- ----------- ----------- Cash and cash equivalents at end of year $10,736,810 $ 4,969,014 $ 151,544 ----------- ----------- ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements. F-55 GARRIDO & COMPANIA, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 1996 and 1995 (1) NATURE OF BUSINESS, AFFILIATION, SUBSEQUENT EVENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Garrido & Compania, Inc. and its subsidiaries (the Company)are mainly engaged in the processing and roasting of raw coffee for sale and distribution under the tradenames of Cafe Crema, Cafe Adjuntas, Cafe Pilon, Cafe Expreso, Cafe Alto Grande and under Executive and Aroma Coffee Break Services. In addition, the Company exports certain products to be sold outside the United States' territories, such as Japan, Sweden, and other European countries, which currently represents less than 10% of sales. AFFILIATION The Company is 100% owner of the outstanding common stock of Garrido Alto Grande Corp. (GAGC), Alto Grande Export Corp. (AGEC) and Guest Choice, Inc. (GC). Guest Choice, Inc. was incorporated under the laws of Puerto Rico on February 8, 1996, and will be engaged in providing and servicing coffee to hotels and other businesses in Puerto Rico, the United States and the Caribbean. Guest Choice, Inc. main offices are located in the state of Arizona. Guest Choice, Inc. did not have any sales during 1996, and total assets related to these operations amounted to approximately $1,122,000 as of June 30, 1996. SUBSEQUENT EVENTS Effective July 19, 1996, Garrido & Compania, Inc. and subsidiaries were acquired by G Acquisition Corp., a wholly-owned subsidiary of Suiza Foods Corporation through the purchase of all of its outstanding common stock. Simultaneously, Garrido & Compania, Inc. merged with and into its wholly- owned subsidiaries. Subsequent to the mergers and acquisition, G Acquisition Corp. changed its name to Garrido & Compania, Inc. The abovementioned mergers and acquisition result in a new accounting entity after June 30, 1996 whose financial statements are not included herewith. The accompanying consolidated financial statements relate to the Company and its subsidiaries as of June 30, 1996, which is prior to the effectiveness of the mergers and acquisition of July 19, 1996. As a part of the aforementioned transactions, on or about July 19, 1996 all the outstanding long-term debt, including certain term loans, revolving and temporary lines of credit, notes payable to former stockholders and other notes payable included as part of other liabilities in the consolidated balance sheets at June 30, 1996, were assumed and paid in full by the stockholders of the Company. F-56 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in the preparation of the consolidated financial statements. (b) INVENTORIES Inventories are stated at the lower of cost (average cost) or market (net realizable value). For finished goods inventories, the cost is comprised of the cost of coffee, the cost of packaging material and the cost of labor and overhead. (c) PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Major renewals and betterments are charged to property accounts. Replacements, maintenance and repairs which do not improve or extend the life of the respective assets are charged to expense. (d) DEPRECIATION AND AMORTIZATION Depreciation and amortization are provided over the estimated useful life of the respective assets under the straight-line method. Useful lives of the depreciable assets fluctuate from 3 to 20 years. Leasehold improvements are amortized over the shorter of the lease term or estimated useful life of the asset. (e) INTANGIBLES Intangibles consist primarily of customer lists, benefits from covenants not to compete, trademarks, confidential formulas, right of use of water wells and others. The cost of these intangible assets are being amortized over their estimated useful lives under the straight-line method. (f) INCOME TAXES Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, and reported the cumulative effect of that change in the method of accounting for income taxes in the 1994 consolidated statement of earnings. Statement No. 109 requires a change from the deferred method of accounting for income taxes of APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of Statement No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. F-57 (g) CASH EQUIVALENTS For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Cash equivalents for 1996 and 1995 consist of U.S. Treasury bills amounting to $8,694,471 and $4,830,762, respectively, with market value of $8,752,487 and $4,860,338, respectively. Management has the ability and intent to hold these cash equivalents until maturity. (h) NET EARNINGS PER COMMON SHARE Net Earnings per common share is based upon the weighted average number shares of common stock outstanding during the year, which equals 586 shares for 1996 and 1995 and 640 shares for 1994. (i) FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments include cash and cash equivalents, trade and other receivables, investments, trade accounts payable, other accrued liabilities, notes payable to banks and others and long-term debt. At June 30, 1996 the carrying value of all financial instruments approximated their fair value, due to their nature. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainty and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. (j) USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. F-58 (k) RECLASSIFICATION Certain reclassifications have been made to the 1995 figures in order to conform them with the 1996 consolidated financial statements. (2) ASSET ACQUISITIONS During 1991, the Company acquired certain assets from an unrelated party. Of the total purchase price, $510,000 is payable in annual installments of $85,000, plus interest, through 1996. Interest rate fluctuates between 9% or prime rate, whichever is lower. As of June 30, 1996 and 1995, the unpaid principal balance amounted to $85,000 and $170,000 respectively, of which $85,000 is included in accounts payable and accrued expenses and the remaining balance in 1995 is included in other liabilities. The liability is secured by the assets acquired. As stated in note 1, amounts outstanding at June 30, 1996 were subsequently paid on or about July 19, 1996. During 1990, the Company also acquired certain assets from an unrelated party. Of the total purchase price, $154,463 remained unpaid at June 30, 1995 and is included in accounts payable. Such amount was paid in full during 1996. (3) INVENTORIES Inventories at June 30, 1996 and 1995 consist of the following: 1996 1995 ---- ---- Raw coffee $ 925,176 $ 1,381,553 Finished goods 623,063 514,133 Bags, labels and supplies 345,442 246,225 ----------- ----------- $ 1,893,681 $ 2,141,911 ----------- ----------- ----------- ----------- (4) PROPERTY AND EQUIPMENT Property and equipment at June 30, 1996 and 1995 consist of the following: 1996 1995 ---- ---- Land $ 157,464 $ 157,464 Building 723,488 727,109 Machinery and equipment 2,379,515 2,914,072 Motor vehicles 294,544 575,244 Data processing equipment 115,181 114,677 Furniture and fixtures 110,584 318,968 Leasehold improvements 318,303 385,560 ----------- ----------- Total $ 4,099,079 $ 5,193,094 ----------- ----------- ----------- ----------- F-59 (5) INDEBTEDNESS Long-term debt at June 30, 1996 and 1995 consists of the following: 1996 1995 ---- ---- Term loan payable to bank in monthly installments of $5,952, plus interest, through 1998. Interest rate fluctuates based on the prime interest rate, which at June 30, 1996 was 8.25%. Term loan payable is partially secured by land and property of the Company. $ 130,952 $ 202,380 Term loan payable to bank in quarterly installments of $160,000 through 2000 secured by trade receivables and inventories. Interest rate fluctuates based on prime rate plus 1/2%, floating. 2,080,000 2,720,000 ----------- ----------- 2,210,952 2,922,380 Less current installments 711,429 711,428 ----------- ----------- Long-term debt, excluding current installments $ 1,499,523 $ 2,210,952 ----------- ----------- ----------- -----------
Notes payable to banks represent advances under revolving and temporary lines of credit with a commercial bank amounting to $5,500,000. Withdrawals, under these credit facilities can be made under a Master Promissory Note and will be available for letters of credit and guarantee letters. These facilities will be available to cover working capital needs and for buying coffee directly from suppliers. Advances from such lines of credit amounting to $2,115,000 in 1996 and $217,616 in 1995 are secured by the personal guarantee of the Company's stockholders. These obligations bear interest at 6.66%. Notes payable to former stockholders consist of a 6% subordinated note payable in monthly installments of $7,750, including interest, through June 1, 2007. Aggregate unpaid principal balance of these notes was $640,316 and $693,164 as of June 30, 1996 and 1995, respectively. The notes are presented net of unamortized discounts amounting to $53,743 in 1996 and $63,836 in 1995 which were originally computed based on the prime interest rates at the time of their issuance. During 1994, the Company acquired and canceled 65 shares of common stock from a former stockholder for $750,000. At the date of the purchase $269,123 were paid and the rest was financed through a $480,877 noninterest bearing note payable in monthly installments of $8,333 through April 1997. Unpaid balances as of June 30, 1996 and 1995 are $71,010 and $179,284, respectively. As stated in note 1, on or about July 19, 1996 all the aforementioned outstanding long-term debt, notes payable to banks and notes payable to former stockholders amounting to $4,983,535 at June 30, 1996 were assumed and paid in full by the Company's stockholders. F-60 (6) RELATED PARTY TRANSACTIONS The Company leases certain of its production and office facilities in premises owned by a related party under a ten (10) year operating lease agreement expiring in April 2005. The annual minimum lease expense is approximately $62,000. (7) INCOME TAX AND TAX EXEMPTIONS Pursuant to the 1987 Puerto Rico Tax Incentives Act, Garrido Alto Grande Corp. (GAGC) has been granted partial tax exemption from the Commonwealth of Puerto Rico income, property and municipal taxes with respect to a portion of its operations up to year 2011. During 1996, the Company and Garrido Alto Grande Corp. have been granted partial tax exemption under Law No. 225, AGRICULTURAL TAX INCENTIVES ACT OF 1995, of the Commonwealth of Puerto Rico. Under subject law, the companies are 100% exempt from property and municipal taxes, effective for part of the year ended June 30, 1996. Furthermore, effective for taxable year ending June 30, 1997, the companies will be entitled to a 90% exemption on income taxes related to their agricultural business income. The dollar effect of the income tax saving related to the partial tax exemption for the years ended June 30, 1996, 1995 and 1994 are $1,067,580, $552,781 and $341,453, respectively. Per share amounts of such income tax savings are $1,822 in 1996, $943 in 1995 and $534 in 1994. As discussed in note 1, the Company adopted Statement No. 109 as of July 1, 1993. The cumulative effect of this change in accounting for income taxes amounting to $103,074 was determined as of July 1, 1993 and is reported separately in the consolidated statement of earnings for the year ended June 30, 1994. Income tax benefit/(expense) for the years ended June 30, 1996, 1995 and 1994 consists of: 1996 1995 1994 ----------- ----------- ----------- Current $ (424,857) $ (336,077) $ (254,358) Deferred 754,321 (134,260) (34,910) ----------- ----------- ----------- $ 329,464 $ (470,337) $ (289,268) ----------- ----------- ----------- ----------- ----------- ----------- Deferred income tax expense for 1995 and 1994 is mainly related to the use of flexible depreciation for income tax purposes and straight-line depreciation for consolidated financial statement purposes, and the tax effect for consolidated financial statements of current undistributed earnings of subsidiaries as required by Statement No. 109. The 1996 deferred tax benefit arises from a reduction in the Company's effective tax rate after considering the future tax effect of the 90% income tax exemption under Law No. 225 referred to above and the reversal of prior years deferred tax liability related to undistributed earnings, which will not be paid due to the transactions described in note 1. F-61 Income tax expense for the years ended June 30, 1996, 1995 and 1994 differs from the amounts computed by applying the Company's Puerto Rico effective income tax rate to pretax accounting income from operations as a result of the following: 1996 1995 1994 ---------- ---------- ---------- Provision computed on pretax accounting income, net of the GAGC tax exemption $ 236,686 $ 236,942 $ 116,469 Add/(deduct) tax effect on the following items: Nondeductible expenses 44,064 17,140 14,475 Excess of depreciation per financial statements over depreciation for tax purposes 179,406 77,696 121,472 Tax-exempt interest income and others (35,299) 4,299 1,942 ---------- ---------- ---------- Puerto Rico income tax current $ 424,857 $ 336,077 $ 254,358 ---------- ---------- ---------- ---------- ---------- ---------- Deferred income tax expense/ (benefit) is composed as follows: Reversal of temporary difference related to flexible depreciation and the effect of income tax exemption under Law No. 225 $ (336,170) $ (77,696) $ (121,472) Unamortized discounts and others (21,855) (23,406) (4,552) Undistributed earnings of wholly-owned subsidiary (396,296) 235,362 160,934 ---------- ---------- ---------- Puerto Rico deferred income tax expense/(benefit) $ (754,321) $ 134,260 $ 34,910 ---------- ---------- ---------- ---------- ---------- ---------- The tax effect of temporary differences that give rise to significant portions of deferred income tax liabilities at June 30, 1996 and 1995 are presented below: 1996 1995 --------- ---------- Flexible depreciation for tax purposes $ 32,181 $ 368,351 Unamortized discount on notes payable to stockholders 2,096 23,951 Undistributed earnings of wholly- owned subsidiary - 396,296 --------- ---------- $ 34,277 $ 788,598 --------- ---------- --------- ---------- As of June 30, 1996, the Company is being audited by the Treasury Department of the Commonwealth of Puerto Rico for the year 1993. Management believes that no significant deficiencies will result from this audit. However, as per the terms of the purchase agreement related to the acquisition as stated in note 1, any deficiencies will be assumed and paid by the Company's stockholders. F-62 As of June 30, 1996, the Company has a net operating loss (NOL) of $94,019 related to the 1996 operations of Guest Choice, Inc., available to offset future taxable income, if any, related to the Guest Choice operations. No deferred tax asset is recognized due to the fact that the realization of the NOL is uncertain. (8) COMMITMENTS AND CONTINGENCIES The Company leases certain building facilities for the operations of coffee break services under a noncancellable operating lease, expiring in April 1998. Rent expense under such lease agreement for the year ended June 30, 1996 was approximately $43,000 and for 1995 and 1994 was approximately $41,000. The future minimum lease payments under this noncancellable operating lease amounted to approximately $78,833. The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. (9) SUPPLEMENTAL INFORMATION ON CASH FLOWS During the years ended June 30, 1996, 1995 and 1994, the Company made the following cash payments and noncash transactions: 1996 1995 1994 --------- --------- --------- Interest payments $ 316,712 $ 329,919 $ 417,190 --------- --------- --------- --------- --------- --------- Income tax payments $ 264,881 $ 334,704 $ 125,194 --------- --------- --------- --------- --------- --------- Acquisition and cancellation of 65 shares of common stock financed through the issuance of a notes payable (note 5) $ - $ - $ 480,877 --------- --------- --------- --------- --------- --------- F-63 INDEPENDENT AUDITORS' REPORT The Board of Directors Swiss Dairy, a Corporation Riverside, California We have audited the accompanying balance sheets of Swiss Dairy, a Corporation (the Company) as of December 30, 1995 and December 31, 1994, and the related statements of earnings and retained earnings and cash flows for each of the three years in the period ended December 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Swiss Dairy, a Corporation at December 30, 1995 and December 31, 1994, and the results of its operations and cash flows for each of the three years in the period ended December 30, 1995 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Costa Mesa, California August 28, 1996 F-64 SWISS DAIRY, A CORPORATION BALANCE SHEETS - --------------------------------------------------------------------------------
JUNE 15, DECEMBER 30, DECEMBER 31, 1996 1995 1994 (UNAUDITED) (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 972 $ 449 $ 2,414 Accounts receivable 5,923 7,146 8,296 Note receivable from related party 600 Inventories 528 785 591 Prepaid expenses and other 259 309 305 ---------- ---------- ---------- Total current assets 7,682 8,689 12,206 PROPERTY, PLANT AND EQUIPMENT, net 8,069 8,426 6,331 ---------- ---------- ---------- $ 15,751 $ 17,115 $ 18,537 ---------- ---------- ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 4,481 $ 6,352 $ 7,541 Accrued expenses 725 488 435 ---------- ---------- ---------- Total current liabilities 5,206 6,840 7,976 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, par value $10; 20,000 shares authorized; 6,500 shares issued and outstanding 65 65 65 Additional paid-in capital 6 6 6 Retained earnings 10,474 10,204 10,490 ---------- ---------- ---------- Total stockholders' equity 10,545 10,275 10,561 ---------- ---------- ---------- $ 15,751 $ 17,115 $ 18,537 ---------- ---------- ---------- ---------- ---------- ----------
See notes to financial statements. F-65 SWISS DAIRY, A CORPORATION STATEMENTS OF EARNINGS AND RETAINED EARNINGS - --------------------------------------------------------------------------------
TWENTY-FOUR WEEKS ENDED FOR THE YEARS ENDED ------------------------- ------------------------------------------ JUNE 15, JUNE 17, DECEMBER 30, DECEMBER 31, DECEMBER 23, 1996 1995 1995 1994 1993 (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA) NET SALES $ 49,828 $ 67,332 $ 126,647 $ 149,153 $ 142,107 COST OF SALES 43,285 59,535 111,798 132,443 125,961 --------- --------- --------- --------- --------- GROSS PROFIT 6,543 7,797 14,849 16,710 16,146 OPERATING COSTS AND EXPENSES: Selling and distribution 3,454 3,914 7,852 8,168 8,266 General and administrative 954 1,178 2,483 2,892 2,423 --------- --------- --------- --------- --------- Total operating costs and expenses 4,408 5,092 10,335 11,060 10,689 --------- --------- --------- --------- --------- INCOME FROM OPERATIONS 2,135 2,705 4,514 5,650 5,457 OTHER INCOME (EXPENSE): Interest expense, net (16) (10) (25) Other income, net 195 295 270 511 612 --------- --------- --------- --------- --------- Total other income 179 295 270 501 587 --------- --------- --------- --------- --------- INCOME BEFORE FRANCHISE TAXES 2,314 3,000 4,784 6,151 6,044 FRANCHISE TAXES 36 45 65 99 127 --------- --------- --------- --------- --------- NET EARNINGS 2,278 2,955 4,719 6,052 5,917 RETAINED EARNINGS, beginning of period 10,204 10,490 10,490 10,443 8,431 DIVIDENDS (2,008) (4,109) (5,005) (6,005) (3,905) --------- --------- --------- --------- --------- RETAINED EARNINGS, end of period $ 10,474 $ 9,336 $ 10,204 $ 10,490 $ 10,443 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- NET EARNINGS PER SHARE $ 350.46 $ 454.62 $ 726.00 $ 931.07 $ 910.31 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
See notes to financial statements. F-66 SWISS DAIRY, A CORPORATION STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
TWENTY-FOUR WEEKS ENDED FOR THE YEARS ENDED ------------------------- ------------------------------------------ JUNE 15, JUNE 17, DECEMBER 30, DECEMBER 31, DECEMBER 23, 1996 1995 1995 1994 1993 (UNAUDITED) (UNAUDITED) (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 2,278 $ 2,955 $ 4,719 $ 6,052 $ 5,917 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 960 1,222 1,752 1,816 1,954 (Gain) loss on the sale of assets 68 (103) 186 (12) 7 Changes in operating assets and liabilities: Accounts receivable 1,223 862 1,150 (1,757) 720 Inventories 257 (37) (194) 66 140 Prepaid expenses and other 50 36 (4) 35 18 Accounts payable (1,871) 1,955 (1,189) (3,675) (760) Accrued expenses 237 233 53 324 (252) ---------- ---------- ---------- ---------- ---------- Net cash provided by operating activities 3,202 7,123 6,473 2,849 7,744 CASH FLOWS FROM INVESTING ACTIVITIES: Collections (advances) from note receivable 400 600 (316) 151 Additions to property, plant and equipment (750) (2,118) (4,215) (1,023) (2,237) Proceeds from sale of property, plant and equipment 79 132 182 156 256 ---------- ---------- ---------- ---------- ---------- Net cash used in investing activities (671) (1,586) (3,433) (1,183) (1,830) CASH FLOWS FROM FINANCING ACTIVITIES - Cash dividends (2,008) (4,109) (5,005) (6,005) (3,905) ---------- ---------- ---------- ---------- ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 523 1,428 (1,965) (4,339) 2,009 CASH AND CASH EQUIVALENTS, beginning of period 449 2,414 2,414 6,753 4,744 ---------- ---------- ---------- ---------- ---------- CASH AND CASH EQUIVALENTS, end of period $ 972 $ 3,842 $ 449 $ 2,414 $ 6,753 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Cash paid for interest $ 16 $ - $ - $ 10 $ 25 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
See notes to financial statements. F-67 SWISS DAIRY, A CORPORATION NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS - Swiss Dairy, a Corporation (the Company), is a California corporation which processes and distributes fluid milk products, refrigerated ready-to-serve fruit drinks and bottled water throughout Southern California under its own brand names and private labels. The Company provides credit terms to customers, the majority of which are major grocery chains, generally ranging to up to 30 days, performs ongoing credit evaluations of their customers and maintains allowances for potential credit losses based on historical experience. The preparation of financial statements requires the use of significant estimates and assumptions by management; actual results could differ from these estimates. INVENTORIES - Pasteurized and raw milk inventories are stated at the lower of average cost or market. Raw materials and merchandise for resale inventories are stated at the lower of cost, using the first-in, first-out (FIFO) method, or market. Manufactured finished goods inventories are stated at the lower of average production cost or market. Production costs include raw materials, direct labor, and indirect production and overhead costs. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the assets, as follows: ASSET USEFUL LIFE Buildings and improvements 7 to 40 years Machinery and equipment 3 to 20 years Milk cases and carts 3 to 7 years Sales and delivery equipment 3 to 7 years Furniture and fixtures 3 to 7 years Expenditures for repairs and maintenance which do not improve or extend the life of the assets are expensed as incurred. IMPAIRMENT OF LONG-LIVED ASSETS - Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is evaluated by comparing future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition to the carrying amount of the asset. The Company does not anticipate a material impact on the financial statements of the Company as a result of its adoption of this new accounting principle. REVENUE - Revenue is recognized when the product is shipped to the customer. F-68 SWISS DAIRY, A CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- INCOME TAXES - The Company is qualified as a small business corporation under Section 1372 of Subchapter S of the Internal Revenue Code, which results in the income of the Company being taxable to the individual stockholders instead of at the corporate level. The Company pays a franchise tax to the State of California at a rate of 1.5% of taxable income. As a result, the financial statements of the Company do not contain either a provision for federal income taxes or the related current and deferred income tax liabilities, since such amounts are the responsibility of the individual stockholders. Had the Company been subject to state and federal income taxes at the corporate level, the estimated income tax expense would have been approximately $1.9 million, $2.4 million and $2.4 million for the years ended December 31, 1995, 1994 and 1993, respectively, and $.9 million and $1.2 million for the unaudited twenty-four weeks ended June 15, 1996 and June 17, 1995, respectively, based on a combined federal and state income tax rate of 40%. CASH EQUIVALENTS - The Company considers all highly-liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. EARNINGS PER SHARE - The Company computes earnings per share based on the weighted average number of common shares outstanding during the period. FINANCIAL INSTRUMENTS - Pursuant to SFAS No. 107, DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, the Company is required to disclose an estimate of the fair value of the Company's financial instruments; however, due to their near-term maturities, the carrying amounts of the Company's financial instruments, which consist of accounts receivable and accounts payable, are considered equivalent to fair value. UNAUDITED INTERIM FINANCIAL STATEMENTS - The Company's balance sheet as of June 15, 1996 and the statements of earnings and retained earnings and cash flows for the twenty-four weeks ended June 15, 1996 and June 17, 1995, have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal, recurring adjustments) necessary to present fairly the balance sheet of the Company at June 15, 1996, and the results of operations and cash flows of the Company for the twenty-four weeks ended June 15, 1996 and June 17, 1995, have been made. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. F-69 SWISS DAIRY, A CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 2. ACCOUNTS RECEIVABLE Accounts receivable consist of the following as of: JUNE 15, DECEMBER 30, DECEMBER 31, 1996 1995 1994 (UNAUDITED) (IN THOUSANDS) Trade customers $ 5,623 $ 6,844 $ 7,852 Rebates and other 300 302 444 -------- -------- -------- Accounts receivable $ 5,923 $ 7,146 $ 8,296 -------- -------- -------- -------- -------- -------- 3. INVENTORIES Inventories consist of the following as of:
JUNE 15, DECEMBER 30, DECEMBER 31, 1996 1995 1994 (UNAUDITED) (IN THOUSANDS) Pasteurized and raw milk and raw materials $ 305 $ 228 $ 208 Finished goods 98 305 238 Merchandise purchased for resale 125 252 145 ------ ------ ------ $ 528 $ 785 $ 591 ------ ------ ------ ------ ------ ------
F-70 SWISS DAIRY, A CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following as of: JUNE 15, DECEMBER 30, DECEMBER 31, 1996 1995 1994 (UNAUDITED) (IN THOUSANDS) Land $ 120 $ 120 $ 47 Buildings and improvements 3,939 4,005 2,768 Machinery and equipment 5,048 4,163 3,885 Milk cases and carts 1,210 1,210 1,202 Sales and delivery equipment 5,719 6,076 4,893 Furniture and fixtures 166 169 189 Construction in progress 139 581 0 -------- -------- -------- 16,341 16,324 12,984 Less accumulated depreciation and amortization (8,272) (7,898) (6,653) -------- -------- -------- $ 8,069 $ 8,426 $ 6,331 -------- -------- -------- -------- -------- -------- 5. ACCRUED EXPENSES Accrued expenses consist of the following as of: JUNE 15, DECEMBER 30, DECEMBER 31, 1996 1995 1994 (UNAUDITED) (IN THOUSANDS) Accrued payroll and benefits $ 462 $ 455 $ 390 Accrued severance 160 Other 103 33 45 ------ ------ ------ $ 725 $ 488 $ 435 ------ ------ ------ ------ ------ ------ 6. LINE OF CREDIT The Company has a credit facility with a bank of $1,500,000 with interest due monthly at the bank's reference rate. This facility may be utilized as a revolving line of credit or for the purchase of equipment. F-71 SWISS DAIRY, A CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- The interest rate is the bank's reference rate. At December 30, 1995, there was no outstanding balance on this loan. The credit facility is secured by the assets of the Company. 7. EMPLOYEES 401(k) PLAN The Company sponsors a 401(k) plan for eligible employees who have completed one or more years of service and have met other requirements pursuant to the plan. The employees participating in the plan can generally make contributions to the plan of up to 15% of their annual compensation, and the Company can elect to match such contributions. During the unaudited period ended June 15, 1996, the Company expensed contributions to the plan of approximately $53,000. No contributions were made by the Company during each of the three years in the period ended December 30, 1995, and during the unaudited period ended June 17, 1995. 8. COMMITMENTS AND CONTINGENCIES The Company is a party in the ordinary course of business to certain claims and litigation. In management's opinion, the outcome of such matters is not expected to have a material impact on the financial statements. The Company has a practice which provides for bonuses and termination of benefits in certain circumstances, subject to the sole discretion of management. No expenses were incurred by the Company during each of the three years in the period ended December 30, 1995, and during the unaudited period ended June 17, 1995, for these discretionary benefits. However, during the unaudited period ended June 15, 1996, the Company expensed $160,000 for severance benefits for certain employees who were terminated prior to the transfer of ownership interests. 9. RELATED PARTY TRANSACTIONS In 1993, the Company had a note receivable from a stockholder. This note has been fully reimbursed in 1995. 10. MAJOR CUSTOMERS During the years ended December 23, 1993, December 31, 1994 and December 30, 1995, sales to four customers in the aggregate represented approximately 95%, 96% and 96% of sales, respectively. A decision by a significant customer to decrease the amount purchased from the Company or to cease carrying the Company's products could have a material adverse effect on the Company's financial condition and results of operations. F-72 SWISS DAIRY, A CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) - -------------------------------------------------------------------------------- 11. TRANSFER OF OWNERSHIP INTERESTS Subsequent to December 30, 1995, the Company transferred all of its assets and liabilities pursuant to an agreement for the transfer of ownership interests. F-73 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED BY THE COMPANY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. UNDER NO CIRCUMSTANCES SHALL THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER CREATE ANY IMPLICATION THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT THE DATE OF THIS PROSPECTUS. ----------------- TABLE OF CONTENTS Page ---- Available Information........................ 2 Prospectus Summary........................... 3 Risk Factors................................. 6 Price Range of Common Stock.................. 10 Dividend Policy.............................. 10 Unaudited Pro Forma Consolidated Financial Data.......................... 11 Selected Consolidated Financial Data......... 16 Selected Pre-Acquisition Historical Financial Data.......................... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations................... 18 Business..................................... 26 Management................................... 35 Certain Relationships and Related Transactions.................... 41 Principal and Selling Stockholders........... 47 Description of Capital Stock................. 49 Shares Eligible for Future Sale.............. 51 Legal Matters................................ 53 Experts...................................... 53 Index to Financial Statements................ F-1 625,000 SHARES SUIZA FOODS COMMON STOCK ---------- PROSPECTUS ---------- , 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table indicates the estimated expenses to be incurred in connection with the Offering described in this Registration Statement, all of which will be paid by the Company. Registration fee........................................ $ 3,825 Accounting fees and expenses............................ 15,000 Legal fees and expenses................................. 25,000 Printing and engraving.................................. 15,000 Blue Sky fees and expenses (including counsel fees)..... 5,000 Miscellaneous other expenses............................ 2,000 ------- Total.............................................. $65,825 ------- ------- ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company's Certificate of Incorporation provides that no director of the Company will be personally liable to the Company or any of its stockholders for monetary damages arising from the director's breach of fiduciary duty as a director, with certain limited exceptions. See "Management -- Limitation of Liability and Indemnification" in the Prospectus. Pursuant to the provisions of Section 145 of the Delaware General Corporation Law, every Delaware corporation has the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of any corporation, partnership, joint venture, trust or other enterprise, against any and all expenses, judgments, fines and amounts paid in settlement and reasonably incurred in connection with such action, suit or proceeding. The power to indemnify applies only if such person acted in good faith and in a manner such person reasonably believed to be in the best interests, or not opposed to the best interests, of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The power to indemnify applies to actions brought by or in the right of the corporation as well, but only to the extent of defense and settlement expenses and not to any satisfaction of a judgment or settlement of the claim itself, and with the further limitation that in such actions no indemnification shall be made in the event of any adjudication of negligence or misconduct unless the court, in its discretion, believes that in light of all the circumstances indemnification should apply. The Company's Certificate of Incorporation contains provisions requiring it to indemnify its officers and directors to the fullest extent permitted by the Delaware General Corporation Law. See "Management -- Limitation of Liability and Indemnification" in the Prospectus. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. On August 7, 1996, the Company completed a private placement of 625,000 shares of Common Stock to T. Rowe Price Small-Cap Value Fund, Inc., a Maryland corporation. The sale of Common Stock in this private placement was exempt from registration pursuant to Section 4(2) of the Securities Act. No underwriter participated in this transaction. In March 1995, the Company completed a private placement of shares of its Common Stock and options to acquire shares of its Common Stock in connection with the Combination described in the Prospectus under the caption "Certain Relationships and Related Transactions". The offerees in such private placement were the Predecessor Owners of the Combined Entities in the Combination. These Predecessor Owners received Common Stock and options II-1 to acquire Common Stock in exchange for their equity interests in the Combined Entities, as shown in the table below (which reflects record ownership). The Company's sale of its securities in this private placement was exempt from registration pursuant to Rule 506 of Regulation D under Section 4(2) of the Securities Act. The Company's sale of its securities in this private placement to certain of its employees and employees of its subsidiaries also qualified for an exemption from registration pursuant to Rule 701 under the Securities Act. No underwriters participated in these transactions. NUMBER OF SHARES OF AVERAGE NUMBER OF COMMON STOCK EXERCISE SHARES OF SUBJECT TO PRICE PER TOTAL SHARES NAME COMMON STOCK OPTIONS OPTION SHARE AND OPTIONS - ---- ------------ ------------ ------------ ------------ Gregg L. Engles................ 1,352,169 -- -- 1,352,169 Cletes O. Beshears............. 50,489 8,831 6.79 59,320 Gayle O. Beshears.............. 16,370 281,645 0.03 298,015 Hector M. Nevares.............. 248,503 -- -- 248,503 Neva Holdings, Inc. ........... 69,264 -- -- 69,264 Robert L. Kaminski............. 865,367 -- -- 865,367 John Hancock Mutual Life Insurance Company............. 1,515,977 -- -- 1,515,977 John Hancock Life Insurance Company of America.................... 26,441 -- -- 26,441 Pacific Mutual Life Insurance Company............. 879,941 -- -- 879,941 PM Group Life Insurance Company............. 88,804 -- -- 88,804 Canaan Capital Limited Partnership........... 90,520 -- -- 90,520 Canaan Capital Offshore Limited Partnership C.V. ............. 756,859 -- -- 756,859 John W. Madden................. 51,495 -- -- 51,495 Graham D. Davis................ 16,370 88,438 0.06 104,808 Rick C. Smith.................. -- 88,438 0.06 88,438 BP Puerto Rico, Inc. .......... 137,699 -- -- 137,699 William A. McCormack........... 41,795 -- -- 41,795 James Silcock Jr. 1994 Trust... 2,648 -- -- 2,648 Hunt E. Silcock 1994 Trust..... 2,648 -- -- 2,648 William L. Farrell............. 5,296 -- -- 5,296 Todd Follmer................... 46,687 -- -- 46,687 Suiza Profit Sharing Plan...... 34,156 -- -- 34,156 Other Suiza-Puerto Rico Employees..................... -- 104,823 4.44 104,823 James Green.................... 5,887 3,679 6.79 9,566 Other Velda Farms Employees.... 8,094 10,669 6.79 18,763 --------- ------- --------- Totals: ................... 6,313,479 586,523 6,900,002 --------- ------- ---------
ITEM 16. EXHIBITS. (a) EXHIBITS: EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1 -- Amended and Restated Reorganization Agreement (filed as Exhibit 2.1 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 3.1 -- Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) II-2 EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.2 -- Certificate of Amendment of Certificate of Incorporation of the Company (filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 3.3 -- Certificate of Correction of Certificate of Amendment of Certificate of Incorporation (filed as Exhibit 3.3 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 3.4 -- Certificate of Amendment of Certificate of Incorporation of the Company (filed as Exhibit 3.4 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 3.5 -- Bylaws of the Company (filed as Exhibit 3.5 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 4.1 -- Specimen of Common Stock Certificate (filed as Exhibit 4.1 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 4.2 -- Registration Rights (Exhibit G-2 to Amended and Restated Reorganization Agreement) (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 5.1 -- Opinion of Hughes & Luce, L.L.P. regarding legality of securities being registered 10.1 -- Suiza Foods Corporation Exchange Stock Option and Restricted Stock Option Plan (filed as Exhibit 10.1 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.2 -- Exchange Stock Option and Restricted Stock Agreement between the Company and Cletes O. Beshears (filed as Exhibit 10.2 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.3 -- Exchange Stock Option Agreement between the Company and Gayle O. Beshears (filed as Exhibit 10.3 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.4 -- Exchange Stock Option Agreement between the Company and Gayle O. Beshears (filed as Exhibit 10.4 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.5 -- Suiza Foods Corporation 1995 Stock Option and Restricted Stock Plan (filed as Exhibit 10.5 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.6 -- Employment Agreement between Suiza Management Corporation and Gregg L. Engles (filed as Exhibit 10.8 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.7 -- Amendment No. 1 to Employment Agreement between Suiza Management Corporation and Gregg L. Engles (filed as Exhibit 10.9 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.8 -- Employment Agreement between Suiza Management Corporation and Cletes O. Beshears (filed as Exhibit 10.10 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.9 -- Amendment No. 1 to Employment Agreement between Suiza Management Corporation and Cletes O. Beshears (filed as Exhibit 10.11 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.10 -- Employment Agreement between Suiza Dairy Corporation, Suiza Fruit Corporation, Neva Plastics Manufacturing Corp. and Hector M. Nevares (filed as Exhibit 10.12 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.11 -- Amendment No. 1 to Hector M. Nevares' Employment Agreement (filed as Exhibit 10.13 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) II-3 EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.12 -- Amendment No. 2 to Hector M. Nevares' Employment Agreement (filed as Exhibit 10.14 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.13 -- Amended and Restated Credit Agreement with Chase Manhattan Bank, N.A. 10.14 -- Amendment and Waiver to Amended and Restated Credit Agreement with Chase Manhattan Bank, N.A. 10.15 -- Amendment No. 2 to Amended and Restated Credit Agreement with First Union National Bank of North Carolina 10.16 -- Supplemental Credit Agreement with First Union National Bank of North Carolina 10.17 -- Note Purchase Agreement with John Hancock and Pacific Mutual (filed as Exhibit 10.18 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.18 -- Agreement among Suiza Holdings, L.P., Engles Acquisition D, Inc., Engles Acquisition F, Inc. and Engles Acquisition P, Inc. and Hector M. Nevares La Costa, Carmen M. La Costa Bolivar, and certain other shareholders and Suiza Dairy Corporation, Borinquen Dairy, Inc., Suiza Fruit Corporation and Neva Plastics Manufacturing Corp. (filed as Exhibit 10.19 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.19 -- Amended and Restated Agreement and Plan of Merger among Engles Dairy Acquisition, L.P., Velda Farms, Inc. and the Morningstar Group Inc. (filed as Exhibit 10.20 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.20 -- Noncompetition Agreement by and between Velda Farms, L.P. and The Morningstar Group Inc. (filed as Exhibit 10.21 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.21 -- Form of Underwriting Agreement (filed as Exhibit 1.1 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.22 -- Stock Purchase Agreement among G Acquisition Corp. and Jose M. Rodriguez Garrido and Jorge Rodriguez Garrido (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K/A filed with the Commission on September 25, 1996 and incorporated herein by this reference) 10.23 -- Asset Purchase Agreement by and among Suiza Foods Corporation, Swiss Dairy Corporation a Delaware corporation, Swiss Dairy, a Corporation, a California corporation and the principal stockholders of Swiss Dairy, a Corporation identified therein (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the Commission on September 24, 1996 and incorporated herein by this reference) 10.24 -- Stock Purchase Agreement by and between T. Rowe Price Small-Corp. Value Fund, Inc. and Suiza Foods Corporation 11.1 -- Statement re computation of per share earnings 21.1 -- List of Subsidiary Corporations 23.1 -- Consent of Hughes & Luce, L.L.P. (included in Exhibit 5.1) 23.2 -- Consent of Deloitte & Touche LLP 23.3 -- Consent of KPMG Peat Marwick LLP 24.1 -- Powers of Attorney (included on page II-6)
(b) FINANCIAL STATEMENT SCHEDULES: No financial statement schedules are required as all material required information is disclosed in the notes to the consolidated financial statements. II-4 ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the underwriting agreement, the Company's Certificate of Incorporation or Bylaws, Delaware law or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-5 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dallas, State of Texas, on September 30, 1996. SUIZA FOODS CORPORATION By: /s/ Gregg L. Engles --------------------------------- Gregg L. Engles, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY We, the undersigned officers and directors of Suiza Foods Corporation, hereby severally constitute and appoint Gregg L. Engles and Tracy L. Noll, and each of them, our true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for each of us in our name, place and stead, in any and all capacities, to sign Suiza Food Corporation's Registration Statement on Form S-1, and any other Registration Statement relating to the same offering, and any and all amendments thereto (including post-effective amendments), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grant to such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as each of us might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or his or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. /s/ Gregg L. Engles Chairman of the Board and Chief September 30, 1996 - ----------------------------- Executive Officer Gregg L. Engles /s/ Cletes O. Beshears - ----------------------------- President and Director September 30, 1996 Cletes O. Beshears /s/ Hector M. Nevares President of Suiza-Puerto September 30, 1996 - ----------------------------- Rico and Director Hector M. Nevares /s/ Tracy L. Noll Vice President, Chief Financial September 30, 1996 - ----------------------------- Officer and Secretary Tracy L. Noll /s/ Gayle O. Beshears - ----------------------------- Director September 30, 1996 Gayle O. Beshears /s/ P. Eugene Pender - ----------------------------- Director September 30, 1996 P. Eugene Pender /s/ Stephen Green - ----------------------------- Director September 30, 1996 Stephen Green /s/ Robert L. Kaminski - ----------------------------- Director September 30, 1996 Robert L. Kaminski /s/ Robert Piccinini - ----------------------------- Director September 30, 1996 Robert Piccinini /s/ Robert Bartholomew - ----------------------------- Director September 30, 1996 Robert Bartholomew
II-6 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1 -- Amended and Restated Reorganization Agreement (filed as Exhibit 2.1 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 3.1 -- Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 3.2 -- Certificate of Amendment of Certificate of Incorporation of the Company (filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 3.3 -- Certificate of Correction of Certificate of Amendment of Certificate of Incorporation (filed as Exhibit 3.3 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 3.4 -- Certificate of Amendment of Certificate of Incorporation of the Company (filed as Exhibit 3.4 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 3.5 -- Bylaws of the Company (filed as Exhibit 3.5 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 4.1 -- Specimen of Common Stock Certificate (filed as Exhibit 4.1 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 4.2 -- Registration Rights (Exhibit G-2 to Amended and Restated Reorganization Agreement) (filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 5.1 -- Opinion of Hughes & Luce, L.L.P. regarding legality of securities being registered 10.1 -- Suiza Foods Corporation Exchange Stock Option and Restricted Stock Option Plan (filed as Exhibit 10.1 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.2 -- Exchange Stock Option and Restricted Stock Agreement between the Company and Cletes O. Beshears (filed as Exhibit 10.2 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.3 -- Exchange Stock Option Agreement between the Company and Gayle O. Beshears (filed as Exhibit 10.3 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.4 -- Exchange Stock Option Agreement between the Company and Gayle O. Beshears (filed as Exhibit 10.4 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.5 -- Suiza Foods Corporation 1995 Stock Option and Restricted Stock Plan (filed as Exhibit 10.5 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.6 -- Employment Agreement between Suiza Management Corporation and Gregg L. Engles (filed as Exhibit 10.8 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.7 -- Amendment No. 1 to Employment Agreement between Suiza Management Corporation and Gregg L. Engles (filed as Exhibit 10.9 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.8 -- Employment Agreement between Suiza Management Corporation and Cletes O. Beshears (filed as Exhibit 10.10 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.9 -- Amendment No. 1 to Employment Agreement between Suiza Management Corporation and Cletes O. Beshears (filed as Exhibit 10.11 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.10 -- Employment Agreement between Suiza Dairy Corporation, Suiza Fruit Corporation, Neva Plastics Manufacturing Corp. and Hector M. Nevares (filed as Exhibit 10.12 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.11 -- Amendment No. 1 to Hector M. Nevares' Employment Agreement (filed as Exhibit 10.13 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.12 -- Amendment No. 2 to Hector M. Nevares' Employment Agreement (filed as Exhibit 10.14 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.13 -- Amended and Restated Credit Agreement with Chase Manhattan Bank, N.A. 10.14 -- Amendment and Waiver to Amended and Restated Credit Agreement with Chase Manhattan Bank, N.A. 10.15 -- Amendment No. 2 to Amended and Restated Credit Agreement with First Union National Bank of North Carolina 10.16 -- Supplemental Credit Agreement with First Union National Bank of North Carolina 10.17 -- Note Purchase Agreement with John Hancock and Pacific Mutual (filed as Exhibit 10.18 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.18 -- Agreement among Suiza Holdings, L.P., Engles Acquisition D, Inc., Engles Acquisition F, Inc. and Engles Acquisition P, Inc. and Hector M. Nevares La Costa, Carmen M. La Costa Bolivar, and certain other shareholders and Suiza Dairy Corporation, Borinquen Dairy, Inc., Suiza Fruit Corporation and Neva Plastics Manufacturing Corp. (filed as Exhibit 10.19 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.19 -- Amended and Restated Agreement and Plan of Merger among Engles Dairy Acquisition, L.P., Velda Farms, Inc. and the Morningstar Group Inc. (filed as Exhibit 10.20 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.20 -- Noncompetition Agreement by and between Velda Farms, L.P. and The Morningstar Group Inc. (filed as Exhibit 10.21 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.21 -- Form of Underwriting Agreement (filed as Exhibit 1.1 to the Registrant's Registration Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by this reference) 10.22 -- Stock Purchase Agreement among G Acquisition Corp. and Jose M. Rodriguez Garrido and Jorge Rodriguez Garrido (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K/A filed with the Commission on September 25, 1996 and incorporated herein by this reference) EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.23 -- Asset Purchase Agreement by and among Suiza Foods Corporation, Swiss Dairy Corporation a Delaware corporation, Swiss Dairy, a Corporation, a California corporation and the principal stockholders of Swiss Dairy, a Corporation identified therein (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the Commission on September 24, 1996 and incorporated herein by this reference) 10.24 -- Stock Purchase Agreement by and between T. Rowe Price Small-Corp. Value Fund, Inc. and Suiza Foods Corporation 11.1 -- Statement re computation of per share earnings 21.1 -- List of Subsidiary Corporations 23.1 -- Consent of Hughes & Luce, L.L.P. (included in Exhibit 5.1) 23.2 -- Consent of Deloitte & Touche LLP 23.3 -- Consent of KPMG Peat Marwick 24.1 -- Powers of Attorney (included on page II-6)
EX-5.1 2 EXHIBIT 5.1 EXHIBIT 5.1 [Hughes & Luce, L.L.P. Letterhead] September 30, 1996 Suiza Foods Corporation 3811 Turtle Creek Boulevard Suite 1300 Dallas, Texas 75219 Re: Shelf Registration Statement on Form S-1 (the "Registration Statement") Ladies and Gentlemen: We have acted as special counsel to Suiza Foods Corporation, a Delaware corporation (the "Company"), in connection with the registration under the Securities Act of 1933, as amended, of 625,000 shares (the "Shares") of the Company's common stock, $.01 par value per share. The Shares are being registered pursuant to a registration statement on Form S-1 to be filed with the Securities and Exchange Commission on or about September 30, 1996 (the "Registration Statement") and are to be sold by the selling stockholder identified in the Registration Statement. In connection with this opinion, we have examined such documents and records of the Company and such statutes, regulations and other instruments and certificates as we have deemed necessary or advisable for the purposes of this opinion. We have assumed that all signatures on all documents presented to us are genuine, that all documents submitted to us as originals are accurate and complete and that all documents submitted to us as copies are true and correct copies of the originals thereof. We have also relied upon such certificates of public officials, corporate agents and officers of the Company and such other certifications with respect to the accuracy of material factual matters contained therein which were not independently established. Based on the foregoing, we are of the opinion that the Shares are validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement. Very truly yours, /s/ Hughes & Luce, L.L.P. EX-10.13 3 EXHIBIT 10.13 EXECUTION COPY ************************************************************ SUIZA FOODS CORPORATION _____________________________ AMENDED AND RESTATED CREDIT AGREEMENT Dated as of July 17, 1996 ______________________________ THE CHASE MANHATTAN BANK, as Agent ************************************************************ TABLE OF CONTENTS This Table of Contents is not part of the Agreement to which it is attached but is inserted for convenience of reference only. Page ---- Section 1. Definitions and Accounting Matters . . . . . . . . . . . . . 2 1.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . 2 1.02 Accounting Terms and Determinations . . . . . . . . . . . . . 31 1.03 Classes and Types of Loans. . . . . . . . . . . . . . . . . . 32 Section 2. Commitments, Loans, Notes and Prepayments. . . . . . . . . . 32 2.01 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2.02 Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . 35 2.03 Changes of Commitments. . . . . . . . . . . . . . . . . . . . 35 2.04 Commitment Fee. . . . . . . . . . . . . . . . . . . . . . . . 36 2.05 Lending Offices . . . . . . . . . . . . . . . . . . . . . . . 36 2.06 Several Obligations; Remedies Independent . . . . . . . . . . 36 2.07 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 2.08 Optional Prepayments and Conversions or Continuations of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 2.09 Mandatory Prepayments and Reductions of Commitments . . . . . 39 2.10 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . 42 Section 3. Payments of Principal and Interest . . . . . . . . . . . . . 48 3.01 Repayment of Loans. . . . . . . . . . . . . . . . . . . . . . 48 3.02 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 4. Payments; Pro Rata Treatment; Computations; Etc. . . . . . . 50 4.01 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . 50 4.02 Pro Rata Treatment. . . . . . . . . . . . . . . . . . . . . . 51 4.03 Computations. . . . . . . . . . . . . . . . . . . . . . . . . 52 4.04 Minimum Amounts . . . . . . . . . . . . . . . . . . . . . . . 52 4.05 Certain Notices . . . . . . . . . . . . . . . . . . . . . . . 52 4.06 Non-Receipt of Funds by the Agent . . . . . . . . . . . . . . 53 4.07 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . 54 Section 5. Yield Protection, Etc. . . . . . . . . . . . . . . . . . . . 56 5.01 Additional Costs. . . . . . . . . . . . . . . . . . . . . . . 56 (i) Page ---- 5.02 Limitation on Types of Loans. . . . . . . . . . . . . . . . . 59 5.03 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . 59 5.04 Treatment of Affected Loans . . . . . . . . . . . . . . . . . 60 5.05 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . 61 5.06 Net Payments; Taxes . . . . . . . . . . . . . . . . . . . . . 62 5.07 Replacement of Lenders. . . . . . . . . . . . . . . . . . . . 64 5.08 Additional Costs in Respect of Letters of Credit. . . . . . . 65 Section 6. [Intentionally Left Blank] . . . . . . . . . . . . . . . . . 66 Section 7. Conditions Precedent . . . . . . . . . . . . . . . . . . . . 66 7.01 Conditions to Effectiveness . . . . . . . . . . . . . . . . . 66 7.02 Additional Conditions Precedent to Revolving Credit Loans . . 71 7.03 Initial and Subsequent Extensions of Credit . . . . . . . . . 74 Section 8. Representations and Warranties . . . . . . . . . . . . . . . 75 8.01 Corporate Existence . . . . . . . . . . . . . . . . . . . . . 75 8.02 Financial Condition . . . . . . . . . . . . . . . . . . . . . 75 8.03 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 77 8.04 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . 77 8.05 Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 8.06 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 78 8.07 Use of Credit . . . . . . . . . . . . . . . . . . . . . . . . 78 8.08 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 8.09 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 8.10 Investment Company Act. . . . . . . . . . . . . . . . . . . . 79 8.11 Public Utility Holding Company Act. . . . . . . . . . . . . . 79 8.12 Material Agreements and Liens . . . . . . . . . . . . . . . . 79 8.13 Environmental Matters . . . . . . . . . . . . . . . . . . . . 80 8.14 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . 83 8.15 Subsidiaries, Etc.. . . . . . . . . . . . . . . . . . . . . . 83 8.16 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . 84 8.17 True and Complete Disclosure. . . . . . . . . . . . . . . . . 85 8.18 Real Property . . . . . . . . . . . . . . . . . . . . . . . . 85 8.19 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Section 9. Covenants of the Company . . . . . . . . . . . . . . . . . . 86 9.01 Financial Statements, Etc.. . . . . . . . . . . . . . . . . . 86 9.02 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 90 9.03 Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . 91 9.04 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 91 (ii) Page ---- 9.05 Prohibition of Fundamental Changes. . . . . . . . . . . . . . 94 9.06 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . 96 9.07 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . 98 9.08 Investments . . . . . . . . . . . . . . . . . . . . . . . . . 99 9.09 Restricted Payments . . . . . . . . . . . . . . . . . . . . .100 9.10 Leverage Ratios . . . . . . . . . . . . . . . . . . . . . . .100 9.11 Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . .101 9.12 Fixed Charges Ratio . . . . . . . . . . . . . . . . . . . . .102 9.13 Interest Coverage Ratio . . . . . . . . . . . . . . . . . . .102 9.14 Capital Expenditures. . . . . . . . . . . . . . . . . . . . .103 9.15 Interest Rate Protection Agreements . . . . . . . . . . . . .104 9.16 Lines of Business . . . . . . . . . . . . . . . . . . . . . .104 9.17 Transactions with Affiliates. . . . . . . . . . . . . . . . .104 9.18 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . .105 9.19 Certain Obligations Respecting Subsidiaries; Additional Mortgaged Properties . . . . . . . . . . . . . . . . . . . 105 9.20 Modifications of Certain Documents. . . . . . . . . . . . . .106 9.21 Further Assurances. . . . . . . . . . . . . . . . . . . . . .107 9.22 Subordinated Indebtedness . . . . . . . . . . . . . . . . . .107 Section 10. Events of Default . . . . . . . . . . . . . . . . . . . . .108 Section 11. The Agent . . . . . . . . . . . . . . . . . . . . . . . . .113 11.01 Appointment, Powers and Immunities . . . . . . . . . . . . .113 11.02 Reliance by Agent. . . . . . . . . . . . . . . . . . . . . .114 11.03 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . .114 11.04 Rights as a Lender . . . . . . . . . . . . . . . . . . . . .115 11.05 Indemnification. . . . . . . . . . . . . . . . . . . . . . .115 11.06 Non-Reliance on Agent and Other Lenders. . . . . . . . . . .116 11.07 Failure to Act . . . . . . . . . . . . . . . . . . . . . . .116 11.08 Resignation or Removal of Agent. . . . . . . . . . . . . . .117 11.09 Agency Fee . . . . . . . . . . . . . . . . . . . . . . . . .117 11.10 Consents under Other Loan Documents. . . . . . . . . . . . .117 Section 12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . .118 12.01 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . .118 12.02 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . .118 12.03 Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . . .118 12.04 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . .120 12.05 Successors and Assigns . . . . . . . . . . . . . . . . . . .121 12.06 Assignments and Participations . . . . . . . . . . . . . . .121 12.07 Survival . . . . . . . . . . . . . . . . . . . . . . . . . .124 (iii) Page ---- 12.08 Captions . . . . . . . . . . . . . . . . . . . . . . . . . .125 12.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . .125 12.10 Governing Law; Submission to Jurisdiction; Service of Process and Venue. . . . . . . . . . . . . . . . . . . . .125 12.11 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . .126 12.12 Treatment of Certain Information; Confidentiality. . . . . .126 12.13 Intention of Parties . . . . . . . . . . . . . . . . . . . .127 (iv) SCHEDULE I - Existing Material Agreements and Liens SCHEDULE II - Environmental Matters SCHEDULE III - Subsidiaries and Investments SCHEDULE IV - Real Property SCHEDULE V - Litigation SCHEDULE VI - Existing Puerto Rico Security Documents SCHEDULE VII - Existing Mortgages EXHIBIT A-1 - Form of Facility A Note EXHIBIT A-2 - Form of Facility B Note EXHIBIT B - Form of Borrowing Base Certificate EXHIBIT C-1 - Form of Amendment to Security Agreement EXHIBIT C-2 - Form of New Subsidiary Guarantee and Security Agreement EXHIBIT C-3 - Form of P.R. Inventory Agreement EXHIBIT D-1 - Form of Mortgage EXHIBIT D-2 - Form of Deed of Trust EXHIBIT D-3 - Form of Garrido Factors Lien Agreement EXHIBIT E-1 - Form of Opinion of Counsel to the Obligors EXHIBIT E-2 - Form of Opinion of Puerto Rico Counsel to the Obligors EXHIBIT F - Form of Opinion of Local Counsel EXHIBIT G - Form of Opinion of Special New York Counsel to Chase EXHIBIT H - Form of Confidentiality Agreement EXHIBIT I - Form of Assignment and Acceptance EXHIBIT J - Form of Amendment to Subordination Agreement (v) AMENDED AND RESTATED CREDIT AGREEMENT dated as of July 17, 1996 between: SUIZA FOODS CORPORATION, a corporation duly organized and validly existing under the laws of the State of Delaware (the "COMPANY"); each of the lenders that is a signatory hereto identified under the caption "LENDERS" on the signature pages hereto or that, pursuant to Section 12.06(b) hereof, shall become a "Lender" hereunder (individually, a "LENDER" and, collectively, the "LENDERS"); and THE CHASE MANHATTAN BANK, a New York state bank, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "AGENT"). WHEREAS, the Company, certain Subsidiaries of the Company (the "SUBSIDIARY BORROWERS", and together with the Company, the "BORROWERS"), the Existing Lenders (as hereinafter defined) and the Agent are party to a Credit Agreement dated as of March 31, 1995 as amended by Amendment No. 1 dated as of April 18, 1995, Amendment No. 2 dated as of December 21, 1995, Amendment No. 3 dated as of March 18, 1996 and Amendment No. 4 dated as of May 8, 1996 (as heretofore modified and supplemented and in effect immediately prior to the Effective Date referred to below, the "EXISTING CREDIT AGREEMENT") providing, subject to the terms and conditions thereof, for extensions of credit (by making of loans and issuing letters of credit) to be made by the Existing Lenders to the Borrowers in an aggregate principal or face amount not exceeding $160,000,000. WHEREAS, the parties hereto now wish to amend and restate the Existing Credit Agreement by, among other things, increasing the aggregate amount of the credit facilities under the Existing Credit Agreement available to the Company for the purpose of providing financing for the acquisition by the Company of all of the capital stock of Garrido y Compania, Inc., a Puerto Rico corporation ("GARRIDO") and Guest Choice, Inc., a Delaware corporation ("GUEST CHOICE"), pursuant to the Garrido Purchase Agreement (as hereinafter defined) (the "GARRIDO ACQUISITION"), and related fees, commissions and expenses, by repaying in full the credit extended to the Subsidiary Borrowers and cancelling the credit facilities available to the Subsidiary Borrowers under - 2 - the Existing Credit Agreement and by amending certain of the other provisions thereof and, in that connection, wish to amend and restate the Existing Credit Agreement in its entirety, it being the intention of the parties hereto that the loans and letters of credit outstanding under the Existing Credit Agreement to or for the account of the Company on the Effective Date (as hereinafter defined) shall continue and remain outstanding and not be repaid on the Effective Date, but shall be assigned and reallocated among the Lenders as provided in Sections 2.01(a) and (b) hereof and accordingly the Loans and Commitments (as hereinafter defined) are not in novation or discharge thereof. WHEREAS, each of the Obligors (as hereinafter defined) expects to derive benefit, directly or indirectly, from the loans so made to the Company, both in its separate capacity and as a member of the integrated group, since the successful operation of each of the Company and its Subsidiaries is dependent on the continued successful performance of the functions of the integrated group as a whole. Accordingly, the parties hereto hereby agree that the Existing Credit Agreement shall, as of the Effective Date (the occurrence of which is subject to the satisfaction of the conditions precedent specified in Section 7.01 hereof), be amended and restated in its entirety as follows: Section 1. DEFINITIONS AND ACCOUNTING MATTERS. 1.01 CERTAIN DEFINED TERMS. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1.01 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "ADDITIONAL PUERTO RICO SECURITY DOCUMENTS" shall have the meaning assigned to such term in Section 9.21(b) hereof. "AFFILIATE" shall mean any Person that directly or indirectly controls, or is under common control with, or is - 3 - controlled by, the Company and, if such Person is an individual, any member of the immediate family (including parents, spouse, children and siblings) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), PROVIDED that, in any event, any Person that owns directly or indirectly securities having 10% or more of the voting power for the election of directors or other governing body of a corporation or 10% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person. Notwithstanding the foregoing, (a) no individual shall be an Affiliate solely by reason of his or her being a director, officer or employee of the Company or any of its Subsidiaries and (b) none of the Wholly Owned Subsidiaries of the Company shall be Affiliates. "AMENDMENT TO SECURITY AGREEMENT" shall mean the Amendment to Security Agreement substantially in the form of Exhibit C-1 hereto between the Company and the Agent, as the same shall be modified and supplemented and in effect from time to time. - 4 - "APPLICABLE COMMITMENT FEE RATE" shall mean 0.375% per annum; PROVIDED that if the Leverage Ratio as at the last day of any fiscal quarter of the Company ending on or after the Effective Date shall fall within any of the ranges set forth below then, upon the delivery to the Agent of a certificate of a Responsible Financial Officer of the Company (which shall accompany the financial statements for such fiscal quarter delivered under Section 9.01(a) hereof on which the calculation of such Leverage Ratio is based) demonstrating such fact prior to the end of the next succeeding fiscal quarter, the "Applicable Commitment Fee Rate" shall be reduced to the rate per annum set forth below opposite such range during the period commencing on the third Business Day following the date of receipt of such certificate to but not including the date the next such certificate to be delivered under this definition is delivered or due, whichever is earlier (except that, notwithstanding the foregoing, the Applicable Commitment Fee Rate shall not as a consequence of this proviso be so reduced for any period during which an Event of Default shall have occurred and be continuing): Range Applicable Commitment Fee Rate of ------------------------------ Leverage Ratio -------------- Less than 2.0:1 0.20% Equal to or greater than 0.25% 2.0:1 but less than 2.50:1 "APPLICABLE LENDING OFFICE" shall mean, for each Lender and for each Type of Loan, the "Lending Office" of such Lender (or of an affiliate of such Lender) designated for such Type of Loan on the signature pages hereof or such other office of such Lender (or of an affiliate of such Lender) as such Lender may from time to time specify to the Agent and the Company as the office by which its Loans of such Type are to be made and maintained. - 5 - "APPLICABLE MARGIN" shall mean: with respect to Loans that are Base Rate Loans, 0.25% and/or Eurodollar Loans, 1.5% per annum; PROVIDED that if the Leverage Ratio as at the last day of any fiscal quarter of the Company ending on or after the Effective Date shall fall within any of the ranges set forth below then, upon the delivery to the Agent of a certificate of a Responsible Financial Officer of the Company (which shall accompany the financial statements for such fiscal quarter delivered under Section 9.01(a) hereof on which the calculation of such Leverage Ratio is based) demonstrating such fact prior to the end of the next succeeding fiscal quarter, the "Applicable Margin" for each Loan shall be adjusted upwards or downwards, as the case may be, to the rate per annum for the respective Type and Class of Loan set forth below opposite such range during the period commencing on the third Business Day following the date of receipt of such certificate to but not including the date the next succeeding such certificate to be delivered hereunder is delivered or due, whichever is earlier (except that, notwithstanding the foregoing, the Applicable Margin for any such Loan shall not as a consequence of this proviso be so reduced for any period during which an Event of Default shall have occurred and be continuing): Range Applicable Margin (% p.a.) of -------------------------- Leverage Ratio Base Rate Loans Eurodollar Loans -------------- --------------- ---------------- Less than 2.0:1 0% 0.75% Equal to or greater than 0% 1.0% 2.0:1 but less than 2.50:1 Equal to or greater than 0% 1.25% 2.50:1 but less than 3.25:1 - 6 - Equal to or greater than 0.25% 1.50% 3.25:1 but less than 3.75:1 Equal to or greater than 0.50% 1.75% 3.75:1 but less than 4.0:1 Equal to or greater than 0.75% 2.00% 4.0:1 "BANKRUPTCY CODE" shall mean the Federal Bankruptcy Code of 1978, as amended from time to time. "BASE RATE" shall mean, for any day, a rate per annum equal to the higher of (a) the Federal Funds Rate for such day PLUS 1/2 of 1% and (b) the Prime Rate for such day. