Exhibit 2.1
ACQUISITION AGREEMENT
AND PLAN OF REORGANIZATION
Among
SMITHFIELD FOODS, INC.,
XXXXXXX X. XXXXXX,
XXXXX X. XXXXXX,
XXXXX X. XXXXXX
XXXXXXX X. XXXXXX, XX.
XXXXX XXXXXX XXXXXXXX,
XXXXXXXX X. XXXXXX
XXXX X. XXXXXX
AND
XXXXXX XXXXX
Dated as of November 15, 1999
TABLE OF CONTENTS
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Article I DEFINITIONS................................................... 1
1.1 Definitions.................................................... 1
Article II ACQUISITION AND PLAN OF REORGANIZATION....................... 1
2.1 The Mergers.................................................... 1
2.2 Statement of Estimated Consideration; Exchange of Shares....... 2
2.3 Closing........................................................ 2
2.4 Adjustment of Estimated Consideration.......................... 2
Article III REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.............. 4
3.1 Organization; Qualification.................................... 4
3.2 Capitalization; Validity of Shares; Voting Trusts.............. 5
3.3 Authority Relative to Agreements............................... 5
3.4 Consents and Approvals......................................... 5
3.5 Non-Contravention.............................................. 5
3.6 Environmental and Land Use Matters............................. 6
3.7 Licenses and Permits........................................... 7
3.8 Compliance with Laws........................................... 7
3.9 Financial Statements; Midwestern Operations Cost Advantage..... 8
3.10 Absence of Changes............................................. 8
3.11 No Undisclosed Liabilities..................................... 10
3.12 Litigation..................................................... 10
3.13 Real Property.................................................. 10
3.14 Personal Property.............................................. 12
3.15 Inventory...................................................... 13
3.16 Sufficiency of Assets.......................................... 13
3.17 Books and Records.............................................. 13
3.18 Intellectual Property; Computer Software....................... 14
3.19 Material Contracts............................................. 14
3.20 Insurance...................................................... 15
3.21 Labor Matters.................................................. 16
3.22 Employee Plans................................................. 17
3.23 Tax Matters.................................................... 18
3.24 Transactions with Certain Persons.............................. 20
3.25 Suppliers and Customers........................................ 20
3.26 Warranties; Product Liability.................................. 20
3.27 Banking Relationships.......................................... 21
No Other Agreements to Sell the Assets or Stock of the
3.28 Companies...................................................... 21
3.29 Prohibited Payments............................................ 21
3.30 Year 2000 Matters.............................................. 21
3.31 Brokers........................................................ 21
3.32 Securities Act and Other Securities Ownership Matters.......... 21
3.33 Full Disclosure................................................ 22
Article IV REPRESENTATIONS AND WARRANTIES OF BUYER...................... 22
4.1 Organization; Qualification.................................... 22
4.2 Buyer Common Shares to be Issued; Securities Act Matters....... 22
4.3 Authority Relative to Agreements............................... 23
4.4 Consents and Approvals......................................... 23
4.5 Non-Contravention.............................................. 23
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4.6 Brokers.......................................................... 23
4.7 Full Disclosure.................................................. 23
Article V ADDITIONAL AGREEMENTS........................................... 24
5.1 Conduct of Business.............................................. 24
5.2 Forbearances..................................................... 24
5.3 Negotiations with Others; Notification........................... 24
5.4 Investigation of Business and Properties......................... 25
5.5 Confidentiality.................................................. 25
5.6 No Disclosure; Public Announcements.............................. 25
5.7 Transfer Taxes; Expenses......................................... 26
5.8 Efforts to Consummate............................................ 26
5.9 Regulatory Matters............................................... 27
5.10 Environmental Investigation...................................... 27
5.11 Related Party Accounts........................................... 27
5.12 Materials Received After Closing................................. 27
5.13 Further Assurances............................................... 27
5.14 Rights to Examine Books and Records.............................. 27
5.15 Certain Tax Matters.............................................. 28
5.16 Allocation of Consideration...................................... 28
5.17 Deposit of $5 Million............................................ 28
5.18 Excluded Assets; Related Land.................................... 28
Article VI CONDITIONS TO OBLIGATIONS OF BUYER............................. 28
6.1 Representations and Warranties................................... 28
6.2 Performance of this Agreement.................................... 29
6.3 Consents and Approvals........................................... 29
6.4 Injunction, Litigation, etc...................................... 29
6.5 Legislation...................................................... 29
6.6 Proceedings...................................................... 29
6.7 Opinion of Counsel............................................... 29
6.8 Closing Deliveries............................................... 29
6.9 Material Adverse Change.......................................... 30
6.10 Financing and Other Agreements................................... 30
6.11 Resignations..................................................... 30
6.12 Due Diligence.................................................... 30
6.13 Tax Matters...................................................... 30
6.14 Agreement with Shareholders...................................... 30
6.15 Escrow Agreement................................................. 30
6.16 Escrow Deposit................................................... 30
6.17 Agreement Regarding Related Party Grower Contracts............... 31
6.18 Non-Competition Agreement........................................ 31
6.19 Title Insurance.................................................. 31
6.21 Sale of Feedmills................................................ 31
6.22 Minimum Number of Sows........................................... 31
Article VII CONDITIONS TO OBLIGATIONS OF SHAREHOLDERS...................... 31
7.1 Representations and Warranties..................................... 31
7.2 Performance of this Agreement...................................... 31
7.3 Consents and Approvals............................................. 31
7.4 Injunction, Litigation, etc........................................ 32
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7.5 Legislation................................................... 32
7.6 Proceedings................................................... 32
7.7 Opinion of Counsel............................................ 32
7.8 Closing Deliveries............................................ 32
7.9 Escrow Agreement.............................................. 32
7.10 Escrow Deposit and Estimated Consideration Price.............. 32
7.11 Registration Rights Agreement................................. 32
7.12 Material Adverse Change....................................... 32
7.13 Tax Free Reorganizations...................................... 32
7.14 Agreement regarding Related Party Grower Contracts............ 32
Article VIII SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION................ 33
8.1 Survival of Representations................................... 33
8.2 Indemnification by Shareholders............................... 33
8.3 Indemnification by Buyer...................................... 34
8.4 Notice and Defense of Claims.................................. 34
8.5 Calculation of Covered Liabilities............................ 35
8.6 Exclusive Remedy following Closing............................ 36
8.7 No Circular Recovery.......................................... 36
Article IX TERMINATION................................................... 36
9.1 Termination................................................... 36
9.2 Procedure: Effect of Termination.............................. 37
9.3 Additional Termination Right.................................. 37
Article X GENERAL PROVISIONS............................................. 37
10.1 Notices....................................................... 37
10.2 Interpretation................................................ 38
10.3 Entire Agreement.............................................. 38
10.4 No Third Party Beneficiaries.................................. 39
10.5 Shareholders' Representatives................................. 39
10.6 Successors and Assigns........................................ 39
10.7 Severability.................................................. 39
10.8 Amendment..................................................... 39
10.9 Extension; Waiver............................................. 39
10.10 Disclosure Schedules.......................................... 39
10.11 Counterparts.................................................. 40
10.12 Governing Law................................................. 40
10.13 Jurisdiction.................................................. 40
10.14 Specific Performance.......................................... 40
EXHIBITS
A Form of Escrow Agreement
B Form of Registration Rights Agreement
C Form of Agreement with Shareholders
D Form of Agreement regarding Related Party Grower Contracts
E Form of Noncompetition Agreement
F Form of Opinion of Counsel for Shareholders
G Form of Opinion of Counsel for Buyer
SCHEDULES
1.1(a) Excluded Assets
1.1(b) Related Land
1.1(c) Working Capital Rules
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1.1(d) Working Capital
2.1 Mergers and Consideration Allocations
3.1 Organization and Qualification
3.2 Capitalization
3.4 Consents and Approvals
3.5 Non-Contravention
3.6(a) Environmental Permits
3.6(b) Hazardous Emissions, etc.
3.6(c) Waste Disposal Sites
3.6(e) Environmental Decrees and Orders
3.6(f) Environmental Reports
3.6(h) Land Use Restrictions
3.6(i) Environmental Permits
3.7 Licenses and Permits
3.8 Compliance with Laws
3.9(c) Midwestern Operations Cost Advantage
3.10 Absence of Changes
3.11 Undisclosed Liabilities
3.12 Litigation
3.13 Owned Real Property
3.13(a) Eminent Domain, etc.
3.13(b) Leased Real Property
3.14(b) Owned Personal Property
3.14(c) Leased Personal Property
3.14(e) Production Summary Report
3.16 Non-Assets Used in Business
3.18 Intellectual Property
3.19 Material Contracts
3.20 Insurance
3.21(a) Employment Agreements
3.21(b) Grievances
3.21(c) Unfair Labor Practices
3.21(d) Affirmative Action Plans
3.21(e) Wages
3.21(f) Actions relating to Employment Practices
3.21(g) OSHA
3.21(i) Employees
3.22 Employee Plans
3.22(b)(iv) Employment at Will
3.23 Tax Matters
3.24 Transactions with Certain Persons
3.25(a) Suppliers
3.25(b) Customers
3.27 Banking Relationships
4.4 Consents and Approvals
4.5 Noncontravention
5.2 Exceptions to Forbearances
5.11 Related Party Accounts
8.2(a) Retained Liabilities
10.2(a) The Companies' Executive Officers
10.2(b) Buyer's Executive Officers
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ACQUISITION AGREEMENT AND
PLAN OF REORGANIZATION
THIS ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
dated as of November 15, 1999, is made among SMITHFIELD FOODS, INC., a
Virginia corporation ("Buyer"), XXXXXXX X. XXXXXX, XXXXX X. XXXXXX, XXXXX X.
XXXXXX, XXXXXXX X. XXXXXX, XX., XXXXX XXXXXX XXXXXXXX, XXXXXXXX X. XXXXXX,
XXXX X. XXXXXX and XXXXXX XXXXX (individually, a "Shareholder" and
collectively the "Shareholders").
RECITALS
Shareholders own all of the outstanding shares of capital stock of Xxxxxx
Farms, Inc., a North Carolina corporation ("Xxxxxx Farms") and of each other
corporation listed on Schedule 3.2, in each case in the respective amounts
indicated on such Schedule (Xxxxxx Farms and such other corporations being the
"Companies", and all such shares in the Companies being referred to as the
"Shares"). Buyer and the Shareholders desire for Buyer to acquire all of the
capital stock of each of the Companies by causing Subsidiaries of Buyer (each
a "Buyer Sub", and collectively the "Buyer Subs") to merge into the respective
Companies, with the Companies being the Surviving Corporations (the "Surviving
Corporations"), all for the consideration hereinafter set forth. For federal
income tax purposes, the parties to this Agreement intend that each such
merger qualify as a reorganization under the provisions of Section 368(a) of
the Internal Revenue Code.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements herein contained, the parties hereto agree as
follows:
ARTICLE I
Definitions
1.1 Definitions. The terms listed in Appendix A have the respective meanings
specified therein.
ARTICLE II
Acquisition and Plan of Reorganization
2.1 The Mergers.
(a) The Mergers. Upon the terms and subject to the satisfaction or
waiver, if permissible, of the conditions hereof, and in accordance with
the NCBCA, on the Closing Date the Buyer Subs shall be merged with and into
the Companies as set forth in Schedule 2.1 (the "Mergers"). Following the
Mergers, the separate corporate existences of the Buyer Subs shall cease
and the Companies shall continue as the Surviving Corporations (the
"Surviving Corporations") and shall be governed by the NCBCA.
(b) Effective Time. On the Closing Date, the parties shall cause the
Mergers to be consummated by causing articles of merger with respect to the
Mergers to be executed and filed, and the Mergers shall become effective in
accordance with the relevant provisions of the NCBCA (the "Effective
Time").
(c) Effects of the Mergers. The Mergers shall have the effects set forth
in Section 11-06 of the NCBCA.
(d) Articles of Incorporation and By-Laws. The Articles of Incorporation
of the applicable Company, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the applicable Surviving
Corporation. The By-Laws of the applicable Buyer Sub, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the
applicable Surviving Corporation.
(e) Directors. The directors of the applicable Buyer Sub immediately
prior to the Effective Time shall be the initial directors of the
applicable Surviving Corporation and shall hold office until their
respective successors are duly elected and qualified, or their earlier
death, resignation or removal.
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(f) Officers. The officers of the applicable Buyer Sub immediately prior
to the Effective Time shall be the initial officers of the applicable
Surviving Corporation and shall hold office until their respective
successors are duly elected and qualified, or their earlier death,
resignation or removal.
(g) Conversion of the Companies' Stock. Each share of common stock of
each Company outstanding immediately prior to the Effective Time (other
than shares of common stock, if any, owned by Buyer, or any Subsidiary of
Buyer) shall, by virtue of the Mergers and without any action on the part
of the holder thereof, automatically be converted into the right to receive
the Consideration allocated to such Company as set forth in Schedule 2.1
divided by the aggregate number of shares of common stock of such Company
outstanding at the Effective Time (other than shares of common stock, if
any, owned by Buyer or any Subsidiary of the Buyer or the Companies or any
Subsidiary of the Companies). Each share of common stock of the Companies
owned by Buyer or any Subsidiary of Buyer or the Companies or any
Subsidiary of the Companies immediately prior to the Effective Time shall,
by virtue of the Mergers and without any action on the part of the holder
thereof, automatically be canceled and cease to exist at and after the
Effective Time and no consideration shall be paid with respect thereto.
(h) Conversion of Buyer Sub Common Stock. Each share of common stock of
each Buyer Sub issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Mergers and without any action on the part of
the holder thereof, automatically be converted into and thereafter
represent one validly issued, fully paid and nonassessable share of common
stock of the applicable Surviving Corporation, so that thereafter Buyer
will be the sole and exclusive owner of all of the outstanding capital
stock of each of the Surviving Corporations.
2.2 Statement of Estimated Consideration; Exchange of Shares.
(a) Prior to the Closing Date, the Shareholders' Representatives shall
deliver to Buyer a statement signed by the Shareholders' Representatives
setting forth in reasonable detail the calculation of the Estimated
Consideration, allocated among each of the Companies, which calculation
shall be acceptable to Buyer, acting reasonably.
(b) At the Closing, Buyer will (i) deposit with the Escrow Agent the
Escrow Deposit to be held and disbursed in accordance with the terms of the
Escrow Agreement, and (ii) deliver to the Shareholders' Representatives
such number of Buyer Common Shares as shall equal the Estimated
Consideration minus the Escrow Deposit.
(c) If, after the Closing Date, certificates representing shares of
common stock of the Companies are presented to the Surviving Corporations'
such certificates shall be canceled and exchanged for Buyer Common Shares
as provided in this Section 2.2.
2.3 Closing. The closing (the "Closing") shall take place at the offices of
McGuire, Woods, Battle & Xxxxxx LLP, One Xxxxx Center, Richmond, Virginia, at
10:00 a.m. local time on January 5, 2000 or such other date as the parties
shall agree (the "Closing Date"). If the Closing takes place, the Closing and
all of the transactions contemplated by this Agreement shall be deemed for all
purposes, including (i) tax purposes and (ii) the transfer of the benefits and
burdens of ownership, including income and loss, to have occurred on the
Effective Date, subject in each case to the other provisions of this Agreement
(including without limitation the transfer of the Excluded Assets and the
indemnification provisions herein).
2.4 Adjustment of Estimated Consideration.
(a) As promptly as practicable, but in no event later than the later of
(i) 90 days after the Closing Date and (ii) 30 days after the receipt by
Buyer and Buyers' Auditors of the final federal income Tax Returns for the
periods ending as of the day before the Effective Date for each of the
Companies, Buyer shall prepare and deliver to the Shareholders'
Representatives (i) schedules showing (A) the line items comprising the
Working Capital as of the Effective Date, (B) the Companies Debt as of the
Effective Date, (C) the net
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present value of the cash to accrual basis tax liability and (D), in the
event the Closing Date is before December 31, 1999, the Surviving
Corporations Earnings Adjustment and (ii) a schedule setting forth the
calculation of the Consideration, in each case, setting forth in reasonable
detail the data and calculations set forth therein, together with a
certification, signed by the Vice President and Chief Financial Officer of
Buyer, stating that the foregoing schedules have been prepared in
conformity with GAAP applied on a basis consistent with the basis on which
the Audited Financial Statements and the Interim Financial Statements were
prepared, except as otherwise contemplated by the definitions of Working
Capital, Companies Debt and the Surviving Corporations Earnings, and in
conformity with the provisions of this Agreement (collectively, the
"Preliminary Closing Date Adjustment Schedules").
(b) The Shareholders, Shareholders' Auditors and other representatives of
the Shareholders shall have full access during normal business hours to all
relevant books and records and employees of the Companies to the extent
required to review the Preliminary Closing Date Adjustment Schedules and
the resolution of any dispute with respect thereto, and shall be permitted
to review the working papers, if any, of Buyer or Buyer's Auditors relating
thereto. Buyer and Buyer's Auditors shall cooperate with the Shareholders
and Shareholders' Auditors in facilitating such review. Unless the
Shareholders' Representatives gives written notice to Buyer on or before
the 45th day after the Shareholders' Representatives' receipt of the
Preliminary Closing Date Adjustment Schedules specifying in reasonable
detail all disputed items and the basis therefor, the Shareholders shall be
deemed to have accepted and agreed to the Preliminary Closing Date
Adjustment Schedules. If the Shareholders' Representatives so notify Buyer
in writing of the Shareholders' objection to one or more items set forth in
the Preliminary Closing Date Adjustment Schedules, Buyer and the
Shareholders' Representatives shall, within 30 days following such notice
(the "Resolution Period"), attempt to resolve their differences with
respect to any disputed amounts and any resolution by them as to any
disputed amounts shall be in writing and shall be final, binding and
conclusive. The Shareholders shall be deemed to have accepted and agreed to
the items set forth in the Preliminary Closing Date Adjustment Schedules
that are not disputed in the manner set forth above. During the period of
any dispute within the contemplation of this Section 2.6, Buyer, the
Buyer's Auditors and other representatives of Buyer shall be permitted to
review the working papers, if any, of the Shareholders' Auditors relating
to the Preliminary Closing Date Adjustment Schedules. The Shareholders and
the Shareholders' Auditors shall cooperate with Buyer and the Buyer's
Auditors in facilitating such review.
(c) If at the conclusion of the Resolution Period amounts remain in
dispute, then all amounts remaining in dispute shall be submitted, as soon
as practicable, to the Neutral Auditors. The parties agree to execute a
reasonable engagement letter if requested by the Neutral Auditors. The
Neutral Auditors shall act as an arbitrator to determine only those issues
still in dispute. The Neutral Auditors' determination shall be made within
30 days after the expiration of the Resolution Period, shall be set forth
in a written statement delivered to Buyer and the Shareholders'
Representatives and shall be final, binding and conclusive. The term "Final
Closing Date Adjustment Schedules," as used herein, means the definitive
Closing Date Adjustment Schedules agreed, or deemed to have been agreed, to
by Buyer and the Shareholders' Representatives in accordance with Section
2.6(b) or the definitive Closing Date Adjustment Schedules resulting from
the determination by the Neutral Auditors in accordance with this Section
2.6(c) (in addition to those items theretofore agreed by Buyer and the
Shareholders' Representatives).
(d) After the resolution of all disputes with respect to the Final
Closing Date Adjustment Schedules the parties shall determine the
difference between the Estimated Consideration and the Consideration (the
"Consideration Adjustment"). In the event that the Consideration as set
forth in the Final Closing Date Adjustment Schedules is greater than the
Estimated Consideration, (i) the Escrow Agreement shall terminate and the
entire Escrow Fund shall be distributed to the Shareholders'
Representatives for distribution to the Shareholders as their interests
shall appear and (ii) Buyer shall issue to the Shareholders such additional
whole number of Buyer Common Shares as equals the amount of the
Consideration Adjustment (ignoring for this purpose any fractional share
calculated). In the event that the Consideration as set forth in the Final
Closing Date Adjustment Schedules is less than the Estimated Consideration,
and the Consideration Adjustment is not more than the number of Buyer
Common Shares held in the Escrow Fund (i) there shall
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be delivered to Buyer from the Escrow Fund such whole number of Buyer
Common Shares as equals the amount of the Consideration Adjustment
(ignoring for this purpose any fractional share calculated), and the
balance, if any, of the Escrow Fund shall be delivered to the Shareholders'
Representatives for distribution to the Shareholders as their interests
shall appear. In the event that the Consideration as set forth in the Final
Closing Date Adjustment Schedules is less than the Estimated Consideration,
and the Consideration Adjustment is more than the number of Buyer Common
Shares held in the Escrow Fund (i) there shall be delivered to Buyer the
entire Escrow Fund and (ii) the Shareholders shall redeliver to Buyer such
whole number of Buyer Common Shares received by the Shareholders at the
Closing as equals the difference between the amount of the Consideration
Adjustment minus the number of Buyer Common Shares distributed to Buyer
from the Escrow Fund (ignoring for this purpose any fractional share
calculated). All deliveries contemplated by this Section 2.4(d) shall be
made within ten (10) Business Days after delivery of the Final Closing Date
Adjustment Schedules.
