EXHIBIT 2.1
CONFORMED COPY
- --------------------------------------------------------------------------------
ACQUISITION AGREEMENT
AND PLAN OF REORGANIZATION
Among
SMITHFIELD FOODS, INC.,
WENDELL H. MURPHY,
HARRY D. MURPHY,
JOYCE M. NORMAN
WENDELL H. MURPHY, JR.
WENDY MURPHY CRUMPLER,
STRATTON K. MURPHY
MARC D. MURPHY
AND
ANGELA BROWN
Dated as of November 15, 1999
Amended as of January 1, 2000
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
Article I DEFINITIONS
1.1 Definitions........................................................... 1
Article II ACQUISITION AND PLAN OF REORGANIZATION
2.1 The Mergers........................................................... 1
2.2 Statement of Estimated Consideration; Exchange of Shares.............. 3
2.3 Closing............................................................... 3
2.4 Adjustment of Estimated Consideration................................. 3
Article III REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
3.1 Organization; Qualification........................................... 6
3.2 Capitalization; Validity of Shares; Voting Trusts..................... 6
3.3 Authority Relative to Agreements...................................... 7
3.4 Consents and Approvals................................................ 7
3.5 Non-Contravention..................................................... 7
3.6 Environmental and Land Use Matters.................................... 8
3.7 Licenses and Permits.................................................. 10
3.8 Compliance with Laws.................................................. 10
3.9 Financial Statements; Midwestern Operations Cost Advantage............ 10
3.10 Absence of Changes.................................................... 11
3.11 No Undisclosed Liabilities............................................ 14
3.12 Litigation............................................................ 15
3.13 Real Property......................................................... 15
3.14 Personal Property..................................................... 18
3.15 Inventory............................................................. 19
3.16 Sufficiency of Assets................................................. 19
3.17 Books and Records..................................................... 20
3.18 Intellectual Property; Computer Software.............................. 20
3.19 Material Contracts.................................................... 20
3.20 Insurance............................................................. 23
3.21 Labor Matters......................................................... 23
3.22 Employee Plans........................................................ 25
3.23 Tax Matters........................................................... 27
3.24 Transactions with Certain Persons..................................... 29
3.25 Suppliers and Customers............................................... 30
3.26 Warranties; Product Liability......................................... 30
3.27 Banking Relationships................................................. 31
3.28 No Other Agreements to Sell the Assets or Stock of the Companies...... 31
3.29 Prohibited Payments................................................... 31
3.30 Year 2000 Matters..................................................... 31
3.31 Brokers............................................................... 31
3.32 Securities Act and Other Securities Ownership Matters................. 32
3.33 Full Disclosure....................................................... 32
i
Article IV REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Organization; Qualification.......................................... 33
4.2 Buyer Common Shares to be Issued; Securities Act Matters............. 33
4.3 Authority Relative to Agreements..................................... 33
4.4 Consents and Approvals............................................... 34
4.5 Non-Contravention.................................................... 34
4.6 Brokers.............................................................. 34
4.7 Full Disclosure...................................................... 34
Article V ADDITIONAL AGREEMENTS
5.1 Conduct of Business.................................................. 35
5.2 Forbearances......................................................... 35
5.3 Negotiations with Others; Notification............................... 36
5.4 Investigation of Business and Properties............................. 36
5.5 Confidentiality...................................................... 37
5.6 No Disclosure; Public Announcements.................................. 37
5.7 Transfer Taxes; Expenses............................................. 37
5.8 Efforts to Consummate................................................ 38
5.9 Regulatory Matters................................................... 39
5.10 Environmental Investigation.......................................... 39
5.11 Related Party Accounts............................................... 40
5.12 Materials Received After Closing..................................... 40
5.13 Further Assurances................................................... 40
5.14 Rights to Examine Books and Records.................................. 40
5.15 Certain Tax Matters.................................................. 40
5.16 Allocation of Consideration.......................................... 41
5.17 Deposit of $5 Million................................................ 41
5.18 Excluded Assets; Related Land........................................ 41
Article VI CONDITIONS TO OBLIGATIONS OF BUYER
6.1 Representations and Warranties....................................... 41
6.2 Performance of this Agreement........................................ 42
6.3 Consents and Approvals............................................... 42
6.4 Injunction, Litigation, etc.......................................... 42
6.5 Legislation.......................................................... 42
6.6 Proceedings.......................................................... 42
6.7 Opinion of Counsel................................................... 42
6.8 Closing Deliveries................................................... 42
6.9 Material Adverse Change.............................................. 43
6.10 Financing and Other Agreements....................................... 44
6.11 Resignations......................................................... 44
6.12 Due Diligence........................................................ 44
6.13 Tax Matters.......................................................... 44