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate. "BASE RATE LOANS" shall mean Loans that bear interest at rates based upon the Base Rate. "BASIC DOCUMENTS" shall mean, collectively, the Loan Documents, the Subordinated Debt Documents and the Garrido Purchase Agreement. "BORROWING BASE" shall mean, as at any date, the sum of (a) 85% of the aggregate amount of Eligible Receivables at said date PLUS (b) 50% of the aggregate value of Eligible Inventory at said date. The "value" of Eligible Inventory shall be determined at the lower of cost (using the first-in first-out method) or market in accordance with GAAP. "BORROWING BASE CERTIFICATE" shall mean a certificate of a Responsible Financial Officer of the Company, substantially in the form of Exhibit B hereto and appropriately completed. - 7 - "BUSINESS DAY" shall mean (a) any day on which commercial banks are not authorized or required to close in New York City and (b) if such day relates to a borrowing of, a payment or prepayment of principal of or interest on, a Conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice by the Company with respect to any such borrowing, payment, prepayment, Conversion or Interest Period, any day on which dealings in Dollar deposits are carried out in the London interbank market. "CAPITAL EXPENDITURES" shall mean, for any period, expenditures (including, without limitation, the aggregate amount of Capital Lease Obligations incurred during such period) made by the Company or any of its Subsidiaries to acquire or construct fixed assets, plant and equipment (including renewals, improvements and replacements, but excluding repairs) during such period computed in accordance with GAAP. "CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "CASUALTY EVENT" shall mean, with respect to any Property of any Person, any loss of or damage to, or any condemnation or other taking of, such Property for which such Person or any of its Subsidiaries receives insurance proceeds, proceeds of a condemnation award or other compensation. "CHASE" shall mean The Chase Manhattan Bank. "CLASS" shall have the meaning assigned to such term in Section 1.03 hereof. - 8 - "CLOSING DATE" shall mean March 31, 1995. "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. "COLLATERAL ACCOUNT" shall mean with respect to the Company and any of its Subsidiaries, the Collateral Account as defined in the Security Agreement. "COMMISSION" shall mean the Securities and Exchange Commission or any governmental agency substituted therefor. "COMMITMENTS" shall mean the Facility A Commitments and the Facility B Commitments. "COMMONWEALTH" shall mean the Commonwealth of Puerto Rico and its political subdivisions, municipalities, agencies and instrumentalities. "COMPANY" shall have the meaning assigned to such term in the preamble of this Agreement. "CONTINUE", "CONTINUATION" and "CONTINUED" shall refer to the continuation pursuant to Section 2.08 hereof of a Eurodollar Loan from one Interest Period to the next Interest Period. "CONVERT", "CONVERSION" and "CONVERTED" shall refer to a conversion pursuant to Section 2.08 hereof of one Type of Loans into another Type of Loans, which may be accompanied by the transfer by a Lender (at its sole discretion) of a Loan from one Applicable Lending Office to another. "DEBT SERVICE" shall mean, for any period, the sum, for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) all payments of principal of Indebtedness (including, without limitation, the principal component of any payments in respect of Capital Lease Obligations) scheduled to be - 9 - made during such period PLUS (b) all Interest Expense for such period, it being understood that, if any installment of principal of the Loans shall have been prepaid during or prior to such period, the amount of principal of the Loans included in Debt Service for such period shall be equal to the aggregate amount of principal of the Loans originally scheduled to be paid hereunder during such period. "DEFAULT" shall mean an Event of Default or an event that with notice or lapse of time or both would become an Event of Default. "DISPOSITION" shall mean any sale, assignment, transfer or other disposition of any Property (whether now owned or hereafter acquired) by the Company 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 and on ordinary business terms. "DIVIDEND PAYMENT" shall mean dividends (in cash, Property or obligations) on, or other payments or distributions on account of, or the setting apart of money for a sinking or other analogous fund for, or the purchase, redemption, retirement or other acquisition of, any shares of any class of stock of the Company or of any warrants, options or other rights to acquire the same (or to make any payments to any Person, such as "phantom stock" payments, where the amount thereof is calculated with reference to the fair market or equity value of the Company or any of its Subsidiaries), but excluding dividends payable solely in shares of common stock of the Company. "DOLLARS" and "$" shall mean lawful money of the United States. "EBITDA" shall mean, for any period, the sum, for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) operating income (calculated before income taxes, Interest Expense, extraordinary and unusual items and income or loss - 10 - attributable to equity in Affiliates) for such period PLUS (b) depreciation and amortization (to the extent deducted in determining operating income) for such period PLUS (c) other income not exceeding $1,500,000 for such period. "EFFECTIVE DATE" shall mean the date on which all of the conditions to effectiveness of this Agreement set forth in Section 7.01 hereof shall have been satisfied or waived. "ELIGIBLE INVENTORY" shall mean, as at any date, (a) all Inventory (i) that is owned by (and in the possession or under the control of) any Obligor as at such date, (ii) that is located in a jurisdiction in the United States, (iii) in which the Agent for the benefit of the Lenders shall have a perfected first priority lien and security interest and (in the case of Inventory located in a jurisdiction of the United States subject to the Security Agreement, the Existing Subsidiary Guarantee and Security Agreement or the New Subsidiary Guarantee and Security Agreement) as to which appropriate Uniform Commercial Code financing statements have been filed naming the relevant Obligor as "debtor" and the Agent as "secured party", (iv) that is in good condition and is not damaged or obsolete, (v) that meets all standards imposed by any governmental agency or department or division thereof having regulatory authority over such Inventory, its use or sale, (vi) that is either currently usable or currently saleable in the normal course of such Obligor's business and (vii) that is not manufactured, processed, assembled or commingled with property of Persons other than such Obligor and (b) 50% of all Inventory that is located in a jurisdiction in the Commonwealth and that complies with all the requirements set forth in clause (a) above (other than clause (a)(ii) and (a)(iii)); PROVIDED that Majority Lenders may exclude from Eligible Inventory any type of Inventory that the Majority Lenders may reasonably determine to be unmarketable. - 11 - "ELIGIBLE RECEIVABLES" shall mean, as at any date, the aggregate amount of all Receivables as at such date payable to any of the Obligors other than the following (determined without duplication): (a) any Receivable not payable in Dollars; (b) any Receivable which does not represent a final sale (subject to the proviso set forth in paragraph (j) below), or the goods giving rise to such Receivable have not been shipped and delivered to the account debtor thereof, or the services giving rise to such Receivable have not been performed by the respective Obligor, or for which payment is not absolute or is contingent upon the fulfillment of any condition; (c) any Receivable for which the amount due thereunder has not yet been invoiced by the respective Obligor; (d) (other than any Receivable described under clause (n), (r) or (s) below), any Receivable which remains due and unpaid more than 60 days after the date of the original invoice with respect thereto; (e) any Receivable with respect to which any warranty or covenant contained in this Agreement or any other Loan Document has been breached; (f) any Receivable against which the account debtor thereof or any Person obligated to make payment thereof or any commercial carrier asserts any defense, offset, counterclaim, or other right to avoid or reduce the liability represented by such Receivable, other than discounts in the ordinary course of business of the respective Obligor; (g) any Receivable for which the account debtor thereof is also any Obligor's supplier or creditor, and that such account debtor has not entered into an agreement which - 12 - is reasonably acceptable to the Majority Lenders with respect to waiver of rights of setoff; (h) the Receivables of an account debtor and its Affiliates which, at the time of determination, exceed 25% percent of the aggregate amount of the Obligors' aggregate Receivables at such time of determination, but only to the extent of such excess; (i) (other than any Receivable described under clause (n) or (s) below), all Receivables of any account debtor if more than 25% of the aggregate amount of the Receivables owing from such account debtor shall at the time have remained unpaid for more than 90 days after the date of the issuance of the original invoices therefor; (j) any Receivable for which the sale to the account debtor is on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return basis or is otherwise contingent on or subject to the fulfillment of any condition; PROVIDED that no Receivable under this clause (j) shall be excluded by virtue of an Obligor's customary policy of accepting returns for out-of-code-date, damaged or leaking products; (k) any Receivable that arises from a sale outside of the ordinary course of business or to or for services rendered to any employee or Affiliate or Subsidiary of any Obligor; (l) any Receivable that is an obligation of any Person located in a jurisdiction other than the United States or the Commonwealth unless such Receivable is supported by a letter of credit issued by a bank reasonably satisfactory to the Majority Lenders; (m) any Receivable subject to any Lien other than the Lien granted pursuant to the relevant Security Documents; - 13 - (n) any Receivable that is an obligation arising from any contracts for the sale of Eligible Inventory by any Obligor to the Commonwealth and/or the United States or any agency, instrumentality or department thereof (i) unless and until all documents or other action required to assign any such Receivable to the Agent for the benefit of the Lenders pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C. Section 3727) and/or Articles 200 and 201 of the Puerto Rico Political Code of 1902, as amended by Act No. 16 of May 1, 1967 and the rules and regulations promulgated from time to time thereunder, shall have been executed and delivered to the Agent or taken, as the case may be, and (ii) unless such Receivable has not remained due and unpaid for more than 90 days after the date of the original invoice with respect thereto; (o) any Receivable if the account debtor thereof or any Person liable in connection therewith is insolvent, subject to bankruptcy or receivership proceedings, or has made an assignment for the benefit of creditors; (p) any Receivable identified in any Obligor's books and records as "Cooperative Advertising Receivables" or any other denomination representing reimbursement of advertising expenses to such Obligor; (q) any Receivable that arises from returned checks, conditional sales contracts or from a sale to any other Obligor or any Affiliate of any Obligor; (r) any Receivable identified in any Obligor's books and records as "Salesmen Accounts" or any other similar denomination which remains due and unpaid more than 7 days after the date of the original invoice with respect thereto; (s) any Receivable that arises from a sale to the Milk Price Stabilization Fund of the Commonwealth which remains due and unpaid more than 180 days after the date of the original invoice with respect thereto and the amount at the - 14 - time of determination of such Receivable remaining due and unpaid within the period between 121 days to 180 days, which represents 25% or more of the aggregate amount of Eligible Receivables remaining due and unpaid within the period of up to 180 days; (t) with respect to any Obligor (other than Garrido) located in the Commonwealth, any Receivable arising out of, or relating to, inventory not covered by the Factor's Lien Contract; (u) to the extent not already excluded from Eligible Receivables, any Receivables which are reasonably determined by the Majority Lenders to be unacceptable for any reason (including, without limitation, relating to the credit standing of the account debtor of such Receivable) for inclusion as an Eligible Receivable. "ENVIRONMENTAL CLAIM" shall mean, with respect to any Person, any written or oral notice, claim, demand or other communication (collectively, a "claim") by any other Person alleging or asserting such Person's liability for investigatory costs, cleanup costs, governmental response costs, damages to natural resources or other Property, personal injuries, fines or penalties arising out of, based on or resulting from (a) the presence, or Release into the environment, of any Hazardous Material at any location, whether or not owned by such Person, or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. The term "Environmental Claim" shall include, without limitation, any claim by any governmental authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence of Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. - 15 - "ENVIRONMENTAL LAWS" shall mean any and all present and future Federal, state, local and foreign laws, rules or regulations, and any orders or decrees, in each case as now or hereafter in effect, relating to the regulation or protection of human health, safety or the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes into the indoor or outdoor environment, including, without limitation, ambient air, soil, surface water, ground water, wetlands, land or subsurface strata, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes. "EQUITY ISSUANCE" shall mean (a) any issuance or sale by the Company or any of its Subsidiaries after the Effective Date of (i) any capital stock, (ii) any warrants or options exercisable in respect of capital stock (other than any warrants or options issued to directors, officers or employees of the Company or any of its Subsidiaries, pursuant to employee benefit plans established in the ordinary course of business and any capital stock of the Company or any of its Subsidiaries issued upon the exercise of such warrants or options) or (iii) any other security or instrument representing an equity interest (or the right to obtain any equity interest) in the Company or any of its Subsidiaries or (b) the receipt by the Company or any of its Subsidiaries whether directly (or indirectly through one or more of its Subsidiaries) after the Effective Date of any capital contribution (whether or not evidenced by any equity security issued by the recipient of such contribution); PROVIDED that Equity Issuance shall not include (x) any such issuance or sale by any Subsidiary of the Company to the Company or any Wholly Owned Subsidiary of the Company or (y) any capital contribution by the Company or any Wholly Owned Subsidiary of the Company to any Subsidiary of the Company. "EQUITY RIGHTS" shall mean, with respect to any Person, any subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, - 16 - any stockholders' or voting trust agreements) for the issuance, sale, registration or voting of, or 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" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA AFFILIATE" shall mean any corporation or trade or business that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which the Company is a member and (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which the Company is a member. "EURODOLLAR BASE RATE" shall mean, with respect to any Eurodollar Loan for any Interest Period therefor, the rate per annum for deposits in Dollars for a period comparable to such Interest Period which appears on the Telerate Page 3750 as of 11:00 a.m. London time two Business Days preceding the first day of such Interest Period or, if Telerate Page 3750 is unavailable at such time, the rate which appears on the Reuters Screen ISDA Page as of such date and time; PROVIDED, however, that if Agent determines that the relevant foregoing source is unavailable for the relevant Interest Period, Eurodollar Base Rate shall mean the rate of interest determined by the Agent to be the average (rounded upward, if necessary, to the nearest 1/100th of 1%) of the rates per annum at which deposits in Dollars in immediately available funds are offered to the Agent or other money center banks two Business Days preceding the first day of such Interest Period by leading banks in the London interbank market as of 11:00 a.m. London time for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount comparable to the amount of the relevant Loan. - 17 - "EURODOLLAR LOANS" shall mean Loans that bear interest at rates based on rates referred to in the definition of "Eurodollar Base Rate" in this Section 1.01. "EURODOLLAR RATE" shall mean, for any Eurodollar Loan for any Interest Period therefor, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the Eurodollar Base Rate for such Loan for such Interest Period divided by 1 MINUS the Reserve Requirement (if any) for such Loan for such Interest Period. "EVENT OF DEFAULT" shall have the meaning assigned to such term in Section 10 hereof. "EXCESS CASH FLOW" shall mean, for any period, the sum, determined without duplication, for the Company and its Subsidiaries, of (a) EBITDA for such period MINUS (b) Capital Expenditures made during such period (other than Capital Expenditures made from the proceeds of Indebtedness permitted under Section 9.07 hereof) MINUS (c) the aggregate amount of Debt Service for such period PLUS (d) decreases (if any) (or MINUS increases (if any)) in Working Capital for such period, MINUS (e) income taxes paid in cash for such period. "EXCLUDED DISPOSITION" shall mean the Disposition of any motor vehicles or other equipment no longer used or useful in the business of the Company or any of its Subsidiaries to the extent the proceeds thereof are used to acquire similar replacement Property within a period of 30 days after the end of the fiscal quarter in which such Disposition was made. "EXISTING LENDER" shall mean each Lender under the Existing Credit Agreement. "EXISTING SUBSIDIARY GUARANTEE AND SECURITY AGREEMENT" shall mean the Subsidiary Guarantee and Security Agreement dated as of March 31, 1995 between each Subsidiary of the Company party thereto and the Agent, as the same shall be modified and supplemented and in effect from time to time. - 18 - "FACILITY A COMMITMENT" shall mean, for each Facility A Lender, the obligation of such Lender to make Facility A Loans to the Company in an aggregate principal amount at any one time outstanding up to but not exceeding the amount set opposite the name of such Lender on the signature pages hereof under the caption "Facility A Commitment" (as the same may be reduced from time to time pursuant to Section 2.03 hereof). The original aggregate principal amount of the Facility A Commitments is $30,000,000. "FACILITY A COMMITMENT PERCENTAGE" shall mean, with respect to any Facility A Lender, the ratio of (a) the amount of the Facility A Commitment of such Lender to (b) the aggregate amount of the Facility A Commitments of all of the Facility A Lenders. "FACILITY A LENDERS" shall mean the Lenders having Facility A Commitments and/or holding Facility A Loans from time to time. "FACILITY A LOANS" shall mean the loans provided for by Section 2.01(a)(i) hereof, which may be Base Rate Loans and/or Eurodollar Loans. "FACILITY A NOTES" shall mean the promissory notes provided for by Section 2.07(a) hereof and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "FACILITY B COMMITMENT" shall mean, for each Facility B Lender, the obligation of such Lender to make a Facility B Loan to the Company in a principal amount up to but not exceeding the amount set opposite the name of such Lender on the signature pages hereof under the caption "Facility B Commitment" (as the same may be reduced from time to time pursuant to Section 2.03 hereof). The aggregate principal amount of the Facility B Commitments as of the Effective Date is $130,000,000. - 19 - "FACILITY B LENDERS" shall mean the Lenders having Facility B Commitments and/or holding Facility B Loans from time to time. "FACILITY B LOANS" shall mean the loans provided for by Section 2.01(b) hereof, which may be Base Rate Loans and/or Eurodollar Loans. "FACILITY B NOTES" shall mean the promissory notes provided for by Section 2.07(b) hereof and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. The term "Facility B Notes" shall include any Registered Notes evidencing Facility B Loans executed and delivered pursuant to Section 2.07(e). "FACTOR'S LIEN CONTRACT" shall mean one or more certain agreements for the creation of a factor's lien under the provisions of Act No. 86 of June 24, 1954 of the Commonwealth, as amended, between each of the Obligors operating in the Commonwealth and the Agent, as the same shall be modified and supplemented and in effect from time to time. "FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, PROVIDED that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day and (b) if such rate is not so published for any Business Day, the Federal Funds Rate for such Business Day shall be the average rate charged to Chase on such Business Day on such transactions as determined by the Agent. - 20 - "FIXED CHARGES" shall mean, for any period, the sum, for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) the aggregate amount of Debt Service for such period, PLUS (b) the aggregate amount of taxes paid in respect of the income or profit of the Company and its Subsidiaries for such period, PLUS (c) Capital Expenditures made during such period, PLUS (d) any Dividend Payments made for such period PLUS (e) Management Fees for such period (but only to the extent such Management Fees are not included in the calculation of EBITDA); provided that Capital Expenditures shall not include Capital Expenditures permitted to be incurred pursuant to the last sentence of Section 9.14 hereof. "FIXED CHARGES RATIO" shall mean, as at any date, the ratio of (a) EBITDA for the period of four consecutive fiscal quarters ending on or most recently ended prior to such date to (b) Fixed Charges for such period. "GAAP" shall mean generally accepted accounting principles applied on a basis consistent with those that, in accordance with the last sentence of Section 1.02(a) hereof, are to be used in making the calculations for purposes of determining compliance with this Agreement. "GARRIDO" shall have the meaning assigned to such term in the recitals hereof. "GARRIDO ACQUISITION" shall have the meaning assigned to such term in the recitals hereof. "GARRIDO FACTORS LIEN AGREEMENT" shall mean the Factors Lien Contract substantially in the form of Exhibit D-3 hereto between Garrido and the Agent, as the same shall be modified and supplemented and in effect from time to time. "GARRIDO MORTGAGES" shall have the meaning assigned to such term in Section 7.02(c)(ii) hereof. - 21 - "GARRIDO PURCHASE AGREEMENT" shall mean the Stock Purchase Agreement, dated as of July , 1996, relating to the Garrido Acquisition, between Jose M. Rodriguez Garrido and his wife and Jorge Rodriguez Garrido and his wife, and G Acquisition Corp., a Puerto Rico corporation and a Wholly Owned Subsidiary of the Company, as the same shall be modified and supplemented and in effect from time to time. "GUARANTEE" shall mean a guarantee, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any Person, or a guarantee of the payment of dividends or other distributions upon the stock or equity interests of any Person, or an agreement to purchase, sell or lease (as lessee or lessor) Property, products, materials, supplies or services primarily for the purpose of enabling a debtor to make payment of such debtor's obligations or an agreement to assure a creditor against loss, and including, without limitation, causing a bank or other financial institution to issue a letter of credit or other similar instrument for the benefit of another Person, but excluding endorsements for collection or deposit in the ordinary course of business. The terms "GUARANTEE" and "GUARANTEED" used as a verb shall have a correlative meaning. "GUEST CHOICE" shall have the meaning assigned to such term in the recitals hereof. "HAZARDOUS MATERIAL" shall mean, collectively, (a) any petroleum or petroleum products, flammable materials, explosives, radioactive materials, asbestos, urea formaldehyde foam insulation, and transformers or other equipment that contain polychlorinated biphenyls ("PCB'S"), (b) any chemicals or other materials or substances that are now or hereafter become defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances", - 22 - "toxic pollutants", "contaminants", "pollutants" or words of similar import under any Environmental Law and (c) any other chemical or other material or substance, exposure to which is now or hereafter prohibited, limited or regulated under any Environmental Law. "INDEBTEDNESS" shall mean, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 120 days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person; (d) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital Lease Obligations of such Person; and (f) Indebtedness of others Guaranteed by such Person. "INTEREST COVERAGE RATIO" shall mean, as at any date, the ratio of (a) EBITDA for a period of four consecutive fiscal quarters ending on, or most recently ended prior to, such date to (b) Interest Expense for such period. "INTEREST EXPENSE" shall mean, for any period, the sum, for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) all interest in respect of Indebtedness (including, without limitation, the interest component of any payments in respect of Capital Lease Obligations, but excluding amortization of any deferred loan costs incurred in connection with the transactions contemplated hereby) capitalized or - 23 - expensed during such period (whether or not actually paid during such period), but excluding any non-cash interest, PLUS (b) the net amount payable (or MINUS the net amount receivable) under Interest Rate Protection Agreements during such period (whether or not actually paid or received during such period) MINUS (c) all interest income for such period. "INTEREST PERIOD" shall mean with respect to any Eurodollar Loan, each period commencing on the date such Eurodollar Loan is made or Converted from a Base Rate Loan or the last day of the next preceding Interest Period for such Loan and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Company may select as provided in Section 4.05 hereof, except that each Interest Period for a Eurodollar Loan that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (i) if any Interest Period for any Facility A Loan would otherwise end after the Revolving Credit Commitment Termination Date, such Interest Period shall end on the Revolving Credit Commitment Termination Date; (ii) no Interest Period for any Facility B Loan may commence before and end after any Principal Payment Date for such Facility B Loan unless, after giving effect thereto, the aggregate principal amount of the Facility B Loans having Interest Periods that end after such Principal Payment Date shall be equal to or less than the aggregate principal amount of such Facility B Loans scheduled to be outstanding after giving effect to the payments of principal required to be made on such Principal Payment Date; (iii) each Interest Period that would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); and (iv) notwithstanding clauses (i) through (iii) above, no Interest Period shall have a duration of less than one month for any Eurodollar Loan and, if the Interest Period for any such Loan - 24 - would otherwise be a shorter period, such Loan shall not be available hereunder for such period. "INTEREST RATE PROTECTION AGREEMENT" shall mean, for any Person, an interest rate swap, cap or collar agreement or similar arrangement between such Person and one or more financial institutions providing for the transfer or mitigation of interest risks either generally or under specific contingencies. "INTEREST RATE PROTECTION OBLIGATIONS" shall mean the obligations of any Obligor in respect of Interest Rate Protection Agreements permitted under Section 9.08(d) hereof. "INVENTORY" shall mean raw and packaging materials and finished goods (including spare parts) of the Company or any of its Subsidiaries held for sale in the ordinary course of business. "INVESTMENT" shall mean, 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 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 inventory or supplies sold by such Person 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) the entering into of any Interest Rate Protection Agreement. - 25 - "ISSUING BANK" shall mean Chase, as the issuer of Letters of Credit under Section 2.10 hereof, together with its successors and assigns in such capacity. "LETTER OF CREDIT" shall have the meaning assigned to such term in the first sentence of Section 2.10 hereof. "LETTER OF CREDIT DOCUMENTS" shall mean, with respect to any Letter of Credit, collectively, any application therefor and any other agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for (a) the rights and obligations of the parties concerned or at risk with respect to such Letter of Credit or (b) any collateral security for any of such obligations, each as the same shall be modified and supplemented and in effect from time to time. "LETTER OF CREDIT INTEREST" shall mean, for each Facility A Lender, such Facility A Lender's participation interest in the Issuing Bank's liability under Letters of Credit (or, in the case of the Issuing Bank, the Issuing Bank's retained interest therein) and such Facility A Lender's rights and interests in Reimbursement Obligations and fees, interest and other amounts payable in connection with Letters of Credit and Reimbursement Obligations. "LETTER OF CREDIT LIABILITY" shall mean, without duplication, at any time and in respect of any Letter of Credit, the sum of (a) the undrawn face amount of such Letter of Credit PLUS (b) the aggregate unpaid principal amount of all Reimbursement Obligations of the Company at such time due and payable in respect of all drawings made under such Letter of Credit. For purposes of this Agreement, a Facility A Lender (other than the Issuing Bank) shall be deemed to hold a Letter of Credit Liability in an amount equal to its participation interest in the related Letter of Credit under Section 2.10 hereof, and the Issuing Bank shall be deemed to hold a Letter of Credit Liability in an amount equal to its retained interest in such Letter of Credit after giving effect to the acquisition by - 26 - the Facility A Lenders other than the Issuing Bank of their participation interests under said Section 2.10, together with its successors and assigns in such capacity. "LEVERAGE RATIO" shall mean, as at any date, the ratio of (a) the aggregate outstanding principal amount of Indebtedness at such date to (b) EBITDA for the period of four consecutive fiscal quarters ending on, or most recently ended prior to, such date; provided that if the Company or any of its Subsidiaries shall have acquired any business, Property or Person during such period (whether before, on or after the Effective Date), EBITDA shall, to the extent the Company shall have delivered audited financial statements (or, if audited financial statements are not available to the Company, unaudited financial statements (i) reviewed by independent certified accountants of recognized national standing and acceptable to the Majority Lenders and (ii) in form satisfactory to the Majority Lenders) for the acquired business, Property or Person for such period, be adjusted to reflect on a pro forma basis EBITDA for such business, Property or Person as if such business, Property or Person had been acquired at the beginning of such period. "LIEN" shall mean, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property. For purposes of this Agreement and the other Loan Documents, a Person shall be deemed to own, subject to a Lien, any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement (other than an operating lease) relating to such Property. "LOANS" shall mean the Facility A Loans and the Facility B Loans. "LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Notes, the Letter of Credit Documents and the Security Documents. - 27 - "MAJORITY LENDERS" shall mean, as at any time, Facility A Lenders and Facility B Lenders having at least a majority of the sum of (a) the aggregate unused amount, if any, of the Facility A Commitments and the Facility B Commitments as at such time PLUS (b) the aggregate outstanding principal amount of the Facility A Loans and Facility B Loans at such time PLUS (c) the aggregate amount of all Letter of Credit Liabilities at such time. "MANAGEMENT FEES" shall mean, for any period, any amounts paid or incurred by the Company or any of its Subsidiaries to any Person on account of fees, salaries and other compensation in respect of services rendered in connection with the management or supervision of the Company and/or any of its Subsidiaries (but excluding customary and reasonable compensation and other benefits paid or provided to officers, employees and directors for services rendered to the Company or any of its Subsidiaries in such capacities or any such amounts by any Subsidiary of the Company to the Company or any other Subsidiary of the Company). "MARGIN STOCK" shall mean "margin stock" within the meaning of Regulations U and X. "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a) the Property, business, operations, financial condition, prospects, liabilities or capitalization of the Company and its Subsidiaries taken as a whole, (b) the ability of any Obligor to perform its obligations under any of the Loan Documents to which it is a party, (c) the validity or enforceability of any of the Loan Documents, (d) the rights and remedies of the Lenders and the Agent under any of the Loan Documents or (e) the timely payment of the principal of or interest on the Loans or the Reimbursement Obligations or other amounts payable in connection therewith. "MORTGAGES" shall mean, collectively, (a) the mortgages or deeds of trust identified in Schedule VII hereto and (b) one or more mortgages or deeds of trust, in the respective forms of - 28 - Exhibits D-1 and D-2 hereto (with such modifications thereto requested by the Agent as may be appropriate to effect a lien on real property in the state where the respective property to be covered by such instrument is located), executed by the respective Obligors who own or lease such property in favor of the Agent (or, in the case of a deed of trust, in favor of the trustee for the benefit of the Agent and the Lenders) pursuant to Section 7.02(c), 9.19(c), 9.19(d) hereof covering the respective Properties and/or leasehold interests identified in Schedule IV hereto or subject to the requirements of said Section 7.02(c), 9.19(c), 9.19(d), as the case may be, in each case as the same shall be modified and supplemented and in effect from time to time. "MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Company or any ERISA Affiliate and that is covered by Title IV of ERISA. "NET AVAILABLE PROCEEDS" shall mean: (a) in the case of any Disposition, the amount of Net Cash Payments received in connection with such Disposition; (b) in the case of any Casualty Event, the aggregate amount of proceeds of insurance, condemnation awards and other compensation received by the Company and its Subsidiaries in respect of such Casualty Event net of (i) reasonable expenses incurred by the Company and its Subsidiaries in connection therewith and (ii) contractually required repayments of Indebtedness to the extent secured by a Lien on such Property and any income and transfer taxes payable by the Company or any of its Subsidiaries in respect of such Casualty Event; and (c) in the case of any Equity Issuance, the aggregate amount of all cash received by the Company and its Subsidiaries in respect of such Equity Issuance net of - 29 - reasonable expenses incurred by the Company and its Subsidiaries in connection therewith. "NET CASH PAYMENTS" shall mean, with respect to any Disposition, the aggregate amount of all cash payments, and the fair market value of any non-cash consideration, received by the Company and its Subsidiaries directly or indirectly in connection with such Disposition; PROVIDED that (a) Net Cash Payments shall be net of (i) the amount of any legal, title and recording tax expenses, commissions and other fees and expenses paid by the Company and its Subsidiaries in connection with such Disposition and (ii) any Federal, state and local income or other taxes estimated to be payable by the Company and its Subsidiaries as a result of such Disposition (but only to the extent that such estimated taxes are in fact paid to the relevant Federal, state or local governmental authority within six months of the date of such Disposition) and (b) Net Cash Payments shall be net of any repayments by the Company or any of its Subsidiaries of Indebtedness to the extent that (i) such Indebtedness is secured by a Lien on the Property that is the subject of such Disposition and (ii) the transferee of (or holder of a Lien on) such Property requires that such Indebtedness be repaid as a condition to the Disposition thereof. "NET WORTH" shall mean, as at any date, the sum for the Company and its Subsidiaries (determined on a consolidated basis without duplication) of (a) the amount of capital stock PLUS (b) the amount of additional paid-in capital plus (c) the amount of retained earnings (or, in the case of any retained earnings deficit, MINUS the amount of such deficit). "NEVA PLASTICS" shall mean Neva Plastics Manufacturing Corp., a Delaware corporation. "NEW LENDERS" shall mean each Lender which is not a party as a lender to the Existing Credit Agreement. "NEW SUBSIDIARY GUARANTEE AND SECURITY AGREEMENT" shall mean the New Subsidiary Guarantee and Security Agreement - 30 - substantially in the form of Exhibit C-2 hereto among Garrido, Guest Choice and the Agent, as the same shall be modified and supplemented and in effect from time to time. "NON-COMMITTING LENDERS" shall mean The Chase Manhattan Bank (as a Facility C and Facility D Lender under the Existing Credit Agreement), Scotiabank de Puerto Rico, Banco Popular de Puerto Rico (as a Facility C and Facility D Lender under the Existing Credit Agreement) and Banco Central Hispano-Puerto Rico. "NOTES" shall mean the Facility A Notes and the Facility B Notes. "OBLIGOR" shall mean the Company and each Subsidiary of the Company party to any Security Document. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PERMITTED INVESTMENTS" shall mean: (a) direct obligations of the United States, or of any agency thereof, or obligations guaranteed as to principal and interest by the United States, or of any agency thereof, in either case maturing not more than one year from the date of acquisition thereof; (b) direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of such acquisition, having the highest rating obtainable from either Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. ("S&P") or Moody's Investors Services, Inc. ("MOODY'S"); (c) certificates of deposit issued by any bank or trust company organized under the laws of the United States or any state thereof or the Commonwealth and having capital, surplus and undivided profits of at least $500,000,000, maturing not more than six months from the date of acquisition thereof; (d) commercial paper rated A-1 or better or P-1 by S&P or Moody's, respectively, maturing not more than six months from the date of acquisition thereof; and (e) Eurodollar - 31 - time deposits having a maturity of less than six months purchased directly from any such bank (whether such deposit is with such bank or any other such bank). "PERSON" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof). "PLAN" shall mean an employee benefit or other plan established or maintained by the Company or any ERISA Affiliate and that is covered by Title IV of ERISA, other than a Multiemployer Plan. "POST-DEFAULT RATE" shall mean, in respect of any principal of any Loan, any Reimbursement Obligation or any other amount under this Agreement, any Note or any other Loan Document that is not paid when due (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise), and in respect of any principal of any Loan during any period commencing upon the occurrence of any Event of Default and thereafter for so long as any Event of Default shall be continuing, a rate per annum during the period from and including the due date to but excluding the earlier of the date on which such amount is paid in full or such Event of Default ceases to be continuing equal to 2% PLUS the Base Rate as in effect from time to time PLUS the Applicable Margin for Base Rate Loans (PROVIDED that, if the amount so in default is principal of a Eurodollar Loan and the due date thereof is a day other than the last day of the Interest Period therefor, the "Post-Default Rate" for such principal shall be, for the period from and including such due date to but excluding the last day of such Interest Period, 2% PLUS the interest rate for such Loan as provided in Section 3.02(b) hereof and, thereafter, the rate provided for above in this definition). "PRIME RATE" shall mean the rate of interest from time to time announced by Chase at the principal office as its prime commercial lending rate. - 32 - "P.R. INVENTORY AGREEMENT" shall mean the P.R. Inventory Agreement substantially in the form of Exhibit C-3 hereto between each Subsidiary of the Company that owns Inventory in the Commonwealth and the Agent, as shall be modified and supplemented and in effect from time to time. "PRINCIPAL PAYMENT DATES" shall mean the Quarterly Dates falling on or nearest to March 31, June 30, September 30 and December 31 of each year, commencing with September 30, 1996, through and including March 31, 2002. "PROCESS AGENT" shall have the meaning assigned to such term in Section 12.10(c) hereof. "PROPERTY" shall mean any right or interest in or to property of any kind whatsoever, whether real, personal (including, without limitation, cash) or mixed and whether tangible or intangible. "PUERTO RICO SECURITY DOCUMENTS" shall mean each of the agreements listed in Schedule VI hereto, the P.R. Inventory Agreement, the Garrido Factors Lien Agreement and each of the Additional Puerto Rico Security Documents, in each case, as any such agreement shall be modified and supplemented and in effect from time to time. "QUARTERLY DATES" shall mean the last Business Day of March, June, September and December in each year, the first of which shall be September 30, 1996. "RECEIVABLES" shall mean, as at any date, the unpaid portion of the obligation, as stated on the respective invoice, of a customer of any Obligor in respect of Inventory sold and shipped by such Obligor in the ordinary course of its business to such customer, net of any credits, rebates or offsets owed to such customer and also net of any commissions payable to third parties (and for purposes hereof, a credit or rebate paid by check or draft of any Obligor shall be deemed to be outstanding - 33 - until such check or draft shall have been debited to the account of such Obligor on which such check or draft was drawn). "REGISTER" shall have the meaning assigned to such term in Section 12.06(g) hereof. "REGISTERED HOLDER" shall have the meaning assigned to such term in Section 5.06(b)(ii) hereof. "REGISTERED LOANS" shall have the meaning assigned to such term in Section 2.07(e) hereof. "REGISTERED NOTE" shall have the meaning assigned to such term in Section 2.07(e) hereof. "REGULATIONS A, D, U AND X" shall mean, respectively, Regulations A, D, U and X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be modified and supplemented and in effect from time to time. "REGULATORY CHANGE" shall mean, with respect to any Lender, any change after the date of this Agreement in United States, Federal, state or foreign law or regulations or in the law or regulations of the Commonwealth (including, without limitation, Regulation D) or the adoption or making after such date of any interpretation, directive or request applying to a class of banks including such Lender of or under any Federal, state or foreign law or regulations or in the law or regulations of the Commonwealth (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "REIMBURSEMENT OBLIGATIONS" shall mean, at any time, the obligations of the Company then outstanding, or that may thereafter arise in respect of all Letters of Credit then outstanding, to reimburse amounts paid by the Issuing Bank in respect of any drawings under a Letter of Credit. - 34 - "RELEASE" shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata. "RESERVE REQUIREMENT" shall mean, for any Interest Period for any Eurodollar Loan, the average maximum rate at which reserves (including, without limitation, any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding one billion Dollars against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall include any other reserves required to be maintained by such member banks by reason of any Regulatory Change with respect to (i) any category of liabilities that includes deposits by reference to which the Eurodollar Base Rate is to be determined as provided in the definition of "Eurodollar Base Rate" in this Section 1.01 or (ii) any category of extensions of credit or other assets that includes Eurodollar Loans. "RESPONSIBLE FINANCIAL OFFICER" shall mean, with respect to any Person, the Chairman of the Board of Directors, the President, the Chief Executive Officer, the Chief Financial Officer or the Treasurer of such Person. "REVOLVING CREDIT COMMITMENT TERMINATION DATE" shall mean the earlier of the Quarterly Date falling on or nearest to March 31, 2000 and the date on which the Facility B Loans shall have been paid in full. "SECURITY AGREEMENT" shall mean the Security Agreement dated as of March 31, 1995 between the Company and the Agent, as amended by the Amendment to Security Agreement and as further modified and supplemented and in effect from time to time. - 35 - "SECURITY DOCUMENTS" shall mean, collectively, the Security Agreement, the Amendment to Security Agreement, the Mortgages, the New Subsidiary Guarantee and Security Agreement, the Existing Subsidiary Guarantee and Security Agreement, the Puerto Rico Security Documents, all Uniform Commercial Code financing statements and/or other filings required hereby or thereby to be filed with respect to the security interests in personal Property and fixtures created pursuant hereto or thereto, and the Subordination Agreement. "SENIOR INDEBTEDNESS" shall mean (a) the principal of, and accrued interest on, the Loans and all other amounts owing from time to time hereunder and under the other Loan Documents and (b) all other amounts constituting "Senior Indebtedness" under, and as such term is defined in, the Subordinated Note Purchase Agreement. "SENIOR INTEREST COVERAGE RATIO" shall mean, as at any date, the ratio of (a) EBITDA for a period of four consecutive fiscal quarters ending on, or most recently ended prior to, such date to (b) Interest Expense in respect of Senior Indebtedness for such period. "SENIOR LEVERAGE RATIO" shall mean, as at any date, the ratio of (a) the aggregate outstanding principal amount of Senior Indebtedness at such date to (b) EBITDA for the period of four consecutive fiscal quarters ending on or most recently ended prior to such date; provided that if the Company or any of its Subsidiaries shall have acquired any business, Property or Person during such period (whether before, on or after the Effective Date), EBITDA shall, to the extent the Company shall have delivered audited financial statements (or, if audited financial statements are not available to the Company, unaudited financial statements (i) reviewed by independent certified accountants of recognized national standing and acceptable to the Majority Lenders, and (ii) in form satisfactory to the Majority Lenders) for the acquired business, Property or Person for such period, be adjusted to reflect on a pro forma basis EBITDA for such - 36 - business, Property or Person as if such business, Property or Person had been acquired at the beginning of such period. "SENIOR SUBORDINATED NOTES" shall mean the Notes (as such term is defined in the Note Purchase Agreement) issued under the Subordinated Note Purchase Agreement in an original aggregate principal amount of $50,699,076.40, in each case as the same shall be modified and supplemented and in effect from time to time (subject to compliance with Section 9.22 hereof and Section 9 of the Subordination Agreement). "SKINNERS ACQUISITION" shall mean the acquisition by Velda Farms, Inc. of substantially all the business and certain of the assets of Skinners' Dairy, Inc., a Florida corporation. "SUBORDINATED INDEBTEDNESS" shall mean the indebtedness, liabilities and obligations of the Company and/or its Subsidiaries owing from time to time under or in respect of the Subordinated Note Purchase Agreement, the Senior Subordinated Notes and the other Subordinated Debt Documents. "SUBORDINATED DEBT DOCUMENTS" shall mean (a) the Subordinated Note Purchase Agreement, (b) the Senior Subordinated Notes, (c) the Guarantees (as such term is defined in the Subordinated Note Purchase Agreement) and (d) the Subordination Agreement, in each case as the same shall be modified and supplemented and in effect from time to time (subject to compliance with Section 9.22 hereof and Section 9 of the Subordination Agreement). "SUBORDINATED NOTE PURCHASE AGREEMENT" shall mean the Note Purchase Agreement dated as of March 31, 1995 by and among the Company, John Hancock Mutual Life Insurance Company, John Hancock Life Insurance Company of America, Pacific Mutual Life Insurance Company and PM Group Life Insurance Co., providing for the issuance of the Subordinated Indebtedness, as the same shall be modified and supplemented and in effect from time to time (subject to compliance with Section 9.22 hereof and Section 9 of the Subordination Agreement). - 37 - "SUBORDINATION AGREEMENT" shall mean the Subordination Agreement dated as of March 31, 1995 by and among the Company and each of its Subsidiaries, John Hancock Mutual Life Insurance Company, John Hancock Life Insurance Company of America, Pacific Mutual Life Insurance Company and PM Group Life Insurance Co. and the Agent, substantially in the form of Exhibit J hereto, as the same shall be modified and supplemented and in effect from time to time. "SUBSIDIARY" shall mean, with respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "SUBSIDIARY GUARANTORS" shall mean Suiza Dairy Corporation, Suiza Fruit Corporation, Neva Plastics Manufacturing Corp., Reddy Ice Corporation, Velda Farms, Inc. and Suiza Management Corporation, each a Delaware corporation and, upon execution of the New Subsidiary Guarantee and Security Agreement, Garrido and Guest Choice. "SUIZA DAIRY" shall mean Suiza Dairy Corporation, a Delaware corporation. "SUIZA FRUIT" shall mean Suiza Fruit Corporation, a Delaware corporation. "TAXES" shall have the meaning assigned to such term in Section 5.06(a) hereof. - 38 - "TERM LOAN COMMITMENT TERMINATION DATE" shall mean July 31, 1996. "TYPE" shall have the meaning assigned to such term in Section 1.03 hereof. "UNITED STATES" shall mean the United States of America. "U.S. TAXES" shall have the meaning assigned to such term in Section 5.06(b) hereof. "WHOLLY OWNED SUBSIDIARY" shall mean, with respect to any Person, any corporation, partnership or other entity of which all of the equity securities or other ownership interests (other than, in the case of a corporation, directors' qualifying shares) are directly or indirectly owned or controlled by such Person or one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. "WORKING CAPITAL" shall mean, for any period, the excess of (a) the aggregate amount of inventory, accounts receivable and prepaid expenses of the Company and its Subsidiaries over (b) the aggregate amount of accounts payable and current accrued expenses of the Company and its Subsidiaries. - 39 - 1.02 ACCOUNTING TERMS AND DETERMINATIONS. (a) Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at the time of delivery thereof in the manner described in subsection (b) below) be prepared, in accordance with generally accepted accounting principles applied on a basis consistent with those used in the preparation of the latest financial statements furnished to the Lenders hereunder. All calculations made for the purposes of determining compliance with this Agreement shall (except as otherwise expressly provided herein) be made by application of generally accepted accounting principles applied on a basis consistent with those used in the preparation of the latest annual or quarterly financial statements furnished to the Lenders pursuant to Section 9.01 hereof unless (i) the Company shall have objected to determining such compliance on such basis at the time of delivery of such financial statements or (ii) the Majority Lenders shall so object in writing within 30 days after delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made. (b) The Company shall deliver to the Lenders at the same time as the delivery of any annual or quarterly financial statement under Section 9.01 hereof (i) a description in reasonable detail of any material variation between the application of accounting principles employed in the preparation of such statement and the application of accounting principles employed in the preparation of the next preceding annual or quarterly financial statements as to which no objection has been made in accordance with the last sentence of subsection (a) above and (ii) reasonable estimates of the difference between such statements arising as a consequence thereof. - 40 - (c) To enable the ready and consistent determination of compliance with the covenants set forth in Section 9 hereof, the Company will not, without the prior consent of the Majority Lenders, change the last day of its fiscal year from December 31 of each year, or the last days of the first three fiscal quarters in each of its fiscal years from March 31, June 30 and September 30 of each year, respectively. 1.03 CLASSES AND TYPES OF LOANS. Loans hereunder are distinguished by "Class" and by "Type". The "Class" of a Loan (or of a Commitment to make a Loan or the related Note) refers to whether such Loan is a Facility A Loan, or a Facility B Loan, each of which constitutes a Class. The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or a Eurodollar Loan, each of which constitutes a Type. Loans may be identified by both Class and Type. Section 2. COMMITMENTS, LOANS, NOTES AND PREPAYMENTS. 2.01 LOANS. (a) FACILITY A LOANS. - 41 - (i) On the Effective Date, the "Facility A Loans" (as defined in the Existing Credit Agreement) held by the Existing Lenders under the Existing Credit Agreement shall automatically, and without any action on the part of any Person, be designated as Facility A Loans hereunder and each of the New Lenders that is a Facility A Lender (and each Existing Lender, if any, whose relative proportion of Facility A Commitments hereunder is increasing over the proportion of "Facility A Loans" held by it under the Existing Credit Agreement) shall by assignments from the Existing Lenders (which assignments shall be deemed to occur hereunder automatically, and without any requirement for additional documentation, on the Effective Date), acquire a portion of the Facility A Loans of the Existing Lenders so designated in such amounts (and the Facility A Lenders shall, through the Agent, make such additional adjustments among themselves as shall be necessary) so that after giving effect to such assignments and adjustments, the Facility A Lenders shall hold the Facility A Loans hereunder ratably in accordance with their respective Facility A Commitments. As of the Effective Date, each Existing Lender represents and warrants to each New Lender to which such Existing Lender assigns any of its Facility A Loans hereunder that it has not created any adverse claim upon the interest being assigned by it to such New Lender hereunder and that such interest is free and clear of any adverse claim. On the Effective Date all Interest Periods under the Existing Credit Agreement in respect of the "Facility A Loans" under and as defined in the Existing Credit Agreement shall automatically be terminated (and the Company shall make payments to the Existing Lenders that held such "Facility A Loans" under Section 5.05 thereof to compensate for such termination), and, subject to the provisions of paragraph (c) below, the Company shall be permitted to Continue such "Facility A Loans" as Eurodollar Loans hereunder, or to convert such "Facility A Loans" into Base Rate Loans hereunder. - 42 - (ii) In addition to the foregoing, each Facility A Lender severally agrees, on the terms and conditions of this Agreement, to make loans to the Company in Dollars during the period from and including the Effective Date to but not including the Revolving Credit Commitment Termination Date in an aggregate principal amount (including any Loans continued or acquired by it under the immediately preceding paragraph) at any one time outstanding up to but not exceeding the amount of the Facility A Commitment of such Lender as in effect from time to time (such Loans being herein called "FACILITY A LOANS"); PROVIDED that in no event shall the aggregate principal amount of all Facility A Loans, together with the aggregate amount of all Letter of Credit Liabilities, exceed the aggregate amount of the Facility A Commitments as in effect from time to time. Subject to the terms and conditions of this Agreement, during such period the Company may borrow, repay and reborrow the amount of the Facility A Commitments by means of Base Rate Loans and/or Eurodollar Loans and may Convert Facility A Loans of one Type into Facility A Loans of another Type (as provided in Section 2.08 hereof) or Continue Facility A Loans of one Type as Facility A Loans of the same Type (as provided in Section 2.08 hereof). (b) FACILITY B LOANS. (i) On the Effective Date, the "Facility B Loans" (as defined in the Existing Credit Agreement) held by the Existing Lenders under the Existing Credit Agreement shall automatically, and without any action on the part of any Person, be designated as Facility B Loans hereunder and each of the New Lenders that is a Facility B Lender (and each Existing Lender, if any, whose relative proportion of Facility B Commitments hereunder is increasing over the proportion of "Facility B Loans" held by it under the Existing Credit Agreement) shall by assignments from the Existing Lenders (which assignments shall be deemed to occur hereunder automatically, and without any requirement for additional documentation, on the Effective Date), acquire a - 43 - portion of the Facility B Loans of the Existing Lenders so designated in such amounts (and the Facility B Lenders shall, through the Agent, make such additional adjustments among themselves as shall be necessary) so that after giving effect to such assignments and adjustments, the Facility B Lenders shall hold the Facility B Loans hereunder ratably in accordance with their respective Facility B Commitments. As of the Effective Date, each Existing Lender represents and warrants to each New Lender to which such Existing Lender assigns any of its Facility B Loans hereunder that it has not created any adverse claim upon the interest being assigned by it to such New Lender hereunder and that such interest is free and clear of any adverse claim. On the Effective Date all Interest Periods under the Existing Credit Agreement in respect of the "Facility B Loans" under and as defined in the Existing Credit Agreement shall automatically be terminated (and the Company shall make payments to the Existing Lenders that held such "Facility B Loans" under Section 5.05 thereof to compensate for such termination), and, subject to the provisions of paragraph (c) below, the Company shall be permitted to Continue such "Facility B Loans" as Eurodollar Loans hereunder, or to convert such "Facility B Loans" into Base Rate Loans hereunder. (ii) In addition to the foregoing, each Facility B Lender severally agrees, on the terms and conditions of this Agreement, to make a single term loan to the Company in Dollars on the Effective Date (PROVIDED that the same shall occur no later than the Term Loan Commitment Termination Date) in a principal amount up to but not exceeding the amount of the Facility B Commitment of such Lender less the amount of any Facility B Loan continued or acquired by it under the immediately preceding paragraph. Subject to the terms and conditions of this Agreement, the Company may borrow the amount of the Facility B Loan Commitments by means of Base Rate Loans and/or Eurodollar Loans and thereafter may Convert Facility B Loans of one Type into Facility B Loans of another Type (as provided in - 44 - Section 2.08 hereof) or Continue Facility B Loans of one Type as Facility B Loans of the same Type (as provided in Section 2.08 hereof). (c) ADJUSTMENTS. On the date three Business Days prior to the Effective Date, the Agent shall notify each Lender of the amount of Loans required to be made by each such Lender (if any) to the Company on the Effective Date, the amount of increase or decrease in the Commitments of each such Lender and of any other assignments or adjustments that the Agent deems necessary and advisable such that after giving effect to the transactions contemplated in this Section to occur on the Effective Date, each Lender's Commitments shall be in accordance with the Commitments set forth opposite its name on the signature pages hereof, each Lender's Loans of any Class to the Company shall not exceed its pro rata portion of all Loans of any such Class then outstanding to the Company hereunder and the unused Commitments of all the Lenders plus all outstanding Loans under this Agreement shall not exceed $160,000,000 in aggregate principal amount. Each Lender hereby agrees to give effect to the instructions of the Agent to such Lender contained in the notice described above. (d) LIMIT ON CERTAIN LOANS. No more than four separate Interest Periods in respect of Eurodollar Loans of any Class from each Lender may be outstanding at any one time. 2.02 BORROWINGS. (a) The Company shall give the Agent notice of each borrowing hereunder as provided in Section 4.05 hereof. (b) With respect to each borrowing, not later than 1:00 p.m. New York time on the date specified for such borrowing, each Lender shall make available the amount of the Loan or Loans to be made by it to the Company on such date to the Agent at any account designated by the Agent, in immediately available funds, for account of the Company. The amount so received by the Agent - 45 - shall, subject to the terms and conditions of this Agreement, be made available to the Company by depositing the same, in immediately available funds, in an account of the Company maintained with Chase at the Principal Office as designated by the Company or otherwise upon its instructions. 2.03 CHANGES OF COMMITMENTS. (a) The aggregate amount of each of the Facility A Commitments shall be automatically reduced to zero on the Revolving Credit Commitment Termination Date. (b) The Company shall have the right at any time or from time to time (i) to terminate or reduce the aggregate unused amount of any of the Facility B Commitments, (ii) so long as no Facility A Loans or Letter of Credit Liabilities in respect of Letters of Credit are outstanding, to terminate the Facility A Commitments, and (iii) to reduce the aggregate unused amount of any of the Facility A Commitments (for which purpose use of the Facility A Commitments shall be deemed to include the aggregate amount of Letter of Credit Liabilities); PROVIDED that (x) the Company shall give notice of each such termination or reduction as provided in Section 4.05 hereof and (y) each such partial reduction shall be in an aggregate amount at least equal to $2,000,000 (or a larger multiple of $1,000,000). (c) Any portion of the Facility B Commitments not used on the Effective Date shall be automatically terminated. (d) The Commitments once terminated or reduced may not be reinstated. 2.04 COMMITMENT FEE. The Company shall pay to the Agent for account of each Facility A Lender a commitment fee on the daily average unused amount of such Lender's Facility A Commitment (for which purpose the aggregate amount of any Letter of Credit Liabilities in respect of Letters of Credit shall be deemed to be a pro rata (based on the Facility A Commitments) use of each Facility A Lender's Commitment), for the period from and - 46 - including the Effective Date to but not including the earlier of the date such Commitment is terminated and the Revolving Credit Commitment Termination Date, at a rate per annum equal to the Applicable Commitment Fee Rate. Accrued commitment fees shall be payable on each Quarterly Date and on the earlier of (i) the date the relevant Commitments are terminated and (ii) the Revolving Credit Commitment Termination Date. 2.05 LENDING OFFICES. The Loans of each Type made by each Lender shall be made and maintained at such Lender's Applicable Lending Office for Loans of such Type. 2.06 SEVERAL OBLIGATIONS; REMEDIES INDEPENDENT. The failure of any Lender to make any Loan to be made by it on the date specified therefor shall not relieve any other Lender of its obligation to make its Loan on such date, but neither any Lender nor the Agent shall be responsible for the failure of any other Lender to make a Loan to be made by such other Lender, and no Lender shall have any obligation to the Agent or any other Lender for the failure by such Lender to make any Loan required to be made by such Lender. The amounts payable by the Company at any time hereunder and under the Notes to each Lender shall be a separate and independent debt and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and the Notes, and it shall not be necessary for any other Lender or the Agent to consent to, or be joined as an additional party in, any proceedings for such purposes. 2.07 NOTES. (a) The Facility A Loans made (or continued, as the case may be) by each Lender shall be evidenced by a single promissory note of the Company substantially in the form of Exhibit A-1 hereto, dated the Effective Date, payable to such Lender in a principal amount equal to the amount of its Facility A Commitment as originally in effect and otherwise duly completed. - 47 - (b) The Facility B Loan made (or continued, as the case may be) by each Lender shall be evidenced by a single promissory note of the Company substantially in the form of Exhibit A-2 hereto, dated the Effective Date, payable to such Lender in a principal amount equal to the amount of its Facility B Commitment as originally in effect and otherwise duly completed. (c) The date, amount, Type, interest rate and duration of Interest Period (if applicable) of each Loan of each Class made by each Lender, and each payment made on account of the principal thereof, shall be recorded by such Lender on its books and, prior to any transfer of the Note evidencing the Loans of such Class held by it, endorsed by such Lender on the schedule attached to such Note or any continuation thereof; PROVIDED that the failure of such Lender to make any such recordation or endorsement shall not affect the obligations of the Company to make a payment when due of any amount owing hereunder or under such Note in respect of the Loans to be evidenced by such Note. (d) No Lender shall be entitled to have its Notes subdivided, by exchange for promissory notes of lesser denominations or otherwise, except in connection with a permitted assignment of all or any portion of such Lender's relevant Commitments, Loans and Notes pursuant to Section 12.06(b) hereof. (e) Notwithstanding the foregoing, any Lender that is not a U.S. Person and is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code may request the Company (through the Agent), and the Company agrees thereupon, to record on the Register referred to in Section 12.06(g) hereof any Facility B Loans held by such Lender under this Agreement. Loans recorded on the Register ("REGISTERED LOANS") may not be evidenced by promissory notes other than Registered Notes as defined below and, upon the registration of any Facility B Loan, any promissory note (other than a Registered Note) evidencing the same shall be null and void and shall be returned to the Company. The Company agrees, at the request of any Lender that is the holder of Registered Loans, to execute and deliver to such Lender a - 48 - promissory note in registered form to evidence such Registered Loans (i.e. containing the optional registered note language as indicated in Exhibit A-2 hereto) and registered as provided in Section 12.06(g) hereof (herein, a "REGISTERED NOTE"), dated the Effective Date, payable to such Lender and otherwise duly completed. A Facility B Loan once recorded on the Register may not be removed from the Register so long as it remains outstanding and a Registered Note may not be exchanged for a promissory note that is not a Registered Note. 2.08 OPTIONAL PREPAYMENTS AND CONVERSIONS OR CONTINUATIONS OF LOANS. Subject to Section 4.04 hereof, the Company shall have the right to prepay Loans, or to Convert Loans of one Type into Loans of another Type or Continue Loans of one Type as Loans of the same Type, at any time or from time to time, PROVIDED that: (a) the Company shall give the Agent notice of each such prepayment, Conversion or Continuation as provided in Section 4.05 hereof (and, upon the date specified in any such notice of prepayment, the amount to be prepaid shall become due and payable hereunder); (b) Eurodollar Loans may be prepaid or Converted on any day, PROVIDED that, if such prepayment or Conversion falls on a day other than the last day of an Interest Period for such Loans, the Company shall pay any and all amounts required by Section 5.05 hereof as a result thereof; and (c) prepayments of the Facility B Loans under this Section 2.08 shall be applied ratably as among the remaining installments of the Facility B Loans. Notwithstanding the foregoing, and without limiting the rights and remedies of the Lenders under Section 10 hereof, in the event that any Event of Default shall have occurred and be continuing, the Agent may (and at the request of the Majority Lenders shall) suspend the right of the Company to borrow any Loan as a Eurodollar Loan or to Convert any Loan into a Eurodollar Loan, or - 49 - to Continue any Loan as a Eurodollar Loan, in which event all Eurodollar Loans outstanding shall be automatically Converted (on the last day(s) of the respective Interest Periods therefor) to or all Base Rate Loans shall be Continued, as the case may be, as Base Rate Loans. 2.09 MANDATORY PREPAYMENTS AND REDUCTIONS OF COMMITMENTS. (a) BORROWING BASE. Until the Revolving Credit Commitment Termination Date, the Company shall from time to time prepay the Facility A Loans (and/or provide cover for Letter of Credit Liabilities in respect of Letters of Credit as specified in paragraph (h) below) in such amounts as shall be necessary so that at all times the aggregate outstanding principal amount of the Facility A Loans together with the outstanding Letter of Credit Liabilities shall not exceed the Borrowing Base, such amount to be applied, first, to the Facility A Loans then outstanding and, second, as cover for Letter of Credit Liabilities. (b) CASUALTY EVENTS. Not later than 60 days following the receipt by the Company or any of its Subsidiaries of the proceeds of insurance, condemnation award or other compensation in respect of any Casualty Event affecting any Property of the Company or any of its Subsidiaries (or upon such earlier date as the Company or such Subsidiary, as the case may be, shall have determined not to repair or replace the Property affected by such Casualty Event), the Company shall prepay the Loans (and/or provide cover for Letter of Credit Liabilities as specified in paragraph (h) below), and the Facility A Commitments shall be subject to automatic reduction, in an aggregate amount, if any, equal to 100% of the Net Available Proceeds of such Casualty Event not theretofore applied to the repair or replacement of such Property or prepayment of Facility B Loans, such prepayment and reduction to be effected in each case in the manner and to the extent specified in paragraph (f) below. Nothing in this paragraph (b) shall be deemed to limit any obligation of the Company or any of its Subsidiaries pursuant to any of the - 50 - Security Documents to remit to a collateral or similar account (including, without limitation, any Collateral Account) maintained by the Agent pursuant to any of the Security Documents the proceeds of insurance, condemnation award or other compensation received in respect of any Casualty Event. Notwithstanding the foregoing, in the event that a Casualty Event shall occur with respect to Property covered by the Mortgages, the Company shall prepay the Loans (and/or provide cover for Letter of Credit of Liabilities) on the dates and in the amounts to the extent specified in the Mortgages. (c) SALE OF ASSETS. Without limiting the obligation of the Company to obtain the consent of the Majority Lenders pursuant to Section 9.05(c) hereof to any Disposition not otherwise permitted hereunder, in the event that the Net Available Proceeds of any Disposition other than an Excluded Disposition (herein, the "CURRENT DISPOSITION"), and of all prior Dispositions as to which a prepayment has not yet been made under this Section 2.09(c), shall exceed $500,000 then, no later than 5 Business Days prior to the occurrence of the Current Disposition, the Company will deliver to the Lenders a statement, certified by a Responsible Financial Officer of the Company, in form and detail satisfactory to the Agent, of the amount of the Net Available Proceeds of the Current Disposition and of all such prior Dispositions and the Company will prepay the Loans (or cause the Loans to be prepaid), and the Facility A Commitments shall be subject to automatic reduction, in an aggregate amount equal to 100% of the Net Available Proceeds of the Current Disposition and such prior Dispositions, such prepayment and reduction to be effected in each case in the manner and to the extent specified in paragraph (f) below; PROVIDED that, with respect to any Current Disposition that includes any Eligible Inventory or Eligible Receivables, the Company shall deliver to the Agent a statement of a Responsible Financial Officer of the Company specifying the portion of Net Available Proceeds of the Current Disposition and of all prior Dispositions as to which a prepayment has not yet been made hereunder relating to such Inventory or Receivables and the Company shall prepay the - 51 - Facility A Loans (and/or provide cover for Letter of Credit Liabilities as specified in paragraph (h) below). (d) EQUITY ISSUANCE. Upon any Equity Issuance or the issuance of any Indebtedness (other than Indebtedness permitted under Section 9.07 hereof) after the Effective Date, the Company shall prepay Loans (and/or provide cover for Letter of Credit Liabilities as specified in paragraph (h) below), and the Facility A Commitments shall be subject to automatic reduction, in an aggregate amount equal to 100% of the Net Available Proceeds thereof (after effecting any payments in respect of the redemption, prepayment or retirement, as the case may be, of the Subordinated Indebtedness to the extent permitted under Section 9.22(a)), such prepayment and reduction to be effected in each case in the manner and to the extent specified in paragraph (f) below. (e) EXCESS CASH FLOW. Not later than 90 days after the end of each fiscal year of the Company, commencing with the fiscal year ending December 31, 1996, the Company shall prepay the Loans (and/or provide cover for Letter of Credit Liabilities as specified in paragraph (h) below), and the Facility A Commitments shall be subject to automatic reduction, in an aggregate amount equal to the excess of (A) 50% of Excess Cash Flow for such fiscal year (or, if the Leverage Ratio is less than 2.50 to 1, 25% of Excess Cash Flow) over (B) the aggregate amount of prepayments of Facility B Loans made during such fiscal year pursuant to Section 2.08 hereof and, after the payment in full of the Facility B Loans, the aggregate amount of voluntary reductions of Facility A Commitments made during such fiscal year pursuant to Section 2.03(b) hereof, such prepayment and reduction to be effected in each case in the manner and to the extent specified in paragraph (f) below. (f) APPLICATION. Prepayments and reductions of Commitments described in paragraphs (b), (c), (d) and (e) above shall be effected as follows: - 52 - (i) first, the amount of the prepayment specified in such paragraphs shall be applied to the Facility B Loans then outstanding, 50% of which amount shall be applied in the inverse order of the maturities of the installments thereof and (after taking into account such application) the remainder thereof shall be applied ratably to then remaining installments of principal of the Facility B Loans; and (ii) second, the Facility A Commitments shall be automatically reduced in an amount equal to any excess over the amount referred to in the foregoing clause (i) (and to the extent that, after giving effect to such reduction, the aggregate principal amount of Facility A Loans, together with the aggregate amount of all Letter of Credit Liabilities, would exceed the Facility A Commitments, the Company shall prepay Facility A Loans in an aggregate amount equal to such excess (and, to the extent that the amount of any such prepayment to be applied to the Facility A Loans exceeds the outstanding amount thereof, provide cover for Letter of Credit Liabilities as specified in paragraph (h) below). (g) SALE OF BORROWING BASE ASSETS. In the event that any portion of the Net Available Proceeds required to be applied pursuant to Section 2.09(c) hereof shall include Eligible Inventory or Eligible Receivables the Company shall, first, prepay the aggregate principal amount of Facility A Loans and second, to the extent of any remaining proceeds, prepay Loans as required by clause (i) of paragraph (f) above). (h) COVER FOR LETTER OF CREDIT LIABILITIES. In the event that the Company shall be required pursuant to this Section 2.09 to provide cover for Letter of Credit Liabilities, the Company shall effect the same by paying to the Agent in immediately available funds an amount equal to the required amount, which funds shall be retained by the Agent in the Collateral Account (as collateral security in the first instance for the Letter of Credit Liabilities) until such time as the - 53 - Letters of Credit shall have been terminated and all of such Letter of Credit Liabilities paid in full. - 54 - 2.10 LETTERS OF CREDIT. Subject to the terms and conditions of this Agreement, the Facility A Commitments may be utilized, upon the request of the Company, in addition to the Facility A Loans provided for by Section 2.01(a) hereof, by the issuance by the Issuing Bank of letters of credit (collectively, "LETTERS OF CREDIT") including (a) Letters of Credit issued under the Existing Agreement and outstanding on the Effective Date, for account of any of the Subsidiaries of the Company, and (b) in respect of all (1) Letters of Credit described in clause (a) above that are amended, renewed or otherwise modified and (2) other Letters of Credit, for account of the Company and any of its Subsidiaries PROVIDED that in no event shall (i) the aggregate amount of all Letter of Credit Liabilities in respect of Letters of Credit, together with the aggregate principal amount of the Facility A Loans, exceed the aggregate amount of the Facility A Commitments as in effect from time to time, (ii) the outstanding aggregate amount of all Letter of Credit Liabilities in respect of Letters of Credit exceed $5,000,000, (iii) the expiration date of any Letter of Credit extend beyond the earlier of the Revolving Credit Commitment Termination Date and the date 12 months following the issuance of such Letter of Credit and (iv) the aggregate amount of all Letter of Credit Liabilities in respect of Letters of Credit provided for in clause (a) above exceed $200,000. The following additional provisions shall apply to Letters of Credit: (a) The Company shall give the Agent at least three Business Days' irrevocable prior notice (effective upon receipt) specifying the Business Day (which shall be no later than 30 days preceding the Revolving Credit Commitment Termination Date) each Letter of Credit is to be issued and the account party or parties therefor and describing in reasonable detail the proposed terms of such Letter of Credit (including the beneficiary thereof) and the nature of the transactions or obligations proposed to be supported thereby (including whether such Letter of Credit is to be a commercial letter of credit or a standby letter of credit). Upon receipt of any such notice, the Agent shall advise the Issuing Bank of the contents thereof. - 55 - (b) On each day during the period commencing with the issuance by the Issuing Bank of any Letter of Credit (from the Effective Date in the case of outstanding Letters of Credit) and until such Letter of Credit shall have expired or been terminated, the Facility A Commitment of each Facility A Lender shall be deemed to be utilized for all purposes of this Agreement in an amount equal to such Lender's Facility A Commitment Percentage of the then undrawn face amount of such Letter of Credit. Each Facility A Lender (other than the Issuing Bank) agrees that, upon the issuance of any Letter of Credit hereunder, it shall automatically acquire a participation in the Issuing Bank's liability under such Letter of Credit in an amount equal to such Lender's Facility A Commitment Percentage of such liability, and each Facility A Lender (other than the Issuing Bank) thereby shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and shall be unconditionally obligated to the Issuing Bank to pay and discharge when due, its Facility A Commitment Percentage of the Issuing Bank's liability under such Letter of Credit. (c) Upon receipt from the beneficiary of any Letter of Credit of any demand for payment under such Letter of Credit, the Issuing Bank shall promptly notify the Company (through the Agent) of the amount to be paid by the Issuing Bank as a result of such demand and the date on which payment is to be made by the Issuing Bank to such beneficiary in respect of such demand (but the failure to give such notice shall not impair the Company's obligations). Notwithstanding the identity of the account party of any Letter of Credit, the Company hereby unconditionally agrees to pay and reimburse the Agent for account of the Issuing Bank for the amount of each demand for payment under such Letter of Credit that is in substantial compliance with the provisions of such Letter of Credit at or prior to the date on which payment is to be made by the Issuing Bank to the beneficiary thereunder, - 56 - without presentment, demand, protest or other formalities of any kind and irrespective of any claim, set-off, defense or other right which the Company or any of its Subsidiaries or Affiliates may have at any time against such Issuing Bank or any other Person, under all circumstances, including without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the Loan Documents; (ii) the existence of any claim, set-off, defense or other right which the Company or any of its Subsidiaries or Affiliates may have at any time against a beneficiary named in any Letter of Credit or any transferee thereof (or any Person for whom any such transferee may be acting), the Issuing Bank, any Lender or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between the Company or any of its Subsidiaries or Affiliates and the beneficiary named in any Letter of Credit; (iii) any draft, certificate or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; or (v) the existence of any Default. (d) Forthwith upon its receipt of a notice referred to in paragraph (c) of this Section 2.10, the Company shall advise the Agent whether or not the Company intends to borrow hereunder to finance its obligation to reimburse the Issuing Bank for the amount of the related demand for payment and, if it does, submit a notice of such borrowing as provided in Section 4.05 hereof. (e) Each Facility A Lender (other than the Issuing Bank) shall pay to the Agent for account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds, the amount of such Lender's Facility A Commitment Percentage of any payment under a Letter of - 57 - Credit upon notice by the Issuing Bank (through the Agent) to such Facility A Lender requesting such payment and specifying such amount. Each such Facility A Lender's obligation to make such payment to the Agent for account of the Issuing Bank under this paragraph (e), and the Issuing Bank's right to receive the same, shall be absolute and unconditional and shall not be affected by any circumstance whatsoever (except as provided in the proviso at the end of this sentence), including, without limitation, the failure of any other Facility A Lender to make its payment under this paragraph (e), the financial condition of the Company (or any other account party), the existence of any Default or the termination of the Commitments; PROVIDED that no Facility A Lender shall be obligated to make any payment to the Agent for account of the Issuing Bank in respect of any payment made by the Issuing Bank under a Letter of Credit where such payment was made in respect of a demand for payment that was not in substantial compliance with the provisions of such Letter of Credit or to the extent that the Company shall not be required to indemnify any Lender or the Agent in the circumstances provided in clause (x) of the penultimate sentence of the last paragraph of this Section 2.10. Each such payment to the Issuing Bank shall be made without any offset, abatement, withholding or reduction whatsoever. If any Facility A Lender shall default in its obligation to make any such payment to the Agent for account of the Issuing Bank, for so long as such default shall continue the Agent may at the request of the Issuing Bank withhold from any payments received by the Agent under this Agreement or any Note for account of such Facility A Lender the amount so in default and, to the extent so withheld, pay the same to the Issuing Bank in satisfaction of such defaulted obligation. (f) Upon the making of each payment by a Facility A Lender to the Issuing Bank pursuant to paragraph (e) above in respect of any Letter of Credit, such Lender shall, automatically and without any further action on the part of the Agent, the Issuing Bank or such Lender, acquire (i) a - 58 - participation in an amount equal to such payment in the Reimbursement Obligation owing to the Issuing Bank by the Company hereunder and under the Letter of Credit Documents relating to such Letter of Credit and (ii) a participation in a percentage equal to such Lender's Facility A Commitment Percentage in any interest or other amounts payable by the Company hereunder and under such Letter of Credit Documents in respect of such Reimbursement Obligation (other than the commissions, charges, costs and expenses payable to the Issuing Bank pursuant to paragraph (g) of this Section 2.10). Upon receipt by the Issuing Bank from or for account of the Company of any payment in respect of any Reimbursement Obligation or any such interest or other amount (including by way of setoff or application of proceeds of any collateral security), the Issuing Bank shall promptly pay to the Agent for account of each Facility A Lender entitled thereto, such Facility A Lender's Facility A Commitment Percentage of such payment, each such payment by the Issuing Bank to be made in the same money and funds in which received by the Issuing Bank. In the event any payment received by the Issuing Bank and so paid to the Facility A Lenders hereunder is rescinded or must otherwise be returned by the Issuing Bank, each Facility A Lender shall, upon the request of the Issuing Bank (through the Agent), repay to the Issuing Bank (through the Agent) the amount of such payment paid to such Lender, with interest at the rate specified in paragraph (j) of this Section 2.10. (g) The Company shall pay to the Agent for account of each Facility A Lender (ratably in accordance with their respective Commitment Percentages) a letter of credit fee in respect of each Letter of Credit in an amount equal to the percentage equivalent of the Applicable Margin for Eurodollar Loans (less 0.25%) of the daily average undrawn face amount of such Letter of Credit for the period from and including the date of issuance of such Letter of Credit (i) in the case of a Letter of Credit that expires in accordance with its terms, to and including such expiration date and (ii) in the case of a Letter of Credit that is drawn in full - 59 - or is otherwise terminated other than on the stated expiration date of such Letter of Credit, to but excluding the date such Letter of Credit is drawn in full or is terminated (such fee to be non-refundable, to be paid in arrears on each Quarterly Date and on the Revolving Credit Commitment Termination Date and to be calculated for any day after giving effect to any payments made under such Letter of Credit on such day). In addition, the Company shall pay to the Agent for account of the Issuing Bank a fronting fee in respect of each Letter of Credit in an amount equal to 0.25% per annum of the daily average undrawn face amount of such Letter of Credit for the period from and including the date of issuance of such Letter of Credit (i) in the case of a Letter of Credit that expires in accordance with its terms, to and including such expiration date and (ii) in the case of a Letter of Credit that is drawn in full or is otherwise terminated other than on the stated expiration date of such Letter of Credit, to but excluding the date such Letter of Credit is drawn in full or is terminated (such fee to be non-refundable, to be paid in arrears on each Quarterly Date and on the Revolving Credit Commitment Termination Date and to be calculated for any day after giving effect to any payments made under such Letter of Credit on such day) plus all commissions, charges, costs and expenses in the amounts customarily charged by the Issuing Bank from time to time in like circumstances with respect to the issuance of each Letter of Credit and drawings and other transactions relating thereto. (h) Promptly following the end of each fiscal quarter, the Issuing Bank shall deliver (through the Agent) to each Facility A Lender and the Company a notice describing the aggregate amount of all Letters of Credit outstanding at the end of such quarter. Upon the request of any Facility A Lender from time to time, the Issuing Bank shall deliver any other information reasonably requested by such Lender with respect to each Letter of Credit then outstanding. - 60 - (i) The issuance by the Issuing Bank of each Letter of Credit shall, in addition to the conditions precedent set forth in Section 7 hereof, be subject to the conditions precedent that (i) such Letter of Credit shall be in such form, contain such terms and support such transactions as shall be reasonably satisfactory to the Issuing Bank consistent with its then current practices and procedures with respect to letters of credit of the same type and (ii) the Company shall have executed and delivered such applications, agreements and other instruments relating to such Letter of Credit as the Issuing Bank shall have reasonably requested consistent with its then current practices and procedures with respect to letters of credit of the same type, PROVIDED that in the event of any conflict between any such application, agreement or other instrument and the provisions of this Agreement or any Security Document, the provisions of this Agreement and the Security Documents shall control. (j) To the extent that any Lender shall fail to pay any amount required to be paid pursuant to paragraph (e) or (f) of this Section 2.10 on the due date therefor, such Lender shall pay interest to the Issuing Bank (through the Agent) on such amount from and including such due date to but excluding the date such payment is made at a rate per annum equal to the Federal Funds Rate, PROVIDED that if such Lender shall fail to make such payment to the Issuing Bank within three Business Days of such due date, then, retroactively to the due date, such Lender shall be obligated to pay interest on such amount at the Post-Default Rate. (k) The issuance by the Issuing Bank of any modification or supplement to any Letter of Credit hereunder shall be subject to the same conditions applicable under this Section 2.10 to the issuance of new Letters of Credit, and no such modification or supplement shall be issued hereunder unless either (i) the respective Letter of Credit affected thereby would have complied with such conditions - 61 - had it originally been issued hereunder in such modified or supplemented form or (ii) each Facility A Lender shall have consented thereto. The Company hereby indemnifies and holds harmless each Facility A Lender and the Agent from and against any and all claims and damages, losses, liabilities, costs or expenses that such Lender or the Agent may incur (or that may be claimed against such Lender or the Agent by any Person whatsoever) by reason of or in connection with the execution and delivery or transfer of or payment or refusal to pay by the Issuing Bank under any Letter of Credit; PROVIDED that the Company shall not be required to indemnify any Lender or the Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (x) the willful misconduct or gross negligence of the Issuing Bank in determining whether a request presented under any Letter of Credit complied with the terms of such Letter of Credit or (y) in the case of the Issuing Bank, such Lender's failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit. Nothing in this Section 2.10 is intended to limit the other obligations of the Company, any Lender or the Agent under this Agreement. Section 3. PAYMENTS OF PRINCIPAL AND INTEREST. 