(e) The fees of Buyer's Auditors incurred in connection with the
preparation of the Preliminary and Final Closing Date Adjustment Schedules
shall be borne by Buyer, and the fees of the Shareholders' Auditors
incurred in connection with their review of the Preliminary and Final
Closing Date Adjustment Schedules shall be borne by the Shareholders. The
fees of any Neutral Auditors shall be borne by the Shareholders and Buyer
in such amount(s) as shall be determined by the Neutral Auditors based on
the proportion that the aggregate dollar amount of disputed items submitted
to the Neutral Auditors that is unsuccessfully disputed by the
Shareholders, on the one hand, or Buyer, on the other hand, as determined
by the Neutral Auditors, bears to the total dollar amount of such disputed
items so submitted.
ARTICLE III
Representations and Warranties of Shareholders
As an inducement to Buyer to enter into this Agreement, Shareholders hereby
make, as of the date hereof and as of the Closing Date, the following
representations and warranties to Buyer, except as otherwise set forth in
written disclosure schedules (the "Schedules") delivered to Buyer prior to the
execution hereof, a copy of which is attached hereto. The Schedules are
numbered to correspond to the various sections of this Article III setting
forth certain exceptions to the representations and warranties contained in
this Article III and to certain other information called for by this
Agreement. Unless otherwise specified, no disclosure made in any particular
Schedule shall be deemed made in any other Schedule unless expressly made
therein (by cross-reference or otherwise) unless, and only to the extent that,
it would fairly be understood on its face to contain information which also is
applicable to the representations and warranties to which such other Schedule
relates.
Each Shareholder, as to himself or herself and as to each of the Companies
in which he or she is a shareholder, jointly and severally with each other
Shareholder in such Company, represents and warrants to Buyer the following;
provided that (i) as to each Shareholder other than Xxxxxxx X. Xxxxxx and
Xxxxx X. Xxxxxx, such representations are based solely on his or her actual
knowledge, (ii) no Shareholder makes any representation with respect to (A)
Excluded Assets or (B) any Company in which he or she is not, and has never
been, a shareholder and (iii) in so far as any representation relates to
Contract Farms such representation is based solely on the actual knowledge of
Shareholders:
3.1 Organization; Qualification.
(a) Each of the Companies is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdictions disclosed
in Schedule 3.1, respectively; and each of the Companies has all power and
authority to own or lease all of its respective properties and assets and
to carry on its business as it is presently being conducted. Each of the
Companies is duly qualified and in good standing to transact business in
each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification
necessary, except where the failure to be in good standing or to be duly
qualified would not, individually or in the aggregate, have a Material
Adverse Effect on the
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Companies. Each jurisdiction in which any of the Companies is qualified to
do business is set forth in Schedule 3.1. Shareholders have heretofore
delivered to Buyer complete and correct copies of the Articles of
Incorporation and Bylaws of each of the Companies as currently in effect.
(b) A complete list of the directors and officers of each of the
Companies is set forth in Schedule 3.1.
(c) Since January 1, 1987, none of the Companies has or has ever had any
Subsidiary except as disclosed in Schedule 3.1.
3.2 Capitalization; Validity of Shares; Voting Trusts.
(a) The authorized capitalization of each of the Companies and the shares
of capital stock thereof which are outstanding are set forth in Schedule
3.2. All of the outstanding shares of capital stock (i) have been duly
authorized, are validly issued, fully paid and nonassessable, and were not
issued in violation of any preemptive rights, and (ii) except as set forth
in Schedule 3.2, are owned beneficially and of record as set forth in
Schedule 3.2, free and clear of any restrictions on transfer (other than
restrictions under the Securities Act and state securities laws) and
Encumbrances. As to any Subsidiary of any Company, all of the outstanding
capital stock of each such Subsidiary is as described in Schedule 3.2 and
is duly authorized, validly issued, fully paid and nonassessable and,
except as set forth in Schedule 3.2, all of the capital stock of each such
Subsidiary is wholly-owned by one or more of the Companies. Except for
Encumbrances which are set forth in Schedule 3.2 and will be released prior
to Closing, all shares of capital stock of such Subsidiaries are owned free
and clear of encumbrances.
(b) Except as set forth in Schedule 3.2, (i) none of the Companies has
any commitment to issue or sell any shares of capital stock, or any
securities or obligations convertible into or exchangeable for, or giving
any Person any right to acquire from any of the Companies, any shares of
capital stock, and no such securities or obligations are outstanding and
(ii) there are no obligations or commitments of any kind for the
repurchase, redemption or other acquisition of any shares of capital stock
of any of the Companies.
(c) Except as set forth in Schedule 3.2, none of the Companies, directly
or indirectly, owns any capital stock of or other equity interest in any
corporation, partnership or other Person.
(d) Except as set forth in Schedule 3.2, there are no shareholders
agreements, voting trusts, proxies or other agreements or understandings
with respect to or concerning the purchase, sale or voting of the capital
stock or any other ownership interests of any of the Companies.
3.3 Authority Relative to Agreements. Each Shareholder has all necessary
power and authority to execute and deliver this Agreement and the Ancillary
Agreements and to consummate the transactions contemplated hereby and thereby
and to perform Shareholder's obligations hereunder and thereunder. This
Agreement has been, and when executed the Ancillary Agreements will have been,
duly executed and delivered by each Shareholder and, assuming that Buyer has
duly authorized, executed and delivered this Agreement and the Ancillary
Agreements, this Agreement constitutes, and the Ancillary Agreements, when
executed and delivered will constitute, valid and binding obligations of each
Shareholder, enforceable against each Shareholder and each Shareholder's
heirs, assigns and personal representatives in accordance with their terms.
3.4 Consents and Approvals. No consent, waiver, agreement, approval or
authorization of, or declaration, filing, notice or registration to or with,
any Governmental Authority is required to be made or obtained by any
Shareholders or any of the Companies in connection with the execution,
delivery and performance of this Agreement and the Ancillary Agreements and
the consummation of the transactions contemplated hereby and thereby other
than those set forth in Schedule 3.4. Except as set forth in Schedule 3.4,
there is no requirement that any party to any Material Contract to which any
Shareholders or any of the Companies is a party, or by which any of them is
bound, consent to the execution and delivery of this Agreement or the
Ancillary Agreements by any Shareholders or the consummation of the
transactions contemplated hereby and thereby.
3.5 Non-Contravention. The execution, delivery and performance by
Shareholders of this Agreement and the Ancillary Agreements does not, and the
consummation by Shareholders of the transactions contemplated
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hereby and thereby will not (i) violate or result in a breach of any provision
of the Articles of Incorporation or Bylaws of any of the Companies, (ii)
except as described in Schedule 3.5, conflict with, result in a breach of or
result in a default (or give rise to any right of termination, cancellation or
acceleration) under the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, agreement, lease or other instrument or
obligation to which any Shareholders or any of the Companies is a party or by
which any Shareholders or any of the Companies is bound, or (iii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to any
Shareholders or any of the Companies or any of their Assets.
3.6 Environmental and Land Use Matters.
(a) Except as set forth in Schedule 3.6(a), none of the Companies is
required to obtain any Environmental Permits to conduct the Business as it
is presently being conducted, including those relating to (i) emissions,
discharges or threatened discharges of pollutants, contaminants, solid
waste, hazardous or toxic substances or petroleum into the air, surface
water, ground water or the ocean, or on or into the land ("Hazardous
Emissions") or (ii) the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, solid waste, hazardous or toxic substances, or petroleum
("Handling Hazardous Substances"), whether by any of the Companies or by a
third party on its or their behalf. Schedule 3.6(a) contains a complete and
correct list of all such Environmental Permits, all of which are in full
force and effect and all of which will remain in full force and effect
following consummation of the transactions contemplated hereby. The
Facilities are in compliance with all Environmental Permits and
Environmental Laws, and Shareholders have not received any notice from any
Governmental Authority indicating that the Facilities are not in compliance
or requesting information that may reasonably result in issuance of notice
that the Facilities are not in compliance.
(b) No underground storage tanks or underground storage receptacles for
Hazardous Substances are located on the Facilities, there have been no
releases of Hazardous Substances in, on, under or from the Facilities and,
to the knowledge of the Shareholders no owners or operators of real
property adjacent to the Facilities spilled, released or discharged any
Hazardous Substances onto such adjacent properties. Except as set forth in
Schedule 3.6(b), no facts, conditions or events exist which (i) interfere
with, prevent, or, with the passage of time, could interfere with or
prevent continued compliance in all material respects with any of the
Environmental Permits or any Environmental Law, (ii) may give rise to any
liability of any of the Companies (whether based in contract, tort, implied
or express warranty, criminal or civil statute or otherwise) under any
Environmental Law relating to the Hazardous Emissions or Handling Hazardous
Substances or (iii) obligate any of the Companies or, with the passage of
time, could cause any of the Companies to be obligated to clean up, remedy,
xxxxx or otherwise restore to a former condition, by themselves or jointly
with others, any contaminated surface water, ground water, soil or any
natural resources associated therewith either on the Facilities or at any
property owned by a third party, or any building, structural or insulation
materials located on or in the Facilities that contain greater than
1% asbestos, and none of the Companies have received any notice of, or are
otherwise aware of any facts, events or conditions which interfere with or
prevent continued compliance or give rise to any such liability or
obligation.
(c) Schedule 3.6(c) contains a complete list of all waste disposal sites
to which the Companies have transported, or have caused to be transported,
solid or hazardous waste for purposes of disposal since January 1, 1994.
(d) Since January 1, 1994, or to the knowledge of the Shareholders prior
to such date, the Companies have not (i) released any person from any claim
under any Environmental Law or waived any rights concerning any violation
of Environmental Law or (ii) contractually indemnified any person for any
violation of Environmental Law related to the Facilities or any real
property formerly owned by the Companies.
(e) Except as set forth in Schedule 3.6(e), there are no consent decrees,
consent orders, judgments, judicial or administrative orders or agreements
(other than Licenses and Permits) with or liens by any
6
Governmental Authority or quasi-governmental entity relating to any
Environmental Law which regulate, obligate or bind any of the Companies.
(f) True and correct copies of any Environmental Reports prepared since
January 1, 1994, have been delivered to Buyer, and a list of all such
reports, audits and assessments is set forth in Schedule 3.6(f).
(g) There are no (i) accumulations of mining spoil, spent batteries, used
tires, used appliances, out-of-service equipment, spent or outdated
fertilizers or chemicals (or containers or packages therefor) or other
accumulations of solid waste discarded at the Facilities or (ii) currently
operated or formerly used landfills at the Facilities.
(h) (i) The Facilities have all special exceptions, special use permits,
conditional use permits, variances, zoning permits, certificates of
occupancy, consents and approvals ("Land Use Approvals") as necessary to
own and operate the Facilities as they are currently being operated, all
such Land Use Approvals are in full force and effect and all will remain in
full force and effect following consummation of the transactions
contemplated hereby; (ii) the Facilities are in compliance with all Land
Use Approvals and zoning and land use laws, rules, regulations, ordinances
and judicial and administrative consents and orders ("Land Use
Requirements"); (iii) the Facilities are being operated in compliance with
all nutrient management and waste management plans, and similar plans; (iv)
neither the Companies nor Shareholders have received any written notice
from any Governmental Authority of any (a) violation of any Land Use
Requirements, (b) pending or threatened proceedings or governmental action
or (c) process that seeks to modify the zoning classifications of any of
the Facilities; and (v) no facts, conditions or events exist which
interfere with, prevent, or, with the passage of time, could continue to
interfere with or prevent continued compliance of the Facilities with the
Land Use Requirements or the operation of the Facilities as currently being
operated or their expansion, including, without limitation, any non-
conforming use designations, other than as disclosed in Schedule 3.6(h).
(i) Except as set forth in Schedule 3.6(i), Shareholders do not have
knowledge that any Environmental Permits or Land Use Approvals that are not
yet required to be obtained by the date hereof for the ownership or
operation of the Facilities, but that are reasonably anticipated to be
required in the future, will not be granted prior to the time when needed,
free from any terms or conditions that would require material changes in
the current activities or operations at the Facilities or would materially
limit any of the Companies' currently planned future activities or
operations.
3.7 Licenses and Permits. The Companies have all Licenses and Permits
required to conduct the Business as it is presently being conducted. Schedule
3.7 contains a complete and correct list of all such Licenses and Permits, all
of which are in full force and effect and all of which will remain in full
force and effect following consummation of the transactions contemplated
hereby. The Business has been conducted in compliance in all material respects
with such Licenses and Permits. Since January 1, 1994, no notice of a
violation of any such License or Permit has been received by the Companies or
Shareholders or, to the knowledge of Shareholders, recorded or published, and
no proceeding is pending or, to the knowledge of Shareholders threatened, to
revoke or limit any of them. Shareholders do not believe and have no reason to
believe that the Licenses or Permits in effect on the date hereof will not be
renewed or will be renewed with conditions that materially affect the
operation of the Business. The Companies and the Shareholders have not
received any written notice to the effect that, or otherwise have any
knowledge that, (i) the Companies are not currently in compliance with, or are
in violation of, any such Licenses and Permits in any material respect or (ii)
any currently existing circumstances are likely to result in a failure of the
Companies to comply with, or in a violation by the Companies of, any such
Licenses and Permits in any material respect.
3.8 Compliance with Laws. The Companies have not violated, and are in
compliance with, (i) all applicable laws, statutes, ordinances, regulations,
rules, policies, guidelines and orders of every federal, state, local or
foreign government and every federal, state, local or foreign court or other
Governmental Authority (collectively, "Laws") and (ii) every judgment,
decision, decree or order of any court or governmental agency, department,
authority or instrumentality (collectively, "Decrees"), relating to the
Assets, Business or operations
7
of the Companies, except to the extent that any such violation or failure to
comply is likely to result in Covered Liabilities of less than $50,000 singly
or $250,000 in the aggregate. The Companies have not received any written
notice to the effect that, nor do Shareholders have knowledge that, (i) the
Companies are not currently in compliance with, or are in violation of, any
applicable Laws or (ii) any currently existing circumstances are reasonably
likely to result in a failure of the Companies to comply with, or a violation
by the Companies of, any Laws, which such failure to comply or violation would
be reasonably likely to result in Covered Liabilities in excess of $50,000
singly or $250,000 in the aggregate.
3.9 Financial Statements; Midwestern Operations Cost Advantage.
(a) Buyer has previously been delivered true and complete copies of (i)
the audited financial statements, including the notes thereto, of the
Companies for the three years ended October 31, 1998 (the "Audited
Financial Statements") together with the report on such financial
statements of Shareholders' Auditors, and (ii) the unaudited financial
statements of the Companies for the ten months ended August 28, 1999 (the
"Interim Financial Statements"). The Audited Financial Statements present
fairly, in all material respects, the financial position of the Companies
as of such dates and the results of operations and cash flows for such
periods and have been prepared in accordance with GAAP. The Interim
Financial Statements present fairly the financial position of the Companies
as of such date and the results of operations and cash flows for the
periods set forth therein and have been prepared in accordance with GAAP
applied on a consistent basis, subject to changes resulting from normal
year-end audit adjustments and the absence of footnotes required by GAAP.
(b) The accounting and financial records of the Companies have been
prepared and maintained in accordance with GAAP, consistently applied
throughout the periods indicated except as expressly disclosed in the notes
to the Audited Financial Statements, and sound bookkeeping practices. The
Companies maintain systems of internal accounting controls sufficient to
provide reasonable assurance that (i) material transactions are executed in
accordance with management's general or specific authorizations, (ii)
material transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(c) The hog raising costs of the Companies' Midwestern operations are at
least $3.00/cwt. lower than the hog raising costs of the Companies' Eastern
operations, as set forth in Schedule 3.9(c).
3.10 Absence of Changes. Except as set forth in Schedule 3.10, since August
28, 1999 (except as otherwise expressly noted below), (a) the Business has
been operated in the ordinary course consistent with past practices, (b) there
has not been any Material Adverse Change with respect to the Business, or any
material deterioration of relations between the Companies and their suppliers
(including without limitation parties to grower contracts of the Companies),
customers or Personnel and (c) to the knowledge of Shareholders, there has
been and is no threatened Material Adverse Change with respect to the
Companies. Without limiting the generality of the foregoing, except as
contemplated by Section 5.18 hereof and except as set forth in Schedule 3.10,
the Companies have not:
(i) sold, assigned, leased or transferred any of the Assets that exceed
$100,000 individually or $250,000 in the aggregate in book value or fair
market value, other than (A) Inventory sold or disposed of in the ordinary
course of business, consistent with past practice, to Buyer or persons who
are not Affiliates of the Companies for fair consideration and (B) the
assets comprising the feedmill operations as contemplated by Section 6.20
hereof;
(ii) canceled or terminated, or amended, modified or waived any material
term of, any Material Contract, except in the ordinary course of business;
(iii) (A) increased the compensation payable or to become payable to any
of its directors or officers, (B) increased the base compensation payable
or to become payable to any of its Personnel who are not
8
directors or officers, except for normal periodic increases in such base
compensation (not exceeding, in each case, 5%) in the ordinary course of
business, consistent with past practice, (C) increased the sales commission
rate payable or to become payable to any of its Personnel who are not
directors or officers, (D) granted, made or accrued any loan, bonus,
severance, termination or continuation fee, incentive compensation
(excluding sales commissions), service award or other like benefit,
contingently or otherwise, to or for the benefit of any of its Personnel,
except pursuant to the Employee Plans set forth in Schedule 3.22, (E)
adopted, amended or caused or suffered any addition to or modification of
any Employee Plan, other than (1) contributions made in the ordinary course
of business, consistent with past practice or (2) the extension of coverage
to any of its Personnel who become eligible after the date of this
Agreement, (F) granted any stock options or performance unit grants or
other interest under any Employee Plan, (G) entered into any new employment
or consulting agreement or caused or suffered any written or oral
termination, cancellation or amendment of any such employment or consulting
agreement to which it is a party (except with respect to any employee at
will without a written agreement), (H) entered into any collective
bargaining agreement or caused or suffered any termination or amendment of
any collective bargaining agreement to which it is a party or (I) with
respect to any Shareholders, or any Affiliate of any Shareholders, granted,
made or accrued any payment or distribution or other like benefit,
contingently or otherwise, or otherwise transferred Assets, including any
payment of principal of or interest on any debt owed to any such
Shareholders or Affiliate, other than (1) any payments to such person in
the ordinary course of business in his capacity as an employee of the
Companies and (2) any transactions between the Companies, in the ordinary
course of business and on an arms' length basis;
(iv) made any capital expenditure or commitment to make any capital
expenditure in excess of $100,000;
(v) executed (A) any Lease for real property or (B) any Lease for
personal property involving annual payments in excess of $50,000, or, with
respect to clauses (A) and (B) of this clause (v), offered to execute any
Lease or incurred any liability therefor;
(vi) made any payments or given any other consideration to customers or
suppliers, other than payments under, and in accordance with the terms of,
Contracts in effect at the time of such payment;
(vii) changed its accounting methods, principles or practices, including
any change in the application or interpretation of GAAP;
(viii) suffered any damage, destruction or casualty loss (whether or not
covered by insurance) affecting its physical properties that exceeded
$100,000 in any one instance or $250,000 in the aggregate;
(ix) (A) issued or sold, or entered into any agreement obligating it to
issue or sell (B) directly or indirectly redeemed, purchased or otherwise
acquired, or split, combined, reclassified or otherwise adjusted, any class
or series of capital stock, or any securities convertible into or
exchangeable for capital stock or (C) declared or paid any dividend or
other distribution in respect of any class or series of capital stock;
(x) (A) incurred any indebtedness for borrowed money or entered into any
commitment to borrow money except for drawings under the Companies'
revolving line of credit in the ordinary course of business or (B) incurred
any obligations for any performance bonds, payment bonds, bid bonds, surety
bonds, letters of credit, guarantees or similar instruments;
(xi) taken any action in anticipation of the execution of this Agreement
or for any other reason to delay or defer expenses (including delay or
postponement of capital expenditures or the payment of accounts payable),
liabilities or obligations of any kind whatsoever or to accelerate any
income, revenue, payment or similar item, other than in the ordinary course
of business consistent with past practice;
(xii) paid, discharged or satisfied any liability, other than any such
payment, discharge or satisfaction in the ordinary course of business,
consistent with past practice of (A) liabilities reflected or reserved
against on the balance sheets in the Audited Financial Statements, the
Unaudited Financial Statements or in the
9
Interim Financial Statements or incurred subsequent thereto in the ordinary
course of business, consistent with past practice, or (B) liabilities
under, and in accordance with the terms of, any Material Contracts,
Licenses and Permits and other commitments set forth in the Schedules;
(xiii) changed or amended any of their articles of incorporation or
bylaws or similar organizational documents;
(xiv) (A) acquired (by merger, consolidation, acquisition of stock, other
securities or assets or otherwise), (B) made a capital investment (whether
through the acquisition of an equity interest, the making of a loan or
advance or otherwise) in or (C) guaranteed indebtedness for borrowed money
of, (1) any Person or (2) any portion of the assets of any Person that
constitutes a division or operating unit of such Person;
(xv) mortgaged or pledged, or otherwise made or suffered any Encumbrance
(other than any Permitted Encumbrance) on, any of their material Assets or
group of their Assets that is material in the aggregate;
(xvi) revalued any of their Assets, including any write-off of notes or
accounts receivable or any increase in any reserve (other than in the
ordinary course of business consistent with past practice), involving in
excess of $10,000 individually or $50,000 in the aggregate (such amounts to
be calculated without netting any decrease);
(xvii) amended, cancelled or suffered termination of any License or
Permit that is material to any of the Companies;
(xviii) canceled, waived or released any right or claim (or series of
related rights or claims) involving in excess of $10,000 individually or
$50,000 in the aggregate; or
(xix) made any material change in the policies or practices relating to
purchasing practices, selling practices, returns, discounts or other terms
of purchase or sale or accounting therefor or in policies of employment; or
entered into any Contract to do any of the foregoing.
