EXHIBIT 99.3
EXECUTION COPY
AGRILINK FOODS, INC.
90 Linden Oaks
Rochester, NY 14625
August 19, 2002
Pro-Fac Cooperative, Inc.
90 Linden Oaks
Rochester, NY 14625
Ladies and Gentlemen:
This letter agreement (this "Agreement") is entered into in
connection with the termination of the Marketing and Facilitation Agreement
dated as of November 3, 1994, (the "MFA"), by and between Pro-Fac Cooperative,
Inc. ("Pro-Fac") and Curtice-Burns Foods, Inc., predecessor in interest to
Agrilink Foods, Inc. ("Agrilink"). The MFA is the latest in the series of
substantially similar agreements dating back to 1961 which evidence the
symbiotic relationship between Pro-Fac and Agrilink. The members and patrons of
Pro-Fac are active growers who have joined together in their cooperative to
market their crops at a fair price and to try to achieve as much stability and
continuity as is possible in agriculture. While Pro-Fac and its members and
patrons have considerable expertise in the growing of crops, they do not have
such expertise in the processing and sale of the crops in the form of
commercially viable processed food products. Agrilink has long been engaged in
the processing, distribution and sale of processed foods on a diversified
geographical basis, but it lacks expertise in the farming and growing of the
crops on which it depends for a reliable and long term source of supply for its
products. Pro-Fac and Agrilink came together because of the need of Pro-Fac to
find a stable market for crops grown by its members and patrons and because of
the need of Agrilink for a reliable supply of such crops. While Agrilink has
always believed that it has available to it adequate funds to finance its
non-Pro-Fac related operations, in order to process and market Pro-Fac products
Agrilink has required significant additional sources of financing in the form of
working capital and facilities necessary to give it the capacity to provide a
reliable and stable market for Pro-Fac crops. Consequently, the willingness of
Agrilink to enter into its relationship with Pro-Fac has always depended upon
the commitment of Pro-Fac to provide financial support and other accommodations
to Agrilink from a variety of sources not directly available to Agrilink.
Pro-Fac has always provided such accommodations in order to achieve its primary
objective of a guaranteed and stable market for crops grown by its members and
patrons. As most recently reflected in the MFA, those accommodations have
included the guarantee by Pro-Fac of all indebtedness for borrowed funds of
Agrilink, the making available by Pro-Fac to Agrilink of access to the Federal
Farm Credit System for borrowing of funds, the long term commitment of Pro-Fac
to provide Agrilink with a stable and reliable source of high quality crops that
provide the essential basis for the operation and utilization of facilities of
Agrilink in which Pro-Fac products are processed, favorable extended payment
terms for crops of Pro-Fac's members, the acceptance by Pro-Fac of the risk of
losses by Agrilink on the sale of Pro-Fac products, and the commitment of
Pro-Fac to provide loans to Agrilink for use as working capital of funds of
Pro-Fac not needed by Pro-Fac for its own business purposes. In exchange,
Agrilink has paid Pro-Fac the commercial market value of its crops plus an
additional payment based on Agrilink's earnings from the marketing of Pro-Fac
products. The parties hereto acknowledge that
all income, gains, and losses earned by Pro-Fac under the MFA have been reported
as patronage sourced income pursuant to Subchapter T of the Internal Revenue
Code, and that characterization has been supported by longstanding rulings from
the Internal Revenue Service. Since the termination fee provided for in
Paragraph 1 below is being paid to Pro-Fac in full and arms length consideration
for the cessation of its rights to earn patronage income under the MFA, it is by
necessity Pro-Fac's intent to treat such termination fee as patronage income and
include it in its patronage dividends to its member/growers.