3.01 REPAYMENT OF LOANS. (a) The Company hereby promises to pay to the Agent for account of each Facility A Lender the entire outstanding principal amount of such Lender's Facility A Loans, and each such Facility A Loan shall mature, on the Revolving Credit Commitment Termination Date. - 62 - (b) The Company hereby promises to pay to the Agent for account of each Facility B Lender the principal of such Lender's Facility B Loan in 23 installments payable on the Principal Payment Dates falling on or nearest to the dates specified below, each in an amount equal to such Lender's ratable share of the aggregate amount set forth opposite such date, as follows: Date Amount of Installment ($) ---- ------------------------- September 30, 1996 2,500,000 December 31, 1996 2,500,000 March 31, 1997 2,500,000 June 30, 1997 2,500,000 September 30, 1997 3,750,000 December 31, 1997 3,750,000 March 31, 1998 3,750,000 June 30, 1998 3,750,000 September 30, 1998 5,000,000 December 31, 1998 5,000,000 March 31, 1999 5,000,000 June 30, 1999 5,000,000 September 30, 1999 5,375,000 December 31, 1999 5,375,000 March 31, 2000 5,375,000 June 30, 2000 5,375,000 September 30, 2000 6,000,000 December 31, 2000 6,000,000 March 31, 2001 6,000,000 June 30, 2001 6,000,000 September 30, 2001 9,875,000 December 31, 2001 9,875,000 March 31, 2002 19,750,000 ---------- $130,000,000 If the Company does not borrow the full amount of the aggregate Facility B Commitments on or before the Term Loan Commitment Termination Date, the shortfall shall be applied to reduce the foregoing installments ratably. - 63 - 3.02 INTEREST. The Company hereby promises to pay to the Agent for account of each Lender interest on the unpaid principal amount of each Loan for the period from and including the date of such Loan to but excluding the date such Loan shall be paid in full, at the following rates per annum: (a) during such periods as such Loan is a Base Rate Loan, the Base Rate (as in effect from time to time) PLUS the Applicable Margin, and (b) during such periods as such Loan is a Eurodollar Loan, for each Interest Period relating thereto, the Eurodollar Rate for such Loan for such Interest Period PLUS the Applicable Margin. Notwithstanding the foregoing, the Company hereby promises to pay to the Agent for account of each Lender interest at the applicable Post-Default Rate as follows: (i) on any principal of any Loan made by such Lender, on any Reimbursement Obligation held by such Lender and on any other amount payable by the Company hereunder or under the Notes held by such Lender to or for account of such Lender that shall not be paid in full when due (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise), for the period from and including the due date thereof to but excluding the date the same is paid in full; and (ii) on the principal of all Loans made by such Lender commencing upon the occurrence of any Event of Default, and thereafter for so long as any Event of Default shall be continuing. Accrued interest on each Loan shall be payable (i) in the case of a Base Rate Loan, quarterly on the Quarterly Dates, (ii) in the case of a Eurodollar Loan, on the last day of each Interest Period therefor and, if such Interest Period is longer than - 64 - three months, at three-month intervals following the first day of such Interest Period, and (iii) in the case of any Loan, upon the payment or prepayment thereof or the Conversion of such Loan to a Loan of another Type (but only on the principal amount so paid, prepaid or Converted), except that interest payable at the Post-Default Rate shall be payable from time to time on demand. Promptly after the determination of any interest rate provided for herein or any change therein, the Agent shall give notice thereof to the Lenders to which such interest is payable and to the Company. Section 4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC. 4.01 PAYMENTS. (a) Except to the extent otherwise provided herein, all payments of principal, interest, Reimbursement Obligations and other amounts to be made by the Company under this Agreement and the Notes of the Company, and, except to the extent otherwise provided therein, all payments to be made by the Obligors under any other Loan Document, shall be made in Dollars, in immediately available funds, to the Agent at any account designated by the Agent not later than 1:00 p.m. New York time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). (b) Any Lender for whose account any such payment is to be made may (but shall not be obligated to) debit the amount of any such payment that is not made by such time to any ordinary deposit account of the Company with such Lender (with notice to the Company and the Agent). (c) The Company shall, at the time of making each payment under this Agreement or any Note for account of any Lender, specify to the Agent (which shall so notify the intended recipient(s) thereof) the Loans, Reimbursement Obligations or other amounts payable hereunder to which such payment is to be - 65 - applied (and in the event that the Company fails to so specify, or if an Event of Default has occurred and is continuing, the Agent may distribute such payment to the Lenders for application in such manner as it or the Majority Lenders, subject to Section 4.02 hereof, may determine to be appropriate). (d) Except to the extent otherwise provided in the last sentence of Section 2.10(e) hereof, each payment received by the Agent under this Agreement or any Note for account of any Lender shall be paid by the Agent promptly to such Lender, in immediately available funds, for account of such Lender's Applicable Lending Office for the Loan or other obligation in respect of which such payment is made. (e) If the due date of any payment under this Agreement or any Note would otherwise fall on a day that is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable for any principal so extended for the period of such extension. 4.02 PRO RATA TREATMENT. Except to the extent otherwise provided herein: (a) each borrowing of Loans of a particular Class from the Lenders under Section 2.01 hereof shall be made from the relevant Lenders, each payment of commitment fee under Section 2.04 hereof in respect of Commitments of a particular Class shall be made for account of the relevant Lenders, and each termination or reduction of the amount of the Commitments of a particular Class under Section 2.03 hereof shall be applied to the respective Commitments of such Class of the relevant Lenders, pro rata according to the amounts of their respective Commitments of such Class; (b) the making, Conversion and Continuation of Loans of a particular Type and Class (other than Conversions provided for by Section 5.04 hereof) shall be made pro rata among the relevant Lenders according to the amounts of their respective Commitments (in the case of making of Loans) or their respective Loans (in the case of Conversions and Continuations of Loans); (c) each payment or prepayment of principal of Loans of any Class by the Company shall be made for account of the relevant Lenders pro rata in accordance with the - 66 - respective unpaid principal amounts of the Loans of such Class held by them; and (d) each payment of interest on any Loans of any Class by the Company shall be made for account of the relevant Lenders pro rata in accordance with the amounts of interest on such Loans then due and payable to the respective Lenders. 4.03 COMPUTATIONS. Interest on Eurodollar Loans, commitment fees and letter of credit fees shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but, except as otherwise provided in Section 2.10(g) hereof, excluding the last day) occurring in the period for which payable and interest on Base Rate Loans and Reimbursement Obligations shall be computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable. 4.04 MINIMUM AMOUNTS. Except for mandatory prepayments made pursuant to Section 2.09 hereof and Conversions or prepayments made pursuant to Section 5.04 hereof, (a) each borrowing and Conversion of principal of Base Rate Loans shall be in an aggregate amount at least equal to $1,000,000 or a larger multiple of $1,000,000, (b) each borrowing and Conversion of Eurodollar Loans shall be in an aggregate amount at least equal to $3,000,000 or a larger multiple of $1,000,000, (c) each partial prepayment of principal of Loans shall be in an aggregate amount at least equal to $2,000,000 or a larger multiple of $1,000,000 (borrowings, Conversions or prepayments of or into Loans of different Types or, in the case of Eurodollar Loans, having different Interest Periods at the same time hereunder to be deemed separate borrowings, Conversions and prepayments for purposes of the foregoing, one for each Type or Interest Period). - 67 - 4.05 CERTAIN NOTICES. Notices by the Company to the Agent of terminations or reductions of the Commitments, of Borrowings, Conversions, Continuations and optional prepayments of Loans and of Classes of Loans, of Types of Loans and of the duration of Interest Periods shall be irrevocable (other than with respect to notices of optional prepayments, which shall be revocable, PROVIDED that upon any such revocation the Company shall be obligated to pay the Lenders any amounts payable under Section 5.05 hereof as a consequence of such revocation) and shall be effective only if received by the Agent not later than 12:00 noon New York time on the number of Business Days prior to the date of the relevant termination, reduction, borrowing, Conversion, Continuation or prepayment or the first day of such Interest Period specified below: Number of Business Notice Days Prior ------ ---------- Termination or reduction of Commitments 3 Borrowing or prepayment of, or Conversions into, Base Rate Loans Same Day Borrowing or prepayment of, Conversions into, Continuations as, or duration of Interest Period for, Eurodollar Loans 3 Each such notice of termination or reduction shall specify the amount and the Class of the Commitments to be terminated or reduced. Each such notice of borrowing, Conversion, Continuation or optional prepayment shall specify the Class of Loans to be borrowed, Converted, Continued or prepaid and the amount (subject to Section 4.04 hereof) and Type of each Loan to be borrowed, Converted, Continued or prepaid and the date of borrowing, Conversion, Continuation or optional prepayment (which shall be a - 68 - Business Day). Each such notice of the duration of an Interest Period shall specify the Loans to which such Interest Period is to relate. The Agent shall promptly notify the Lenders of the contents of each such notice. In the event that the Company fails to select the Type of Loan, or the duration of any Interest Period for any Eurodollar Loan, within the time period and otherwise as provided in this Section 4.05, such Loan (if outstanding as a Eurodollar Loan) will be automatically Converted into a Base Rate Loan on the last day of the then current Interest Period for such Loan or (if outstanding as a Base Rate Loan) will remain as, or (if not then outstanding) will be made as, a Base Rate Loan. - 69 - 4.06 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall have been notified by a Lender or the Company (the "PAYOR") prior to the date on which the Payor is to make payment to the Agent of (in the case of a Lender) the proceeds of a Loan to be made by such Lender hereunder or (in the case of the Company) a payment to the Agent for account of one or more of the Lenders hereunder (such payment being herein called the "REQUIRED PAYMENT"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date; and, if the Payor has not in fact made the Required Payment to the Agent, the recipient(s) of such payment shall, on demand, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date (the "ADVANCE DATE") such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such day and, if such recipient(s) shall fail promptly to make such payment, the Agent shall be entitled to recover such amount, on demand, from the Payor, together with interest as aforesaid, PROVIDED that if neither the recipient(s) nor the Payor shall return the Required Payment to the Agent within three Business Days of the Advance Date, then, retroactively to the Advance Date, the Payor and the recipient(s) shall each be obligated to pay interest on the Required Payment as follows: (i) if the Required Payment shall represent a payment to be made by the Company to the Lenders, the Company and the recipient(s) shall each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the Post-Default Rate (and, in case the recipient(s) shall return the Required Payment to the Agent, without limiting the obligation of the Company under Section 3.02 hereof to pay interest to such recipient(s) at the Post-Default Rate in respect of the Required Payment) and - 70 - (ii) if the Required Payment shall represent proceeds of a Loan to be made by the Lenders to the Company, the Payor and the Company shall each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the rate of interest provided for such Required Payment pursuant to Section 3.02 hereof (and, in case the Company shall return the Required Payment to the Agent, without limiting any claim the Company may have against the Payor in respect of the Required Payment). 4.07 SHARING OF PAYMENTS, ETC. (a) The Company agrees that, in addition to (and without limitation of) any right of set-off, banker's lien or counterclaim a Lender may otherwise have, each Lender shall be entitled, at its option, to offset balances held by it for account of the Company at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Lender's Loans, Reimbursement Obligations or any other amount payable to such Lender hereunder, that is not paid when due (regardless of whether such balances are then due to the Company), in which case it shall promptly notify the Company and the Agent thereof, PROVIDED that such Lender's failure to give such notice shall not affect the validity thereof. (b) If any Lender shall obtain from any Obligor payment of any principal of or interest on any Loan of any Class or Letter of Credit Liability owing to it or payment of any other amount under this Agreement or any other Loan Document through the exercise of any right of set-off, Lender's lien or counterclaim or similar right or otherwise (other than from the Agent as provided herein), and, as a result of such payment, such Lender shall have received a greater percentage of the principal of or interest on the Loans of such Class or Letter of Credit Liabilities or such other amounts then due hereunder or thereunder by such Obligor to such Lender than the percentage received by any other Lender, it shall promptly purchase from such other Lenders participations in (or, if and to the extent - 71 - specified by such Lender, direct interests in) the Loans of such Class or such other amounts, respectively, owing to such other Lenders (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Lenders shall share the benefit of such excess payment (net of any expenses that may be incurred by such Lender in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal of and/or interest on the Loans of such Class or Letter of Credit Liabilities or such other amounts, respectively, owing to each of the Lenders. To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) The Company agrees that any Lender so purchasing such a participation (or direct interest) may exercise all rights of set-off, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans or other amounts (as the case may be) owing to such Lender in the amount of such participation. (d) Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of any Obligor. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a set-off to which this Section 4.07 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section 4.07 to share in the benefits of any recovery on such secured claim. Section 5. YIELD PROTECTION, ETC. 5.01 ADDITIONAL COSTS. - 72 - (a) The Company shall pay directly to each Lender from time to time such amounts as such Lender may determine to be necessary to compensate such Lender for any costs that such Lender determines are attributable to its making or maintaining of any Eurodollar Loans or its obligation to make any Eurodollar Loans hereunder or any reduction in any amount receivable by such Lender hereunder in respect of any of such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "ADDITIONAL COSTS"), resulting from any Regulatory Change that: (i) shall subject any Lender (or its Applicable Lending Office for any of such Loans) to any tax, duty or other charge in respect of such Loans or its Notes or changes the basis of taxation of any amounts payable to such Lender under this Agreement or its Notes in respect of any of such Loans (excluding changes in the rate of tax on the overall net income of such Lender or of its Applicable Lending Office by the jurisdiction in which such Lender is organized or has its principal office or in which its Applicable Lending Office is organized or located or, in each case, any political subdivision or taxing authority thereof or therein); or (ii) imposes or modifies any reserve, special deposit or similar requirements (other than the Reserve Requirement utilized in the determination of the Eurodollar Rate for such Loan) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender (including, without limitation, any of such Loans or any deposits referred to in the definitions of "Eurodollar Base Rate" in Section 1.01 hereof), or any commitment of such Lender (including, without limitation, the Commitments of such Lender hereunder); or (iii) imposes any other condition affecting this Agreement or its Notes (or any of such extensions of credit or liabilities) or its Commitments. - 73 - If any Lender requests compensation from the Company under this Section 5.01(a), the Company may, by notice to such Lender (with a copy to the Agent), suspend the obligation of such Lender thereafter to make or Continue Eurodollar Loans, to Convert Loans of another Type into Eurodollar Loans or to Convert Eurodollar Loans into Loans of another Type until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of Section 5.04 hereof shall be applicable), PROVIDED that such suspension shall not affect the right of such Lender to receive the compensation so requested. (b) Without limiting the effect of the provisions of paragraph (a) of this Section 5.01, in the event that, by reason of any Regulatory Change, any Lender (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Lender that includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Lender that includes Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets that it may hold then, if such Lender so elects by notice to the Company (with a copy to the Agent), the obligation of such Lender to make or Continue, or to Convert Loans of another type into, Eurodollar Loans, hereunder (as the case may be) shall be suspended until any such Regulatory Change ceases to be in effect (in which case the provisions of Section 5.04 hereof shall be applicable). (c) Without limiting the effect of the foregoing provisions of this Section 5.01 (but without duplication), the Company shall pay directly to each Lender from time to time on request such amounts as such Lender may determine to be necessary to compensate such Lender (or, without duplication, the bank holding company of which such Lender is a subsidiary) for any costs that it determines are attributable to the maintenance by such Lender (or any Applicable Lending Office or such bank holding company), pursuant to any law or regulation or any interpretation, directive or request (whether or not having the - 74 - force of law and whether or not failure to comply therewith would be unlawful) of any court or governmental or monetary authority (i) following any Regulatory Change or (ii) hereafter implementing any risk-based capital guideline or other requirement (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) heretofore or hereafter issued by any government or governmental or supervisory authority implementing at the national level the Basle Accord (including, without limitation, the Final Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the Final Risk-Based Capital Guidelines of the Office of the Comptroller of the Currency (12 C.F.R. Part 3, Appendix A)), of capital in respect of its Commitments or Loans (such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Lender (or any Applicable Lending Office or such bank holding company) to a level below that which such Lender (or any Applicable Lending Office or such bank holding company) could have achieved but for such law, regulation, interpretation, directive or request). For purposes of this Section 5.01(d) and Section 5.08 hereof, "BASLE ACCORD" shall mean the proposals for risk-based capital framework described by the Basle Committee on Banking Regulations and Supervisory Practices in its paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988, as amended, modified and supplemented and in effect from time to time or any replacement thereof. (d) Each Lender shall notify the Company of any event occurring after the date of this Agreement entitling such Lender to compensation under paragraph (a) or (c) of this Section 5.01 as promptly as practicable, but in any event within 45 days, after such Lender obtains actual knowledge thereof; PROVIDED that (i) if any Lender fails to give such notice within 45 days after it obtains actual knowledge of such an event, such Lender shall, with respect to compensation payable pursuant to this Section 5.01 in respect of any costs resulting from such event, only be entitled to payment under this Section 5.01 for costs - 75 - incurred from and after the date 45 days prior to the date that such Lender does give such notice and (ii) each Lender will designate a different Applicable Lending Office for the Loans of such Lender affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender, except that such Lender shall have no obligation to designate an Applicable Lending Office located in the United States. Each Lender will furnish to the Company a certificate setting forth the basis and amount of each request by such Lender for compensation under paragraph (a) or (c) of this Section 5.01. Determinations and allocations by any Lender for purposes of this Section 5.01 of the effect of any Regulatory Change pursuant to paragraph (a) or (b) of this Section 5.01, or of the effect of capital maintained pursuant to paragraph (c) of this Section 5.01, on its costs or rate of return of maintaining Loans or its obligation to make Loans, or on amounts receivable by it in respect of Loans, and of the amounts required to compensate such Lender under this Section 5.01, shall be conclusive in the absence of manifest error, PROVIDED that such determinations and allocations are made on a reasonable basis. 5.02 LIMITATION ON TYPES OF LOANS. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any Eurodollar Base Rate for any Interest Period: (a) the Agent determines, which determination shall be conclusive, that quotations of interest rates for the relevant deposits referred to in the definition of "Eurodollar Base Rate" in Section 1.01 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for Eurodollar Loans as provided herein; or (b) The Majority Lenders determine, which determination shall be conclusive, and notify the Agent that the relevant rates of interest referred to in the definitions of "Eurodollar Base Rate" in Section 1.01 hereof - 76 - upon the basis of which the rate of interest for Eurodollar Loans for such Interest Period is to be determined are not likely adequately to cover the cost to such Lenders of making or maintaining Eurodollar Loans for such Interest Period; then the Agent shall give the Company and each Lender prompt notice thereof (describing the circumstances giving rise to such event) and, so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Eurodollar Loans, to Continue Eurodollar Loans, to Convert Loans of another Type into Eurodollar Loans and the Company shall, on the last day(s) of the then current Interest Period(s) for the outstanding Eurodollar Loans either prepay such Loans or Convert such Loans into Loans of another Type in accordance with Section 2.08 hereof. 5.03 ILLEGALITY. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to honor its obligation to make or maintain Eurodollar Loans hereunder, then such Lender shall promptly notify the Company thereof (with a copy to the Agent) and such Lender's obligation to make or Continue, or to Convert Loans of any other Type into, Eurodollar Loans shall be suspended until such time as such Lender may again make and maintain Eurodollar Loans (in which case the provisions of Section 5.04 hereof shall be applicable). - 77 - 5.04 TREATMENT OF AFFECTED LOANS. If the obligation of any Lender to make Eurodollar Loans ("AFFECTED LOANS"), or to Continue, or to Convert Loans of another Type into Affected Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof, such Lender's Affected Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) therefor (or, in the case of a Conversion required by Section 5.01(b), 5.01(c) or 5.03 hereof, on such earlier date as such Lender may specify to the Company with a copy to the Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender's Affected Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender's Affected Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or Continued by such Lender as Affected Loans shall be made or Continued instead as Base Rate Loans, and all Base Rate Loans of such Lender that would otherwise be Converted into Affected Loans (as the case may be) shall remain as Base Rate Loans. If such Lender gives notice to the Company with a copy to the Agent that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the Conversion of such Lender's Affected Loans pursuant to this Section 5.04 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Affected Loans made by other Lenders, and of the same Class as such Lender's Loans are outstanding, such Lender's Base Rate Loans of each Class (subject to Section 2.10 hereof) shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Affected Loans and of such Class, to the extent necessary so that, after giving effect thereto, all Loans of such Class held by the Lenders holding Affected Loans and by such Lender are held - 78 - pro rata (as to principal amounts, Types and Interest Periods) in accordance with their respective Commitments. 5.05 COMPENSATION. The Company shall pay to the Agent for account of each Lender, upon the request of such Lender through the Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any loss, cost or expense that such Lender determines is attributable to: (a) any payment, mandatory or optional prepayment or Conversion of a Eurodollar Loan made by the Company for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10 hereof) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by the Company for any reason (including, without limitation, the failure of any of the conditions precedent specified in Section 7 hereof to be satisfied) to borrow a Eurodollar Loan from such Lender on the date for such borrowing specified in the relevant notice of borrowing given pursuant to Section 2.02 hereof or in the notice from the Agent given pursuant to Section 2.01(c); (c) any failure for any reason (including, without limitation, as provided in Section 5.02 or 5.03 hereof) of a Loan of such Lender to be Continued as or Converted into a Eurodollar Loan on the date for such Continuation or Conversion specified in the relevant notice given under Section 4.05 hereof; or (d) the revocation of any notice of optional prepayment or any failure for any reason to make any optional prepayment on the date specified therefor in the relevant notice of prepayment given pursuant to Section 4.05 hereof. Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest that otherwise would have accrued - 79 - on the principal amount so paid, prepaid, Converted or not borrowed or prepaid for the period from the date of such payment, prepayment, Conversion or failure to borrow or prepay to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan that would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Loan (MINUS the Applicable Margin) provided for herein over (ii) the amount of interest that otherwise would have accrued on such principal amount at a rate per annum equal to the interest component of the amount such Lender would have bid on the date of such payment, prepayment, conversion or failure to borrow or prepay in the London interbank market for Dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as reasonably determined by such Lender). - 80 - 5.06 NET PAYMENTS; TAXES. (a) All payments to be made hereunder and under the Notes and any other Loan Documents by the Company shall be made without setoff, counterclaim or other defense. Subject to Section 5.06(b) hereof with respect to U.S. Taxes, all such payments shall be made free and clear of and without deduction for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any governmental authority (other than taxes imposed on the Agent, any Lender or its Applicable Lending Office by the jurisdiction in which the Agent or such Lender is organized or has its principal office or in which its Applicable Lending Office is organized or located or, in each case, any political subdivision or taxing authority thereof or therein) (collectively, "TAXES"). If any Taxes are imposed and required to be withheld from any amount payable by the Company hereunder or under the Notes, the Company shall be obligated to (i) pay such additional amount so that the Agent and the Lenders will receive a net amount (after giving effect to the payment of such additional amount and to the deduction of all Taxes) equal to the amount due hereunder, (ii) pay such Taxes to the appropriate taxing authority for the account of the Agent, for the benefit of the Lenders and (iii) as promptly as possible thereafter, sending the Agent a certified copy of any original official receipt showing payment thereof, together with such additional documentary evidence as the Agent may from time to time reasonably require. If the Company fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, the Company shall be obligated to indemnify the Agent and each Lender for any incremental taxes, interest or penalties that may become payable by the Agent or such Lender as a result of such failure. The obligations of the Company under this Section 5.01(a) shall survive the repayment of the Loans and the termination of the Commitments. - 81 - (b) The Company agrees to pay to each Lender that is not a U.S. Person such additional amounts as are necessary in order that the net payment of any amount due to and received by such non-U.S. Person hereunder after deduction for or withholding in respect of any U.S. Tax imposed with respect to such payment (or in lieu thereof, payment of such U.S. Tax by such non-U.S. Person), will not be less than the amount stated herein to be then due and payable, PROVIDED that the foregoing obligation to pay such additional amounts shall not apply: (i) to any payment to a Lender (other than in respect of a Registered Loan) hereunder unless such Lender is, on the date hereof (or on the date it becomes a Lender as provided in Section 12.06(b) hereof) and on the date of any change in the Applicable Lending Office of such Lender, either entitled to submit a Form 1001 (relating to such Lender and entitling it to a complete exemption from withholding on all interest to be received by it hereunder in respect of the Loans) or Form 4224 (relating to all interest to be received by such Lender hereunder in respect of the Loans), or (ii) to any payment to any Lender hereunder in respect of a Registered Loan (a "REGISTERED HOLDER"), unless such Registered Holder (or, if such Registered Holder is not the beneficial owner of such Registered Loan, the beneficial owner thereof) is, on the date hereof (or on the date such Registered Holder becomes a Lender as provided in Section 12.06(b) hereof) and on the date of any change in the Applicable Lending Office of such Lender, entitled to submit a Form W-8, together with an annual certificate stating that (x) such Registered Holder (or beneficial owner, as the case may be) is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, and (y) such Registered Holder (or beneficial owner, as the case may be) shall promptly notify the Company if at any time, such Registered Holder (or beneficial owner, as the case may be) determines that it is no longer in a position to provide such certificate to the Company (or any other form of - 82 - certification adopted by the relevant taxing authorities of the United States of America for such purposes), or (iii) to any U.S. Tax imposed solely by reason of the failure by such non-U.S. Person (or, if such non-U.S. Person is not the beneficial owner of the relevant Loan, such beneficial owner) to comply with applicable certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the United States of such non-U.S. Person (or such beneficial owner, as the case may be) if such compliance is required by statute or regulation of the United States as a precondition to relief or exemption from such U.S. Tax. For the purposes of this Section 5.06(a), (v) "FORM 1001" shall mean Form 1001 (Ownership, Exemption, or Reduced Rate Certificate) of the Department of the Treasury of the United States, (w) "FORM 4224" shall mean Form 4224 (Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the United States) of the Department of the Treasury of the United States, (x) "FORM W-8" shall mean Form W-8 (Certificate of Foreign Status of the Department of Treasury of the United States of America) (or in relation to any of such Forms such successor and related forms as may from time to time be adopted by the relevant taxing authorities of the United States to document a claim to which such Form relates), (y) "U.S. PERSON" shall mean a citizen, national or resident of the United States, a corporation, partnership or other entity created or organized in or under any laws of the United States, or any estate or trust that is subject to Federal income taxation regardless of the source of its income and (z) "U.S. TAXES" shall mean any present or future tax, assessment or other charge or levy imposed by or on behalf of the United States or any taxing authority thereof or therein. Within 30 days after paying any amount to the Agent or any Lender from which it is required by law to make any deduction or withholding, and within 30 days after it is required by law to - 83 - remit such deduction or withholding to any relevant taxing or other authority, the Company shall deliver to the Agent for delivery to such non-U.S. Person evidence satisfactory to such Person of such deduction, withholding or payment (as the case may be). 5.07 REPLACEMENT OF LENDERS. If any Lender requests compensation pursuant to Section 5.01 or 5.06 hereof, or any Lender's obligation to make or Continue, or to Convert Loans of any Type into, any other Type of Loan shall be suspended pursuant to Section 5.01 or 5.03 hereof (any such Lender so requesting compensation, or whose obligations are so suspended being herein called a "RELEVANT LENDER"), the Company upon three Business Days notice, may require that such Relevant Lender transfer all of its right, title and interest under this Agreement and such Relevant Lender's Notes to any bank or other financial institution identified by the Company that is reasonably satisfactory to the Agent (i) if such bank or other financial institution (a "PROPOSED LENDER") agrees to assume all of the obligations of such Relevant Lender hereunder, and to purchase all of such Relevant Lender's Loans hereunder for consideration equal to the aggregate outstanding principal amount of such Relevant Lender's Loans, together with accrued, but unpaid interest thereon to the date of such purchase, and satisfactory arrangements are made for payment to such Relevant Lender of all other amounts payable hereunder to such Relevant Lender on or prior to the date of such transfer (including any fees accrued hereunder and any amounts that would be payable under Section 5.05 hereof as if all of such Relevant Lender's Loans were being prepaid in full on such date) and (ii) if such Relevant Lender has requested compensation pursuant to Section 5.01 or 5.06 hereof, such Proposed Lender's aggregate requested compensation, if any, pursuant to said Section 5.01 or 5.06 with respect to such Relevant Lender's Loans is lower than that of the Relevant Lender. Subject to compliance with the provisions of Section 12.06(b) hereof, such Proposed Lender shall be a "Lender" for all purposes hereunder. Without prejudice to the survival of any other agreement of the Company hereunder, the agreements of the Company contained in Sections 5.01, 5.06 and 12.03 hereof (without duplication of any - 84 - payments made to such Relevant Lender by the Company or the Proposed Lender) shall survive for the benefit of such Relevant Lender under this Section 5.07 with respect to the time prior to such replacement. 5.08 ADDITIONAL COSTS IN RESPECT OF LETTERS OF CREDIT. Without limiting the obligations of the Company under Section 5.01 hereof (but without duplication), if as a result of any Regulatory Change or any risk-based capital guideline or other requirement heretofore or hereafter issued by any government or governmental or supervisory authority implementing at the national level the Basle Accord there shall be hereafter imposed, modified or deemed applicable any tax, reserve, special deposit, capital adequacy or similar requirement against or with respect to or measured by reference to Letters of Credit issued or to be issued hereunder and the result shall be to increase the cost to any Lender or Lenders of issuing (or purchasing participations in) or maintaining its obligation hereunder to issue (or purchase participations in) any Letter of Credit hereunder or reduce any amount receivable by any Lender hereunder in respect of any Letter of Credit (which increases in cost, or reductions in amount receivable, shall be the result of such Lender's or Lenders' reasonable allocation of the aggregate of such increases or reductions resulting from such event), then, upon demand by such Lender or Lenders (through the Agent), the Company shall pay immediately to the Agent for account of such Lender or Lenders, from time to time as specified by such Lender or Lenders (through the Agent), such additional amounts as shall be sufficient to compensate such Lender or Lenders (through the Agent) for such increased costs or reductions in amount. A statement as to such increased costs or reductions in amount incurred by any such Lender or Lenders, submitted by such Lender or Lenders to the Company shall be conclusive in the absence of manifest error as to the amount thereof. Section 6. [INTENTIONALLY LEFT BLANK]. Section 7. CONDITIONS PRECEDENT. - 85 - 7.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Agreement (and the amendment and restatement of the Existing Credit Agreement to be effected thereby), and the obligation of any Lender to extend or continue credit hereunder on the Effective Date, are subject to (i) the condition precedent that the Effective Date shall occur on or before July 31, 1996 and (ii) the receipt by the Agent of the following documents, each of which shall be satisfactory to the Agent (and to the extent specified below, to each Lender or the Majority Lenders, as the case may be) in form and substance: (a) CORPORATE DOCUMENTS. Certified copies of the charter and by-laws (or equivalent documents) of each Obligor (including, without limitation, Garrido and Guest Choice) and of all corporate authority for each Obligor (including, without limitation, board of director resolutions and evidence of the incumbency of officers, together with specimen signatures of each such officer) with respect to the execution, delivery and performance of such of the Basic Documents to which such Obligor is intended to be a party and each other document to be delivered by such Obligor from time to time in connection herewith and the extensions of credit hereunder (and the Agent and each Lender may conclusively rely on such certificate until it receives notice in writing from such Obligor to the contrary). (b) OFFICER'S CERTIFICATE. A certificate of a Responsible Financial Officer of the Company, dated the Effective Date, to the effect set forth in the first sentence of Section 7.03(a) hereof. (c) BORROWING BASE CERTIFICATE. A Borrowing Base Certificate dated as of June 30, 1996 accompanied by a certificate of a Responsible Financial Officer of the Company, dated the Effective Date, to the effect that there has been no material adverse change in any of the components of Borrowing Base as set forth in such Borrowing Base Certificate since said date. - 86 - (d) OPINION OF COUNSEL TO THE OBLIGORS. Opinions, each dated the Effective Date, of Hughes & Luce, counsel to the Obligors, substantially in the form of Exhibit E-1 hereto, and of Axtmayer Adsuar Muniz & Goyco, special Puerto Rico counsel to the Subsidiary Guarantors operating in the Commonwealth, substantially in the form of Exhibit E-2 hereto and, in each case, covering such other matters as the Agent or any Lender may reasonably request (and each Obligor hereby instructs such counsel to deliver such opinion to the Lenders and the Agent). (e) OPINION OF COUNSEL TO CHASE. An opinion, dated the Effective Date, of Milbank, Tweed, Hadley & McCloy, special New York counsel to Chase, substantially in the form of Exhibit G hereto (and Chase hereby instructs such counsel to deliver such opinion to the Lenders). (f) NOTES. The Notes, duly completed and executed. (g) AMENDMENT TO SECURITY AGREEMENT. The Amendment to Security Agreement, duly executed and delivered by the Company and the Agent and the certificates identified in Annex 1 thereto, accompanied by undated stock powers executed in blank. In addition, the Company shall have taken such other action (including, without limitation, delivering to the Agent, (i) Uniform Commercial Code searches for each Obligor for each jurisdiction in which such Obligor conducts its respective business or in which any of its respective Properties are located (or otherwise as the Agent may reasonably request) (to the extent such searches have not already been effected pursuant to the Existing Credit Agreement) and (ii) for filing, appropriately completed and duly executed copies of Uniform Commercial Code financing statements) as the Agent shall have requested in order to perfect the security interests created pursuant to the Amendment to Security Agreement (or, to the extent such filings have been effected pursuant to the Existing Credit Agreement, such amendments to such - 87 - filings determined to be necessary or advisable by the Agent). (h) [Intentionally Left Blank] (i) GARRIDO ACQUISITION. Evidence that the Garrido Acquisition shall have been consummated in all material respects in accordance with the terms of the Garrido Purchase Agreement, and the Agent shall have received a certificate of a Responsible Financial Officer of the Company to that effect (and attaching thereto a true and complete copy of the Garrido Purchase Agreement). (j) INSURANCE. Certificates of insurance evidencing the existence of all insurance required to be maintained by the Company and its Subsidiaries (other than Garrido and Guest Choice) pursuant to Section 9.04 hereof and the designation of the Agent as the loss payee or additional named insured, as the case may be, thereunder. In addition, the Company shall have delivered a certificate of a Responsible Financial Officer of the Company setting forth the insurance obtained by it in accordance with the requirements of Section 9.04 and stating that such insurance is in full force and effect and that all premiums then due and payable thereon have been paid. (k) ENVIRONMENTAL MATTERS. Environmental surveys and assessments prepared by one or more firms of licensed engineers (familiar with the identification of toxic and hazardous substances) in form and substance satisfactory to each Lender, such environmental survey and assessment to be based upon physical on-site inspections by such firm of each of the existing sites and facilities owned, operated or leased by Garrido as well as an historical review of the uses of such sites and facilities and of the business and operations of Garrido (including any former Subsidiaries or divisions of Garrido or any of its Subsidiaries that have been disposed of prior to the date of such survey and assessment and with respect to which Garrido may have - 88 - retained liability for Environmental Claims), and if requested by the Agent, the Company shall have agreed to take other reasonable steps after the Effective Date with respect to such matters as shall be agreed in writing with the Agent. (l) SUBORDINATED INDEBTEDNESS. Amendment to the Subordinated Debt Documents in form and substance satisfactory to the Majority Lenders, PROVIDED that in no event shall amortization in respect of the Subordinated Indebtedness be modified pursuant to such Amendment, and the Agent shall have received copies of all of the Amendments to the Subordinated Debt Documents and of all instruments and documents executed and delivered in connection therewith, certified by a Responsible Financial Officer of the Company. (m) PUERTO RICO TAX EXEMPTION AND TAX RULING. Evidence that each tax exemption grant heretofore issued to Suiza Fruit and Neva Plastics by the Commonwealth in respect of manufacturing income from its respective operations in the Commonwealth shall be in full force and effect, and the Agent shall have received true and complete copies thereof, certified by a Responsible Financial Officer of the relevant Subsidiary Guarantor. (n) SOLVENCY ANALYSIS. A certificate from a Responsible Financial Officer of the Company to the effect that, as of the Effective Date and after giving effect to the initial extension of credit hereunder and to the other transactions contemplated hereby (including, without limitation, the Garrido Acquisition), (i) the aggregate value of all Properties of the Company, its Subsidiaries, Garrido and Guest Choice at their present fair saleable value (i.e., the amount that 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, conceiving the latter as the amount that could be obtained for the Property in question within such period by a capable and diligent businessman from an interested buyer - 89 - who is willing to purchase under ordinary selling conditions), exceeds the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) of the Company, its Subsidiaries, Garrido and Guest Choice, (ii) the Company, its Subsidiaries, Garrido and Guest Choice will not, on a consolidated basis, have unreasonably small capital with which to conduct their business operations as heretofore conducted and (iii) the Company, its Subsidiaries, Garrido and Guest Choice will have, on a consolidated basis, sufficient cash flow to enable them to pay their debts as they mature. The Agent shall have also received (x) a certificate from a Responsible Financial Officer of the Company certifying that the financial projections and underlying assumptions contained in such analyses were at the time made, and on the Effective Date are, fair and reasonable and accurately computed and (y) appropriate factual information supporting the conclusions of the solvency analyses and the financial condition certificate required to be delivered as provided above. (o) FINANCIAL INFORMATION. (i) Copies of the pro forma projections of the Company and its Subsidiaries for the period from the Effective Date through December 31, 1996 and (ii) unaudited consolidating financial statements of the Company and its Subsidiaries for the three-month period ended on March 31, 1996. (p) PROCESS AGENT ACCEPTANCE. A letter from the Process Agent to the Agent, in form and substance satisfactory to the Agent, accepting the appointment of the Process Agent by the Obligors operating in the Commonwealth (other than Garrido and Guest Choice) as provided in Section 12.10(c) hereof. (q) 1996 BUDGET. A budget for the fiscal year ending December 31, 1996 setting forth for each Subsidiary of the Company and for the Company, its Subsidiaries, Garrido and Guest Choice as a whole, anticipated income, expense and - 90 - capital expenditure items for each quarter during such fiscal year. (r) PAYMENT OF FEES AND EXPENSES, ETC. Evidence that the Company shall have paid such fees and expenses as the Company shall have agreed to pay to the Agent in connection herewith, including, without limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to Chase, and Fiddler Gonzalez & Rodriguez, special Puerto Rico counsel to Chase, in connection with the negotiation, preparation, execution and delivery of this Agreement and the Notes and the other Loan Documents and the making of the Loans hereunder (to the extent that statements for such fees and expenses have been delivered to the Company). (s) INTEREST RATE PROTECTION AGREEMENTS. Evidence that the Company and/or the Obligors shall have entered into one or more Interest Rate Protection Agreements as to the notional principal amount at least equal to (i) $40,000,000 for a period ending on December 31, 1996, (ii) $14,000,000 for a period ending on May 13, 1997 and (iii) $55,000,000 for a period ending on June 30, 1998. (t) REPAYMENT OF CERTAIN INDEBTEDNESS UNDER EXISTING CREDIT AGREEMENT. Evidence of (i) payment to each Facility C Lender and Facility D Lender under the Existing Credit Agreement of the principal of and interest on the loans to, and all other amounts owing to it under the Existing Credit Agreement on the Effective Date by, the Subsidiary Borrowers thereunder and (ii) payment to each Non-Committing Lender of the principal of and interest on the loans held by it and all other amounts owing to it under the Existing Credit Agreement on the Effective Date. (u) P.R. INVENTORY AGREEMENT. P.R. Inventory Agreement, duly executed and delivered by each of the parties thereto. - 91 - (v) OTHER DOCUMENTS. Such other documents as the Agent or any Lender or special New York counsel to Chase may reasonably request. 7.02 ADDITIONAL CONDITIONS PRECEDENT TO REVOLVING CREDIT LOANS. The obligation of the Lenders to make extensions of credit in respect of the Facility A Commitments hereunder in excess of $22,500,000 in the aggregate (whether by making of Loans or issuance of Letters of Credit) at any time on or after the Effective Date is subject to the satisfaction, on or prior to August 12, 1996, of the condition precedent that the Agent shall have received the following documents, each of which shall be satisfactory to the Agent in form and substance, as well as to the satisfaction of the other conditions set forth in following subsections: (a) PUERTO RICO SECURITY DOCUMENTS. To the extent requested by the Agent, amendments to each of the Puerto Rico Security Documents, duly executed and delivered by the parties thereto in proper form for filing in each Section of the Registry of Property of the Commonwealth in which such filings are required together with all required filing fees, taxes and all other expenses related to such filings. In addition, the Obligors operating in the Commonwealth shall have taken all action as the Agent may have requested in order to perfect the security interests created pursuant to the Puerto Rico Security Documents (to the extent not already taken pursuant to the Existing Credit Agreement). (b) NEW SUBSIDIARY GUARANTEE AND SECURITY AGREEMENT. The New Subsidiary Guarantee and Security Agreement, duly executed and delivered by each of Garrido, Guest Choice and the Agent and the certificates (if any) identified under the name of the respective parties thereto in Annex 1 thereto, in each case accompanied by undated stock powers executed in blank. In addition, each of Garrido and Guest Choice shall have taken such other action (including, without limitation, delivering to the Agent, for filing, appropriately completed and duly executed copies of Uniform Commercial Code - 92 - financing statements) as the Agent shall have requested in order to perfect the security interests created pursuant to the New Subsidiary Guarantee and Security Agreement (or, to the extent such filings have been effected pursuant to the Existing Credit Agreement, such amendments to such filings determined to be necessary or advisable by the Agent). (c) MORTGAGES. The following documents each of which shall be executed (and, where appropriate, acknowledged) by Persons satisfactory to the Agent: (i) one or more Mortgages covering the parcels of real Property of each of Garrido and Guest Choice identified in Schedule IV hereto (collectively, the "GARRIDO MORTGAGES"), in each case duly executed and delivered by Garrido or Guest Choice, as applicable, in recordable form and, to the extent necessary under applicable law, for filing in the appropriate county land offices, Uniform Commercial Code financing statements covering fixtures, in each case appropriately completed and duly executed; (ii) one or more mortgagee policies of title insurance on forms of and issued by one or more Title Companies, insuring the validity and priority of the Liens created under the Garrido Mortgages (except as identified in Schedule IV hereto) for and in amounts satisfactory to the Majority Lenders, subject only to such exceptions as are satisfactory to the Majority Lenders; (iii) current as-built surveys of each of the parcels identified in Schedule IV hereto to be covered by the Garrido Mortgages and, in the case of certain surveys identified in said Schedule IV, accompanied by a certificate of an appropriate officer or employee of the Company, which surveys shall be in form and content acceptable to the Agent and shall have been prepared by a registered surveyor acceptable to the Agent; - 93 - (iv) upon request of the Agent, certified copies of permanent and unconditional certificates of occupancy (or, if it is not the practice to issue certificates of occupancy in the jurisdiction in which the parcels to be covered by the Garrido Mortgages are located, then such other evidence reasonably satisfactory to each Lender) permitting the fully functioning operation and occupancy of each such facility and of such other permits necessary for the use and operation of each such facility issued by the respective governmental authorities having jurisdiction over each such facility; (v) upon request of the Agent, in the case of Garrido Mortgages covering leasehold interests, such estoppel, consents and other agreements from the lessor, the holder of a fee mortgage or a sublessee, as the Agent may reasonably request; (vi) upon request of the Agent, appraisals of each of the facilities located on the Properties covered by the Garrido Mortgages and identified in Schedule IV hereto prepared by a Person, and using a methodology, satisfactory to the Agent; and (vii) contemporaneously dated opinions of local counsel in the respective jurisdictions in which the properties covered by the Garrido Mortgages are located, substantially in the form of Exhibit F- 1 hereto (with such changes thereto as the Agent shall approve), and in each case, covering such other matters as the Agent may reasonably request (and each Obligor hereby instructs such counsel to deliver such opinion to the Lenders and the Agent). In addition, the Company shall have paid to the Title Companies all expenses and premiums of the Title Companies in connection with the issuance of such - 94 - policies and in addition shall have paid to the Title Companies an amount equal to the recording and stamp taxes payable in connection with recording the Garrido Mortgages in the appropriate jurisdictions. (d) GARRIDO FACTORS LIEN AGREEMENT. The Garrido Factors Lien Agreement, duly executed and delivered by the parties thereto. (e) PROCESS AGENT ACCEPTANCE. A letter from the Process Agent, in form and substance satisfactory to the Agent, accepting the appointment of the Process Agent by Garrido and Guest Choice as provided in Section 7.08 of the New Subsidiary Guarantee and Security Agreement. (f) INSURANCE. Certificates of insurance evidencing the existence of all insurance required to be maintained by Garrido and Guest Choice pursuant to Section 9.04 hereof and the designation of the Agent as the loss payee, or additional named insured thereunder. In addition, the Company shall have delivered a certificate of a Responsible Financial Officer of the Company stating that such insurance is in full force and effect and that all premiums then due and payable thereon have been paid. (g) OTHER DOCUMENTS. Such proof of corporate action, incumbency of officers, opinions of counsel and other documents relating to the foregoing as is consistent with those delivered pursuant to Section 7.01 hereof or as any Lender or the Agent may reasonably request. - 95 - 7.03 INITIAL AND SUBSEQUENT EXTENSIONS OF CREDIT. (a) The effectiveness of this Agreement (and the amendment and restatement of the Existing Credit Agreement to be effected thereby) and the obligation of the Lenders to make any Loan or otherwise extend any credit to the Company upon the occasion of each borrowing hereunder (including the borrowing on the Effective Date) are subject to the further conditions precedent that, both immediately prior to such effectiveness and to the making of such Loan or other extension of credit and also after giving effect thereto and to the intended use thereof: (i) no Default shall have occurred and be continuing; (ii) the representations and warranties made by the Company in Section 8 hereof, and by each Obligor in each of the other Loan Documents to which it is a party, shall be true and complete on and as of the date of such effectiveness or the date of the making of such Loan or other extension of credit, as the case may be, with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); and (iii) the aggregate principal amount of the Facility A Loans together with the aggregate amount of all Letter of Credit Liabilities shall not exceed the Borrowing Base reflected on the most recent Borrowing Base Certificate delivered under Section 9.01(f) (or, with respect to the Facility A Loans made prior to the delivery of the first such certificate thereunder, the Borrowing Base Certificate referred to in Section 7.01(c) hereof), PROVIDED that, if requested by the Majority Lenders or the Agent, the Company shall have delivered a Borrowing Base Certificate dated not more than 30 days prior to the date of such borrowing. Each notice of borrowing or request for the issuance of a Letter of Credit by the Company hereunder shall constitute a - 96 - certification by the Company to the effect set forth in the first sentence of this Section 7.03(a) (both as of the date of such notice and, unless the Company otherwise notifies the Agent prior to the date of such borrowing or issuance, as of the date of such borrowing or issuance). (b) The Agent shall have received (i) such Additional Puerto Rico Security Documents as shall be reasonably requested by the Agent in proper form for filing in the corresponding Section of the Registry of Property of the Commonwealth as are required from time to time pursuant to this Agreement and payment of all required filing fees, taxes and all other expenses related to such filings and (ii) an opinion of counsel for the Obligors in form and substance reasonably satisfactory to the Agent in connection with such Additional Puerto Rico Security Documents. Section 8. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Agent and the Lenders that (with respect to matters pertaining to itself and each of its Subsidiaries): 8.01 CORPORATE EXISTENCE. Each of the Company and its Subsidiaries: (a) is a corporation, partnership or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) has all requisite corporate or other power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could (either individually or in the aggregate) have a Material Adverse Effect. 8.02 FINANCIAL CONDITION. The Company has heretofore furnished to each of the Lenders the following: - 97 - (a) a pro forma unaudited consolidated balance sheet of the Company and its Subsidiaries (including Garrido and Guest Choice) as at January 1, 1996 and related pro forma consolidated statements of income, retained earnings and cash flows for the twelve-month period ending on December 31, 1996, in each case, prepared on the assumption that the Reorganization (as such term is defined in the Existing Credit Agreement), the Skinners Acquisition and the Garrido Acquisition and all other transactions contemplated hereby to occur at the same time had been effected, accompanied by a certificate of a Responsible Financial Officer of the Company to the effect that (i) all such financial statements fairly present the pro forma consolidated financial condition and results of operations of the Company, its Subsidiaries, Garrido and Guest Choice, all in accordance with generally accepted accounting principles and practices applied on a consistent basis, (ii) none of the Company or any of its Subsidiaries has on the date hereof any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in said balance sheet as at said date, and (iii) since January 1, 1996, there has been no material adverse change in the pro forma financial condition, operations, business or prospects of the Company, its Subsidiaries, Garrido and Guest Choice taken as a whole; (b) audited balance sheets of Garrido as at June 30, 1995 and 1994 and the related statements of income, retained earnings and cash flow of Garrido for the relevant fiscal period ended on each said date, with opinions thereon of KMPG Peat Marwick, and the unaudited balance sheet of Garrido as at March 31, 1996 and the related statements of income and retained earnings of Garrido for the quarterly period ended on said date; (c) unaudited consolidating balance sheets of the Company and its Subsidiaries as at March 31, 1996 or the most current quarterly financial statement required to be delivered prior to the Effective Date, and the related - 98 - consolidating statements of income, retained earnings and cash flow for the three-month period ended on said date; and (d) an audited consolidated balance sheet of the Company and its Subsidiaries as at December 31, 1995 and the related consolidated statements of income, retained earnings and cash flow of the Company and its Subsidiaries for the fiscal period ended on said date, with the opinion thereon of Deloitte Touche LLP and the unaudited consolidated balance sheet of the Company as at March 31, 1996 and the related consolidated statements of income and retained earnings and cash flow of the Company and its Subsidiaries for the quarterly period ended on said date. All such financial statements fairly present the respective actual or pro forma financial condition, as the case may be, of the respective entities as at the respective dates, and the respective actual or pro forma results of operations for the respective periods ended on said respective dates, all in accordance with generally accepted accounting principles and practices applied on a consistent basis. None of such respective entities has on the date hereof any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in the respective balance sheets referred to above. Since December 31, 1995 (with respect to the Company and each of its Subsidiaries (other than Garrido)) and since June 30, 1995 (with respect to Garrido), there has been no material adverse change in the respective actual or pro forma financial condition, operations, business or prospects of each such entity from that set forth in the respective financial statements as at such respective dates. 8.03 LITIGATION. Except as disclosed in Schedule V hereto, there are no legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or (to the knowledge of the Company) threatened against the Company or any of its Subsidiaries that, - 99 - if adversely determined could (either individually or in the aggregate) have a Material Adverse Effect. 8.04 NO BREACH. None of the execution and delivery of this Agreement and the Notes and the other Basic Documents, the consummation of the transactions herein and therein contemplated or compliance with the terms and provisions hereof and thereof will conflict with or result in a breach of, or require any consent under, the charter or by-laws of any Obligor, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them or any of their Property is bound or to which any of them is subject, or constitute a default under any such agreement or instrument, or (except for the Liens created pursuant to the Security Documents) result in the creation or imposition of any Lien upon any Property of the Company or any of its Subsidiaries pursuant to the terms of any such agreement or instrument. 8.05 ACTION. Each Obligor has all necessary corporate power, authority and legal right to execute, deliver and perform its obligations under each of the Basic Documents to which it is a party; the execution, delivery and performance by each Obligor of each of the Basic Documents to which it is a party have been duly authorized by all necessary corporate action on its part (including, without limitation, any required shareholder approvals); and this Agreement has been duly and validly executed and delivered by each Obligor and constitutes, and each of the Notes and the other Basic Documents to which it is a party when executed and delivered by such Obligor (in the case of the Notes, for value) will constitute, its legal, valid and binding obligation, enforceable against each Obligor in accordance with its terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Except with - 100 - respect to the Security Documents delivered pursuant to Section 7.02 hereof, each Security Document is effective to create in favor of the Agent for the benefit of the Lenders a legal, valid and enforceable first priority Lien upon all right, title and interest of the Obligor or Obligors party thereto in the Property described therein and such Lien has been perfected, except as otherwise permitted under Section 9.06 hereof or in such Security Document. With respect to the Security Documents delivered pursuant to Section 7.02 hereof, such Security Documents shall be effective to so create a Lien upon the execution thereof and such Lien shall be perfected upon the filing of such Security Document or other relevant instruments, or taking possession of such Property, in the manner and in the places required by applicable law, except as otherwise permitted under Section 9.06 hereof or in such Security Document. 8.06 APPROVALS. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency, or any securities exchange, are necessary for the execution, delivery or performance by any Obligor of the Basic Documents to which it is a party or for the legality, validity or enforceability hereof or thereof, except for filings and recordings in respect of the Liens created pursuant to the Security Documents. 8.07 USE OF CREDIT. None of the Company 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 the Loans hereunder will be used to buy or carry any Margin Stock. 8.08 ERISA. Each Plan, and, to the knowledge of the Company, each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law, and no event or condition has occurred and is continuing as to which the Company - 101 - would be under an obligation to furnish a report to the Lenders under Section 9.01(e) hereof. 8.09 TAXES. The Company and its Subsidiaries (other than the Obligors operating in the Commonwealth) are members of an affiliated group of corporations filing consolidated returns for Federal income tax purposes, of which the Company is the "common parent" (within the meaning of Section 1504 of the Code) of such group. The Company and its Subsidiaries have filed all Federal income tax returns and all other material tax returns that are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company or any of its Subsidiaries. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Company, adequate. The Company has not given or been requested to give a waiver of the statute of limitations relating to the payment of Federal, state, local and foreign taxes or other impositions. Neva Plastics and Suiza Fruit each hold industrial tax exemption grants entitling each of them to a 90% exemption from income and property taxes and a 60% exemption from municipal license taxes. The grant held by Neva Plastics will expire on August 31, 2000 for income tax purposes, on June 30, 2001 for municipal tax purposes and on January 1, 2000 for property tax purposes. The grant held by Suiza Fruit will expire on October 12, 2002 for income and property tax purposes and on June 30, 2003 for municipal license tax purposes. 8.10 INVESTMENT COMPANY ACT. Neither the Company nor any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 8.11 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company nor any of its Subsidiaries is a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. - 102 - 8.12 MATERIAL AGREEMENTS AND LIENS. (a) Part A of Schedule I hereto is a complete and correct list, as of the Effective Date, and after giving effect to the Garrido Acquisition, and the transactions contemplated hereunder to occur on such date, of each credit agreement, loan agreement, indenture, 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 Company or any of its Subsidiaries, 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 I. (b) Part B of Schedule I hereto is a complete and correct list, as of the Effective Date (and after giving effect to the Garrido Acquisition and transactions contemplated hereunder to occur on such date), of each Lien securing Indebtedness of any Person and covering any Property of the Company or any of its Subsidiaries that will continue after the Effective Date, and the aggregate Indebtedness secured (or that may be secured) by each such Lien and the Property covered by each such Lien is correctly described in Part B of said Schedule I. 8.13 ENVIRONMENTAL MATTERS. Each of the Company and its Subsidiaries has obtained all environmental, health and safety permits, licenses and other authorizations required under all Environmental Laws to carry on its business as now being or as proposed to be conducted, except to the extent failure to have any such permit, license or authorization would not (either individually or in the aggregate) have a Material Adverse Effect. Each of such permits, licenses and authorizations is in full force and effect and each of the Company and its Subsidiaries is in compliance with the terms and conditions thereof, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, - 103 - decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent failure to comply therewith would not (either individually or in the aggregate) have a Material Adverse Effect. In addition, except as to matters with respect to which the Company and its Subsidiaries could not reasonably be expected to incur liabilities in excess of $250,000 in the aggregate: (a) No notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or threatened by any governmental or other entity with respect to any alleged failure by the Company 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 Company 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 Company or any of its Subsidiaries. (b) Neither the Company nor any of its Subsidiaries owns, operates or leases a treatment, storage or disposal facility requiring a permit under the Resource Conservation and Recovery Act of 1976, as amended, or under any comparable state or local statute; and (i) no polychlorinated biphenyls (PCB's) is or has been present at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; (ii) no asbestos or asbestos-containing materials is or has been present at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; - 104 - (iii) there are no underground storage tanks, other than those disclosed in consultant reports provided to the Agent by the Company or its Subsidiaries, or surface impoundments for Hazardous Materials, active or abandoned, at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; (iv) no Hazardous Materials have been Released at, on or under any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries in a reportable quantity established by statute, ordinance, rule, regulation or order; and (v) no Hazardous Materials have been otherwise Released at, on or under any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries that would (either individually or in the aggregate) have a Material Adverse Effect. (c) Neither the Company nor any of its Subsidiaries has transported or arranged for the transportation of any Hazardous Material to any location that is listed on the National Priorities List ("NPL") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), listed for possible inclusion on the NPL by the Environmental Protection Agency in the Comprehensive Environmental Response and Liability Information System, as provided for by 40 C.F.R. Section 300.5 ("CERCLIS"), or on any similar state or local list or that is the subject of Federal, state or local enforcement actions or other investigations that may lead to Environmental Claims against the Company or any of its Subsidiaries. (d) No Hazardous Material generated by the Company or any of its Subsidiaries has been recycled, treated, stored, disposed of or Released by the Company or any of its - 105 - Subsidiaries at any location other than those listed in Schedule II hereto. (e) No oral or written notification of a Release of a Hazardous Material has been filed by or on behalf of the Company or any of its Subsidiaries and no site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries is listed or proposed for listing on the NPL, CERCLIS or any similar state list of sites requiring investigation or clean-up. (f) No Liens have arisen under or pursuant to any Environmental Laws on any site or facility owned, operated or leased by the Company or any of its Subsidiaries, and no government action has been taken or is in process that could subject any such site or facility to such Liens and neither the Company nor any of its Subsidiaries would be required to place any notice or restriction relating to the presence of Hazardous Materials at any site or facility owned by it in any deed to the real property on which such site or facility is located. (g) All environmental investigations, studies, audits, tests, reviews or other analyses conducted by or that are in the possession of the Company or any of its Subsidiaries in relation to facts, circumstances or conditions at or affecting any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries and that could result in a Material Adverse Effect have been made available to the Lenders. 8.14 CAPITALIZATION. As of the Effective Date (and after giving effect to the Garrido Acquisition and the other transactions contemplated hereunder to occur on such date), (a) the authorized capital stock of the Company consists of 21,000,000 shares, consisting of 20,000,000 shares of common stock, par value $0.01 per - 106 - share, and 1,000,000 shares of preferred stock, par value $0.01 per share; (b) the Company has 10,108,479 shares of issued and outstanding common stock, and all of such issued shares are duly and validly issued and outstanding and are not held in treasury; (c) the Company has no issued or outstanding preferred stock; (d) except for options to purchase 579,760 shares of common stock granted under the Company's Exchange Stock Option and Restricted Stock Plan and options to purchase up to 1,069,500 shares of common stock granted (637,078) or available (432,422) for future grants under the Company's 1995 Stock Option and Restricted Stock Plan, there are no outstanding Equity Rights with respect to the Company; and (e) there are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem, or otherwise acquire any shares of capital stock of the Company or any of its Subsidiaries or to make payments to any Person, such as "phantom stock" payments, where the amount thereof is calculated with reference to the fair market value or equity value of the Company or any of its Subsidiaries. - 107 - 8.15 SUBSIDIARIES, ETC. (a) Set forth in Part A of Schedule III hereto is a complete and correct list, as of the date hereof (and as of the Effective Date after giving effect to the transactions contemplated hereunder to occur on such date and after consummation of the Garrido Acquisition), of all of the Subsidiaries of the Company, together with, for each such 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 III hereto, (x) each of the Company 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 III 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 III hereto is a complete and correct list, as of the date of this Agreement (and as of the Effective Date after giving effect to the transactions contemplated hereunder to occur on such date and after consummation of the Garrido Acquisition), of all Investments (other than Investments disclosed in Part A of said Schedule III hereto) held by the Company or any of its Subsidiaries in any 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 III hereto, each of the Company and its Subsidiaries owns, free and clear of all Liens (other than Liens created pursuant to the Security Documents), all such Investments. (c) None of the Subsidiaries of the Company is, on the Effective Date, subject to any indenture, agreement, instrument - 108 - or other arrangement of the type described in Section 9.19(b) hereof. 