3.11 No Undisclosed Liabilities. The Companies do not have any liabilities,
obligations or commitments of any nature, whether absolute, accrued,
contingent or otherwise and whether due or to become due, except (i) as and to
the extent set forth in the balance sheet included in the Audited Financial
Statements and the Interim Financial Statements or specifically disclosed in
the notes thereto, (ii) liabilities and obligations incurred after October 31,
1998 in the ordinary course of business and not prohibited by this Agreement
and (iii) as set forth in Schedule 3.11. None of the liabilities described in
clause (ii) of this Section 3.11 relates to any breach of Contract, breach of
warranty, tort, infringement or violation of Law or arose out of any Action.
3.12 Litigation. Except as set forth in Schedule 3.12, there is no
outstanding order, writ, injunction, judgment or decree by any court or
Governmental Authority or any Action pending or, to the knowledge of
Shareholders, threatened (i) against, related to or affecting (A) the
Companies, the Business, their operations or their Assets, (B) any director,
officer or Shareholder in any of the Companies in their capacity as such or
(C) any Employee Plan of the Companies, (ii) relating to the transactions
contemplated hereby, (iii) that involve the risk of criminal liability or (iv)
in which the Companies are a plaintiff (including any derivative suits brought
by or on behalf of the Companies), and Shareholders do not have knowledge of
any event or development that is reasonably expected to result in any such
Action. The Companies are not in default with respect to any Action listed in
Schedule 3.12, and there are no unsatisfied judgements or awards against the
Companies or the Business or their Assets. To the knowledge of Shareholders,
none of the Actions listed in Schedule 3.12, if adversely determined, would
reasonably be expected to have a Material Adverse Effect on the Companies,
individually or in the aggregate.
3.13 Real Property.
(a) Owned Real Property. Schedule 3.13 contains a complete and correct
list of all of the real property (other than Leased Real Property
(hereinafter defined)) used in connection with the Business (together with
the Related Land, the "Real Property"). Except as set forth in Schedule
3.13 and except for
10
Permitted Encumbrances, the Companies have good and marketable fee simple
title to all of the Real Property, including the buildings, structures and
other improvements located thereon, free and clear of any Encumbrances.
Without limiting the foregoing, there are no outstanding options or rights
of first refusal or first offer to purchase the Real Property, or any
portion thereof or interest therein. Except as disclosed in Schedule
3.13(a), there are no eminent domain (which term, as used herein, shall
include other compulsory acquisitions or takings by Governmental Authority)
proceedings pending or, to the knowledge of Shareholders, threatened
against any Real Property or any material portion thereof which proceedings
(if resulting in a taking of any Real Property by a Governmental Authority)
could have a material adverse effect on the use or value of such Real
Property as now used by the Companies. Shareholders have delivered or
caused to be delivered to Buyer, with respect to the Real Property, true
and correct copies of any title insurance commitments, title insurance
policies and surveys in the possession of Shareholders or the Companies.
Except as disclosed in Schedule 3.13(a), none of Shareholders or the
Companies has received any notice from any Governmental Authority of any
zoning, land use, building, fire or health code or other legal violation in
respect of any Real Property, other than violations which have been
corrected or which could not, individually or in the aggregate, have a
material adverse effect on the use or value of such Real Property as now
used in the Business. Each Real Property is adequate (from both a legal and
a physical perspective, including, without limitation, with respect to
compliance with recorded agreements affecting the Real Property and listed
in Schedule 3.13(a), but only to the extent compliance with such agreements
is the responsibility of Shareholders or the Companies under the terms of
such agreements) for the use now made thereof in the Business, except for
such inadequacies as could not, individually or in the aggregate, have a
material adverse effect on the use of such Real Property as now used in the
Business.
(b) Leased Real Property.
(i) Schedule 3.13(b) sets forth all leases ("Real Property Leases")
pursuant to which Facilities are leased by the Companies (as lessee),
true and correct copies of which have been delivered to Buyer. Such
Real Property Leases constitute all leases, subleases or other
occupancy agreements pursuant to which the Companies occupy or use such
Facilities. The Companies have a good and valid leasehold interest in
all leased property described in such Real Property Leases (the "Leased
Real Property"), free and clear of any and all Encumbrances other than
any Permitted Encumbrances which would not permit the termination of
the lease therefor by the lessor. With respect to each such parcel of
Leased Real Property (A) to the knowledge of Shareholders, there are no
pending or threatened condemnation proceedings or Actions relating to
such Leased Real Property, (B) neither the Companies nor, to the
knowledge of Shareholders, any third party has entered into any
sublease, license, option, right, concession or other agreement or
arrangement, written or oral, granting to any Person (other than the
Companies) the right to use or occupy such Leased Real Property or any
portion thereof or interest therein (C) the Companies have not received
written notice of any pending or, to the knowledge of Shareholders,
threatened special assessment relating to such Leased Real Property and
(D) the Companies enjoy peaceful and undisturbed possession of the
Leased Real Property.
(ii) With respect to each such Real Property Lease listed in Schedule
3.13(b), (A) there is no material default under any such Real Property
Lease by the Companies or, to the knowledge of Shareholders, by any
other party thereto, (B) except as set forth in Schedule 3.4, the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not cause a
material default under any such Real Property Lease, (C) each such Real
Property Lease is a valid and binding obligation of the respective
lessors and Companies, is in full force and effect with respect to the
lessors and the Companies and is enforceable against the respective
lessors and Companies in accordance with its terms, except as the
enforceability thereof may be limited by (1) applicable bankruptcy,
insolvency, moratorium, reorganization, fraudulent conveyance or
similar laws in effect which affect the enforcement of creditors'
rights generally or (2) general principles of equity, whether
considered in a proceeding at law or in equity, (D) no action has been
taken by the Companies and, to the knowledge of Shareholders no event
has occurred which, with notice or lapse of time or both, would permit
termination, modification or acceleration by a party thereto other than
11
the Companies, without the consent of the Companies, under any such
Real Property Lease that is material to the Companies, (E) to the
knowledge of Shareholders, no party has repudiated in writing any
material term thereof or threatened in writing to terminate, cancel or
not renew any such Real Property Lease that is material to the
Companies and (F), except as set forth in Schedule 3.13(b), the
Companies have not assigned, transferred, conveyed, mortgaged or
encumbered any interest therein or in any leased property subject
thereto (or any portion thereof).
(c) Compliance, Utilities and Other Matters. With respect to the Real
Property and the Leased Real Property:
(i) the buildings and improvements are located within the boundary
lines of the described parcels of land, are not in violation of
applicable setback requirements, zoning laws and ordinances (and none
of the properties or buildings or improvements thereon is subject to
"permitted non-conforming use" or "permitted non-conforming structure"
classifications) and do not encroach on any easement which burdens the
land. Access to the property is provided by paved public right of way
with adequate curb cuts available;
(ii) all Facilities thereon have received all approvals of
Governmental Authorities (including Licenses and Permits) required in
connection with the ownership or operation thereof and have been
operated and maintained in compliance in all material respects with
applicable laws, rules and regulations;
(iii) all Facilities thereon are supplied with utilities and other
services necessary for the present operation of such Facilities,
including gas, electricity, water, telephone, sanitary sewer and storm
sewer; and
(iv) each of the Companies' hog production facilities is situated on
farm land (including adjacent spray fields) sufficient in terms of size
and soil condition to permit adequate land application of all effluents
(including land application spraying) from the hog production operation
to the extent allowed under the Environmental Permits and Land Use
Approvals, and there is sufficient lagoon capacity to store all
effluents during periods when land application is not permitted under
such Environmental Permits and Land Use Approvals.
3.14 Personal Property.
(a) General. The fixed asset ledger included in the Companies' Books and
Records is true, correct and complete in all material respects.
(b) Owned Personal Property. Except as set forth in Schedule 3.14(b), the
Companies own all such personal property owned by them, free and clear of
any and all Encumbrances other than Permitted Encumbrances. With respect to
each such item of personal property (i) there are no leases, subleases,
licenses, options, rights, concessions or other agreements, written or
oral, granting to any party or parties the right of use of any portion of
such item of personal property, (ii) there are no outstanding options or
rights of first refusal in favor of any other party to purchase any such
item of personal property or any portion thereof or interest therein and
(iii) there are no parties (other than the Companies, and their Personnel
in their capacity as such) who are in possession of or who are using any
such item of personal property;
(c) Leased Personal Property.
(i) Except as set forth in Schedule 3.14(c), the Companies have a
good and valid leasehold interest in all of such Fixtures and
Equipment, vehicles and other tangible personal property Assets leased
by them from third parties, free and clear of any and all Encumbrances
other than Permitted Encumbrances which would not permit the
termination of the lease therefor by the lessor. Schedule 3.14(c) sets
forth all Leases for personal property ("Personal Property Leases")
involving annual payments in excess of $5,000, true and correct copies
of which have been delivered to Buyer.
12
(ii) With respect to each such Lease listed in Schedule 3.14(c), (A)
there is no material default under any such Personal Property Lease by
the Companies or, to the knowledge of Shareholders, by any other party
thereto, (B), except as set forth in Schedule 3.4, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not cause a material default
under any such Personal Property Lease, (C) such Personal Property
Lease is a valid and binding obligation of the Companies, is in full
force and effect with respect to the Companies and is enforceable
against the Companies in accordance with its terms, except as the
enforceability thereof may be limited by (1) applicable bankruptcy,
insolvency, moratorium, reorganization, fraudulent conveyance or
similar laws in effect which affect the enforcement of creditors'
rights generally or (2) general principles of equity, whether
considered in a proceeding at law or in equity, (D) no action has been
taken by the Companies and, to the knowledge of Shareholders no event
has occurred which, with notice or lapse of time or both, would permit
termination, modification or acceleration by a party thereto other than
the Companies, without the consent of the Companies, under any such
Personal Property Lease that is material to the Companies, (E) to the
knowledge of Shareholders, no party has repudiated in writing any term
thereof or threatened in writing to terminate, cancel or not renew any
such Personal Property Lease that is material to the Companies and (F)
except as set forth in Schedule 3.14(c), the Companies have not
assigned, transferred, conveyed, mortgaged or encumbered any interest
therein or in any leased property subject thereto (or any portion
thereof).
(d) Maintenance. The Fixtures and Equipment have been maintained in good
repair in accordance with the usual practices in the United States of
businesses similar to the Business, are in good operating condition and
repair, ordinary wear and tear excepted, and are useable in the ordinary
course of the Business as it is presently being conducted.
(e) Sows. The Companies own not less than 327,000 producing sows as set
forth in the production summary report dated September 25, 1999 attached
hereto as Schedule 3.14(e).
3.15 Inventory. The Inventory, wherever located (including items in
transit), owned by the Companies and used or held for use in connection with
the Business (i) is usable or saleable in the ordinary course of business,
(ii) is sufficient but not excessive in kind or amount for the conduct of the
Business as it is presently being conducted, (iii) meets the quality control
standards of the Companies and (iv) is carried on the books of the Companies
at an amount which reflects valuations not in excess of the lower of cost or
market determined in accordance with GAAP applied on a consistent basis.
3.16 Sufficiency of Assets. Except as set forth in Schedule 3.16, the Assets
constitute all of the properties and assets used or held for use in connection
with, necessary for, or material or otherwise relating to the Business. Except
as set forth in Schedule 3.16, the Assets used in the Business that are owned
by any Person other than the Companies are leased or licensed to the Companies
under valid, current leases or license arrangements that will, subject to
obtaining the consents required to be obtained as set forth in Schedule 3.4,
remain in full force and effect following consummation of the transactions
contemplated hereby. The Assets are in all material respects suitable and
adequate for the purposes for which such Assets are currently used, including
conducting the hog production operations with 327,000 producing sows. There
are no facts or conditions affecting the Assets that, individually or in the
aggregate, could interfere in any material respect with the use, occupancy or
operation thereof as currently used, occupied or operated, or their adequacy
for such use, occupancy or operation.
3.17 Books and Records. The Companies have made and kept Books and Records
and accounts which, in reasonable detail, accurately and fairly reflect the
activities of the Companies in all material respects. The minute books of the
Companies are true, correct and complete and contain copies of the minutes and
records of, and accurately and adequately reflect, all meetings and actions
taken by written consent of the board of directors, committees of the board of
directors and shareholders of the Companies or similar governing bodies and
investors. The copies of the stock record books and the stock certificate
books, or records of equity interests and
13
evidences thereof, of the Companies are true, correct and complete and
accurately and adequately reflect all transactions in connection with the
Companies' capital stock through and including the date hereof.
3.18 Intellectual Property; Computer Software.
(a) Schedule 3.18 sets forth a complete and correct list of all
Intellectual Property used or held by the Companies in connection with the
Business. Shareholders have delivered to Buyer true, correct and complete
copies of each registration, application or other material document
relating to the Intellectual Property set forth in Schedule 3.18. The
Companies own, or possess adequate and enforceable licenses or other rights
to use, all Intellectual Property used in the Business as it is currently
conducted, and such ownership and licenses will not cease to be valid and
in full force and effect in any material respect by reason of the
execution, delivery and performance of this Agreement or the consummation
of the transactions contemplated hereby. There is no Action pending or, to
the knowledge of Shareholders, threatened, against the Companies asserting
that the Companies' use of any Intellectual Property infringes the rights
of any third party or otherwise contesting their rights with respect to any
Intellectual Property and no third party has given written notice to the
Companies that such third party is claiming ownership of or right to use
any Intellectual Property, and, to the knowledge of Shareholders (i) there
are no grounds for any such assertion and (ii) no third party is infringing
upon the rights of the Companies in the Intellectual Property in a manner
which would have a Material Adverse Effect on the Companies.
(b) The Companies own, or possess adequate and enforceable licenses or
other rights to use, all material computer software used in the Business,
and such ownership and licenses will not cease to be valid and in full
force and effect in any material respect by reason of the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
3.19 Material Contracts.
(a) Schedule 3.19 sets forth a complete and accurate list of all
Contracts in the following categories (each, a "Material Contract") as of
the date hereof (except to the extent that any such category specifies a
different date, in which case such corresponding list is made as of such
specified date):
(i) each Contract (or group of related Contracts) concerning a
partnership or joint venture with, or any other investment in (whether
through the acquisition of an equity interest, the making of a loan or
advance or otherwise) any other Person;
(ii) each Contract (or group of related Contracts) (A) under which a
Company has created, incurred, assumed or guaranteed (or may create,
incur, assume or guarantee) indebtedness for borrowed money, (B)
constituting a Capital Lease, (C) under which the Companies have
granted (or may grant) a security interest or lien on any of their
Assets or (D) under which the Companies have incurred any obligations
for any performance bonds, payment bonds, bid bonds, surety bonds,
letters of credit, guarantees or similar instruments;
(iii) each Contract (or group of related Contracts) concerning
confidentiality regarding the Intellectual Property;
(iv) each Contract (or group of related Contracts) with any
Personnel, any Affiliate of the Companies or, to the knowledge of
Shareholders, any member of any such person's immediate family,
including (A) Contracts to employ or terminate officers or employees or
independent contractors and other Contracts with present or former
shareholders, directors or officers or similar persons or other
Personnel of the Companies or (B) Contracts that will result in the
payment by, or the creation of any commitment or obligation (absolute
or contingent) of Buyer or the Companies to pay, any severance,
termination, "golden parachute" or other similar payments to any
present or former Personnel following termination of employment or
otherwise as a result of the consummation of the transactions
contemplated hereby;
(v) each Contract (or group of related Contracts), including open
purchase orders or groups of related open purchase orders, for the
purchase or sale of raw materials, commodities, supplies, products
14
or other property providing for payments in excess of $50,000 over the
life of such Contract (or group of related Contracts);
(vi) each Contract (or group of related Contracts) providing for
payments in excess of $50,000 over the life of such Contract (or group
of related Contracts), except for such Contracts that are cancelable on
not more than 30 days' notice by the Companies without penalty or
increased cost;
(vii) each distribution, franchise, license, commission, consulting,
agency or advertising Contract related to the Assets of the Companies
or the Business involving annual payments in excess of $50,000, except
for such Contracts that are cancelable on not more than 30 days' notice
by the Companies without substantial penalty or substantial increased
cost;
(viii) each Contract (or group of related Contracts) containing
covenants restraining or limiting the freedom of the Companies or any
officer, director or shareholder or Affiliate thereof to engage in any
line of business or compete with any Person including by restraining or
limiting the right to establish, continue or expand any of the Business
anywhere in the world;
(ix) each option with respect to any real property or any personal
property, whether the Companies are the grantor or grantee thereunder;
(x) each Contract (or group of related Contracts) relating to
commission arrangements with others;
(xi) each Contract (or group of related Contracts) with the United
States, state or local government or any agency or department thereof
or any foreign sovereign or corresponding foreign governmental unit;
(xii) each other Contract (or group of related Contracts) not entered
into in the ordinary course of business, consistent with past practice;
(xiii) each Contract (or group of related Contracts), other than any
Contract covered by any other clause of this Section 3.19, the
consequences of a default or termination under which would have a
Material Adverse Effect on the Companies; and
(xiv) each Contract (or group of related Contracts) which is a grower
contract.
Shareholders have provided to Buyer in connection with its investigation of
the Companies a true and correct copy of each written Contract listed in
Schedule 3.19 and have included as part of Schedule 3.19 a brief summary of
the material terms of each material oral Contract.
(b) With respect to each Contract set forth or described in Schedule
3.19, (i) there is no material default under any such Contract by the
Companies or, to the knowledge of Shareholders, by any other party to any
such Contract, (ii) the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will
not cause a material default under any such Contract; (iii) such Contract
is a valid and binding obligation of the Companies, is in full force and
effect with respect to the Companies and is enforceable against the
Companies in accordance with its terms, except as the enforceability
thereof may be limited by (A) applicable bankruptcy, insolvency,
moratorium, reorganization, fraudulent conveyance or similar laws in effect
which affect the enforcement of creditors' rights generally or (B) general
principles of equity, whether considered in a proceeding at law or in
equity; (iv) no action has been taken by the Companies and, to the
knowledge of Shareholders, no event has occurred which, with notice or
lapse of time or both, would permit termination, modification or
acceleration by a party thereto other than the Companies under any such
Contract; and (v) no party has repudiated any term thereof or threatened to
terminate, cancel or not renew any such Contract.
3.20 Insurance. Schedule 3.20 contains a complete and accurate list of all
policies or binders for business interruption, fire, liability, title,
worker's compensation, product liability, errors and omissions and other forms
of insurance (showing as to each policy or binder the carrier, policy number,
coverage limits, expiration
15
date, annual premium and a general description of the coverage provided)
maintained by the Companies. Such insurance provides, and during its term has
provided, coverage to the extent and in the manner (i) adequate for the
Assets, Business and operations of the Companies, and the risks insured
against in connection therewith and (ii) as may be or may have been required
by law and by any and all material Contracts to which the Companies are or
have been a party. The Companies are not in material default under any of such
policies or binders, and they have not failed to give any notice or to present
any material claim under any such policy or binder in a due and timely
fashion. Since January 1, 1994, no insurer has refused, denied or disputed
coverage of any material claim made thereunder. No insurer has advised the
Companies that it intends to reduce coverage or increase any premium in any
material respect or fail to renew any existing policy or binder. All such
policies and binders are in full force and effect on the date hereof and shall
be kept in full force and effect through the Closing.
3.21 Labor Matters.
(a) Schedule 3.21(a) includes a complete list and description of all
employment contracts, personnel policies, employment practices,
supervisors' manuals, commission, and any other arrangements applicable to
any employee or former employee or any beneficiary or dependent thereof,
whether or not written, whether or not deemed terminable at will or legally
enforceable, and whether covering one person or more than one person,
entered into, issued, adopted, or followed by the Companies, other than any
arrangement listed below in Schedule 3.22 as an Employee Plan. For purposes
of this Section 3.21, the terms "employee" or "employees" shall be
considered to include individuals rendering personal services to the
Companies as independent contractors.
(b) Schedule 3.21(b) identifies and describes all written and unwritten
grievances or complaints filed or submitted since January 1, 1994, by any
employee or applicant for employment against the Companies or their
employees whether pursuant to a collective bargaining agreement, a formal
or informal grievance procedure afforded employees, or otherwise, including
without limitation, any claims of sexual, racial or other harassment,
discriminatory treatment, breach of collective bargaining agreement, breach
of contract or violation of policy.
(c) Schedule 3.21(c) identifies and describes all unfair labor practice
charges, union organizing efforts, union certifications, bargaining unit
definitions, demands for recognition or collective bargaining, strikes or
work stoppages, union election results, National Labor Relations Board
proceedings or related court cases relating to or affecting any employees
of the Companies since January 1, 1994.
(d) Schedule 3.21(d) identifies and describes all affirmative action
plans, audits, results, conciliation agreements, Office of Federal Contract
Compliance charges or proceedings, Equal Employment Opportunity Commission
employment charges or proceedings, state or local unfair employment
practice charges or proceedings, or any written or unwritten claims or
suspected claims of discrimination, unequal pay or retaliation relating to
any current or former employee or applicant for employment of the Companies
since January 1, 1994.
