SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 28, 2002
Commission File number 1-9273
PILGRIM'S PRIDE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-1285071
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
110 South Texas, Pittsburg, TX 75686-0093
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (903) 855-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Class A Common Stock, Par Value $0.01 New York Stock Exchange
Class B Common Stock, Par Value $0.01 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No _____
The aggregate market value of the Registrant's Class B Common Stock, $0.01 par
value, and Class A Common Stock, $0.01 par value, held by non-affiliates of
the Registrant as of December 2, 2002, was $85,088,774 and $28,502,342,
respectively. For purposes of the foregoing calculation only, all directors,
executive officers and 5% beneficial owners have been deemed affiliates.
27,589,250 shares of the Registrant's Class B Common Stock, $.01 par value,
were outstanding as of December 2, 2002.
13,523,429 shares of the Registrant's Class A Common Stock, $.01 par value,
were outstanding as of December 2, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for the annual meeting of
stockholders to be held January 29, 2003 are incorporated by reference into
Part III.
PILGRIM'S PRIDE CORPORATION
FORM 10-K
TABLE OF CONTENTS
PART I
Page
Item 1. Business......................................................... 4
Item 2. Properties.......................................................24
Item 3. Legal Proceedings................................................29
Item 4. Submission of Matters to a Vote of Security Holders..............31
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters......................................32
Item 6. Selected Financial Data..........................................33
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition..............................................35
Item 7a.Quantitative and Qualitative Disclosures About Market Risk.......45
Forward Looking Statements and Risk Factors......................47
Item 8. Financial Statements and Supplementary Data (see Index to Financial
Statements and Schedules below)..................................55
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................55
PART III
Item 10.Directors and Executive Officers of Registrant...................56
Item 11.Executive Compensation...........................................56
Item 12.Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters......................................56
Item 13.Certain Relationships and Related Transactions...................56
Item 14.Controls and Procedures..........................................56
PART IV
Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K..57
Signatures...............................................................63
Certifications...........................................................65
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Ernst & Young LLP, Independent Auditors........................71
Consolidated Balance Sheets as of September 28, 2002 and
September 29,2001....................................................72
Consolidated Statements of Income for the years ended September 28, 2002,
September 29, 2001 and September 30, 2000............................73
Consolidated Statements of Stockholders' Equity for the years ended
September 28, 2002, September 29, 2001 and September 30, 2000........74
Consolidated Statements of Cash Flows for the years ended
September 28, 2002, September 29, 2001 and September 30, 2000........75
Notes to Consolidated Financial Statements...............................76
Schedule II - Valuation and Qualifying Accounts for the years ended
September 28, 2002, September 29, 2001 and September 30, 2000........92
PART I
ITEM 1. BUSINESS
GENERAL
Overview and Recent Developments.
The Company, which was incorporated in Texas in 1968 and reincorporated in
Delaware in 1986, is the successor to a partnership founded in 1946 as a retail
feed store. Over the years, the Company grew through both internal growth and
various acquisitions of farming operations and chicken processors. We are the
second largest producer of poultry in both the United States and Mexico and
have one of the best known brand names in the poultry industry. In the United
States, we produce both prepared and fresh chicken and turkey, while in Mexico,
we exclusively produce fresh chicken. Through vertical integration, we control
the breeding, hatching and growing of chickens and turkeys and the processing,
preparation, packaging and sale of our product lines, which we believe has made
us one of the highest quality, lowest-cost producers of poultry in North
America. We have consistently applied a long-term business strategy of focusing
our growth efforts on the higher-value, higher-margin prepared foods products
and have become a recognized industry leader in this market segment.
Accordingly, our sales efforts have traditionally been targeted to the
foodservice industry, principally chain restaurants and food processors. We
have continually made investments to ensure that our prepared foods
capabilities remain state-of-the-art and have complemented these investments
with a substantial and successful research and development effort. In fiscal
2002, we sold 2.7 billion pounds of dressed chicken and 374.3 million pounds of
dressed turkey and generated net sales of $2.5 billion and Earnings Before
Interest, Taxes, Depreciation and Amortization, ("EBITDA") of $103.5 million.
In fiscal 2002, our U.S. operations accounted for 86.5% of our net sales, with
the remaining 13.5% arising from our Mexico operations.
