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[CONFORMED COPY]
SECURITY AGREEMENT
FOURTH AMENDED, RESTATED AND CONTINUED SECURITY AGREEMENT dated
as of April 30, 1996, made by ESSKAY, INC., a Delaware corporation (the
"BORROWER") located at 601 North Church Street, Smithfield, Virginia, to
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "Rabobank Nederland", New
York Branch, with an office at 245 Park Avenue, New York, New York 10167, as
Agent under the Credit Agreement, defined below ("AGENT").
PRELIMINARY STATEMENTS.
The Agent and certain banks have entered into a Fourth Amended,
Restated and Continued Revolving Credit Agreement dated as of the date hereof
(said Agreement, as it may hereafter be amended or otherwise modified from time
to time, being the "CREDIT AGREEMENT", the terms defined therein and not
otherwise defined herein being used herein as therein defined) with the
Borrower, Gwaltney of Smithfield, Ltd. ("GWALTNEY"), The Smithfield Packing
Company, Incorporated ("PACKING"), Patrick Cudahy Incorporated ("CUDAHY"),
Brown's of Carolina, Inc. ("BROWN'S") and John Morrell & Co. ("MORRELL").
The Credit Agreement is a complete Amendment, Restatement and
Continuation of the Third Amended, Restated and Continued Revolving Credit
Agreement (the "1995 AGREEMENT") dated as of July 31, 1995, as amended by First
Amendment to the 1995 Agreement dated as of July 31, 1995, and as amended by
Amendment Agreement dated December 20, 1995, among Gwaltney, Packing, Cudahy and
Brown's, Rabobank as agent for the Banks and each financial institution a party
thereto, with the 1995 Agreement being a complete amendment, restatement and
continuation of the Second Amended, Restated and Continued Revolving Credit
Agreement (the "1994 AGREEMENT") dated as of March 1, 1994, as amended by
Amendments dated as of May 1, 1994, November 28, 1994, January 31, 1995,
February 24, 1995, March 27, 1995, April 30, 1995, May 31, 1995 and July 12,
1995 among the Borrower, Gwaltney, Packing, Cudahy, Brown's and Carolina Food
Processors, Inc. and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch ("RABOBANK"), with the 1994 Agreement
being a complete amendment, restatement and continuation of (a) of the Amended,
Restated and Continued Revolving Credit Agreement (the "1991 AGREEMENT") dated
as of November 27, 1991, as amended as of August 12, 1992, and as of October 28,
1992, among Gwaltney, Packing, Cudahy and Esskay and Rabobank, with the 1991
Agreement being a complete amendment, restatement and continuation of the
Revolving Credit Agreement dated as of October 26, 1990, as amended as of
October 30, 1991 between Gwaltney and Rabobank and (b) the Amended and Restated
and Continued Oral Finance Facility (the "1991 ORAL FINANCE FACILITY") dated as
of November 27, 1991 among Gwaltney, Packing, Cudahy and Esskay and the
Rabobank, with the 1991 Oral Finance Facility being a complete amendment,
restatement and continuation of the Oral Finance Facility dated as of October
26, 1990, as amended, between Gwaltney and Rabobank.