(e) Schedule 3.21(e) identifies and describes all state or federal wage
and hour, wage payment, or other wage related investigations, claims, or
proceedings, any other local, state or federal investigations, claims, or
proceedings related to any current or former practice, current or former
employee or applicant for employment of the Companies since January 1,
1994.
(f) Schedule 3.21(f) identifies and describes all Actions not expressly
identified and described in previous schedules under this section which
relate to current or former employment practices, current or former
employees or applicants for employment of the Companies, including claims
relating to the Family and Medical Leave Act, immigration law compliance,
the Worker Adjustment and Retraining Notification Act, wrongful discharge,
tortious interference, intentional infliction of emotional distress, or any
other claim raised by or on behalf of a current or former employee or
applicant for employment since January 1, 1994.
(g) Schedule 3.21(g) identifies and describes all Occupational Health and
Safety Act or state occupational safety and health citations, charges,
lawsuits, inspections, investigations, claims, and
16
proceedings and all current, former, or suspected claims for unsafe or
unhealthy working conditions, including claims for exposure to asbestos,
carcinogenic substances or other workplace risks since January 1, 1994.
(h) All policies and practices of the Companies are in all material
respects in compliance with, and have been administered in compliance with,
all applicable requirements of law, including but not limited to federal,
state, or local Laws relating to employment, including Laws relating to
wrongful discharge, breach of express or implied contract, fraud,
misrepresentation, defamation, or liability in tort, duties to prevent,
disclose, warn of or remedy unhealthy or unsafe workplace conditions, Title
VII of the Civil Rights Act of 1964, the Age Discrimination in Employment
Act, the Americans with Disabilities Act, the Fair Labor Standards Act,
ERISA, COBRA, the Family and Medical Leave Act, the Occupational Safety and
Health Act, the Worker Adjustment and Retraining Notification Act, workers
compensation statutes, and other federal, state, local or foreign
regulations, rules, statutes, or ordinances relating to employees or
employment.
(i) Schedule 3.21(i) sets forth a true and complete list of all employees
to whom the Companies are paying compensation, disability, xxxxxxx'x
compensation and/or pension benefits, and sets forth the current annual
rate of compensation for each such employee together with bonuses and
incentives.
3.22 Employee Plans.
(a) Schedule 3.22 contains a complete list of Employee Plans. True and
complete copies of each of the following documents have been delivered to
Buyer: (i) each Employee Plan (trust agreements and amendments), summary
plan descriptions, summaries of material modifications, a general
description of employees covered by each Benefit Arrangement and a complete
description of any Employee Plan which is not in writing, (ii) any letters
issued by the Internal Revenue Service and opinion letters issued by the
Department of Labor with respect to each Employee Plan, and any self-
correction statement or memorandum the Companies have prepared pursuant to
Rev. Proc. 98-22, as amended, (iii) and for the three most recent plan
years, Annual Reports on Form 5500 Series filed for each Employee Plan.
(b) Types of Employee Plans.
(i) Pension Plans.
(A) No Employee Plan is a Pension Plan subject to Title IV or
Section 302 of ERISA or Section 412 or 4971 of the Internal Revenue
Code.
(B) To the knowledge of Shareholders, no event or condition exists
or has occurred that could adversely affect the qualified and tax-
exempt status of each Pension Plan.
(C) Each Pension Plan complies in all material respects, both as
to form and in operation, with all requirements, including ERISA and
the Internal Revenue Code.
(ii) Multiemployer Plans. None of the Companies or any ERISA
Affiliate has any liability with respect to a Multiemployer Plan.
(iii) Welfare Plans.
(A) Each Welfare Plan complies in all material respects, both as
to form and operation, with all requirements, including ERISA and
the Internal Revenue Code.
(B) Except as required by the Internal Revenue Code or ERISA, or
as set forth in Schedule 3.22, none of the Companies, any ERISA
Affiliate or any Welfare Plan has any present or future obligation
to make any payment to any Welfare Plan. The Companies and/or an
ERISA Affiliate may amend or terminate any such Welfare Plan.
(C) The insurance policies or other funding instruments, if any,
for each Welfare Plan provide coverage for each individual covered
thereunder.
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(iv) Benefit Arrangements. Each Benefit Arrangement presently
complies in all material respects with its terms and with the
requirements prescribed by any and all requirements. Except as provided
by Law, or in any employment agreement set forth in Schedule
3.22(b)(iv), the employment of all persons presently employed or
retained by the Companies is terminable at will.
(v) Unrelated Business Taxable Income. No Employee Plan has incurred
any liability under Section 511 of the Internal Revenue Code.
(vi) Deductibility of Payments. There is no arrangement that,
individually or collectively, requires the payment by the Companies of
any amount (i) that is not deductible under Section 162(a)(1) or 404 of
the Internal Revenue Code or (ii) that is, or which as a result of the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby could be, an "excess parachute
payment" pursuant to Section 280G of the Internal Revenue Code.
(vii) Fiduciary Duties and Prohibited Transactions. No plan fiduciary
of any Employee Plan has engaged in, or has any liability in respect
of, any transaction in violation of Sections 404 or 406 of ERISA or any
"prohibited transaction," as defined in Section 4975(c)(1) of the
Internal Revenue Code, for which no exemption exists under Section 408
of ERISA or Section 4975(c)(2) or (d) of the Internal Revenue Code.
(viii) Litigation. To the knowledge of Shareholders, there is no
Action, order, writ, injunction, judgment or decree outstanding or, to
the knowledge of Shareholders, any governmental audit or investigation,
relating to or seeking benefits under any Employee Plan that is pending
or threatened.
(ix) No Amendments. None of the Companies or any ERISA Affiliate has
announced an intention to create, or otherwise created, a legally
binding commitment to adopt or amend any additional Employee Plan.
(x) No Acceleration or Creation of Rights. Neither the execution and
delivery of this Agreement by the Companies nor the consummation of the
transactions contemplated hereby will result in the acceleration or
creation of any rights of any person to benefits under any Employee
Plan.
(xi) No Other Material Liability. No event has occurred in connection
with which the Companies or any Employee Plan, directly or indirectly,
could be subject to any material liability (A) under any statute,
regulation or governmental order relating to any Employee Plan or (B)
pursuant to any obligation of the Companies to indemnify any person
against liability incurred under any such statute, regulation or order
as they relate to the Employee Plans.
(xii) Severance Agreements. No Shareholder is a party to any
severance or similar arrangement in respect of any of the Personnel.
(c) There does not now exist, nor, to the knowledge of Shareholders, do
any circumstances exist that could result in, any Controlled Group
Liability that would be a liability of the Companies following the
Effective Date.
3.23 Tax Matters.
(a) Filing of Tax Returns. The Companies have timely filed with the
appropriate taxing authorities all Tax Returns (including information
returns and other material information) in respect of Taxes required to be
filed through the date hereof and will timely file any such Tax Return
required to be filed on or prior to the Effective Date. All such Tax
Returns are complete and accurate in all material respects. The Companies
do not currently have outstanding any request for any extension of time
within which to file Tax Returns in respect of any Taxes. Shareholders have
delivered to Buyer complete and accurate copies of the federal, state and
local income Tax Returns (and examination reports and statements of
deficiency) for the years 1996, 1997 and 1998.
(b) S-Corporation. Each of the Companies is, and has at all times since
the date of making the election under Section 1362(a) of the Internal
Revenue Code as set forth in Schedule 3.23 been, an
18
"S corporation" (within the meaning of Section 1361(a) of the Internal
Revenue Code) for each taxable year (or portion thereof), and no action has
or will be taken to terminate and no condition exists which could result in
the termination of such S corporation status. None of the Companies is or
has been liable for the Tax imposed under Section 1375(a) of the Internal
Revenue Code; and none of the Companies is or has been liable for the Tax
imposed under Section 1374(a) of the Internal Revenue Code.
(c) Payment of Taxes. All Taxes for which any of the Companies is or may
be liable in respect of periods (or portions thereof) ending on or before
the Effective Date have been timely paid, or a reserve for Tax liability
(other than any reserve for deferred Taxes established to reflect timing
differences between book and tax income) adequate in accordance with GAAP
has been established therefor, as set forth in the Financial Statements.
(d) Audits, Investigations or Claims. No deficiencies for Taxes have been
claimed, proposed or assessed in writing by any Taxing Authority against
any of the Companies which have not been paid or reserved in the Financial
Statements. Since January 1, 1994, no claim has been made by any Taxing
Authority in a jurisdiction in which a Company does not file Tax Returns
that such Company is or may be subject to taxation by such jurisdiction.
Except as set forth in Schedule 3.23(d), there are no pending or, to the
knowledge of Shareholders, threatened audits, investigations or claims for
or relating to any liability in respect of Taxes that in the reasonable
judgment of Shareholders are likely to result in an additional amount of
Taxes, and there are no matters under discussion with any Taxing Authority
with respect to Taxes that in the reasonable judgment of Shareholders is
likely to result in an additional liability for Taxes to the Companies.
Audits of federal, state, and local returns for income Taxes by the
relevant taxing or other governmental authorities have been completed for
the periods set forth in Schedule 3.23. No income Tax Return is currently
the subject of audit, and the Companies have not been notified in writing
that any Taxing Authority intends to audit a Return for Taxes for any other
period. No extension of a statute of limitations relating to Taxes is in
effect with respect to the Companies. Except as set forth in Schedule
3.23(d), no power of attorney which is currently in force has been executed
by the Companies with respect to any matters relating to Taxes.
(e) Encumbrances. There are no Encumbrances for Taxes (other than current
taxes not yet due and payable) on the Assets of the Companies.
(f) Safe Harbor Lease Property. None of the Assets of the Companies is
property that (i) is required to be treated as being owned by any other
person pursuant to the so-called safe harbor lease provisions of former
Section 168(f)(8) of the Internal Revenue Code, (ii) directly or indirectly
secures any debt the interest on which is tax-exempt under Section 103(a)
of the Internal Revenue Code or (iii) is "tax-exempt use property" within
the meaning of Section 168(h) of the Internal Revenue Code.
(g) Tax Election. All elections with respect to Taxes affecting the
Companies as of the date hereof are set forth in Schedule 3.23. None of the
Companies has consented at any time to have the provisions of Section
341(f)(2) of the Internal Revenue Code (or similar provisions under state
or local law) apply to any disposition of the Assets. None of Companies has
agreed to make, or is required to make, any adjustment under Section 481(a)
of the Internal Revenue Code (or similar provisions under state or local
law) by reason of a change in accounting method or otherwise.
(h) Withholding. The Companies have paid over all Taxes required to have
been withheld and paid to any Governmental Authority in connection with
amounts paid or owing to any employee, independent contractor, creditor,
shareholder, equity investor or other third party.
(i) Combined Returns. No Company has been included in any consolidated,
combined or unitary Tax Return provided for under the laws of the United
States, any state or locality with respect to Taxes for any taxable period
for which the statute of limitations has not expired. None of the Companies
has any liability for the Taxes of any Person under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
19
(j) Tax Sharing Agreements. There are no tax sharing agreements or
similar arrangements (whether written or unwritten) with respect to or
involving any of the Companies pursuant to which any of the Companies may
be liable for Taxes of another Person.
(k) Section 280G. None of the Companies has made any payments, is
obligated to make any payments, or is a party to any agreement that could
obligate it to make any payments that will not be deductible under Section
280G of the Internal Revenue Code.
(l) Section 6662. Each of the Companies has disclosed on its federal
income Tax Return all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662 of the Internal Revenue Code.
3.24 Transactions with Certain Persons. Except as disclosed in Schedule
3.24, (i) no officer, director or shareholder of the Companies or any member
of any such Person's immediate family is currently a party to any transaction,
arrangement or relationship with the Companies and (ii) no employee or any
member of any such Person's immediate family is currently a party to any
material transaction, arrangement or relationship with the Companies,
including any Contract or Lease (A) providing for the furnishing of services
by, (B) providing for the rental of real or personal property from, or (C)
otherwise requiring payments to (other than (1) dividends or distributions to
any shareholder of the Companies in his or her capacity as such or (2)
compensation for services as officers, directors or employees of the
Companies), any such Person or any corporation, partnership, trust or other
entity in which any such Person has an interest as an officer, director,
trustee or partner, or as the holder of more than 10% of such entity's equity
securities. The only Contracts, Leases, arrangements, relationships or other
items listed in Schedule 3.24 that will remain in place after the Closing or
with respect to which the Companies will have any ongoing obligations or
duties are those items which are explicitly identified in Schedule 3.24 as
remaining in place or having ongoing obligations or duties.
3.25 Suppliers and Customers.
(a) Schedule 3.25(a) sets forth for each of the fiscal years 1997 and
1998, the name and address of each of the ten largest suppliers of the
Companies based on the aggregate value of supplies (including without
limitation Inventory) ordered by the Companies during such period, and the
amount each such supplier invoiced the Companies during each such period.
Except as set forth in Schedule 3.25(a), no Shareholder has received any
notice or otherwise has knowledge that there has been any material adverse
change in the Companies' relations with any of their suppliers, including
in the price of such Inventory or other goods and services, or that any
such supplier will not sell supplies, Inventory or other goods and services
to the Companies after the Closing on terms and conditions similar to those
used in its current sales to the Companies.
(b) Schedule 3.25(b) sets forth for each of the fiscal years 1997 and
1998 the name and address of each of the ten largest customers of the
Companies (other than Buyer and its Affiliates) during such period, and the
amount of each customer's purchases during each such period. Except as set
forth in Schedule 3.25(b), no Shareholder has received any notice or
otherwise has knowledge that there has been any material adverse change in
the Companies' relations with any of their customers, including in the
prices paid to the Companies, or that any such customer will not make
purchases from the Companies after the Closing on terms and conditions
similar to those used in its current purchases from the Companies.
3.26 Warranties; Product Liability.
(a) Except as is provided by applicable Law, there are no express or
implied warranties contained in any contract or agreement relating to goods
and services of the Companies.
(b) Except as set forth in Schedule 3.26(b), the Companies do not have,
nor to the knowledge of Shareholders is there any reason to believe that
there is any basis for alleging, any material liability, damage, loss, cost
or expense as a result of any failure to meet any specification with
respect thereto, defect or other deficiency (whether of design, materials,
workmanship, labeling, instructions or otherwise) ("Product Liability")
with respect to any livestock or other item sold or services rendered by or
on behalf of the
20
Companies, whether such Product Liability is incurred by reason of express
warranty (including any warranty of merchantability or fitness), any
doctrine of common law (tort, contract or other), any statutory provision
or otherwise and irrespective of whether such Product Liability is covered
by insurance. Except as set forth in Schedule 3.26(b), to the knowledge of
Shareholders (i) no livestock or other item sold by the Companies and (ii)
no livestock or other item produced for the Companies by any third party,
has been recalled or subject to a post-sale warning ("Recall") voluntary or
involuntarily since January 1, 1994, no Recall is being considered or
investigated by the Companies, and no Recall has been requested or ordered
by any Governmental Authority or consumer group.
3.27 Banking Relationships. Schedule 3.27 sets forth a complete and accurate
list of all accounts, including checking accounts, cash contribution accounts,
safe deposit boxes, borrowing arrangements and certificates of deposit that
the Companies have with any banks, savings and loan associations or other
financial institutions, indicating in each case account numbers, if
applicable, and the person or persons authorized to act or sign on behalf of
the Companies in respect of any of the foregoing. No person holds any power of
attorney or similar authority from the Companies with respect to any such
accounts.
3.28 No Other Agreements to Sell the Assets or Stock of the Companies. Other
than this Agreement and sales of Inventory in the ordinary course of business,
consistent with past practice, none of the Shareholders or the Companies has
any legal obligation, absolute or contingent, to any other person or firm to
(i) sell or effect a sale of all or substantially all of the Assets of the
Companies, (ii) sell or effect a sale of all or substantially all of the
capital stock or equity interests of the Companies, (iii) effect any merger,
consolidation or other reorganization of the Companies or (iv) enter into any
Contract or cause the entering into a Contract with respect to any of the
foregoing.
3.29 Prohibited Payments. The Companies have not, directly or indirectly,
(i) made or agreed to make any contribution, payment or gift to any government
official, employee or agent where either the contribution, payment or gift or
the purpose thereof was illegal under the Laws of any federal, state, local or
foreign jurisdiction, (ii) established or maintained any unrecorded fund or
asset for any purpose or made any false entries on the Books and Records for
any reason, (iii) made or agreed to make any contribution, or reimbursed any
political gift or contribution made by any other Person, to any candidate for
federal, state, local or foreign public office or (iv) paid or delivered any
fee, commission or any other sum of money or item of property, however
characterized, to any finder, agent, government official or other party, in
the United States or any other country, which in any manner relates to the
Assets, Business or operations of the Companies, which Shareholders know or
have reason to believe to have been illegal under any federal, state or local
Laws (or any rules or regulations thereunder) of the United States or any
other country having jurisdiction.
3.30 Year 2000 Matters. The Companies have completed a review and assessment
of all areas within their operations (including those affected by material
suppliers) that could be adversely affected by the inability of computer
systems used by the Companies (and their material suppliers) to recognize and
perform properly date-sensitive functions involving certain dates prior to and
any date after December 31, 1999 ("Year 2000 Computer System Issues") and have
undertaken all such measures as Shareholders reasonably believe would cause
the Business to address and accommodate Year 2000 Computer System Issues by
the date hereof.
3.31 Brokers. No broker, finder or investment banker is entitled to any fee
or commission for services rendered on behalf of the Companies or Shareholders
in connection with the transactions contemplated by this Agreement.
3.32 Securities Act and Other Securities Ownership Matters.
(a) Each of the Shareholders is an "accredited investor" as defined under
both subsections (5) and (6) of Rule 501(a) of Regulation D under the
Securities Act, and each is an individual resident in the State of North
Carolina. Each Shareholder is acquiring Buyer Common Shares hereunder
solely for investment purposes for his or her own account as principal and
not with a view to resale or distribution except pursuant to an effective
registration statement filed under the Securities Act or an applicable
exemption from such
21
registration. Each Shareholder acknowledges that Buyer's offering and sale
of Buyer Common Shares hereunder will not be registered under the
Securities Act or any other securities laws, and that accordingly
restrictions will apply to the Shareholders' ability to transfer or sell
such securities, and that an appropriate legend to such effect will be
placed on each stock certificate representing any such shares. Each
Shareholder acknowledges that none of the securities may be resold unless
their offer and sale are registered under the Securities Act and applicable
state securities laws, or unless appropriate exemptions from registration
are available. Each Shareholder agrees that he or she will not directly or
indirectly offer, transfer, sell, pledge, hypothecate or otherwise dispose
of any Buyer Common Shares (or solicit any offer to buy, purchase or
otherwise acquire, or to take a pledge of, any such shares) except in
compliance with the Securities Act and applicable state securities laws and
regulations. Each Shareholder acknowledges that he or she and his or her
representatives have had an opportunity to examine the financial and
business affairs of Buyer and an opportunity to ask questions of and
receive answers from Buyer's management, and that he or she and his or her
representatives have such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits and
risks of an investment in Buyer in making an informed investment decision
with respect thereto.
(b) Each of the Shareholders is an individual who does not share the same
principal residence as any of the other Shareholders. No Shareholder either
directly or through entities controlled by such Shareholder will hold 10%
or more of the outstanding Buyer Common Shares following consummation of
the transactions contemplated hereby.
3.33 Full Disclosure. None of the representations and warranties of
Shareholders in this Article III (a representation and warranty being deemed
to include, for the purpose of the Section to which it is referenced and not
for the purpose of any other Section, the information contained in the
Schedules hereto) contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
Article IV
Representations And Warranties Of Buyer
As an inducement to Shareholders to enter into this Agreement, Buyer hereby
makes, as of the date hereof and as of the Closing Date, the following
representations and warranties to Shareholders, except as otherwise set forth
in written disclosure schedules (the "Schedules") delivered to Shareholders
prior to the execution hereof, a copy of which is attached hereto. The
Schedules are numbered to correspond to the various sections of this Article
IV setting forth certain exceptions to the representations and warranties
contained in this Article IV and to certain other information called for by
this Agreement. Unless otherwise specified, no disclosure made in any
particular Schedule shall be deemed made in any other Schedule unless
expressly made therein (by cross-reference or otherwise).
Buyer represents and warrants to Shareholders the following:
4.1 Organization; Qualification. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Virginia and has all power and authority to own all of its properties and
assets and to carry on its business as it is presently being conducted.
4.2 Buyer Common Shares to be Issued; Securities Act Matters.
(a) Each of the Buyer Common Shares to be issued as contemplated by this
Agreement has been duly authorized and, when issued in accordance with this
Agreement, will be, validly issued, fully paid and nonassessable and free
of preemptive rights.
(b) Neither the Buyer nor any person acting on its behalf has, directly
or indirectly, offered any Buyer Common Shares to be issued hereunder for
sale to, or solicited any offers to buy any thereof from, or otherwise
approached or negotiated with respect thereto with, anyone other than
Shareholders, and neither
22
the Buyer nor any Person acting on its behalf has taken or will take any
action that would cause the Buyer's offer, issuance or sale of any such
shares hereby to violate the provisions of Section 5 of the Securities Act
or any applicable state securities laws and regulations.