On January 27, 2001, we acquired WLR Foods, Inc. (formerly Nasdaq: WLRF),
(which is referred to herein as, our Eastern Division) for approximately $239.5
million and the assumption of approximately $45.5 million of indebtedness. The
acquisition was accounted for under the purchase method of accounting and the
purchase price was allocated based on the estimated fair value of assets and
liabilities. WLR Foods' operations have been included in our financial results
since the acquisition on January 27, 2001. WLR Foods was the seventh largest
poultry company in the United States with $836.9 million of revenue in calendar
year 2000. The WLR Foods acquisition provided us with (1) chicken processing
facilities in the eastern United States, where we previously had no facilities,
enabling us to deliver poultry products within one day to markets accounting
for approximately 40% of the U.S. population; (2) significant opportunities to
realize synergies between WLR Foods and our pre-existing chicken operations;
and (3) diversification of our revenue stream into the $8 billion turkey
industry, where we can capitalize on our prepared foods processing expertise.
Currently, our Eastern Division's chicken sales mix consists mostly of lower
margin fresh chicken products. However, we intend to convert more of our
Eastern Division chicken sales into higher margin, fresh and prepared chicken
products in the years to come. By consistent and continued application of our
long-term business strategy to both our recently acquired Eastern Division and
our existing fresh chicken mix, we believe that our overall product mix will
return to the levels existing prior to the WLR Foods acquisition in subsequent
years.
Since the acquisition of WLR Foods, our Eastern Division, which consists of
the former WLR Foods' operations, has been affected by two significant
unexpected challenges. First, on March 12, 2002 an outbreak of low-pathogenic
avian influenza, a disease contagious to turkey, chicken and other birds, was
discovered in Virginia. During fiscal 2002, we estimate that our operating
income was negatively impacted by approximately $26.0 million due to the
negative impact of the avian influenza. As of September 28, 2002, poultry
growers and producers have destroyed approximately 4.7 million head of poultry
affected as a result of the virus. Turkeys represent approximately 70.0% of
the destroyed poultry, with chickens representing approximately 30.0%.
Approximately one-half of the turkeys and approximately three-quarters of the
chickens destroyed by the poultry industry in Virginia belonged to the Company.
No new flocks have tested positive for the presence of avian influenza in
Virginia since July 2, 2002. We currently estimate that production in our
turkey operation will be significantly reduced over the next six months due to
the effects of this viral outbreak. As a result of this lower production
output in our turkey operation, we anticipate that operating income from our
turkey operation will decrease for the first six months of fiscal 2003 by
approximately $8.0 to $14.0 million, when compared to the first six months of
fiscal 2002, assuming the outbreak of avian influenza has been contained. On
June 19, 2002, U.S. Secretary of Agriculture Ann Veneman proposed to the Office
of Management and Budget that the U.S. Department of Agriculture (USDA) cover
one-half of the total estimated economic loss suffered by the poultry industry
and independent growers in Virginia due to the avian influenza outbreak.
Secretary Veneman also recommended that the government of Virginia cover the
remaining portion. It is our understanding that, as part of her proposal,
Secretary Veneman is suggesting that independent chicken and turkey growers are
to be fully compensated for their losses first and that the remainder is to be
allocated to other poultry producers (including us) whose flocks were destroyed
by the virus. On November 4, 2002 the Department of Agriculture made public
their estimate of total federal compensation at $51 million, with growers being
compensated $13.9 million and owners being compensated $37.1 million. No
assurance can be given as to the amount of federal compensation that we may
receive or that any state agencies will in fact provide further economic
assistance to the poultry growers and producers affected by the avian influenza
outbreak in Virginia. No anticipated recoveries have been recorded by us as
our portion of the compensation has not yet been determined. In the event that
state agencies do decide to grant economic assistance to the affected poultry
growers and producers, it is impossible at this time to estimate how the state
agencies would allocate any such assistance between affected poultry growers
and producers whose flocks were destroyed by the virus.