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It is a condition precedent to the making of Advances by the
Banks under the Credit Agreement that the Borrower shall have granted the
security interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Banks to make Advances under the Credit Agreement, the Borrower
hereby agrees as follows:
SECTION 1. GRANT OF SECURITY. The Borrower hereby pledges and
assigns to the Agent on behalf of the Banks, and hereby grants to the Agent on
behalf of the Banks a security interest in, all of the Borrower's right, title
and interest in and to the following, whether now owned or hereafter acquired
(the "COLLATERAL"):
(a) All inventory in all of its forms, wherever located,
now or hereafter existing (including, but not limited to, (i)
all meat, meat products and raw materials and work in process
therefor, finished goods thereof, and materials used or
consumed in the manufacture or production thereof including
packaging and processing supplies, (ii) goods in which the
Borrower has an interest in mass or a joint or other interest
or right of any kind (including, without limitation, goods in
which the Borrower has an interest or right as consignee), and
(iii) goods which are returned to or repossessed by the
Borrower), and all accessions thereto and products thereof and
documents therefor (any and all such inventory, accessions,
products and documents being the "INVENTORY");
(b) All farm products in all of their respective forms,
wherever located, now or hereafter existing, including but not
limited to (i) meat and products thereof and (ii) all
agricultural supplies used or consumed in the Borrower's
operations, including without limitation all feed, meal,
ingredients, seeds, drugs, medications, vaccines, supplements
and other chemicals used in feeding, maintaining, growing,
preserving or producing any farm products, and (iii) all
accessions to and products of and documents for any of the
foregoing (any and all such farm products, accessions, products
and documents being the "FARM PRODUCTS");
(c) All accounts, contract rights, chattel paper,
instruments, general intangibles and other obligations of any
kind (including, without limitation, payment-in-kind
certificates, rights to any government subsidy, set aside,
diversion, deficiency or disaster payment, and payments in
kind), now or hereafter existing, whether or not arising out of
or in connection with the sale or lease of goods or the
rendering of services, and all rights now or hereafter existing
in and to all security agreements, leases, and other contracts
securing or otherwise relating to any such accounts, contract
rights, chattel paper, instruments, general intangibles or
obligations (any and all such accounts, contract rights,
chattel paper, instruments, general intangibles and obligations
being the "RECEIVABLES", and any and all such leases, security
agreements and other contracts being the "RELATED CONTRACTS");
and
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(d) Subject to Section 9(a) hereof, all proceeds of any
and all of the foregoing Collateral (including, without
limitation, proceeds which constitute property of the types
described in clauses (a), (b) and (c) of this Section 1) and,
to the extent not otherwise included, all payments under
insurance (whether or not the Agent on behalf of the Banks is
the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise
with respect to any of the foregoing Collateral.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures the
payment of all obligations of any or all of the Borrowers now or hereafter
existing under the Credit Agreement and each of the Notes thereunder, whether
for principal, interest, fees, expenses or otherwise, and all or any obligations
of any Borrower under any Loan Document and all obligations of the Borrower now
or hereafter existing under this Agreement (all such obligations being the
"OBLIGATIONS").
SECTION 3. BORROWER REMAINS LIABLE. Anything herein to the
contrary notwithstanding, (a) the Borrower shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the Agent
on behalf of the Banks of any of the rights hereunder shall not release the
Borrower from any of its duties or obligations under the contracts and
agreements included in the Collateral, and (c) neither the Agent nor any Bank
shall have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, nor shall the Agent or
any Bank be obligated to perform any of the obligations or duties of the
Borrower thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants as follows:
(a) All of the Inventory and Farm Products are located
at the places specified in the Schedule hereto. The chief place
of business and chief executive office of the Borrower and the
office where the Borrower keeps its records concerning the
Receivables, and all originals of all chattel paper which
evidence Receivables, are located at the address first
specified above for the Borrower. None of the Receivables is
evidenced by a promissory note or other instrument.
(b) The Borrower owns the Collateral free and clear of
any lien, security interest, charge or encumbrance except for
the security interest created by this Agreement. No effective
financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor
of the Agent on behalf of the Banks relating to this Agreement.
The Borrower does not conduct business under any other name.
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(c) The Borrower has exclusive possession and control of
the Inventory and Farm Products.
(d) This Agreement creates a valid and perfected first
priority security interest in the Collateral, securing the
payment of the Obligations, and all filings and other actions
necessary or desirable to perfect and protect such security
interest have been duly taken.
(e) No authorization, approval or other action by, and
no notice to or filing with, any governmental authority or
regulatory body is required either (i) for the grant by the
Borrower of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by the
Borrower or (ii) for the perfection of or the exercise by the
Agent on behalf of the Banks of its rights and remedies
hereunder, except for such financing statements as may be filed
in favor of the Agent on behalf of the Banks relating to this
Agreement.