4.3 Authority Relative to Agreements. Buyer has all necessary power and
authority to execute and deliver this Agreement and the Ancillary Agreements
and to consummate the transactions contemplated hereby and thereby and to
perform its obligations hereunder and thereunder. The execution and delivery
by Buyer of this Agreement and the Ancillary Agreements and the consummation
by it of the transactions contemplated hereby and thereby have been duly
authorized by the board of directors of Buyer and no other proceedings on the
part of Buyer are necessary with respect thereto except the approval of
Buyer's shareholders required under law and/or applicable standards of the New
York Stock Exchange. This Agreement has been, and when executed and delivered
the Ancillary Agreements will have been, duly executed and delivered by Buyer
and, assuming that Shareholders have duly authorized, executed and delivered
this Agreement, this Agreement constitutes, and the Ancillary Agreements will
constitute, valid and binding obligations of Buyer, enforceable against Buyer
in accordance with their terms.
4.4 Consents and Approvals. Except as set forth in Schedule 4.4, no
consent, waiver, agreement, approval or authorization of, or declaration,
filing, notice or registration to or with, any Governmental Authority is
required to be made or obtained by Buyer in connection with the execution,
delivery and performance of this Agreement and the Ancillary Agreements and
the consummation of the transactions contemplated hereby and thereby other
than those set forth in Schedule 4.4. There is no requirement that any party
to any agreement, contract, lease, note, loan, evidence of indebtedness,
purchase order, letter of credit, franchise agreement, undertaking, covenant
not to compete, employment agreement, license, instrument, obligation,
commitment or purchase and sales order to which Buyer is a party or by which
it is bound, consent to the execution and delivery of this Agreement or the
Ancillary agreements by Buyer or the consummation of the transactions
contemplated hereby or thereby, other than those set forth in Schedule 4.4 and
except for such consents the failure of which to obtain, individually or in
the aggregate, would not have a Material Adverse Effect on Buyer.
4.5 Non-Contravention. Except as set forth in Schedule 4.5, the execution,
delivery and performance by Buyer of this Agreement and the Ancillary
Agreements do not, and the consummation by Buyer of the transactions
contemplated hereby and thereby will not (i) violate or result in a breach of
any provision of the Articles of Incorporation, as amended to date, or Bylaws
of Buyer, (ii) conflict with, result in a breach of or result in a default (or
give rise to any right of termination, cancellation or acceleration) under the
terms, conditions or provisions of any note, bond, mortgage, indenture,
license, agreement, lease or other instrument or obligation to which Buyer is
a party or by which Buyer is bound or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Buyer,
excluding from the foregoing clauses (ii) and (iii) such requirements,
defaults, breaches, rights or violations that would not have a Material
Adverse Effect on Buyer or that become applicable as a result of (1) the
business or activities in which the Companies or any of their Affiliates is
engaged, or (2) any acts or omissions by, or facts pertaining to, the
Companies or any of their Affiliates.
4.6 Brokers. No broker, finder or investment banker is entitled to any fee
or commission from Buyer for services rendered on behalf of Buyer in
connection with transactions contemplated by this Agreement.
4.7 Full Disclosure. None of the representations and warranties of Buyer in
this Article IV (a representation and warranty being deemed to include, for
the purpose of the Section to which it is referenced and not for the purpose
of any other Section, the information contained in the Schedules hereto)
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
23
Article V
Additional Agreements
5.1 Conduct of Business. From the date hereof until the Closing,
Shareholders will cause the Companies to conduct the Business only in the
ordinary and usual course and in a manner consistent with past practices;
maintain in good repair, normal wear and tear excepted, at its expense, all of
its material structures and Equipment; pay accounts payable and other
obligations in the ordinary course of business consistent with past practice;
and use commercially reasonable efforts to preserve intact the present
business organization and operations of the Business, keep available the
services of its officers, employees, representatives, agents and consultants,
and preserve its relationships with licensors, suppliers, dealers, customers
and others having business relationships with it. Shareholders shall cause the
Companies' management to meet with Buyer on a regular and frequent basis to
discuss the general status of the ongoing operations of the Business and any
issues relating to the conduct thereof. Shareholders shall give prompt notice
to Buyer of (i) any emergency or material change in the normal conduct of its
business or operations, (ii) the threat or initiation of any material Action
against the Companies, (iii) the initiation of any investigation of the
Companies' business by any party, whether private or governmental, (iv) the
occurrence or non-occurrence of any event which would be reasonably likely to
cause Shareholders to believe that any representation or warranty of
Shareholders herein is untrue or inaccurate, or the failure of Shareholders to
comply with or satisfy any covenant, agreement or condition to be complied
with or satisfied by them hereunder, and (v) any budget revisions approved by
the board of directors or management of any of the Companies, and will keep
Buyer fully informed of developments with respect to such events and afford
Buyer's representatives access to all materials and other information in their
possession relating thereto.
5.2 Forbearances. Except as set forth in Schedule 5.2, Shareholders shall
cause the Companies not, from the date hereof until the earlier of (i) the
Closing or (ii) termination under Article IX, without the written consent of
Buyer, (A) to take or fail to take any action or enter into any transaction of
the kind which if taken or failed to be taken after August 28, 1999 would have
been in violation of Section 3.10 or (B) to engage in any practice, or take,
or fail or omit to take, any action or enter into any transaction, other than
in the ordinary course of business and consistent with past practices, that
would reasonably be expected to (1) impair or prevent Shareholders from
consummating the transactions contemplated by this Agreement or (2) cause or
result in any of the representations and warranties set forth in Article III
to be untrue in any material respect at any time after the date hereof through
the Closing Date. In addition, except as set forth in Schedule 5.2,
Shareholders shall cause the Companies not to (i) declare, set aside for
payment or pay any dividends or distributions in respect of any class or
series of capital stock or equity interest or (ii) pay any item that is not a
current liability in the Final Closing Date Adjustment Schedules, in each case
after the close of business on the date immediately preceding the Effective
Time. Shareholders will not, and will not permit any of the Companies, to take
any action that could, directly or indirectly, (i) cause any of the Mergers to
fail to qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code or (ii) cause a disallowance of the election under
Sections 447 and 481(a) of the Internal Revenue Code. In addition,
notwithstanding anything herein to the contrary, Shareholders shall cause the
Companies no to (i) declare or pay any distributions or dividends in respect
of any class or series of capital stock, (ii) pay any Shareholders' Expenses
or (iii) pay any item (other than liabilities to persons who are not
Affiliates of Shareholders incurred after the Effective Date in the ordinary
course of business) that is not a current liability in the Final Closing Date
Adjustment Schedules, in each case after the close of business on the
Effective Date.
5.3 Negotiations with Others; Notification.
(a) No Solicitation. From the date hereof until the earlier of (i) the
Closing or (ii) termination of this Agreement under Article IX,
Shareholders shall not, and shall cause the Companies, and shall instruct
each of their respective representatives (including investment bankers,
attorneys and accountants) not to, directly or indirectly, enter into,
solicit, initiate, conduct or continue any discussions or negotiations
with, or encourage or respond to any inquiries or proposals by, or provide
any information to, or otherwise cooperate in any other way with, any
Person or group, other than Buyer and its representatives, concerning any
sale of all or any substantial portion of the Assets or the Business of, or
of any shares of capital stock or equity interest or other securities of,
the Companies, or any merger, consolidation, recapitalization, liquidation,
24
dissolution or similar transaction involving the Companies (each such
transaction being referred to herein as a "Proposed Acquisition
Transaction"). Shareholders hereby represent that neither they nor the
Companies are presently engaged in discussions or negotiations with any
party other than Buyer with respect to any Proposed Acquisition
Transaction. Shareholders agree not to release, or permit any of the
Companies to release, any third party from, or waive any provision of, any
confidentiality or standstill agreement to which any of them is a party.
(b) Notification. Shareholders shall (i) immediately notify Buyer (orally
and in writing) if any offer is made, any discussions or negotiations are
sought to be initiated, any inquiry, proposal or contact is made or any
information is requested with respect to any Proposed Acquisition
Transaction, (ii) promptly notify Buyer of the terms of any proposal which
they may receive in respect of any such Proposed Acquisition Transaction,
including the identity of the prospective purchaser or soliciting party,
(iii) promptly provide Buyer with a copy of any such offer, if written, or
a written summary (in reasonable detail) of such offer, if not in writing,
and (iv) keep Buyer informed of the status of such offer and the offeror's
efforts and activities with respect thereto.
5.4 Investigation of Business and Properties. Shareholders shall cause the
Companies to afford Buyer, any financial institution providing financing to
Buyer, and their respective counsel, accountants, financial advisors and other
representatives, reasonable access during regular business hours upon
reasonable notice, to make such reasonable inspection of the Assets, business
and operations of the Companies and to inspect and make copies of Contracts,
Books and Records and all other documents and information reasonably requested
by Buyer and related to the operations and business of the Companies,
including historical financial information concerning the business of the
Companies and to meet with designated Personnel of the Companies and/or their
representatives; provided that any such access shall be conducted in such a
manner as not to interfere unreasonably with the operation of the Business;
provided further, that no disclosure to Buyer, its counsel, accountants or
other representatives after the date hereof, except by amendment to the
Schedules approved in writing by the Buyer, shall be deemed to be a reduction
of, or otherwise affect, the representations and warranties of Shareholders
set forth in this Agreement. In connection with the obligations provided for
in previous sentence, Shareholders shall furnish to Buyer promptly upon
request (i) all additional documents and information with respect to the
affairs of the Companies and (ii) access during regular business hours to the
Companies' Personnel and to the Companies' accountants and counsel as Buyer,
or its counsel or accountants, may from time to time reasonably request and
Shareholders shall instruct the Companies' Personnel, accountants and counsel
to cooperate with Buyer, and to provide such documents and information as
Buyer and its representatives may reasonably request.
5.5 Confidentiality. Unless and until the Closing has been consummated,
Buyer shall hold, and shall cause its counsel, accountants and other
representatives to hold, in confidence all confidential data and information
relating to the Companies made available to Buyer, together with all analyses,
compilations, studies and other documents and records prepared by Buyer or any
of its representatives which contain or otherwise reflect or are generated
from such information. If the transactions contemplated by this Agreement are
not consummated, Buyer agrees to keep confidential all data and information
relating to the Companies or the Business, and upon written request of
Shareholders, to return or cause to be returned to Shareholders all written
materials and all copies that contain any such confidential data or to certify
to Shareholders that such materials have been destroyed. Notwithstanding the
foregoing, Buyer may disclose this Agreement and the information and data in
Buyer's possession in connection therewith (i) to its lenders (and their
counsel), (ii) to the investment bankers (and their counsel) in connection
with any offering of securities by Buyer and (iii) to the extent such
disclosure is required by Law or legal process. Shareholders will
correspondingly observe all of the same
restrictions and perform the same obligations as are undertaken by Buyer in
the preceding portions of this Section 5.5 with respect to Shareholders'
receipt, possession and use of any confidential data and information relating
to the Buyer or its business.
5.6 No Disclosure; Public Announcements. Prior to Closing, without the prior
written consent of the other party, and except for filings required by Law or
legal process, neither party will issue any press release or otherwise make
any public statements with respect to this Agreement and the transactions
contemplated hereby.
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5.7 Transfer Taxes; Expenses.
(a) All transfer, documentary, sales, use, registration and other such
Taxes and the related fees (including any penalties, interests and
additions to Tax) incurred in connection with the sale of the Shares
pursuant to this Agreement or the transactions contemplated hereby shall be
paid by Shareholders. The parties shall cooperate in timely preparing and
filing all Tax Returns as may be required to comply with the provisions of
such Tax Laws.
(b) Any filing fees due in respect of filings made by Buyer under any law
or regulation applicable to the transactions contemplated hereby or the
parties hereto in connection therewith shall be paid equally by Buyer and
Shareholders; provided, that Shareholders shall pay any such filing fees
which are for a filing related to Shareholders' acquisition of Buyer Common
Shares as contemplated herein; provided further that Buyer shall pay all
fees and expenses incurred in connection with (i) filings with the
Securities and Exchange Commission with respect to approval by Buyer's
shareholders of this Agreement and issuance to Shareholders of the Buyer
Common Shares as contemplated by Article II hereof and (ii) the change of
the name of the Companies.
(c) Except as otherwise provided in this Agreement, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the party incurring such costs and
expenses, it being understood that the fees and expenses of Ernst & Young
LLP and The Xxxxxxx Xxxxxxxxxx Law Firm PLLC with respect to this Agreement
and the transactions contemplated hereby, as well as any interest,
prepayment, penalties or other costs associated with any indebtedness of
any of the Companies and incurred in connection with the transactions
contemplated hereby (the "Shareholders' Expenses") which have not either
been paid prior to the Effective Date or accrued as a current liability in
the determination of Working Capital as of the Effective Date in the Final
Closing Date Adjustment Schedules shall be paid by Shareholders.
5.8 Efforts to Consummate. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate, as promptly as
practicable, the transactions contemplated hereby, including the obtaining of
all necessary consents, waivers, authorizations, orders and approvals of third
parties, whether private or governmental, required of it to enable it to
comply with the conditions precedent to consummating the transactions
contemplated by this Agreement. Each party agrees to cooperate fully with the
other party in assisting it to comply with this Section 5.8, and Shareholders
agree to take such steps as may be necessary to remove any Encumbrances (other
than Permitted Encumbrances) which affect the Assets. Without limiting the
generality of the foregoing, (i) Shareholders agree to provide and to cause
the Companies and their Personnel to provide all necessary cooperation with
the arrangement of any financing, or amendments or waivers in connection with
existing financing arrangements, to be consummated in respect of the
transactions contemplated by this Agreement, including participation in
meetings, due diligence sessions and road shows, the preparation of offering
memoranda and similar documents as Buyer shall reasonably request; (ii)
Shareholders agree to provide and to cause the Companies and their Personnel
to provide all necessary cooperation and information in connection with the
preparation of any fairness opinion which the Buyer may request of any
investment bank or similar firm, in each case as the Buyer or such bank shall
reasonably request; and (iii) each party hereto shall defend and cooperate
with each other party in defending any legal proceedings, whether judicial or
administrative and whether brought derivatively or on behalf of third parties,
challenging this Agreement or the consummation of the transactions
contemplated hereby. No consideration, whether such consideration shall
consist of the payment of money or shall take any other form, for any such
consent, waiver or agreement necessary to the consummation of the transactions
contemplated hereby shall be given or promised by Shareholders or the
Companies without the prior written approval of Buyer. No Shareholder shall
seek to exercise any dissenters rights or similar rights which may become
available in connection with any of the transactions contemplated hereby. In
the event that, owing to restrictions imposed by any Laws, the Buyer would be
prevented from acquiring one or more portions of the Companies' Assets or
Business as contemplated herein, then the parties hereto shall fully cooperate
in arranging for the sale or other disposition to a third party of such
26
portion or portions of the Companies' Assets or Business as are necessary to
enable the parties hereto to consummate the transactions contemplated by this
Agreement on terms as nearly as possible identical to the terms provided for
at the time this Agreement was executed and delivered by the parties hereto.
Notwithstanding the foregoing, nothing contained herein shall require (i)
Buyer to enter into any agreement or other arrangement for the financing of
the transactions contemplated hereby on terms that are not satisfactory to
Buyer, in its sole discretion or (ii) any party hereto to initiate any
litigation, make any substantial payment or incur any material economic
burden, except for payments a party presently is contractually obligated to
make, to obtain any consent, waiver, authorization, order or approval.
5.9 Regulatory Matters. Shareholders and Buyer shall, as promptly as
practicable after the date hereof, submit and cause their respective ultimate
parent entities to submit all documents, reports and notifications, and
satisfy all requests for additional information, if any, pursuant to any
federal or state filing requirements applicable to the transactions
contemplated hereby or the parties hereto in connection therewith.
5.10 Environmental Investigation. Buyer shall have the right, at its sole
cost and expense, to (i) conduct tests of the soil surface or subsurface
waters and air quality at, in, on, beneath or about the Facilities, and to
conduct such other procedures as may be recommended by an environmental
consultant engaged by Buyer based on its professional judgment, in a manner
consistent with good engineering practice, (ii) inspect records, reports,
permits, applications, monitoring results, studies, correspondence, data,
historical information and any other information or documents relevant to
environmental conditions or environmental noncompliance and (iii) inspect all
buildings and equipment at the Facilities including, without limitation, the
visual inspection of the physical plants for asbestos-containing construction
materials; provided that in each case, such tests and inspections shall be
conducted only (A) during regular business hours and upon reasonable notice
and (B) in a manner that will not materially interfere with the operation of
the business of the Companies and/or the use of, access to or egress from the
Facilities. Shareholders shall make available such Personnel, attorneys and
consultants of the Companies for such discussions regarding the environmental
condition and compliance of the Facilities as the Buyer shall reasonably
request.
5.11 Related Party Accounts. Except as and to the extent set forth in
Schedule 5.11, and except for accounts payable and receivable incurred in the
ordinary course of business with the Shareholders and their Affiliates as
contract growers, contemporaneously with the Closing, Shareholders and their
Affiliates (other than the Companies), on the one hand, and the Companies, on
the other hand, shall satisfy and/or terminate (without recourse), as between
Shareholders and their Affiliates (other than the Companies), on the one hand,
and the Companies, on the other hand, all amounts (i) due by a Shareholder and
its Affiliates (other than the Companies), on the one hand, to the Companies,
on the other hand, or (ii) due by the Companies, on the one hand, to
Shareholders and their Affiliates (other than the Companies), on the other
hand. Any liability for Taxes arising from such satisfaction or termination of
such amounts shall be the responsibility of Shareholders.
5.12 Materials Received After Closing. Following the Closing Buyer may open
all mail, telegrams and other communications and packages it receives which
are addressed to Shareholders which Buyer reasonably believes is related to
the Business and deal with the contents thereof in its discretion to the
extent that the contents thereof relate to the Business. Buyer agrees to
deliver to Shareholders all other such material it receives which is addressed
to Shareholders and does not relate to the Business. In the event Shareholders
collect or otherwise receive any payments in respect of the Business after the
Closing Date, they shall immediately deliver such payments in the form
received (but duly endorsed, if necessary) to Buyer.
5.13 Further Assurances. At the Closing or from time to time thereafter, the
parties hereto shall execute and deliver such other instruments of assignment,
transfer and delivery and shall take such other actions as the other
reasonably may request in order to consummate, complete and carry out the
transactions contemplated by this Agreement.
5.14 Rights to Examine Books and Records. From and after the Closing, upon
reasonable prior notice from Shareholders, Buyer will afford Shareholders'
authorized representatives, including Shareholders'
27
accountants and counsel, reasonable access during regular business hours and
for reasonable purposes related to Shareholders' prior interest in the
Companies, in order to examine and review, or, at Shareholders' expense, to
make copies of, the Books and Records to the extent they relate to periods
prior to the Effective Date; provided that any such access shall be conducted
in such a manner as not to interfere unreasonably with the operation of the
Business.
5.15 Certain Tax Matters. Buyer shall have the right, at its own expense, to
control any audit or examination by any Taxing Authority ("Tax Audit"),
initiate any claim for refund, and contest, resolve and defend against any
assessment, notice of deficiency, or other adjustment or proposed adjustment.
Shareholders shall furnish Buyer and the Companies with their full
cooperation.
5.16 Allocation of Consideration. The Consideration has been agreed upon by
the parties and allocated among the Companies as set forth in Schedule 2.1.
The parties agree that the values reflected in Schedule 2.1 were separately
established as a result of good faith bargaining and that in reporting the
transactions contemplated hereby to the Internal Revenue Service as required
by the Internal Revenue Code, they will use such amounts (subject to
adjustment pursuant to Section 2.4) and cooperate with each other in meeting
the requirements of the Internal Revenue Code and the regulations promulgated
thereunder.
5.17 Deposit of $5 Million. Pursuant to the terms of a Memorandum of Intent
dated as of August 31, 1999, between the Buyer, the Companies and the
Shareholders, the Buyer deposited with the Shareholders $5 million cash (the
"Deposit"). Upon any termination of this Agreement pursuant to clause (iii) of
Section 9.1 as a result of a material breach by Buyer of its obligations under
this Agreement, such Deposit and any interest earned thereon shall be
forfeited to the Shareholders as liquidated damages in lieu of any claim which
the Shareholders or the Companies might otherwise seek to maintain against the
Buyer or any other Person. Simultaneously with the Closing, or immediately
upon any termination of this Agreement other than as specified in the
preceding sentence, such Deposit together with any accrued interest earned
thereon shall be returned to the Buyer.
5.18 Excluded Assets; Related Land. No later than the day preceding the
Closing Date Shareholders shall (i) cause the Companies to distribute to the
appropriate Shareholders the Excluded Assets and (ii) have contributed or
sold, or caused the appropriate entities to have contributed or sold, the
Related Land to such of the Companies as Buyer shall designate pursuant to
documentation (including general warranty deeds) in form and substance
satisfactory to Buyer.
ARTICLE VI
Conditions to Obligations of Buyer
The obligation of Buyer to consummate the transactions contemplated by this
Agreement shall be subject, in the sole discretion of Buyer, to the
satisfaction, at or prior to the Closing, of each of the following conditions,
any of which may be waived by Buyer in accordance with Section 10.8:
6.1 Representations and Warranties. The representations and warranties of
Shareholders contained in Article III hereof shall be true and correct in all
respects (in the case of any representation or warranty containing any
materiality qualification) and in all material respects (in the case of any
representation or warranty without any materiality qualification) as of the
date of this Agreement and as of the date of Closing; provided that
"knowledge," "best knowledge" and similar terms and phrases shall be deemed to
be deleted therefrom; provided further that to the extent that any such
representations and warranties were made as of a specified date, such
representations and warranties shall continue on the date of Closing to have
been true as of such specified date.