The second challenge faced by our Eastern Division was the voluntary
nationwide recall of certain cooked deli products produced at our Franconia,
Pennsylvania facility. A turkey pastrami product sample - one sample from one
lot from one day's production, taken on August 14, 2002-- tested positive for
Listeria, prompting us to voluntarily recall 295,000 pounds of product on
October 9, 2002. According to the Food Safety and Inspection Service, (FSIS),
testing indicated that the particular strain of Listeria found in this single
product sample was not the same as that involved in a Northeastern outbreak of
illnesses and deaths resulting from listeriosis. However, we later received
information from the USDA suggesting that environmental samples (not product
samples) taken at the facility on October 3 and 4, 2002 had tested positive for
both the strain of Listeria which prompted the August 14, 2002 recall and a
strain having characteristics similar to those of the strain identified in a
Northeastern outbreak. We immediately, and voluntarily, expanded the recall to
extend to cooked deli products produced from May 1, 2002 through October 11,
2002. As an additional precautionary measure, we immediately suspended
operations at our Franconia facility to redouble our food safety and sanitation
efforts. No illnesses associated with the Listeria strain in a Northeastern
outbreak have been linked to any of our products, and our Franconia facility
has been reviewed and inspected by the USDA and was reopened on November 13,
2002. The amount of product covered by the recall was approximately 7% of our
annual turkey production and less than 1% of our total poultry production. We
carry insurance designed to cover the direct recall related expenses and
certain aspects of the related business interruption caused by the recall, and
subject to the insurer's reservation of rights, we have received a $4 million
advance payment from our insurer with respect to the product recall claim. The
Company believes that the recall and its direct effects will not have a
material impact on our financial position and results of operations after
considering available insurance coverage. However, there will be differences
between the accounting periods in which certain recall effects are realized and
when insurance recoveries are received and there can be no assurances as to the
Company's ability to re-establish the products and sales affected by the
recall.
Strategy.
Our objectives are (1) to increase sales, profit margins and earnings and
(2) outpace the growth of, and maintain our leadership position in, the poultry
industry. To achieve these goals, we plan to continue to pursue the following
strategies:
- CAPITALIZE ON ATTRACTIVE U.S. PREPARED FOODS MARKET. We focus our U.S.
growth initiatives on sales of prepared foods to the foodservice market
because it continues to be one of the fastest growing and most profitable
segments in the poultry industry. Products sold to this market segment
require further processing, which enables us to charge a premium for our
products, reduces the impact of feed ingredient costs on our
profitability and improves and stabilizes our profit margins. Feed
ingredient costs typically decrease from approximately 30-50% of total
production cost for fresh chicken products to approximately 16-25% for
prepared chicken products. Our sales of prepared chicken products grew
from $466.8 million in fiscal 1998 to $848.7 million in fiscal 2002, a
compounded annual growth rate of 16.1%. However, as a result of the
acquisition of WLR Foods, whose operations were focused primarily on
fresh chicken products, these sales decreased as a percentage of our
total U.S. chicken revenues to 51.4% in fiscal 2002 from 61.1% in fiscal
2000. By consistent and continued application of our long-term business
strategy, we believe that our overall product mix will return to the
levels existing prior to the WLR Foods acquisition in subsequent years.
- EMPHASIZE CUSTOMER-DRIVEN RESEARCH AND TECHNOLOGY. We have a long-
standing reputation for customer-driven research and development in
designing new products and implementing advanced processing technology.
This enables us to better meet our customers' changing needs for product
innovation, consistent quality and cost efficiency. In particular,
customer-driven research and development is integral to our growth
strategy for the prepared foods market in which customers continue to
place greater importance on value-added services. Our research and
development personnel often work directly with institutional customers in
developing products for these customers, which we believe helps promote
long-term relationships. We estimate that approximately $300 million, or
27%, of our chicken sales to foodservice customers in fiscal 2002
consisted of new products, which were not sold by us in fiscal 1998.
- ENHANCE U.S. FRESH CHICKEN PROFITABILITY THROUGH VALUE-ADDED, BRANDED
PRODUCTS. Our U.S. fresh chicken sales accounted for $706.8 million, or
42.9%, of our U.S. chicken sales for fiscal 2002. In addition to
maintaining the sales of mature, traditional fresh chicken products, our
strategy is to shift the mix of our U.S. fresh chicken products by
continuing to increase sales of higher margin, faster growing products,
such as marinated chicken and chicken parts and to continually shift
portions of this product mix into the higher value and margin prepared
chicken products, particularly in our Eastern Division. Much of our fresh
chicken products are sold under the Pilgrim's Pride{reg-trade-mark} brand
name, which is one of the best known brands in the chicken industry.
- IMPROVE OPERATING EFFICIENCIES AND INCREASE CAPACITY ON A COST-EFFECTIVE
BASIS. As production and sales grow, we continue to focus on improving
operating efficiencies by investing in state-of-the-art technology,
processes and training and our total quality management program. Specific
initiatives include:
- standardizing lowest-cost production processes across our various
facilities;
- centralizing purchasing and other shared services; and
- upgrading technology where appropriate.
In addition, we have a proven history of increasing capacity while
improving operating efficiencies at acquired properties both in the U.S.
and Mexico. As a result, according to industry data, since 1993 we have
consistently been one of the lowest cost producers of chicken in the
U.S., and we also believe we are one of the lowest cost producers of
chicken in Mexico.