SECTION 5. FURTHER ASSURANCES. (a) The Borrower agrees that
from time to time, at the expense of the Borrower, the Borrower will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Agent or a Bank may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Agent on behalf of the Banks to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, the Borrower will:
(i) mark conspicuously each document included in the Inventory and each chattel
paper included in the Receivables and, at the request of the Agent on behalf of
the Banks, each Related Contract and each of its records pertaining to the
Collateral with a legend, in form and substance satisfactory to the Agent,
indicating that such document, chattel paper, Related Contract or Collateral is
subject to the security interest granted hereby; (ii) if any Receivable shall be
evidenced by a promissory note or other instrument, deliver and pledge to the
Agent on behalf of the Banks hereunder such note or instrument duly indorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Agent on behalf of the Banks; and (iii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as the Agent may request, in order to perfect and preserve the
security interest granted or purported to be granted hereby.
(b) The Borrower hereby authorizes the Agent on behalf of the
Banks to file one or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral without the signature of
the Borrower where permitted by law. A carbon, photographic or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
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(c) The Borrower will furnish to the Agent or the Banks from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the Agent
or a Bank may reasonably request, all in reasonable detail.
SECTION 6. AS TO INVENTORY AND FARM PRODUCTS. The Borrower
shall:
(a) Keep the Inventory and Farm Products (other than
Inventory and Farm Products sold in the ordinary course of
business) at the places therefor specified in Section 4(a) or,
upon 30 days' prior written notice to the Agent and the Banks,
at such other places in jurisdictions where all action required
by Section 5 shall have been taken with respect to the
Inventory and Farm Products.
(b) Pay promptly when due all property and other taxes,
assessments and government charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies)
against, the Inventory and Farm Products, except to the extent
the validity thereof is being contested in good faith.
SECTION 7. INSURANCE. (a) The Borrower shall, at its own
expense, maintain insurance with respect to the Inventory and Farm Products in
such amounts, against such risks, in such form and with such insurers, as shall
be satisfactory to the Agent from time to time. Each policy for (i) liability
insurance shall provide for all losses to be paid to the Agent on behalf of the
Banks and the Borrower as their respective interests may appear and (ii)
property damage insurance shall provide for all losses (except for losses of
less than $3,000,000 per occurrence) to be paid directly to the Agent on behalf
of the Banks. Each such policy shall in addition (i) name the Borrower and the
Agent on behalf of the Banks as insured parties thereunder (without any
representation or warranty by or obligation upon the Agent or the Banks) as
their interests may appear, (ii) contain the agreement by the insurer that any
loss as set forth above shall be payable to the Agent on behalf of the Banks
notwithstanding any action, inaction or breach of representation or warranty by
the Borrower, (iii) provide that there shall be no recourse against the Agent or
the Banks for payment of premiums or other amounts with respect thereto and (iv)
provide that at least ten days' prior written notice of cancellation or of lapse
shall be given to the Agent by the insurer. The Borrower shall, if so requested
by the Agent, deliver to the Agent original or duplicate policies of such
insurance and, as often as the Agent may reasonably request, a report of a
reputable insurance broker with respect to such insurance. Further, the Borrower
shall, at the request of the Agent, duly execute and deliver instruments of
assignment of such insurance policies to comply with the requirements of Section
5 and cause the respective insurers to acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by
the Borrower pursuant to this Section 7 may be paid directly to the person who
shall have incurred liability covered by such insurance. In case of any loss
involving damage to Inventory or Farm Products when subsection (c) of this
Section 7 is not applicable, the Borrower shall make or cause to be made the
necessary replacements of such Inventory or Farm Products, and any proceeds of
insurance
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maintained by the Borrower pursuant to this Section 7 shall be paid to the
Borrower as reimbursement for the costs of such replacements.