8.16 TITLE TO ASSETS. The Company owns and has on the date hereof, and will own and have on the Effective Date, good and marketable title (subject only to Liens permitted by Section 9.06 hereof) to the Properties shown to be owned in the most recent financial statements referred to in Section 8.02 hereof (other than Properties disposed of in the ordinary course of business or otherwise permitted to be disposed of pursuant to Section 9.05 hereof). The Company owns and has on the date hereof, and will own and have on the Effective Date, good and marketable title to, and enjoys on the date hereof, and will enjoy on the Effective Date, peaceful and undisturbed possession of, all Properties (subject only to Liens permitted by Section 9.06 hereof) that are necessary for the operation and conduct of its businesses. 8.17 TRUE AND COMPLETE DISCLOSURE. The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of the Obligors to the Agent or any Lender in connection with the negotiation, preparation or delivery of this Agreement and the other Loan Documents or included herein or therein or delivered pursuant hereto or thereto, when taken as a whole do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. All written information furnished after the date hereof by the Company and its Subsidiaries to the Agent and the Lenders in connection with this Agreement and the other Loan Documents and the transactions contemplated hereby and thereby will be true, complete and accurate in every material respect, or (in the case of projections) based on reasonable estimates, on the date as of which such information is stated or certified. There is no fact known to the Company that could have a Material Adverse Effect that has not been disclosed herein, in the other Loan Documents or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to the Lenders for - 109 - use in connection with the transactions contemplated hereby or thereby. 8.18 REAL PROPERTY. Set forth on Schedule IV attached hereto is a list, as of the Effective Date (and after giving effect to the Garrido Acquisition), of all of the real property interests held by the Company and its Subsidiaries, indicating in each case whether the respective Property is owned or leased, the identity of the owner or lessee and the location of the respective Property. 8.19 SOLVENCY. As of the Effective Date and after giving effect to the initial extension of credit hereunder, the Garrido Acquisition and the other transactions contemplated hereby, (a) the aggregate value of all Properties of the Company and its Subsidiaries at their present fair saleable value (i.e., the amount that 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, conceiving the latter as the amount that could be obtained for the Property in question within such period by a capable and diligent businessman from an interested buyer who is willing to purchase under ordinary selling conditions), exceeds the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) of the Company and its Subsidiaries, (b) the Company and its Subsidiaries will not, on a consolidated basis, have unreasonably small capital with which to conduct their business operations as heretofore conducted and (c) the Company and its Subsidiaries will have, on a consolidated basis, sufficient cash flow to enable them to pay their debts as they mature. Section 9. COVENANTS OF THE COMPANY. The Company covenants and agrees with the Lenders and the Agent that, so long as any Commitment or Loan or Letter of Credit Liability is outstanding and until payment in full of all amounts payable by the Company hereunder: - 110 - 9.01 FINANCIAL STATEMENTS, ETC. The Company shall deliver, or shall cause to be delivered, to each of the Lenders: (a) as soon as available and in any event within 45 days after the end of each quarterly fiscal period of each fiscal year of the Company, consolidated and consolidating statements of income, retained earnings and cash flow of the Company and its Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such period, setting forth in each case in comparative form the corresponding consolidated and consolidating figures for the corresponding periods in the preceding fiscal year, accompanied by a certificate of a Responsible Financial Officer of the Company, which certificate shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company and its Subsidiaries, and said consolidating financial statements fairly present the respective individual unconsolidated financial condition and results of operations of the Company and of each of its Subsidiaries, in each case in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); (b) as soon as available and in any event within 90 days after the end of each fiscal year of the Company, consolidated and consolidating statements of income, retained earnings and cash flow of the Company and its Subsidiaries for such fiscal year and the related consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such fiscal year, setting forth in each case in comparative form the corresponding consolidated and consolidating figures for the preceding fiscal year, and accompanied (i) in the case of said consolidated statements and balance sheet of the - 111 - Company, by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company and its Subsidiaries as at the end of, and for, such fiscal year in accordance with generally accepted accounting principles, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default, and (ii) in the case of said consolidating statements and balance sheets, by a certificate of a Responsible Financial Officer of the Company, which certificate shall state that said consolidating financial statements fairly present the respective individual unconsolidated financial condition and results of operations of the Company and of each of its Subsidiaries, in each case in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such fiscal year; (c) promptly upon their becoming available, copies of all registration statements and regular periodic reports, if any, that the Company shall have filed with the Commission or any national securities exchange; (d) promptly upon mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; - 112 - (e) as soon as possible, and in any event within ten days after the Company knows or has reason to believe that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a Responsible Financial Officer of the Company setting forth details respecting such event or condition and the action, if any, that the Company or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by the Company or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (PROVIDED that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); and any request for a waiver under Section 412(d) of the Code for any Plan; (ii) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by the Company or an ERISA Affiliate to terminate any Plan; (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has - 113 - been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal from a Multiemployer Plan by the Company or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by the Company or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against the Company or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; and (vi) the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of tax-exempt status of the trust of which such Plan is a part if the Company or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections; (f) as soon as available and in any event within 10 Business Days after the end of each monthly accounting period of the Company (and from time to time as the Agent may reasonably request), a Borrowing Base Certificate as at the last day of such accounting period; (g) promptly after the Company knows or has reason to believe that any Default has occurred, a notice of such Default describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Company has taken or proposes to take with respect thereto; - 114 - (h) periodically at the request of the Majority Lenders (but, unless a Default shall have occurred and be continuing, no more frequently than once in any calendar year) and at the expense of the Company, a report of an independent collateral auditor (which may be, or be affiliated with, one of the Lenders) with respect to the Receivables and Inventory components included in the Borrowing Base as at the end of the latest fiscal quarter, which report shall indicate that, based upon a review by such auditors of the Receivables (including, without limitation, the verification with respect to the amount, aging, identity and credit of the respective account debtors and the billing practices of the Company and its Subsidiaries) and Inventory (including, without limitation, verification as to value, location and respective types), the information set forth in the Borrowing Base Certificate as at the end of such fiscal quarter is accurate and complete in all material respects; and in addition, as soon as available and in any event within 90 days after the end of each fiscal year of the Company, a like report of Deloitte Touche LLP or any other independent certified public accountants of recognized national standing with respect to the Receivables and Inventory components included in the Borrowing Base as at the end of such fiscal year; (i) promptly upon receipt thereof, copies of all management letters and other material reports which are submitted to the Board of Directors of the Company or any of its Subsidiaries by their independent certified public accountants in connection with any annual audit of the Company and/or any such Subsidiary by such accountants; (j) as soon as available and in any event on or before December 31 of each fiscal year, a budget for the next following fiscal year setting forth for each Subsidiary of the Company and for the Company and its Subsidiaries as a whole, anticipated income, expense and capital expenditure items for each quarter during such fiscal year, and - 115 - quarterly, concurrently with the delivery of the financial statements for such fiscal year pursuant to clause (a) above, a report setting forth a detailed comparison of actual performance to the budget referred to above; and (k) from time to time such other information regarding the financial condition, operations, business or prospects of the Company or any of its Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as any Lender or the Agent may reasonably request. The Company will furnish to each Lender, at the time it furnishes each set of financial statements pursuant to clause (b) above, a certificate of a Responsible Financial Officer of the Company (i) to the effect that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that the Company has taken or proposes to take with respect thereto) and (ii) setting forth in reasonable detail the computations necessary to determine whether the Company is in compliance with Sections 9.10, 9.11, 9.12, 9.13 and 9.14 hereof as of the end of the respective quarterly fiscal period or fiscal year. 9.02 LITIGATION. The Company will promptly give to each Lender notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, and any material development in respect of such legal or other proceedings, affecting the Company or any of its Subsidiaries, except proceedings that, if adversely determined, would not (either individually or in the aggregate) have a Material Adverse Effect. Without limiting the generality of the foregoing, the Company will give to each Lender notice of the assertion of any Environmental Claim by any Person against, or with respect to the activities of, the Company or any of its Subsidiaries and notice of any alleged violation of or non-compliance with any Environmental Laws or any permits, licenses or authorizations, other than any Environmental Claim or alleged violation that, if adversely determined, would not - 116 - (either individually or in the aggregate) have a Material Adverse Effect. 9.03 EXISTENCE, ETC. The Company will, and will cause each of its Subsidiaries to: (a) preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises (PROVIDED that nothing in this Section 9.03 shall prohibit any transaction expressly permitted under Section 9.05 hereof); (b) comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements could (either individually or in the aggregate) have a Material Adverse Effect; (c) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; (d) maintain all of its Properties used or useful in its business in good working order and condition, ordinary wear and tear excepted; (e) keep adequate records and books of account, in which complete entries will be made in accordance with generally accepted accounting principles consistently applied; and (f) permit representatives of any Lender or the Agent, during normal business hours, to examine, copy and make extracts from its books and records, to inspect any of its Properties, and to discuss its business and affairs with its - 117 - officers, all to the extent reasonably requested by such Lender or the Agent (as the case may be). 9.04 INSURANCE. The Company will, and will cause each of its Subsidiaries to, maintain insurance with financially sound and reputable insurance companies, and with respect to Property and risks of a character usually maintained by corporations engaged in the same or similar business similarly situated, against loss, damage and liability of the kinds and in the amounts customarily maintained by such corporations. The Company will in any event maintain (with respect to itself and each of its Subsidiaries): (1) Casualty Insurance -- insurance against loss or damage covering all of the tangible real and personal Property and improvements of the Company and each of its Subsidiaries by reason of any Peril (as defined below) in such amounts (subject to such deductibles as shall be satisfactory to the Majority Lenders) as shall be reasonable and customary and sufficient to avoid the insured named therein from becoming a co-insurer of any loss under such policy but in any event in an amount (i) in the case of fixed assets and equipment (including, without limitation, vehicles), at least equal to 100% of the actual replacement cost of such assets (including, without limitation, foundation, footings and excavation costs), subject to deductibles as aforesaid (PROVIDED that recovery limits may be applicable to losses caused by flood or earthquake) and (ii) in the case of inventory, not less than the fair market value thereof, subject to deductibles as aforesaid. (2) Automobile Liability Insurance for Bodily Injury and Property Damage -- insurance against liability for bodily injury and property damage in respect of all vehicles (whether owned, hired or rented by the Company or any of its Subsidiaries) at any time located at, or used in connection with, its Properties or operations in such amounts as are then customary for vehicles used in connection with similar - 118 - Properties and businesses, but in any event to the extent required by applicable law. (3) Comprehensive General Liability Insurance -- insurance against claims for bodily injury, death or Property damage occurring on, in or about the Properties (and adjoining streets, sidewalks and waterways) of the Company and its Subsidiaries, in such amounts as are then customary for Property similar in use in the jurisdictions where such Properties are located. (4) Workers' Compensation Insurance -- workers' compensation insurance (including, without limitation, Employers' Liability Insurance) to the extent required by applicable law. (5) Product Liability Insurance -- insurance against claims for bodily injury, death or Property damage resulting from the use of products sold by the Company or any of its Subsidiaries in such amounts as are then customarily maintained by responsible persons engaged in businesses similar to that of the Company and its Subsidiaries. (6) Business Interruption Insurance -- insurance against loss of operating income (up to an aggregate amount equal to $15,000,000 and subject to a deductible, or self-insured amount, not in excess of $500,000) by reason of any Peril. (7) Other Insurance -- such other insurance, including, without limitation, War-Risk Insurance when and to the extent obtainable from the United States Government, in each case as generally carried by owners of similar Properties in the jurisdictions where such Properties are located, in such amounts and against such risks as are then customary for Property similar in use. Such insurance shall be written by financially responsible companies selected by the Company and having an A. M. Best rating - 119 - of "A-" or better and being in a financial size category of VIII or larger, or by other companies acceptable to the Majority Lenders, and (other than workers' compensation) shall name the Agent as loss payee (to the extent covering risk of loss or damage to tangible property) and as an additional named insured as its interests may appear (to the extent covering any other risk). Each policy referred to in this Section 9.04 shall provide that it will not be canceled or reduced, or allowed to lapse without renewal, except after not less than 30 days' notice to the Agent and shall also provide that the interests of the Agent and the Lenders shall not be invalidated by any act or negligence of the Company or any Person having an interest in any Property covered by the Mortgages nor by occupancy or use of any such Property for purposes more hazardous than permitted by such policy nor by any foreclosure or other proceedings relating to such Property. The Company will advise the Agent promptly of any policy cancellation, reduction or amendment. On or before the Effective Date, the Company will deliver to the Agent certificates of insurance satisfactory to the Agent evidencing the existence of all insurance required to be maintained by the Company hereunder setting forth the respective coverages, limits of liability, carrier, policy number and period of coverage (and attaching original copies of any policies with respect to casualty insurance). Thereafter, each year the Company will deliver to the Agent certificates of insurance evidencing that all insurance required to be maintained by the Company hereunder will be in effect through the calendar year following the date of such certificates, subject only to the payment of premiums as they become due. In addition, the Company will not modify any of the provisions of any policy with respect to casualty insurance without delivering the original copy of the endorsement reflecting such modification to the Agent accompanied by (if requested by the Agent) a written report of a firm of independent insurance brokers of nationally recognized standing, stating that, in their opinion, such policy (as so modified) adequately protects the interests of the Lenders and the Agent, is in compliance with the provisions of this Section 9.04, and is comparable in all respects with insurance carried by responsible - 120 - owners and operators of Properties similar to those covered by the Mortgages. The Company will not obtain or carry separate insurance concurrent in form or contributing in the event of loss with that required by this Section 9.04 unless the Agent is the named insured thereunder, with loss payable as provided herein. The Company will immediately notify the Agent whenever any such separate insurance is obtained and shall deliver to the Agent the certificates evidencing the same. Without limiting the obligations of the Company under the foregoing provisions of this Section 9.04, in the event the Company shall fail to maintain in full force and effect insurance as required by the foregoing provisions of this Section 9.04, then the Agent may, but shall have no obligation so to do, procure insurance covering the interests of the Lenders and the Agent in such amounts and against such risks as the Agent (or the Majority Lenders) shall deem appropriate, and the Company shall reimburse the Agent in respect of any premiums paid by the Agent in respect thereof. For purposes hereof, the term "PERIL" shall mean, collectively, fire, lightning, flood, windstorm, hail, earthquake, explosion, riot and civil commotion, vandalism and malicious mischief, damage from aircraft, vehicles and smoke and all other perils covered by the "all-risk" endorsement then in use in the jurisdictions where the Properties of the Company and its Subsidiaries are located. 9.05 PROHIBITION OF FUNDAMENTAL CHANGES. (a) The Company will not, nor will it permit any of its Subsidiaries to, enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution). - 121 - (b) The Company will not, nor will it permit any of its Subsidiaries to, acquire any business or Property from, or capital stock of, or be a party to any acquisition of, any Person except: (i) for purchases of inventory and other Property to be sold or used in the ordinary course of business; (ii) Investments permitted under Section 9.08 hereof; (iii) Capital Expenditures permitted under Section 9.14 hereof; (iv) the acquisition of any capital stock, business or Property of any Person not exceeding (x) for the period from the day after the Effective Date to and including December 31, 1996, a purchase price (including, without limitation, non-cash compensation and the assumption of any additional Indebtedness to the extent permitted under Section 9.07 hereof) of $12,500,000 in the aggregate and (y) thereafter, $5,000,000 in a single transaction (or a series of related transactions), $10,000,000 in the aggregate for any fiscal year and $25,000,000 in the aggregate (including any acquisitions made in the period from the day after the Effective Date to and including December 31, 1996), PROVIDED that at the time of such acquisition no Default shall have occurred and be continuing, and PROVIDED further that any future earn-out payments in connection with any such acquisition shall be counted at the time such earn-out payment is made in determining whether the dollar limitations contained in this clause (iv) have been exceeded; and (v) the Garrido Acquisition in accordance with the terms of the Garrido Purchase Agreement and for a purchase price not exceeding $37,000,000 (excluding up to $5,500,000 in future earn-out payments and $10,625,000 for tax credit sharing, if any), PROVIDED that such acquisition shall be - 122 - consummated prior to July 31, 1996 and such earn-out payments shall be made prior to April 30, 1998. (c) The Company will not, nor will it permit any of its Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, any part of its business or Property, whether now owned or hereafter acquired (including, without limitation, receivables and leasehold interests), but excluding: (i) any Excluded Disposition; (ii) obsolete or worn-out Property, tools or equipment no longer used or useful in its business (other than any Excluded Disposition) or real Property no longer used or useful in its business so long as the aggregate amount thereof sold in any single fiscal year by the Company and its Subsidiaries shall not have a fair market value in excess of $500,000; and (iii) any inventory or other Property sold or disposed of in the ordinary course of business and on ordinary business terms. (d) Notwithstanding the foregoing provisions of this Section 9.05, so long as no Default shall have occurred and be continuing, and after giving effect to any of the succeeding transactions, no Default would exist hereunder: (i) any Subsidiary of the Company may be merged or consolidated with or into: (x) the Company if the Company shall be the continuing or surviving corporation or (y) any other such Subsidiary; and (ii) any Subsidiary of the Company may sell, lease, transfer or otherwise dispose of any or all of its Property (upon voluntary liquidation or otherwise) to the Company or a Subsidiary of the Company. - 123 - 9.06 LIMITATION ON LIENS. The Company will not, nor will it permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired, except: (a) Liens created pursuant to the Security Documents; (b) Liens in existence on the date hereof and listed in Part B of Schedule I hereto; (c) Liens imposed by any governmental authority for taxes, assessments or charges not yet delinquent or that are being contested in good faith and by appropriate proceedings if, unless the amount thereof is not material with respect to it or its financial condition, adequate reserves with respect thereto are maintained on the books of the Company or the affected Subsidiaries, as the case may be, in accordance with GAAP; (d) carriers', warehousemen's, mechanics', materialmen's, landlord's, repairmen's or other like Liens arising in the ordinary course of business that are not overdue for a period of more than 30 days or that are being contested in good faith and by appropriate proceedings; (e) Liens securing judgments but only to the extent for an amount and for a period not resulting in an Event of Default under Section 10(i) hereof; (f) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (g) deposits or pledges to secure the performance of bids, trade contracts (other than for Indebtedness), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; - 124 - (h) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of Property or minor imperfections in title thereto that, in the aggregate, are not material in amount, and that do not in any case materially detract from the value of the Property subject thereto or interfere with the ordinary conduct of the business of the Company or any of its Subsidiaries; (i) Liens upon tangible personal Property acquired after the date hereof (by purchase, construction or otherwise), or upon other property acquired after the date hereof as a Capital Expenditure, by the Company or any of its Subsidiaries, each of which Liens either (A) existed on such Property before the time of its acquisition and was not created in anticipation thereof or (B) was created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost of such Property; PROVIDED that (i) no such Lien shall extend to or cover any Property of the Company or such Subsidiary other than the Property so acquired, (ii) the principal amount of Indebtedness secured by any such Lien shall at no time exceed the fair market value (as determined in good faith by a Responsible Financial Officer of the Company) of such Property at the time it was acquired, and (iii) the principal amount of all Indebtedness (other than Indebtedness permitted by Section 9.07(e) hereof) secured by such Liens shall not exceed $500,000 in the aggregate; (j) Liens upon real Property heretofore leased or leased after the date hereof (under operating or capital leases) in the ordinary course of business by the Company or any of its Subsidiaries in favor of the lessor created at the inception of the lease transaction, securing obligations of the Company or any of its Subsidiaries under or in respect of such lease and extending to or covering only the Property subject to such lease and improvements thereon; - 125 - (k) Liens of sellers or creditors of sellers of farm products encumbering such farm products when sold to any of the Obligors pursuant to the Food Security Act of 1985 or pursuant to similar state laws to the extent such Liens may be deemed to extend to the assets of such Obligors; (l) protective Uniform Commercial Code filings with respect to personal Property leased by any Obligor; and (m) any extension, renewal or replacement of the foregoing, PROVIDED, however, that the Liens permitted hereunder shall not be spread to cover any additional Indebtedness or Property. 9.07 INDEBTEDNESS. The Company will not, nor will it permit any of its Subsidiaries to, create, incur or suffer to exist any Indebtedness except: (a) Indebtedness to the Lenders hereunder and under the other Loan Documents; (b) the Subordinated Indebtedness (but not any replacement, renewal, refunding, refinancing or extension thereof); (c) Indebtedness outstanding on the date hereof and listed in Part A of Schedule I hereto; (d) Indebtedness of Subsidiaries of the Company to the Company or to other Subsidiaries of the Company or of the Company to any of its Subsidiaries to the extent permitted under Section 9.08(g) hereof; (e) Indebtedness (including Capital Lease Obligations) incurred to finance the purchase of equipment, and other Capital Lease Obligations, not to exceed $3,750,000 in the aggregate outstanding at any time; and - 126 - (f) additional Indebtedness of the Company and its Subsidiaries up to but not exceeding $1,000,000 at any one time outstanding. 9.08 INVESTMENTS. The Company will not, nor will it permit any of its Subsidiaries to, make or permit to remain outstanding any Investments except: (a) Investments outstanding as of the Effective Date and identified in Part B of Schedule III hereto (including, without limitation, Indebtedness of any Subsidiary of the Company to the Company or any other Subsidiary of the Company); (b) operating deposit accounts with depository institutions; (c) Permitted Investments; (d) Interest Rate Protection Agreements entered into pursuant to Section 9.15 hereof; (e) the Garrido Acquisition; (f) Investments by the Company in the capital stock of its Subsidiaries to the extent outstanding as of the Effective Date; (g) Investments (other than of a type specified in clause (f) above and other than the Investments permitted under clause (a) above) by the Company in its Subsidiaries or by any Subsidiary of the Company in the Company or any other Subsidiary of the Company made after the Effective Date not exceeding $10,000,000 at any time outstanding (MINUS (without duplication) the aggregate principal amount of Indebtedness outstanding under Section 9.07(d) hereof); (h) Loans and advances to employees up to but not exceeding $500,000 in the aggregate; - 127 - (i) deposits to secure bids, tenders, utilities, vendors, leases, statutory obligations, surety and appeal bonds and other deposits of like nature arising in the ordinary course of business not exceeding $250,000 in the aggregate; (j) additional Investments up to but not exceeding $500,000 in the aggregate; (k) any guarantees permitted under Section 9.07 hereof; and (l) Investments permitted under Section 9.05(b) hereof. 9.09 RESTRICTED PAYMENTS. (a) DIVIDEND PAYMENTS. The Company will not, nor will it permit any of its Subsidiaries to, declare or make any Dividend Payment at any time, PROVIDED that the Company may redeem or retire shares of its common stock from any of its officers in connection with his or her voluntary departure, dismissal, retirement or death, PROVIDED that (i) at the time of such redemption or retirement no Default shall have occurred and be continuing and (ii) the aggregate amount of all cash paid in respect of all such shares so redeemed or repurchased does not exceed $500,000 in any fiscal year. Nothing herein shall be deemed to prohibit the payment of dividends by any Subsidiary of the Company to the Company or any other Subsidiary of the Company. (b) MANAGEMENT FEES. The Company will not, nor will it permit any of its Subsidiaries to, accrue or pay any Management Fees to any Person (including, without limitation, any Affiliates), PROVIDED that, so long as no Default shall have occurred and be continuing or would result therefrom, the Company may make payments to Robert L. Kaminski not exceeding $150,000 in any fiscal year. - 128 - 9.10 LEVERAGE RATIOS. (a) The Company will not permit the Leverage Ratio to exceed the following respective ratios at any time during the following respective periods: Period Ratio ------ ----- From the Effective Date through and including June 29, 1997 4.25 to 1 From June 30, 1997 through and including June 29, 1998 3.75 to 1 From June 30, 1998 through and including June 29, 1999 3.25 to 1 From June 30, 1999 and at all times thereafter 2.75 to 1 (b) The Company will not permit the Senior Leverage Ratio to exceed the following respective ratios at any time during the following respective periods: Period Ratio ------ ----- From the Effective Date through and including June 29, 1997 3.25 to 1 From June 30, 1997 through and including June 29, 1998 2.50 to 1 - 129 - From June 30, 1998 through and including June 29, 1999 2.25 to 1 From June 30, 1999 and at all times thereafter 2.00 to 1 9.11 MINIMUM NET WORTH. The Company will not permit its Net Worth (i) for the period from the Effective Date to and including December 31, 1996 to be less than $40,000,000 and (ii) for each fiscal year thereafter, to be less than $40,000,000 plus 50% of net income for all preceding fiscal years (without including the results of any fiscal year in respect of which there was a net loss) commencing with the fiscal year beginning January 1, 1996. The amounts of Net Worth set forth above shall be increased by 75% of the amount by which the "total stockholders equity" of the Company is increased as a result of any public or private offering of common stock of the Company. Promptly upon consummation of each such public or private offering, the Company shall notify the Agent in writing of the amount of such increase in total stockholders equity. 9.12 FIXED CHARGES RATIO. The Company will not permit the Fixed Charges Ratio to be less than 1.05 to 1 at any time. 9.13 INTEREST COVERAGE RATIOS. (a) The Company will not permit the Interest Coverage Ratio to be less than the following respective ratios at any time during the following respective periods: Period Ratio ------ ----- From the Effective Date through and including June 29, 1997 2.20 to 1 - 130 - From June 30, 1997 through and including June 29, 1998 2.40 to 1 From June 30, 1998 through and including June 29, 1999 2.75 to 1 From June 30, 1999 through and including June 29, 2000 3.25 to 1 From June 30, 2000 and at all times thereafter 3.75 to 1 (b) The Company will not permit the Senior Interest Coverage Ratio to be less than the following respective ratios at any time during the following respective periods: Period Ratio ------ ----- From the Effective Date through and including June 29, 1997 3.50 to 1 From June 30, 1997 through and including June 29, 1998 3.75 to 1 From June 30, 1998 through and including June 29, 1999 4.00 to 1 From June 30, 1999 through and including June 29, 2000 4.50 to 1 - 131 - From June 30, 2000 and at all times thereafter 5.00 to 1 9.14 CAPITAL EXPENDITURES. The Company will not permit the aggregate amount of Capital Expenditures by the Company and its Subsidiaries to exceed the following respective amounts for the following respective periods: Period Amount ------ ------ From January 1, 1996 $10,000,000 through and including December 31, 1996 From January 1, 1997 $10,000,000 through and including December 31, 1997 From January 1, 1998 $11,000,000 through December 31, 1998, and for each fiscal year thereafter If the aggregate amount of Capital Expenditures for any period set forth in the schedule above shall be less than the amount set forth opposite such period in the schedule above, then 50% of the shortfall shall be added to the amount of Capital Expenditures permitted for the immediately succeeding period (but not any other) period and, for the purposes hereof, the amount of Capital Expenditures made during any period shall be deemed to have been made first from the permitted amount for such period set forth in the schedule above and last from the amount of any carryover from any previous period. Notwithstanding the foregoing, in addition to the Capital Expenditures permitted to be incurred as provided above the Company may make the following additional Capital Expenditures: (a) the acquisition of replacement Property in respect of an Excluded Disposition; (b) the purchase price paid by the Company or any of its Subsidiaries in respect of any - 132 - acquisition permitted under Section 9.05(b)(iv) hereof; (c) Capital Expenditures not exceeding $6,000,000 during the period from and after the Closing Date to and including December 31, 1996 in respect of the expansion by Velda Farms of its facilities at Winter Haven, Miami, Jacksonville and/or St. Petersburg, Florida; (d) Capital Expenditures made with the proceeds of property or casualty insurance for the purposes of repairing or replacing damaged or destroyed fixed or capital assets; and (e) any acquisition permitted under Section 9.05(b)(v) hereof. 9.15 INTEREST RATE PROTECTION AGREEMENTS. The Company shall maintain in full force and effect the Interest Rate Protection Agreements existing as of the Effective Date as described in Section 7.01(s) hereof until the stated expiration date thereof. The Company further agrees to provide to the Agent on or before May 17, 1997 evidence that it has in full force and effect Interest Rate Protection Agreements in form and substance satisfactory to the Agent that enable the Company to protect against floating interest rates as to a notional principal amount at least equal to 50% of the maximum aggregate principal amount of the Facility B Loans outstanding from time to time during the period from May 17, 1997 to and including July 31, 1999. 9.16 LINES OF BUSINESS. Neither the Company nor any of its Subsidiaries will engage to any substantial extent in any line or lines of business activity other than operations involved in the manufacture, processing or distribution of ice, ice-related products, coffee or dairy products, or the lines of business conducted by the Company or any of its Subsidiaries as of the Effective Date. 9.17 TRANSACTIONS WITH AFFILIATES. Except as expressly permitted by this Agreement, the Company will not, nor will it permit any of its Subsidiaries to, directly or indirectly: (a) make any Investment in an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any Property to an Affiliate; (c) merge into or consolidate with or purchase or acquire Property from an Affiliate; or (d) enter into any other transaction directly or indirectly with or for the - 133 - benefit of an Affiliate (including, without limitation, Guarantees and assumptions of obligations of an Affiliate); PROVIDED that (i) any Affiliate who is an individual may serve as a director, officer or employee of the Company or any of its Subsidiaries and receive reasonable compensation for his or her services in such capacity and (ii) the Company and its Subsidiaries may enter into transactions (other than extensions of credit by the Company or any of its Subsidiaries to an Affiliate) if the monetary or business consideration arising therefrom would be substantially as advantageous to the Company and its Subsidiaries as the monetary or business consideration that would obtain in a comparable transaction with a Person not an Affiliate. 9.18 USE OF PROCEEDS. The Company will use the proceeds of (a) the Facility A Loans and the Facility B Loans to be made hereunder on the Effective Date solely to repay loans under the Existing Credit Agreement and to finance the Garrido Acquisition and to pay transaction costs related thereto and otherwise for working capital or other general corporate purposes and (b) the Facility A Loans to be made at any time after the Effective Date solely for working capital or other general corporate purposes (including, without limitation, to finance acquisitions permitted under Section 9.05(b)(iv) and (v) hereof). The Company will use the proceeds of all Loans hereunder in compliance with all applicable legal and regulatory requirements. Neither the Agent nor any Lender shall have any responsibility as to the use of any of such proceeds. - 134 - 9.19 CERTAIN OBLIGATIONS RESPECTING SUBSIDIARIES; ADDITIONAL MORTGAGED PROPERTIES. (a) The Company will, and will cause each of its Subsidiaries to, take such action from time to time as shall be necessary to ensure that each of its Subsidiaries is a Wholly Owned Subsidiary. In the event that any additional shares of stock shall be issued by any Subsidiary, the respective Obligor agrees forthwith to deliver to the Agent pursuant to the relevant Security Document the certificates evidencing such shares of stock, accompanied by undated stock powers executed in blank and to take such other action as the Agent shall request to perfect the security interest created therein pursuant to such Security Document. (b) The Company will not permit any of its Subsidiaries to enter into, after the date of this Agreement, any indenture, agreement, instrument or other arrangement that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the incurrence or payment of Indebtedness, the granting of Liens, the declaration or payment of dividends, the making of loans, advances or Investments or the sale, assignment, transfer or other disposition of Property. (c) The Company 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 all Subsidiaries of the Company are party to, as obligors, the Existing Subsidiary Guarantee and Security Agreement or the New Subsidiary Guarantee and Security Agreement. Without limiting the generality of the foregoing, in the event that the Company or any of its Subsidiaries shall form or acquire any new Subsidiary, the Company or the respective Subsidiary will cause such new Subsidiary to (i) become a party to the Existing Subsidiary Guarantee and Security Agreement or the New Subsidiary Guarantee and Security Agreement pursuant to a written instrument in form and substance satisfactory to the Agent, (ii) if requested by the Majority Lenders, cause such new Subsidiary to execute and - 135 - deliver one or more Mortgages, in substantially the form of Exhibits D-1 or D-2 hereto (with such changes thereto as the Agent may reasonably request), covering the real Property and/or fixtures of such Subsidiary, and (iii) to deliver such proof of corporate action, incumbency of officers, opinions of counsel and other documents relating to the foregoing as is consistent with those delivered by each Obligor pursuant to Section 7.01 hereof upon the Effective Date or pursuant to Section 7.01 of the Existing Credit Agreement upon the Closing Date, as the case may be, or as any Lender or the Agent shall have reasonably requested. (d) Without affecting the obligations of the Company under any provision prohibiting such action hereunder, in the event that the Company or any of its Subsidiaries shall acquire any business or Property after the Effective Date, the Company shall, or shall cause such Subsidiary to (i) if requested by the Majority Lenders, execute and deliver one or more Mortgages, substantially in the form of Exhibits D-1 or D-2 hereto (with such changes as the Agent may reasonably request), covering the real property and/or fixtures so acquired, (ii) execute and deliver to the Agent for filing, appropriately completed Uniform Commercial Code financing statements or other filings or instruments as the Agent shall request in order to perfect the security interest in favor of the Agent for the benefit of the Lenders in such Property so acquired and (iii) deliver such proof of corporate action, incumbency of officers, opinions of counsel and other documents relating to the foregoing as is consistent with those delivered by each Obligor pursuant to Section 7.01 hereof upon the Effective Date or pursuant to Section 7.01 of the Existing Credit Agreement upon the Closing Date, as the case may be, or as any Lender or the Agent shall have reasonably requested. 9.20 MODIFICATIONS OF CERTAIN DOCUMENTS. Except in connection with any transaction expressly permitted hereunder, the Company will not, nor will it permit any of its Subsidiaries to, consent to any modification, supplement or waiver of any of the provisions of the Garrido Purchase Agreement or any - 136 - agreement, instrument or other document evidencing or relating to the charter or by-laws of the Company or any of its Subsidiaries, in each case, without the prior consent of the Agent (with the approval of the Majority Lenders). Without limiting the requirement for consent as provided in the immediately preceding sentence, the Company will furnish to the Agent a copy of each such modification, supplement or waiver promptly upon the effectiveness thereof (and the Agent will promptly furnish a copy thereof to each Lender). 9.21 FURTHER ASSURANCES. (a) The Company shall deliver to the Agent within 60 days after the Effective Date appraisals of each of the facilities located on the Properties owned by Garrido or Guest Choice, which appraisals shall be satisfactory to the Majority Lenders. (b) As and to the extent requested from time to time by the Agent or the Majority Lenders, each Obligor operating in the Commonwealth will grant to the Agent, for the benefit of the Lenders, a Lien in respect of any Property acquired by such Obligor operating in the Commonwealth after the Effective Date and not otherwise covered by the Puerto Rico Security Documents (collectively, the "ADDITIONAL PUERTO RICO SECURITY DOCUMENTS"). Such Lien shall be granted pursuant to documentation reasonably satisfactory in form and substance to the Agent and shall constitute valid and enforceable perfected liens superior to and prior to the rights of all other Persons and subject to no other Liens except for the Liens permitted pursuant to Section 9.06 hereof. The Additional Puerto Rico Security Documents or other instruments related thereto shall be duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Agent for the benefit of the Lenders required to be granted pursuant to the Additional Puerto Rico Security Documents and all taxes, fees and other charges payable in connection therewith shall be paid in full. - 137 - 9.22 SUBORDINATED INDEBTEDNESS. (a) Neither the Company nor any of its Subsidiaries will purchase, redeem, retire or otherwise acquire for value, or set apart any money for a sinking, defeasance or other analogous fund for the purchase, redemption, retirement or other acquisition of, or make any payment or prepayment of the principal of or interest on, or any other amount owing in respect of, any Subordinated Indebtedness, except: (i) for regularly scheduled payments of principal and interest (including post-default interest) in respect thereof required pursuant to the instruments evidencing such Subordinated Indebtedness (and permitted to be made at the time of payment thereof pursuant to the Subordination Agreement); (ii) the payment or reimbursement of expenses in connection with the negotiation, execution, delivery and administration and/or the supervision of, and any permitted amendment or waiver of, the Subordinated Debt Documents, all in accordance with Section 14 of the Subordinated Note Purchase Agreement, but excluding expenses, fees or other amounts relating to the exercise of any rights or remedies or the taking of any enforcement action by the holders of any Subordinated Indebtedness under or in respect of any Subordinated Debt Document or any restructuring, refinancing or workout or similar transaction relating thereto; and (iii) that the Company may redeem or prepay the Subordinated Indebtedness, in whole or in part, pursuant to Section 7.2 of the Subordinated Note Purchase Agreement from the proceeds of a Public Offering by the Company after the Effective Date, PROVIDED that (i) at the time of such redemption or prepayment, and at the time any notice with respect thereto shall be required to be given pursuant to the Subordinated Debt Documents, no Default shall have occurred and be continuing and (ii) any proceeds of such offering that remain unapplied after such redemption or prepayment shall be applied pursuant to Section 2.09(d) hereof. For purposes of this Section 9.22(a), "PUBLIC OFFERING" shall mean a registered public offering under the Securities Act of 1933, as amended, of capital stock of the Company. - 138 - (b) The Company will not, nor will it permit any of its Subsidiaries to, consent to any modification, supplement or waiver of any of the provisions of the Subordinated Debt Documents without the prior consent of the Agent (with the approval of the Majority Lenders), except for any such modification, supplement or waiver which does not require such consent under the express terms of the Subordination Agreement; PROVIDED, however, that prior to entering into any modification, supplement or waiver of the Subordinated Debt Documents the Company shall give the Agent not less than 10 Business Days prior notice thereof furnishing the Agent with a copy of the proposed amendment, modification or waiver. Section 10. EVENTS OF DEFAULT. If one or more of the following events (herein called "EVENTS OF DEFAULT") shall occur and be continuing: (a) The Company shall: (i) default in the payment of any principal of any Loan when due (whether at stated maturity or at mandatory prepayment); or (ii) default in the payment of any interest on any Loan or Reimbursement Obligation, any fee or any other amount payable by it hereunder or under any other Loan Document when due and such default shall have continued unremedied for three or more Business Days; or (b) The Company or any of its Subsidiaries shall default in the payment when due of any principal of or interest on any of its other Indebtedness aggregating $500,000 or more, or in the payment when due of any amount under any Interest Rate Protection Agreement; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness or any event specified in any Interest Rate Protection Agreement shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to - 139 - be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity or to have the interest rate thereon reset to a level so that securities evidencing such Indebtedness trade at a level specified in relation to the par value thereof or, in the case of an Interest Rate Protection Agreement, to permit the payments owing under such Interest Rate Protection Agreement to be liquidated; or (c) Any representation, warranty or certification made or deemed made herein or in any other Loan Document (or in any modification or supplement hereto or thereto) by any Obligor, or any certificate furnished to any Lender or the Agent pursuant to the provisions hereof or thereof, shall prove to have been false or misleading as of the time made or furnished in any material respect; or (d) The Company shall default in the performance of any of its obligations under any of Sections 9.01(f), 9.01(g), 9.05, 9.06, 9.07, 9.08, 9.09, 9.10, 9.11, 9.12, 9.13, 9.14, 9.15, 9.16, 9.17, 9.19, 9.21 or 9.22 hereof; or the Company shall default in the performance of any of its other obligations in this Agreement and such default shall continue unremedied for a period of 30 or more days after notice thereof to the Company by the Agent or any Lender (through the Agent); or (e) The Company shall default in the performance of any of its obligations under Section 4.02 of the Security Agreement; any Obligor party to the Existing Subsidiary Guarantee and Security Agreement or the New Subsidiary Guarantee and Security Agreement shall default in the performance of any of its obligations under Section 2 or 5.02 thereof; or any Obligor shall default in the performance of any of its other obligations in any Loan Document (other than this Agreement) to which it is party and such default shall continue unremedied for a period of 30 or more days after notice thereof to the Company by the Agent or any Lender (through the Agent); or - 140 - (f) The Company or any of its Subsidiaries shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (g) The Company or any of its Subsidiaries shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its Property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code (or such similar laws) or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (h) A proceeding or case shall be commenced, without the application or consent of the Company or the relevant Subsidiary affected thereby, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of the Company or such Subsidiary, as the case may be, or of all or any substantial part of its Property, or (iii) similar relief in respect of such Company or such Subsidiary, as the case may be, under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against the Company - 141 - or any of its Subsidiaries shall be entered in an involuntary case under the Bankruptcy Code; or (i) A final judgment or judgments for the payment of money in excess of $500,000 in the aggregate (exclusive of judgment amounts fully bonded or covered by insurance where the surety or the insurer, as the case may be, has admitted liability in respect of such judgment) shall be rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against the Company or any of its Subsidiaries and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Company or any such Subsidiary, as the case may be, shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (j) An event or condition specified in Section 9.01(e) hereof shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, the Company or any ERISA Affiliate shall incur or shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) that, in the determination of the Majority Lenders, would (either individually or in the aggregate) have a Material Adverse Effect; or (k) A reasonable basis shall exist for the assertion against the Company or any of its Subsidiaries, or any predecessor in interest of the Company or any of its Subsidiaries, of (or there shall have been asserted against the Company or any of its Subsidiaries) an Environmental Claim that, in the judgment of the Majority Lenders, is reasonably likely to be determined adversely to the Company or any of its Subsidiaries, and the amount thereof (either - 142 - individually or in the aggregate) is reasonably likely to have a Material Adverse Effect (insofar as such amount is payable by the Company or any of its Subsidiaries but after deducting any portion thereof that is reasonably expected to be paid by other creditworthy Persons jointly and severally liable therefor); or (l) Mr. Gregg L. Engles ("ENGLES") shall at any time cease to own beneficially at least 75% of that number of shares of common stock of the Company held by him as of June 1, 1996 (as adjusted to take into account any subsequent stock split, stock dividend or other form of recapitalization); or any of the Subsidiaries of the Company shall cease to be a Wholly Owned Subsidiary of the Company; or during any period of 25 consecutive calendar months, a majority of the Board of Directors of the Company shall no longer be composed of individuals (i) who were members of said Board on the first day of such period, (ii) whose election or nomination to said Board was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of said Board or (iii) whose election or nomination to said Board was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of said Board; or any Person or group of Persons acting in concert, other than Engles or any other shareholder of the Company as of the Effective Date, shall at any time own or control, directly or indirectly, 30% or more of such voting capital stock; or (m) The Liens created by the Security Documents shall at any time not constitute a valid and perfected Lien on any material portion of the collateral intended to be covered thereby (to the extent perfection by filing, registration, recordation or possession is required herein or therein) in favor of the Agent, free and clear of all other Liens (other than Liens permitted under Section 9.06 hereof or under the respective Security Documents), or, except for expiration in accordance with its terms, any of the Security Documents - 143 - shall for whatever reason be terminated or cease to be in full force and effect, or the enforceability thereof shall be contested by any Obligor; or (n) The Company shall fail to satisfy the conditions set forth in Section 7.02 hereof on or before August 12, 1996. THEREUPON: (1) in the case of an Event of Default other than one referred to in clause (g) or (h) of this Section 10 with respect to any Obligor, the Agent may (and, if requested by the Majority Lenders shall), by notice to the Company, terminate the Commitments and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans, the Reimbursement Obligations and all other amounts payable by the Obligors hereunder, under the other Loan Documents and under the Notes (including, without limitation, any amounts payable under Section 5.05 or 5.08 hereof) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by each Obligor; and (2) in the case of the occurrence of an Event of Default referred to in clause (g) or (h) of this Section 10 with respect to any Obligor, the Commitments shall automatically be terminated and the principal amount then outstanding of, and the accrued interest on, the Loans, the Reimbursement Obligations and all other amounts payable by the Company hereunder and under the Notes (including, without limitation, any amounts payable under Section 5.05 or 5.08 hereof) shall automatically become immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by each Obligor. In addition, upon the occurrence and during the continuance of any Event of Default (if the Agent has declared the principal amount then outstanding of, and accrued interest on, the Loans, the Reimbursement Obligations and all other amounts payable by the Company hereunder and under the Notes to be due and payable), the Company agrees that it shall, if - 144 - requested by the Agent or the Majority Lenders through the Agent (and, in the case of any Event of Default referred to in clause (g) or (h) of this Section 10 with respect to the Company, forthwith, without any demand or the taking of any other action by the Agent or such Lenders) provide cover for the Letter of Credit Liabilities by paying to the Agent immediately available funds in an amount equal to the then aggregate undrawn face amount of all Letters of Credit, which funds shall be held by the Agent in the Collateral Account as collateral security in the first instance for the Letter of Credit Liabilities and be subject to withdrawal only as therein provided. - 145 - Section 11. THE AGENT. 11.01 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to the Agent by the terms of this Agreement and of the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 11.05 and the first sentence of Section 11.06 hereof shall include reference to its affiliates and its own and its affiliates' officers, directors, employees and agents): (a) shall have no duties or responsibilities except those expressly set forth in this Agreement and in the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee for any Lender; (b) shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement or in any other Loan Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Loan Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, any Note or any other Loan Document or any other document referred to or provided for herein or therein or for any failure by the Company or any other Person to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Loan Document; and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other Loan Document or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. The Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a notice of the assignment or transfer thereof shall have been filed with the Agent. - 146 - 11.02 RELIANCE BY AGENT. The Agent shall be entitled to rely upon any certification, notice or other communication (including, without limitation, any thereof by telephone, telecopy, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. As to any matters not expressly provided for by this Agreement or any other Loan Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Majority Lenders or, if provided herein, in accordance with the instructions given by all of the Lenders as is required in such circumstance, and such instructions of such Lenders and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. 11.03 DEFAULTS. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default unless the Agent has received notice from a Lender or any Obligor specifying such Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default, the Agent shall give prompt notice thereof to the Lenders. The Agent shall (subject to Section 11.07 hereof) take such action with respect to such Default as shall be directed by the Majority Lenders, PROVIDED that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such 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 Majority Lenders, or all of the Lenders. 11.04 RIGHTS AS A LENDER. With respect to its Commitments and the Loans made by it, Chase (and any successor acting as Agent) in its capacity as a Lender hereunder shall have - 147 - the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. Chase (and any successor acting as Agent) and its affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make investments in and generally engage in any kind of banking, trust or other business with the Obligors (and any of their Subsidiaries or Affiliates) as if it were not acting as the Agent, and Chase and its affiliates may accept fees and other consideration from the Obligors for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 11.05 INDEMNIFICATION. The Lenders agree to indemnify the Agent (to the extent not reimbursed under Section 12.03 hereof, but without limiting the obligations of the Company under said Section 12.03, and including in any event any payments under any indemnity that the Agent is required to issue to any bank referred to in Section 4.02 of the Security Agreement and Section 5.02 of each of the Existing Subsidiary Guarantee and Security Agreement and the New Subsidiary Guarantee and Security Agreement to which remittances in respect of Accounts, as defined in each such agreement, are to be made) ratably in accordance with the aggregate principal amount of the Loans and Reimbursement Obligations held by the Lenders (or, if no Loans or Reimbursement Obligations are at the time outstanding, ratably in accordance with their respective Commitments), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Agent (including by any Lender) arising out of or by reason of any investigation in or in any way relating to or arising out of this Agreement or any other Loan Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses that the Company is obligated to pay under Section 12.03 hereof, and including also any payments under any indemnity that the Agent is required to - 148 - issue to any bank referred to in Section 4.02 of the Security Agreement and Section 5.02 of each of the Existing Subsidiary Guarantee and Security Agreement and the New Subsidiary Guarantee and Security Agreement to which remittances in respect of Accounts, as defined in each such agreement, are to be made, but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents, PROVIDED that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. 11.06 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Company and its Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or under any other Loan Document. The Agent shall not be required to keep itself informed as to the performance or observance by any Obligor of this Agreement or any of the other Loan Documents or any other document referred to or provided for herein or therein or to inspect the Properties or books of the Company or any of its Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder or under the Security Documents, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Company or any of its Subsidiaries (or any of their affiliates) that may come into the possession of the Agent or any of its affiliates. - 149 - 11.07 FAILURE TO ACT. Except for action expressly required of the Agent hereunder and under the other Loan Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from the Lenders of their indemnification obligations under Section 11.05 hereof against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. 11.08 RESIGNATION OR REMOVAL OF AGENT. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Lenders and the Company, and the Agent may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Agent with the prior consent of the Company (which consent shall not be unreasonably withheld); PROVIDED, that no such consent of the Company shall be required if an Event of Default has occurred and is continuing and the Commitments have been terminated and/or the Loans and other amounts payable by the Obligors hereunder have been declared forthwith are due and payable. If no successor Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, that shall be a bank that has an office in New York, New York with a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Section 11 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. - 150 - 11.09 AGENCY FEE. So long as the Commitments are in effect and until payment in full of the principal of and interest on the Loans and all other amounts payable by the Company hereunder, the Company will pay to the Agent an agency fee in the amount agreed in writing between the Company and the Agent, payable annually in advance commencing on the Effective Date and on each anniversary thereof. Such fee, once paid, shall be non-refundable. 11.10 CONSENTS UNDER OTHER LOAN DOCUMENTS. Except as otherwise provided in Section 12.04 hereof with respect to this Agreement, the Agent may, with the prior consent of the Majority Lenders (but not otherwise), consent to any modification, supplement or waiver under any of the Loan Documents, PROVIDED that, without the prior consent of each Lender, the Agent shall not (except as provided herein or in the Security Documents) release any guarantee or collateral or otherwise terminate any Lien under any Loan Document providing for collateral security, or agree to additional obligations being secured by such collateral security, except that no such consent shall be required, and the Agent is hereby authorized, to release any Lien covering Property that is the subject of a disposition of Property permitted hereunder or to which the Majority Lenders have consented or to release any guarantee of any Obligor that is the subject of a disposition to which the Majority Lenders have consented. Section 12. MISCELLANEOUS. 12.01 WAIVER. No failure on the part of the Agent or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement or any Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement or any Note preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. - 151 - 12.02 NOTICES. All notices, requests and other communications provided for herein and under the Security Documents (including, without limitation, any modifications of, or waivers, requests or consents under, this Agreement) shall be given or made in writing (including, without limitation, by telex or telecopy) delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telex or telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. 12.03 EXPENSES, ETC. The Company agrees to pay or reimburse each of the Lenders and the Agent for: (a) all reasonable out-of-pocket costs and expenses of the Agent (including, without limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to Chase, and Fiddler Gonzalez & Rodriguez, special Puerto Rico counsel to Chase) in connection with (i) the negotiation, preparation, execution and delivery of this Agreement and the other Loan Documents and the extensions of credit hereunder and (ii) the negotiation or preparation of any modification, supplement or waiver of any of the terms of this Agreement or any of the other Loan Documents (whether or not consummated); (b) all reasonable out-of-pocket costs or allocated costs and expenses of the Lenders and the Agent (including, without limitation, the reasonable fees, allocated costs and expenses of legal counsel, which may be employees of the Lenders or the Agent) in connection with (i) any Default and any enforcement or collection proceedings resulting therefrom, including, without limitation, all manner of participation in or other involvement with (x) bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation proceedings, (y) judicial or regulatory proceedings and (z) workout, restructuring or other negotiations or proceedings (whether or not the workout, restructuring or - 152 - transaction contemplated thereby is consummated) and (ii) the enforcement of this Section 12.03; (c) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement or any of the other Loan Documents or any other document referred to herein or therein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by any Loan Document or any other document referred to therein; and (d) all costs, expenses and other charges in respect of title insurance procured with respect to the Liens created pursuant to the Mortgages. The Company hereby agrees to indemnify the Agent and each Lender and their respective directors, officers, employees, attorneys and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them (including, without limitation, any and all losses, liabilities, claims, damages or expenses incurred by the Agent to any Lender, whether or not the Agent or any Lender is a party thereto) arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) relating to the extensions of credit hereunder or any actual or proposed use by the Company or any of its Subsidiaries of the proceeds of any of the extensions of credit hereunder, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). Without limiting the generality of the foregoing, the Company will (x) indemnify the Agent for any payments that the Agent is required to make under any indemnity issued to any bank referred to in Section 4.02 of the Security Agreement and Section 5.02 of each of the Existing Subsidiary Guarantee and Security Agreement and the New Subsidiary Guarantee and Security Agreement to which remittances in respect to Accounts, as defined in each such agreement, are to be made and (y) indemnify the - 153 - Agent and each Lender from, and hold the Agent and each Lender harmless against, any losses, liabilities, claims, damages or expenses described in the preceding sentence (including any Lien filed against all or any part of the Property covered by the Mortgages in favor of any governmental entity, but excluding, as provided in the preceding sentence, any loss, liability, claim, damage or expense incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified) arising under any Environmental Law as a result of the past, present or future operations of the Company or any of its Subsidiaries (or any predecessor in interest to the Company or any of its Subsidiaries), or the past, present or future condition of any site or facility owned, operated or leased at any time by the Company or any of its Subsidiaries (or any such predecessor in interest), or any Release or threatened Release of any Hazardous Materials at or from any such site or facility, including any such Release or threatened Release that shall occur during any period prior to the termination of the Commitments and the payment in full of the Loans and other amounts owing hereunder and under the other Loan Documents when the Agent or any Lender shall be in possession of any such site or facility following the exercise by the Agent or any Lender of any of its rights and remedies hereunder or under any of the Security Documents to the extent such Release results from a continuation of conditions previously in existence at, or practices theretofore employed in connection with the operation of, such site or facility. 12.04 AMENDMENTS, ETC. Except as otherwise expressly provided in this Agreement, any provision of this Agreement may be modified or supplemented only by an instrument in writing signed by the Company, the Agent and the Majority Lenders, or by the Company and the Agent acting with the consent of the Majority Lenders, and any provision of this Agreement may be waived by the Majority Lenders or by the Agent acting with the consent of the Majority Lenders; PROVIDED that: (a) no modification, supplement or waiver shall, unless by an instrument signed by all of the Lenders or by the Agent acting with the consent of all of the Lenders: (i) increase, or extend the term of any of the Commitments, or extend the time or waive any requirement for the - 154 - reduction or termination of any of the Commitments, (ii) extend the date fixed for the payment of principal of or interest on any Loan, the Reimbursement Obligations or any fee hereunder, (iii) reduce the amount of any such payment of principal, (iv) reduce the rate at which interest is payable thereon or any fee is payable hereunder, (v) alter the rights or obligations of the Company to prepay Loans, (vi) alter the terms of this Section 12.04, (vii) modify the definition of the term "Majority Lenders", or modify in any other manner the number or percentage of the Lenders required to make any determinations or waive any rights hereunder or to modify any provision hereof, (viii) release any Subsidiary Guarantor from any of its guarantee obligations under the Existing Subsidiary Guarantee and Security Agreement or the New Subsidiary Guarantee and Security Agreement or release (or terminate any Lien on) all or substantially all of the Collateral except as provided in the Security Documents with respect to such Collateral in any of the Security Documents or (ix) waive any of the conditions precedent set forth in Section 7.01 or 7.02 hereof; (b) any modification of any of the rights or obligations of the Agent or any Issuing Bank shall require the consent of the Agent or the Issuing Bank, as the case may be; and (c) any modification or supplement of Section 6 hereof shall require the consent of the Company. 12.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12.06 ASSIGNMENTS AND PARTICIPATIONS. (a) The Company may not assign any of its rights or obligations hereunder or under the Notes without the prior consent of all of the Lenders and the Agent. - 155 - (b) Each Lender may assign any of its Loans, its Notes, its Commitments, and, if such Lender is a Facility A Lender, its Letter of Credit Interest with the consent of the Agent (which consent shall not be unreasonably withheld), and in the case of the Facility A Commitment or Letter of Credit Interest, the Issuing Bank pursuant to an Assignment and Acceptance substantially in the form of Exhibit E hereto; PROVIDED that: (i) no such consent by the Agent shall be required in the case of any assignment to another Lender; (ii) each assignment by a Lender of its Loans, Note or Commitment of any Class or Letter of Credit Interest shall be made in such a manner so that the same portion of such Loans, Note, Commitment and (if applicable) Letter of Credit Interest is assigned to the respective assignee; (iii) each assignment by any Facility A Lender or Facility B Lender of its Loans (and related Note and Commitment) of a particular Class and (in the case of a Facility A Lender) its Letter of Credit Interest shall be made in such a manner so that the same portion of all of its Loans to the Company of each other Class (and related Notes and Commitments) and (if applicable) its Letter of Credit Interest is assigned to the respective assignee; and (iv) any such assignment of less than all of such Lender's interests in the Loans, Notes, Commitments and Letter of Credit Interests, as the case may be, shall be in an aggregate amount at least equal to $10,000,000. Upon execution and delivery by the assignor and assignee to the Company, the Agent and, if applicable, the Issuing Bank of such Notice of Assignment, and upon consent thereto by the Agent and Issuing Bank, to the extent required above, the assignee shall have, to the extent of such assignment, the obligations, rights and benefits of a Lender hereunder holding the Commitment(s) and Loans and, if applicable, Letter of Credit Interests (or portions - 156 - thereof) assigned to it as specified in such Notice of Assignment (in addition to the Commitment(s), Loans and/or Letter of Credit Interests, if any, theretofore held by such assignee) and the assigning Lender shall, to the extent of such assignment, be released from the Commitment(s) (or portion(s) thereof) so assigned. Upon each such assignment the assigning Lender shall pay the Agent an assignment fee of $3,000. (c) A Lender may sell or agree to sell to one or more other Persons a participation in all or any part of any Loans or Letter of Credit Interests held by it, or in its Commitments, in which event each purchaser of a participation (a "PARTICIPANT") shall be entitled to the rights and benefits of the provisions of Section 9.01(k) hereof with respect to its participation in such Loans, Letter of Credit Interests and Commitments as if (and the Company shall be directly obligated to such Participant under such provisions as if) such Participant were a "Lender" for purposes of said Section, but, except as otherwise provided in Section 4.07(c) hereof, shall not have any other rights or benefits under this Agreement or any Note or any other Loan Document (the Participant's rights against such Lender in respect of such participation to be those set forth in the agreements executed by such Lender in favor of the Participant). All amounts payable by the Company to any Lender under Section 5 hereof in respect of Loans or Letter of Credit Interests held by it, and its Commitments, shall be determined as if such Lender had not sold or agreed to sell any participations in such Loans, Letter of Credit Interests and Commitments, and as if such Lender were funding each of such Loans, Letter of Credit Interests and Commitments in the same way that it is funding the portion of such Loans, Letter of Credit Interests and Commitments in which no participations have been sold. In no event shall a Lender that sells a participation agree with the Participant to take or refrain from taking any action hereunder or under any other Loan Document except that such Lender may agree with the Participant that it will not, without the consent of the Participant, agree to (i) increase or extend the term, or extend the time or waive any requirement for the reduction or termination, of such Lender's related Commitment, (ii) extend the date fixed for the - 157 - payment of principal of or interest on the related Loan or Loans, Reimbursement Obligations or any portion of any fee hereunder payable to the Participant, (iii) reduce the amount of any such payment of principal, (iv) reduce the rate at which interest is payable thereon, or any fee hereunder payable to the Participant, to a level below the rate at which the Participant is entitled to receive such interest or fee, (v) alter the rights or obligations of the Company to prepay the related Loans, (vi) consent to any modification, supplement or waiver hereof or of any of the other Loan Documents to the extent that the same, under Section 11.10 or 12.04 hereof, requires the consent of each Lender or (vii) release any Subsidiary Guarantor from any of its guarantee obligations under the Existing Subsidiary Guarantee and Security Agreement or the New Subsidiary Guarantee and Security Agreement or release (or terminate any Lien on) all or substantially all of the Collateral except as provided in the Security Documents with respect to such Collateral in any of the Security Documents. (d) In addition to the assignments and participations permitted under the foregoing provisions of this Section 12.06, any Lender may (without notice to the Company, the Agent or any other Lender and without payment of any fee) (i) assign and pledge all or any portion of its Loans, Notes and/or Letter of Credit Interests to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank and (ii) assign all or any portion of its rights under this Agreement and its Loans, Notes and Letter of Credit Interests to an affiliate. No such assignment shall release the assigning Lender from its obligations hereunder. (e) A Lender may furnish any information concerning the Company or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants), subject, however, to the provisions of Section 12.12(b) hereof. (f) Anything in this Section 12.06 to the contrary notwithstanding, no Lender may assign or participate any interest - 158 - in any Loan or Reimbursement Obligation held by it hereunder to the Company or any of its Subsidiaries or Affiliates without the prior consent of each Lender. (g) At the request of any Lender that is not a U.S. Person and is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, the Company shall maintain, or cause to be maintained, a register (the "Register") that, at the request of the Company, shall be kept by the Agent on behalf of the Company at no charge to the Company at the address to which notices to the Agent are to be sent hereunder, on which it enters the name of such Lender as the registered owner of each Registered Loan held by such Lender. A Registered Loan (and the Registered Note, if any, evidencing the same) may be assigned or otherwise transferred in whole or in part by registration of such assignment or transfer on the Register (and each Registered Note shall expressly so provide). Any assignment or transfer of all or part of such Registered Loan (and the Registered Note, if any, evidencing the same) may be effected by registration of such assignment or transfer on the Register, together with the surrender of the Registered Note, if any, evidencing the same duly endorsed by (or accompanied by a written instrument of assignment or transfer duly executed by) the holder of such Registered Note, whereupon, at the request of the designated assignee(s) or transferee(s), one or more new Registered Notes in the same aggregate principal amount shall be issued to the designated assignee(s) or transferee(s). Prior to the registration of assignment or transfer of any Registered Loan (and the Registered Note, if any, evidencing the same), the Company shall treat the Person in whose name such Loan (and the Registered Note, if any, evidencing the same) is registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding notice to the contrary. The Register shall be available for inspection by the Company and any Bank that is a Registered Holder at any reasonable time upon reasonable prior notice. 