- CONTINUE TO PENETRATE THE GROWING MEXICAN MARKET. We seek to leverage
our leading market position and reputation for freshness and quality in
Mexico by focusing on the following four objectives:
- to be one of the most cost-efficient producers and processors of
chicken in Mexico by applying technology and expertise utilized in
the U.S.;
- to continually increase our distribution of higher margin, more value-
added products to national retail stores and restaurants;
- to continue to build and emphasize brand awareness and capitalize on
Mexican consumers' preference for branded products and their insistence
on freshness and quality; and
- to ensure that, if Mexican tariffs on imported chicken are eliminated
as scheduled under NAFTA in January 2003, a significant portion of the
chicken imported from the U.S. will be distributed through our
existing and planned distribution facilities. We believe the location
of our U.S. operations in the Southwest gives us a strategic advantage
to capitalize on exports of U.S. chicken to Mexico.
- LEVERAGE OUR RECENTLY ACQUIRED TURKEY OPERATIONS. We seek to take
advantage of our leading market position and reputation as a high
quality, high service provider of chicken products to purchasers of
turkey products by focusing on the following four objectives:
- to cross-sell prepared turkey products to existing chicken customers;
- to develop new and innovative prepared turkey products by capitalizing
on our research and development expertise;
- to improve operating efficiencies in our turkey operations by
applying proven management methodologies and techniques employed
historically in our chicken operations; and
- to capitalize on the unique opportunity to establish, develop and
market turkey products under the Pilgrim's Pride{reg-trade-mark} brand
name.
- CAPITALIZE ON EXPORT OPPORTUNITIES. We intend to continue to focus on
international opportunities to complement our U.S. poultry operations and
capitalize on attractive export markets. According to the USDA, the
export of U.S. poultry products has grown 26.7% for chicken and decreased
19.5% for turkey from 1997 through 2001. We believe that U.S. poultry
exports will grow as worldwide demand increases for high-grade, low-cost
protein sources. According to USDA data, the export market is expected to
grow at 11.1% and 8.9% for chicken and turkey, respectively, from 2001 to
2006. Historically, we have targeted international markets to generate
additional demand for our chicken and turkey dark meat, which is a
natural by-product of our U.S. operations given our concentration on
prepared foods products and the U.S. customers' general preference for
white meat. As part of this initiative, we have created a significant
international distribution network into several markets, including
Mexico, which we now utilize not only for dark meat distribution, but
also for various higher margin prepared foods and other poultry products.
We utilize both a direct international sales force and export brokers.
Our key international markets include Canada, Mexico, Eastern Europe
including Russia, and the Far East. We believe that we have substantial
opportunities to expand our sales to these markets by capitalizing on
direct international distribution channels supplemented by our existing
export broker relationships. Exports and other chicken and turkey
products accounted for approximately 5.5% of our net sales in fiscal
2002.
Products and Markets.
Our chicken products consist primarily of:
(1) Prepared chicken products, which are products such as portion-
controlled breast fillets, tenderloins and strips, delicatessen products,
salads, formed nuggets and patties and bone-in chicken parts. These products
are sold either refrigerated or frozen and may be fully cooked, partially
cooked or raw. In addition, these products are breaded or non-breaded and
either pre-marinated or non-marinated. Effective November 13, 2002, we are
no longer producing frankfurters although we continue to distribute
frankfurters processed by others.
(2) Fresh chicken, which is refrigerated (non-frozen) whole or cut-up
chicken sold to the foodservice industry either pre-marinated or non-
marinated. Fresh chicken also includes prepackaged chicken, which includes
various combinations of freshly refrigerated, whole chickens and chicken
parts in trays, bags or other consumer packs labeled and priced ready for
the retail grocer's fresh meat counter.
(3) Export and other chicken products, which are primarily parts and whole
chicken, either refrigerated or frozen for U.S. export or domestic use, and
chicken prepared foods products for U.S. exports.
(4) Mexico products, which consist primarily of lower value-added products
such as eviscerated chicken and chicken parts and basic products such as New
York dressed (whole chicken with only feathers and blood removed) and live
birds.
Our turkey products consist primarily of:
(1) Prepared turkey products, which are products such as turkey sausages,
ground turkey, turkey hams and roasts, ground turkey breast products, salads
and flavored turkey burgers. We also have an array of cooked, further
processed deli products. Effective November 13, 2002, we are no longer
producing frankfurters although we continue to distribute frankfurters
processed by others.