6.14 Agreement with Shareholders.......................................... 44
6.15 Escrow Agreement..................................................... 44
ii
6.16 Escrow Deposit........................................................ 44
6.17 Agreement Regarding Related Party Grower Contracts.................... 45
6.18 Non-Competition Agreement............................................. 45
6.19 Title Insurance....................................................... 45
6.21 Sale of Feedmills..................................................... 45
6.22 Minimum Number of Sows................................................ 45
Article VII CONDITIONS TO OBLIGATIONS OF SHAREHOLDERS
7.1 Representations and Warranties........................................ 45
7.2 Performance of this Agreement......................................... 46
7.3 Consents and Approvals................................................ 46
7.4 Injunction, Litigation, etc........................................... 46
7.5 Legislation........................................................... 46
7.6 Proceedings........................................................... 46
7.7 Opinion of Counsel.................................................... 46
7.8 Closing Deliveries.................................................... 46
7.9 Escrow Agreement...................................................... 47
7.10 Escrow Deposit and Estimated Consideration Price...................... 47
7.11 Registration Rights Agreement......................................... 47
7.12 Material Adverse Change............................................... 47
7.13 Tax Free Reorganizations.............................................. 47
7.14 Agreement regarding Related Party Grower Contracts.................... 47
Article VIII SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
8.1 Survival of Representations........................................... 47
8.2 Indemnification by Shareholders....................................... 48
8.3 Indemnification by Buyer.............................................. 49
8.4 Notice and Defense of Claims.......................................... 49
8.5 Calculation of Covered Liabilities.................................... 51
8.6 Exclusive Remedy following Closing.................................... 52
8.7 No Circular Recovery.................................................. 52
Article IX TERMINATION
9.1 Termination........................................................... 53
9.2 Procedure: Effect of Termination...................................... 53
9.3 Additional Termination Right.......................................... 54
Article X GENERAL PROVISIONS
10.1 Notices............................................................... 54
10.2 Interpretation........................................................ 55
10.3 Entire Agreement...................................................... 56
10.4 No Third Party Beneficiaries.......................................... 56
10.5 Shareholders' Representatives......................................... 56
10.6 Successors and Assigns................................................ 57
10.7 Severability.......................................................... 57
iii
10.8 Amendment.......................................................... 57
10.9 Extension; Waiver.................................................. 57
10.10 Disclosure Schedules.............................................. 57
10.11 Counterparts...................................................... 58
10.12 Governing Law..................................................... 58
10.13 Jurisdiction...................................................... 58
10.14 Specific Performance.............................................. 58
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
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.
iv
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
v
ACQUISITION AGREEMENT AND
PLAN OF REORGANIZATION
THIS ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
dated as of November 15, 1999, amended as of January 1, 2000, is made among
SMITHFIELD FOODS, INC., a Virginia corporation ("Buyer"), WENDELL H. MURPHY,
HARRY D. MURPHY, JOYCE M. NORMAN, WENDELL H. MURPHY, JR., WENDY MURPHY CRUMPLER,
STRATTON K. MURPHY, MARC D. MURPHY and ANGELA BROWN (individually, a
"Shareholder" and collectively the "Shareholders").
RECITALS
Shareholders own all of the outstanding shares of capital stock of Murphy
Farms, Inc., a North Carolina corporation ("Murphy Farms") and of each other
corporation listed on Schedule 3.2, in each case in the respective amounts
indicated on such Schedule (Murphy 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.
1
(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.
(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
2.2 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 & Boothe LLP, One James 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
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").
3
(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 45/th/ 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
4
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 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
5
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 Wendell H. Murphy and Harry
- --------
D. Murphy, 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 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
6
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 hereby and thereby
will not (i) violate or result in a breach of any provision of the Articles of
Incorporation or
7
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, abate 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
8
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 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).
9
(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 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
10
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
11
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 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;
12
(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 Interim
13
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
14
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 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
15
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)
16
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 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
17
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.