12.07 SURVIVAL. The obligations of the Company under Sections 5.01, 5.05, 5.06, 5.08 and 12.03 hereof, the obligations - 159 - of the Company under Section 6.03 hereof, and the obligations of the Lenders under Section 11.05 hereof, shall survive the repayment of the Loans and Reimbursement Obligations and the termination of the Commitments. In addition, each representation and warranty made, or deemed to be made by a notice of any extension of credit (whether by means of a Loan or the issuance of a Letter of Credit), herein or pursuant hereto shall survive the making of such representation and warranty, and no Lender shall be deemed to have waived, by reason of making any extension of credit hereunder (whether by means of a Loan or the issuance of a Letter of Credit), any Default that may arise by reason of such representation or warranty proving to have been false or misleading, notwithstanding that such Lender or the Agent may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such extension of credit was made. 12.08 CAPTIONS. The table of contents and 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. 12.09 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. 12.10 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF PROCESS AND VENUE. (a) This Agreement and the Notes shall be governed by, and construed in accordance with, the law of the State of New York. (b) The Company hereby agrees that any suit, action or proceeding with respect to this Agreement, any Note or any other Loan Document to which it is a party or any judgment entered by any court in respect thereof may be brought in the United States - 160 - District Court for the Southern District of New York, in the Supreme Court of the State of New York sitting in New York County (including its Appellate Division), or in any other appellate court in the State of New York, as the party commencing such suit, action or proceeding may elect in its sole discretion; and each party hereto hereby irrevocably submits to the non-exclusive jurisdiction of such court for the purpose of any such suit, action, proceeding or judgment. Each party hereto further submits, for the purpose of any such suit, action, proceeding or judgment brought or rendered against it, to the appropriate courts of the jurisdiction of its domicile. (c) The Company hereby agrees that service of all writs, process and summonses in any suit, action or proceeding brought hereunder or under any of the other Loan Documents to which the Company is a party may be made upon The Prentice Hall Corporation System, Inc. presently located at 15 Columbus Circle, New York, New York 10023, U.S.A. (the "Process Agent"), and the Company hereby confirms and agrees that the Process Agent has been duly and irrevocably appointed as its agent and true and lawful attorney in fact in its name, place and stead to accept such service of any and all such writs, process and summonses, and agrees that the failure of the Process Agent to give any notice of any such service of process to the Company shall not impair or affect the validity of such service or of any judgment based thereon. Without limiting the foregoing, the Company hereby irrevocably consents to the service of process in any suit, action or proceeding in such courts by the mailing thereof by the Agent or any Lender by registered or certified mail, postage prepaid, at its address set forth beneath its signature hereto. Nothing herein shall in any way be deemed to limit the ability of the Agent or any Lender to serve any such writs, process or summonses in any other manner permitted by applicable law or to obtain jurisdiction over the Company in such other jurisdictions, and in such manner, as may be permitted by applicable law. (d) The Company hereby irrevocably waives any objection that it may now or hereafter have to the laying of the - 161 - venue of any suit, action or proceeding arising out of or relating to this Agreement, the Notes or the other Loan Documents brought in any such court and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 12.11 WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 12.12 TREATMENT OF CERTAIN INFORMATION; CONFIDENTIALITY. (a) The Company acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to the Company or one or more of its Subsidiaries (in connection with this Agreement or otherwise) by any Lender or by one or more subsidiaries or affiliates of such Lender and the Company hereby authorizes each Lender to share any information delivered to such Lender by the Company and its Subsidiaries pursuant to this Agreement, or in connection with the decision of such Lender to enter into this Agreement, to any such subsidiary or affiliate, it being understood that any such subsidiary or affiliate receiving such information shall be bound by the provisions of clause (b) below as if it were a Lender hereunder. Such authorization shall survive the repayment of the Loans and Reimbursement Obligations and the termination of the Commitments. (b) Each Lender and the Agent agree (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with their customary procedures for handling confidential information of the same nature and in accordance with safe and sound banking practices, any non-public information supplied to it by any Obligor pursuant to this Agreement that is identified by such Person as being confidential - 162 - at the time the same is delivered to the Lenders or the Agent, PROVIDED that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to counsel for any of the Lenders or the Agent, (iii) to any Lender's examiners, auditors or accountants, (iv) to the Agent or any other Lender (or to Chase Securities, Inc.), (v) in connection with any litigation to which any one or more of the Lenders or the Agent is a party, (vi) to a subsidiary or affiliate of such Lender as provided in clause (a) above or (vii) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first executes and delivers to the respective Lender a Confidentiality Agreement substantially in the form of Exhibit H hereto; PROVIDED, further, that in no event shall any Lender or the Agent - 163 - be obligated or required to return any materials furnished by any Obligor. The obligations of any assignee that has executed a Confidentiality Agreement in the form of Exhibit H hereto shall be superseded by this Section 12.12 upon the date upon which such assignee becomes a Lender hereunder pursuant to Section 12.06 hereof. 12.13 INTENTION OF PARTIES. Notwithstanding anything contained herein to the contrary, it is the intention of the parties hereto that this Agreement and the Commitments and extensions of credit provided hereunder represent a continuation, renewal and extension of, but not a novation or discharge of, the credit facilities provided by the Existing Credit Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Credit Agreement to be duly executed and delivered as of the day and year first above written. COMPANY ------- SUIZA FOODS CORPORATION By ---------------------------- Title: Address for Notices: 3811 Turtle Creek Boulevard Suite 1300 Dallas, Texas 75219 Attention: Gregg L. Engles Telecopier No.: (214) 528-9929 Telephone No.: (214) 528-9922 - 164 - LENDERS ------- FACILITY A LENDERS AND FACILITY B --------------------------------- LENDERS ------- Facility A Commitment THE CHASE MANHATTAN BANK - --------------------- $ 3,375,000 Facility B Commitment By - --------------------- ---------------------------- $ 14,625,000 Title: Lending Office for Base Rate Loans and Eurodollar Loans: The Chase Manhattan Bank 270 Park Avenue New York, New York 10017 Address for Notices: The Chase Manhattan Bank 270 Park Avenue New York, New York 10017 Attention: John Coyle Telecopier No.: (212) 270-4238 Telephone No.: (212) 270-5632 - 165 - Facility A Commitment THE FIRST NATIONAL BANK OF CHICAGO - --------------------- $ 3,375,000 Facility B Commitment - --------------------- $ 14,625,000 By ---------------------------- Title: Lending Office for Base Rate Loans and Eurodollar Loans: The First National Bank of Chicago 1 First National Plaza Suite 0088, 14th Floor Chicago, IL 60670 Address for Notices: The First National Bank of Chicago 1 First National Plaza Suite 0088, 14th Floor Chicago, IL 60670 Attention: April Yebd Telecopier No.: (312) 732-2715 (312) 732-6276 Telephone No.: (312) 732-4823 - 166 - Facility A Commitment FIRST UNION NATIONAL BANK OF - --------------------- $ 3,375,000 NORTH CAROLINA Facility B Commitment - --------------------- $ 14,625,000 By ---------------------------- Title: Lending Office for Base Rate Loans and Eurodollar Loans: First Union National Bank of North Carolina 301 S. College Street Charlotte, NC 28288-0737 Address for Notices: First Union National Bank of North Carolina 301 S. College Street Charlotte, NC 28288-0737 Attention: Sana Alkoor - Suiza Telecopier No.: (704) 383-6537 Telephone No.: (704) 374-9831 - 167 - Facility A Commitment HARRIS TRUST AND SAVINGS BANK - --------------------- $ 3,375,000 Facility B Commitment - --------------------- $ 14,625,000 By ---------------------------- Title: Lending Office for Base Rate Loans and Eurodollar Loans: Harris Trust and Savings Bank 111 West Monroe Street Chicago, IL 60690 Address for Notices: Harris Trust and Savings Bank 111 West Monroe Street Chicago, IL 60690 Attention: Jerry Karl/Marieky Estrada Telecopier No.: (312) 765-8095 Telephone No.: (312) 461-3776/7664 - 168 - Facility A Commitment THE BANK OF NOVA SCOTIA - --------------------- $ 2,625,000 Facility B Commitment - --------------------- $ 11,375,000 By ---------------------------- Title: Lending Office for Base Rate Loans and Eurodollar Loans: The Bank of Nova Scotia Atlanta Agency 600 Peachtree Street N.E., Suite 2700 Atlanta, Georgia 30308 Address for Notices: The Bank of Nova Scotia Atlanta Agency 600 Peachtree Street N.E. Suite 2700 Atlanta, Georgia 30308 Attention: F.C.H. Ashby Senior Assistant Agent Telecopier No.: (404) 888-8998 Telephone No.: (404) 877-1500 with a copy to: The Bank of Nova Scotia Houston Representative Office 1100 Louisiana Suite 3000 - 169 - Houston, Texas 77002 Attention: Rosine Matthews Relationship Manager Telecopier No.: (713) 752-2425 Telephone No.: (713) 759-3432 - 170 - Facility A Commitment BANCO POPULAR DE PUERTO RICO - --------------------- $ 2,625,000 Facility B Commitment - --------------------- $ 11,375,000 By ---------------------------- Title: Lending Office for Base Rate Loans and Eurodollar Loans: Banco Popular de Puerto Rico 7 West 51st Street New York, New York 10019 Address for Notices: Banco Popular de Puerto Rico 7 West 51st Street New York, New York 10019 Attention: John Cuneo Telecopier No.: (212) 586-3537 Telephone No.: (212) 315-2800 - 171 - Facility A Commitment BANK OF AMERICA ILLINOIS - --------------------- $ 1,875,000 Facility B Commitment - --------------------- $ 8,125,000 By ---------------------------- Title: Lending Office for Base Rate Loans and Eurodollar Loans: Bank of America Illinois 231 S. LaSalle Chicago, Illinois 60697 Address for Notices: Bank of America Illinois 231 S. LaSalle Chicago, Illinois 60697 Attention: Paul Youmaura Telecopier No.: (312) 974-9626 Telephone No.: (312) 828-6574 - 172 - Facility A Commitment BANQUE PARIBAS - --------------------- $ 1,875,000 Facility B Commitment - --------------------- $ 8,125,000 By ---------------------------- Title: By ---------------------------- Title: Lending Office for Base Rate Loans and Eurodollar Loans: Banque Paribas 1200 Smith Street Suite 3100 Houston, Texas 77002 Address for Notices: Banque Paribas 1200 Smith Street Suite 3100 Houston, Texas 77002 Attention: Chuck E. Irwin Telecopier No.: (713) 659-4234 Telephone No.: (713) 659-4811 - 173 - Facility A Commitment CHL HIGH YIELD LOAN PORTFOLIO - --------------------- $ 1,875,000 (a unit of The Chase Manhattan Bank) Facility B Commitment - --------------------- $ 8,125,000 By ---------------------------- Title: Lending Office for Base Rate Loans and Eurodollar Loans: CHL High Yield Loan Portfolio 380 Madison Avenue 12th Floor New York, NY 10017 Address for Notices: CHL High Yield Loan Portfolio 380 Madison Avenue 12th Floor New York, NY 10017 Attention: Richard W. Stewart Telecopier No.: (212) 622-3797 Telephone No.: (212) 622-3062 - 174 - Facility A Commitment CAISSE NATIONALE DE CREDIT AGRICOLE - --------------------- $ 1,875,000 Facility B Commitment - --------------------- $ 8,125,000 By ---------------------------- Title: Lending Office for Base Rate Loans and Eurodollar Loans: Caisse Nationale de Credit Agricole 55 E. Monroe Suite 4700 Chicago, IL 60603 Address for Notices: Caisse Nationale de Credit Agricole 55 E. Monroe Suite 4700 Chicago, IL 60603 Attention: Laura Schmuck Telecopier No.: (312) 372-4421 Telephone No.: (312) 917-7428 - 175 - Facility A Commitment THE FUJI BANK, LIMITED, - --------------------- $ 1,875,000 HOUSTON AGENCY Facility B Commitment - --------------------- $ 8,125,000 By ---------------------------- Title: Lending Office for Base Rate Loans and Eurodollar Loans: The Fuji Bank, Limited, Houston Agency One Houston Center 1221 McKinney Street, Suite 4100 Houston, TX 77010 Telecopier No.: (713) 759-0048 Address for Notices: The Fuji Bank, Limited, Houston Agency One Houston Center 1221 McKinney Street, Suite 4100 Houston, TX 77010 Attention: Philip C. Lauinger III Vice President and Joint Manager or David L. Kelley Senior Vice President (713) 650-7850 Telecopier No.: (713) 759-0048 Telephone No.: (713) 650-7852 - 176 - Facility A Commitment THE LONG-TERM CREDIT BANK OF JAPAN, - --------------------- $ 1,875,000 LIMITED, NEW YORK BRANCH Facility B Commitment - --------------------- $ 8,125,000 By ---------------------------- Title: Lending Office for Base Rate Loans and Eurodollar Loans: The Long-Term Credit Bank of Japan, Limited, New York Branch 165 Broadway New York, NY 10006 Address for Notices: The Long-Term Credit Bank of Japan, Limited, New York Branch 165 Broadway New York, NY 10006 Attention: Frank H. Madden, Jr. Telecopier No.: (212) 608-2371 Telephone No.: (212) 335-4550 - 177 - AGENT ----- THE CHASE MANHATTAN BANK, as Agent By ---------------------------- Title: Address for Notices to Chase as Agent: The Chase Manhattan Bank 140 East 45th Street 29th Floor New York, New York 10017 Attention: Agent Bank Services Telex No.: 6720516 (Answerback: CMBNYAUW) Telecopier No.: 212-622-0122 Telephone No.: 212-622-0004 EX-10.14 4 EXHIBIT 10.14 AMENDMENT AND WAIVER AMENDMENT AND WAIVER dated as of August 7, 1996, between: SUIZA FOODS CORPORATION, a corporation duly organized and validly existing under the laws of the State of Delaware (the "COMPANY"); each of the lenders that is a signatory hereto (individually, a "LENDER" and, collectively, the "LENDERS"); and THE CHASE MANHATTAN BANK, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "AGENT"). WHEREAS, the Company, the Lenders and the Agent are parties to an Amended and Restated Credit Agreement dated as of July 17, 1996 (as in effect on the date hereof, the "CREDIT AGREEMENT"); WHEREAS, the Company has announced that it proposes to acquire Swiss Dairy Corporation, a California corporation, pursuant to terms and conditions to be negotiated (the "SWISS DAIRY ACQUISITION"); WHEREAS, the Company is also proposing an Equity Issuance (as defined in the Credit Agreement) in the amount of $10,000,000 (the "AUGUST 1996 EQUITY ISSUANCE"); WHEREAS, in connection with the foregoing, the Company has requested certain amendments to, and waivers of the effect of, certain provisions of the Credit Agreement, and the Lenders and the Agent are willing to agree to such amendments and waivers on the terms and conditions hereof, Accordingly, the parties hereto agree as follows: Section 1. DEFINITIONS. Except as otherwise defined in this Amendment and Waiver, terms defined in the Credit Agreement are used herein as defined therein. Section 2. AMENDMENTS. Subject to the satisfaction of the condition precedent specified in Section 5 hereof, the 2 Lenders hereby agree that the Credit Agreement shall be amended as follows: A. References in the Credit Agreement (including references to the Credit Agreement as amended hereby) to "this Agreement" (and indirect references such as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be a reference to the Credit Agreement as amended hereby. B. The date "August 12, 1996" in line 7 of Section 7.02 of the Credit Agreement is hereby deleted and the date "September 30, 1996" is inserted in place thereof. C. The date "August 12, 1996" in lines 2 and 3 of clause (n) of Section 10 of the Credit Agreement is hereby deleted and the date "September 30, 1996" is inserted in place thereof. Section 3. WAIVER. Subject to the satisfaction of the conditions precedent specified in Section 5 hereof, the Lenders hereby agree that, in the event the August 1996 Equity Issuance is completed prior to September 30, 1996, the following arrangements shall apply, the requirements of paragraphs (d) and (f) of Section 2.09 of the Credit Agreement notwithstanding: (i) the Company shall prepay outstanding Facility A Loans in an aggregate amount equal to 100% of the Net Available Proceeds of the August 1996 Equity Issuance upon the date of the August 1996 Equity Issuance and (ii) in the event that the Company has not completed the Swiss Dairy Acquisition by September 30, 1996 on terms and conditions satisfactory to the Lenders, then on September 30, 1996, the Company will apply an amount equal to 100% of the Net Available Proceeds of the August 1996 Equity Issuance to the prepayment of the outstanding Facility B Loans in accordance with paragraph (f) of Section 2.09 of the Credit Agreement. The parties agree that nothing contained herein shall be deemed to be a present consent by the Lenders to the Swiss Dairy Acquisition or any of the terms or conditions thereof. Section 4. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Agent and the Lenders that (a) no Default has occurred and is continuing and (b) the representations and warranties set forth in Section 8 of the Credit Agreement and in each of the Security Documents are true 3 and correct on the date hereof as if made on and as of the date hereof (or, if stated to have been made solely as of an earlier date, were true and correct as of such date) as if each reference (whether direct or indirect) therein to "this Agreement" included reference to this Amendment and Waiver and the Credit Agreement as amended hereby. 4 Section 5. CONDITION PRECEDENT. The amendments to the Credit Agreement set forth in Section 2 hereof and the waivers contained in Section 3 hereof shall become effective upon the condition precedent that the Agent shall have received one or more counterparts of this Amendment and Waiver executed by each of the Company and the Lenders and consented to by the Subsidiary Guarantors listed on the signature pages hereof. Section 6. MISCELLANEOUS. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment and Waiver may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment and Waiver by signing any such counterpart. This Amendment and Waiver shall be governed by, and construed in accordance with, the law of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver to be duly executed and delivered as of the day and year first above written. COMPANY SUIZA FOODS CORPORATION By ------------------------------------- Title: LENDERS THE CHASE MANHATTAN BANK By ------------------------------------- Title: THE FIRST NATIONAL BANK OF CHICAGO 5 By ------------------------------------- Title: FIRST UNION NATIONAL BANK OF NORTH CAROLINA By ------------------------------------- Title: HARRIS TRUST AND SAVINGS BANK By ------------------------------------- Title: THE BANK OF NOVA SCOTIA By ------------------------------------- Title: BANCO POPULAR DE PUERTO RICO By ------------------------------------- Title: BANK OF AMERICA ILLINOIS By ------------------------------------- Title: BANQUE PARIBAS By ------------------------------------- Title: By ------------------------------------- 6 Title: CHL HIGH YIELD LOAN PORTFOLIO (A UNIT OF CHASE MANHATTAN BANK (FORMERLY KNOWN AS CHEMICAL BANK)) By ------------------------------------- Title: CAISSE NATIONALE DE CREDIT AGRICOLE By ------------------------------------- Title: THE FUJI BANK, LIMITED, HOUSTON AGENCY By ------------------------------------- Title: THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH By ------------------------------------- Title: 7 AGENT THE CHASE MANHATTAN BANK, as Agent By ------------------------------------- Title: CONSENT AND AGREEMENT Each of the undersigned Subsidiary Guarantors hereby (1) consents to the amendments and waivers provided for in this Amendment and Waiver, (2) agrees that each reference to the Credit Agreement in each Security Document (as defined in the Credit Agreement) to which such Subsidiary Guarantor is a party shall be a reference to the Credit Agreement as amended by this Amendment and Waiver and (3) confirms its obligations under each Security Document to which it is a party after giving effect to the amendments and waivers set forth in this Amendment and Waiver. REDDY ICE CORPORATION SUIZA FRUIT CORPORATION By By ------------------------------ ------------------------------ Title: Title: VELDA FARMS, INC. NEVA PLASTICS MANUFACTURING CORP. By By ------------------------------ ------------------------------ Title: Title: SUIZA MANAGEMENT CORPORATION By ------------------------------ 8 Title: SUIZA DAIRY CORPORATION By ------------------------------ Title: EX-10.15 5 EXHIBIT 10.15 EXECUTION COPY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUIZA FOODS CORPORATION _____________________________ AMENDMENT NO. 2 Dated as of September 6, 1996 AMENDED AND RESTATED CREDIT AGREEMENT Dated as of July 17, 1996 _____________________________ FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Agent THE FIRST NATIONAL BANK OF CHICAGO, as Syndication Agent - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMENDMENT NO. 2 dated as of September 6, 1996, between: SUIZA FOODS CORPORATION, a corporation duly organized and validly existing under the laws of the State of Delaware (the "COMPANY"); each of the lenders that is a signatory hereto (individually, a "LENDER" and, collectively, the "LENDERS"); and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "AGENT"). WHEREAS, the Company, the Lenders and the Agent (as successor to The Chase Manhattan Bank in such capacity) are parties to an Amended and Restated Credit Agreement dated as of July 17, 1996 (as amended by Amendment and Waiver dated as of August 7, 1996 and as in effect on the date hereof, the "EXISTING CREDIT AGREEMENT"); WHEREAS, the Company has requested that the Lenders provide financing for acquisitions by the Company from time to time and, in connection therewith, amend certain provisions of the Existing Credit Agreement, among other things, to permit such acquisitions and the financing thereof and to change certain of the covenants therein; and WHEREAS, the Lenders and the Agent are willing to agree to such amendments on the terms and conditions hereof and, simultaneously with the execution and delivery hereof, to enter into a Supplemental Credit Agreement dated as of the date hereof (as amended from time to time, the "SUPPLEMENTAL CREDIT AGREEMENT") to provide, subject to the terms and conditions thereof, a $90,000,000 credit facility for financing certain acquisitions by the Company from time to time. Accordingly, the parties hereto agree as follows: 1. DEFINITIONS. Except as otherwise defined in this Amendment No. 2, terms defined in the Existing Credit Agreement are used herein as defined therein. 2. AMENDMENTS. Subject to the satisfaction of the conditions precedent specified in Section 4 hereof, the Company, the Agent and the Lenders hereby agree that the Existing Credit Agreement shall be amended as follows: A. References in the Existing Credit Agreement (including references to the Existing Credit Agreement as amended hereby) to "this Agreement" (and indirect references such as 2 "hereunder", "hereby", "herein" and "hereof") shall be deemed to be a reference to the Existing Credit Agreement as amended hereby (as so amended, herein called the "CREDIT AGREEMENT"). B. Section 1.01 of the Existing Credit Agreement is hereby amended (a) by inserting the following definitions therein in appropriate alphabetical order: "AMENDMENT NO. 2" shall mean Amendment No. 2 to this Agreement dated as of September 6, 1996 among the Company, the Lenders and the Agent. "AMENDMENT NO. 2 TO SECURITY AGREEMENT" shall mean Amendment No. 2 to the Security Agreement substantially in the form of Exhibit C-1 to the Supplemental Credit Agreement. "FACILITY C COMMITMENTS" shall have the meaning set forth in the Supplemental Credit Agreement. "FACILITY C COMMITMENT TERMINATION DATE" shall have the meaning set forth in the Supplemental Credit Agreement. "FACILITY C LOANS" shall mean the loans provided for in the Supplemental Credit Agreement. "FACILITY C NOTES" shall have the meaning set forth in the Supplemental Credit Agreement. "FIRST UNION" shall mean First Union National Bank of North Carolina. "GARRIDO NEGATIVE PLEDGE AGREEMENT" shall mean the Garrido Negative Pledge Agreement between the Agent and Garrido in form and substance satisfactory to the Agent, as the same shall be modified and supplemented from time to time. "GUARANTEE AGREEMENT" shall mean the Guarantee Agreement substantially in the form of Exhibit C-3 to the Supplemental Credit Agreement, as the same shall be modified and supplemented from time to time. 3 "INVESTMENT TAX CREDIT" shall have the meaning set forth in the Supplemental Credit Agreement. "NET PURCHASE PRICE" shall have the meaning set forth in the Supplemental Credit Agreement. "PERMITTED ACQUISITION" shall have the meaning set forth in the Supplemental Credit Agreement. "SUPPLEMENTAL CREDIT AGREEMENT" shall have the meaning assigned thereto in the recitals to Amendment No. 2. "SUPPLEMENTAL GUARANTOR" shall mean each Subsidiary of the Company party to a Supplemental Subsidiary Guarantee and Security Agreement. "SUPPLEMENTAL SECURITY DOCUMENTS" shall mean, collectively, each Supplemental Subsidiary Guarantee and Security Agreement between a Supplemental Guarantor and the Agent, each amendment to the Security Agreement and all Uniform Commercial Code financing statements and/or other filings required hereby or thereby to be filed with respect to the security interests in personal Property and fixtures created pursuant hereto or thereto. "SUPPLEMENTAL SUBSIDIARY GUARANTEE AND SECURITY AGREEMENT" shall mean a Supplemental Subsidiary Guarantee and Security Agreement, substantially in the form of Exhibit C-2 to the Supplemental Credit Agreement, as the same shall be modified and supplemented from time to time. and (b) by deleting therefrom the definitions of "GARRIDO FACTORS LIEN AGREEMENT", "GARRIDO MORTGAGES" and "NEW SUBSIDIARY GUARANTEE AND SECURITY AGREEMENT" and (c) by amending the following definitions to read in their entirety as follows: "BASIC DOCUMENTS" shall mean, collectively, the Loan Documents and, except for purposes of the definitions of "Secured Obligations" and "Guaranteed Obligations" in any of the Security Documents, the Purchase Agreements and the Subordinated Debt Documents. "BUSINESS DAY" shall mean (a) any day on which commercial banks are not authorized or required to 4 close in North Carolina and (b) if such day relates to a borrowing of, a payment or prepayment of principal of or interest on, a Conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice by the Company with respect to any such borrowing, payment, prepayment, Conversion or Interest Period, any day on which dealings in Dollar deposits are carried out in the London interbank market. "DEBT SERVICE" shall mean, for any period, the sum, for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) all payments of principal of Indebtedness (including, without limitation, the principal component of any payments in respect of Capital Lease Obligations) scheduled to be made during such period PLUS (b) all Interest Expense for such period, it being understood that, if any installment of principal of the Facility C Loans, or the Facility B Loans shall have been prepaid during or prior to such period, the amount of principal of the Facility C Loans and the Facility B Loans included in Debt Service for such period shall be equal to the aggregate amount of principal of the Facility C Loans and the Facility B Loans originally scheduled to be paid hereunder and under the Supplemental Credit Agreement during such period. "EXCLUDED DISPOSITION" shall mean the Disposition of (i) an Investment Tax Credit or (ii) any motor vehicles or other equipment no longer used or useful in the business of the Company or any of its Subsidiaries to the extent the proceeds thereof are used to acquire similar replacement Property within a period of 30 days after the end of the fiscal quarter in which such Disposition was made. "LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Supplemental Credit Agreement, the Notes, the Facility C Notes, the Letter of Credit Documents and the Security Documents. "MORTGAGES" shall mean, collectively, (a) the mortgages or deeds of trust identified in Schedule VII hereto and (b) one or more mortgages or deeds of trust, in the respective forms of Exhibits D-1 and D-2 hereto or of Exhibits D-1 and D-2 to the Supplemental Credit Agreement (with such modifications 5 thereto requested by the Agent as may be appropriate to effect a lien on real property in the state where the respective property to be covered by such instrument is located), executed by the respective Obligors who own or lease such property in favor of the Agent (or, in the case of a deed of trust, in favor of the trustee for the benefit of the Agent and the Lenders) pursuant to Section 9.19(c) and 9.19(d) hereof or Section 8.19(c) and 8.19(d) of the Supplemental Credit Agreement covering the respective Properties and/or leasehold interests identified in Schedule IV hereto or subject to the requirements of said Section 9.19(c) and 9.19(d) or Section 8.19(c) and 8.19(d) of the Supplemental Credit Agreement, as the case may be, in each case as the same shall be modified and supplemented and in effect from time to time. "OBLIGOR" shall mean the Company and each Subsidiary of the Company party to any Security Document; PROVIDED that for the purposes of the definition of the terms "Eligible Inventory", "Eligible Receivable", and "Receivables", the term "Obligor" shall not include any Supplemental Guarantor. "SECURITY DOCUMENTS" shall mean, collectively, the Security Agreement, the Amendment to Security Agreement, Amendment No. 2 to Security Agreement, the Mortgages, each Supplemental Subsidiary Guarantee and Security Agreement, the Existing Subsidiary Guarantee and Security Agreement, the Guarantee Agreement, the Puerto Rico Security Documents, all Uniform Commercial Code financing statements and/or other filings required hereby or thereby to be filed with respect to the security interests in personal Property and fixtures created pursuant hereto or thereto, and the Subordination Agreement. and (c) by the following: (1) the definition of "ELIGIBLE INVENTORY" is hereby amended by replacing the percentage "50%" with the percentage "100%" in clause (b) thereof, (2) the definition of "INTEREST EXPENSE" is hereby amended by inserting the words "and by the Supplemental Credit Agreement" after "hereby" in the eighth line thereof, (3) the definition of "MATERIAL ADVERSE EFFECT" is hereby amended by inserting the words "or under the Loan Documents" after "therewith" in the last line thereof, and (4) the definition of "SUBSIDIARY GUARANTORS" 6 is amended by deleting the words "Garrido, Guest Choice," in the first and second lines thereof. C. References to "Chase" in the definitions of "Federal Funds Rate", "Issuing Bank", and "Prime Rate" and in Sections 2.02(b), 11.04 and 12.03 of the Existing Credit Agreement are deleted and replaced by "First Union". D. The references to "Garrido Factors Lien Agreement", "Garrido Mortgages" and "New Subsidiary Guarantee and Security Agreement" in the Existing Credit Agreement are hereby deleted. E. Section 2.02(b) of the Existing Credit Agreement is hereby amended by replacing the words "1:00 p.m. New York time" with the words "3:30 p.m. Charlotte, North Carolina time" in the second line thereof and by replacing the words "the Principal Office" with the words "its principal office" in the tenth line thereof. F. The second sentence of Section 2.06 of the Existing Credit Agreement is hereby amended (1) by adding ", subject to the prior written consent of the Majority Lenders," immediately after the word "entitled" and (2) by deleting "consent to, or" in the penultimate line thereof. G. Subsections (b) through (e) of Section 2.09 of the Existing Credit Agreement are hereby amended to read in their entirety as follows: "(b) CASUALTY EVENTS. Not later than 60 days following the receipt by the Company or any of its Subsidiaries (other than a Supplemental Guarantor) of the proceeds of insurance, condemnation award or other compensation in respect of any Casualty Event affecting any Property of the Company or any of its Subsidiaries (other than Property of a Supplemental Guarantor or acquired with the proceeds of Facility C Loans under the Supplemental Credit Agreement) (or upon such earlier date as the Person owning such Property shall have determined not to repair or replace the Property affected by such Casualty Event), the Company shall prepay the Loans (and/or provide cover for Letter of Credit Liabilities as specified in paragraph (h) below), and the Facility A Commitments shall be subject to 7 automatic reduction, in an aggregate amount, if any, equal to 100% of the Net Available Proceeds of such Casualty Event not theretofore applied to the repair or replacement of such Property or prepayment of the Facility B Loans, such prepayment and reduction to be effected in each such case in the manner and to the extent specified in paragraph (f) below. Nothing in this paragraph (b) shall be deemed to limit any obligation of the Company or any of its Subsidiaries pursuant to any of the Security Documents to remit to a collateral or similar account (including, without limitation, the Collateral Account) maintained by the Agent pursuant to any of the Security Documents the proceeds of insurance, condemnation award or other compensation received in respect of any Casualty Event. Notwithstanding the foregoing, in the event that a Casualty Event shall occur with respect to Property of the Company or any of its Subsidiaries (other than Property of a Supplemental Guarantor or acquired with the proceeds of Facility C Loans under the Supplemental Credit Agreement) and covered by any Mortgage, the Company shall prepay the Loans (and/or provide cover for Letter of Credit Liabilities) on the dates and in the amounts to the extent specified in such Mortgage. In the event of a Casualty Event involving Property of a Supplemental Guarantor or acquired with the proceeds of Facility C Loans under the Supplemental Credit Agreement, the Net Available Proceeds of such Casualty Event shall be applied in accordance with the terms of the Supplemental Credit Agreement. (c) SALE OF ASSETS. Without limiting the obligation of the Company to obtain the consent of the Majority Lenders pursuant to Section 9.05(c) hereof to any Disposition not otherwise permitted hereunder, in the event that the Net Available Proceeds of any Disposition of Property of the Company or any of its Subsidiaries (other than Property of a Supplemental Guarantor or acquired with the proceeds of Facility C Loans under the Supplemental Credit Agreement) other than an Excluded Disposition (herein, the "CURRENT DISPOSITION"), and of all prior Dispositions of Property of the Company or any of its Subsidiaries (other than Property of a Supplemental Guarantor or acquired with the proceeds of Facility C Loans under the Supplemental Credit Agreement) as to which a prepayment has not yet been made under this Section 2.09(c), shall exceed $500,000 then, no later than 5 8 Business Days prior to the occurrence of the Current Disposition, the Company will deliver to the Lenders a statement, certified by a Responsible Financial Officer of the Company, in form and detail satisfactory to the Agent, of the amount of the Net Available Proceeds of the Current Disposition and of all such prior Dispositions and the Company will prepay the Loans (or cause the Loans to be prepaid) and the Facility A Commitments shall be subject to automatic reduction, in an aggregate amount equal to 100% of the Net Available Proceeds of the Current Disposition and such prior Dispositions not theretofore used to prepay Facility B Loans such prepayment and reduction to be effected in each case in the manner and to the extent specified in paragraph (f) below; PROVIDED that with respect to any Current Disposition that includes any Eligible Inventory or Eligible Receivables, the Company shall deliver to the Agent a statement of a Responsible Financial Officer of the Company specifying the portion of Net Available Proceeds of the Current Disposition and of all prior Dispositions as to which a prepayment has not yet been made hereunder relating to such Inventory or Receivables and the Company shall prepay the Facility A Loans (and/or provide cover for Letter of Credit Liabilities as specified in paragraph (h) below). In the case of all Dispositions of Property of a Supplemental Guarantor or acquired with the proceeds of Facility C Loans under the Supplemental Credit Agreement, the Company will make (or cause to be made) prepayments of the Facility C Loans as required by the Supplemental Credit Agreement. (d) EQUITY ISSUANCE; INVESTMENT TAX CREDITS. Upon any Equity Issuance or the issuance of any Indebtedness (other than Indebtedness permitted under Section 9.07 hereof) or the Disposition of any Investment Tax Credit after the Closing Date (as defined in the Supplemental Credit Agreement), the Company shall (i) prepay the Facility C Loans or the Facility B Loans in an aggregate amount equal to 100% of the Net Available Proceeds thereof (after effecting any payments in respect of the redemption, prepayment or retirement, as the case may be, of the Subordinated Indebtedness to the extent permitted under Section 9.22(a)) or (ii) in connection with a Disposition of any Investment Tax Credit, apply any part of the Net Available Proceeds thereof to the purchase price of the 9 Swiss Dairy Acquisition and use the balance of such Net Available Proceeds to prepay the Facility C Loans or the Facility B Loans as contemplated in clause (i) above. Promptly after each such Equity Issuance the Company shall advise the Agent in writing of its designated application of such Net Available Proceeds thereof. Any such prepayments of the Facility C Loans shall be effected in the manner specified in the Supplemental Credit Agreement. Any such prepayment of the Facility B Loans shall be effected in the manner and to the extent specified in paragraph (f) below. (e) EXCESS CASH FLOW. Not later than 90 days after the end of the fiscal quarter ending December 31, 1996 and after the end of each fiscal year of the Company, commencing with the fiscal year ending December 31, 1997, the Company shall prepay the Facility B Loans and Facility C Loans in an aggregate amount equal to the excess of (A) 50% of Excess Cash Flow for such fiscal quarter or year, as the case may be (or, if the Leverage Ratio is less than 2.50 to 1, 25% of such Excess Cash Flow) over (B) the aggregate amount of prepayments of Facility B Loans and Facility C Loans made during such fiscal quarter or year, as the case may be, pursuant to Section 2.08 hereof and Section 2.08 of the Supplemental Credit Agreement. Mandatory prepayments arising from Excess Cash Flow required prior to the Facility C Commitment Termination Date shall be applied to the Facility B Loans in the manner and to the extent specified in paragraph (f) below. Mandatory prepayments arising from Excess Cash Flow required on or after the Facility C Commitment Termination Date shall be applied to the Facility B Loans and the Facility C Loans pro rata based on the aggregate principal amounts thereof then outstanding and such prepayments of Facility B Loans shall be effected in each case in the manner and to the extent specified in paragraph (f) below." H. Section 2.10(e) of the Existing Credit Agreement is amended by replacing the words "the Principal Office" with the words "its principal office" in the third line thereof. I. Section 3.01(b) of the Existing Credit Agreement is amended by inserting the following aggregate amounts directly opposite the dates set forth below in place of those set forth therein: 10 "September 30, 2001 6,000,000 December 31, 2001 6,000,000 March 31, 2002 27,500,000" J. Section 3.02 of the Existing Credit Agreement is hereby amended (1) by replacing the comma immediately after the word "Dates" with the word "and" in the third sentence thereof and (2) by deleting the words "and (iii) in the case of any Loan, upon the payment or prepayment thereof or the Conversion of such Loan to a Loan of another Type (but only on the principal amount so paid, prepaid or Converted)" from the third sentence thereof. K. Section 4.01(a) of the Existing Credit Agreement is hereby amended by replacing the words "1:00 p.m. New York time" with the words "2:00 p.m. Charlotte, North Carolina time" in the eighth line thereof. L. Section 4.04 of the Existing Credit Agreement is hereby amended to read in its entirety as follows: "4.04 MINIMUM AMOUNTS. Except for mandatory prepayments made pursuant to Section 2.09 hereof and Conversions or prepayments made pursuant to Section 5.04 hereof, (a) each borrowing and Conversion of principal of Base Rate Loans shall be in an aggregate amount at least equal to $500,000 or a larger multiple of $100,000, (b) each borrowing and Conversion of Eurodollar Loans shall be in an aggregate amount at least equal to $2,000,000 or a larger multiple of $1,000,000, (c) each partial prepayment of principal of Eurodollar Loans shall be in an aggregate amount at least equal to $2,000,000 or a larger multiple of $1,000,000 and each partial prepayment of principal of Base Rate Loans shall be in an aggregate amount at least equal to $500,000 or a larger multiple of $100,000 (borrowings, Conversions or prepayments of or into Loans of different Types or, in the case of Eurodollar Loans, having different Interest Periods at the same time hereunder to be deemed separate borrowings, Conversions and prepayments for purposes of the foregoing, one for each Type or Interest Period)." 11 M. Section 4.05 of the Existing Credit Agreement is hereby amended by replacing the words "12:00 noon New York time" with the words "1:30 p.m. Charlotte, North Carolina time" in the first sentence thereof. N. Section 4.07(a) of the Existing Credit Agreement is hereby amended by adding the words "but with the prior written consent of the Majority Lenders" immediately after the words "at its option" in the fourth line thereof. O. Section 5.06(a) of the Existing Credit Agreement is hereby amended by replacing the reference to "Section 5.01(a)" in the penultimate line thereof with the reference to "Section 5.06(a)". P. Section 7.02 of the Existing Credit Agreement is hereby amended to read in its entirety as follows: "7.02 [Intentionally Omitted]". Q. Section 9.01(f) of the Existing Credit Agreement is hereby amended by replacing the number "10" with the number "20" in the first line thereof. R. Section 9.05(b) of the Existing Credit Agreement is hereby amended (i) by amending clause (iv) to read in its entirety as follows: "(iv) Permitted Acquisitions and the acquisition of any capital stock, business or Property of any Person with the proceeds of Facility A Loans PROVIDED that unless otherwise consented to by the Majority Banks (w) no more than $1,000,000 of the proceeds of Facility A Loans may be used, directly or indirectly, to finance any single acquisition and no more than $5,000,000 in the aggregate of the proceeds of Facility A Loans may be used, directly or indirectly, to finance acquisitions in any fiscal year, except in connection with the financing of the Swiss Dairy Acquisition, in which case up to $10,000,000 in the aggregate of the proceeds of Facility A Loans may be used for such financing, (x) the Net Purchase Price of any such acquisition financed with the proceeds of Facility A Loans (other than the Swiss Dairy Acquisition) shall not exceed $1,000,000 in a single transaction (or 12 series of related transactions) and $5,000,000 in the aggregate for any fiscal year, (y) at the time of such acquisition no Default shall have occurred and be continuing and (z) any future earn-out payments in connection with any such acquisition shall be counted at the time such earn-out payment is made in determining whether the dollar limitations contained in this clause (iv) have been exceeded;" S. Section 9.05(d) of the Existing Credit Agreement is hereby amended by adding the words "and so long as the Liens created under the Security Documents continue to be in effect" immediately before the semicolon therein. T. Section 9.06(a) of the Existing Credit Agreement is hereby amended by adding the words "and the Supplemental Security Documents" immediately prior to the semicolon therein. U. Section 9.07(a) of the Existing Credit Agreement is hereby amended by replacing the word "and" with a comma and by adding the words "and under the Supplemental Credit Agreement" immediately prior to the colon therein. V. Section 9.07(c) of the Existing Credit Agreement is hereby amended by adding the words "and Indebtedness outstanding on the date of Amendment No. 2 and listed on Part A of Schedule I to the Supplemental Credit Agreement" immediately after the word "hereto". W. Section 9.07(d) of the Existing Credit Agreement is hereby amended by replacing the section reference to "Section 9.08(g)" with the section references "Section 9.08(e) or (g)". X. Section 9.08(e) of the Existing Credit Agreement is hereby amended by adding the words "and indemnities executed in connection with the sale of Investment Tax Credits" immediately before the semicolon therein. Y. Section 9.10(b) of the Existing Credit Agreement is hereby amended to read in its entirety as follows: "(b) The Company will not permit the Senior Leverage Ratio to exceed the following respective ratios at any time during the following respective periods: 13 PERIOD RATIO ------ ----- From the Effective Date through and including June 29, 1997 3.75 to 1 From June 30, 1997 through and including June 29, 1998 3.25 to 1 From June 30, 1998 through and including June 29, 1999 2.75 to 1 From June 30, 1999 and at all times thereafter 2.25 to 1" Z. Section 9.11 of the Existing Credit Agreement is hereby amended to read in its entirety as follows: "9.11 MINIMUM NET WORTH. The Company will not permit its Net Worth (i) for the period from the date hereof to and including December 31, 1996 to be less than $63,000,000 and (ii) for each fiscal quarter thereafter, to be less than $63,000,000 plus 50% of net income for all preceding fiscal quarters (without including the results of any fiscal quarter in respect of which there was a net loss) commencing with the fiscal quarter beginning January 1, 1997. The amounts of Net Worth set forth above shall be increased by 75% of the amount by which the "total stockholders equity" of the Company is increased as a result of any public or private offering of common stock of the Company after September 1, 1996. Promptly upon consummation of each such public or private offering, the Company shall notify the Agent in writing of the amount of such increase in total stockholders equity." AA. Section 9.14 of the Existing Credit Agreement is hereby amended to read in its entirety as follows: 14 "9.14 CAPITAL EXPENDITURES. The Company will not permit the aggregate amount of Capital Expenditures by the Company and its Subsidiaries to exceed the following respective amounts for the following respective periods: PERIOD AMOUNT ------ ------ From January 1, 1996 $13,000,000 through and including December 31, 1996 From January 1, 1997 $14,000,000 through and including December 31, 1997 From January 1, 1998 $15,000,000 through December 31, 1998, and for each fiscal year thereafter If the aggregate amount of Capital Expenditures for any period set forth in the schedule above shall be less than the amount set forth opposite such period in the schedule above, then 50% of the shortfall shall be added to the amount of Capital Expenditures permitted for the immediately succeeding period (but not any other) period and, for the purposes hereof, the amount of Capital Expenditures made during any period shall be deemed to have been made first from the permitted amount for such period set forth in the schedule above and last from the amount of any carryover from any previous period. Notwithstanding the foregoing, in addition to the Capital Expenditures permitted to be incurred as provided above the Company may make the following additional Capital Expenditures: (a) the acquisition of replacement Property in respect of an Excluded Disposition; (b) the purchase price paid by the Company or any of its Subsidiaries in respect of any acquisition permitted under Section 9.05(b)(iv) hereof; (c) Capital Expenditures not exceeding $6,000,000 during the period from and after the Closing Date to and including December 31, 1997 in respect of the expansion by Velda Farms of its facilities at 15 Winter Haven, Miami, Jacksonville and/or St. Petersburg, Florida; (d) Capital Expenditures made with the proceeds of property or casualty insurance for the purposes of repairing or replacing damaged or destroyed fixed or capital assets; and (e) any acquisition permitted under Section 9.05(b)(v) hereof." BB. Section 9.15 of the Existing Credit Agreement is amended by replacing the percentage "50%" with the percentage "75%" in the second sentence thereof. CC. Section 9.19(b) of the Existing Credit Agreement is hereby amended by adding the words "(other than the Garrido Negative Pledge Agreement)" after the word "arrangement" in the third line thereof. DD. Section 9.19(c) of the Existing Credit Agreement is hereby amended (1) by adding the words "(other than Garrido and Guest Choice)" immediately after the word "Subsidiaries" and after the word "Company" in the second and fourth lines thereof, respectively, (2) by replacing the words "the New Subsidiary Guarantee and Security Agreement" with the words "a Supplemental Subsidiary Guarantee and Security Agreement" in the fifth and sixth lines and in the eleventh and twelfth lines thereof, and (3) by adding the words "or to the Supplemental Credit Agreement" after the word "hereto" in the sixteenth line thereof. EE. Section 9.19(d) of the Existing Credit Agreement is hereby amended (1) by adding the words "(other than Garrido)" immediately after the word "Subsidiaries" in the third line thereof and (2) by adding the words "or to the Supplemental Credit Agreement" after the word "hereto" in the seventh line thereof. FF. Section 10(a) of the Existing Credit Agreement is hereby amended by adding the words "or under the Supplemental Credit Agreement" immediately after the words "any other Loan Document" in the sixth line thereof. GG. Section 10(b) of the Existing Credit Agreement is hereby amended by adding the words "or any Event of Default (as defined in the Supplemental Credit Agreement) shall occur and be continuing" after the word "liquidated" in the last line thereof. 16 HH. Section 10(n) of the Existing Credit Agreement is hereby deleted in its entirety. II. Section 11.05 of the Existing Credit Agreement is hereby amended by replacing the words "the New Subsidiary Guarantee and Security Agreement" with the words "each Supplemental Subsidiary Guarantee and Security Agreement" in the eighth line and in the twenty-eighth and twenty-ninth lines thereof. JJ. Section 11.08 of the Existing Credit Agreement is hereby amended (1) by deleting the word "are" at the end of the twelfth line thereof and (2) by deleting the words "that has an office in New York, New York" in the third sentence thereof. KK. Section 11.09 of the Existing Credit Agreement is hereby amended to read in its entirety as follows: "11.09 AGENCY FEE. So long as the Commitments are in effect and until payment in full of the principal of and interest on the Loans and all other amounts payable by the Company hereunder, the Company will pay to the Agent an agency fee in the amount agreed in writing between the Company and the Agent, payable quarterly in arrears commencing on September 30, 1996 and on the last day of each calendar quarter thereafter; PROVIDED that if the Commitments shall have been terminated prior to such date, the agency fee shall be payable on the date of such termination. Such fee, once paid, shall be non-refundable." LL. Section 12.03 of the Existing Credit Agreement is hereby amended by replacing the words "the New Subsidiary Guarantee and Security Agreement" with the words "each Supplemental Subsidiary Guarantee and Security Agreement" in the third sentence thereof. MM. Section 12.04 of the Existing Credit Agreement is hereby amended (1) by adding the words, "or modify Section 12.06(b)(iii) hereof" immediately after the word "hereof" in clause (a)(vii) thereof, (2) by replacing the words "the New Subsidiary Guarantee and Security Agreement" with the words "any Supplemental Subsidiary Guarantee and Security Agreement" in 17 clause (a)(viii) thereof, and (3) by deleting the words "or 7.02" in clause (a)(ix) thereof. NN. Section 12.06(b) of the Existing Credit Agreement is amended (1) by amending clauses (iii) and (iv) of the first sentence thereof to read in their entirety as follows: "(iii) each assignment by any Facility A Lender or Facility B Lender of any of its Loans (and related Note and Commitment) of a particular Class and (in the case of a Facility A Lender) its Letter of Credit Interest shall be made in such a manner so that (x) the same ratable portion of all of its Loans to the Company under this Agreement of the other Class (and related Notes and Commitments) and (if applicable) its Letter of Credit Interest is assigned to the respective assignee and (y) the same ratable portion of all of its Facility C Loans (and related Facility C Note and Facility C Commitment) under and as defined in the Supplemental Credit Agreement is assigned to the respective assignee; and (iv) any such assignment of less than all of such Lender's interests in the Facility A Loans, Facility B Loans and Facility C Loans, Facility A Notes, Facility B Notes and Facility C Notes, and Facility A Commitments, Facility B Commitments and Facility C Commitments, as the case may be, shall be in an aggregate amount at least equal to $10,000,000." and (2) by replacing the words "Notice of Assignment" with the words "Assignment and Acceptance" therein. OO. Section 12.12(b) of the Existing Credit Agreement is hereby amended by deleting the words "(or to Chase Securities, Inc.)" in clause (iv) thereof. PP. Schedules I through VII of the Existing Credit Agreement are replaced with Schedules I through VII of the Supplemental Credit Agreement. QQ. Exhibit D-3 of the Existing Credit Agreement is hereby deleted in its entirety. 18 3. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Agent and the Lenders that, after giving effect to the amendments to the Existing Credit Agreement set forth in Section 2 of this Amendment No. 2, (a) no Default has occurred and is continuing and (b) the representations and warranties set forth in Section 8 of the Credit Agreement and in each of the Security Documents are true and correct on the date hereof as if made on and as of the date hereof (or, if stated to have been made solely as of an earlier date, were true and correct as of such date) as if each reference (whether direct or indirect) therein to "this Agreement" included reference to this Amendment No. 2 and the Credit Agreement as amended hereby. 4. CONDITIONS PRECEDENT. The amendments to the Existing Credit Agreement set forth in Section 2 hereof shall become effective upon prior or simultaneous satisfaction of the condition precedent that the Agent shall have received the following, each of which shall be satisfactory to the Agent: (a) one or more counterparts of this Amendment No. 2 executed by each of the Company and the Lenders and consented to by the Subsidiary Guarantors listed on the signature pages hereof. (b) one or more counterparts of the Supplemental Credit Agreement executed by each of the parties thereto, together with evidence that all conditions precedent set forth in Section 6.01 of the Supplemental Credit Agreement shall have been satisfied or waived. (c) one or more counterparts of the Garrido Negative Pledge Agreement executed by each of the parties thereto. (d) certified copies of all corporate authority for each Obligor (including, without limitation, board of director resolutions and evidence of the incumbency of officers, together with specimen signatures of each such officer) with respect to the execution, delivery and performance of this Amendment No. 2, the Existing Credit Agreement as amended hereby and each such other document to which such Obligor is intended to be a party by the terms of this Amendment No. 2. 19 (e) opinions, appropriately dated, of Hughes & Luce and Axtmayer Adsuar Muniz & Goyco, each as counsel to the Obligors, covering such matters as the Agent or any Lender may reasonably request (and each Obligor hereby instructs such counsel to deliver such opinion to the Lenders and the Agent). (f) new Facility A Notes and Facility B Notes, duly completed and executed. (g) such other documents as the Agent or any Lender or special New York counsel to First Union may reasonably request. 5. MISCELLANEOUS. Except as herein provided, the Existing Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 2 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment No. 2 by signing any such counterpart. This Amendment No. 2 shall be governed by, and construed in accordance with, the law of the State of New York. Section 6. INTENTION OF THE PARTIES. Notwithstanding anything contained herein to the contrary, it is the intention of the parties hereto that this Amendment No. 2 represents a modification of, but not a novation or discharge of, the credit facilities provided by the Existing Credit Agreement. Section 7. SYNDICATION AGENT. The Syndication Agent named on the cover page of this Amendment No. 2 shall have no duties, obligations or responsibilities under the Credit Agreement except in its capacity as a Lender. 20 IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be duly executed and delivered as of the day and year first above written. COMPANY SUIZA FOODS CORPORATION By ------------------------------------ Title: LENDERS THE FIRST NATIONAL BANK OF CHICAGO By ------------------------------------ Title: FIRST UNION NATIONAL BANK OF NORTH CAROLINA By ------------------------------------ Title: HARRIS TRUST AND SAVINGS BANK By ------------------------------------ Title: THE BANK OF NOVA SCOTIA By ------------------------------------ Title: BANCO POPULAR DE PUERTO RICO 21 By ------------------------------------ Title: 22 BANK OF AMERICA ILLINOIS By ------------------------------------ Title: BANQUE PARIBAS By ------------------------------------ Title: By ------------------------------------ Title: CAISSE NATIONALE DE CREDIT AGRICOLE By ------------------------------------ Title: THE FUJI BANK, LIMITED, HOUSTON AGENCY By ------------------------------------ Title: THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH By ------------------------------------ Title: 23 AGENT FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Agent By ------------------------------------ Title: CONSENT AND AGREEMENT Each of the undersigned Subsidiary Guarantors hereby (1) consents to the amendments provided for in this Amendment No. 2, (2) agrees that each reference to the Credit Agreement in each Security Document (as defined in the Credit Agreement) to which such Subsidiary Guarantor is a party shall be a reference to the Credit Agreement as amended by this Amendment No. 2 and (3) confirms its obligations under each Security Document to which it is a party after giving effect to the amendments set forth in this Amendment No. 2. REDDY ICE CORPORATION SUIZA FRUIT CORPORATION By By -------------------------------- -------------------------------- Title: Title: VELDA FARMS, INC. NEVA PLASTICS MANUFACTURING CORP. By By -------------------------------- -------------------------------- Title: Title: SUIZA MANAGEMENT CORPORATION By -------------------------------- Title: 24 SUIZA DAIRY CORPORATION By -------------------------------- Title: EX-10.16 6 EXHIBIT 10.16 EXECUTION COPY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUIZA FOODS CORPORATION _____________________________ SUPPLEMENTAL CREDIT AGREEMENT $90,000,000 of $250,000,000 Aggregate Credit Facility Dated as of September 6, 1996 ______________________________ FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Agent THE FIRST NATIONAL BANK OF CHICAGO, as Syndication Agent - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS This Table of Contents is not part of the Agreement to which it is attached but is inserted for convenience of reference only. PAGE ---- Section 1. Definitions and Accounting Matters. . . . . . . . . . . . . . 1 1.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . 1 1.02 Accounting Terms and Determinations . . . . . . . . . . . . . 26 1.03 Types of Facility C Loans . . . . . . . . . . . . . . . . . . 27 Section 2. Facility C Commitments, Facility C Loans, Facility C Notes and Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.01 Facility C Loans. . . . . . . . . . . . . . . . . . . . . . . 27 2.02 Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.03 Changes of Facility C Commitments . . . . . . . . . . . . . . 28 2.04 Commitment Fee. . . . . . . . . . . . . . . . . . . . . . . . 28 2.05 Lending Offices . . . . . . . . . . . . . . . . . . . . . . . 28 2.06 Several Obligations; Remedies Independent . . . . . . . . . . 28 2.07 Facility C Notes. . . . . . . . . . . . . . . . . . . . . . . 29 2.08 Optional Prepayments and Conversions or Continuations of Facility C Loans. . . . . . . . . . . . . . . . . . . . . . . 29 2.09 Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . 30 Section 3. Payments of Principal and Interest. . . . . . . . . . . . . . 33 3.01 Repayment of Facility C Loans . . . . . . . . . . . . . . . . 33 3.02 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 4. Payments; Pro Rata Treatment; Computations; Etc. . . . . . . 34 4.01 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . 34 4.02 Pro Rata Treatment. . . . . . . . . . . . . . . . . . . . . . 35 4.03 Computations. . . . . . . . . . . . . . . . . . . . . . . . . 35 4.04 Minimum Amounts . . . . . . . . . . . . . . . . . . . . . . . 36 4.05 Certain Notices . . . . . . . . . . . . . . . . . . . . . . . 36 4.06 Non-Receipt of Funds by the Agent . . . . . . . . . . . . . . 37 4.07 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . 38 Section 5. Yield Protection, Etc. . . . . . . . . . . . . . . . . . . . 39 5.01 Additional Costs. . . . . . . . . . . . . . . . . . . . . . . 39 5.02 Limitation on Types of Facility C Loans . . . . . . . . . . . 42 (i) PAGE ---- 5.03 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . 43 5.04 Treatment of Affected Facility C Loans. . . . . . . . . . . . 43 5.05 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . 44 5.06 Net Payments; Taxes . . . . . . . . . . . . . . . . . . . . . 45 5.07 Replacement of Lenders. . . . . . . . . . . . . . . . . . . . 48 Section 6. Conditions Precedent. . . . . . . . . . . . . . . . . . . . . 49 6.01 Conditions to Effectiveness and Initial Lending . . . . . . . 49 6.02 Conditions Precedent to Lending for Permitted Acquisitions. . 52 6.03 Initial and Subsequent Loans. . . . . . . . . . . . . . . . . 58 Section 7. Representations and Warranties. . . . . . . . . . . . . . . . 59 7.01 Corporate Existence . . . . . . . . . . . . . . . . . . . . . 59 7.02 Financial Condition . . . . . . . . . . . . . . . . . . . . . 59 7.03 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 61 7.04 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . 61 7.05 Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 7.06 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 62 7.07 Use of Credit . . . . . . . . . . . . . . . . . . . . . . . . 62 7.08 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 7.09 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 7.10 Investment Company Act. . . . . . . . . . . . . . . . . . . . 63 7.11 Public Utility Holding Company Act. . . . . . . . . . . . . . 63 7.12 Material Agreements and Liens . . . . . . . . . . . . . . . . 63 7.13 Environmental Matters . . . . . . . . . . . . . . . . . . . . 64 7.14 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . 66 7.15 Subsidiaries, Etc.. . . . . . . . . . . . . . . . . . . . . . 67 7.16 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . 68 7.17 True and Complete Disclosure. . . . . . . . . . . . . . . . . 68 7.18 Real Property . . . . . . . . . . . . . . . . . . . . . . . . 68 7.19 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 8. Covenants of the Company. . . . . . . . . . . . . . . . . . . 69 8.01 Financial Statements, Etc.. . . . . . . . . . . . . . . . . . 69 8.02 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 73 8.03 Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . 73 8.04 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 74 8.05 Prohibition of Fundamental Changes. . . . . . . . . . . . . . 77 8.06 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . 78 8.07 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . 80 8.08 Investments . . . . . . . . . . . . . . . . . . . . . . . . . 81 (ii) PAGE ---- 8.09 Restricted Payments. . . . . . . . . . . . . . . . . . . . . 82 8.10 Leverage Ratios. . . . . . . . . . . . . . . . . . . . . . . 83 8.11 Minimum Net Worth. . . . . . . . . . . . . . . . . . . . . . 84 8.12 Fixed Charges Ratio. . . . . . . . . . . . . . . . . . . . . 84 8.13 Interest Coverage Ratio. . . . . . . . . . . . . . . . . . . 84 8.14 Capital Expenditures . . . . . . . . . . . . . . . . . . . . 85 8.15 Interest Rate Protection Agreements. . . . . . . . . . . . . 86 8.16 Lines of Business. . . . . . . . . . . . . . . . . . . . . . 86 8.17 Transactions with Affiliates . . . . . . . . . . . . . . . . 87 8.18 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . 87 8.19 Certain Obligations Respecting Subsidiaries; Additional Mortgaged Properties . . . . . . . . . . . . . . . . . . . . 87 8.20 Modifications of Certain Documents . . . . . . . . . . . . . 89 8.21 Further Assurances . . . . . . . . . . . . . . . . . . . . . 89 8.22 Subordinated Indebtedness. . . . . . . . . . . . . . . . . . 90 Section 9. Events of Default. . . . . . . . . . . . . . . . . . . . . . 91 Section 10. The Agent. . . . . . . . . . . . . . . . . . . . . . . . . . 95 10.01 Appointment, Powers and Immunities . . . . . . . . . . . . . 95 10.02 Reliance by Agent. . . . . . . . . . . . . . . . . . . . . . 96 10.03 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . 96 10.04 Rights as a Lender . . . . . . . . . . . . . . . . . . . . . 97 10.05 Indemnification. . . . . . . . . . . . . . . . . . . . . . . 97 10.06 Non-Reliance on Agent and Other Lenders. . . . . . . . . . . 98 10.07 Failure to Act . . . . . . . . . . . . . . . . . . . . . . . 98 10.08 Resignation or Removal of Agent. . . . . . . . . . . . . . . 98 10.09 Agency Fee . . . . . . . . . . . . . . . . . . . . . . . . . 99 10.10 Consents under Other Loan Documents. . . . . . . . . . . . . 99 10.11 Syndication Agent. . . . . . . . . . . . . . . . . . . . . . 100 Section 11. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . 100 11.01 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 11.02 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 100 11.03 Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . 100 11.04 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . 102 11.05 Successors and Assigns . . . . . . . . . . . . . . . . . . . 103 11.06 Assignments and Participations . . . . . . . . . . . . . . . 103 11.07 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 106 11.08 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . 106 11.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 106 (iii) PAGE ---- 11.10 Governing Law; Submission to Jurisdiction; Service of Process and Venue. . . . . . . . . . . . . . . . . . . . . . 106 11.11 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . 108 11.12 Treatment of Certain Information; Confidentiality. . . . . . 108 11.13 Intention of Parties . . . . . . . . . . . . . . . . . . . . 109 (iv) SCHEDULE I - Existing Material Agreements and Liens SCHEDULE II - Environmental Matters SCHEDULE III - Subsidiaries and Investments SCHEDULE IV - Real Property SCHEDULE V - Litigation SCHEDULE VI - Existing Puerto Rico Security Documents SCHEDULE VII - Existing Mortgages EXHIBIT A-1 - Form of Note EXHIBIT B - Form of Account Designation Letter EXHIBIT C-1 - Form of Amendment No. 2 to Security Agreement EXHIBIT C-2 - Form of Supplemental Subsidiary Guarantee and Security Agreement EXHIBIT C-3 - Form of Guarantee Agreement EXHIBIT D-1 - Form of Mortgage EXHIBIT D-2 - Form of Deed of Trust EXHIBIT E-1 - Form of Opinion of Counsel to the Obligors EXHIBIT E-2 - Form of Opinion of Puerto Rico Counsel to the Obligors EXHIBIT F - Form of Opinion of Local Counsel EXHIBIT G - Form of Opinion of Special New York Counsel to First Union EXHIBIT H - Form of Confidentiality Agreement EXHIBIT I - Form of Assignment and Acceptance EXHIBIT J - Form of Amendment No. 2 to Subordination Agreement (v) SUPPLEMENTAL CREDIT AGREEMENT dated as of September 6, 1996 between: SUIZA FOODS CORPORATION, a corporation duly organized and validly existing under the laws of the State of Delaware (the "COMPANY"); each of the lenders that is a signatory hereto identified under the caption "LENDERS" on the signature pages hereto or that, pursuant to Section 11.06(b) hereof, shall become a "Lender" hereunder (individually, a "LENDER" and collectively, the "LENDERS"); and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking association, as agent for the Lenders (in such capacity, together with its successors in such capacity, the "AGENT"). WHEREAS, the Company, certain Lenders and the Agent are party to an Amended and Restated Credit Agreement dated as of July 17, 1996, as amended by Amendment and Waiver dated as of August 7, 1996 and as amended by Amendment No. 2 dated of even date herewith (the "EXISTING CREDIT AGREEMENT") providing, subject to the terms and conditions thereof, for extensions of credit (by making of loans and issuing letters of credit) to be made by the Lenders party thereto, to the Company in an aggregate principal or face amount not exceeding $160,000,000. WHEREAS, the parties hereto now wish to supplement the Existing Credit Agreement, among other things, providing a new revolving credit facility for the purpose of providing financing for the acquisition by the Company or its Subsidiaries from time to time of assets, business or capital stock of certain Persons and related fees, commissions and expenses. WHEREAS, each of the Obligors (as hereinafter defined) expects to derive benefit, directly or indirectly, from the loans so made to the Company, both in its separate capacity and as a member of the integrated group, since the successful operation of each of the Company and its Subsidiaries is dependent on the continued successful performance of the functions of the integrated group as a whole. -2- Accordingly, the parties hereto hereby agree as follows: Section 1. DEFINITIONS AND ACCOUNTING MATTERS. 1.01 CERTAIN DEFINED TERMS. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1.01 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "ACCOUNT DESIGNATION LETTER" shall mean a letter in substantially the form of Exhibit B hereto. "ADDITIONAL PUERTO RICO SECURITY DOCUMENTS" shall have the meaning assigned to such term in Section 8.21 hereof. "AFFILIATE" shall mean any Person that directly or indirectly controls, or is under common control with, or is controlled by, the Company and, if such Person is an individual, any member of the immediate family (including parents, spouse, children and siblings) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), PROVIDED that, in any event, any Person that owns directly or indirectly securities having 10% or more of the voting power for the election of directors or other governing body of a corporation or 10% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person. Notwithstanding the foregoing, (a) no individual shall be an Affiliate solely by reason of his or her being a director, officer or employee of the Company or -3- any of its Subsidiaries and (b) none of the Wholly Owned Subsidiaries of the Company shall be Affiliates. "AMENDMENT NO. 2 TO SECURITY AGREEMENT" shall mean the Amendment No. 2 to Security Agreement substantially in the form of Exhibit C-1 hereto between the Company and the Agent, as the same shall be modified and supplemented and in effect from time to time. "APPLICABLE COMMITMENT FEE RATE" shall mean 0.375% per annum; PROVIDED that if the Leverage Ratio as at the last day of any fiscal quarter of the Company ending on or after the Closing Date shall fall within any of the ranges set forth below then, upon the delivery to the Agent of a certificate of a Responsible Financial Officer of the Company (which shall accompany the financial statements for such fiscal quarter delivered under Section 8.01(a) hereof on which the calculation of such Leverage Ratio is based) demonstrating such fact prior to the end of the next succeeding fiscal quarter, the "Applicable Commitment Fee Rate" shall be reduced to the rate per annum set forth below opposite such range during the period commencing on the third Business Day following the date of receipt of such certificate to but not including the date the next such certificate to be delivered under this definition is delivered or due, whichever is earlier (except that, notwithstanding the foregoing, the Applicable Commitment Fee Rate shall not as a consequence of this proviso be so reduced for any period during which an Event of Default shall have occurred and be continuing): RANGE OF LEVERAGE RATIO APPLICABLE COMMITMENT FEE RATE -------------- ------------------------------ Less than 2.0:1 0.20% Equal to or greater than 0.25% 2.0:1 but less than 2.50:1 -4- "APPLICABLE LENDING OFFICE" shall mean, for each Lender and for each Type of Loan, the "Lending Office" of such Lender (or of an affiliate of such Lender) designated for such Type of Loan on the signature pages hereof or such other office of such Lender (or of an affiliate of such Lender) as such Lender may from time to time specify to the Agent and the Company as the office by which its Facility C Loans of such Type are to be made and maintained. "APPLICABLE MARGIN" shall mean: with respect to Facility C Loans that are Base Rate Loans, 0.25% and/or Eurodollar Loans, 1.5% per annum; PROVIDED that if the Leverage Ratio as at the last day of any fiscal quarter of the Company ending on or after the Closing Date shall fall within any of the ranges set forth below then, upon the delivery to the Agent of a certificate of a Responsible Financial Officer of the Company (which shall accompany the financial statements for such fiscal quarter delivered under Section 8.01(a) hereof on which the calculation of such Leverage Ratio is based) demonstrating such fact prior to the end of the next succeeding fiscal quarter, the "Applicable Margin" for each Facility C Loan shall be adjusted upwards or downwards, as the case may be, to the rate per annum for the respective Type of Facility C Loan set forth below opposite such range during the period commencing on the third Business Day following the date of receipt of such certificate to but not including the date the next succeeding such certificate to be delivered hereunder is delivered or due, whichever is earlier (except that, notwithstanding the foregoing, the Applicable Margin for any such Facility C Loan shall not as a consequence of this proviso be so reduced for any period during which an Event of Default shall have occurred and be continuing): RANGE APPLICABLE MARGIN (% P.A.) OF ------------------------------------ LEVERAGE RATIO BASE RATE LOANS EURODOLLAR LOANS -------------- --------------- ---------------- Less than 2.0:1 0% 0.75% -5- Equal to or greater than 0% 1.0% 2.0:1 but less than 2.50:1 Equal to or greater than 0% 1.25% 2.50:1 but less than 3.25:1 Equal to or greater than 0.25% 1.50% 3.25:1 but less than 3.75:1 Equal to or greater than 0.50% 1.75% 3.75:1 but less than 4.0:1 Equal to or greater than 0.75% 2.00% 4.0:1 "BANKRUPTCY CODE" shall mean the Federal Bankruptcy Code of 1978, as amended from time to time. "BASE RATE" shall mean, for any day, a rate per annum equal to the higher of (a) the Federal Funds Rate for such day PLUS 1/2 of 1% and (b) the Prime Rate for such day. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate. "BASE RATE LOANS" shall mean Facility C Loans that bear interest at rates based upon the Base Rate. "BASIC DOCUMENTS" shall mean, collectively, the Loan Documents and, except for purposes of the definitions of "Secured Obligations" and "Guaranteed Obligations" in any of the Security Documents, the Purchase Agreements and the Subordinated Debt Documents. -6- "BUSINESS DAY" shall mean (a) any day on which commercial banks are not authorized or required to close in North Carolina and (b) if such day relates to a borrowing of, a payment or prepayment of principal of or interest on, a Conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice by the Company with respect to any such borrowing, payment, prepayment, Conversion or Interest Period, any day on which dealings in Dollar deposits are carried out in the London interbank market. "CAPITAL EXPENDITURES" shall mean, for any period, expenditures (including, without limitation, the aggregate amount of Capital Lease Obligations incurred during such period) made by the Company or any of its Subsidiaries to acquire or construct fixed assets, plant and equipment (including renewals, improvements and replacements, but excluding repairs) during such period computed in accordance with GAAP. "CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "CASUALTY EVENT" shall mean, with respect to any Property of any Person, any loss of or damage to, or any condemnation or other taking of, such Property for which such Person or any of its Subsidiaries receives insurance proceeds, proceeds of a condemnation award or other compensation. "CLOSING DATE" shall mean the date of the initial Facility C Loans hereunder. "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. -7- "COLLATERAL ACCOUNT" shall mean with respect to the Company and any of its Subsidiaries, the Collateral Account as defined in the Security Agreement. "COMMISSION" shall mean the Securities and Exchange Commission or any governmental agency substituted therefor. "COMMONWEALTH" shall mean the Commonwealth of Puerto Rico and its political subdivisions, municipalities, agencies and instrumentalities. "COMPANY" shall have the meaning assigned to such term in the preamble of this Agreement. "CONTINUE", "CONTINUATION" and "CONTINUED" shall refer to the continuation pursuant to Section 2.08 hereof of a Eurodollar Loan from one Interest Period to the next Interest Period. "CONVERT", "CONVERSION" and "CONVERTED" shall refer to a conversion pursuant to Section 2.08 hereof of one Type of Facility C Loans into another Type of Facility C Loans, which may be accompanied by the transfer by a Lender (at its sole discretion) of a Facility C Loan from one Applicable Lending Office to another. "DEBT SERVICE" shall mean, for any period, the sum, for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) all payments of principal of Indebtedness (including, without limitation, the principal component of any payments in respect of Capital Lease Obligations) scheduled to be made during such period PLUS (b) all Interest Expense for such period, it being understood that, if any installment of principal of the Facility C Loans or the Facility B Loans shall have been prepaid during or prior to such period, the amount of principal of the Facility C Loans and the Facility B Loans included in Debt Service for such period shall be equal to the aggregate amount of principal of the Facility C Loans and the Facility B Loans -8- originally scheduled to be paid hereunder and under the Existing Credit Agreement during such period. "DEFAULT" shall mean an Event of Default or an event that with notice or lapse of time or both would become an Event of Default. "DISPOSITION" shall mean any sale, assignment, transfer or other disposition of any Property (whether now owned or hereafter acquired) by the Company 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 and on ordinary business terms. "DIVIDEND PAYMENT" shall mean dividends (in cash, Property or obligations) on, or other payments or distributions on account of, or the setting apart of money for a sinking or other analogous fund for, or the purchase, redemption, retirement or other acquisition of, any shares of any class of stock of the Company or of any warrants, options or other rights to acquire the same (or to make any payments to any Person, such as "phantom stock" payments, where the amount thereof is calculated with reference to the fair market or equity value of the Company or any of its Subsidiaries), but excluding dividends payable solely in shares of common stock of the Company. "DOLLARS" and "$" shall mean lawful money of the United States. "EBITDA" shall mean, for any period, the sum, for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) operating income (calculated before income taxes, Interest Expense, extraordinary and unusual items and income or loss attributable to equity in Affiliates) for such period PLUS (b) depreciation and amortization (to the extent deducted in determining operating income) for such period PLUS (c) other income not exceeding $1,500,000 for such period. -9- "ENVIRONMENTAL CLAIM" shall mean, with respect to any Person, any written or oral notice, claim, demand or other communication (collectively, a "claim") by any other Person alleging or asserting such Person's liability for investigatory costs, cleanup costs, governmental response costs, damages to natural resources or other Property, personal injuries, fines or penalties arising out of, based on or resulting from (a) the presence, or Release into the environment, of any Hazardous Material at any location, whether or not owned by such Person, or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. The term "Environmental Claim" shall include, without limitation, any claim by any governmental authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence of Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. "ENVIRONMENTAL LAWS" shall mean any and all present and future Federal, state, local and foreign laws, rules or regulations, and any orders or decrees, in each case as now or hereafter in effect, relating to the regulation or protection of human health, safety or the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes into the indoor or outdoor environment, including, without limitation, ambient air, soil, surface water, ground water, wetlands, land or subsurface strata, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes. "EQUITY ISSUANCE" shall mean (a) any issuance or sale by the Company or any of its Subsidiaries after the Closing Date of (i) any capital stock, (ii) any warrants or options exercisable in respect of capital stock (other than any warrants or options issued to directors, officers or employees of the Company or any of its Subsidiaries, pursuant to employee benefit -10- plans established in the ordinary course of business and any capital stock of the Company or any of its Subsidiaries issued upon the exercise of such warrants or options) or (iii) any other security or instrument representing an equity interest (or the right to obtain any equity interest) in the Company or any of its Subsidiaries or (b) the receipt by the Company or any of its Subsidiaries whether directly (or indirectly through one or more of its Subsidiaries) after the Closing Date of any capital contribution (whether or not evidenced by any equity security issued by the recipient of such contribution); PROVIDED that Equity Issuance shall not include (x) any such issuance or sale by any Subsidiary of the Company to the Company or any Wholly Owned Subsidiary of the Company or (y) any capital contribution by the Company or any Wholly Owned Subsidiary of the Company to any Subsidiary of the Company. "EQUITY RIGHTS" shall mean, with respect to any Person, any 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 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" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA AFFILIATE" shall mean any corporation or trade or business that is a member of any group of organizations (i) described in Section 414(b) or (c) of the Code of which the Company is a member and (ii) solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which the Company is a member. "EURODOLLAR BASE RATE" shall mean, with respect to any Eurodollar Loan for any Interest Period therefor, the rate per -11- annum for deposits in Dollars for a period comparable to such Interest Period which appears on the Telerate Page 3750 as of 11:00 a.m. London time two Business Days preceding the first day of such Interest Period or, if Telerate Page 3750 is unavailable at such time, the rate which appears on the Reuters Screen ISDA Page as of such date and time; PROVIDED, however, that if Agent determines that the relevant foregoing source is unavailable for the relevant Interest Period, Eurodollar Base Rate shall mean the rate of interest determined by the Agent to be the average (rounded upward, if necessary, to the nearest 1/100th of 1%) of the rates per annum at which deposits in Dollars in immediately available funds are offered to the Agent or other money center banks two Business Days preceding the first day of such Interest Period by leading banks in the London interbank market as of 11:00 a.m. London time for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount comparable to the amount of the relevant Eurodollar Loan. "EURODOLLAR LOANS" shall mean Facility C Loans that bear interest at rates based on rates referred to in the definition of "Eurodollar Base Rate" in this Section 1.01. "EURODOLLAR RATE" shall mean, for any Eurodollar Loan for any Interest Period therefor, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the Eurodollar Base Rate for such Eurodollar Loan for such Interest Period divided by 1 MINUS the Reserve Requirement (if any) for such Eurodollar Loan for such Interest Period. "EVENT OF DEFAULT" shall have the meaning assigned to such term in Section 9 hereof. "EXCESS CASH FLOW" shall mean, for any period, the sum, determined without duplication, for the Company and its Subsidiaries, of (a) EBITDA for such period MINUS (b) Capital Expenditures made during such period (other than Capital Expenditures made from the proceeds of Indebtedness permitted under Section 8.07 hereof) MINUS (c) the aggregate amount of Debt -12- Service for such period PLUS (d) decreases (if any) (or MINUS increases (if any)) in Working Capital for such period, MINUS (e) income taxes paid in cash for such period. "EXCLUDED DISPOSITION" shall mean the Disposition of (i) an Investment Tax Credit or (ii) any motor vehicles or other equipment no longer used or useful in the business of the Company or any of its Subsidiaries to the extent the proceeds thereof are used to acquire similar replacement Property within a period of 30 days after the end of the fiscal quarter in which such Disposition was made. "EXISTING SUBSIDIARY GUARANTEE AND SECURITY AGREEMENT" shall mean the Subsidiary Guarantee and Security Agreement dated as of March 31, 1995 between each Subsidiary of the Company party thereto and the Agent, as the same shall be modified and supplemented and in effect from time to time. "FACILITY A COMMITMENT" shall have the meaning assigned thereto in the Existing Credit Agreement. "FACILITY A COMMITMENT PERCENTAGE" shall have the meaning assigned thereto in the Existing Credit Agreement. "FACILITY A LENDER" shall have the meaning assigned thereto in the Existing Credit Agreement. "FACILITY A LOAN" shall have the meaning assigned thereto in the Existing Credit Agreement. "FACILITY B COMMITMENT" shall have the meaning assigned thereto in the Existing Credit Agreement. "FACILITY B COMMITMENT PERCENTAGE" shall have the meaning assigned thereto in the Existing Credit Agreement. "FACILITY B LENDER" shall have the meaning assigned thereto in the Existing Credit Agreement. -13- "FACILITY B LOAN" shall have the meaning assigned thereto in the Existing Credit Agreement. "FACILITY C COMMITMENT" shall mean, for each Lender, the obligation of such Lender to make Facility C Loans to the Company in an aggregate amount at any one time outstanding up to but not exceeding the amount set forth opposite the name of such Lender on the signature pages hereof under the caption "Facility C Commitment" (as the same may be reduced from time to time pursuant to Section 2.03 hereof). The original aggregate principal amount of the Facility C Commitments is $90,000,000. "FACILITY C COMMITMENT PERCENTAGE" shall mean, with respect to any Facility C Lender, the ratio of (a) the amount of the Facility C Commitment of such Lender to (b) the aggregate amount of the Facility C Commitments of all of the Facility C Lenders. "FACILITY C COMMITMENT TERMINATION DATE" shall mean the Quarterly Date falling on or nearest to September 30, 1998. "FACILITY C LENDERS" shall mean the Lenders having Facility C Commitments and/or holding Facility C Loans from time to time. "FACILITY C LOANS" shall mean the loans provided for by Section 2.01(a) hereof, which may be Base Rate Loans and/or Eurodollar Loans. "FACILITY C NOTES" shall mean the promissory notes provided for by Section 2.07(a) hereof and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as -14- published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, PROVIDED that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day and (b) if such rate is not so published for any Business Day, the Federal Funds Rate for such Business Day shall be the average rate charged to First Union on such Business Day on such transactions as determined by the Agent. "FIRST UNION" shall mean First Union National Bank of North Carolina. "FIXED CHARGES" shall mean, for any period, the sum, for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) the aggregate amount of Debt Service for such period, PLUS (b) the aggregate amount of taxes paid in respect of the income or profit of the Company and its Subsidiaries for such period, PLUS (c) Capital Expenditures made during such period, PLUS (d) any Dividend Payments made for such period PLUS (e) Management Fees for such period (but only to the extent such Management Fees are not included in the calculation of EBITDA); provided that Capital Expenditures shall not include Capital Expenditures permitted to be incurred pursuant to the last sentence of Section 8.14 hereof. "FIXED CHARGES RATIO" shall mean, as at any date, the ratio of (a) EBITDA for the period of four consecutive fiscal quarters ending on or most recently ended prior to such date to (b) Fixed Charges for such period. "GAAP" shall mean generally accepted accounting principles applied on a basis consistent with those that, in accordance with the last sentence of Section 1.02(a) hereof, are to be used in making the calculations for purposes of determining compliance with this Agreement. -15- "GARRIDO" shall mean Garrido y Compania, Inc., a Puerto Rico corporation. "GARRIDO NEGATIVE PLEDGE AGREEMENT" shall have the meaning assigned to such term in the Existing Credit Agreement. "GUARANTEE" shall mean a guarantee, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any Person, or a guarantee of the payment of dividends or other distributions upon the stock or equity interests of any Person, or an agreement to purchase, sell or lease (as lessee or lessor) Property, products, materials, supplies or services primarily for the purpose of enabling a debtor to make payment of such debtor's obligations or an agreement to assure a creditor against loss, and including, without limitation, causing a bank or other financial institution to issue a letter of credit or other similar instrument for the benefit of another Person, but excluding endorsements for collection or deposit in the ordinary course of business. The terms "GUARANTEE" and "GUARANTEED" used as a verb shall have a correlative meaning. "GUARANTEE AGREEMENT" shall mean the Guarantee Agreement substantially in the form of Exhibit C-3. "HAZARDOUS MATERIAL" shall mean, collectively, (a) any petroleum or petroleum products, flammable materials, explosives, radioactive materials, asbestos, urea formaldehyde foam insulation, and transformers or other equipment that contain polychlorinated biphenyls ("PCB'S"), (b) any chemicals or other materials or substances that are now or hereafter become defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants", "contaminants", "pollutants" or words of similar import under any Environmental Law and (c) any other chemical or other material or substance, exposure to which is now -16- or hereafter prohibited, limited or regulated under any Environmental Law. "INDEBTEDNESS" shall mean, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 120 days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person; (d) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital Lease Obligations of such Person; and (f) Indebtedness of others Guaranteed by such Person. "INTEREST COVERAGE RATIO" shall mean, as at any date, the ratio of (a) EBITDA for a period of four consecutive fiscal quarters ending on, or most recently ended prior to, such date to (b) Interest Expense for such period. "INTEREST EXPENSE" shall mean, for any period, the sum, for the Company and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) all interest in respect of Indebtedness (including, without limitation, the interest component of any payments in respect of Capital Lease Obligations, but excluding amortization of any deferred loan costs incurred in connection with the transactions contemplated hereby or by the Existing Credit Agreement) capitalized or expensed during such period (whether or not actually paid during such period), but excluding any non-cash interest, PLUS (b) the net amount payable (or MINUS the net amount receivable) under Interest Rate Protection -17- Agreements during such period (whether or not actually paid or received during such period) MINUS (c) all interest income for such period. "INTEREST PERIOD" shall mean with respect to any Eurodollar Loan, each period commencing on the date such Eurodollar Loan is made or Converted from a Base Rate Loan or the last day of the next preceding Interest Period for such Eurodollar Loan and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Company may select as provided in Section 4.05 hereof, except that each Interest Period for a Eurodollar Loan that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (i) no Interest Period for any Eurodollar Loan may commence before and end after any Principal Payment Date for the Facility C Loans unless, after giving effect thereto, the aggregate principal amount of the Facility C Loans having Interest Periods that end after such Principal Payment Date shall be equal to or less than the aggregate principal amount of the Facility C Loans scheduled to be outstanding after giving effect to the payments of principal required to be made on such Principal Payment Date; (ii) each Interest Period that would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); and (iii) notwithstanding clauses (i) and (ii) above, no Interest Period shall have a duration of less than one month for any Facility C Loan and, if the Interest Period for any such Facility C Loan would otherwise be a shorter period, such Facility C Loan shall not be available as a Eurodollar Loan hereunder for such period. "INTEREST RATE PROTECTION AGREEMENT" shall mean, for any Person, an interest rate swap, cap or collar agreement or similar arrangement between such Person and one or more financial institutions providing for the transfer or mitigation of interest risks either generally or under specific contingencies. -18- "INTEREST RATE PROTECTION OBLIGATIONS" shall mean the obligations of any Obligor in respect of Interest Rate Protection Agreements permitted under Section 8.08(d) hereof. "INVESTMENT" shall mean, 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 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 inventory or supplies sold by such Person 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) the entering into of any Interest Rate Protection Agreement. "INVESTMENT TAX CREDIT" shall mean an investment tax credit to which the Company or any of its Subsidiaries may be entitled pursuant to the Puerto Rico Agricultural Tax Incentives Act of 1995. "LEVERAGE RATIO" shall mean, as at any date, the ratio of (a) the aggregate outstanding principal amount of Indebtedness at such date to (b) EBITDA for the period of four consecutive fiscal quarters ending on, or most recently ended prior to, such date; provided that if the Company or any of its Subsidiaries shall have acquired any business, Property or Person during such period (whether before, on or after the date hereof), EBITDA shall, to the extent the Company shall have delivered audited financial statements (or, if audited financial statements are not -19- available to the Company, unaudited financial statements (i) reviewed by independent certified accountants of recognized national standing and acceptable to the Agent and (ii) in form satisfactory to the Agent) for the acquired business, Property or Person for such period, be adjusted to reflect on a pro forma basis EBITDA for such business, Property or Person as if such business, Property or Person had been acquired at the beginning of such period. "LIEN" shall mean, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property. For purposes of this Agreement and the other Loan Documents, a Person shall be deemed to own, subject to a Lien, any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement (other than an operating lease) relating to such Property. "LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Existing Credit Agreement, the Facility C Notes, the Facility A Notes, the Facility B Notes and the Security Documents. "MAJORITY LENDERS" shall mean, as at any time, Lenders having at least a majority of the sum of (a) the aggregate unused amount, if any, of the Facility C Commitments as at such time PLUS (b) the aggregate outstanding principal amount of the Facility C Loans at such time. "MANAGEMENT FEES" shall mean, for any period, any amounts paid or incurred by the Company or any of its Subsidiaries to any Person on account of fees, salaries and other compensation in respect of services rendered in connection with the management or supervision of the Company and/or any of its Subsidiaries (but excluding customary and reasonable compensation and other benefits paid or provided to officers, employees and directors for services rendered to the Company or any of its Subsidiaries in such capacities or any such amounts by any -20- Subsidiary of the Company to the Company or any other Subsidiary of the Company). "MARGIN STOCK" shall mean "margin stock" within the meaning of Regulations U and X. "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a) the Property, business, operations, financial condition, prospects, liabilities or capitalization of the Company and its Subsidiaries taken as a whole, (b) the ability of any Obligor to perform its obligations under any of the Loan Documents to which it is a party, (c) the validity or enforceability of any of the Loan Documents, (d) the rights and remedies of the Lenders and the Agent under any of the Loan Documents or (e) the timely payment of the principal of or interest on the Facility C Loans or other amounts payable in connection therewith or under the Loan Documents. "MORTGAGES" shall mean, collectively, (a) the mortgages or deeds of trust identified in Schedule VII hereto and (b) one or more mortgages or deeds of trust, in the respective forms of Exhibits D-1 and D-2 hereto or of Exhibits D-1 and D-2 to the Existing Credit Agreement (with such modifications thereto requested by the Agent as may be appropriate to effect a lien on real property in the state where the respective property to be covered by such instrument is located), executed by the respective Obligors who own or lease such property in favor of the Agent (or, in the case of a deed of trust, in favor of the trustee for the benefit of the Agent and the Lenders and/or the lenders under the Existing Credit Agreement, as the case may be) pursuant to Sections 8.19(c) or 8.19(d) hereof or Sections 9.19(c) or 9.19(d) of the Existing Credit Agreement covering the respective Properties and/or leasehold interests identified in Schedule IV hereto or subject to the requirements of said Sections 8.19(c), 8.19(d), 9.19(c) or 9.19(d), as the case may be, in each case as the same shall be modified and supplemented and in effect from time to time. "MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions -21- have been made by the Company or any ERISA Affiliate and that is covered by Title IV of ERISA. "NET AVAILABLE PROCEEDS" shall mean: (a) in the case of any Disposition, the amount of Net Cash Payments received in connection with such Disposition; (b) in the case of any Casualty Event, the aggregate amount of proceeds of insurance, condemnation awards and other compensation received by the Company and its Subsidiaries in respect of such Casualty Event net of (i) reasonable expenses incurred by the Company and its Subsidiaries in connection therewith and (ii) contractually required repayments of Indebtedness to the extent secured by a Lien on such Property and any income and transfer taxes payable by the Company or any of its Subsidiaries in respect of such Casualty Event; and (c) in the case of any Equity Issuance, the aggregate amount of all cash received by the Company and its Subsidiaries in respect of such Equity Issuance net of reasonable expenses incurred by the Company and its Subsidiaries in connection therewith. "NET CASH PAYMENTS" shall mean, with respect to any Disposition, the aggregate amount of all cash payments, and the fair market value of any non-cash consideration, received by the Company and its Subsidiaries directly or indirectly in connection with such Disposition; PROVIDED that (a) Net Cash Payments shall be net of (i) the amount of any legal, title and recording tax expenses, commissions and other fees and expenses paid by the Company and its Subsidiaries in connection with such Disposition and (ii) any Federal, state and local income or other taxes estimated to be payable by the Company and its Subsidiaries as a result of such Disposition (but only to the extent that such estimated taxes are in fact paid to the relevant Federal, state or local governmental authority within six months of the date of such Disposition) and (b) Net Cash Payments shall be net of any repayments by the Company or any of its Subsidiaries of Indebt- -22- edness to the extent that (i) such Indebtedness is secured by a Lien on the Property that is the subject of such Disposition and (ii) the transferee of (or holder of a Lien on) such Property requires that such Indebtedness be repaid as a condition to the Disposition thereof. "NET PURCHASE PRICE" shall mean 100% of the purchase price (including noncash compensation) paid by the Company or any of its Subsidiaries for any business, Property or Person in connection with a Permitted Acquisition MINUS any cash on the balance sheet of the Person or included in the business or Property being acquired pursuant to such Permitted Acquisition. "NET WORTH" shall mean, as at any date, the sum for the Company and its Subsidiaries (determined on a consolidated basis without duplication) of (a) the amount of capital stock PLUS (b) the amount of additional paid-in capital plus (c) the amount of retained earnings (or, in the case of any retained earnings deficit, MINUS the amount of such deficit). "NEVA PLASTICS" shall mean Neva Plastics Manufacturing Corp., a Delaware corporation. "OBLIGOR" shall mean the Company and each Subsidiary of the Company party to any Security Document. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PERMITTED ACQUISITION" shall mean any acquisition by the Company or any of its Subsidiaries of any business or Property from, or capital stock of, any Person, PROVIDED that, unless otherwise consented to in writing by the Majority Lenders (i) if the Net Purchase Price for such acquisition shall be greater than or equal to $10,000,000, then such Net Purchase Price shall not be greater than 6.5 times the sum of the components of the definition of EBITDA herein (including pro forma adjustments satisfactory to the Agent) calculated for the business, Property or Person to be acquired for the period of 12 -23- months preceding the date of the proposed acquisition, (ii) the Net Purchase Price of such acquisition shall not exceed $30,000,000 (other than the Swiss Dairy Acquisition, which shall not exceed $54,000,000), (iii) if the subject of such acquisition is a Person, the Company and/or its Subsidiaries shall not acquire less than 90% of the issued and outstanding ownership interests (including, without limitation, warrants, options or other securities convertible into ownership interests) in such Person, (iv) prior to such acquisition, the Company shall have delivered to the Agent for further distribution to the Lenders copies of the proposed acquisition agreement relating to such acquisition, all material documents related thereto and at the reasonable request of the Agent, such other material information respecting such business, Property or Person, as the case may be, obtained by the Company in the exercise of its due diligence, (v) at the time of such acquisition, the Company or its Subsidiary, as the case may be, shall grant a security interest in such business or Property or pledge such ownership interests to the Agent for the benefit of the Lenders, (vi) such business, Property or Persons shall be in the same line or lines of business currently engaged in by the Company or any of its Subsidiaries and (vii) on a pro forma basis, after giving effect to such acquisition, the Company shall be in compliance with Sections 8.10, 8.11, 8.12, 8.13 and 8.14 hereof. "PERMITTED INVESTMENTS" shall mean: (a) direct obligations of the United States, or of any agency thereof, or obligations guaranteed as to principal and interest by the United States, or of any agency thereof, in either case maturing not more than one year from the date of acquisition thereof; (b) direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of such acquisition, having the highest rating obtainable from either Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. ("S&P") or Moody's Investors Services, Inc. ("MOODY'S"); (c) certificates of deposit issued by any bank or trust company organized under the laws of the United States or any state thereof or the Commonwealth and having capital, surplus and undivided profits of at least -24- $500,000,000, maturing not more than six months from the date of acquisition thereof; (d) commercial paper rated A-1 or better or P-1 by S&P or Moody's, respectively, maturing not more than six months from the date of acquisition thereof; and (e) Eurodollar time deposits having a maturity of less than six months purchased directly from any such bank (whether such deposit is with such bank or any other such bank). "PERSON" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof). "PLAN" shall mean an employee benefit or other plan established or maintained by the Company or any ERISA Affiliate and that is covered by Title IV of ERISA, other than a Multiemployer Plan. "POST-DEFAULT RATE" shall mean, in respect of any principal of any Facility C Loan or any other amount under this Agreement, any Facility C Note or any other Loan Document that is not paid when due (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise), and in respect of any principal of any Facility C Loan during any period commencing upon the occurrence of any Event of Default and thereafter for so long as any Event of Default shall be continuing, a rate per annum during the period from and including the due date to but excluding the earlier of the date on which such amount is paid in full or such Event of Default ceases to be continuing equal to 2% PLUS the Base Rate as in effect from time to time PLUS the Applicable Margin for Base Rate Loans (PROVIDED that, if the amount so in default is principal of a Eurodollar Loan and the due date thereof is a day other than the last day of the Interest Period therefor, the "Post-Default Rate" for such principal shall be, for the period from and including such due date to but excluding the last day of such Interest Period, 2% PLUS the interest rate for such Eurodollar Loan as provided in Section 3.02(b) hereof and, thereafter, the rate provided for above in this definition). -25- "PRIME RATE" shall mean the rate of interest from time to time announced by First Union at its principal office as its prime commercial lending rate. "PRINCIPAL PAYMENT DATES" shall mean the Quarterly Dates falling on or nearest to March 31, June 30, September 30 and December 31 of each year, commencing with September 30, 1998, through and including March 31, 2002. "PROCESS AGENT" shall have the meaning assigned to such term in Section 11.10(c) hereof. "PROPERTY" shall mean any right or interest in or to property of any kind whatsoever, whether real, personal (including, without limitation, cash) or mixed and whether tangible or intangible. "PUERTO RICO SECURITY DOCUMENTS" shall mean each of the agreements listed in Schedule VI hereto, and each of the Additional Puerto Rico Security Documents, in each case as any such agreement shall be modified and supplemented and in effect from time to time. "PURCHASE AGREEMENTS" shall mean, collectively, each Purchase Agreement between the Company or any of its Subsidiaries and the seller of the business, Property or Person purchased by the Company or such Subsidiary pursuant to a Permitted Acquisition financed under this Agreement. "QUARTERLY DATES" shall mean the last Business Day of March, June, September and December in each year, the first of which shall be September 30, 1996. "REGULATIONS A, D, U AND X" shall mean, respectively, Regulations A, D, U and X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be modified and supplemented and in effect from time to time. "REGULATORY CHANGE" shall mean, with respect to any Lender, any change after the date of this Agreement in United -26- States, Federal, state or foreign law or regulations or in the law or regulations of the Commonwealth (including, without limitation, Regulation D) or the adoption or making after such date of any interpretation, directive or request applying to a class of banks including such Lender of or under any Federal, state or foreign law or regulations or in the law or regulations of the Commonwealth (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "RELEASE" shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata. "RESERVE REQUIREMENT" shall mean, for any Interest Period for any Eurodollar Loan, the average maximum rate at which reserves (including, without limitation, any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding one billion Dollars against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall include any other reserves required to be maintained by such member banks by reason of any Regulatory Change with respect to (i) any category of liabilities that includes deposits by reference to which the Eurodollar Base Rate is to be determined as provided in the definition of "Eurodollar Base Rate" in this Section 1.01 or (ii) any category of extensions of credit or other assets that includes Eurodollar Loans. "RESPONSIBLE FINANCIAL OFFICER" shall mean, with respect to any Person, the Chairman of the Board of Directors, the President, the Chief Executive Officer, the Chief Financial Officer or the Treasurer of such Person. -27- "SECURITY AGREEMENT" shall mean the Security Agreement dated as of March 31, 1995 between the Company and the Agent, as amended by the Amendment to Security Agreement dated as of July 17, 1996 between the Company and the Agent and as amended by Amendment No. 2 to the Security Agreement and as further modified and supplemented and in effect from time to time. "SECURITY DOCUMENTS" shall mean, collectively, the Security Agreement, the Mortgages, each Supplemental Subsidiary Guarantee and Security Agreement, the Existing Subsidiary Guarantee and Security Agreement, the Guarantee Agreement, the Puerto Rico Security Documents, all Uniform Commercial Code financing statements and/or other filings required hereby or thereby to be filed with respect to the security interests in personal Property and fixtures created pursuant hereto or thereto, and the Subordination Agreement. "SENIOR INDEBTEDNESS" shall mean (a) the principal of, and accrued interest on, the Facility C Loans and all other amounts owing from time to time hereunder and under the other Loan Documents and (b) all other amounts constituting "Senior Indebtedness" under, and as such term is defined in, the Subordinated Note Purchase Agreement. "SENIOR INTEREST COVERAGE RATIO" shall mean, as at any date, the ratio of (a) EBITDA for a period of four consecutive fiscal quarters ending on, or most recently ended prior to, such date to (b) Interest Expense in respect of Senior Indebtedness for such period. "SENIOR LEVERAGE RATIO" shall mean, as at any date, the ratio of (a) the aggregate outstanding principal amount of Senior Indebtedness at such date to (b) EBITDA for the period of four consecutive fiscal quarters ending on or most recently ended prior to such date; provided that if the Company or any of its Subsidiaries shall have acquired any business, Property or Person during such period (whether before, on or after the date hereof), EBITDA shall, to the extent the Company shall have delivered audited financial statements (or, if audited financial statements are not available to the Company, unaudited financial statements -28- (i) reviewed by independent certified accountants of recognized national standing and acceptable to the Majority Lenders, and (ii) in form satisfactory to the Majority Lenders) for the acquired business, Property or Person for such period, be adjusted to reflect on a pro forma basis EBITDA for such business, Property or Person as if such business, Property or Person had been acquired at the beginning of such period. "SENIOR SUBORDINATED NOTES" shall mean the Notes (as such term is defined in the Note Purchase Agreement) issued under the Subordinated Note Purchase Agreement in an original aggregate principal amount of $50,699,076.40, in each case as the same shall be modified and supplemented and in effect from time to time (subject to compliance with Section 8.22 hereof and Section 9 of the Subordination Agreement). "SDC" shall mean Swiss Dairy, a Corporation, a California corporation. "SUBORDINATED INDEBTEDNESS" shall mean the indebtedness, liabilities and obligations of the Company and/or its Subsidiaries owing from time to time under or in respect of the Subordinated Note Purchase Agreement, the Senior Subordinated Notes and the other Subordinated Debt Documents. "SUBORDINATED DEBT DOCUMENTS" shall mean (a) the Subordinated Note Purchase Agreement, (b) the Senior Subordinated Notes, (c) the Guarantees (as such term is defined in the Subordinated Note Purchase Agreement) and (d) the Subordination Agreement, in each case as the same shall be modified and supplemented and in effect from time to time (subject to compliance with Section 8.22 hereof and Section 9 of the Subordination Agreement). "SUBORDINATED NOTE PURCHASE AGREEMENT" shall mean the Note Purchase Agreement dated as of March 31, 1995 by and among the Company, John Hancock Mutual Life Insurance Company, John Hancock Life Insurance Company of America, Pacific Mutual Life Insurance Company and PM Group Life Insurance Co., providing for the issuance of the Subordinated Indebtedness, as the same shall -29- be modified and supplemented and in effect from time to time (subject to compliance with Section 8.22 hereof and Section 9 of the Subordination Agreement). "SUBORDINATION AGREEMENT" shall mean the Subordination Agreement dated as of March 31, 1995 by and among the Company and each of its Subsidiaries, John Hancock Mutual Life Insurance Company, John Hancock Life Insurance Company of America, Pacific Mutual Life Insurance Company and PM Group Life Insurance Co. and the Agent, as heretofore amended and as amended by Amendment No. 2 thereto substantially in the form of Exhibit J hereto, as the same shall be modified and supplemented and in effect from time to time. "SUBSIDIARY" shall mean, with respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "SUBSIDIARY GUARANTORS" shall mean Suiza Dairy Corporation, Suiza Fruit Corporation, Neva Plastics Manufacturing Corp., Reddy Ice Corporation, Velda Farms, Inc. and Suiza Management Corporation, each a Delaware corporation, and each Supplemental Guarantor. "SUIZA DAIRY" shall mean Suiza Dairy Corporation, a Delaware corporation. "SUIZA FRUIT" shall mean Suiza Fruit Corporation, a Delaware corporation. -30- "SUPPLEMENTAL GUARANTOR" shall mean each corporation or other entity that shall become a Subsidiary of the Company pursuant to a Permitted Acquisition financed under this Agreement. "SUPPLEMENTAL SUBSIDIARY GUARANTEE AND SECURITY AGREEMENT" shall mean any Supplemental Subsidiary Guarantee and Security Agreement substantially in the form of Exhibit C-2 hereto, as the same shall be modified and supplemented and in effect from time to time. "SWISS DAIRY" shall mean Swiss Dairy Corporation, a Delaware corporation and a Wholly Owned Subsidiary of the Company. "SWISS DAIRY ACQUISITION" shall mean the acquisition by the Company of certain of the assets and the assumption of certain liabilities of SDC substantially on the terms and conditions set forth in the Swiss Dairy Purchase Agreement. "SWISS DAIRY PURCHASE AGREEMENT" shall mean the Asset Purchase Agreement made and entered into as of September 5, 1996 by and among the Company, Swiss Dairy, SDC and the principal stockholders of SDC identified on the signature pages thereof, as the same shall be modified and supplemented and in effect from time to time. "TAXES" shall have the meaning assigned to such term in Section 5.06(a) hereof. "TYPE" shall have the meaning assigned to such term in Section 1.03 hereof. "UNITED STATES" shall mean the United States of America. "U.S. TAXES" shall have the meaning assigned to such term in Section 5.06(b) hereof. -31- "WHOLLY OWNED SUBSIDIARY" shall mean, with respect to any Person, any corporation, partnership or other entity of which all of the equity securities or other ownership interests (other than, in the case of a corporation, directors' qualifying shares) are directly or indirectly owned or controlled by such Person or one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. "WORKING CAPITAL" shall mean, for any period, the excess of (a) the aggregate amount of inventory, accounts receivable and prepaid expenses of the Company and its Subsidiaries over (b) the aggregate amount of accounts payable and current accrued expenses of the Company and its Subsidiaries. 1.02 ACCOUNTING TERMS AND DETERMINATIONS. (a) Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Lenders hereunder shall (unless otherwise disclosed to the Lenders in writing at the time of delivery thereof in the manner described in subsection (b) below) be prepared, in accordance with generally accepted accounting principles applied on a basis consistent with those used in the preparation of the latest financial statements furnished to the Lenders hereunder. All calculations made for the purposes of determining compliance with this Agreement shall (except as otherwise expressly provided herein) be made by application of generally accepted accounting principles applied on a basis consistent with those used in the preparation of the latest annual or quarterly financial statements furnished to the Lenders pursuant to Section 8.01 hereof unless (i) the Company shall have objected to determining such compliance on such basis at the time of delivery of such financial statements or (ii) the Majority Lenders shall so object in writing within 30 days after delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made. -32- (b) The Company shall deliver to the Lenders at the same time as the delivery of any annual or quarterly financial statement under Section 8.01 hereof (i) a description in reasonable detail of any material variation between the application of accounting principles employed in the preparation of such statement and the application of accounting principles employed in the preparation of the next preceding annual or quarterly financial statements as to which no objection has been made in accordance with the last sentence of subsection (a) above and (ii) reasonable estimates of the difference between such statements arising as a consequence thereof. (c) To enable the ready and consistent determination of compliance with the covenants set forth in Section 8 hereof, the Company will not, without the prior consent of the Majority Lenders, change the last day of its fiscal year from December 31 of each year, or the last days of the first three fiscal quarters in each of its fiscal years from March 31, June 30 and September 30 of each year, respectively. 1.03 TYPES OF FACILITY C LOANS. Facility C Loans hereunder are distinguished by "Type". The "Type" of a Facility C Loan refers to whether such Facility C Loan is a Base Rate Loan or a Eurodollar Loan, each of which constitutes a Type. Section 2. FACILITY C COMMITMENTS, FACILITY C LOANS, FACILITY C NOTES AND PREPAYMENTS. 2.01 FACILITY C LOANS. (a) FACILITY C LOANS. Each Lender severally agrees, on the terms and conditions of this Agreement, to make loans to the Company in Dollars during the period from and including the date hereof to but not including the Facility C Commitment Termination Date in an aggregate principal amount at any one time outstanding up to but not exceeding the amount of the Facility C Commitment of such Lender as in effect from time to time. Subject to the terms and conditions of this Agreement, during such period the Company may borrow, repay and reborrow the amount of the Facility C Commitments by means of Base Rate Loans and/or -33- Eurodollar Loans and prior to the final maturity date of the Facility C Loans may Convert Facility C Loans of one Type into Facility C Loans of another Type (as provided in Section 2.08 hereof) or Continue Facility C Loans of one Type as Facility C Loans of the same Type (as provided in Section 2.08 hereof). (b) LIMIT ON CERTAIN FACILITY C LOANS. No more than four separate Interest Periods in respect of Eurodollar Loans from each Lender may be outstanding at any one time. 2.02 BORROWINGS. (a) The Company shall give the Agent notice of each borrowing hereunder as provided in Section 4.05 hereof. (b) With respect to each borrowing, not later than 3:30 p.m. Charlotte, North Carolina time on the date specified for such borrowing, each Lender shall make available the amount of the Facility C Loan or Facility C Loans to be made by it to the Company on such date to the Agent at any account designated by the Agent, in immediately available funds, for account of the Company. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Company by depositing the same, in immediately available funds, in an account designated by the Company or otherwise upon its instructions. 2.03 CHANGES OF FACILITY C COMMITMENTS. (a) The Company shall have the right at any time or from time to time (i) so long as no Facility C Loans are outstanding, to terminate the Facility C Commitments, and (ii) to reduce the aggregate unused amount of any of the Facility C Commitments; PROVIDED that (x) the Company shall give notice of each such termination or reduction as provided in Section 4.05 hereof and (y) each such partial reduction shall be in an aggregate amount at least equal to $2,000,000 (or a larger multiple of $1,000,000). -34- (b) The Facility C Commitments once terminated or reduced may not be reinstated. 2.04 COMMITMENT FEE. The Company shall pay to the Agent for account of each Lender a commitment fee on the daily average unused amount of such Lender's Facility C Commitment, for the period from and including the date hereof to but not including the earlier of the date such Facility C Commitment is terminated and the Facility C Commitment Termination Date, at a rate per annum equal to the Applicable Commitment Fee Rate. Accrued commitment fees shall be payable on each Quarterly Date and on the earlier of (i) the date the relevant Facility C Commitments are terminated and (ii) the Facility C Commitment Termination Date. 2.05 LENDING OFFICES. The Facility C Loans of each Type made by each Lender shall be made and maintained at such Lender's Applicable Lending Office for Facility C Loans of such Type. 2.06 SEVERAL OBLIGATIONS; REMEDIES INDEPENDENT. The failure of any Lender to make any Facility C Loan to be made by it on the date specified therefor shall not relieve any other Lender of its obligation to make its Facility C Loan on such date, but neither any Lender nor the Agent shall be responsible for the failure of any other Lender to make a Facility C Loan to be made by such other Lender, and no Lender shall have any obligation to the Agent or any other Lender for the failure by such Lender to make any Facility C Loan required to be made by such Lender. The amounts payable by the Company at any time hereunder and under the Facility C Notes to each Lender shall be a separate and independent debt and each Lender shall be entitled, subject to the prior written consent of the Majority Lenders, to protect and enforce its rights arising out of this Agreement and the Facility C Notes, and it shall not be necessary for any other Lender or the Agent to be joined as an additional party in, any proceedings for such purposes. -35- 2.07 FACILITY C NOTES. (a) The Facility C Loans made by each Lender shall be evidenced by a single promissory note of the Company substantially in the form of Exhibit A hereto, dated the date hereof, payable to such Lender in a principal amount equal to the amount of its Facility C Commitment as originally in effect and otherwise duly completed. (b) The date, amount, Type, interest rate and duration of Interest Period (if applicable) of each Facility C Loan made by each Lender, and each payment made on account of the principal thereof, shall be recorded by such Lender on its books and, prior to any transfer of the Facility C Note evidencing the Facility C Loans held by it, endorsed by such Lender on the schedule attached to such Facility C Note or any continuation thereof; PROVIDED that the failure of such Lender to make any such recordation or endorsement shall not affect the obligations of the Company to make a payment when due of any amount owing hereunder or under such Facility C Note in respect of the Facility C Loans to be evidenced by such Facility C Note. (c) No Lender shall be entitled to have its Facility C Note subdivided, by exchange for promissory notes of lesser denominations or otherwise, except in connection with a permitted assignment of all or any portion of such Lender's relevant Facility C Commitment, Facility C Loans and Facility C Note pursuant to Section 11.06(b) hereof. -36- 2.08 OPTIONAL PREPAYMENTS AND CONVERSIONS OR CONTINUATIONS OF FACILITY C LOANS. Subject to Section 4.04 hereof, the Company shall have the right to prepay Facility C Loans, or to Convert Facility C Loans of one Type into Facility C Loans of another Type or Continue Facility C Loans of one Type as Facility C Loans of the same Type, at any time or from time to time, PROVIDED that: (a) the Company shall give the Agent notice of each such prepayment, Conversion or Continuation as provided in Section 4.05 hereof (and, upon the date specified in any such notice of prepayment, the amount to be prepaid shall become due and payable hereunder); (b) Eurodollar Loans may be prepaid or Converted on any day, PROVIDED that, if such prepayment or Conversion falls on a day other than the last day of an Interest Period for such Facility C Loans, the Company shall pay any and all amounts required by Section 5.05 hereof as a result thereof; and (c) prepayments of the Facility C Loans under this Section 2.08 shall be applied (i) if such prepayment is made prior to the Facility C Commitment Termination Date, ratably as among the Facility C Loans then outstanding, and (ii) if such prepayment is made on or after the Facility C Commitment Termination Date, ratably as among the remaining installments of the Facility C Loans. Notwithstanding the foregoing, and without limiting the rights and remedies of the Lenders under Section 9 hereof, in the event that any Event of Default shall have occurred and be continuing, the Agent may (and at the request of the Majority Lenders shall) suspend the right of the Company to borrow any Facility C Loan as a Eurodollar Loan or to Convert any Facility C Loan into a Eurodollar Loan, or to Continue any Facility C Loan as a Eurodollar Loan, in which event all Eurodollar Loans outstanding shall be automatically Converted (on the last day(s) of the respective Interest Periods therefor) to or all Base Rate Loans shall be Continued, as the case may be, as Base Rate Loans. -37- 2.09 MANDATORY PREPAYMENTS. (a) CASUALTY EVENTS. Not later than 60 days following the receipt by the Company or any of its Subsidiaries of the proceeds of insurance, condemnation award or other compensation in respect of any Casualty Event affecting any Property of any Supplemental Guarantor or acquired with the proceeds of Facility C Loans hereunder (or upon such earlier date as the Person owning such Property shall have determined not to repair or replace the Property affected by such Casualty Event), the Company shall prepay the Facility C Loans, in an aggregate amount, if any, equal to 100% of the Net Available Proceeds of such Casualty Event not theretofore applied to the repair or replacement of such Property, such prepayments to be effected in each such case in the manner and to the extent specified in paragraphs (e)(i) and (e)(ii) below. In the event that such Net Available Proceeds exceed the outstanding amount of the Facility C Loans, such excess shall be applied to the prepayment of the Facility B Loans in accordance with the terms of the Existing Credit Agreement. Nothing in this paragraph (a) shall be deemed to limit any obligation of the Company or any of its Subsidiaries pursuant to any of the Security Documents to remit to a collateral or similar account (including, without limitation, the Collateral Account) maintained by the Agent pursuant to any of the Security Documents the proceeds of insurance, condemnation award or other compensation received in -38- respect of any Casualty Event. Notwithstanding the foregoing, in the event that a Casualty Event shall occur with respect to Property of a Supplemental Guarantor or acquired with the proceeds of Facility C Loans hereunder and covered by any Mortgage, the Company shall prepay the Facility C Loans on the dates and in the amounts specified in such Mortgage. In the event of a Casualty Event involving Property not covered by this Section 2.09(a), the Net Available Proceeds of such Casualty Event shall be applied in accordance with the terms of the Existing Credit Agreement. (b) SALE OF ASSETS. Without limiting the obligation of the Company to obtain the consent of the Majority Lenders pursuant to Section 8.05(c) hereof to any Disposition not otherwise permitted hereunder, in the event that the Net Available Proceeds of any Disposition of Property of any Supplemental Guarantor or Property acquired with the proceeds of Facility C Loans hereunder other than an Excluded Disposition (herein, the "CURRENT DISPOSITION"), and of all prior Dispositions of Property of any Supplemental Guarantor or Property acquired with the proceeds of Facility C Loans hereunder as to which a prepayment has not yet been made under this Section 2.09(b), shall exceed $500,000 then, no later than 5 Business Days prior to the occurrence of the Current Disposition, the Company will deliver to the Lenders a statement, certified by a Responsible Financial Officer of the Company, in form and detail satisfactory to the Agent, of the amount of the Net Available Proceeds of the Current Disposition and of all such prior Dispositions and the Company will prepay the Facility C Loans (or cause the Facility C Loans to be prepaid), in an aggregate amount equal to 100% of the Net Available Proceeds of the Current Disposition and such prior Dispositions, such prepayment to be effected in each case in the manner and to the extent specified in paragraphs (e)(i) and (e)(ii) below. In the event that such Net Available Proceeds exceed the outstanding amount of the Facility C Loans, such excess shall be applied to the prepayment of the Facility B Loans in accordance with the terms of the Existing Credit Agreement. In the case of all Dispositions of Property other than those referred to in this paragraph (b), the Company will make (or cause to be made) prepayments of the Facility A Loans and the Facility B Loans as required by the Existing Credit Agreement. (c) EQUITY ISSUANCE; INVESTMENT TAX CREDITS. Upon any Equity Issuance or the issuance of any Indebtedness (other than Indebtedness permitted under Section 8.07 hereof) or the Disposition of any Investment Tax Credit after the Closing Date, the Company shall (i) prepay the -39- Facility C Loans or the Facility B Loans in an aggregate amount equal to 100% of the Net Available Proceeds thereof (after effecting any payments in respect of the redemption, prepayment or retirement, as the case may be, of the Subordinated Indebtedness to the extent permitted under Section -40- 8.22(a)) or (ii) in connection with a Disposition of any Investment Tax Credit, apply any part of the Net Available Proceeds thereof to the purchase price of the Swiss Dairy Acquisition and use the balance of such Net Available Proceeds to prepay the Facility C Loans or the Facility B Loans as contemplated in clause (i) above. Promptly after each such Equity Issuance the Company shall advise the Agent in writing of its designated application of such Net Available Proceeds thereof. Any such prepayments of the Facility C Loans shall be effected in the manner specified in paragraphs (e)(i) and (e)(ii) below. (d) EXCESS CASH FLOW. Not later than 90 days after the end of the fiscal quarter ending December 31, 1996 and after the end of each fiscal year of the Company, commencing with the fiscal year ending December 31, 1997, the Company shall prepay the Facility C Loans and the Facility B Loans in an aggregate amount equal to the excess of (A) 50% of Excess Cash Flow for such fiscal quarter or year, as the case may be (or, if the Leverage Ratio is less than 2.50 to 1, 25% of such Excess Cash Flow) over (B) the aggregate amount of prepayments of Facility B Loans and Facility C Loans made during such fiscal quarter or year, as the case may be, pursuant to Section 2.08 hereof and Section 2.08 of the Existing Credit Agreement. Mandatory prepayments arising from Excess Cash Flow required prior to the Facility C Commitment Termination Date shall be applied to the Facility B Loans in accordance with the terms of the Existing Credit Agreement. Mandatory prepayments arising from Excess Cash Flow required on or after the Facility C Commitment Termination Date shall be applied to the Facility B Loans and the Facility C Loans pro rata based on the aggregate principal amounts thereof then outstanding. Prepayments of Facility C Loans under this paragraph (d) shall be effected in each case in the manner and to the extent specified in paragraph (e)(ii) below. (e) APPLICATION. Prepayments of Facility C Loans described in paragraphs (a) through (d) above shall be effected as follows: -41- (i) if such prepayment is required to be made prior to the Facility C Commitment Termination Date, the amount of the prepayment specified in the respective paragraph shall be applied ratably to the Facility C Loans then outstanding. (ii) if such prepayment is required to be made on or after the Facility C Commitment Termination Date, the amount of the prepayment specified in the respective paragraph shall be applied to the Facility C Loans then outstanding, -42- 50% of which amount shall be applied in the inverse order of the maturities of the installments thereof and (after taking into account such application) the remainder thereof shall be applied ratably to then remaining installments of principal of the Facility C Loans. Section 3. PAYMENTS OF PRINCIPAL AND INTEREST. 3.01 REPAYMENT OF FACILITY C LOANS. The Company hereby promises to pay to the Agent for account of each Lender the unpaid principal of each Facility C Loan made by such Lender and outstanding on the Facility C Commitment Termination Date in 15 installments payable on each Principal Payment Date, the first twelve installments to be in an amount equal to 1 1/4% of the principal amount of such Facility C Loan, the thirteenth and fourteenth installments each to be in an amount equal to 2 1/2% of the principal amount of such Facility C Loan and the final installment to be in an amount equal to 80% of the principal amount of such Facility C Loan. 3.02 INTEREST. The Company hereby promises to pay to the Agent for account of each Lender interest on the unpaid principal amount of each Facility C Loan for the period from and including the date of such Facility C Loan to but excluding the date such Facility C Loan shall be paid in full, at the following rates per annum: (a) during such periods as such Facility C Loan is a Base Rate Loan, the Base Rate (as in effect from time to time) PLUS the Applicable Margin, and (b) during such periods as such Facility C Loan is a Eurodollar Loan, for each Interest Period relating thereto, the Eurodollar Rate for such Facility C Loan for such Interest Period PLUS the Applicable Margin. -43- Notwithstanding the foregoing, the Company hereby promises to pay to the Agent for account of each Lender interest at the applicable Post-Default Rate as follows: (i) on any principal of any Facility C Loan made by such Lender and on any other amount payable by the Company hereunder or under the Facility C Note held by such Lender to or for account of such Lender that shall not be paid in full when due (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise), for the period from and including the due date thereof to but excluding the date the same is paid in full; and (ii) on the principal of each Facility C Loan made by such Lender commencing upon the occurrence of any Event of Default, and thereafter for so long as any Event of Default shall be continuing. Accrued interest on each Facility C Loan shall be payable (i) in the case of a Base Rate Loan, quarterly on the Quarterly Dates and (ii) in the case of a Eurodollar Loan, on the last day of each Interest Period therefor and, if such Interest Period is longer than three months, at three-month intervals following the first day of such Interest Period, except that interest payable at the Post-Default Rate shall be payable from time to time on demand. Promptly after the determination of any interest rate provided for herein or any change therein, the Agent shall give notice thereof to the Lenders to which such interest is payable and to the Company. -44- Section 4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC. 4.01 PAYMENTS. (a) Except to the extent otherwise provided herein, all payments of principal, interest, commitment fee and other amounts to be made by the Company under this Agreement and the Facility C Notes of the Company, and, except to the extent otherwise provided therein, all payments to be made by the Obligors under any other Loan Document, shall be made in Dollars, in immediately available funds, to the Agent at any account designated by the Agent not later than 2:00 p.m. Charlotte, North Carolina time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). (b) Any Lender for whose account any such payment is to be made may (but shall not be obligated to) debit the amount of any such payment that is not made by such time to any ordinary deposit account of the Company with such Lender (with notice to the Company and the Agent). (c) The Company shall, at the time of making each payment under this Agreement or any Facility C Note for account of any Lender, specify to the Agent (which shall so notify the intended recipient(s) thereof) the Facility C Loans or other amounts payable hereunder to which such payment is to be applied (and in the event that the Company fails to so specify, or if an Event of Default has occurred and is continuing, the Agent may distribute such payment to the Lenders for application in such manner as it or the Majority Lenders, subject to Section 4.02 hereof, may determine to be appropriate). (d) Each payment received by the Agent under this Agreement or any Facility C Note for account of any Lender shall be paid by the Agent promptly to such Lender, in immediately available funds, for account of such Lender's Applicable Lending -45- Office for the Facility C Loan or other obligation in respect of which such payment is made. (e) If the due date of any payment under this Agreement or any Facility C Note would otherwise fall on a day that is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable for any principal so extended for the period of such extension. 4.02 PRO RATA TREATMENT. Except to the extent otherwise provided herein: (a) each borrowing of Facility C Loans from the Lenders under Section 2.01 hereof shall be made from the Lenders, each payment of commitment fee under Section 2.04 hereof in respect of Facility C Commitments shall be made for account of the Lenders, and each termination or reduction of the amount of the Facility C Commitments under Section 2.03 hereof shall be applied to the Facility C Commitments of the Lenders pro rata according to the amounts of their Facility C Commitments; (b) the making, Conversion and Continuation of Facility C Loans of a particular Type (other than Conversions provided for by Section 5.04 hereof) shall be made pro rata among the Lenders according to the amounts of their Facility C Commitments (in the case of making of Facility C Loans) or their Facility C Loans (in the case of Conversions and Continuations of Facility C Loans); (c) each payment or prepayment of principal of Facility C Loans by the Company shall be made for account of the Lenders pro rata in accordance with the respective unpaid principal amounts of the Facility C Loans held by them; and (d) each payment of interest on any Facility C Loans by the Company shall be made for account of the relevant Lenders pro rata in accordance with the amounts of interest on such Facility C Loans then due and payable to the Lenders. 4.03 COMPUTATIONS. Interest on Eurodollar Loans and commitment fees shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable and interest on Base Rate Loans shall be computed on the basis of a year of 365 or 366 days, as the case may be, and actual days -46- elapsed (including the first day but excluding the last day) occurring in the period for which payable. 4.04 MINIMUM AMOUNTS. Except for mandatory prepayments made pursuant to Section 2.09 hereof and Conversions or prepayments made pursuant to Section 5.04 hereof, (a) each borrowing and Conversion of principal of Base Rate Loans shall be in an aggregate amount at least equal to $500,000 or a larger multiple of $100,000, (b) each borrowing and Conversion of Eurodollar Loans shall be in an aggregate amount at least equal to $2,000,000 or a larger multiple of $1,000,000, (c) each partial prepayment of principal of Eurodollar Loans shall be in an aggregate amount at least equal to $2,000,000 or a larger multiple of $1,000,000 and each partial prepayment of principal of Base Rate Loans shall be in an aggregate amount at least equal to $500,000 or a larger multiple of $100,000 (borrowings, Conversions or prepayments of or into Facility C Loans of different Types or, in the case of Eurodollar Loans, having different Interest Periods at the same time hereunder to be deemed separate borrowings, Conversions and prepayments for purposes of the foregoing, one for each Type or Interest Period). -47- 4.05 CERTAIN NOTICES. Notices by the Company to the Agent of terminations or reductions of the Facility C Commitments, of Borrowings, Conversions, Continuations and optional prepayments of Facility C Loans, of Types of Facility C Loans and of the duration of Interest Periods shall be irrevocable (other than with respect to notices of optional prepayments, which shall be revocable, PROVIDED that upon any such revocation the Company shall be obligated to pay the Lenders any amounts payable under Section 5.05 hereof as a consequence of such revocation) and shall be effective only if received by the Agent not later than 1:30 p.m. Charlotte, North Carolina time on the number of Business Days prior to the date of the relevant termination, reduction, borrowing, Conversion, Continuation or prepayment or the first day of such Interest Period specified below: Number of Business Notice Days Prior ------ ---------- Termination or reduction of Facility C Commitments 3 Borrowing or prepayment of, or Conversions into, Base Rate Loans Same Day Borrowing or prepayment of, Conversions into, Continuations as, or duration of Interest Period for, Eurodollar Loans 3 Each such notice of termination or reduction shall specify the amount of the Facility C Commitments to be terminated or reduced. Each such notice of borrowing, Conversion, Continuation or optional prepayment shall specify the Type of each Facility C Loan to be borrowed, Converted, Continued or prepaid and the date of borrowing, Conversion, Continuation or optional prepayment (which shall be a Business Day). Each such notice of the duration of an Interest Period shall specify the Facility C Loans -48- to which such Interest Period is to relate. The Agent shall promptly notify the Lenders of the contents of each such notice. In the event that the Company fails to select the Type of Facility C Loan, or the duration of any Interest Period for any Eurodollar Loan, within the time period and otherwise as provided in this Section 4.05, such Facility C Loan (if outstanding as a Eurodollar Loan) will be automatically Converted into a Base Rate Loan on the last day of the then current Interest Period for such Facility C Loan or (if outstanding as a Base Rate Loan) will remain as, or (if not then outstanding) will be made as, a Base Rate Loan. -49- 4.06 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall have been notified by a Lender or the Company (the "PAYOR") prior to the date on which the Payor is to make payment to the Agent of (in the case of a Lender) the proceeds of a Facility C Loan to be made by such Lender hereunder or (in the case of the Company) a payment to the Agent for account of one or more of the Lenders hereunder (such payment being herein called the "REQUIRED PAYMENT"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date; and, if the Payor has not in fact made the Required Payment to the Agent, the recipient(s) of such payment shall, on demand, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date (the "ADVANCE DATE") such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such day and, if such recipient(s) shall fail promptly to make such payment, the Agent shall be entitled to recover such amount, on demand, from the Payor, together with interest as aforesaid, PROVIDED that if neither the recipient(s) nor the Payor shall return the Required Payment to the Agent within three Business Days of the Advance Date, then, retroactively to the Advance Date, the Payor and the recipient(s) shall each be obligated to pay interest on the Required Payment as follows: (i) if the Required Payment shall represent a payment to be made by the Company to the Lenders, the Company and the recipient(s) shall each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the Post-Default Rate (and, in case the recipient(s) shall return the Required Payment to the Agent, without limiting the obligation of the Company under Section 3.02 hereof to pay interest to such recipient(s) at the Post-Default Rate in respect of the Required Payment) and -50- (ii) if the Required Payment shall represent proceeds of a Facility C Loan to be made by the Lenders to the Company, the Payor and the Company shall each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the rate of interest provided for such Required Payment pursuant to Section 3.02 hereof (and, in case the Company shall return the Required Payment to the Agent, without limiting any claim the Company may have against the Payor in respect of the Required Payment). 4.07 SHARING OF PAYMENTS, ETC. (a) The Company agrees that, in addition to (and without limitation of) any right of set-off, banker's lien or counterclaim a Lender may otherwise have, each Lender shall be entitled, at its option but with the prior written consent of the Majority Lenders, to offset balances held by it for account of the Company at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Lender's Facility C Loans or any other amount payable to such Lender hereunder, that is not paid when due (regardless of whether such balances are then due to the Company), in which case it shall promptly notify the Company and the Agent thereof, PROVIDED that such Lender's failure to give such notice shall not affect the validity thereof. (b) If any Lender shall obtain from any Obligor payment of any principal of or interest on any Facility C Loan owing to it or payment of any other amount under this Agreement or any other Loan Document through the exercise of any right of set-off, Lender's lien or counterclaim or similar right or otherwise (other than from the Agent as provided herein), and, as a result of such payment, such Lender shall have received a greater percentage of the principal of or interest on the Facility C Loans or such other amounts then due hereunder or thereunder by such Obligor to such Lender than the percentage received by any other Lender, it shall promptly purchase from such other Lenders participations in (or, if and to the extent specified by such Lender, direct interests in) the Facility C Loans or such other amounts, respectively, owing to such other -51- Lenders (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Lenders shall share the benefit of such excess payment (net of any expenses that may be incurred by such Lender in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal of and/or interest on the Facility C Loans or such other amounts, respectively, owing to each of the Lenders. To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) The Company agrees that any Lender so purchasing such a participation (or direct interest) may exercise all rights of set-off, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Facility C Loans or other amounts (as the case may be) owing to such Lender in the amount of such participation. (d) Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of any Obligor. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a set-off to which this Section 4.07 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section 4.07 to share in the benefits of any recovery on such secured claim. Section 5. YIELD PROTECTION, ETC. 5.01 ADDITIONAL COSTS. -52- (a) The Company shall pay directly to each Lender from time to time such amounts as such Lender may determine to be necessary to compensate such Lender for any costs that such Lender determines are attributable to its making or maintaining of any Eurodollar Loans or its obligation to make any Eurodollar Loans hereunder or any reduction in any amount receivable by such Lender hereunder in respect of any of such Eurodollar Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "ADDITIONAL COSTS"), resulting from any Regulatory Change that: (i) shall subject any Lender (or its Applicable Lending Office for any of such Eurodollar Loans) to any tax, duty or other charge in respect of such Eurodollar Loans or its Facility C Note or changes the basis of taxation of any amounts payable to such Lender under this Agreement or its Facility C Note in respect of any of such Eurodollar Loans (excluding changes in the rate of tax on the overall net income of such Lender or of its Applicable Lending Office by the jurisdiction in which such Lender is organized or has its principal office or in which its Applicable Lending Office is organized or located or, in each case, any political subdivision or taxing authority thereof or therein); or (ii) imposes or modifies any reserve, special deposit or similar requirements (other than the Reserve Requirement utilized in the determination of the Eurodollar Rate for such Eurodollar Loan) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender (including, without limitation, any of such Eurodollar Loans or any deposits referred to in the definitions of "Eurodollar Base Rate" in Section 1.01 hereof), or any commitment of such Lender (including, without limitation, the Facility C Commitment of such Lender hereunder); or (iii) imposes any other condition affecting this Agreement or its Facility C Note (or any of such extensions of credit or liabilities) or its Facility C Commitment. -53- If any Lender requests compensation from the Company under this Section 5.01(a), the Company may, by notice to such Lender (with a copy to the Agent), suspend the obligation of such Lender thereafter to make or Continue Eurodollar Loans, to Convert Facility C Loans of another Type into Eurodollar Loans or to Convert Eurodollar Loans into Facility C Loans of another Type until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of Section 5.04 hereof shall be applicable), PROVIDED that such suspension shall not affect the right of such Lender to receive the compensation so requested. (b) Without limiting the effect of the provisions of paragraph (a) of this Section 5.01, in the event that, by reason of any Regulatory Change, any Lender (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Lender that includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Lender that includes Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets that it may hold then, if such Lender so elects by notice to the Company (with a copy to the Agent), the obligation of such Lender to make or Continue, or to Convert Facility C Loans of another type into, Eurodollar Loans, hereunder (as the case may be) shall be suspended until any such Regulatory Change ceases to be in effect (in which case the provisions of Section 5.04 hereof shall be applicable). (c) Without limiting the effect of the foregoing provisions of this Section 5.01 (but without duplication), the Company shall pay directly to each Lender from time to time on request such amounts as such Lender may determine to be necessary to compensate such Lender (or, without duplication, the bank holding company of which such Lender is a subsidiary) for any costs that it determines are attributable to the maintenance by such Lender (or any Applicable Lending Office or such bank holding company), pursuant to any law or regulation or any -54- interpretation, directive or request (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) of any court or governmental or monetary authority (i) following any Regulatory Change or (ii) hereafter implementing any risk-based capital guideline or other requirement (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) heretofore or hereafter issued by any government or governmental or supervisory authority implementing at the national level the Basle Accord (including, without limitation, the Final Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the Final Risk-Based Capital Guidelines of the Office of the Comptroller of the Currency (12 C.F.R. Part 3, Appendix A)), of capital in respect of its Facility C Commitments or Facility C Loans (such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Lender (or any Applicable Lending Office or such bank holding company) to a level below that which such Lender (or any Applicable Lending Office or such bank holding company) could have achieved but for such law, regulation, interpretation, directive or request). For purposes of this Section 5.01(d) and Section 5.08 hereof, "BASLE ACCORD" shall mean the proposals for risk-based capital framework described by the Basle Committee on Banking Regulations and Supervisory Practices in its paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988, as amended, modified and supplemented and in effect from time to time or any replacement thereof. (d) Each Lender shall notify the Company of any event occurring after the date of this Agreement entitling such Lender to compensation under paragraph (a) or (c) of this Section 5.01 as promptly as practicable, but in any event within 45 days, after such Lender obtains actual knowledge thereof; PROVIDED that (i) if any Lender fails to give such notice within 45 days after it obtains actual knowledge of such an event, such Lender shall, with respect to compensation payable pursuant to this Section 5.01 in respect of any costs resulting from such event, only be entitled to payment under this Section 5.01 for costs -55- incurred from and after the date 45 days prior to the date that such Lender does give such notice and (ii) each Lender will designate a different Applicable Lending Office for the Facility C Loans of such Lender affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender, except that such Lender shall have no obligation to designate an Applicable Lending Office located in the United States. Each Lender will furnish to the Company a certificate setting forth the basis and amount of each request by such Lender for compensation under paragraph (a) or (c) of this Section 5.01. Determinations and allocations by any Lender for purposes of this Section 5.01 of the effect of any Regulatory Change pursuant to paragraph (a) or (b) of this Section 5.01, or of the effect of capital maintained pursuant to paragraph (c) of this Section 5.01, on its costs or rate of return of maintaining Facility C Loans or its obligation to make Facility C Loans, or on amounts receivable by it in respect of Facility C Loans, and of the amounts required to compensate such Lender under this Section 5.01, shall be conclusive in the absence of manifest error, PROVIDED that such determinations and allocations are made on a reasonable basis. 5.02 LIMITATION ON TYPES OF FACILITY C LOANS. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any Eurodollar Base Rate for any Interest Period: (a) the Agent determines, which determination shall be conclusive, that quotations of interest rates for the relevant deposits referred to in the definition of "Eurodollar Base Rate" in Section 1.01 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for Eurodollar Loans as provided herein; or (b) The Majority Lenders determine, which determination shall be conclusive, and notify the Agent that the relevant rates of interest referred to in the definitions of "Eurodollar Base Rate" in Section 1.01 hereof -56- upon the basis of which the rate of interest for Eurodollar Loans for such Interest Period is to be determined are not likely adequately to cover the cost to such Lenders of making or maintaining Eurodollar Loans for such Interest Period; then the Agent shall give the Company and each Lender prompt notice thereof (describing the circumstances giving rise to such event) and, so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Eurodollar Loans, to Continue Eurodollar Loans, to Convert Facility C Loans of another Type into Eurodollar Loans and the Company shall, on the last day(s) of the then current Interest Period(s) for the outstanding Eurodollar Loans either prepay such Eurodollar Loans or Convert such Eurodollar Loans into Facility C Loans of another Type in accordance with Section 2.08 hereof. 5.03 ILLEGALITY. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to honor its obligation to make or maintain Eurodollar Loans hereunder, then such Lender shall promptly notify the Company thereof (with a copy to the Agent) and such Lender's obligation to make or Continue, or to Convert Facility C Loans of any other Type into, Eurodollar Loans shall be suspended until such time as such Lender may again make and maintain Eurodollar Loans (in which case the provisions of Section 5.04 hereof shall be applicable). -57- 5.04 TREATMENT OF AFFECTED FACILITY C LOANS. If the obligation of any Lender to make Eurodollar Loans ("AFFECTED FACILITY C LOANS"), or to Continue, or to Convert Facility C Loans of another Type into Affected Facility C Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof, such Lender's Affected Facility C Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) therefor (or, in the case of a Conversion required by Section 5.01(b), 5.01(c) or 5.03 hereof, on such earlier date as such Lender may specify to the Company with a copy to the Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender's Affected Facility C Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender's Affected Facility C Loans shall be applied instead to its Base Rate Loans; and (b) all Facility C Loans that would otherwise be made or Continued by such Lender as Affected Facility C Loans shall be made or Continued instead as Base Rate Loans, and all Base Rate Loans of such Lender that would otherwise be Converted into Affected Facility C Loans (as the case may be) shall remain as Base Rate Loans. If such Lender gives notice to the Company with a copy to the Agent that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the Conversion of such Lender's Affected Facility C Loans pursuant to this Section 5.04 no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Affected Facility C Loans made by other Lenders are outstanding, such Lender's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Affected Facility C Loans, to the extent necessary so that, after giving effect thereto, all Facility C Loans held by the Lenders holding Affected Facility C Loans and by such Lender are held pro rata -58- (as to principal amounts, Types and Interest Periods) in accordance with their respective Facility C Commitments. 