(2) Fresh turkey, which includes fresh traypack products, turkey burgers,
and fresh and frozen whole birds, as well as semi-boneless whole turkey,
which has all bones except the drumsticks removed.
(3) Export and other products, which are parts and whole turkey products,
either refrigerated or frozen, for U.S. export or domestic use, and turkey
prepared foods products for U.S. export or domestic use.
Our chicken and turkey products are sold primarily to:
(1) Foodservice customers, which are customers such as chain restaurants,
food processors, foodservice distributors and certain other institutions. We
sell to our foodservice customers products ranging from portion-controlled
refrigerated poultry parts to fully-cooked and frozen, breaded or non-
breaded poultry parts or formed products.
(2) Retail customers, which are customers such as grocery store chains,
wholesale clubs and other retail distributors. We sell to our retail
customers branded, pre-packaged, cut-up and whole poultry, and fresh
refrigerated or frozen whole poultry and poultry parts in trays, bags or
other consumer packs.
The following table sets forth, for the periods since fiscal 1998, net sales
attributable to each of our primary product lines and markets served with those
products. Consistent with our long-term strategy, we have emphasized our U.S.
growth initiatives on sales of prepared foods products, primarily to the
foodservice market, because this product and market segment has experienced,
and we believe will continue to experience, greater growth than fresh chicken
products. We based the table on our internal sales reports and their
classification of product types and customers.
Fiscal Year Ended
Sept. 28, Sept. 29, Sept. 30, Oct. 2, Sept. 26,
2002 2001(a) 2000 1999 1998
(52 weeks) (52 weeks) (52 weeks)(53 weeks)(52 weeks)
U.S. CHICKEN SALES: (in thousands)
Prepared Foods:
Foodservice $659,856 $632,075 $589,395 $527,732 $418,160
Retail 158,299 103,202 47,655 28,079 46,335
Total
Prepared Foods(b) 818,155 735,277 637,050 555,811 464,495
Fresh Chicken:
Foodservice 448,376 387,624 202,192 205,968 220,804
Retail 258,424 224,693 148,977 163,387 162,283
Total
Fresh Chicken(b) 706,800 612,317 351,169 369,355 383,087
Export and Other:
Prepared Foods(b) 30,528 18,912 4,595 1,030 2,301
Other Chicken 93,575 105,834 57,573 37,300 64,469
Total Export
and Other 124,103 124,746 62,168 38,330 66,770
Total
U.S. Chicken(b) 1,649,058 1,472,340 1,050,387 963,496 914,352
MEXICO CHICKEN SALES(c): 323,769 303,433 285,605 233,074 249,104
Total Chicken Sales 1,972,827 1,775,773 1,335,992 1,196,570 1,163,456
U.S. TURKEY SALES:
Prepared Foods(d):
Foodservice 134,651 88,012 -- -- --
Retail 54,638 48,681 -- -- --
Total Prepared Foods 189,289 136,693 -- -- --
Fresh Turkey(d):
Foodservice 36,119 18,618 -- -- --
Retail 107,582 71,647 -- -- --
Total Fresh Turkey 143,701 90,265 -- -- --
Export and Other(d):
Prepared Foods 2,858 2,434 -- -- --
Other Turkey 12,270 9,443 -- -- --
Total Export
and Other 15,128 11,877 -- -- --
Total U.S.
Turkey Sales 348,118 238,835 -- -- --
SALES OF OTHER PRODUCTS:
United States 193,691 179,859 141,690 139,407 139,106
Mexico(c) 19,082 20,245 21,757 21,426 28,983
Total Sales of
Other Products 212,773 200,104 163,447 160,833 168,089
Total Net Sales $2,533,718 $2,214,712 $1,499,439$1,357,403$1,331,545
Total Chicken
Prepared Foods 848,683 754,189 641,645 556,841 466,796
Total Turkey
Prepared Foods 192,147 139,127 -- -- --
(a)The acquisition of WLR Foods on January 27, 2001 has been accounted for as
a purchase, and the results of operations for this acquisition have been
included in our consolidated results of operations since the acquisition date.
(b)In 2002 the Company identified certain products that were more properly
classified in other categories and as a result, certain items previously
classified under U.S. prepared foods and U.S. fresh chicken were reclassified
into U.S. chicken export and other categories. Amounts by year were:
$18.6 million, $19.1 million, $4.7 million, $1.1 million, and $2.3 million for
the fiscal years 2002 to 1998, respectively.