(c) Upon (i) the occurrence and during the continuance of any
Event of Default, or (ii) the actual or constructive total loss (in excess of
$3,000,000 per occurrence) of any Inventory or Farm Products, all insurance
payments in respect of such Inventory or Farm Products shall be paid to and
applied by the Agent on behalf of the Banks as specified in Section 13(b).
SECTION 8. AS TO RECEIVABLES. (a) The Borrower shall keep its
chief place of business and chief executive office and the office where it keeps
its records concerning the Receivables, and all originals of all chattel paper
which evidence Receivables, at the location therefor specified in Section 4(a)
or, upon 30 days' prior written notice to the Agent and the Banks, at such other
locations in a jurisdiction where all action required by Section 5 shall have
been taken with respect to the Receivables. The Borrower will hold and preserve
such records and chattel paper and will permit representatives of the Agent and
the Banks at any time during normal business hours to inspect and make abstracts
from such records and chattel paper.
(b) Except as otherwise provided in this subsection (b), the
Borrower shall continue to collect, at its own expense, all amounts due or to
become due the Borrower under the Receivables. In connection with such
collections, the Borrower may take (and, at the Agent's reasonable direction,
shall take) such action as the Borrower or the Agent may deem necessary or
advisable to enforce collection of the Receivables; provided, however, that the
Agent on behalf of the Banks shall have the right at any time, upon the
occurrence and during the continuance of an Event of Default or an event which,
with the giving of notice or the lapse of time, or both, would become an Event
of Default and upon written notice to the Borrower of its intention to do so, to
notify the account debtors or obligors under any Receivables of the assignment
of such Receivables to the Agent on behalf of the Banks and to direct such
account debtors or obligors to make payment of all amounts due or to become due
to the Borrower thereunder directly to the Agent on behalf of the Banks and,
upon such notification and at the expense of the Borrower, to enforce collection
of any such Receivables, and to adjust, settle or compromise the amount or
payment thereof, in the same manner and to the same extent as the Borrower might
have done. After receipt by the Borrower of the notice from the Agent referred
to in the proviso to the preceding sentence, (i) all amounts and proceeds
(including instruments) received by the Borrower in respect of the Receivables
shall be received in trust for the benefit of the Banks hereunder, shall be
segregated from other funds of the Borrower and shall be forthwith paid over to
the Agent on behalf of the Banks in the same form as so received (with any
necessary indorsement) to be held as cash collateral and either (A) released to
the Borrower so long as no Event of Default shall have occurred and be
continuing or (B) if any Event of Default shall have occurred and be continuing,
applied as provided by Section 13(b), and (ii) the Borrower shall not adjust,
settle or compromise the amount or payment of any Receivable, or release wholly
or partly any account debtor or obligor thereof, or allow any credit or discount
thereon.
SECTION 9. TRANSFERS AND OTHER LIENS. The Borrower shall not:
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(a) Sell, assign (by operation of law or otherwise) or
otherwise dispose of any of the Collateral, except Inventory in
the ordinary course of business.
(b) Create or suffer to exist any lien, security
interest or other charge or encumbrance upon or with respect to
any of the Collateral to secure Debt of any person or entity,
except for the security interests created by this Agreement.
SECTION 10. AGENT APPOINTED ATTORNEY-IN-FACT. The Borrower
hereby irrevocably appoints the Agent on behalf of the Banks the Borrower's
attorney-in-fact, with full authority in the place and stead of the Borrower and
in the name of the Borrower, the Agent on behalf of the Banks or otherwise, from
time to time in the Agent's discretion, to take any action and to execute any
instrument which the Agent may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the rights of the Borrower under Section
8), including, without limitation:
(i) to obtain and adjust insurance required to be paid
to the Agent on behalf of the Banks pursuant to Section 7,
(ii) to ask, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipts for
moneys due and to become due under or in respect of any of the
Collateral,
(iii) instruments, documents and chattel paper, in
connection with clause (i) or (ii) above, and
(iv) proceedings which the Agent may deem necessary or
desirable for the collection of any of the Collateral or
otherwise to enforce the rights of the Agent on behalf of the
Banks with respect to any of the Collateral.