28
6.2 Performance of this Agreement. Shareholders shall have, in all material
respects, performed all covenants and agreements and complied with all
conditions required by this Agreement to be performed or complied with by them
prior to or at the Closing.
6.3 Consents and Approvals. All registrations, filings, applications,
notices, consents, orders, approvals, qualifications, waivers and Licenses and
Permits listed in Schedule 3.4 or otherwise necessary to effect the
transactions contemplated hereby shall have been filed, made or obtained and
all waiting periods specified by law or regulation with respect thereto shall
have expired or been terminated.
6.4 Injunction, Litigation, etc. No Actions by any Governmental Authority or
any other Person shall have been instituted for the purpose of enjoining or
preventing, or which question the validity or legality of, the transactions
contemplated hereby and which could reasonably be expected to damage the
Companies materially or prevent Buyer from owning and controlling the
Companies.
6.5 Legislation. No statute, rule or regulation shall have been proposed
(and reasonably believed to be likely of enactment) or enacted which prohibits
or might prohibit, restrict or materially delay the consummation of the
transactions contemplated by this Agreement.
6.6 Proceedings. All corporate or similar proceedings of the Companies or
the Shareholders that are required in connection with the transactions
contemplated by this Agreement shall be reasonably satisfactory in form and
substance to Buyer and its counsel; and Buyer, having used its reasonable best
efforts, shall have obtained the approval of Buyer's shareholders required
under law and/or applicable standards of the New York Stock Exchange.
6.7 Opinion of Counsel. Shareholders shall have delivered to Buyer an
opinion of The Xxxxxxx Xxxxxxxxxx Law Firm PLLC, counsel for the Shareholders,
dated as of the date of Closing, substantially with respect to the matters set
forth in Exhibit F hereto, and stating that such opinion is made for the
benefit of Buyer and Buyer's institutional lenders and that Buyer's
institutional lenders shall be entitled to rely thereon as if such opinion
were addressed to them.
6.8 Closing Deliveries. Buyer shall have received, at or prior to the
Closing, the following:
(i) a certificate executed by the Secretary of each of the Companies
certifying as of the date of Closing (A) a true and correct copy of the
certificate or articles of incorporation of each of the Companies, (B) a
true and correct copy of the bylaws of each of the Companies, and (C)
incumbency matters;
(ii) a certificate executed by the Shareholders' Representatives
certifying that, as of the date of Closing, (i) he or she has made inquiry
of the appropriate Personnel of the Companies and (ii) the conditions set
forth in Sections 6.1, 6.2, 6.3 and 6.9 have been satisfied;
(iii) a copy of the certificate or articles of incorporation of each of
the Companies and all amendments thereto, each certified as of a recent
date by the Secretary of State of the applicable jurisdiction of
organization or other appropriate governmental official;
(iv) a certificate of the appropriate Secretary of State or other
appropriate governmental official certifying the good standing of the
Companies in their respective jurisdictions of organization and all other
states where they are qualified to do business;
(v) physical possession of all original minute books, corporate seals and
stock ownership records of the Companies, as well as the actual stock
certificates representing all the shares of capital stock of the Companies;
(vi) physical possession of all Books and Records (other than those
covered by clause (vi) above), Licenses and Permits, policies, Contracts,
plans or other instruments of the Companies that are in the possession of
the Companies, all such materials to be deemed delivered to Buyer if they
are present at any
29
of the farms, plants, offices, processing or manufacturing facilities,
stores, warehouses or administration buildings owned or leased by the
Companies;
(vii) UCC-11 searches with respect to the Companies, the Business and the
Assets used in the Business; and
(viii) all other documents and certificates required to be delivered by
Shareholders pursuant to the terms of this Agreement.
6.9 Material Adverse Change. There shall not have been any Material Adverse
Change in the Assets, liabilities, condition (financial or otherwise), results
of operations or business of the Companies since August 28, 1999, nor any
occurrence or circumstance that with the passage of time might reasonably be
expected to result in such change, and there shall not be any material
liability not shown in the Interim Financial Statements or otherwise disclosed
herein; provided, that a decline in the market prices paid for live hogs shall
not in and of itself be such a Material Adverse Change.
6.10 Financing and Other Agreements. Buyer shall have obtained and
consummated financing arrangements, or amended its existing financing
arrangements, on terms and conditions satisfactory to Buyer, sufficient to
enable the Buyer to consummate the transactions contemplated hereby (including
without limitation to assume or refinance the indebtedness of the Companies)
without causing a default, penalty or premium to occur under any agreements or
arrangements to which Buyer is a party or by which Buyer is bound, all as
determined by Buyer in its sole discretion.
6.11 Resignations. Each director and officer of each of the Companies shall
have submitted his or her resignation effective as of the Closing.
6.12 Due Diligence.
(a) Buyer shall not have discovered in any due diligence investigation of
the business, properties and financial data of the Companies after the date
of this Agreement pursuant to Section 5.4 hereof or otherwise any matters
or facts that are not satisfactory to the Buyer in all material respects.
(b) Buyer on or prior to the Closing Date shall have received all
relevant environmental surveys and studies that it shall have requested,
and all such surveys and studies shall report findings satisfactory to the
Buyer in all material respects.
6.13 Tax Matters. The Mergers shall qualify as tax-free reorganizations
under Section 368(a) of the Internal Revenue Code. Shareholders shall have
provided Buyer with (i) all forms, certificates and/or other instruments
required to pay all transfer and recording Taxes and charges arising from the
transactions contemplated by this Agreement, together with evidence
satisfactory to Buyer that such transfer Taxes and charges have been paid,
(ii) a clearance certificate or similar document(s) which may be required by
any state taxing authority to relieve Buyer of any obligation to withhold any
portion of the payments to Shareholders pursuant to this Agreement and (iii) a
statement prepared in accordance with Section 1445 of the Internal Revenue
Code and Treasury Regulations thereunder certifying that the Companies are
not, and were not at any time after January 1, 1993, a "United States real
property holding corporation" within the meaning of Section 897(c)(2) of the
Internal Revenue Code.
6.14 Agreement with Shareholders. Shareholders shall have executed and
delivered to Buyer the Agreement with Shareholders substantially in the form
of Exhibit C hereto, which shall be in full force and effect.
6.15 Escrow Agreement. Shareholders shall have executed and delivered to
Buyer and the Escrow Agent the Escrow Agreement substantially in the form of
Exhibit A hereto.
6.16 Escrow Deposit. The Escrow Deposit shall have been deposited with the
Escrow Agent.
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6.17 Agreement Regarding Related Party Grower Contracts. Shareholders shall
have executed and delivered to Buyer the Agreement regarding Related Party
Grower Contracts substantially in the form of Exhibit D hereto.
6.18 Non-Competition Agreement. Each of Xxxxxxx X. Xxxxxx and Xxxxx X.
Xxxxxx shall have executed and delivered to Buyer a Noncompetition Agreement
substantially in the form of Exhibit E hereto, which shall be in full force
and effect.
6.19 Title Insurance. The Companies shall have obtained from one or more
nationally recognized title insurance companies reasonably satisfactory to
Buyer a fee owner's title insurance policy, in each case in form and substance
reasonably satisfactory to Buyer, together with endorsements reasonably
requested by Buyer, including, without limitation, "extended coverage,"
access, zoning, non-imputation, comprehensive and contiguity endorsements, in
an amount determined by Buyer, insuring the Companies, showing that the
Companies have good and marketable fee simple title to the Real Property, free
and clear of all Encumbrances other than Permitted Encumbrances. In connection
therewith, Shareholders shall facilitate Buyer's dealing directly with the
title insurance company and shall provide to the title insurance company such
affidavits and indemnifications in customary form and substance as shall be
required by the title insurance company.
6.21 Sale of Feedmills. The assets comprising the feedmill operations of
Xxxxxx Farms, Inc. and Chief Milling Partners, Inc. shall have been sold to
Pork Plus, Inc., a North Carolina corporation, and Pork Plus, Inc. shall have
entered into a milling contract and administrative services agreement with
Xxxxxx Farms, Inc. all on terms satisfactory to Buyer.
6.22 Minimum Number of Sows. The Companies shall own not less than 327,000
producing sows as of the Closing Date.
ARTICLE VII
Conditions to Obligations of Shareholders
The obligation of Shareholders to consummate the transactions contemplated
by this Agreement shall be subject, in the sole discretion of Shareholders, to
the satisfaction, at or prior to the Closing, of each of the following
conditions, any of which may be waived by Shareholders in accordance with
Section 10.8.
7.1 Representations and Warranties. The representations and warranties of
Buyer contained in Article IV hereof shall be true and correct in all respects
(in the case of any representation or warranty containing any materiality
qualification) and in all material respects (in the case of any representation
or warranty without any materiality qualification) as of the date of this
Agreement and as of the date of Closing; provided that "knowledge," "best
knowledge" and similar terms and phrases shall be deemed to be deleted
therefrom; provided further that to the extent that any such representations
and warranties were made as of a specified date, such representations and
warranties shall continue on the date of Closing to have been true as of such
specified date.
7.2 Performance of this Agreement. Buyer shall have, in all material
respects, performed all covenants and agreements and complied with all
conditions required by this Agreement to be performed or complied with by it
prior to or on the date of Closing.
7.3 Consents and Approvals. All registrations, filings, applications,
notices, consents, orders, approvals, qualifications or waivers listed in
Schedule 4.4 or otherwise necessary to effect the transactions contemplated
hereby shall have been filed, made or obtained and all waiting periods
specified by law or regulation with respect thereto shall have expired or been
terminated.
31
7.4 Injunction, Litigation, etc. No Actions by any Governmental Authority or
any other Person shall have been instituted for the purpose of enjoining or
preventing, or which question the validity or legality of, the transactions
contemplated hereby and which could reasonably be expected to damage
Shareholders or the Companies materially if the transactions contemplated
hereby are consummated.
7.5 Legislation. No statute, rule or regulation shall have been proposed
(and reasonably believed to be likely of enactment) or enacted which prohibits
or might prohibit, restrict or materially delay the consummation of the
transactions contemplated this Agreement.
7.6 Proceedings. All corporate or similar proceedings of Buyer that are
required in connection with the transactions contemplated by this Agreement
shall be reasonably satisfactory in form and substance to Shareholders and
their counsel.
7.7 Opinion of Counsel. Buyer shall have delivered to Shareholders an
opinion of McGuire, Woods, Battle & Xxxxxx LLP, counsel for Buyer, dated as of
the Closing Date, substantially with respect to the matters set forth in
Exhibit G attached hereto.
7.8 Closing Deliveries. Shareholders shall have received, at or prior to the
Closing, the following:
(i) a certificate executed by the Secretary of Buyer certifying as of the
Closing Date (i) a true and correct copy of the articles of incorporation
as amended of Buyer, (ii) a true and correct copy of the bylaws of Buyer,
(iii) a true and correct copy of the resolutions of the board of directors
of Buyer authorizing the execution, delivery and performance of this
Agreement by Buyer and the consummation of the transactions contemplated
hereby and (iv) incumbency matters;
(ii) a certificate executed by a Vice President of Buyer certifying that,
as of the date of Closing, the conditions set forth in Sections 7.1, 7.2,
and 7.3 with respect to Buyer have been satisfied;
(iii) a copy of the articles of incorporation of Buyer and all amendments
thereto, each certified as of a recent date by the Clerk of the State
Corporation Commission of the Commonwealth of Virginia; and
(iv) all other documents and certificates required to be delivered by
Buyer pursuant to the terms of this Agreement.
7.9 Escrow Agreement. Buyer shall have executed and delivered to
Shareholders and the Escrow Agent the Escrow Agreement substantially in the
form of Exhibit A hereto.
7.10 Escrow Deposit and Estimated Consideration Price. The Escrow Deposit
shall have been deposited with the Escrow Agent, and the balance of the
Estimated Consideration shall be ready for delivery to Shareholders.
7.11 Registration Rights Agreement. Buyer shall have executed and delivered
to Shareholders the Registration Rights Agreement substantially in the form of
Exhibit B hereto.
7.12 Material Adverse Change. There shall not have been any Material Adverse
Change in the Assets, liabilities, condition (financial or otherwise), results
of operations or business of Buyer after the date hereof, nor any occurrence
or circumstance that with the passage of time might reasonably be expected to
result in such change; provided that a decline in the market price for Buyer
Common Shares shall not in and of itself be such a Material Adverse Change.
7.13 Tax Free Reorganizations. The Mergers shall qualify as tax-free
reorganizations under Section 368(a) of the Internal Revenue Code.
7.14 Agreement regarding Related Party Grower Contracts. Buyer shall have
executed and delivered to the Shareholders to be parties thereto the Agreement
regarding Related Party Grower Contracts substantially in the form of Exhibit
D hereto.
32
ARTICLE VIII
Survival of Representations; Indemnification
8.1 Survival of Representations. Except as set forth in the next sentence of
this Section 8.1, the representations and warranties of Shareholders contained
in this Agreement (including the Schedules hereto) or any certificate or
instrument delivered pursuant hereto will not survive the Closing. The
representations and warranties contained in Sections 3.1, 3.2, 3.3 and 3.24
shall survive the Closing indefinitely; the representations and warranties
contained in Sections 3.4, 3.5, 3.13, 3.14 and 3.32 until the earlier of (i)
the 60th day after receipt by Buyer of the audited financial statements for
Buyer for the fiscal year ending April 29, 2001 and (ii) September 30, 2001;
and the representations and warranties in Section 3.23 shall survive until 90
days after the expiration of the last of the limitation periods contained in
the Internal Revenue Code or other applicable Tax law during which an
assessment or reassessment can be made (the respective dates on which the
representations and warranties hereunder lapse are hereinafter referred to as
the "Survival Date"). Notwithstanding the provisions of the preceding
sentence, any representation or warranty in respect of which indemnification
may be sought under Section 8.2 shall survive the Survival Date if written
notice, given in good faith, of the specific breach thereof is given to the
indemnifying party prior to the Survival Date, whether or not liability has
actually been incurred. All representations and warranties of Buyer contained
in this Agreement (including the Schedules hereto) or any certificate or
instrument delivered pursuant hereto will survive until September 30, 2001;
provided that the representations and warranties contained in Sections 4.1 and
4.5 shall survive the Closing indefinitely.
8.2 Indemnification by Shareholders.
(a) Subject to the limitations contained in this Article VIII,
Shareholders will jointly and severally indemnify and hold harmless Buyer,
its Subsidiaries, Affiliates, each of their respective partners, directors,
officers, employees and agents, and each of the heirs, executors,
successors and assigns of any of the foregoing (collectively, the "Buyer
Indemnified Parties") from and against, and pay or reimburse (in Buyer
Common Shares to be valued at $31.11 per share, subject to customary
adjustment in the event of a stock split, etc.) the Buyer Indemnified
Parties for, any and all Covered Liabilities actually incurred or paid by
the Buyer Indemnified Parties as a result of:
(i) any inaccuracy contained in, omission from or breach of, a
representation and warranty made by Shareholders in this Agreement or
in any document delivered pursuant hereto; provided that in determining
whether an inaccuracy, omission or breach has occurred and the amount
of any Covered Liabilities, any knowledge (except actual knowledge with
respect to Contract Farms), materiality, material adverse effect,
substantial compliance or similar exception or qualification contained
in or otherwise applicable to such representation or warranty shall be
disregarded;
(ii) the nonfulfillment, nonperformance or other breach of any
covenant or agreement of Shareholders contained in this Agreement and
(iii) any liability or obligation of the Companies that is a Retained
Liability set forth in Schedule 8.2(a);
provided that (i) each Shareholder other than Xxxxxxx X. Xxxxxx and Xxxxx
X. Xxxxxx, shall be obligated to provide such indemnification only if he or
she had actual knowledge of the inaccuracy or omission in such
representation or warranty and (ii) no Shareholder shall be obligated to
provide indemnification with respect to any Company in which he or she is
not, and has never been, a shareholder.
(b) The claims for indemnity by Buyer Indemnified Parties pursuant to
this Section 8.2 are referred to as "Buyer Claims." The indemnity provided
for in this Section 8.2 is not limited to matters asserted by third parties
against any Buyer Indemnified Party, but includes Covered Liabilities
actually incurred or sustained by any Buyer Indemnified Party in the
absence of third party claims.
33
8.3 Indemnification by Buyer.
(a) Subject to the limitations contained in this Article VIII, Buyer will
indemnify and hold harmless Shareholders, their Affiliates, each of their
respective partners, directors, officers, employees and agents, and each of
the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "Shareholders Indemnified Parties") from and against,
and pay or reimburse (in Buyer Common Shares to be valued at $31.11 per
share, subject to customary adjustment in the event of a stock split, etc.)
the Shareholders Indemnified Parties for, any and all Covered Liabilities
actually incurred or paid by the Shareholders Indemnified Parties as a
result of:
(i) any inaccuracy contained in, omission from or breach of, a
representation and warranty made by Buyer in this Agreement or in any
document delivered pursuant hereto; provided that in determining
whether an inaccuracy, omission or breach has occurred and the amount
of any Covered Liabilities, any knowledge, materiality, material
adverse effect, substantial compliance or similar exception or
qualification contained in or otherwise applicable to such
representation or warranty shall be disregarded; and
(ii) the nonfulfillment, nonperformance or other breach of any
covenant or agreement of Buyer contained this Agreement.
(b) The claims for indemnity by Shareholders Indemnified Parties pursuant
to this Section 8.3 are referred to as "Shareholders Claims." The indemnity
provided for in this Section 8.3 is not limited to matters asserted by
third parties against any Shareholders Indemnified Party, but includes
Covered Liabilities actually incurred or sustained by any Shareholders
Indemnified Party in the absence of third-party claims.
8.4 Notice and Defense of Claims.
(a) Whenever a claim shall arise for indemnification hereunder (a
"Claim"), the party seeking indemnification (an "indemnified party") shall
give reasonably prompt notice to the party from whom indemnification is
sought (an "indemnifying party") of such Claim and the facts, in reasonable
detail, constituting the basis for such claim (a "Claim Notice"); provided
that failure of an indemnified party to give prompt written notice of any
Claim shall not release, waive or otherwise affect an indemnifying party's
obligations with respect thereto except to the extent that the indemnifying
party is adversely affected in its ability to defend against such Claim or
is otherwise prejudiced thereby.
(b) In the case of a Claim involving the assertion of a claim by a third
party (whether pursuant to an Action or otherwise, a "Third-Party Claim"),
if the indemnifying party shall acknowledge in writing to the indemnified
party that the indemnifying party shall be obligated to indemnify the
indemnified party under the terms of its indemnity hereunder in connection
with such Third-Party Claim, then (i) the indemnifying party shall be
entitled and, if it so elects, shall be obligated at its own cost, risk and
expense, (A) to take control of the defense and investigation of such
Third-Party Claim and (B) to pursue the defense thereof in good faith by
appropriate actions or proceedings promptly taken or instituted and
diligently pursued, including to employ and engage attorneys of its own
choice reasonably acceptable to the indemnified party to handle and defend
the same, and (ii) the indemnifying party shall be entitled (but not
obligated), if it so elects, to compromise or settle such Third-Party
Claim, which compromise or settlement shall be made only with the written
consent of the indemnified party, such consent not to be unreasonably
withheld. In the event the indemnifying party elects to assume control of
the defense and investigation of such lawsuit or other legal action in
accordance with this Section 8.4(b), the indemnified party may, at its own
cost and expense, participate in the investigation, trial and defense of
such Third-Party Claim; provided that, if the named Persons to an Action
include both the indemnifying party and the indemnified party and the
indemnified
party has been advised in writing by counsel that there may be one or more
legal defenses available to such indemnified party that are different from
or additional to those available to the indemnifying party, the indemnified
party shall be entitled, at the indemnifying party's cost, risk and
expense, to separate counsel of its own choosing. If the indemnifying party
fails to assume the defense of such Third-Party Claim or fails
34
to acknowledge to the indemnified party that it is obligated to indemnify
the indemnified party in accordance with this Section 8.4(b) within 10
calendar days after receipt of the notice of such Third Party Claim, the
indemnified party against which such Third-Party Claim has been asserted
shall (upon delivering notice to such effect to the indemnifying party)
have the right to undertake, at the indemnifying party's cost, risk and
expense, the defense, compromise and settlement of such Third-Party Claim
on behalf of and for the account of the indemnifying party if the
indemnifying party is held liable therefor; provided that such Third-Party
Claim shall not be compromised or settled without the written consent of
the indemnifying party, which consent shall not be unreasonably withheld.
In the event the indemnifying party assumes the defense of the Third Party
Claim, the indemnifying party shall keep the indemnified party reasonably
informed of the progress of any such defense, compromise or settlement, and
in the event the indemnified party assumes the defense of the Third Party
Claim, the indemnified party shall keep the indemnifying party reasonably
informed of the progress of any such defense, compromise or settlement. If
the indemnifying party is held liable for the Third-Party Claim, the
indemnifying party shall be liable for any settlement of any Third-Party
Claim effected pursuant to and in accordance with this Section 8.4(b) and
for any final judgment (subject to any right of appeal), and the
indemnifying party agrees to indemnify and hold harmless each indemnified
party from and against any and all Covered Liabilities by reason of such
settlement or judgment.