5.05 COMPENSATION. The Company shall pay to the Agent for account of each Lender, upon the request of such Lender through the Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any loss, cost or expense that such Lender determines is attributable to: (a) any payment, mandatory or optional prepayment or Conversion of a Eurodollar Loan made by the Company for any reason (including, without limitation, the acceleration of the Facility C Loans pursuant to Section 10 hereof) on a date other than the last day of the Interest Period for such Eurodollar Loan; or (b) any failure by the Company for any reason (including, without limitation, the failure of any of the conditions precedent specified in Section 6 hereof to be satisfied) to borrow a Eurodollar Loan from such Lender on the date for such borrowing specified in the relevant notice of borrowing given pursuant to Section 2.02 hereof or in the notice from the Agent given pursuant to Section 2.01(c); (c) any failure for any reason (including, without limitation, as provided in Section 5.02 or 5.03 hereof) of a Facility C Loan of such Lender to be Continued as or Converted into a Eurodollar Loan on the date for such Continuation or Conversion specified in the relevant notice given under Section 4.05 hereof; or (d) the revocation of any notice of optional prepayment or any failure for any reason to make any optional prepayment on the date specified therefor in the relevant notice of prepayment given pursuant to Section 4.05 hereof. Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest that otherwise would have accrued -59- on the principal amount so paid, prepaid, Converted or not borrowed or prepaid for the period from the date of such payment, prepayment, Conversion or failure to borrow or prepay to the last day of the then current Interest Period for such Eurodollar Loan (or, in the case of a failure to borrow, the Interest Period for such Eurodollar Loan that would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Eurodollar Loan (MINUS the Applicable Margin) provided for herein over (ii) the amount of interest that otherwise would have accrued on such principal amount at a rate per annum equal to the interest component of the amount such Lender would have bid on the date of such payment, prepayment, conversion or failure to borrow or prepay in the London interbank market for Dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as reasonably determined by such Lender). - 60 - 5.06 NET PAYMENTS; TAXES. (a) All payments to be made hereunder and under the Facility C Notes and any other Loan Documents by the Company shall be made without setoff, counterclaim or other defense. Subject to Section 5.06(b) hereof with respect to U.S. Taxes, all such payments shall be made free and clear of and without deduction for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any governmental authority (other than taxes imposed on the Agent, any Lender or its Applicable Lending Office by the jurisdiction in which the Agent or such Lender is organized or has its principal office or in which its Applicable Lending Office is organized or located or, in each case, any political subdivision or taxing authority thereof or therein) (collectively, "TAXES"). If any Taxes are imposed and required to be withheld from any amount payable by the Company hereunder or under the Facility C Notes, the Company shall be obligated to (i) pay such additional amount so that the Agent and the Lenders will receive a net amount (after giving effect to the payment of such additional amount and to the deduction of all Taxes) equal to the amount due hereunder, (ii) pay such Taxes to the appropriate taxing authority for the account of the Agent, for the benefit of the Lenders and (iii) as promptly as possible thereafter, sending the Agent a certified copy of any original official receipt showing payment thereof, together with such additional documentary evidence as the Agent may from time to time reasonably require. If the Company fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, the Company shall be obligated to indemnify the Agent and each Lender for any incremental taxes, interest or penalties that may become payable by the Agent or such Lender as a result of such failure. The obligations of the Company under this Section 5.06(a) shall survive the repayment of the Facility C Loans and the termination of the Facility C Commitments. - 61 - (b) The Company agrees to pay to each Lender that is not a U.S. Person such additional amounts as are necessary in order that the net payment of any amount due to and received by such non-U.S. Person hereunder after deduction for or withholding in respect of any U.S. Taxes imposed with respect to such payment (or in lieu thereof, payment of such U.S. Taxes by such non-U.S. Person), will not be less than the amount stated herein to be then due and payable, PROVIDED that the foregoing obligation to pay such additional amounts shall not apply: (i) to any payment to a Lender (other than in respect of a Registered Loan) hereunder unless such Lender is, on the date hereof (or on the date it becomes a Lender as provided in Section 11.06(b) hereof) and on the date of any change in the Applicable Lending Office of such Lender, either entitled to submit a Form 1001 (relating to such Lender and entitling it to a complete exemption from withholding on all interest to be received by it hereunder in respect of the Facility C Loans) or Form 4224 (relating to all interest to be received by such Lender hereunder in respect of the Facility C Loans), or (ii) to any payment to any Lender hereunder in respect of a Registered Loan (a "REGISTERED HOLDER"), unless such Registered Holder (or, if such Registered Holder is not the beneficial owner of such Registered Loan, the beneficial owner thereof) is, on the date hereof (or on the date such Registered Holder becomes a Lender as provided in Section 11.06(b) hereof) and on the date of any change in the Applicable Lending Office of such Lender, entitled to submit a Form W-8, together with an annual certificate stating that (x) such Registered Holder (or beneficial owner, as the case may be) is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, and (y) such Registered Holder (or beneficial owner, as the case may be) shall promptly notify the Company if at any time, such Registered Holder (or beneficial owner, as the case may be) determines that it is no longer in a position to provide such certificate to the Company (or any other form of - 62 - certification adopted by the relevant taxing authorities of the United States for such purposes), or (iii) to any U.S. Taxes imposed solely by reason of the failure by such non-U.S. Person (or, if such non-U.S. Person is not the beneficial owner of the relevant Facility C Loan, such beneficial owner) to comply with applicable certification, information, documentation or other reporting requirements concerning the nationality, residence, identity or connections with the United States of such non-U.S. Person (or such beneficial owner, as the case may be) if such compliance is required by statute or regulation of the United States as a precondition to relief or exemption from such U.S. Taxes. For the purposes of this Section 5.06(b), (w) "FORM 1001" shall mean Form 1001 (Ownership, Exemption, or Reduced Rate Certificate) of the Department of the Treasury of the United States, (w) "FORM 4224" shall mean Form 4224 (Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the United States) of the Department of the Treasury of the United States, (x) "FORM W-8" shall mean Form W-8 (Certificate of Foreign Status of the Department of Treasury of the United States of America) (or in relation to any of such Forms such successor and related forms as may from time to time be adopted by the relevant taxing authorities of the United States to document a claim to which such Form relates), (y) "U.S. PERSON" shall mean a citizen, national or resident of the United States, a corporation, partnership or other entity created or organized in or under any laws of the United States, or any estate or trust that is subject to Federal income taxation regardless of the source of its income and (z) "U.S. TAXES" shall mean any present or future tax, assessment or other charge or levy imposed by or on behalf of the United States or any taxing authority thereof or therein. Within 30 days after paying any amount to the Agent or any Lender from which it is required by law to make any deduction or withholding, and within 30 days after it is required by law to remit such deduction or withholding to any relevant taxing or - 63 - other authority, the Company shall deliver to the Agent for delivery to such non-U.S. Person evidence satisfactory to such Person of such deduction, withholding or payment (as the case may be). 5.07 REPLACEMENT OF LENDERS. If any Lender requests compensation pursuant to Section 5.01 or 5.06 hereof, or any Lender's obligation to make or Continue, or to Convert Facility C Loans of any Type into, any other Type of Facility C Loan shall be suspended pursuant to Section 5.01 or 5.03 hereof (any such Lender so requesting compensation, or whose obligations are so suspended being herein called a "RELEVANT LENDER"), the Company upon three Business Days notice, may require that such Relevant Lender transfer all of its right, title and interest under this Agreement and such Relevant Lender's Facility C Note to any bank or other financial institution identified by the Company that is reasonably satisfactory to the Agent (i) if such bank or other financial institution (a "PROPOSED LENDER") agrees to assume all of the obligations of such Relevant Lender hereunder, and to purchase all of such Relevant Lender's Facility C Loans hereunder for consideration equal to the aggregate outstanding principal amount of such Relevant Lender's Facility C Loans, together with accrued, but unpaid interest thereon to the date of such purchase, and satisfactory arrangements are made for payment to such Relevant Lender of all other amounts payable hereunder to such Relevant Lender on or prior to the date of such transfer (including any fees accrued hereunder and any amounts that would be payable under Section 5.05 hereof as if all of such Relevant Lender's Facility C Loans were being prepaid in full on such date) and (ii) if such Relevant Lender has requested compensation pursuant to Section 5.01 or 5.06 hereof, such Proposed Lender's aggregate requested compensation, if any, pursuant to said Section 5.01 or 5.06 with respect to such Relevant Lender's Facility C Loans is lower than that of the Relevant Lender. Subject to compliance with the provisions of Section 11.06(b) hereof, such Proposed Lender shall be a "Lender" for all purposes hereunder. Without prejudice to the survival of any other agreement of the Company hereunder, the agreements of the Company contained in Sections 5.01, 5.06 and 12.03 hereof (without duplication of any payments made to such Relevant Lender by the - 64 - Company or the Proposed Lender) shall survive for the benefit of such Relevant Lender under this Section 5.07 with respect to the time prior to such replacement. Section 6. CONDITIONS PRECEDENT. 6.01 CONDITIONS TO EFFECTIVENESS AND INITIAL LENDING. The effectiveness of this Agreement and the obligation of any Lender to make its initial Facility C Loan hereunder is subject to the receipt by the Agent on or before September 30, 1996 of the following documents, each of which shall be satisfactory to the Agent (and to the extent specified below, to each Lender or the Majority Lenders, as the case may be) in form and substance: (a) CORPORATE DOCUMENTS. Certified copies of the charter and by-laws (or equivalent documents) of each Obligor and of all corporate authority for each Obligor (including, without limitation, board of director resolutions and evidence of the incumbency of officers, together with specimen signatures of each such officer) with respect to the execution, delivery and performance of such of the Basic Documents to which such Obligor is intended to be a party and each other document to be delivered by such Obligor from time to time in connection herewith and the extensions of credit hereunder (and the Agent and each Lender may conclusively rely on such certificate until it receives notice in writing from such Obligor to the contrary). (b) OFFICER'S CERTIFICATE. A certificate of a Responsible Financial Officer of the Company, dated the date hereof, to the effect set forth in the first sentence of Section 6.03 hereof. (c) OPINION OF COUNSEL TO THE OBLIGORS. Opinions, each dated the date hereof, of Hughes & Luce, counsel to the Obligors, substantially in the form of Exhibit E-1 hereto, and of Axtmayer Adsuar Muniz & Goyco, special Puerto Rico counsel to the Subsidiary Guarantors operating in the - 65 - Commonwealth, substantially in the form of Exhibit E-2 hereto and, in each case, covering such other matters as the Agent or any Lender may reasonably request (and each Obligor hereby instructs such counsel to deliver such opinion to the Lenders and the Agent). (d) OPINION OF COUNSEL TO FIRST UNION. An opinion, dated the date hereof, of Milbank, Tweed, Hadley & McCloy, special New York counsel to First Union, substantially in the form of Exhibit G hereto (and First Union hereby instructs such counsel to deliver such opinion to the Lenders). (e) FACILITY C NOTES. The Facility C Notes, duly completed and executed. (f) AMENDMENT NO. 2 TO SECURITY AGREEMENT. Amendment No. 2 to Security Agreement, duly executed and delivered by the Company and the Agent. In addition, the Company shall have taken such other action (including, without limitation, delivering to the Agent, (i) Uniform Commercial Code searches for each Obligor for each jurisdiction in which such Obligor conducts its respective business or in which any of its respective Properties are located (or otherwise as the Agent may reasonably request) (to the extent such searches have not already been effected pursuant to the Existing Credit Agreement) and (ii) for filing, appropriately completed and duly executed copies of Uniform Commercial Code financing statements) as the Agent shall have requested in order to perfect the security interests created pursuant to Amendment No. 2 to Security Agreement (or, to the extent such filings have been effected pursuant to the Existing Credit Agreement, such amendments to such filings determined to be necessary or advisable by the Agent). (g) GUARANTEE AGREEMENT. The Guarantee Agreement, duly executed and delivered by each Subsidiary Guarantor (other than a Supplemental Guarantor) on the date hereof. - 66 - (h) INSURANCE. Certificates of insurance evidencing the existence of all insurance required to be maintained by the Company and its Subsidiaries pursuant to Section 8.04 hereof and the designation of the Agent as the loss payee or additional named insured, as the case may be, thereunder. In addition, the Company shall have delivered a certificate of a Responsible Financial Officer of the Company setting forth the insurance obtained by it in accordance with the requirements of Section 8.04 and stating that such insurance is in full force and effect and that all premiums then due and payable thereon have been paid. (i) SUBORDINATED INDEBTEDNESS. Amendment to the Subordinated Debt Documents in form and substance satisfactory to the Majority Lenders, PROVIDED that in no event shall amortization in respect of the Subordinated Indebtedness be modified pursuant to such Amendment, and the Agent shall have received copies of all of the Amendments to the Subordinated Debt Documents and of all instruments and documents executed and delivered in connection therewith, certified by a Responsible Financial Officer of the Company. (j) FINANCIAL INFORMATION. (i) Copies of the pro forma projections of the Company and its Subsidiaries for the period ended December 31, 1996 and (ii) unaudited consolidating financial statements of the Company and its Subsidiaries for the six-month period ended on June 30, 1996. (k) PAYMENT OF FEES AND EXPENSES, ETC. Evidence that the Company shall have paid such fees and expenses as the Company shall have agreed to pay to the Agent in connection herewith, including, without limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to First Union, and Fiddler Gonzalez & Rodriguez, special Puerto Rico counsel to First Union, in connection with the negotiation, preparation, execution and delivery of this Agreement and the Facility C Notes and the other Loan Documents and the making of the Facility C Loans hereunder (to the extent that statements for such fees and - 67 - expenses have been delivered to the Company three days prior to the Closing Date). (l) INTEREST RATE PROTECTION AGREEMENTS. Evidence that the Company and/or the Obligors shall have entered into one or more Interest Rate Protection Agreements as to the notional principal amount at least equal to (i) $40,000,000 for a period ending on December 31, 1996, (ii) $14,000,000 for a period ending on May 13, 1997 and (iii) $55,000,000 for a period ending on June 30, 1998. (m) ACCOUNT DESIGNATION LETTER. The Account Designation Letter duly executed by the Company. (n) AMENDMENT NO. 2 TO EXISTING CREDIT AGREEMENT. Amendment No. 2 to Existing Credit Agreement, duly executed by each of the parties thereto, together with evidence that all conditions precedent set forth in Section 4 of Amendment No. 2 to Existing Credit Agreement shall have been satisfied or waived. (o) PROCESS AGENT ACCEPTANCE. A letter from the Process Agent, in form and substance satisfactory to the Agent, accepting the appointment of the Process Agent by the Company. (p) EVIDENCE OF LENDER ALLOCATIONS. Evidence from the Agent that on the date of this Agreement (after giving effect to the transactions contemplated hereby) the Lenders under this Agreement shall hold the same pro rata portion of Facility C Loans (and if no Facility C Loans are outstanding, Facility C Commitments) under this Agreement, as they hold of Facility A Loans and Facility B Loans (or Facility A Commitments and Facility B Commitments) under the Existing Credit Agreement. (q) OTHER DOCUMENTS. Such other documents as the Agent or any Lender or special New York counsel to First Union may reasonably request. - 68 - 6.02 CONDITIONS PRECEDENT TO LENDING FOR PERMITTED ACQUISITIONS. The obligation of any Lender to make Facility C Loans hereunder to finance any Permitted Acquisition is subject to the receipt by the Agent of the following documents, each of which shall be satisfactory to the Agent (and to the extent specified below, to each Lender or the Majority Lenders, as the case may be) in form and substance: (a) In connection with each Permitted Acquisition involving the purchase of the capital stock or other ownership interests of a Person or the formation of a corporation or other entity for the purpose of such Permitted Acquisition: (i) CORPORATE DOCUMENTS. Certified copies of the charter and by-laws (or equivalent documents) of the relevant Person and of all corporate authority for such Person (including, without limitation, board of director resolutions and evidence of the incumbency of officers, together with specimen signatures of each such officer) with respect to the execution, delivery and performance of such of the Basic Documents to which such Person is intended to be a party and each other document to be delivered by such Person from time to time in connection herewith and therewith (and the Agent and each Lender may conclusively rely on such certificate until it receives notice in writing from such Person to the contrary). (ii) SUPPLEMENTAL SUBSIDIARY GUARANTEE AND SECURITY AGREEMENT. A Supplemental Subsidiary Guarantee and Security Agreement, substantially in the form of Exhibit C-2 hereto and duly executed by the Agent and the relevant Supplemental Guarantor, pursuant to which such Supplemental Guarantor shall create a first priority security interest in all of its personal Property in favor of the Agent for the benefit of the Lenders and the Facility A Lenders and the Facility B Lenders, except as otherwise provided herein or therein. In addition, the Company shall have taken - 69 - such other action (including, without limitation, delivering to the Agent, (i) Uniform Commercial Code searches for such Supplemental Guarantor for each jurisdiction in which such Supplemental Guarantor conducts its business or in which any of its Properties are located (or otherwise as the Agent may reasonably request) and (ii) for filing, appropriately completed and duly executed copies of Uniform Commercial Code financing statements, as the Agent shall have requested in order to perfect the security interest created pursuant to such Supplemental Subsidiary Guarantee and Security Agreement. (iii) OPINION OF COUNSEL TO THE SUPPLEMENTAL GUARANTOR. Opinions, appropriately dated, of counsel to the relevant Supplemental Guarantor covering such matters as the Agent or any Lender may reasonably request. (iv) OPINION OF COUNSEL TO FIRST UNION. An opinion, appropriately dated, of Milbank, Tweed, Hadley & McCloy, special New York counsel to First Union, substantially in the form of Exhibit G hereto but as to the relevant Supplemental Guarantee and Security Agreement (and First Union hereby instructs such counsel to deliver such opinion to the Lenders). (v) AMENDMENT TO SECURITY AGREEMENT; FILINGS. An amendment to the Security Agreement (or, if applicable, the Existing Subsidiary Guaranty and Security Agreement), duly executed and delivered by the Company (or the appropriate Subsidiary) and the Agent and the certificates identified in Annex 1 thereto, accompanied by undated stock powers executed in blank. In addition, the Company shall have taken such other action (including, without limitation, delivering to the Agent, (i) Uniform Commercial Code searches for each Supplemental Guarantor for each jurisdiction in which such Supplemental Guarantor conducts its respective business or in which any of its respective - 70 - Properties are located (or otherwise as the Agent may reasonably request) and (ii) for filing, appropriately completed and duly executed copies of Uniform Commercial Code financing statements) as the Agent shall have requested in order to perfect the security interests created pursuant to such amendment to the Security Agreement and/or the relevant Supplemental Subsidiary Guarantee and Security Agreement. (vi) INSURANCE. Certificates of insurance evidencing the existence of all insurance required to be maintained by the relevant Supplemental Guarantor pursuant to Section 8.04 hereof and the designation of the Agent as the loss payee or additional named insured, as the case may be, thereunder. In addition, the Company or the relevant Supplemental Guarantor shall have delivered a certificate of a Responsible Financial Officer of the Company or such Supplemental Guarantor setting forth the insurance obtained by the Company or such Supplemental Guarantor in accordance with the requirements of Section 8.04 and stating that such insurance is in full force and effect and that all premiums then due and payable thereon have been paid. (b) In connection with all Permitted Acquisitions (as appropriate): (i) CONSUMMATION OF PERMITTED ACQUISITION. Evidence that the relevant Permitted Acquisition shall have been consummated in all material respects in accordance with the terms of the relevant Purchase Agreement, and the Agent shall have received a certificate of a Responsible Financial Officer of the Company to that effect (and attaching thereto a true and complete copy of the relevant Purchase Agreement). (ii) ENVIRONMENTAL MATTERS. To the extent that a Permitted Acquisition involves the direct or indirect acquisition of real Property, upon the request of the Agent, environmental surveys and assessments prepared - 71 - by one or more firms of licensed engineers (familiar with the identification of toxic and hazardous substances) in form and substance satisfactory to each Lender, such environmental survey and assessment to be based upon physical on-site inspections by such firm of each of the existing sites and facilities to be owned, operated or leased by the Company or the relevant Supplemental Guarantor or any of its Subsidiaries pursuant to such Permitted Acquisition as well as an historical review of the uses of such sites and facilities and of the business and operations of such Supplemental Guarantor or any of its Subsidiaries (including any former Subsidiaries or divisions thereof or any of its Subsidiaries that have been disposed of prior to the date of such survey and assessment and with respect to which such Supplemental Guarantor or any of its Subsidiaries may have retained liability for Environmental Claims), and if requested by the Agent, the Company shall have agreed to take other reasonable steps after the date of such Permitted Acquisition with respect to such matters as shall be agreed in writing with the Agent. (iii) SOLVENCY ANALYSIS. A certificate from a Responsible Financial Officer of the Company to the effect that, as of the date of the respective Permitted Acquisition and after giving effect to the Facility C Loans in connection with the relevant Permitted Acquisition hereunder and to the other transactions contemplated hereby in connection with such Permitted Acquisition, (i) the aggregate value of all Properties of the Company and its Subsidiaries at their present fair saleable value (i.e., the amount that 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, conceiving the latter as the amount that could be obtained for the Property in question within such period by a capable and diligent businessman from an interested buyer who is willing to purchase under ordinary selling conditions), exceeds - 72 - the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) of the Company and its Subsidiaries, (ii) the Company and its Subsidiaries will not, on a consolidated basis, have unreasonably small capital with which to conduct their business operations as theretofore conducted and (iii) the Company and its Subsidiaries will have, on a consolidated basis, sufficient cash flow to enable them to pay their debts as they mature. The Agent shall have also received (x) a certificate from a Responsible Financial Officer of the Company certifying that the financial projections and underlying assumptions contained in such analyses were at the time made, and on the date thereof are, fair and reasonable and accurately computed and (y) appropriate factual information supporting the conclusions of the solvency analyses and the financial condition certificate required to be delivered as provided above. (iv) MORTGAGES. The following documents each of which shall be executed (and, where appropriate, acknowledged) by Persons satisfactory to the Agent: (A) one or more Mortgages covering the parcels of real Property of the relevant Supplemental Guarantor or acquired by the Company or any Subsidiary thereof pursuant to a Permitted Acquisition financed hereunder (collectively, the "SUPPLEMENTAL MORTGAGES"), in each case duly executed and delivered by the Company or the relevant Subsidiary or Supplemental Guarantor, as applicable, in recordable form and, to the extent necessary under applicable law, for filing in the appropriate county land offices, Uniform Commercial Code financing statements covering fixtures, in each case appropriately completed and duly executed; - 73 - (B) one or more mortgagee policies of title insurance on forms of and issued by one or more title companies satisfactory to the Agent ("TITLE COMPANIES"), insuring the validity and priority of the Liens created under the Supplemental Mortgages for and in amounts satisfactory to the Agent, subject only to such exceptions as are satisfactory to the Majority Lenders; (C) current as-built surveys of each of the parcels to be covered by the Supplemental Mortgages and, in the case of certain surveys (as agreed by the Company and the Agent), accompanied by a certificate of an appropriate officer or employee of the Company, which surveys shall be in form and content acceptable to the Agent and shall have been prepared by a registered surveyor acceptable to the Agent; (D) upon request of the Agent, certified copies of permanent and unconditional certificates of occupancy (or, if it is not the practice to issue certificates of occupancy in the jurisdiction in which the parcels to be covered by the Supplemental Mortgages are located, then such other evidence reasonably satisfactory to each Lender) permitting the fully functioning operation and occupancy of each such facility and of such other permits necessary for the use and operation of each such facility issued by the respective governmental authorities having jurisdiction over each such facility; (E) upon request of the Agent, in the case of Supplemental Mortgages covering leasehold interests, such estoppel, consents and other agreements from the lessor, the holder of a fee mortgage or a sublessee, as the Agent may reasonably request; - 74 - (F) upon request of the Agent, appraisals of each of the facilities located on the Properties covered by the Supplemental Mortgages prepared by a Person, and using a methodology, satisfactory to the Agent; and (G) contemporaneously dated opinions of local counsel in the respective jurisdictions in which the properties covered by the Supplemental Mortgages are located, substantially in the form of Exhibit F-1 hereto (with such changes thereto as the Agent shall approve), and in each case, covering such other matters as the Agent may reasonably request (and the Company, each relevant Subsidiary of the Company and each Supplemental Guarantor hereby instructs such counsel to deliver such opinion to the Lenders and the Agent). In addition, the Company shall have paid to the Title Companies all expenses and premiums of the Title Companies in connection with the issuance of such policies and in addition shall have paid to the Title Companies an amount equal to the recording and stamp taxes payable in connection with recording the Supplemental Mortgages in the appropriate jurisdictions. (v) FINANCIAL INFORMATION. (A) a certificate of a Responsible Financial Officer of the Company to the effect that on a pro forma basis after giving effect to the relevant Permitted Acquisition, the Company shall remain in compliance with Sections 8.10, 8.11, 8.12, 8.13 and 8.14 hereof and (B) the most recent audited consolidated balance sheet of the Person (if any) to be acquired and its Subsidiaries and the related statement of income, retained earnings and cash flow for the fiscal year ended on said date, with opinions thereon of the auditors of such Person(or, if audited financial statements are not available to the Company, unaudited financial statements (i) reviewed by independent - 75 - certified accountants of recognized national standing and acceptable to the Agent and (ii) in form satisfactory to the Agent), and the most recent unaudited consolidated balance sheet of such Person and its Subsidiaries and the related statements of income and retained earnings for the period ended on the date of such unaudited statements. (vi) PAYMENT OF FEES AND EXPENSES, ETC. Evidence that the Company shall have paid such fees and expenses as the Company shall have agreed to pay to the Agent in connection herewith, including, without limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to First Union, and Fiddler Gonzalez & Rodriguez, special Puerto Rico counsel to First Union, in connection with the satisfaction of the conditions in this Section 6.02 and the making of the Facility C Loans hereunder in connection with the relevant Permitted Acquisition (to the extent that statements for such fees and expenses have been delivered to the Company). (vii) OTHER DOCUMENTS. Such other documents as the Agent or any Lender or special New York counsel to First Union may reasonably request. 6.03 INITIAL AND SUBSEQUENT LOANS. The obligation of the Lenders to make any Facility C Loan or otherwise extend any credit to the Company upon the occasion of each borrowing hereunder (including any borrowing on the date hereof) are subject to the further conditions precedent that, both immediately prior to the making of such Facility C Loan and also after giving effect thereto and to the intended use thereof: (i) no Default shall have occurred and be continuing; and (ii) the representations and warranties made by the Company in Section 7 hereof, and by each Obligor in each of the other Loan Documents to which it is a party, shall be true and complete on and as of the date of the making of such Facility C Loan with - 76 - the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date). Each notice of borrowing by the Company hereunder shall constitute a certification by the Company to the effect set forth in the first sentence of this Section 6.03 (both as of the date of such notice and, unless the Company otherwise notifies the Agent prior to the date of such borrowing, as of the date of such borrowing). Section 7. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Agent and the Lenders that (with respect to matters pertaining to itself and each of its Subsidiaries): 7.01 CORPORATE EXISTENCE. Each of the Company and its Subsidiaries: (a) is a corporation, partnership or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) has all requisite corporate or other power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could (either individually or in the aggregate) have a Material Adverse Effect. 7.02 FINANCIAL CONDITION. The Company has heretofore furnished to each of the Lenders the following: (a) a pro forma unaudited consolidated balance sheet of the Company and its Subsidiaries (including Garrido, Guest Choice and Swiss Dairy) as at September 30, 1996, prepared on the assumption that the Garrido Acquisition (as defined in the Existing Credit Agreement) and the Swiss Dairy Acquisition and all other transactions contemplated hereby to occur at the same time had been effected, - 77 - accompanied by a certificate of a Responsible Financial Officer of the Company to the effect that (i) such balance sheet fairly presents the pro forma consolidated financial condition of the Company and its Subsidiaries, all in accordance with generally accepted accounting principles and practices applied on a consistent basis, (ii) none of the Company or any of its Subsidiaries has on the date hereof any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in said balance sheet as at said date, and (iii) since August 19, 1996, there has been no material adverse change in the pro forma financial condition, business or prospects of the Company or its Subsidiaries taken as a whole; (b) unaudited consolidating balance sheets of the Company and its Subsidiaries as at June 30, 1996 and the related consolidating statements of income and retained earnings for the six-month period ended on said date; and (c) an audited consolidated balance sheet of the Company and its Subsidiaries as at December 31, 1995 and the related consolidated statements of income, retained earnings and cash flow of the Company and its Subsidiaries for the fiscal period ended on said date, with the opinion thereon of Deloitte & Touche LLP and the unaudited consolidated balance sheet of the Company and its Subsidiaries as at June 30, 1996 and the related consolidated statements of income and retained earnings of the Company and its Subsidiaries for the quarterly period ended on said date. All such financial statements fairly present the respective actual or pro forma financial condition, as the case may be, of the respective entities as at the respective dates, and the respective actual or pro forma results of operations for the respective periods ended on said respective dates, all in accordance with generally accepted accounting principles and practices applied on a consistent basis. None of such respective entities has on the date hereof any material contingent - 78 - liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in the respective balance sheets referred to above. Since June 30, 1996 (with respect to the Company and each of its Subsidiaries), there has been no material adverse change in the respective actual or pro forma financial condition, operations, business or prospects of each such entity from that set forth in the respective financial statements as at such respective dates. 7.03 LITIGATION. Except as disclosed in Schedule V hereto, there are no legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or (to the knowledge of the Company) threatened against the Company or any of its Subsidiaries that, if adversely determined could (either individually or in the aggregate) have a Material Adverse Effect. 7.04 NO BREACH. None of the execution and delivery of this Agreement and the Facility C Notes and the other Basic Documents, the consummation of the transactions herein and therein contemplated or compliance with the terms and provisions hereof and thereof will conflict with or result in a breach of, or require any consent under, the charter or by-laws of any Obligor, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them or any of their Property is bound or to which any of them is subject, or constitute a default under any such agreement or instrument, or (except for the Liens created pursuant to the Security Documents) result in the creation or imposition of any Lien upon any Property of the Company or any of its Subsidiaries pursuant to the terms of any such agreement or instrument. 7.05 ACTION. Each Obligor has all necessary corporate power, authority and legal right to execute, deliver and perform its obligations under each of the Basic Documents to which it is a party; the execution, delivery and performance by each Obligor of each of the Basic Documents to which it is a party have been - 79 - duly authorized by all necessary corporate action on its part (including, without limitation, any required shareholder approvals); and this Agreement has been duly and validly executed and delivered by the Company and constitutes, and each of the Facility C Notes and the other Basic Documents to which it is a party when executed and delivered by the respective Obligor (in the case of the Facility C Notes, for value) will constitute, its legal, valid and binding obligation, enforceable against such Obligor in accordance with its terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Each Security Document providing collateral security, directly or indirectly, for the Facility C Loans is effective to create in favor of the Agent for the benefit of the Lenders a legal, valid and enforceable first priority Lien upon all right, title and interest of the Obligor or Obligors party thereto in the Property described therein and such Lien has been perfected, except as otherwise permitted under Section 8.06 hereof or in such Security Document. 7.06 APPROVALS. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency, or any securities exchange, are necessary for the execution, delivery or performance by any Obligor of the Basic Documents to which it is a party or for the legality, validity or enforceability hereof or thereof, except for filings and recordings in respect of the Liens created pursuant to the Security Documents. 7.07 USE OF CREDIT. None of the Company 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 the Facility C Loans hereunder will be used to buy or carry any Margin Stock. - 80 - 7.08 ERISA. Each Plan, and, to the knowledge of the Company, each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law, and no event or condition has occurred and is continuing as to which the Company would be under an obligation to furnish a report to the Lenders under Section 8.01(e) hereof. 7.09 TAXES. The Company and its Subsidiaries (other than the Obligors operating in the Commonwealth and Garrido) are members of an affiliated group of corporations filing consolidated returns for Federal income tax purposes, of which the Company is the "common parent" (within the meaning of Section 1504 of the Code) of such group. The Company and its Subsidiaries have filed all Federal income tax returns and all other material tax returns that are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company or any of its Subsidiaries. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Company, adequate. The Company has not given or been requested to give a waiver of the statute of limitations relating to the payment of Federal, state, local and foreign taxes or other impositions. Neva Plastics and Suiza Fruit each hold industrial tax exemption grants entitling each of them to a 90% exemption from income and property taxes and a 60% exemption from municipal license taxes. The grant held by Neva Plastics will expire on August 31, 2000 for income tax purposes, on June 30, 2001 for municipal tax purposes and on January 1, 2000 for property tax purposes. The grant held by Suiza Fruit will expire on October 12, 2002 for income and property tax purposes and on June 30, 2003 for municipal license tax purposes. 7.10 INVESTMENT COMPANY ACT. Neither the Company nor any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. - 81 - 7.11 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company nor any of its Subsidiaries is a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.12 MATERIAL AGREEMENTS AND LIENS. (a) Part A of Schedule I hereto is a complete and correct list, as of the date hereof, and after giving effect to the transactions contemplated hereunder to occur on such date, of each credit agreement, loan agreement, indenture, 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 Company or any of its Subsidiaries, 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 I. (b) Part B of Schedule I hereto is a complete and correct list, as of the date hereof (and after giving effect to the transactions contemplated hereunder to occur on such date), of each Lien securing Indebtedness of any Person and covering any Property of the Company or any of its Subsidiaries that will continue after the date hereof, and the aggregate Indebtedness secured (or that may be secured) by each such Lien and the Property covered by each such Lien is correctly described in Part B of said Schedule I. 7.13 ENVIRONMENTAL MATTERS. Each of the Company and its Subsidiaries has obtained all environmental, health and safety permits, licenses and other authorizations required under all Environmental Laws to carry on its business as now being or as proposed to be conducted, except to the extent failure to have any such permit, license or authorization would not (either individually or in the aggregate) have a Material Adverse Effect. Each of such permits, licenses and authorizations is in full force and effect and each of the Company and its Subsidiaries is in compliance with the terms and conditions thereof, and is also - 82 - in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent failure to comply therewith would not (either individually or in the aggregate) have a Material Adverse Effect. In addition, except as to matters with respect to which the Company and its Subsidiaries could not reasonably be expected to incur liabilities in excess of $250,000 in the aggregate: (a) No notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or threatened by any governmental or other entity with respect to any alleged failure by the Company 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 Company 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 Company or any of its Subsidiaries. (b) Neither the Company nor any of its Subsidiaries owns, operates or leases a treatment, storage or disposal facility requiring a permit under the Resource Conservation and Recovery Act of 1976, as amended, or under any comparable state or local statute; and (i) no polychlorinated biphenyls (PCB's) is or has been present at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; - 83 - (ii) no asbestos or asbestos-containing materials is or has been present at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; (iii) there are no underground storage tanks, other than those disclosed in consultant reports provided to the Agent by the Company or its Subsidiaries, or surface impoundments for Hazardous Materials, active or abandoned, at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; (iv) no Hazardous Materials have been Released at, on or under any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries in a reportable quantity established by statute, ordinance, rule, regulation or order; and (v) no Hazardous Materials have been otherwise Released at, on or under any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries that would (either individually or in the aggregate) have a Material Adverse Effect. (c) Neither the Company nor any of its Subsidiaries has transported or arranged for the transportation of any Hazardous Material to any location that is listed on the National Priorities List ("NPL") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), listed for possible inclusion on the NPL by the Environmental Protection Agency in the Comprehensive Environmental Response and Liability Information System, as provided for by 40 C.F.R. Section 300.5 ("CERCLIS"), or on any similar state or local list or that is the subject of Federal, state or local enforcement actions or other investigations that may lead to Environmental Claims against the Company or any of its Subsidiaries. - 84 - (d) No Hazardous Material generated by the Company or any of its Subsidiaries has been recycled, treated, stored, disposed of or Released by the Company or any of its Subsidiaries at any location other than those listed in Schedule II hereto. (e) No oral or written notification of a Release of a Hazardous Material has been filed by or on behalf of the Company or any of its Subsidiaries and no site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries is listed or proposed for listing on the NPL, CERCLIS or any similar state list of sites requiring investigation or clean-up. (f) No Liens have arisen under or pursuant to any Environmental Laws on any site or facility owned, operated or leased by the Company or any of its Subsidiaries, and no government action has been taken or is in process that could subject any such site or facility to such Liens and neither the Company nor any of its Subsidiaries would be required to place any notice or restriction relating to the presence of Hazardous Materials at any site or facility owned by it in any deed to the real property on which such site or facility is located. (g) All environmental investigations, studies, audits, tests, reviews or other analyses conducted by or that are in the possession of the Company or any of its Subsidiaries in relation to facts, circumstances or conditions at or affecting any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries and that could result in a Material Adverse Effect have been made available to the Lenders. 7.14 CAPITALIZATION. As of the date hereof (and after giving effect to the Swiss Dairy Acquisition and the other transactions contemplated hereunder to occur on such date), (a) the authorized capital stock of the Company consists of 21,000,000 shares, consisting of - 85 - 20,000,000 shares of common stock, par value $0.01 per share, and 1,000,000 shares of preferred stock, par value $0.01 per share; (b) the Company has 10,739,729 shares of issued and outstanding common stock, and all of such issued shares are duly and validly issued and outstanding and are not held in treasury; (c) the Company has no issued or outstanding preferred stock; (d) except for options to purchase 579,760 shares of common stock granted under the Company's Exchange Stock Option and Restricted Stock Plan and options to purchase up to 1,069,500 shares of common stock granted (787,078) or available (282,422) for future grants under the Company's 1995 Stock Option and Restricted Stock Plan, there are no outstanding Equity Rights with respect to the Company; and (e) there are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem, or otherwise acquire any shares of capital stock of the Company or any of its Subsidiaries or to make payments to any Person, such as "phantom stock" payments, where the amount thereof is calculated with reference to the fair market value or equity value of the Company or any of its Subsidiaries. 7.15 SUBSIDIARIES, ETC. (a) Set forth in Part A of Schedule III hereto is a complete and correct list, as of the date hereof (and as of the Closing Date after giving effect to the transactions contemplated hereunder to occur on such date and after consummation of the Swiss Dairy Acquisition), of all of the Subsidiaries of the Company, together with, for each such 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 - 86 - the percentage of ownership of such Subsidiary represented by such ownership interests. Except as disclosed in Part A of Schedule III hereto, (x) each of the Company 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 III 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 III hereto is a complete and correct list, as of the date hereof, of all Investments (other than Investments disclosed in Part A of said Schedule III hereto) held by the Company or any of its Subsidiaries in any 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 III hereto, each of the Company and its Subsidiaries owns, free and clear of all Liens (other than Liens created pursuant to the Security Documents), all such Investments. (c) None of the Subsidiaries of the Company is, on the date hereof, subject to any indenture, agreement, instrument or other arrangement of the type described in Section 8.19(b) hereof. 7.16 TITLE TO ASSETS. The Company owns and has on the date hereof, and will own and have on the Closing Date, good and marketable title (subject only to Liens permitted by Section 8.06 hereof) to the Properties shown to be owned in the most recent financial statements referred to in Section 8.02 hereof (other than Properties disposed of in the ordinary course of business or otherwise permitted to be disposed of pursuant to Section 8.05 hereof). The Company owns and has on the date hereof, and will own and have on the Closing Date, good and marketable title to, and enjoys on the date hereof, and will enjoy on the Closing Date, peaceful and undisturbed possession of, all Properties - 87 - (subject only to Liens permitted by Section 8.06 hereof) that are necessary for the operation and conduct of its businesses. 7.17 TRUE AND COMPLETE DISCLOSURE. The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of the Obligors to the Agent or any Lender in connection with the negotiation, preparation or delivery of this Agreement and the other Loan Documents or included herein or therein or delivered pursuant hereto or thereto, when taken as a whole do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. All written information furnished after the date hereof by the Company and its Subsidiaries to the Agent and the Lenders in connection with this Agreement and the other Loan Documents and the transactions contemplated hereby and thereby will be true, complete and accurate in every material respect, or (in the case of projections) based on reasonable estimates, on the date as of which such information is stated or certified. There is no fact known to the Company that could have a Material Adverse Effect that has not been disclosed herein, in the other Loan Documents or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to the Lenders for use in connection with the transactions contemplated hereby or thereby. 7.18 REAL PROPERTY. Set forth on Schedule IV attached hereto is a list, as of the date hereof of all of the real property interests held by the Company and its Subsidiaries, indicating in each case whether the respective Property is owned or leased, the identity of the owner or lessee and the location of the respective Property. 7.19 SOLVENCY. As of the Closing Date and after giving effect to the initial Facility C Loans hereunder and the other transactions contemplated hereby, (a) the aggregate value of all Properties of the Company and its Subsidiaries at their present fair saleable value (i.e., the amount that may be realized within a reasonable time, considered to be six months to - 88 - one year, either through collection or sale at the regular market value, conceiving the latter as the amount that could be obtained for the Property in question within such period by a capable and diligent businessman from an interested buyer who is willing to purchase under ordinary selling conditions), exceeds the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) of the Company and its Subsidiaries, (b) the Company and its Subsidiaries will not, on a consolidated basis, have unreasonably small capital with which to conduct their business operations as heretofore conducted and (c) the Company and its Subsidiaries will have, on a consolidated basis, sufficient cash flow to enable them to pay their debts as they mature. Section 8. COVENANTS OF THE COMPANY. The Company covenants and agrees with the Lenders and the Agent that, so long as any Facility C Commitment or Facility C Loan is outstanding and until payment in full of all amounts payable by the Company hereunder: 8.01 FINANCIAL STATEMENTS, ETC. The Company shall deliver, or shall cause to be delivered, to each of the Lenders: (a) as soon as available and in any event within 45 days after the end of each quarterly fiscal period of each fiscal year of the Company, consolidated and consolidating statements of income, retained earnings and cash flow of the Company and its Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such period, setting forth in each case in comparative form the corresponding consolidated and consolidating figures for the corresponding periods in the preceding fiscal year, accompanied by a certificate of a Responsible Financial Officer of the Company, which certificate shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company and its Subsidiaries, and said consolidating - 89 - financial statements fairly present the respective individual unconsolidated financial condition and results of operations of the Company and of each of its Subsidiaries, in each case in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); (b) as soon as available and in any event within 90 days after the end of each fiscal year of the Company, consolidated and consolidating statements of income, retained earnings and cash flow of the Company and its Subsidiaries for such fiscal year and the related consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such fiscal year, setting forth in each case in comparative form the corresponding consolidated and consolidating figures for the preceding fiscal year, and accompanied (i) in the case of said consolidated statements and balance sheet of the Company, by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company and its Subsidiaries as at the end of, and for, such fiscal year in accordance with generally accepted accounting principles, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default, and (ii) in the case of said consolidating statements and balance sheets, by a certificate of a Responsible Financial Officer of the Company, which certificate shall state that said consolidating financial statements fairly present the respective individual unconsolidated financial condition and results of operations of the Company and of each of its Subsidiaries, in each case in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such fiscal year; - 90 - (c) promptly upon their becoming available, copies of all registration statements and regular periodic reports, if any, that the Company shall have filed with the Commission or any national securities exchange; (d) promptly upon mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (e) as soon as possible, and in any event within ten days after the Company knows or has reason to believe that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a Responsible Financial Officer of the Company setting forth details respecting such event or condition and the action, if any, that the Company or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by the Company or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (PROVIDED that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); and any request for a waiver under Section 412(d) of the Code for any Plan; (ii) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any - 91 - action taken by the Company or an ERISA Affiliate to terminate any Plan; (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal from a Multiemployer Plan by the Company or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by the Company or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against the Company or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; and (vi) the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of tax-exempt status of the trust of which such Plan is a part if the Company or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections; (f) [Intentionally left blank]; (g) promptly after the Company knows or has reason to believe that any Default has occurred, a notice of such Default describing the same in reasonable detail and, - 92 - together with such notice or as soon thereafter as possible, a description of the action that the Company has taken or proposes to take with respect thereto; (h) promptly upon receipt thereof, copies of all management letters and other material reports which are submitted to the Board of Directors of the Company or any of its Subsidiaries by their independent certified public accountants in connection with any annual audit of the Company and/or any such Subsidiary by such accountants; (i) as soon as available and in any event on or before December 31 of each fiscal year, a budget for the next following fiscal year setting forth for each Subsidiary of the Company and for the Company and its Subsidiaries as a whole, anticipated income, expense and capital expenditure items for each quarter during such fiscal year, and quarterly, concurrently with the delivery of the financial statements for such fiscal year pursuant to clause (a) above, a report setting forth a detailed comparison of actual performance to the budget referred to above; and (j) from time to time such other information regarding the financial condition, operations, business or prospects of the Company or any of its Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as any Lender or the Agent may reasonably request. The Company will furnish to each Lender, at the time it furnishes each set of financial statements pursuant to clause (a) above, a certificate of a Responsible Financial Officer of the Company (i) to the effect that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that the Company has taken or proposes to take with respect thereto) and (ii) setting forth in reasonable detail the computations necessary to determine whether the Company is in compliance with Sections 8.10, 8.11, 8.12, 8.13 and 8.14 hereof as of the end of the respective quarterly fiscal period or fiscal year. - 93 - 8.02 LITIGATION. The Company will promptly give to each Lender notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, and any material development in respect of such legal or other proceedings, affecting the Company or any of its Subsidiaries, except proceedings that, if adversely determined, would not (either individually or in the aggregate) have a Material Adverse Effect. Without limiting the generality of the foregoing, the Company will give to each Lender notice of the assertion of any Environmental Claim by any Person against, or with respect to the activities of, the Company or any of its Subsidiaries and notice of any alleged violation of or non-compliance with any Environmental Laws or any permits, licenses or authorizations, other than any Environmental Claim or alleged violation that, if adversely determined, would not (either individually or in the aggregate) have a Material Adverse Effect. 8.03 EXISTENCE, ETC. The Company will, and will cause each of its Subsidiaries to: (a) preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises (PROVIDED that nothing in this Section 8.03 shall prohibit any transaction expressly permitted under Section 8.05 hereof); (b) comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements could (either individually or in the aggregate) have a Material Adverse Effect; (c) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is - 94 - being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; (d) maintain all of its Properties used or useful in its business in good working order and condition, ordinary wear and tear excepted; (e) keep adequate records and books of account, in which complete entries will be made in accordance with generally accepted accounting principles consistently applied; and (f) permit representatives of any Lender or the Agent, during normal business hours, to examine, copy and make extracts from its books and records, to inspect any of its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by such Lender or the Agent (as the case may be). 8.04 INSURANCE. The Company will, and will cause each of its Subsidiaries to, maintain insurance with financially sound and reputable insurance companies, and with respect to Property and risks of a character usually maintained by corporations engaged in the same or similar business similarly situated, against loss, damage and liability of the kinds and in the amounts customarily maintained by such corporations. The Company will in any event maintain (with respect to itself and each of its Subsidiaries): (1) Casualty Insurance -- insurance against loss or damage covering all of the tangible real and personal Property and improvements of the Company and each of its Subsidiaries by reason of any Peril (as defined below) in such amounts (subject to such deductibles as shall be satisfactory to the Majority Lenders) as shall be reasonable and customary and sufficient to avoid the insured named therein from becoming a co-insurer of any loss under such policy but in any event in an amount (i) in the case of fixed assets and equipment (including, without limitation, vehicles), at least equal to 100% of the actual replacement - 95 - cost of such assets (including, without limitation, foundation, footings and excavation costs), subject to deductibles as aforesaid (PROVIDED that recovery limits may be applicable to losses caused by flood or earthquake) and (ii) in the case of inventory, not less than the fair market value thereof, subject to deductibles as aforesaid. (2) Automobile Liability Insurance for Bodily Injury and Property Damage -- insurance against liability for bodily injury and property damage in respect of all vehicles (whether owned, hired or rented by the Company or any of its Subsidiaries) at any time located at, or used in connection with, its Properties or operations in such amounts as are then customary for vehicles used in connection with similar Properties and businesses, but in any event to the extent required by applicable law. (3) Comprehensive General Liability Insurance -- insurance against claims for bodily injury, death or Property damage occurring on, in or about the Properties (and adjoining streets, sidewalks and waterways) of the Company and its Subsidiaries, in such amounts as are then customary for Property similar in use in the jurisdictions where such Properties are located. (4) Workers' Compensation Insurance -- workers' compensation insurance (including, without limitation, Employers' Liability Insurance) to the extent required by applicable law. (5) Product Liability Insurance -- insurance against claims for bodily injury, death or Property damage resulting from the use of products sold by the Company or any of its Subsidiaries in such amounts as are then customarily maintained by responsible persons engaged in businesses similar to that of the Company and its Subsidiaries. (6) Business Interruption Insurance -- insurance against loss of operating income (up to an aggregate amount equal to $15,000,000 and subject to a deductible, or - 96 - self-insured amount, not in excess of $500,000) by reason of any Peril. (7) Other Insurance -- such other insurance, including, without limitation, War-Risk Insurance when and to the extent obtainable from the United States Government, in each case as generally carried by owners of similar Properties in the jurisdictions where such Properties are located, in such amounts and against such risks as are then customary for Property similar in use. Such insurance shall be written by financially responsible companies selected by the Company and having an A. M. Best rating of "A-" or better and being in a financial size category of VIII or larger, or by other companies acceptable to the Majority Lenders, and (other than workers' compensation) shall name the Agent as loss payee (to the extent covering risk of loss or damage to tangible property) and as an additional named insured as its interests may appear (to the extent covering any other risk). Each policy referred to in this Section 8.04 shall provide that it will not be canceled or reduced, or allowed to lapse without renewal, except after not less than 30 days' notice to the Agent and shall also provide that the interests of the Agent and the Lenders shall not be invalidated by any act or negligence of the Company or any Person having an interest in any Property covered by the Mortgages which, directly or indirectly, secure the Facility C Loans nor by occupancy or use of any such Property for purposes more hazardous than permitted by such policy nor by any foreclosure or other proceedings relating to such Property. The Company will advise the Agent promptly of any policy cancellation, reduction or amendment. On or before the date hereof, the Company will deliver to the Agent certificates of insurance satisfactory to the Agent evidencing the existence of all insurance required to be maintained by the Company hereunder setting forth the respective coverage, limits of liability, carrier, policy number and period of coverage (and attaching original copies of any policies with respect to casualty insurance). Thereafter, each year the Company will deliver to the Agent certificates of insurance - 97 - evidencing that all insurance required to be maintained by the Company hereunder will be in effect through the calendar year following the date of such certificates, subject only to the payment of premiums as they become due. In addition, the Company will not modify any of the provisions of any policy with respect to casualty insurance without delivering the original copy of the endorsement reflecting such modification to the Agent accompanied by (if requested by the Agent) a written report of a firm of independent insurance brokers of nationally recognized standing, stating that, in their opinion, such policy (as so modified) adequately protects the interests of the Lenders and the Agent, is in compliance with the provisions of this Section 8.04, and is comparable in all respects with insurance carried by responsible owners and operators of Properties similar to those covered by the Mortgages which, directly or indirectly, secure the Facility C Loans. The Company will not obtain or carry separate insurance concurrent in form or contributing in the event of loss with that required by this Section 8.04 unless the Agent is the named insured thereunder, with loss payable as provided herein. The Company will immediately notify the Agent whenever any such separate insurance is obtained and shall deliver to the Agent the certificates evidencing the same. Without limiting the obligations of the Company under the foregoing provisions of this Section 8.04, in the event the Company shall fail to maintain in full force and effect insurance as required by the foregoing provisions of this Section 8.04, then the Agent may, but shall have no obligation so to do, procure insurance covering the interests of the Lenders and the Agent in such amounts and against such risks as the Agent (or the Majority Lenders) shall deem appropriate, and the Company shall reimburse the Agent in respect of any premiums paid by the Agent in respect thereof. For purposes hereof, the term "PERIL" shall mean, collectively, fire, lightning, flood, windstorm, hail, earthquake, explosion, riot and civil commotion, vandalism and malicious mischief, damage from aircraft, vehicles and smoke and all other perils covered by the "all-risk" endorsement then in - 98 - use in the jurisdictions where the Properties of the Company and its Subsidiaries are located. 8.05 PROHIBITION OF FUNDAMENTAL CHANGES. (a) The Company will not, nor will it permit any of its Subsidiaries to, enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution). (b) The Company will not, nor will it permit any of its Subsidiaries to, acquire any business or Property from, or capital stock of, or be a party to any acquisition of, any Person except: (i) for purchases of inventory and other Property to be sold or used in the ordinary course of business; (ii) Investments permitted under Section 8.08 hereof; (iii) Capital Expenditures permitted under Section 8.14 hereof; and (iv) Permitted Acquisitions and acquisitions permitted under Section 9.05(b)(iv) of the Existing Credit Agreement. (c) The Company will not, nor will it permit any of its Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, any part of its business or Property, whether now owned or hereafter acquired (including, without limitation, receivables and leasehold interests), but excluding: (i) any Excluded Disposition; (ii) obsolete or worn-out Property, tools or equipment no longer used or useful in its business (other than any Excluded Disposition) or real Property no longer used or useful in its business so long as the aggregate amount thereof sold in any single fiscal year by the Company and - 99 - its Subsidiaries shall not have a fair market value in excess of $500,000; and (iii) any inventory or other Property sold or disposed of in the ordinary course of business and on ordinary business terms. (d) Notwithstanding the foregoing provisions of this Section 8.05, so long as no Default shall have occurred and be continuing and, after giving effect to any of the succeeding transactions, no Default would exist hereunder, and so long as the Liens created under the Security Documents continue to be in effect: (i) any Subsidiary of the Company may be merged or consolidated with or into: (x) the Company if the Company shall be the continuing or surviving corporation or (y) any other such Subsidiary; and (ii) any Subsidiary of the Company may sell, lease, transfer or otherwise dispose of any or all of its Property (upon voluntary liquidation or otherwise) to the Company or a Subsidiary of the Company. 8.06 LIMITATION ON LIENS. The Company will not, nor will it permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired, except: (a) Liens created pursuant to the Security Documents; (b) Liens in existence on the date hereof and listed in Part B of Schedule I hereto; (c) Liens imposed by any governmental authority for taxes, assessments or charges not yet delinquent or that are being contested in good faith and by appropriate proceedings if, unless the amount thereof is not material with respect to it or its financial condition, adequate reserves with respect thereto are maintained on the books of the Company - 100 - or the affected Subsidiaries, as the case may be, in accordance with GAAP; (d) carriers', warehousemen's, mechanics', materialmen's, landlord's, repairmen's or other like Liens arising in the ordinary course of business that are not overdue for a period of more than 30 days or that are being contested in good faith and by appropriate proceedings; (e) Liens securing judgments but only to the extent for an amount and for a period not resulting in an Event of Default under Section 9(i) hereof; (f) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (g) deposits or pledges to secure the performance of bids, trade contracts (other than for Indebtedness), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (h) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of Property or minor imperfections in title thereto that, in the aggregate, are not material in amount, and that do not in any case materially detract from the value of the Property subject thereto or interfere with the ordinary conduct of the business of the Company or any of its Subsidiaries; (i) Liens upon tangible personal Property acquired after the date hereof (by purchase, construction or otherwise), or upon other property acquired after the date hereof as a Capital Expenditure, by the Company or any of its Subsidiaries, each of which Liens either (A) existed on such Property before the time of its acquisition and was not created in anticipation thereof or (B) was created solely - 101 - for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost of such Property; PROVIDED that (i) no such Lien shall extend to or cover any Property of the Company or such Subsidiary other than the Property so acquired, (ii) the principal amount of Indebtedness secured by any such Lien shall at no time exceed the fair market value (as determined in good faith by a Responsible Financial Officer of the Company) of such Property at the time it was acquired, and (iii) the principal amount of all Indebtedness (other than Indebtedness permitted by Section 8.07(e) hereof) secured by such Liens shall not exceed $500,000 in the aggregate; (j) Liens upon real Property heretofore leased or leased after the date hereof (under operating or capital leases) in the ordinary course of business by the Company or any of its Subsidiaries in favor of the lessor created at the inception of the lease transaction, securing obligations of the Company or any of its Subsidiaries under or in respect of such lease and extending to or covering only the Property subject to such lease and improvements thereon; (k) Liens of sellers or creditors of sellers of farm products encumbering such farm products when sold to any of the Obligors pursuant to the Food Security Act of 1985 or pursuant to similar state laws to the extent such Liens may be deemed to extend to the assets of such Obligors; (l) protective Uniform Commercial Code filings with respect to personal Property leased by any Obligor; and (m) any extension, renewal or replacement of the foregoing, PROVIDED, however, that the Liens permitted hereunder shall not be spread to cover any additional Indebtedness or Property. - 102 - 8.07 INDEBTEDNESS. The Company will not, nor will it permit any of its Subsidiaries to, create, incur or suffer to exist any Indebtedness except: (a) Indebtedness to the Lenders hereunder, under the other Loan Documents and under the Existing Credit Agreement; (b) the Subordinated Indebtedness (but not any replacement, renewal, refunding, refinancing or extension thereof); (c) Indebtedness outstanding on the date hereof and listed in Part A of Schedule I hereto; (d) Indebtedness of Subsidiaries of the Company to the Company or to other Subsidiaries of the Company or of the Company to any of its Subsidiaries to the extent permitted under Section 8.08(e) or (g) hereof; (e) Indebtedness (including Capital Lease Obligations) incurred to finance the purchase of equipment, and other Capital Lease Obligations, not to exceed $3,750,000 in the aggregate outstanding at any time; and (f) additional Indebtedness of the Company and its Subsidiaries up to but not exceeding $1,000,000 at any one time outstanding. 8.08 INVESTMENTS. The Company will not, nor will it permit any of its Subsidiaries to, make or permit to remain outstanding any Investments except: (a) Investments outstanding as of the date hereof and identified in Part B of Schedule III hereto (including, without limitation, Indebtedness of any Subsidiary of the Company to the Company or any other Subsidiary of the Company); - 103 - (b) operating deposit accounts with depository institutions; (c) Permitted Investments; (d) Interest Rate Protection Agreements entered into pursuant to Section 8.15 hereof; (e) Investments permitted under Section 8.05(b) hereof and indemnities executed in connection with the sale of Investment Tax Credits; (f) Investments by the Company in the capital stock of its Subsidiaries to the extent outstanding as of the date hereof; (g) Investments (other than of a type specified in clause (f) above and other than the Investments permitted under clause (a) above) by the Company in its Subsidiaries or by any Subsidiary of the Company in the Company or any other Subsidiary of the Company made after the date hereof not exceeding $10,000,000 at any time outstanding (MINUS (without duplication) the aggregate principal amount of Indebtedness outstanding under Section 8.07(d) hereof); (h) loans and advances to employees up to but not exceeding $500,000 in the aggregate; (i) deposits to secure bids, tenders, utilities, vendors, leases, statutory obligations, surety and appeal bonds and other deposits of like nature arising in the ordinary course of business not exceeding $250,000 in the aggregate; (j) additional Investments up to but not exceeding $500,000 in the aggregate; and (k) any guarantees permitted under Section 8.07 hereof. - 104 - 8.09 RESTRICTED PAYMENTS. (a) DIVIDEND PAYMENTS. The Company will not, nor will it permit any of its Subsidiaries to, declare or make any Dividend Payment at any time, PROVIDED that the Company may redeem or retire shares of its common stock from any of its officers in connection with his or her voluntary departure, dismissal, retirement or death, PROVIDED that (i) at the time of such redemption or retirement no Default shall have occurred and be continuing and (ii) the aggregate amount of all cash paid in respect of all such shares so redeemed or repurchased does not exceed $500,000 in any fiscal year. Nothing herein shall be deemed to prohibit the payment of dividends by any Subsidiary of the Company to the Company or any other Subsidiary of the Company. (b) MANAGEMENT FEES. The Company will not, nor will it permit any of its Subsidiaries to, accrue or pay any Management Fees to any Person (including, without limitation, any Affiliates), PROVIDED that, so long as no Default shall have occurred and be continuing or would result therefrom, the Company may make payments to Robert L. Kaminski not exceeding $150,000 in any fiscal year. 8.10 LEVERAGE RATIOS. (a) The Company will not permit the Leverage Ratio to exceed the following respective ratios at any time during the following respective periods: PERIOD RATIO From the date hereof through and including June 29, 1997 4.25 to 1 From June 30, 1997 through and including June 29, 1998 3.75 to 1 From June 30, 1998 through and including June 29, 1999 3.25 to 1 From June 30, 1999 and at all times thereafter 2.75 to 1 (b) The Company will not permit the Senior Leverage Ratio to exceed the following respective ratios at any time during the following respective periods: PERIOD RATIO From the date hereof through and including June 29, 1997 3.75 to 1 From June 30, 1997 through and including June 29, 1998 3.25 to 1 - 105 - From June 30, 1998 through and including June 29, 1999 2.75 to 1 From June 30, 1999 and at all times thereafter 2.25 to 1 8.11 MINIMUM NET WORTH. The Company will not permit its Net Worth (i) for the period from the date hereof to and including December 31, 1996 to be less than $63,000,000 and (ii) for each fiscal quarter thereafter, to be less than $63,000,000 plus 50% of net income for all preceding fiscal quarters (without including the results of any fiscal quarter in respect of which there was a net loss) commencing with the fiscal quarter beginning January 1, 1997. The amounts of Net Worth set forth above shall be increased by 75% of the amount by which the "total stockholders equity" of the Company is increased as a - 106 - result of any public or private offering of common stock of the Company after September 1, 1996. Promptly upon consummation of each such public or private offering, the Company shall notify the Agent in writing of the amount of such increase in total stockholders equity. 