SECTION 11. AGENT MAY PERFORM. If the Borrower fails to
perform any agreement contained herein, the Agent on behalf of the Banks may
itself perform, or cause performance of, such agreement, and the expenses of the
Agent incurred in connection therewith shall be payable by the Borrower under
Section 14(b).
SECTION 12. THE AGENT'S DUTIES. The powers conferred on the
Agent hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral.
SECTION 13. REMEDIES. If any Event of Default shall have
occurred and be continuing:
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(a) The Agent on behalf of the Banks may exercise in
respect of the Collateral, in addition to other rights and
remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the
Uniform Commercial Code (the "CODE") (whether or not the Code
applies to the affected Collateral) and also may (i) require
the Borrower to, and the Borrower hereby agrees that it will at
its expense and upon request of the Agent forthwith, assemble
all or part of the Collateral as directed by the Agent and make
it available to the Agent at a place to be designated by the
Agent which is reasonably convenient to both parties and (ii)
without notice except as specified below, sell the Collateral
or any part thereof in one or more parcels at public or private
sale, at any of the Agent's offices or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as the
Agent may deem commercially reasonable. The Borrower agrees
that, to the extent notice of sale shall be required by law, at
least ten days' notice to the Borrower of the time and place of
any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. The Agent
shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Agent may
adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place
to which it was so adjourned.
(b) All cash proceeds received by the Agent in respect
of any sale of, collection from, or other realization upon all
or any part of the Collateral may, in the discretion of the
Banks, be held by the Agent on behalf of the Banks as
collateral for, and/or then or at any time thereafter applied
(after payment of any amounts payable to the Agent pursuant to
Section 14) in whole or in part by the Agent on behalf of the
Banks against, all or any part of the Obligations in such order
as set forth in Section 1.11 of the Credit Agreement. Any
surplus of such cash or cash proceeds held by the Agent on
behalf of the Banks and remaining after payment in full of all
the Obligations shall be paid over to the Borrower or to
whomsoever may be lawfully entitled to receive such surplus.
SECTION 14. INDEMNITY AND EXPENSES. (a) The Borrower agrees to
indemnify the Agent from and against any and all claims, losses and liabilities
growing out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), except claims, losses or liabilities resulting
from the Agent's gross negligence or willful misconduct.
(b) The Borrower will upon demand pay to the Agent the amount
of any and all reasonable expenses, including the reasonable fees and
disbursements of its counsel and of any experts and agents, which the Agent may
incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral, (iii) the exercise or enforcement
of any of the rights of the Agent hereunder or (iv) the failure by the Borrower
to perform or observe any of the provisions hereof.
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SECTION 15. CONTINUING SECURITY INTEREST; TRANSFER OF NOTES.
This Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until the later of payment in full of
the Obligations or the Termination Date, (ii) be binding upon the Borrower, its
successors and assigns and (iii) inure to the benefit of and be binding on the
Agent and its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), a Bank may assign or otherwise
transfer the Notes held by it and delivered under the Credit Agreement to any
other person or entity, and such other person or entity shall thereupon become
vested with all the benefits in respect thereof granted to a Bank herein or
otherwise. Upon the later of the payment in full of the Obligations or the
Termination Date, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to the Borrower. Upon any such
termination, the Agent on behalf of the Banks will, at the Borrower's expense,
execute and deliver to the Borrower such documents as the Borrower shall
reasonably request to evidence such termination.
SECTION 16. GOVERNING LAW; TERMS. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
except to the extent that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than the State of New York. Unless
otherwise defined herein or in the Credit Agreement, terms used in Article 9 of
the Uniform Commercial Code in the State of New York are used herein as therein
defined.
[Signature on Next Page.]
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IN WITNESS WHEREOF, the Borrower has caused this Agreement to
be duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
ESSKAY, INC.
By /s/ Aaron D. Trub
Name: Aaron D. Trub
Title: Secretary and Treasurer