(c) Any Covered Liabilities for which an indemnifying party is
responsible shall, subject to the provisions of Section 8.5 hereof, be paid
directly by the indemnifying party. Upon Final Determination (as defined
below) of the amount of a claim for indemnification, the indemnifying party
shall pay the amount of such claim within 20 days after the date of such
Final Determination together with interest at the prime rate of The Chase
Manhattan Bank from time to time, from (and including) the later of (i) the
date of delivery of the Claim Notice or (ii) the date such Covered
Liability was paid or incurred, to (and including) the date immediately
preceding the date of payment; provided that no such interest shall be paid
if such Claim is paid by Shareholders to a Third Party.
(d) If the Claim involves a matter other than a Third Party Claim, the
indemnifying party shall have thirty (30) days to object to such Claim by
delivery of a written notice of such objection to such indemnified party
specifying in reasonable detail the basis for such objection. Failure to
timely so object shall constitute a final and binding acceptance of the
Claim by the indemnifying party, and the Claim shall be paid in accordance
with the further provisions hereof. If an objection is timely interposed by
the indemnifying party, then the indemnified party and the indemnifying
party shall negotiate in good faith for a period of thirty (30) business
days from the date the indemnified party receives such objection prior to
commencing any arbitration, formal legal action, suit or proceeding with
respect to such Claim for indemnification. Upon Final Determination (as
defined below) of the amount of a Claim for indemnification, the
indemnifying party shall pay the amount of such Claim within thirty (30)
days of the date of such Final Determination.
(e) A "Final Determination" of a Claim shall be (i) a judgment of any
court determining the validity of a disputed Claim, if no appeal is pending
from such judgment or if the time to appeal therefrom has elapsed (it being
understood that the indemnified party shall have no obligation to appeal);
or (ii) an award of any arbitrator or arbitration panel determining the
validity of such disputed Claim, if the arbitration is binding and there is
not pending any motion to set aside such award or if the time within which
to move to set aside such award has elapsed; or (iii) a written termination
of the dispute with respect to such Claim signed by all of the parties
thereto or their attorneys; or (iv) a written acknowledgment of the
indemnifying party that it no longer disputes the validity of such Claim;
(v) settlement of the Claim reached and reduced to writing pursuant to
negotiation of the parties or (vi) such other evidence of final
determination of a disputed Claim as shall be reasonably acceptable to the
parties.
8.5 Calculation of Covered Liabilities.
(a) Insurance Proceeds. To the extent that any Buyer Claim or
Shareholders Claim is covered by insurance held by such Buyer Indemnified
Party or Shareholders Indemnified Party, such indemnified party shall be
entitled to indemnification pursuant to Section 8.2 or 8.3, as applicable,
only with respect to the amount of the Covered Liabilities that are in
excess of the cash proceeds received by such indemnified party
35
pursuant to such insurance. If such indemnified party receives such cash
insurance proceeds prior to the time such Claim is paid, then the amount
payable by the indemnifying party pursuant to such Claim shall be reduced
by the amount of such proceeds. If such indemnified party receives such
cash insurance proceeds after such Claim has been paid, then upon the
receipt by the indemnified party of any cash proceeds pursuant to such
insurance up to the amount of Covered Liabilities incurred by such
indemnified party with respect to such Claim, such indemnified party shall
promptly repay any portion of such amount which was previously paid by the
indemnifying party to such indemnified party in satisfaction of such Claim.
(b) Effect of Taxes. The amount of any indemnity payments for Covered
Liabilities under Section 8.2 or 8.3 above shall be (i) decreased to
reflect the actual Tax Benefit, if any, to the indemnified party resulting
from the Covered Liabilities giving rise to such indemnity payments and
(ii) increased to reflect the actual Tax Loss, if any, payable by such
indemnified party as a result of the receipt of such Covered Liabilities,
in each case subject to the limitations on indemnification contained in
Section 8.5. In either case, the amount shall be determined by the
indemnified party taking into account only the taxable period in which such
indemnity payment accrues (and prior periods) and not any subsequent
periods. If an indemnity payment is made prior to the filing of relevant
Tax Returns, the amount shall be determined on an estimated basis. Proper
adjustments shall be made if the actual Tax Benefit or actual Tax Loss
differ from the estimated amount. Any indemnity payment made pursuant to
Section 8.2 or 8.3 shall be treated by Buyer and Shareholders as an
adjustment to the Consideration.
8.6 Exclusive Remedy following Closing. Except for covenants to be performed
after the Closing ("Post-Closing Covenants") and actions grounded in fraud,
the parties hereto acknowledge and agree that in the event the Closing occurs,
the indemnification provisions in this Article VIII shall be the exclusive
remedy of Buyer and Shareholders with respect to the transactions contemplated
by this Agreement. With respect to Post-Closing Covenants and actions grounded
in fraud, (i) the right of a party to be indemnified and held harmless
pursuant to the indemnification provisions in this Agreement shall be in
addition to and cumulative of any other remedy of such party at law or in
equity and (ii) no such party shall, by exercising any remedy available to it
under this Article VIII, be deemed to have elected such remedy exclusively or
to have waived any other remedy, whether at law or in equity, available to it.
8.7 No Circular Recovery. No Shareholder shall be entitled to make any claim
for indemnification against Buyer, the Surviving Corporations or any of their
respective Affiliates by reason of the fact that he or she was a controlling
person, director, officer, employee, agent or other representative of the
Companies (whether such claim is pursuant to any statute, charter, bylaw,
contractual obligation or otherwise) with respect to any matter relating to or
arising out of a matter which is subject to the provisions of Section 8.2.
Article IX
Termination
9.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
(i) by the mutual written consent of Shareholders and Buyer;
(ii) by Buyer, if any event occurs which renders impossible compliance
with one or more of the conditions set forth in Article VI hereof, which
condition or conditions are not waived by Buyer;
(iii) by Shareholders, if any event occurs which renders impossible
compliance with one or more of the conditions set forth in Article VII
hereof, which condition or conditions are not waived by Shareholders; or
(iv) by Shareholders or Buyer if the Closing has not occurred by 11:59
p.m. on May 31, 2000; provided that no party hereto may terminate this
Agreement pursuant to this clause (iv) if the sole condition to such
party's obligation to close then not satisfied or waived is (A) the failure
of a Governmental Authority to issue any consent order, approval or waiver
necessary for the consummation of the transactions
36
contemplated hereby, or (B) the Institution of an Action by a Governmental
Authority for the purpose of enjoining or preventing, or which questions
the validity or legality of, the transactions contemplated hereby, if there
appears to be a reasonable prospect that such consent, order, approval, or
waiver will be issued, or that such Action will be withdrawn, dismissed or
finally adjudicated, within a reasonable time after May 31, 2000.
9.2 Procedure: Effect of Termination. If this Agreement is terminated as
provided in Section 9.1 or 9.3, written notice thereof shall forthwith be
given by the terminating party to the other party, and this Agreement shall
thereupon terminate and become void and of no further force and effect and
there shall be no further liability or obligation on the part of either party
hereto except for the obligations under Sections 5.5, 5.7, 5.17, 9.1 and 9.3;
provided that, subject to the provisions of Section 5.17, termination of this
Agreement by Buyer or Shareholders pursuant to clause (ii) or (iii) of Section
9.1 or pursuant to Section 9.3, respectively, shall not relieve any defaulting
or breaching party (the "Breaching Party"), whether or not it is the
terminating party, of liability for damages actually incurred by the other
party as a result of breach of this Agreement by the Breaching Party.
9.3 Additional Termination Right. In addition to any other rights of
termination provided for hereunder or otherwise, the Buyer shall have the
right to terminate this Agreement according to the procedures set forth in the
next sentence. Buyer may at any time prior to Closing give Shareholders
written notice that Buyer has discovered adverse facts or matters during the
course of its due diligence review which Buyer has reasonably determined are
expected to require an amount in excess of $10 million to cure or correct,
specifying the adverse facts or matters to be cured and, in the alternative,
an amount by which the Buyer proposes to reduce the Consideration in lieu of
such cure or correction; Shareholders shall thereupon have five (5) Business
Days to notify Buyer in writing whether Shareholders will (i) undertake to
cure or correct such matters to the reasonable satisfaction of Buyer, (ii)
instead accept the specified reduction in the Consideration, or (iii) decline
as to both (i) and (ii). If Shareholders decline pursuant to the foregoing
clause (iii), or choose clause (i) but do not perform or cause to be performed
the obligations thereunder to the reasonable satisfaction of Buyer, or if
Shareholders fail to give the required notice hereunder within five Business
Days, then Buyer shall forthwith have the option to terminate this Agreement
upon written notice to Shareholders of the same.
Article X
General Provisions
10.1 Notices. All notices required to be given hereunder shall be in writing
and shall be deemed to have been given if (i) delivered personally or by
documented courier or delivery service, (ii) transmitted by facsimile during
normal business hours or (iii) mailed by registered or certified mail (return
receipt requested and postage prepaid) to the following listed persons at the
addresses and facsimile numbers specified below, or to such other persons,
addresses or facsimile numbers as a party entitled to notice shall give, in
the manner hereinabove described, to the others entitled to notice:
(a)If to Shareholders or to the Shareholders' Representatives, to:
Xxxxxxx X. Xxxxxx
Xxxxxx Farms, Inc.
X.X. Xxx 000
X.X. Xxxxxxx 000 Xxxxx
Xxxx Xxxx, Xxxxx Xxxxxxxx 00000
Facsimile No: (000) 000-0000
with a copy to:
The Xxxxxxx Xxxxxxxxxx Law Firm PLLC
000 Xxxxxxxxxxxx Xxxxxx
Xxxxx 0000
37
P. O. Xxx 0000
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Reef X. Xxxx, XX
Facsimile No. (000) 000-0000
(b)If to Buyer, to:
Smithfield Foods, Inc.
000 Xxxxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. X. Xxxxxxx
Facsimile No.: (000) 000-0000
and to:
Smithfield Foods, Inc.
000 Xxxxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxx
Facsimile No. (000) 000-0000
with a copy to:
McGuire, Woods, Battle & Xxxxxx LLP
Xxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx
Facsimile No. (000) 000-0000
If given personally or by documented courier or delivery service, or
transmitted by facsimile, a notice shall be deemed to have been given when it
is received. If given by mail, it shall be deemed to have been given on the
third business day following the day on which it was posted.
10.2 Interpretation. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement. For purposes of this Agreement, the words
"includes" and "including" shall mean "including without limitation." As used
herein, "knowledge of Shareholders" shall mean (i) with respect to each of
Xxxxxxx X. Xxxxxx and Xxxxx X. Xxxxxx, the actual knowledge of such
Shareholder together with the actual knowledge of the executive officers of
the Companies identified in Schedule 10.2(a) hereto after inquiry of other
Personnel of the Companies who would reasonably be expected to have the
relevant information, and (ii) with respect to any other Shareholder, his or
her actual knowledge solely; and "knowledge of Buyer" shall mean the actual
knowledge of the executive officers of Buyer identified in Schedule 10.2(b)
hereto after inquiry of other Personnel of Buyer who would reasonably be
expected to have the relevant information. All accounting terms not defined in
this Agreement (either in Article I or in the context in which it is used)
shall have the meaning determined by GAAP. All capitalized terms defined
herein are equally applicable to both the singular and plural forms. The
language in all parts of this Agreement shall be construed, in all cases,
according to its fair meaning. The parties acknowledge that each party and its
counsel have reviewed and revised this Agreement and that any rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
10.3 Entire Agreement. This Agreement together with the Schedules and
Exhibits hereto contain the entire agreement among the parties with respect to
the subject matter hereof, and there are no agreements, understandings,
representations or warranties between the parties other than those set forth
or referred to herein; provided that the forms of agreements and opinions
attached hereto as Exhibits or Schedules shall be superseded by the copies of
such agreements and opinions executed and delivered by the respective parties
thereto, the
38
execution and delivery of such agreements and opinions by the parties thereto
to be conclusive evidence of such parties' approval of any change or
modification therein.
10.4 No Third Party Beneficiaries. Except as set forth in Article VIII,
nothing in this Agreement (whether expressed or implied) is intended to confer
upon any person other than the parties hereto and their respective permitted
successors and assigns, any rights or remedies under or by reason of this
Agreement nor is anything in this Agreement intended to relieve or discharge
the liability of any party hereto, nor shall any provision hereof give any
person any right of subrogation against, or action over against any party.
Without limiting the generality of the foregoing, nothing contained herein
shall confer any third-party beneficiary right (actual or implied) upon any
employee of the Companies or obligate the Companies to continue any such
employee in its employ for any specified period of time or at any specified
salary, wages or benefits after the Closing Date.
10.5 Shareholders' Representatives. Xxxxxxx X. Xxxxxx and Xxxxx X. Xxxxxx
shall be the designated representatives of all the Shareholders (the
"Shareholders' Representatives") with authority to make all decisions and
determinations and to take all actions (including giving consents and waivers
or agreeing to any amendments to this Agreement or to the termination hereof)
required or permitted hereunder on behalf of any Shareholder, and any such
action, decision or determination so made or taken shall be deemed the action,
decision or determination of each such Shareholder, and any notice, document,
certificate or information required to be given to any Shareholders shall be
deemed so given if given to the Shareholders' Representatives. The
Shareholders agree that the Shareholders' Representatives shall not have any
liability to the Shareholders for any action, or failure to act, in their
capacity as Shareholders' Representatives.
10.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns, as applicable; provided that
Shareholders shall not assign their rights or delegate their obligations under
this Agreement without the express prior written consent of Buyer; provided
further, that in the event of assignment by Buyer, Buyer shall not be released
from its obligations under this Agreement.
10.7 Severability. In the event that this Agreement or any other instrument
referred to herein, or any of their respective provisions, or the performance
of any such provision, is found to be invalid, illegal or unenforceable under
applicable law now or hereafter in effect, the parties shall be excused from
performance of such portions of this Agreement as shall be found to be
invalid, illegal or unenforceable under the applicable laws or regulations
without, to the maximum extent permitted by law, affecting the validity of the
remaining provisions of the Agreement. Should any method of termination of
this Agreement or a portion thereof be found to be invalid, illegal or
unenforceable, such method shall be reformed to comply with the requirements
of applicable law so as, to the greatest extent possible, to allow termination
by that method. Nothing herein shall be construed as a waiver of any party's
right to challenge the validity of such law.
10.8 Amendment. This Agreement may be amended, modified or supplemented at
any time by the parties hereto. This Agreement may be amended only by an
instrument in writing signed by each of the parties hereto.
10.9 Extension; Waiver. At any time prior to the Closing either
Shareholders, on the one hand, or the Buyer, on the other, may (i) extend the
time for the performance of any of the obligations of the Buyer, on the one
hand, or Shareholders, on the other, (ii) waive a breach of a representation
or warranty of such other party or parties hereto or (iii) waive compliance by
such other party or parties hereto with any of the agreements or conditions
contained herein. Any such extension or waiver shall be valid if set forth in
a written instrument signed by such party or parties giving the extension or
waiver. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
10.10 Disclosure Schedules. Certain of the representations and warranties
set forth in this Agreement contemplate that there will be attached Schedules
setting forth information that might be "material" or have a
39
"Material Adverse Effect" on the Companies, the Shareholders or the Buyer. The
parties may, at their respective option, include in such Schedules items that
are not material or are not likely to have such a Material Adverse Effect in
order to avoid any misunderstanding, and any such inclusion shall not be
deemed to be an acknowledgment or representation that such items are material
or would have a Material Adverse Effect, to establish any standard of
materiality or Material Adverse Effect or to define further the meaning of
such terms for purposes of this Agreement.
10.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.12 Governing Law. This Agreement shall be governed in all respects by the
laws of the State of North Carolina without regard to any laws or regulations
relating to choice of laws (whether of the State of North Carolina or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of North Carolina.
10.13 Jurisdiction. The parties hereto irrevocably submit to the non-
exclusive jurisdiction of the United States District Court for the Western
District of North Carolina (or, if subject matter jurisdiction in that court
is not available, in the courts of the State of North Carolina, Mecklenburg
County) over any dispute arising out of or relating to this Agreement or any
agreement or instrument contemplated hereby or entered into in connection
herewith or any of the transactions contemplated hereby or thereby. Each party
hereby irrevocably agrees that all claims in respect of such dispute or
proceeding shall be heard and determined in such courts. The parties hereby
irrevocably waive, to the fullest extent permitted by applicable Law, any
objection which they may now or hereafter have to the laying of venue of any
such dispute brought in such court or any defense of inconvenient forum in
connection therewith. THE PARTIES HERETO WAIVE THE RIGHT TO A JURY TRIAL IN
CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING SEEKING ENFORCEMENT OF SUCH
PARTY'S RIGHTS UNDER THIS AGREEMENT. Each Shareholder hereby designates Reef
X. Xxxx, XX as its agent for service of process, which agent may be
substituted at any time upon ten days' notice to Buyer, but which substitute
agent shall in no event be located outside the Commonwealth of Virginia or
State of North Carolina, and each Shareholder irrevocably consents to the
service of any and all process in any action or proceeding arising out of or
relating to this Agreement by the delivery of such process to such agent.
10.14 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event any of the provisions of this Agreement were not
performed in accordance with the terms hereof and that each of the parties
shall be entitled to specific performance of the terms hereof, in addition to
any other remedy available at law or in equity.
[END OF PAGE]
[SIGNATURE PAGE FOLLOWS]
40
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date first above written.
SMITHFIELD FOODS, INC.
/s/ Xxxxxx X. Xxxxx, III
By: _________________________________
Name: Xxxxxx X. Xxxxx, III
Title: Chairman of the Board and
Chief Executive Officer
/s/ Xxxxxxx Xxxxxx
_____________________________________
Xxxxxxx X. Xxxxxx
/s/ Xxxxx X. Xxxxxx
_____________________________________
Xxxxx X. Xxxxxx
/s/ Xxxxx X. Xxxxxx
_____________________________________
Xxxxx X. Xxxxxx
/s/ Xxxxxxx X. Xxxxxx, Xx.
_____________________________________
Xxxxxxx X. Xxxxxx, Xx.
/s/ Xxxxx Xxxxxx Xxxxxxxx
_____________________________________
Xxxxx Xxxxxx Xxxxxxxx
/s/ Xxxxxxxx X. Xxxxxx
_____________________________________
Xxxxxxxx X. Xxxxxx
/s/ Xxxx X. Xxxxxx
_____________________________________
Xxxx X. Xxxxxx
/s/ Xxxxxx Xxxxx
_____________________________________
Xxxxxx Xxxxx
41
Definitions
The following terms, as used herein, have the following meanings:
"Action" means any complaint, claim, prosecution, indictment, action, suit,
arbitration, investigation, governmental audit, inquiry or proceeding by or
before any Governmental Authority.
"Affiliate" of a Person means a Person who, directly or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with, such Person.
"Ancillary Agreements" means the Escrow Agreement, the Registration Rights
Agreement, the Agreement with Shareholders, the Noncompetition Agreements and
the Agreement regarding Related Party Grower Contracts.
"Assets" means all of the Companies' right, title and interest in and to all
properties, assets and rights of any kind, whether tangible or intangible,
real or personal, owned by the Companies or in which the Companies have any
interest whatsoever, other than the items specifically identified as Excluded
Assets on Schedule 1.1(a).
"Audited Financial Statements" has the meaning set forth in Section 3.9.
"Benefit Arrangement" means any employment, consulting, severance or other
similar contract, arrangement or policy (written or oral) and each plan,
arrangement, program, agreement or commitment (written or oral) providing for
insurance coverage (including, without limitation, any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life, health or
accident benefits (including, without limitation, any "voluntary employees'
beneficiary association" as defined in Section 501(c)(9) of the Internal
Revenue Code providing for the same or other benefits) or for deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation
rights, stock purchases or other forms of incentive compensation or post-
retirement insurance, compensation or benefits which (i) is not a Welfare
Plan, Pension Plan or Multiemployer Plan, (ii) is entered into, maintained,
contributed to or required to be contributed to, as the case may be, by the
Companies or any ERISA Affiliate or under which the Companies or any ERISA
Affiliate may incur any liability, and (iii) covers any employee or former
employee of the Companies or any ERISA Affiliate (with respect to their
relationship with any such entity).
"Books and Records" means all books, records, lists, ledgers, files,
reports, plans, drawings and operating records of every kind (in any form or
medium) relating to the Companies, the Assets, Business operations, customers,
suppliers and personnel, including (i) all corporate books and records of the
Companies, (ii) all disk or tape files, printouts, runs or other computer-
based information and the Companies' interest in all computer programs
required to access, and the equipment containing, all such computer-based
information, (iii) all product, business and marketing plans, (iv) all
environmental control records, (v) all sales, maintenance and production
records, (vi) equipment warranty information, (vii) litigation files, (viii)
customer and supplier lists and information and (ix) personnel records.
"Breaching Party" has the meaning set forth in Section 9.2.
"Business" means the hog production business conducted by the Companies.
"Business Day" means any day except a Saturday, Sunday or other day on which
commercial banks in Raleigh, North Carolina or New York, New York are
authorized by Law to close.
"Buyer's Auditors" means Xxxxxx Xxxxxxxx LLP.
"Buyer Claims" has the meaning set forth in Section 8.2(b).
42
"Buyer Common Shares" means the Common Stock, par value $.50 per share, of
the Buyer.
"Buyer Indemnified Parties" has the meaning set forth in Section 8.2(a).