1. Termination Fee. Subject to the terms of Paragraph 4 below, as
consideration to Pro-Fac for terminating its rights under the MFA,
Agrilink will pay to Pro-Fac an amount equal to $10,000,000 per year for
the five (5) consecutive years following the date of this Agreement (the
"Termination Date"). Such amount shall be paid in quarterly installments
as follows: $4,000,000 on each July 1st, and $2,000,000 on each October
1st, January 1st and April 1st, wired to an account designated by Pro-Fac
not less than 30 days prior to the due date for each such payment, until
an aggregate amount of $50,000,000 has been paid or until a Prepayment is
made pursuant to Paragraph 2 below. It is the parties intention that the
first payment hereunder be made as of the Termination Date in the amount
of $4,000,000 (subject to the provisions of Paragraph 4 below), with the
next payment to be made on October 1, 2002 and quarterly thereafter until
all payments required hereunder have been made. In the event that payment
of the amounts under this Paragraph 1 are prohibited because of the
existence of a default, that is neither waived nor cured, under the terms
of any Third Party Indebtedness of Agrilink and/or any of its subsidiaries
having a principal amount in excess of $20,000,000, the payments due
hereunder will be deferred until permitted by the applicable instruments
evidencing such indebtedness and will then be made to the fullest extent
permitted. During the period of any such deferral, the portion of the
payments so deferred shall bear interest at the rate of 10% per annum
compounded annually. Notwithstanding the preceding provisions of this
Paragraph 1, Agrilink's obligation to make any payment due during a fiscal
year shall be conditioned upon Pro-Fac, as of the time such payment is
due, having maintained grower membership such that it would be capable
(based on the commitments of its growers) of delivering to Agrilink in the
twelve months following the due date for such payment at least 75% of the
aggregate volume of crops that it delivered to Agrilink pursuant to the
MFA during the corresponding twelve month period most recently ended prior
to the date of this Agreement; provided, that Pro-Fac shall be deemed to
have satisfied such condition if Pro-Fac's inability to achieve the
foregoing delivery capacity in any given year is due primarily to
Agrilink's reduced requirements for crops in that or a previous year that
has caused a reduction in Pro-Fac membership; provided, that,
notwithstanding the foregoing proviso, to the extent that Agrilink's
requirements increase subsequent to a reduction, Pro-Fac shall not be
deemed to have satisfied such condition unless it will have used its
commercially reasonable efforts to restore membership. "Third Party
Indebtedness" means, for purposes of this Paragraph 1, (i) indebtedness
under any credit facility provided by a bank or other financial
institution, (ii) indebtedness for borrowed money under any bond or note
indenture and notes issued pursuant thereto, (iii) indebtedness under any
financing facility, note or other evidence of indebtedness (as determined
in accordance with generally accepted accounting principles) provided by
or issued to a financial institution in connection with a borrowing or
other financing transaction, and (iv) any refinancing of the foregoing.
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2. Defeasance Prepayment and Mandatory Prepayment.
(a) At any time while amounts remain outstanding under this Agreement,
Agrilink may satisfy all or any portion of its obligation hereunder
by making a lump-sum payment (a "Defeasance Prepayment") by means of
deposit to an escrow account maintained by an escrow agent selected
by Agrilink and reasonably acceptable to Pro-Fac. The escrow agent
shall hold such lump-sum payment in escrow, subject to the
provisions of Paragraph 1 above, until any portion thereof would
have been paid pursuant to the terms and conditions of this
Agreement, at which time the escrow agent shall pay such amounts to
Pro-Fac; provided, that all amounts remaining in escrow, if any,
after all payments due to Pro-Fac hereunder have been paid, shall be
paid to Agrilink. In the event of a Defeasance Prepayment, the
amount required to satisfy the portion of Agrilink's obligation
hereunder being prepaid shall be sufficient to enable the escrow
agent to pay the portion of the obligations being prepaid, without
any discount, when due, assuming all such quarterly payments that
are being prepaid will in fact become payable according to the terms
hereof. Any amount paid pursuant to this Paragraph 2(a) shall reduce
future payments under Paragraph 1, in the order that such payments
would otherwise be made.
(b) In the event of a Change of Control at any time when any amount
remains to be paid pursuant to Paragraph 1 above, Agrilink must
satisfy all of its obligation hereunder by making a lump-sum payment
(a "Mandatory Prepayment", and collectively with a Defeasance
Prepayment referred to herein as a "Prepayment") to Pro-Fac equal to
an amount calculated by applying a discount factor of 10% per annum,
on a quarterly basis, to the amount required to satisfy all
remaining payments to be made pursuant to Paragraph 1 above,
assuming all such quarterly payments that are being prepaid will in
fact become payable according to the terms hereof. Agrilink shall
have no further obligation to Pro-Fac hereunder after the Mandatory
Prepayment has been made. "Change of Control" means, for purposes of
this Paragraph 2(b), any transaction or series of transactions,
including any sale, transfer or issuance by securities sale, merger,
consolidation, recapitalization or otherwise, that results, directly
or indirectly, in (i) a transfer of all or substantially all of the
assets of Agrilink, or (ii) Vestar Capital Partners IV, L.P. and its
affiliates ceasing to possess, directly or indirectly, the power to
elect a majority of Agrilink Holdings, Inc.'s board of directors.