(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
18
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
19
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 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):
20
(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 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;
21
(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
22
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 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
23
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 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
24
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, workman's
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
25
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.
(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.
26
(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 "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
27
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.
28
(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.
(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.
29
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
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.
30
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.
31
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
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.
32
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 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
33
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.
34
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,
35
notwithstanding anything herein to the contrary, Shareholders shall cause the
Companies not 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, 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
36
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.
5.7 Transfer Taxes; Expenses.
37
(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
Sanford Holshouser Law Firm PLLC with respect to this Agreement and the
transactions contemplated hereby, as well as any Taxes relating to or incurred
in connection with the distribution of Excluded Assets and 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
38
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 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.
39
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' 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.
40
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.
The Shareholders respectively will report on their income tax returns for the
period including the day before the Effective Date the distributions of Excluded
Assets, will pay the Taxes in respect thereof and will indemnify Buyer against
any liability or expense in respect thereof.
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
41
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.
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 Sanford Holshouser 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
42
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 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.
43
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.
44
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 Wendell H. Murphy and Harry D.
Murphy 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.
6.20 Sale of Feedmills. The assets comprising the feedmill operations of
Murphy 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 Murphy Farms,
Inc. all on terms satisfactory to Buyer.
6.21 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
-------- -------
45
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.
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 & Boothe 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;
46
(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.
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
47
representations and warranties contained in Sections 3.4, 3.5, 3.13, 3.14 and
3.32 until the earlier of (i) the 60/th/ 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 that is a Retained Liability
set forth in Schedule 8.2(a);
48
provided that (i) each Shareholder other than Wendell H. Murphy and Harry D.
- --------
Murphy, 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.
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
49
"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 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
50
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
51
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 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.
52
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 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.
53
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:
Wendell H. Murphy
Murphy Farms, Inc.
P.O. Box 759
U.S. Highway 117 South
Rose Hill, North Carolina 28458
Facsimile No: (910) 289-6401
54
with a copy to:
The Sanford Holshouser Law Firm PLLC
219 Fayetteville Street
Suite 1000
P. O. Box 2447
Raleigh, North Carolina 27602
Attention: Reef C. Ivey, II
Facsimile No. (919) 829-0272
(b) If to Buyer, to:
Smithfield Foods, Inc.
200 Commerce Street
Smithfield, Virginia 23430
Attention: Richard J. M. Poulson
Facsimile No.: (757) 365-3017
and to:
Smithfield Foods, Inc.
200 Commerce Street
Smithfield, Virginia 23430
Attention: Michael H. Cole
Facsimile No. (757) 365-3025
with a copy to:
McGuire, Woods, Battle & Boothe LLP
One James Center
Richmond, Virginia 23219
Attention: Leslie A. Grandis
Facsimile No. (804) 775-1061
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
Wendell H. Murphy and Harry D. Murphy, 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
55
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 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. Wendell H. Murphy and Harry D. Murphy
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.
56
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 "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.
57
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 C. Ivey, II 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]
58
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date first above written.
SMITHFIELD FOODS, INC.
By: /s/ Joseph W. Luter, III
--------------------------------------------
Name: Joseph W. Luter, III
Title: Chairman of the Board and Chief Executive
Officer
/s/ Wendell Murphy
------------------------------------------------
Wendell Murphy
/s/ Harry D. Murphy
------------------------------------------------
Harry D. Murphy
/s/ Joyce M. Norman
------------------------------------------------
Joyce M. Norman
/s/ Wendell H. Murphy, Jr.
------------------------------------------------
Wendell H. Murphy, Jr.
/s/ Wendy Murphy Crumpler
------------------------------------------------
Wendy Murphy Crumpler
/s/ Stratton K. Murphy
------------------------------------------------
Stratton K. Murphy
/s/ Marc D. Murphy
------------------------------------------------
Marc D. Murphy
/s/ Angela Brown
------------------------------------------------
Angela Brown
59
APPENDIX A
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,
60
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 Arthur Andersen LLP.
"Buyer Claims" has the meaning set forth in Section 8.2(b).
"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
61
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) Murphy 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.
"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 January 4, 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.
63
"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 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.
64
"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;
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.
65
"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 "Murphy 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).
66
"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.
"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).
"Murphy 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.
67
"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 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).
68
"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.
"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
69
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
70
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 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.
71