"Buyer SEC Filings" has the meaning set forth in Section 4.2.
"Buyer Sub" and "Buyer Subs" have the meanings set forth in the Recitals.
"Capital Lease" means any lease of which any of the Companies is the lessee
which is required to be capitalized on the balance sheet in accordance with
GAAP.
"Cash to Accrual Tax Liability" means the net present value (based on a 7%
discount rate and a combined federal and state corporate income tax rate of
39.5%) of the tax liability that will be incurred by Buyer under Sections 447
and 481 of the Internal Revenue Code when it converts from the cash method to
the accrual method of accounting with respect to the Companies for federal
income tax purposes as of the Effective Date, as determined in accordance with
the methodology set forth in Schedule 1.1(b).
"Cash to Accrual Tax Liability Adjustment" means the number of Buyer Common
Shares equal to (i) the amount (which may be positive or negative) by which
the Cash to Accrual Tax Liability is more or less than $64,930,653, divided by
(ii) $31.11. Subject to the impact on the calculation of Consideration of the
Companies Debt Adjustment, the Surviving Corporations Earnings Adjustment and
the Working Capital Adjustment, if the Cash to Accrual Tax Liability is more
than $64,930,653, there will be a decrease in the number of Buyer Common
Shares, and if the Cash to Accrual Tax Liability is less than $64,930,653,
there will be an increase in the number of Buyer Common Shares, comprising the
Consideration.
"Claim" has the meaning set forth in Section 8.4.
"Claim Notice" has the meaning set forth in Section 8.4.
"Closing" has the meaning set forth in Section 2.3.
"Closing Date" has the meaning set forth in Section 2.3.
"Companies" has the meaning set forth in the Recitals, and "Company" means
whichever of the Companies the context suggests.
"Companies Debt" means the interest bearing indebtedness (plus any accrued
interest or associated prepayment or other penalties or costs incurred in
connection with the transactions contemplated hereby on such indebtedness) of
the Companies, their respective Subsidiaries and certain other entities in
which one or more of the Companies or their Subsidiaries own an interest, for
borrowed money from third parties other than the Shareholders, the Companies
or their respective Subsidiaries or Affiliates, computed pursuant to Schedule
1.1(d) and the percentages reflected therein; provided that Companies Debt
shall not include (i) indebtedness of the Companies to the Shareholders or
indebtedness under the Companies lines of credit, in each case to the extent
included as a current liability in calculating Working Capital as of the
Effective Date as set forth in the Final Closing Date Adjustment Schedules or
(ii) Xxxxxx Funding Debt.
"Companies Debt Adjustment" means the number of Buyer Common Shares equal to
(i) the amount (which may be positive or negative) by which the Companies Debt
on the Effective Date is more or less than $180,108,729, divided by (ii)
$31.11. Subject to the impact on the calculation of Consideration of the Cash
to Accrual Tax Liability Adjustment, the Surviving Corporations' Earnings
Adjustment and the Working Capital Adjustment, if the Companies Debt as of the
Effective Date is more than $180,108,729, there will be a decrease in the
number of Buyer Common Shares, and if the Companies Debt as of the Effective
Date is less than $180,108,729, there will be an increase in the number of
Buyer Common Shares, comprising the Consideration.
43
"Consideration" means 10,652,070 Buyer Common Shares adjusted for the
Working Capital Adjustment adjusted for the Cash to Accrual Tax Liability
Adjustment adjusted for the Companies Debt Adjustment adjusted for the
Surviving Corporations Earnings Adjustment.
"Consideration Adjustment" has the meaning specified in Section 2.4(d).
"Contract" means any agreement, contract, lease, note, loan, evidence of
indebtedness, purchase order, letter of credit, franchise agreement,
undertaking, covenant not to compete, employment agreement, license,
instrument, obligation, commitment, purchase and sales order, quotation and
other executory commitment to which any of the Companies is a party or which
relates to the Business or any of the Assets of the Companies, whether oral or
written, express or implied, and which pursuant to its terms has not expired,
terminated or been fully performed by the parties thereto.
"Contract Farms" means those farms that are not owned or leased by the
Companies with respect to which the Companies have entered into contracts with
third parties under which the farm facilities are used to complete a stage of
production of swine owned by the Companies.
"Controlled Group Liability" means any and all liabilities under (i) Title
IV of ERISA, (ii) Section 302 of ERISA, (iii) Sections 412 or 4971 of the
Internal Revenue Code, (iv) the continuation coverage requirements of Sections
601 et seq. of ERISA and Section 4980B of the Internal Revenue Code and (v)
the disclosure and reporting requirements of Sections 101 et seq. of ERISA,
other than such liabilities that arise solely out of, or relate solely to,
employees or former employees of the Companies.
"Covered Liabilities" means any and all debts, losses, liabilities, claims,
fines, royalties, deficiencies, damages (including diminution in value and/or
increased insurance premiums), Actions, obligations, payments (including those
arising out of any demand, assessment, settlement, judgment or compromise
relating to any Action), costs (including costs of mitigation) and expenses
(including interest and penalties due and payable with respect thereto and
reasonable attorneys' and accountants' fees and any other out-of-pocket
expenses incurred in investigating, preparing, defending, avoiding or settling
any Action or in investigating, preserving or enforcing another party's
obligations hereunder), matured or unmatured, accrued or unaccrued, liquidated
or unliquidated, including any of the foregoing arising under, out of or in
connection with any Action, order or consent decree of any Governmental
Authority or award of any arbitrator of any kind, or any law, rule,
regulation, contract, commitment or undertaking.
"Debt Instruments" has the meaning set forth in Section 6.12.
"Decrees" has the meaning set forth in Section 3.8.
"Effective Date" means the earlier of the Closing Date and January 1, 2000.
"Effective Time" has the meaning set forth in Section 2.1(b).
"Election Companies" has the meaning set forth in Section 5.16(a).
"Employee Plans" means all Benefit Arrangements, Multiemployer Plans,
Pension Plans and Welfare Plans.
"Encumbrance" means any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right-of-way, encroachment,
conditional sales agreement, encumbrance or other right of third parties,
whether voluntarily incurred or arising by operation of law, and includes any
agreement to give any of the foregoing in the future, and any contingent sale
or other title retention agreement or lease in the nature thereof.
"Environmental Laws" means all applicable federal, state, district, local
and foreign laws, all rules or regulations promulgated thereunder, and all
orders, consent orders, judgments, notices, permits or demand letters issued,
promulgated or entered pursuant thereto, relating to health, safety, pollution
or protection of the
44
environment (including ambient air, surface water, ground water, land surface
or subsurface strata), including (i) laws relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals,
industrial materials, wastes or other substances into the environment and (ii)
laws relating to the identification, generation, manufacture, processing,
distribution, use, treatment, storage, disposal, recovery, transport or other
handling of pollutants, contaminants, chemicals, industrial materials,
wastes or other substances, in each case as in effect on the Closing Date. By
way of example only, Environmental Laws include the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Toxic Substances Control Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation and
Recovery Act, as amended ("RCRA"), the Clean Water Act, as amended, the Safe
Drinking Water Act, as amended, the Clean Air Act, as amended, the Atomic
Energy Act of 1954, as amended, the Occupational Safety and Health Act, as
amended, and all analogous laws promulgated or issued by any state or other
governmental authority.
"Environmental Permit" means all registrations, applications, filings,
certifications, notices, orders, licenses, permits, approvals, consents,
qualifications, authorizations and waivers of any Governmental Authority
issued under or with respect to an Environmental Law.
"Environmental Reports" means any and all written analyses, summaries or
explanations, in the possession or control of the Companies, of (i) Hazardous
Emissions, Handling Hazardous Substances or any environmental conditions in,
on or about the properties of the Companies or (ii) the Companies' compliance
with Environmental Laws.
"Equipment" means all machinery, equipment, computer equipment (including
hardware and software), furniture, vehicles, tools, dies, molds and parts,
office and other supplies, spare parts, fuel and other tangible personal
property (other than Excluded Assets) wherever located (including any of the
foregoing purchased subject to any conditional sales agreement or title
retention agreement in favor of any other Person).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any entity which is (or at any relevant time was) a
member of a "controlled group of corporations" with, under "common control"
with, or a member of an "affiliated service group" with, or otherwise required
to be aggregated with, any of the Companies as set forth in Section 414(b),
(c), (m) or (o) of the Internal Revenue Code.
"Escrow Agent" means the Person appointed as the escrow agent under the
Escrow Agreement.
"Escrow Agreement" means the agreement entered into by or on behalf of
Shareholders, on the one hand, and Buyer, on the other hand, substantially in
the form of Exhibit A hereto.
"Escrow Fund" means, at any time, the Buyer Common Shares held under the
Escrow Agreement at such time.
"Escrow Deposit" means 1,000,000 Buyer Common Shares of the Estimated
Consideration.
"Estimated Consideration" means 10,652,070 Buyer Common Shares adjusted for
the estimated Working Capital Adjustment adjusted for the estimated Cash to
Accrual Tax Liability Adjustment adjusted for the estimated Companies Debt
Adjustment adjusted for the estimated Surviving Corporations Earnings
Adjustment.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
"Excluded Assets" means the items of real or personal property listed in
Schedule 1.1(a).
"Facilities" means all farms, plants, offices, processing or manufacturing
facilities, stores, warehouses, administration buildings and all real property
owned or leased by the Companies other than Excluded Assets;
45
provided that for purposes of the representations and warranties set forth in
Article III, Facilities shall include Contract Farms.
"Final Closing Date Adjustment Schedules" has the meaning set forth in
Section 2.4(c).
"Final Determination" has the meaning set forth in Section 8.4.
"Financial Statements" means the Audited Financial Statements, any Unaudited
Financial Statements and/or the Interim Financial Statements as the context
requires.
"Fixtures and Equipment" means all of the furniture, fixtures, furnishings,
machinery, equipment, spare parts, supplies, appliances, vehicles and other
tangible personal property owned by the Companies, wherever located, including
all warranty rights with respect thereto.
"GAAP" means generally accepted accounting principles in the United States
of America, as in effect from time to time, consistently applied.
"Governmental Authority" means any federal, state, local, foreign,
supernational or supranational court or tribunal, governmental, regulatory or
administrative agency, department, bureau, authority, commission or arbitral
panel.
"Handling Hazardous Substances" has the meaning set forth in Section 3.6.
"Hazardous Emissions" has the meaning set forth in Section 3.6.
"Hazardous Substances" means all pollutants, contaminants, chemicals,
wastes, and any other carcinogenic, ignitable, corrosive, reactive, toxic or
otherwise hazardous substances or materials (whether solids, liquids or gases)
subject to regulation, control or remediation under Environmental Laws. By way
of example only, the term Hazardous Substances includes petroleum, urea
formaldehyde, flammable, explosive and radioactive materials, PCBs,
pesticides, herbicides, asbestos, sludge, slag, acids, metals, solvents, waste
waters and solid waste.
"indemnified party" has the meaning set forth in Section 8.4.
"indemnifying party" has the meaning set forth in Section 8.4.
"Intellectual Property" means all trade names (including the trade names
"Xxxxxx Family Farms" and a large red "M"), trademarks and service marks,
patents, patent rights, copyrights, whether domestic or foreign, (as well as
applications, registrations or certificates for any of the foregoing),
inventions, trade secrets, proprietary processes, software and other
industrial and intellectual property rights.
"Interim Financial Statements" has the meaning set forth in Section 3.9.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended.
"Inventory" means all livestock (including hogs, piglets and piglets in
gestation), genetic lines and any associated biological materials, all
inventories of feeds (including pre-purchased grain and feed ingredients),
injectable and other treatments and similar materials, and any other raw
materials, work-in-process and finished goods, wherever located (including
items in transit).
"Land Use Approvals" has the meaning set forth in Section 3.6(g).
"Land Use Requirements" has the meaning set forth in Section 3.6(g).
"Laws" has the meaning set forth in Section 3.8.
46
"Lease" means a Real Property Lease or a Personal Property Lease.
"Leased Real Property" has the meaning set forth in Section 3.13(b).
"Licenses and Permits" means all registrations, applications, filings,
certifications, notices, orders, licenses, permits, approvals, consents,
qualifications, authorizations and waivers of any Governmental Authority, but
does not include Environmental Permits.
"Material Adverse Effect" or "Material Adverse Change" means as to any
Person (i) any material adverse effect on or material adverse change with
respect to (A) the business, operations, assets, applicable environmental or
other regulatory requirements or risks, liabilities, condition (financial or
otherwise), results of operations or prospects of such Person and its
Subsidiaries, taken as a whole, or (B) the right or ability of such Person or
any of its Subsidiaries to consummate the transactions contemplated hereby or
(ii) any event or condition which, with the passage of time, the giving or
receipt of notice or the occurrence or nonoccurrence of any other
circumstance, action or event, would reasonably be expected to constitute a
"Material Adverse Effect" or "Material Adverse Change" with respect to such
Person.
"Material Contracts" has the meaning set forth in Section 3.19.
"Merger Consideration" means the merger consideration allocated to the
Companies as set forth on Schedule 2.1 hereto.
"Mergers" has the meaning set forth in Section 2.1(a).
"Multiemployer Plan" means any "multiemployer plan," as defined in Section
4001(a)(3) or 3(37) of ERISA, which (i) any of the Companies or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or, after September 25, 1980, maintained, administered, contributed to or
was required to contribute to, or under which the Companies or any ERISA
Affiliate may incur any liability and (ii) covers any employee or former
employee of the Companies or any ERISA Affiliate (with respect to their
relationship with any such entity).
"Xxxxxx Funding Debt" means the debt arising under the Transfer and
Administration Agreement among the Companies and NationsBank, N.A. dated as of
October 15, 1997, as amended.
"NCBCA" means the North Carolina Business Corporation Act.
"Neutral Auditors" means PricewaterhouseCoopers LLP.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plans" means any "employee pension benefit plan" as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) which (i) any of the
Companies or any ERISA Affiliate maintains, administers, contributes to or is
required to contribute to, or, within the five years prior to the Closing
Date, maintained, administered, contributed to or was required to contribute
to, or under which any of the Companies or any ERISA Affiliate may incur any
liability (including, without limitation, any contingent liability) and (ii)
covers any employee or former employee of any of the Companies or any ERISA
Affiliate (with respect to their relationship with any such entity).
"Permitted Encumbrances" means (i) statutory liens for current state and
local property taxes or assessments not yet due or delinquent; (ii)
mechanics', carriers', workers', repairers' and other similar liens arising or
incurred in the ordinary course of business relating to obligations as to
which there is no default on the part of the Companies; provided that the same
shall be fully discharged of record before the Closing; (iii) exceptions shown
on the surveys furnished by Shareholders to Buyer on or before the date hereof
and which do not materially affect the use, value, enjoyment, occupancy or
marketability of such property; and (iv) such
47
other recorded liens, imperfections in title, charges, easements, restrictions
and encumbrances which do not materially affect the use, value, enjoyment,
occupancy or marketability of such property.
"Person" means an individual, a corporation, a partnership, a limited
liability company, a limited liability partnership, an association, a trust or
any other entity or organization, including a governmental or political
subdivision or an agency or instrumentality thereof.
"Personal Property Lease" has the meaning set forth in Section 3.14(c)(i).
"Personnel" of a corporation means all directors, officers and employees of
such corporation and its Subsidiaries, and "Personnel" of any Person other
than an individual or a corporation means all persons responsible for or
performing duties and functions similar to those of directors, officers and
employees for such Person and its Subsidiaries.
"Pre-Closing Covenants" has the meaning set forth in Section 8.5.
"Post-Closing Covenants" has the meaning set forth in Section 8.7.
"Preliminary Closing Date Adjustment Schedules" has the meaning set forth in
Section 2.4(a).
"Real Property" has the meaning set forth in Section 3.13(a).
"Real Property Lease" has the meaning set forth in Section 3.13(b)(i).
"Related Land" means the parcels of real property set forth in Schedule
1.1(b) and any additional parcels of real property owned by Shareholders or
any Affiliate that are necessary to enable Shareholders to comply with the
representation set forth in the first sentence of Section 3.16 to be
transferred to the Companies as contemplated by Section 5.18.
"Required Working Capital" means negative $7,987,096.
"Resolution Period" has the meaning set forth in Section 2.4(b).
"Securities Act" means the Securities Act of 1933, as amended, together with
the rules and regulations promulgated thereunder.
"Shareholders' Auditors" means Ernst & Young LLP.
"Shareholders Claims" has the meaning set forth in Section 8.3(b).
"Shareholders Indemnified Parties" has the meaning set forth in Section
8.3(a).
"Shareholders' Expenses" has the meaning set forth in Section 5.7(c).
"Shareholders' Representatives" has the meaning set forth in Section 10.5.
"Subsidiary" means any corporation or other business entity, whether or not
incorporated (other than an Excluded Asset), of which at least 50% of the
securities or interests having, by their terms, ordinary voting power to elect
members of the Board of Directors, or other persons performing similar
functions with respect to such entity, is held directly or indirectly by such
party.
"Survival Date" has the meaning set forth in Section 8.1.
"Surviving Corporations" has the meaning set forth in the Recitals.
48
"Surviving Corporations Earnings" means the combined after-tax earnings or
losses of the Surviving Corporations from the Closing Date through December
31, 1999, as determined in accordance with the methodology set forth in
Schedule 1.1(e).
"Surviving Corporations Earnings Adjustment" means the number of Buyer
Common Shares equal to (i) an amount (which may be positive or negative) equal
to the Surviving Corporations Earnings, divided by (ii) $31.11. Subject to the
impact on the calculation of Consideration of the Companies Debt Adjustment,
the Working Capital Adjustment and the Cash to Accrual Tax Liability, if the
Surviving Corporations Earnings Adjustment is negative, there will be a
decrease in the number of Buyer Common Shares, and if the same is positive,
there will be an increase in the number of Buyer Common Shares, comprising the
Consideration.
"Tangible Asset Value" has the meaning set forth in Section 5.16(c).
"Tax Audit" has the meaning set forth in Section 5.16.
"Tax Benefit" means the tax effect of any item of loss, deduction or credit
or any other item (including any increase in tax basis of Assets of the
Companies) which decreases Taxes paid or payable.
"Tax Returns" means any and all returns, reports, declarations and
information statements with respect to Taxes required to be filed by or on
behalf of any of the Companies with any Governmental Authority, including
consolidated, combined or unitary returns and all amendments thereto.
"Tax Law" means the Internal Revenue Code, foreign, federal, state or local
laws relating to Taxes and any regulations or official administrative
pronouncements released thereunder.
"Tax Loss" means the tax effect of any item (including any decrease in tax
basis of Assets of the Companies) which increases Taxes paid or payable.
"Taxes" means (i) all federal, state and local, whether domestic or foreign,
taxes or assessments, including those relating to income, gross receipts,
gross income, capital stock, franchise, profits, employees and payroll,
withholding, foreign withholding, social security, unemployment, disability,
license, real property, personal property, intangibles, stamp, excise, sales,
use, transfer, occupation, value added, ad valorem, customs duties, premium,
windfall profits, escheat, environmental (including taxes under Section 59A of
the Internal Revenue Code), alternative minimum or estimated taxes or other
similar tax, duty or governmental charge, together with any interest,
penalties or additions to tax or additional amounts with respect to the
foregoing, whether disputed or not and (ii) any obligations under any
agreements or arrangements with respect to any Taxes described in clause (i)
hereof.
"Taxing Authority" means any Governmental Authority including social
security administration, domestic or foreign, having jurisdiction over the
assessment, determination, collection, or other imposition of Tax.
"Third Party Claim" has the meaning set forth in Section 8.4.
"Welfare Plan" means any "employee welfare benefit plan" as defined in
Section 3(1) of ERISA, which (i) any of the Companies or any ERISA Affiliate
maintains, administers, contributes to or is required to contribute to, or
under which the Companies or any ERISA Affiliate may incur any liability and
(ii) covers any employee or former employee of the Companies or any ERISA
Affiliate (with respect to their relationship with any such entity).
"Working Capital" means (a) the book value of all Assets other than (i)
fixed assets, (ii) Inventory, (iii) Excluded Assets and (iv) as to any
partnerships, joint ventures or limited liability companies to which any
Company is a party or in which any Company holds an investment, the
proportionate share of third parties in the Assets (other than fixed assets
and Inventory) thereof, minus (b) all liabilities of the Companies other than
Companies Debt (including for this purpose only the Companies' proportionate
share of such liabilities of any
49
such partnership, joint venture or limited liability companies), all as
determined in accordance with GAAP applied on a basis consistent with the
Audited Financial Statements and the Interim Financial Statements and as
adjusted in accordance with the "Working Capital Adjustment Rules" set forth
in Schedule 1.1(c).
"Working Capital Adjustment" means the number of Buyer Common Shares equal
to (i) an amount (which may be positive or negative) by which the Working
Capital of the Companies on the Effective Date is more or less than the
Required Working Capital, divided by (ii) $31.11. Subject to the impact on the
calculation of Consideration of the Cash to Accrual Tax Liability Adjustment,
the Companies Debt Adjustment, and the Surviving Corporations Earnings
Adjustment, if the Working Capital as of the Effective Date is less than the
Required Working Capital, there will be a decrease in the number of Buyer
Common Shares comprising the Consideration and if the Companies Debt as of the
Effective Date is more than the Required Working Capital, there will be an
increase in the number of Buyer Common Shares comprising the Consideration.
50