8.12 FIXED CHARGES RATIO. The Company will not permit the Fixed Charges Ratio to be less than 1.05 to 1 at any time. 8.13 INTEREST COVERAGE RATIOS. (a) The Company will not permit the Interest Coverage Ratio to be less than the following respective ratios at any time during the following respective periods: Period Ratio ------ ----- From the date hereof through and including June 29, 1997 2.20 to 1 From June 30, 1997 through and including June 29, 1998 2.40 to 1 From June 30, 1998 through and including June 29, 1999 2.75 to 1 From June 30, 1999 through and including June 29, 2000 3.25 to 1 From June 30, 2000 and at all times thereafter 3.75 to 1 (b) The Company will not permit the Senior Interest Coverage Ratio to be less than the following respective ratios at any time during the following respective periods: - 107 - Period Ratio ------ ----- From the date hereof through and including June 29, 1997 3.50 to 1 From June 30, 1997 through and including June 29, 1998 3.75 to 1 From June 30, 1998 through and including June 29, 1999 4.00 to 1 From June 30, 1999 through and including June 29, 2000 4.50 to 1 From June 30, 2000 and at all times thereafter 5.00 to 1 8.14 CAPITAL EXPENDITURES. The Company will not permit the aggregate amount of Capital Expenditures by the Company and its Subsidiaries to exceed the following respective amounts for the following respective periods: Period Amount ------ ------ From January 1, 1996 $13,000,000 through and including December 31, 1996 From January 1, 1997 $14,000,000 through and including December 31, 1997 From January 1, 1998 $15,000,000 through December 31, 1998, - 108 - and for each fiscal year thereafter If the aggregate amount of Capital Expenditures for any period set forth in the schedule above shall be less than the amount set forth opposite such period in the schedule above, then 50% of the shortfall shall be added to the amount of Capital Expenditures permitted for the immediately succeeding period (but not any other) period and, for the purposes hereof, the amount of Capital Expenditures made during any period shall be deemed to have been made first from the permitted amount for such period set forth in the schedule above and last from the amount of any carryover from any previous period. Notwithstanding the foregoing, in addition to the Capital Expenditures permitted to be incurred as provided above, the Company may make the following additional Capital Expenditures: (a) the acquisition of replacement Property in respect of an Excluded Disposition; (b) the purchase price paid by the Company or any of its Subsidiaries in respect of any acquisition permitted under Section 8.05(b)(iv) hereof; (c) Capital Expenditures not exceeding $6,000,000 during the period from and after the Closing Date to and including December 31, 1997 in respect of the expansion by Velda Farms of its facilities at Winter Haven, Miami, Jacksonville and/or St. Petersburg, Florida; and (d) Capital Expenditures made with the proceeds of property or casualty insurance for the purposes of repairing or replacing damaged or destroyed fixed or capital assets. 8.15 INTEREST RATE PROTECTION AGREEMENTS. The Company shall maintain in full force and effect the Interest Rate Protection Agreements existing as of the date hereof as described in Section 6.01(l) hereof until the stated expiration date thereof. The Company further agrees to provide to the Agent on or before May 17, 1997 evidence that it has in full force and effect Interest Rate Protection Agreements in form and substance satisfactory to the Agent that enable the Company to protect against floating interest rates as to a notional principal amount at least equal to 75% of the maximum aggregate principal amount of the Facility B Loans outstanding from time to time during the period from May 17, 1997 to and including July 31, 1999. - 109 - 8.16 LINES OF BUSINESS. Neither the Company nor any of its Subsidiaries will engage to any substantial extent in any line or lines of business activity other than operations involved in the manufacture, processing or distribution of ice, ice-related products, coffee or dairy products, or the lines of business conducted by the Company or any of its Subsidiaries as of the date hereof. 8.17 TRANSACTIONS WITH AFFILIATES. Except as expressly permitted by this Agreement, the Company will not, nor will it permit any of its Subsidiaries to, directly or indirectly: (a) make any Investment in an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any Property to an Affiliate; (c) merge into or consolidate with or purchase or acquire Property from an Affiliate; or (d) enter into any other transaction directly or indirectly with or for the benefit of an Affiliate (including, without limitation, Guarantees and assumptions of obligations of an Affiliate); PROVIDED that (i) any Affiliate who is an individual may serve as a director, officer or employee of the Company or any of its Subsidiaries and receive reasonable compensation for his or her services in such capacity and (ii) the Company and its Subsidiaries may enter into transactions (other than extensions of credit by the Company or any of its Subsidiaries to an Affiliate) if the monetary or business consideration arising therefrom would be substantially as advantageous to the Company and its Subsidiaries as the monetary or business consideration that would obtain in a comparable transaction with a Person not an Affiliate. 8.18 USE OF PROCEEDS. The Company will use the proceeds of the Facility C Loans only to make Permitted Acquisitions. The Company will use the proceeds of all Facility C Loans hereunder in compliance with all applicable legal and regulatory requirements. Neither the Agent nor any Lender shall have any responsibility as to the use of any of such proceeds. - 110 - 8.19 CERTAIN OBLIGATIONS RESPECTING SUBSIDIARIES; ADDITIONAL MORTGAGED PROPERTIES. (a) The Company will, and will cause each of its Subsidiaries to, take such action from time to time as shall be necessary to ensure that each of its Subsidiaries is a Wholly Owned Subsidiary. In the event that any additional shares of stock shall be issued by any Subsidiary, the respective Obligor agrees forthwith to deliver to the Agent pursuant to the relevant Security Document the certificates evidencing such shares of stock, accompanied by undated stock powers executed in blank and to take such other action as the Agent shall request to perfect the security interest created therein pursuant to such Security Document. (b) The Company will not permit any of its Subsidiaries to enter into, after the date of this Agreement, any indenture, agreement, instrument or other arrangement (other than the Garrido Negative Pledge Agreement) that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the incurrence or payment of Indebtedness, the granting of Liens, the declaration or payment of dividends, the making of loans, advances or Investments or the sale, assignment, transfer or other disposition of Property. (c) The Company will take such action, and will cause each of its Subsidiaries (other than Garrido) to take such action, from time to time as shall be necessary to ensure that all Subsidiaries of the Company (other than Garrido) are party to, as obligors, the Existing Subsidiary Guarantee and Security Agreement or a Supplemental Subsidiary Guarantee and Security Agreement. Without limiting the generality of the foregoing, in the event that the Company or any of its Subsidiaries shall form or acquire any new Subsidiary, the Company or the respective Subsidiary will cause such new Subsidiary to (i) become a party to the Existing Subsidiary Guarantee and Security Agreement or a Supplemental Subsidiary Guarantee and Security Agreement pursuant to a written instrument in form and substance satisfactory to the Agent, (ii) if requested by the Majority Lenders, cause such new - 111 - Subsidiary to execute and deliver one or more Mortgages, in substantially the form of Exhibits D-1 or D-2 hereto (with such changes thereto as the Agent may reasonably request), covering the real Property and/or fixtures of such Subsidiary, and (iii) to deliver such proof of corporate action, incumbency of officers, opinions of counsel and other documents relating to the foregoing as is consistent with those to be delivered by each Supplemental Guarantor pursuant to Section 6.02 hereof or delivered pursuant to Section 7.01 of the Existing Credit Agreement, as the case may be, or as any Lender or the Agent shall have reasonably requested. (d) Without affecting the obligations of the Company under any provision prohibiting such action hereunder, in the event that the Company or any of its Subsidiaries (other than Garrido) shall acquire any business or Property after the date hereof, the Company shall, or shall cause such Subsidiary to (i) if requested by the Majority Lenders, execute and deliver one or more Mortgages, substantially in the form of Exhibits D-1 or D-2 hereto (with such changes as the Agent may reasonably request), covering the real property and/or fixtures so acquired, (ii) execute and deliver to the Agent for filing, appropriately completed Uniform Commercial Code financing statements or other filings or instruments as the Agent shall request in order to perfect the security interest in favor of the Agent for the benefit of the Lenders in such Property so acquired and (iii) deliver such proof of corporate action, incumbency of officers, opinions of counsel and other documents relating to the foregoing as is consistent with those to be delivered by each Supplemental Guarantor pursuant to Section 6.02 hereof or delivered pursuant to Section 7.01 of the Existing Credit Agreement, as the case may be, or as any Lender or the Agent shall have reasonably requested. 8.20 MODIFICATIONS OF CERTAIN DOCUMENTS. Except in connection with any transaction expressly permitted hereunder, the Company will not, nor will it permit any of its Subsidiaries to, consent to any modification, supplement or waiver of any of the provisions of the Swiss Dairy Purchase Agreement or any agreement, instrument or other document evidencing or relating to - 112 - the charter or by-laws of the Company or any of its Subsidiaries, in each case, without the prior consent of the Agent (with the approval of the Majority Lenders). Without limiting the requirement for consent as provided in the immediately preceding sentence, the Company will furnish to the Agent a copy of each such modification, supplement or waiver promptly upon the effectiveness thereof (and the Agent will promptly furnish a copy thereof to each Lender). 8.21 FURTHER ASSURANCES. As and to the extent requested from time to time by the Agent or the Majority Lenders, each Supplemental Guarantor operating in the Commonwealth will grant to the Agent, for the benefit of the Lenders, a Lien in respect of any Property owned by such Supplemental Guarantor operating in the Commonwealth. Such Lien shall be granted pursuant to documentation reasonably satisfactory in form and substance to the Agent (collectively, the "ADDITIONAL PUERTO RICO SECURITY DOCUMENTS") and shall constitute valid and enforceable perfected liens superior to and prior to the rights of all other Persons and subject to no other Liens except for the Liens permitted pursuant to Section 8.06 hereof. The Additional Puerto Rico Security Documents or other instruments related thereto shall be duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Agent for the benefit of the Lenders required to be granted pursuant to the Additional Puerto Rico Security Documents and all taxes, fees and other charges payable in connection therewith shall be paid in full. - 113 - 8.22 SUBORDINATED INDEBTEDNESS. (a) Neither the Company nor any of its Subsidiaries will purchase, redeem, retire or otherwise acquire for value, or set apart any money for a sinking, defeasance or other analogous fund for the purchase, redemption, retirement or other acquisition of, or make any payment or prepayment of the principal of or interest on, or any other amount owing in respect of, any Subordinated Indebtedness, except: (i) for regularly scheduled payments of principal and interest (including post-default interest) in respect thereof required pursuant to the instruments evidencing such Subordinated Indebtedness (and permitted to be made at the time of payment thereof pursuant to the Subordination Agreement); (ii) the payment or reimbursement of expenses in connection with the negotiation, execution, delivery and administration and/or the supervision of, and any permitted amendment or waiver of, the Subordinated Debt Documents, all in accordance with Section 14 of the Subordinated Note Purchase Agreement, but excluding expenses, fees or other amounts relating to the exercise of any rights or remedies or the taking of any enforcement action by the holders of any Subordinated Indebtedness under or in respect of any Subordinated Debt Document or any restructuring, refinancing or workout or similar transaction relating thereto; and (iii) that the Company may redeem or prepay the Subordinated Indebtedness, in whole or in part, pursuant to Section 7.2 of the Subordinated Note Purchase Agreement from the proceeds of a Public Offering by the Company after the date hereof, PROVIDED that (i) at the time of such redemption or prepayment, and at the time any notice with respect thereto shall be required to be given pursuant to the Subordinated Debt Documents, no Default shall have occurred and be continuing and (ii) any proceeds of such offering that remain unapplied after such redemption or prepayment shall be applied pursuant to Section 2.09(c) hereof. For purposes of this Section 8.22(a), "PUBLIC OFFERING" shall mean a registered public offering under the Securities Act of 1933, as amended, of capital stock of the Company. (b) The Company will not, nor will it permit any of its Subsidiaries to, consent to any modification, supplement or - 114 - waiver of any of the provisions of the Subordinated Debt Documents without the prior consent of the Agent (with the approval of the Majority Lenders), except for any such modification, supplement or waiver which does not require such consent under the express terms of the Subordination Agreement; PROVIDED, however, that prior to entering into any modification, supplement or waiver of the Subordinated Debt Documents the Company shall give the Agent not less than 10 Business Days prior notice thereof furnishing the Agent with a copy of the proposed amendment, modification or waiver. Section 9. EVENTS OF DEFAULT. If one or more of the following events (herein called "EVENTS OF DEFAULT") shall occur and be continuing: (a) The Company shall: (i) default in the payment of any principal of any Facility C Loan when due (whether at stated maturity or at mandatory prepayment); or (ii) default in the payment of any interest on any Facility C Loan, any fee or any other amount payable by it hereunder or under any other Loan Document when due and such default shall have continued unremedied for three or more Business Days; or (b) The Company or any of its Subsidiaries shall default in the payment when due of any principal of or interest on any of its other Indebtedness aggregating $500,000 or more, or in the payment when due of any amount under any Interest Rate Protection Agreement; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness or any event specified in any Interest Rate Protection Agreement shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity or to have the interest rate thereon reset to a level so that securities evidencing such Indebtedness trade at a level - 115 - specified in relation to the par value thereof or, in the case of an Interest Rate Protection Agreement, to permit the payments owing under such Interest Rate Protection Agreement to be liquidated or any "Event of Default" (as defined in the Existing Credit Agreement) shall occur and be continuing; or (c) Any representation, warranty or certification made or deemed made herein or in any other Loan Document (or in any modification or supplement hereto or thereto) by any Obligor, or any certificate furnished to any Lender or the Agent pursuant to the provisions hereof or thereof, shall prove to have been false or misleading as of the time made or furnished in any material respect; or (d) The Company shall default in the performance of any of its obligations under any of Sections 8.01(g), 8.05, 8.06, 8.07, 8.08, 8.09, 8.10, 8.11, 8.12, 8.13, 8.14, 8.15, 8.16, 8.17, 8.19, 8.21 or 8.22 hereof; or the Company shall default in the performance of any of its other obligations in this Agreement and such default shall continue unremedied for a period of 30 or more days after notice thereof to the Company by the Agent or any Lender (through the Agent); or (e) The Company shall default in the performance of any of its obligations under Section 4.02 of the Security Agreement; any Obligor party to the Existing Subsidiary Guarantee and Security Agreement or any Supplemental Subsidiary Guarantee and Security Agreement shall default in the performance of any of its obligations under Section 2 or 5.02 thereof; or any Obligor shall default in the performance of any of its other obligations in any Loan Document (other than this Agreement) to which it is party and such default shall continue unremedied for a period of 30 or more days after notice thereof to the Company by the Agent or any Lender (through the Agent); or (f) The Company or any of its Subsidiaries shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or - 116 - (g) The Company or any of its Subsidiaries shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its Property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code (or such similar laws) or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (h) A proceeding or case shall be commenced, without the application or consent of the Company or the relevant Subsidiary affected thereby, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of the Company or such Subsidiary, as the case may be, or of all or any substantial part of its Property, or (iii) similar relief in respect of such Company or such Subsidiary, as the case may be, under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against the Company or any of its Subsidiaries shall be entered in an involuntary case under the Bankruptcy Code; or (i) A final judgment or judgments for the payment of money in excess of $500,000 in the aggregate (exclusive of judgment amounts fully bonded or covered by insurance where - 117 - the surety or the insurer, as the case may be, has admitted liability in respect of such judgment) shall be rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against the Company or any of its Subsidiaries and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Company or any such Subsidiary, as the case may be, shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (j) An event or condition specified in Section 8.01(e) hereof shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, the Company or any ERISA Affiliate shall incur or shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) that, in the determination of the Majority Lenders, would (either individually or in the aggregate) have a Material Adverse Effect; or (k) A reasonable basis shall exist for the assertion against the Company or any of its Subsidiaries, or any predecessor in interest of the Company or any of its Subsidiaries, of (or there shall have been asserted against the Company or any of its Subsidiaries) an Environmental Claim that, in the judgment of the Majority Lenders, is reasonably likely to be determined adversely to the Company or any of its Subsidiaries, and the amount thereof (either individually or in the aggregate) is reasonably likely to have a Material Adverse Effect (insofar as such amount is payable by the Company or any of its Subsidiaries but after deducting any portion thereof that is reasonably expected to be paid by other creditworthy Persons jointly and severally liable therefor); or - 118 - (l) Mr. Gregg L. Engles ("ENGLES") shall at any time cease to own beneficially at least 75% of that number of shares of common stock of the Company held by him as of June 1, 1996 (as adjusted to take into account any subsequent stock split, stock dividend or other form of recapitalization); or any of the Subsidiaries of the Company shall cease to be a Wholly Owned Subsidiary of the Company; or during any period of 25 consecutive calendar months, a majority of the Board of Directors of the Company shall no longer be composed of individuals (i) who were members of said Board on the first day of such period, (ii) whose election or nomination to said Board was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of said Board or (iii) whose election or nomination to said Board was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of said Board; or any Person or group of Persons acting in concert, other than Engles or any other shareholder of the Company as of the date hereof, shall at any time own or control, directly or indirectly, 30% or more of such voting capital stock; or (m) The Liens created by the Security Documents shall at any time not constitute a valid and perfected Lien on any material portion of the collateral intended to be covered thereby (to the extent perfection by filing, registration, recordation or possession is required herein or therein) in favor of the Agent, free and clear of all other Liens (other than Liens permitted under Section 8.06 hereof or under the respective Security Documents), or, except for expiration in accordance with its terms, any of the Security Documents shall for whatever reason be terminated or cease to be in full force and effect, or the enforceability thereof shall be contested by any Obligor. THEREUPON: (1) in the case of an Event of Default other than one referred to in clause (g) or (h) of this Section 9 with respect to any Obligor, the Agent may (and, if requested by the Majority Lenders shall), by notice to the Company, terminate the Facility - 119 - C Commitments and/or declare the principal amount then outstanding of, and the accrued interest on, the Facility C Loans and all other amounts payable by the Obligors hereunder, under the other Loan Documents and under the Facility C Notes (including, without limitation, any amounts payable under Section 5.05 or 5.08 hereof) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by each Obligor; and (2) in the case of the occurrence of an Event of Default referred to in clause (g) or (h) of this Section 9 with respect to any Obligor, the Facility C Commitments shall automatically be terminated and the principal amount then outstanding of, and the accrued interest on, the Facility C Loans and all other amounts payable by the Company hereunder and under the Facility C Notes (including, without limitation, any amounts payable under Section 5.05 or 5.08 hereof) shall automatically become immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by each Obligor. - 120 - Section 10. THE AGENT. 10.01 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to the Agent by the terms of this Agreement and of the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 10.05 and the first sentence of Section 10.06 hereof shall include reference to its affiliates and its own and its affiliates' officers, directors, employees and agents): (a) shall have no duties or responsibilities except those expressly set forth in this Agreement and in the other Loan Documents, and shall not by reason of this Agreement or any other Loan Document be a trustee for any Lender; (b) shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement or in any other Loan Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Loan Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, any Facility C Note or any other Loan Document or any other document referred to or provided for herein or therein or for any failure by the Company or any other Person to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Loan Document; and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other Loan Document or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. The Agent may deem and treat the payee of any Facility C Note as the holder thereof for all purposes hereof unless and until a notice of the assignment or transfer thereof shall have been filed with the Agent. - 121 - 10.02 RELIANCE BY AGENT. The Agent shall be entitled to rely upon any certification, notice or other communication (including, without limitation, any thereof by telephone, telecopy, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. As to any matters not expressly provided for by this Agreement or any other Loan Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Majority Lenders or, if provided herein, in accordance with the instructions given by all of the Lenders as is required in such circumstance, and such instructions of such Lenders and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. 10.03 DEFAULTS. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default unless the Agent has received notice from a Lender or any Obligor specifying such Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default, the Agent shall give prompt notice thereof to the Lenders. The Agent shall (subject to Section 10.07 hereof) take such action with respect to such Default as shall be directed by the Majority Lenders, PROVIDED that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such 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 Majority Lenders, or all of the Lenders. 10.04 RIGHTS AS A LENDER. With respect to its Facility C Commitment and the Facility C Loans made by it, First Union (and any successor acting as Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were - 122 - not acting as the Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. First Union (and any successor acting as Agent) and its affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make investments in and generally engage in any kind of banking, trust or other business with the Obligors (and any of their Subsidiaries or Affiliates) as if it were not acting as the Agent, and First Union and its affiliates may accept fees and other consideration from the Obligors for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. 10.05 INDEMNIFICATION. The Lenders agree to indemnify the Agent (to the extent not reimbursed under Section 11.03 hereof, but without limiting the obligations of the Company under said Section 11.03, and including in any event any payments under any indemnity that the Agent is required to issue to any bank referred to in Section 4.02 of the Security Agreement and Section 5.02 of each Supplemental Subsidiary Guarantee and Security Agreement to which remittances in respect of Accounts, as defined in each such agreement, are to be made) ratably in accordance with the aggregate principal amount of the Facility C Loans held by the Lenders (or, if no Facility C Loans are at the time outstanding, ratably in accordance with their respective Facility C Commitments), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Agent (including by any Lender) arising out of or by reason of any investigation in or in any way relating to or arising out of this Agreement or any other Loan Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses that the Company is obligated to pay under Section 11.03 hereof, and including also any payments under any indemnity that the Agent is required to issue to any bank referred to in Section 4.02 of the Security Agreement and Section 5.02 of each Supplemental Subsidiary Guarantee and Security Agreement to which remittances in respect of Accounts, as defined in each such - 123 - agreement, are to be made, but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents, PROVIDED that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. 10.06 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender agrees that it has, independently and without reliance on the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Company and its Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or under any other Loan Document. The Agent shall not be required to keep itself informed as to the performance or observance by any Obligor of this Agreement or any of the other Loan Documents or any other document referred to or provided for herein or therein or to inspect the Properties or books of the Company or any of its Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder or under the Security Documents, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Company or any of its Subsidiaries (or any of their affiliates) that may come into the possession of the Agent or any of its affiliates. 10.07 FAILURE TO ACT. Except for action expressly required of the Agent hereunder and under the other Loan Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from the Lenders of their indemnification obligations under Section 10.05 - 124 - hereof against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. 10.08 RESIGNATION OR REMOVAL OF AGENT. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Lenders and the Company, and the Agent may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Agent with the prior consent of the Company (which consent shall not be unreasonably withheld); PROVIDED, that no such consent of the Company shall be required if an Event of Default has occurred and is continuing and the Facility C Commitments have been terminated and/or the Facility C Loans and other amounts payable by the Company hereunder have been declared to be forthwith due and payable. If no successor Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, that shall be a bank with a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Section 10 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. 10.09 AGENCY FEE. So long as the Facility C Commitments are in effect and until payment in full of the principal of and interest on the Facility C Loans and all other amounts payable by the Company hereunder, the Company will pay to the Agent an agency fee in the amount agreed in writing between the Company and the Agent, payable quarterly in arrears - 125 - commencing on September 30, 1996 and on the last day of each calendar quarter thereafter; PROVIDED that if the Facility C Commitments shall have been terminated prior to such date, the agency fee shall be payable on the date of such termination. Such fee, once paid, shall be non-refundable. 10.10 CONSENTS UNDER OTHER LOAN DOCUMENTS. Except as otherwise provided in Section 11.04 hereof with respect to this Agreement, the Agent may, with the prior consent of the Majority Lenders (but not otherwise), consent to any modification, supplement or waiver under any of the Loan Documents, PROVIDED that, without the prior consent of each Lender, the Agent shall not (except as provided herein or in the Security Documents) release any guarantee or collateral or otherwise terminate any Lien under any Loan Document providing for collateral security, or agree to additional obligations being secured by such collateral security, except that no such consent shall be required, and the Agent is hereby authorized, to release any Lien covering Property that is the subject of a disposition of Property permitted hereunder or to which the Majority Lenders have consented or to release any guarantee of any Obligor that is the subject of a disposition to which the Majority Lenders have consented. 10.11 SYNDICATION AGENT. The Syndication Agent named on the cover page of this Agreement shall have no duties, obligations or responsibilities hereunder except in its capacity as Lender. - 126 - Section 11. MISCELLANEOUS. 11.01 WAIVER. No failure on the part of the Agent or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement or any Facility C Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement or any Facility C Note preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 11.02 NOTICES. All notices, requests and other communications provided for herein and under the Security Documents (including, without limitation, any modifications of, or waivers, requests or consents under, this Agreement) shall be given or made in writing (including, without limitation, by telex or telecopy) delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telex or telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. 11.03 EXPENSES, ETC. The Company agrees to pay or reimburse each of the Lenders and the Agent for: (a) all reasonable out-of-pocket costs and expenses of the Agent (including, without limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to First Union, and Fiddler Gonzalez & Rodriguez, special Puerto Rico counsel to First Union) in connection with (i) the negotiation, preparation, execution and delivery of this Agreement and the other Loan Documents and the extensions of credit hereunder and (ii) the negotiation or preparation of any modification, supplement or waiver of any of the terms of this Agreement or any of the other Loan Documents (whether or not - 127 - consummated); (b) all reasonable out-of-pocket costs or allocated costs and expenses of the Lenders and the Agent (including, without limitation, the reasonable fees, allocated costs and expenses of legal counsel, which may be employees of the Lenders or the Agent) in connection with (i) any Default and any enforcement or collection proceedings resulting therefrom, including, without limitation, all manner of participation in or other involvement with (x) bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation proceedings, (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 11.03; (c) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement or any of the other Loan Documents or any other document referred to herein or therein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by any Loan Document or any other document referred to therein; and (d) all costs, expenses and other charges in respect of title insurance procured with respect to the Liens created pursuant to any Mortgages securing, directly or indirectly, the Facility C Loans. The Company hereby agrees to indemnify the Agent and each Lender and their respective directors, officers, employees, attorneys and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them (including, without limitation, any and all losses, liabilities, claims, damages or expenses incurred by the Agent to any Lender, whether or not the Agent or any Lender is a party thereto) arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) relating to the extensions of credit hereunder or any actual or proposed use by the Company or any of its Subsidiaries of the proceeds of any of the extensions of credit hereunder, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or - 128 - litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). Without limiting the generality of the foregoing, the Company will (x) indemnify the Agent for any payments that the Agent is required to make under any indemnity issued to any bank referred to in Section 4.02 of the Security Agreement and Section 5.02 of each Supplemental Subsidiary Guarantee and Security Agreement to which remittances in respect to Accounts, as defined in each such agreement, are to be made and (y) indemnify the Agent and each Lender from, and hold the Agent and each Lender harmless against, any losses, liabilities, claims, damages or expenses described in the preceding sentence (including any Lien filed against all or any part of the Property covered by any Mortgages (securing, directly or indirectly, the Facility C Loans) in favor of any governmental entity, but excluding, as provided in the preceding sentence, any loss, liability, claim, damage or expense incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified) arising under any Environmental Law as a result of the past, present or future operations of the Company or any of its Subsidiaries (or any predecessor in interest to the Company or any of its Subsidiaries), or the past, present or future condition of any site or facility owned, operated or leased at any time by the Company or any of its Subsidiaries (or any such predecessor in interest), or any Release or threatened Release of any Hazardous Materials at or from any such site or facility, including any such Release or threatened Release that shall occur during any period prior to the termination of the Facility C Commitments and the payment in full of the Facility C Loans and other amounts owing hereunder and under the other Loan Documents when the Agent or any Lender shall be in possession of any such site or facility following the exercise by the Agent or any Lender of any of its rights and remedies hereunder or under any of the Security Documents to the extent such Release results from a continuation of conditions previously in existence at, or practices theretofore employed in connection with the operation of, such site or facility. - 129 - 11.04 AMENDMENTS, ETC. Except as otherwise expressly provided in this Agreement, any provision of this Agreement may be modified or supplemented only by an instrument in writing signed by the Company, the Agent and the Majority Lenders, or by the Company and the Agent acting with the consent of the Majority Lenders, and any provision of this Agreement may be waived by the Majority Lenders or by the Agent acting with the consent of the Majority Lenders; PROVIDED that: (a) no modification, supplement or waiver shall, unless by an instrument signed by all of the Lenders or by the Agent acting with the consent of all of the Lenders: (i) increase, or extend the term of any of the Facility C Commitments, or extend the time or waive any requirement for the reduction or termination of any of the Facility C Commitments, (ii) extend the date fixed for the payment of principal of or interest on any Facility C Loan or any fee hereunder, (iii) reduce the amount of any such payment of principal, (iv) reduce the rate at which interest is payable thereon or any fee is payable hereunder, (v) alter the rights or obligations of the Company to prepay Facility C Loans, (vi) alter the terms of this Section 11.04, (vii) modify the definition of the term "Majority Lenders", or modify in any other manner the number or percentage of the Lenders required to make any determinations or waive any rights hereunder or to modify any provision hereof, or modify Section 11.06(b)(iii) hereof, (viii) release any Subsidiary Guarantor from any of its guarantee obligations under the Existing Subsidiary Guarantee and Security Agreement or any Supplemental Subsidiary Guarantee and Security Agreement or release (or terminate any Lien on) all or substantially all of the Collateral except as provided in the Security Documents with respect to such Collateral in any of the Security Documents or (ix) waive any of the conditions precedent set forth in Section 6.01 or 6.02 hereof; and (b) any modification of any of the rights or obligations of the Agent shall require the consent of the Agent. 11.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. - 130 - 11.06 ASSIGNMENTS AND PARTICIPATIONS. (a) The Company may not assign any of its rights or obligations hereunder or under the Facility C Notes without the prior consent of all of the Lenders and the Agent. (b) Each Lender may assign any of its Facility C Loans, its Facility C Note and its Facility C Commitment with the consent of the Agent (which consent shall not be unreasonably withheld) pursuant to an Assignment and Acceptance substantially in the form of Exhibit E hereto; PROVIDED that: (i) no such consent by the Agent shall be required in the case of any assignment to another Lender; (ii) each assignment by a Lender of its Facility C Loans, Facility C Note or Facility C Commitment shall be made in such a manner so that the same portion of such Facility C Loans, Facility C Note and Facility C Commitment is assigned to the respective assignee; (iii) each assignment by any Facility C Lender, Facility A Lender or Facility B Lender of any of its Facility C Loans, Facility A Loans or Facility B Loans respectively (and related Facility C Note, Facility A Note and Facility B Note and related Facility C Commitment, Facility A Commitment and Facility B Commitment) shall be made in such a manner so that the same portion of its Facility C Loans, Facility A Loans and Facility B Loans to the Company (and related Facility C Note, Facility A Note and Facility B Note and related Facility C Commitment, Facility A Commitment and Facility B Commitment) is assigned to the respective assignee; and (iv) any such assignment of less than all of such Lender's interests in the Facility A Loans, Facility B Loans and Facility C Loans, Facility A Notes, Facility B Notes and Facility C Notes, and Facility A Commitments, Facility B Commitments and Facility C Commitments, as the case may be, - 131 - shall be in an aggregate amount at least equal to $10,000,000. Upon execution and delivery by the assignor and assignee to the Agent of such Assignment and Acceptance, and upon consent thereto by the Agent to the extent required above, the assignee shall have, to the extent of such assignment, the obligations, rights and benefits of a Lender hereunder holding the Facility C Commitment and Facility C Loans (or portions thereof) assigned to it as specified in such Assignment and Acceptance (in addition to the Facility C Commitment and Facility C Loans theretofore held by such assignee) and the assigning Lender shall, to the extent of such assignment, be released from the Facility C Commitment (or portion thereof) so assigned. Upon each such assignment the assigning Lender shall pay the Agent an assignment fee of $3,000. (c) A Lender may sell or agree to sell to one or more other Persons a participation in all or any part of any Facility C Loans held by it, or in its Facility C Commitment, in which event each purchaser of a participation (a "PARTICIPANT") shall be entitled to the rights and benefits of the provisions of Section 8.01(j) hereof with respect to its participation in such Facility C Loans and Facility C Commitment as if (and the Company shall be directly obligated to such Participant under such provisions as if) such Participant were a "Lender" for purposes of said Section, but, except as otherwise provided in Section 4.07(c) hereof, shall not have any other rights or benefits under this Agreement or any Facility C Note or any other Loan Document (the Participant's rights against such Lender in respect of such participation to be those set forth in the agreements executed by such Lender in favor of the Participant). All amounts payable by the Company to any Lender under Section 5 hereof in respect of Facility C Loans held by it, and its Facility C Commitment, shall be determined as if such Lender had not sold or agreed to sell any participations in such Facility C Loans and Facility C Commitment, and as if such Lender were funding each of such Facility C Loans and Facility C Commitment in the same way that it is funding the portion of such Facility C Loans and Facility C Commitment in which no participations have been sold. In no event shall a Lender that sells a participation - 132 - agree with the Participant to take or refrain from taking any action hereunder or under any other Loan Document except that such Lender may agree with the Participant that it will not, without the consent of the Participant, agree to (i) increase or extend the term, or extend the time or waive any requirement for the reduction or termination, of such Lender's related Facility C Commitment, (ii) extend the date fixed for the payment of principal of or interest on the related Facility C Loan or Facility C Loans or any portion of any fee hereunder payable to the Participant, (iii) reduce the amount of any such payment of principal, (iv) reduce the rate at which interest is payable thereon, or any fee hereunder payable to the Participant, to a level below the rate at which the Participant is entitled to receive such interest or fee, (v) alter the rights or obligations of the Company to prepay the related Facility C Loans, (vi) consent to any modification, supplement or waiver hereof or of any of the other Loan Documents to the extent that the same, under Section 10.10 or 11.04 hereof, requires the consent of each Lender or (vii) release any Subsidiary Guarantor from any of its guarantee obligations under the Guarantee Agreement or any Supplemental Subsidiary Guarantee and Security Agreement or release (or terminate any Lien on) all or substantially all of the collateral directly or indirectly securing the Facility C Loans except as provided in the Security Documents with respect to such collateral in any of the Security Documents. (d) In addition to the assignments and participations permitted under the foregoing provisions of this Section 11.06, any Lender may (without notice to the Company, the Agent or any other Lender and without payment of any fee) (i) assign and pledge all or any portion of its Facility C Loans and its Facility C Note to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank and (ii) assign all or any portion of its rights under this Agreement and its Facility C Loans and its Facility C Note to an affiliate. No such assignment shall release the assigning Lender from its obligations hereunder. - 133 - (e) A Lender may furnish any information concerning the Company or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants), subject, however, to the provisions of Section 11.12(b) hereof. (f) Anything in this Section 11.06 to the contrary notwithstanding, no Lender may assign or participate any interest in any Facility C Loan held by it hereunder to the Company or any of its Subsidiaries or Affiliates without the prior consent of each Lender. 11.07 SURVIVAL. The obligations of the Company under Sections 5.01, 5.05, 5.06, 5.08 and 11.03 hereof, and the obligations of the Lenders under Section 10.05 hereof, shall survive the repayment of the Facility C Loans and the termination of the Facility C Commitments. In addition, each representation and warranty made, or deemed to be made by a notice of any extension of credit (whether by means of a Facility C Loan), herein or pursuant hereto shall survive the making of such representation and warranty, and no Lender shall be deemed to have waived, by reason of making any extension of credit hereunder (whether by means of a Facility C Loan), any Default that may arise by reason of such representation or warranty proving to have been false or misleading, notwithstanding that such Lender or the Agent may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such extension of credit was made. 11.08 CAPTIONS. The table of contents and 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. 11.09 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. - 134 - 11.10 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF PROCESS AND VENUE. (a) This Agreement and the Facility C Notes shall be governed by, and construed in accordance with, the law of the State of New York. (b) The Company hereby agrees that any suit, action or proceeding with respect to this Agreement, any Facility C Note or any other Loan Document to which it is a party or any judgment entered by any court in respect thereof may be brought in the United States District Court for the Southern District of New York, in the Supreme Court of the State of New York sitting in New York County (including its Appellate Division), or in any other appellate court in the State of New York, as the party commencing such suit, action or proceeding may elect in its sole discretion; and each party hereto hereby irrevocably submits to the non-exclusive jurisdiction of such court for the purpose of any such suit, action, proceeding or judgment. Each party hereto further submits, for the purpose of any such suit, action, proceeding or judgment brought or rendered against it, to the appropriate courts of the jurisdiction of its domicile. (c) The Company hereby agrees that service of all writs, process and summonses in any suit, action or proceeding brought hereunder or under any of the other Loan Documents to which the Company is a party may be made upon The Prentice Hall Corporation System, Inc. presently located at 15 Columbus Circle, New York, New York 10023, U.S.A. (the "PROCESS AGENT"), and the Company hereby confirms and agrees that the Process Agent has been duly and irrevocably appointed as its agent and true and lawful attorney in fact in its name, place and stead to accept such service of any and all such writs, process and summonses, and agrees that the failure of the Process Agent to give any notice of any such service of process to the Company shall not impair or affect the validity of such service or of any judgment based thereon. Without limiting the foregoing, the Company hereby irrevocably consents to the service of process in any suit, action or proceeding in such courts by the mailing thereof by the Agent or any Lender by registered or certified mail, - 135 - postage prepaid, at its address set forth beneath its signature hereto. Nothing herein shall in any way be deemed to limit the ability of the Agent or any Lender to serve any such writs, process or summonses in any other manner permitted by applicable law or to obtain jurisdiction over the Company in such other jurisdictions, and in such manner, as may be permitted by applicable law. (d) The Company hereby irrevocably waives any objection that it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement, the Facility C Notes or the other Loan Documents brought in any such court and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 11.11 WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 11.12 TREATMENT OF CERTAIN INFORMATION; CONFIDENTIALITY. (a) The Company acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to the Company or one or more of its Subsidiaries (in connection with this Agreement or otherwise) by any Lender or by one or more subsidiaries or affiliates of such Lender and the Company hereby authorizes each Lender to share any information delivered to such Lender by the Company and its Subsidiaries pursuant to this Agreement, or in connection with the decision of such Lender to enter into this Agreement, to any such subsidiary or affiliate, it being understood that any such subsidiary or affiliate receiving such information shall be bound by the provisions of clause (b) below as if it were a Lender hereunder. Such authorization shall survive the repayment of the - 136 - Facility C Loans and the termination of the Facility C Commitments. (b) Each Lender and the Agent agree (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with their customary procedures for handling confidential information of the same nature and in accordance with safe and sound banking practices, any non-public information supplied to it by any Obligor pursuant to this Agreement that is identified by such Person as being confidential at the time the same is delivered to the Lenders or the Agent, PROVIDED that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to counsel for any of the Lenders or the Agent, (iii) to any Lender's examiners, auditors or accountants, (iv) to the Agent, the Syndication Agent named on the cover page of this Agreement or any other Lender, (v) in connection with any litigation to which any one or more of the Lenders or the Agent is a party, (vi) to a subsidiary or affiliate of such Lender as provided in clause (a) above or (vii) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first executes and delivers to the respective Lender a Confidentiality Agreement substantially in the form of Exhibit H hereto; PROVIDED, further, that in no event shall any Lender or the Agent be obligated or required to return any materials furnished by any Obligor. The obligations of any assignee that has executed a Confidentiality Agreement in the form of Exhibit H hereto shall be superseded by this Section 11.12 upon the date upon which such assignee becomes a Lender hereunder pursuant to Section 11.06 hereof. 11.13 INTENTION OF PARTIES. Notwithstanding anything contained herein to the contrary, it is the intention of the parties hereto that this Agreement and the Facility C Commitments and extensions of credit provided hereunder represent a supplement to, but not a novation or discharge of, the credit facilities provided by the Existing Credit Agreement. - 137 - IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Credit Agreement to be duly executed and delivered as of the day and year first above written. COMPANY SUIZA FOODS CORPORATION By_________________________ Title: Address for Notices: 3811 Turtle Creek Boulevard Suite 1300 Dallas, Texas 75219 Attention: Gregg L. Engles Telecopier No.: (214) 528-9929 Telephone No.: (214) 528-9922 - 138 - LENDERS FACILITY C COMMITMENT FIRST UNION NATIONAL BANK OF $16,200,000 NORTH CAROLINA By_________________________ Title: Lending Office for Base Rate Loans and Eurodollar Loans: First Union National Bank of North Carolina 301 S. College Street Charlotte, NC 28288-0737 Address for Notices: First Union National Bank of North Carolina 301 S. College Street Charlotte, NC 28288-0737 Attention: Sana Alkoor - Suiza Telecopier No.: (704) 383-6537 Telephone No.: (704) 374-9831 - 139 - FACILITY C COMMITMENT THE FIRST NATIONAL BANK OF CHICAGO $16,200,000 By_________________________ Title: Lending Office for Base Rate Loans and Eurodollar Loans: The First National Bank of Chicago 1 First National Plaza Suite 0088, 14th Floor Chicago, IL 60670 Address for Notices: The First National Bank of Chicago 1 First National Plaza Suite 0088, 14th Floor Chicago, IL 60670 Attention: April Yebd Telecopier No.: (312) 732-2715 (312) 732-6276 Telephone No.: (312) 732-4823 - 140 - FACILITY C COMMITMENT HARRIS TRUST AND SAVINGS BANK $9,000,000 By_________________________ Title: Lending Office for Base Rate Loans and Eurodollar Loans: Harris Trust and Savings Bank 111 West Monroe Street Chicago, IL 60690 Address for Notices: Harris Trust and Savings Bank 111 West Monroe Street Chicago, IL 60690 Attention: Jerry Karl/Marieky Estrada Telecopier No.: (312) 765-8095 Telephone No.: (312) 461-3776/7664 - 141 - FACILITY C COMMITMENT THE BANK OF NOVA SCOTIA $10,800,000 By_________________________ Title: Lending Office for Base Rate Loans and Eurodollar Loans: The Bank of Nova Scotia Atlanta Agency 600 Peachtree Street N.E., Suite 2700 Atlanta, Georgia 30308 Address for Notices: The Bank of Nova Scotia Atlanta Agency 600 Peachtree Street N.E. Suite 2700 Atlanta, Georgia 30308 Attention: F.C.H. Ashby Senior Assistant Agent Telecopier No.: (404) 888-8998 Telephone No.: (404) 877-1500 with a copy to: The Bank of Nova Scotia Houston Representative Office 1100 Louisiana Suite 3000 - 142 - Houston, Texas 77002 Attention: Rosine Matthews Relationship Manager Telecopier No.: (713) 752-2425 Telephone No.: (713) 759-3432 - 143 - FACILITY C COMMITMENT BANCO POPULAR DE PUERTO RICO $7,200,000 By_________________________ Title: Lending Office for Base Rate Loans and Eurodollar Loans: Banco Popular de Puerto Rico 7 West 51st Street New York, New York 10019 Address for Notices: Banco Popular de Puerto Rico 7 West 51st Street New York, New York 10019 Attention: John Cuneo Telecopier No.: (212) 586-3537 Telephone No.: (212) 315-2800 - 144 - FACILITY C COMMITMENT BANK OF AMERICA ILLINOIS $5,400,000 By_________________________ Title: Lending Office for Base Rate Loans and Eurodollar Loans: Bank of America Illinois 231 S. LaSalle Chicago, Illinois 60697 Address for Notices: Bank of America Illinois 231 S. LaSalle Chicago, Illinois 60697 Attention: Paul Youmaura Telecopier No.: (312) 974-9626 Telephone No.: (312) 828-6574 - 145 - FACILITY C COMMITMENT BANQUE PARIBAS $5,400,000 By_________________________ Title: By_________________________ Title: Lending Office for Base Rate Loans and Eurodollar Loans: Banque Paribas 1200 Smith Street Suite 3100 Houston, Texas 77002 Address for Notices: Banque Paribas 1200 Smith Street Suite 3100 Houston, Texas 77002 Attention: Chuck E. Irwin Telecopier No.: (713) 659-5234 Telephone No.: (713) 659-4811 - 146 - FACILITY C COMMITMENT CAISSE NATIONALE DE CREDIT AGRICOLE $5,400,000 By_________________________ Title: Lending Office for Base Rate Loans and Eurodollar Loans: Caisse Nationale de Credit Agricole 55 E. Monroe Suite 4700 Chicago, IL 60603 Address for Notices: Caisse Nationale de Credit Agricole 55 E. Monroe Suite 4700 Chicago, IL 60603 Attention: Laura Schmuck Telecopier No.: (312) 372-4421 Telephone No.: (312) 917-7428 - 147 - FACILITY C COMMITMENT THE FUJI BANK, LIMITED, $9,000,000 HOUSTON AGENCY By_________________________ Title: Lending Office for Base Rate Loans and Eurodollar Loans: The Fuji Bank, Limited, Houston Agency One Houston Center 1221 McKinney Street, Suite 4100 Houston, TX 77010 Telecopier No.: (713) 759-0048 Address for Notices: The Fuji Bank, Limited, Houston Agency One Houston Center 1221 McKinney Street, Suite 4100 Houston, TX 77010 Attention: Philip C. Lauinger III Vice President and Joint Manager or David L. Kelley Senior Vice President (713) 650-7850 Telecopier No.: (713) 759-0048 Telephone No.: (713) 650-7852 - 148 - FACILITY C COMMITMENT THE LONG-TERM CREDIT BANK OF JAPAN, $5,400,000 LIMITED, NEW YORK BRANCH By_________________________ Title: Lending Office for Base Rate Loans and Eurodollar Loans: The Long-Term Credit Bank of Japan, Limited, New York Branch 165 Broadway New York, NY 10006 Address for Notices: The Long-Term Credit Bank of Japan, Limited, New York Branch 165 Broadway New York, NY 10006 Attention: Frank H. Madden, Jr. Telecopier No.: (212) 608-2371 Telephone No.: (212) 335-4550 - 149 - AGENT FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Agent By_________________________ Title: Address for Notices to the Agent: First Union National Bank of North Carolina 301 S. College Street TW-10 Charlotte, NC 28288-0608 Attention: Syndication Agency Services Telecopier No.: (704) 383-0288 Telephone No.: (704) 383-0281 Telex No.: (Answerback: ) EX-10.24 7 EXHIBIT 10.24 THE SECURITIES REFERRED TO HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE. STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (this "Agreement") dated as of August 6, 1996 is entered into by and between T. Rowe Price Small-Cap Value Fund, Inc., a Maryland corporation (the "Purchaser"), and Suiza Foods Corporation, a Delaware corporation (the "Company"). The Company has offered for sale, and the Purchaser has agreed to purchase, 625,000 shares (the "Shares") of common stock, par value of $.01 per share, of the Company. In connection therewith, the Company and the Purchaser hereby agree as follows: 1. PURCHASE AND SALE OF SHARES. Upon the basis of the representations and warranties and subject to the terms and conditions set forth herein, the Company agrees to issue and sell the Shares to the Purchaser on the Closing Date (as hereinafter defined) at an aggregate purchase price of $10,000,000 (the "Purchase Price"), and upon the basis of the representations and warranties, and subject to the terms and conditions, set forth herein, the Purchaser agrees to purchase the Shares from the Company on the Closing Date at the Purchase Price. 2. CLOSING. The closing of the purchase and sale of the Shares shall take place at 10:00 a.m., New York City time, on August 7, 1996 at the offices of Hughes & Luce, L.L.P., or on such other date or at such other time or place as the Company and the Purchaser may agree upon in writing (such time and date of the closing being referred to herein as the "Closing Date"). Upon payment of the Purchase Price in full in immediately available funds by or on behalf of the Purchaser to the Company (to an account specified in writing by the Company to the Purchaser prior to the Closing Date), the Company will deliver to the Purchaser a certificate or certificates representing the Shares, in such denominations and registered in such nominee names as the Purchaser shall request. 3. REGISTRATION. (a) Within 60 days after the Closing Date, the Company will prepare and file with the Securities and Exchange Commission a registration statement on Form S-1 with respect to a continuous offering of the Shares (including any Shares to which the Purchaser may be entitled pursuant to SECTION 3(b) below) by the Purchaser (together with any subsequent registration statement with respect to such offering that may be filed on Form S-3, the "Registration Statement") and will use its best efforts to cause the Registration Statement to become effective within 100 days after the Closing Date and to remain effective for a period of three years; provided that such three year period will be extended by the aggregate number of days during which the Purchaser is prevented from selling Shares as a result of SECTION 3(c) or 3(d) below. The Purchaser will not sell any Shares under the Registration Statement unless, at the time of 1 sale, the Registration Statement (and the most recently filed post-effective amendment thereto, if any) has been declared effective. Promptly after the Company becomes eligible to register a continuous offering of the Shares by the Purchaser on Form S-3, the Company will prepare and file a registration statement on Form S-3 with respect to such offering. (b) If the Registration Statement is not declared effective within 100 days after the Closing Date, the Company will issue to the Purchaser, for no additional consideration, 383.8 additional shares of its common stock for each day after such 100th day and prior to the date on which the Registration Statement is declared effective, up to a maximum of 103,626 additional shares. Any additional shares required to be issued under this paragraph will constitute "Shares" hereunder and will be issued by the Company on the earlier to occur of (i) the date on which the Registration Statement is declared effective and (ii) the 371st day after the Closing Date. As promptly as practicable after the date of issuance, the Company will deliver to the Purchaser a certificate or certificates representing such additional shares, in such denominations and registered in such nominee names as the Purchaser shall request. (c) The Purchaser will notify the Company two business days prior to selling any Shares pursuant to the Registration Statement. If, upon receipt of such a notice, the Company certifies to the Purchaser in writing that (i) due to a change in circumstances or a pending transaction, the Registration Statement contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (ii) the public disclosure required to correct such misstatement or omission would be injurious to the Company, then the Purchaser will refrain from selling any Shares pursuant to the Registration Statement for the period of time, not to exceed 45 days in each instance, requested by the Company. The Company will use reasonable efforts to minimize the time period during which the Purchaser is required to refrain from selling Shares under this paragraph. (d) If, during the Registration Period, the Company commences an underwritten offering of common stock on its own behalf or on behalf of selling stockholders, the Purchaser will refrain from selling Shares pursuant to the Registration Statement for a period of time beginning ten days before the anticipated effective date of the Company's offering (as disclosed by the Company to the Purchaser in writing) and ending 90 days after such effective date (or 30 days after the beginning of such period, if such effective date has not yet occurred); provided that the Purchaser is given the opportunity to sell Shares in such offering on an equivalent basis with any other selling stockholders (based on the pro rata ownership of the Company's outstanding common stock). (e) The Company's obligations under this Section will terminate at the first time at which the Purchaser would be entitled, under Rule 144 under the Securities Act of 1933, as amended (the "Act"), to sell all of the Shares then owned by the Purchaser in a single three month period regardless of the volume of trading in the Company's common stock. (f) The Purchaser will furnish to the Company, at the Company's reasonable request, such information regarding the ownership of the Shares and the intended method of disposition 2 thereof as is required in connection with the preparation of a registration statement covering the Shares. (g) The Company will bear all expenses arising or incurred in connection with any registration of the Shares hereunder, including without limitation registration fees, printing expenses and the Company's accounting and legal fees and expenses; provided that the Purchaser will bear the expense of any underwriting fees, discounts or commissions applicable to its sale of the Shares and the fees and expenses of any separate legal counsel or accounting firm engaged by the Purchaser. 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants, as of the date hereof and as of the Closing Date, as follows: (a) no consent, approval, authorization or order of any court, governmental agency or body or arbitrator having jurisdiction over the Company or any of the Company's affiliates is required for the execution of this Agreement or the performance of the Company's obligations hereunder, including, without limitation, the sale of the Shares to the Purchaser; (b) neither the sale of the Shares nor the performance of the Company's other obligations pursuant to this Agreement will violate, conflict with, result in a breach of, or constitute a default (or an event that, with the giving of notice or the lapse of time or both, would constitute a default) under (i) the certificate of incorporation or bylaws of the Company, (ii) any decree, judgment, order or determination of any court, governmental agency or body, or arbitrator having jurisdiction over the Company or any of the Company's properties or assets, (iii) any law, treaty, rule or regulation applicable to the Company (other than the federal securities laws, representations and warranties with respect to which are made by the Company solely in paragraphs (e) through (h) of this Section 3) or (iv) the terms of any bond, debenture, note or other evidence of indebtedness, or any agreement, stock option or other similar plan, by which the Company is bound or to which any property of the Company is subject; (c) the Company has or, prior to the Closing Date, will have taken all corporate action required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder; (d) the Company has duly authorized the Shares and, when issued and delivered in accordance with the terms of the Company's certificate of incorporation and delivered to and paid for by the Purchaser in accordance with the terms hereof, the Shares will be duly and validly issued, fully paid and non-assessable, and the issuance of such Shares is not subject to any preemptive or similar rights; (e) the sale of the Shares by the Company is not part of a plan or scheme to evade the registration requirements of Act; (f) neither the Company nor any person acting on behalf of the Company has offered or sold any of the Shares by any form of general solicitation or general advertising; 3 (g) the Company has offered the Shares for sale only to "accredited investors," as such term is defined in Rule 501(a) under the Act, who by reason of their business and financial experience have such knowledge, sophistication and experience in business and financial matters as to be capable of evaluating the merits and risks of the investment in the Shares; (h) the offering of the Shares to the Purchaser hereunder was not contemplated by the Company at the time of the Company's initial public offering, and the proceeds from the sale of the Shares hereunder will be used for a different purpose than the proceeds from such initial public offering; (i) the prospectus included in the Company's registration statement on Form S-1 (Registration No. 333-1858), the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996, each Current Report on Form 8-K filed by the Company and each press release of the Company attached hereto (collectively, the "Disclosure Documents"), taken as a whole, fairly and accurately present the Company's business as of the date hereof and as of the Closing Date and its financial condition and results of operations through June 30, 1996, and the Disclosure Documents do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (j) the financial statements of the Company included in each of the Disclosure Documents, including the schedules and notes thereto, comply in all material respects with the requirements of the Act or the Securities Exchange Act of 1934, as amended, (as applicable) and have been prepared, and fairly present the financial condition and results of operations and cash flows of the Company and its subsidiaries at the respective dates and for the respective periods indicated, in accordance with generally accepted accounting principles consistently applied throughout such periods; (k) except as set forth in the Disclosure Documents, since June 30, 1996 (i) the Company has not incurred any material liabilities, direct or contingent, and (ii) there has been no material adverse change in the properties, business, results of operations, condition (financial or other), affairs or prospects of the Company and its subsidiaries, taken as a whole; (l) as of the date hereof (and without giving effect to the sale of Shares hereunder), the Company has a total of 10,114,729 shares of common stock issued and outstanding, and options to purchase an additional 1,316,838 shares of common stock are outstanding; otherwise, there are no options, warrants or similar rights outstanding pursuant to which the Company is required to issue any shares of its capital stock; (m) the proceeds from the sale of the Shares hereunder will not be used to repurchase any of the Company's outstanding common stock; and (n) Except for such matters as would, individually or in the aggregate, not have a material adverse effect on the Company, (i) the Company has obtained all permits, licenses and 4 authorizations required under, and has complied in all respects with, all federal, state, local and foreign laws, rules and regulations (including the common law) relating to or regulating health, safety, pollution or the protection of the environment, the manufacture, labeling, packaging and safety of food, and manufacturing, health and safety standards for the protection of employees (collectively, "Environmental, Health and Safety Laws"); (ii) no notice has been received by the Company regarding any violation of, or any claim, liability or corrective or remedial obligation under, any Environmental, Health and Safety Laws; and (iii) no facts or circumstances exist with respect to the past or present operations or facilities of the Company that would give rise to a liability or corrective or remedial obligation under any Environmental, Health and Safety Laws. 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and warrants that: (a) the purchase of the Shares by the Purchaser is not part of a plan or scheme to evade the registration requirements of the Act; (b) the Purchaser is an "accredited investor," as such term is defined in Rule 501(a) under the Act, who by reason of its business and financial experience has such knowledge, sophistication and experience in business and financial matters as to be capable of evaluating the merits and risks of an investment in the Shares and, having had access to or having been furnished with all such information as it has considered necessary (including, without limitation, the Disclosure Documents), has concluded that it is able to bear to those risks; (c) the Purchaser understands that the Shares constitute "restricted securities" within the meaning of Rule 144 under the Act and may not be sold, pledged or otherwise disposed of unless they are subsequently registered under the Act and applicable state securities laws or unless an exemption from registration is available; (d) in making any subsequent offering or sale of the Shares, the Purchaser will be acting only for itself and not as part of a sale or planned distribution in violation of the Act; (e) the Shares were not offered to the Purchaser by any form of general solicitation or general advertising; (f) the Purchaser understands that no federal or state or other governmental agency has passed upon or made any recommendation or endorsement with respect to the Shares; (g) the Purchaser is purchasing the Shares for its own account and not with a view to, or for sale in connection with, any distribution of the Shares in violation of the Act; (h) no consent, approval, authorization or order of any count, governmental agency or body or arbitrator having jurisdiction over the Purchaser or any of the Purchaser's affiliates is required for the execution of this Agreement, or the performance of the Purchaser's obligations hereunder, including, without limitation, the purchase of the Shares by the Purchaser; and 5 (i) the Purchaser has or, prior to the Closing Date, will have taken all corporate action required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder. 6. CONDITIONS TO CLOSING. The obligations of each party hereunder shall be subject to (a) the accuracy of the representations and warranties of the other party hereto as of the date hereof and as of the Closing Date, as if such representations and warranties had been made on and as of such date, (b) the performance by the other party of its obligations hereunder and (c) the condition that Hughes & Luce, L.L.P., counsel to the Company, shall have delivered on or prior to the Closing Date a legal opinion substantially in the form attached hereto. The Company and the Purchaser hereby acknowledge that, in giving such opinion, Hughes & Luce, L.L.P. will rely on the accuracy and truth, as to factual matters, of the representations and warranties of the Company and the Purchaser in Section 3 and Section 4, respectively, and hereby consent to such reliance by such counsel. 7. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless the Purchaser, each person, if any, who controls the Purchaser within the meaning of Section 15 of the Act and each officer, director, employee and agent of the Purchaser and of any such controlling person against any and all losses, liabilities, claims, damages or expenses whatsoever, as incurred arising out of any representation, warranty, covenant or undertaking by the Company contained in this Agreement, and the Company will reimburse the Purchaser for its reasonable legal and other expenses (including the cost of any investigation and preparation, and including the reasonable fees and expenses of counsel) incurred in connection therewith. (b) The Purchaser agrees to indemnify and hold harmless the Company, each person, if any, who controls the Company within the meaning of Section 15 of the Act and each officer, director, employee and agent of the Company and of any such controlling person against any and all losses, liabilities, claims, damages or expenses whatsoever, as incurred arising out of or resulting from any breach or alleged breach or other violation or alleged violation of any representation, warranty, covenant or undertaking by the Purchaser contained in this Agreement, and the Purchaser will reimburse the Company for its reasonable legal and other expenses (including the cost of any investigation and preparation, and including the reasonable fees and expenses of counsel) incurred in connection therewith. 8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective agreements, representations, warranties, indemnities and other statements made by or on behalf of each party hereto pursuant to this Agreement shall remain in full force and effect, regardless of any investigation made by or on behalf of any party, and shall survive delivery of any payment for the Shares. 6 9. MISCELLANEOUS. (a) This Agreement may be executed in one or more counterparts, and such counterparts shall constitute but one and the same agreement. (b) This Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective successors and, with respect to the indemnification provisions hereof, each person entitled to indemnification hereunder, and no other person shall have any right or obligation hereunder. This Agreement shall not be assignable by any party hereto without the prior written consent of the other party hereto. Any assignment contrary to the terms hereof shall be null and void and of no force or effect. (c) This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes any prior agreements or understandings, whether written or oral, between the parties respecting such subject matter. 10. TIME OF THE ESSENCE. Time shall be of the essence in this Agreement. 11. GOVERNING LAW. This Agreement shall be governed by the internal laws of the State of New York. IN WITNESSES WHEREOF, the parties have entered into this Agreement as of the date first set forth above. SUIZA FOODS CORPORATION By: ------------------------------ Name: ------------------------------ Title: ------------------------------ T. ROWE PRICE SMALL-CAP VALUE FUND, INC. By: ------------------------------ Name: ------------------------------ Title: ------------------------------ 7 EX-11.1 8 EXHIBIT 11.1 EXHIBIT 11.1 Statement re: Computation of Per Share Earnings 1993 1994 1995 ---------- ---------- ---------- (Amounts in thousands, except share and per share amounts) Income (loss) before extraordinary items $ 1,420 $ 4,245 $ (1,576) Extraordinary loss 197 8,462 ---------- ---------- ---------- Net income (loss) $ 1,420 $ 4,048 $ (10,038) ---------- ---------- ---------- ---------- ---------- ---------- CALCULATION OF PRIMARY EARNINGS (LOSS) PER SHARE: Weighted average shares outstanding 1,891,014 5,273,256 6,109,398 Common stock equivalents (options and warrants) 596,160 883,131 * ---------- ---------- ---------- Total weighted average shares outstanding 2,487,174 6,156,387 6,109,398 ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) before extraordinary items $ 0.57 $ 0.69 $ (0.26) Extraordinary loss (0.03) (1.39) ---------- ---------- ---------- Net income (loss) $ 0.57 $ 0.66 $ (1.64) ---------- ---------- ---------- ---------- ---------- ---------- CALCULATION OF FULLY DILUTED EARNINGS (LOSS) PER SHARE: Weighted average shares outstanding 1,891,014 5,273,256 6,109,398 Common stock equivalents (options and warrants) 596,160 935,778 * ---------- ---------- ---------- Total weighted average shares outstanding 2,487,174 6,209,034 6,109,398 ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) before extraordinary items $ 0.57 $ 0.68 $ (0.26) Extraordinary loss (0.03) (1.39) ---------- ---------- ---------- Net income (loss) $ 0.57 $ 0.65 $ (1.64) ---------- ---------- ---------- ---------- ---------- ----------
* Excluded as such amounts are anti-dilutive. 1 FOR THE THREE FOR THE THREE FOR THE SIX FOR THE SIX MONTHS MONTHS MONTHS MONTHS ENDED ENDED ENDED ENDED JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996 ------------- ------------- ------------- ------------- (AMOUNTS, IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) Income (loss) before extraordinary items $ 2,332 $ 4,553 $ (7,557) $ 4,936 Extraordinary loss -- (2,215) (8,462) (2,215) ---------- ---------- ---------- ---------- Net income (loss) $ 2,332 $ 2,338 $ (16,019) $ 2,721 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- CALCULATION OF PRIMARY EARNINGS (LOSS) PER SHARE: Weighted average shares outstanding 6,313,000 9,191,006 5,905,000 7,752,243 Common stock equivalents (options and warrants) * 730,709 * 703,089 ---------- ---------- ---------- ---------- Total weighted average shares outstanding 6,313,000 9,921,715 5,905,000 8,455,332 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) before extraordinary items $ 0.37 $ 0.46 $ (1.28) $ 0.58 Extraordinary loss -- (0.22) (1.43) (0.26) ---------- ---------- ---------- ---------- Net income (loss) $ 0.37 $ 0.24 $ (2.71) $ 0.32 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- CALCULATION OF FULLY DILUTED EARNINGS (LOSS) PER SHARE: Weighted average shares outstanding 6,313,000 9,191,006 5,805,000 7,752,243 Common stock equivalents (options and warrants) * 776,503 * 776,503 ---------- ---------- ---------- ---------- Total weighted average shares outstanding 6,313,000 9,967,509 5,905,000 8,528,746 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) before extraordinary items $ 0.37 $ 0.46 $ (1.28) $ 0.58 Extraordinary loss -- (0.22) (1.43) (0.26) ---------- ---------- ---------- ---------- Net income (loss) $ 0.37 $ 0.24 $ (2.71) $ 0.32 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
* Excluded as such amounts are anti-dilutive. 2 EX-21.1 9 EXHIBIT 21.1 EXHIBIT 21.1 Name of Subsidiary Jurisdiction of Incorporation ------------------ ----------------------------- Suiza Dairy Corporation Delaware Suiza Fruit Corporation Delaware Neva Plastics Manufacturing Corp. Delaware Velda Farms, Inc. Delaware Reddy Ice Corporation Delaware Suiza Management Corporation Delaware Garrido y Compania, Inc. Puerto Rico Guest Choice, Inc. Delaware Swiss Dairy Corporation Delaware EX-23.2 10 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Suiza Foods Corporation on Form S-1 of our reports on the consolidated financial statements of Suiza Foods Corporation dated February 18, 1996 (February 29, 1996 as to Note 13); the combined financial statements of Pre-Acquisition Suiza-Puerto Rico dated April 15, 1994; the financial statements of Pre-Acquisition Velda Farms dated November 4, 1994; and the financial statements of Swiss Dairy dated August 28, 1996, appearing in the Prospectus, which is a part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. /s/ DELOITTE & TOUCHE LLP Dallas, Texas September 30, 1996 EX-23.3 11 EXHIBIT 23.3 INDEPENDENT AUDITORS' CONSENT We consent to the use in the registration statement on Form S-1 of Suiza Foods Corporation and the related prospectus of our report dated August 23, 1996, with respect to the consolidated balance sheets of Garrido & Compania, Inc. and Subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of earnings, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 1996, and to the reference to us under the heading "Experts" in such prospectus. /s/ KPMG PEAT MARWICK LLP San Juan, Puerto Rico September 30, 1996 -----END PRIVACY-ENHANCED MESSAGE-----