3. Prohibited Payments. Until the entire amount due hereunder is paid in
accordance with Paragraph 1 or 2 above, Agrilink shall not make payments
to Agrilink Holdings, LLC ("Holdings LLC"), Agrilink Holdings, Inc. nor to
Vestar/Agrilink Holdings LLC ("Vestar") if such funds will be used
directly or indirectly to redeem, acquire or make distributions or
payments with respect to any Vestar Securities. "Vestar Securities" means
equity securities of Holdings LLC originally issued to Vestar or any of
its affiliates pursuant to the Unit Purchase Agreement ("the UPA"), dated
as of June 20, 2002, among Vestar, Pro-Fac and Agrilink.(1)
4. Payment Adjustments. Notwithstanding the provisions of Paragraph 1 above,
the payments to be made to Pro-Fac pursuant to Paragraph 1 (or Paragraph
2, if applicable) will be reduced, in the order in which such payments are
otherwise scheduled to be made, to the extent that either
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(1) In the event that the LLC structure is implemented, this provision will
not prohibit tax distributions to any member of any constituent entity.
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(i) following February 28, 2002 and prior to the Closing, Agrilink has
made or makes payments to Pro-Fac that are not contemplated by the Eight
Plus Four Plan (as defined in the UPA), other than for crops purchased by
Agrilink in the ordinary course of business pursuant to and in accordance
with the MFA, other than payments under Section 14 thereof ("Crop Purchase
Payments"), or (ii) following June 29, 2002 and on or prior to the
Termination Date, Agrilink makes any payment to Pro-Fac other than (a)
Crop Purchase Payments or (b) to fund a patronage dividend payment by
Pro-Fac to its members in an amount not to exceed the Permitted Patronage
Amount (as defined in the UPA).
5. Miscellaneous.
(a) Assignment. Agrilink shall have the right to assign this Agreement
in whole or in part in connection with the sale or other disposition
of all or any part of its business. This Agreement may not be
assigned by Pro-Fac without the prior written consent of Agrilink,
and any attempted assignment without such consent shall be void.
(b) Counterpart Execution. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate
counterparts, with the same effect as if all parties hereto had
signed the same document. All counterparts so executed shall be
deemed to be an original, shall be construed together and shall
constitute one Agreement.
(c) No Strict Construction. The parties hereto have participated jointly
in the negotiation and drafting of this letter agreement. In the
event an ambiguity interpretation arises, this letter agreement
shall be construed as if drafted jointly by the parties hereto, and
no presumption or burden of proof shall arise favoring or
disfavoring any party hereto by virtue of the authorship of any of
the provisions of this letter agreement.
(d) Governing Law; Waiver of Jury Trial. THIS AGREEMENT SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO
CONFLICTS OR CHOICE OF LAWS PRINCIPLES OF THE STATE OF NEW YORK OR
OF ANY OTHER JURISDICTION THAT WOULD RESULT IN THE APPLICATION OF
ANY LAWS OTHER THAN THOSE OF THE STATE OF NEW YORK. VENUE FOR ALL
PROCEEDINGS UNDER THIS AGREEMENT SHALL BE ROCHESTER, NEW YORK. EACH
PARTY, TO THE FULLEST EXTENT PERMITTED BY LAW, HEREBY WAIVES TRIAL
BY JURY OF ANY MATTER RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
(e) Notices. All notices, requests, demands or other communications
required or permitted under this Agreement shall be given in writing
and shall be deemed to have been given upon delivery if delivered
personally, upon receipt by the sender of a confirmation of receipt
by the receiving party if sent by facsimile, one day following
dispatch if sent by overnight courier, fees prepaid, or five days
following mailing, postage prepaid, as follows:
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If to Pro-Fac:
Pro-Fac Cooperative, Inc.
90 Linden Oaks
Rochester, NY 14625
Attn: Bruce Fox, Chairman
Facsimile: (231) 861-4884
with a copy (which shall not constitute notice to Pro-Fac) to:
Harris Beach LLP
99 Garnsey Road
Pittsford, NY 14534
Attn: Thomas E. Willett, Esq.
Facsimile: (585) 419-8818
If to Agrilink:
Agrilink Foods, Inc.
90 Linden Oaks
Rochester, NY 14625
Attn: Dennis M. Mullen
Facsimile: (585) 383-1606
With copies (which shall not constitute notice to Agrilink) to:
Vestar Capital Partners IV, L.P.
245 Park Avenue, 41st Floor
New York, NY 10167-4098
Attn: David Hooper and General Counsel
Facsimile: (212) 808-4922
and
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attn: Michael Movsovich
Facsimile: (212) 446-4900
* * * *
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Please sign the enclosed copy of this Agreement in the place
provided below acknowledging receipt of this Agreement and confirming that this
Agreement reflects your understanding.
Very Truly Yours,
AGRILINK FOODS, INC.
By: /s/ David M. Mehalick
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Name: David M. Mehalick
Title: Vice President
Accepted and agreed to as of
this 19th day of August, 2002
PRO-FAC COOPERATIVE, INC.
By: /s/ Stephen Wright
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Name: Stephen Wright
Title: General Manager and Secretary