(c)In order to present additional classifications, items previously classified
as Mexico chicken sales and were reclassified to exportand other products,
Amounts reclassified were: $19.1 million, $20.2 million, $21.8 million,
$21.4 million and $29.0 million for the years 2002 to 1998, respectively.
(d)In 2002 the Company identified certain products that were more properly
classified in other categories and as a result, certain items previously
classified under U.S. turkey prepared foods and U.S. fresh turkey were
reclassified into the U.S. export and other categories. Net amounts
reclassified to U.S. export and other were: $2.1 million in 2002 and $0.4
million in 2001.
The following table sets forth, since fiscal 1998, the percentage of net
U.S. chicken and turkey sales attributable to each of our primary product lines
and the markets serviced with those products. We based the table and related
discussion on our internal sales reports and their classification of product
types and customers.
Fiscal Year Ended
Sept. 28, Sept. 29, Sept. 30, Oct. 2, Sept. 26,
2002 2001 2000 1999 1998
U.S. CHICKEN SALES:
Prepared Foods:
Foodservice 39.9% 42.9% 56.2% 54.7% 45.7%
Retail 9.6 7.0 4.5 2.9 5.1
Total Prepared Foods 49.5 49.9 60.7 57.6 50.8
Fresh Chicken:
Foodservice 27.2 26.3 19.2 21.4 24.1
Retail 15.7 15.3 14.2 17.0 17.7
Total Fresh Chicken 42.9 41.6 33.4 38.4 41.8
Export and Other:
Prepared Foods 1.9 1.3 0.4 0.1 0.3
Other Chicken 5.7 7.2 5.5 3.9 7.1
Total Export and Other 7.6 8.5 5.9 4.0 7.4
Total U.S. Chicken 100.0% 100.0% 100.0% 100.0% 100.0%
Total Chicken Prepared Foods as
a percentage of US Chicken 51.4% 51.2% 61.1% 57.7% 51.1%
U.S. TURKEY SALES:
Prepared Foods:
Foodservice 38.7% 36.8% -- -- --
Retail 15.7 20.4 -- -- --
Total Prepared Foods 54.4 57.2 -- -- --
Fresh Turkey:
Foodservice 10.4 7.8 -- -- --
Retail 30.9 30.0 -- -- --
Total Fresh Turkey 41.3 37.8 -- -- --
Export and Other:
Prepared Foods 0.8 1.0 -- -- --
Other Turkey 3.5 4.0 -- -- --
Total Export and Other 4.3 5.0 -- -- --
Total U.S. Turkey 100.0% 100.0% -- -- --
Total Turkey Prepared Foods as
a percentage of US Turkey 55.2% 58.2% -- -- --
UNITED STATES
PRODUCT TYPES
Chicken Products
PREPARED FOODS OVERVIEW. During fiscal 2002, $848.7 million, or 51.4%, of
our U.S. chicken net sales were in prepared foods products to foodservice
customers and retail distributors, as compared to $466.8 million in fiscal
1998. These numbers reflect the strategic focus for our growth. The market for
prepared chicken products has experienced, and we believe will continue to
experience, greater growth, higher average sales prices and higher margins than
fresh chicken products. Also, the production and sale in the U.S. of prepared
foods products reduce the impact of the costs of feed ingredients on our
profitability. Feed ingredient costs are the single largest component of our
chicken cost of goods sold, representing approximately 30% of our U.S. cost of
goods sold for the year ended September 28, 2002. The production of feed
ingredients is positively or negatively affected primarily by weather patterns
throughout the world, the global level of supply inventories and demand for
feed ingredients, and the agricultural policies of the United States and
foreign governments. As further processing is performed, feed ingredient costs
become a decreasing percentage of a product's total production cost, thereby
reducing their impact on our profitability. Products sold in this form enable
us to charge a premium, reduce the impact of feed ingredient costs on our
profitability and improve and stabilize our profit margins.
We establish prices for our prepared chicken products based primarily upon
perceived value to the customer, production costs and prices of competing
products. The majority of these products are sold pursuant to agreements with
varying terms that either set a fixed price for the products or set a price
according to formulas based on an underlying commodity market, subject in many
cases to minimum and maximum prices.
FRESH CHICKEN OVERVIEW. Our fresh chicken business is an important
component of our sales and accounted for $706.8 million, or 42.9%, of our total
U.S. chicken net sales for fiscal 2002. In addition to maintaining sales of
mature, traditional fresh chicken products, our strategy is to shift the mix of
our U.S. fresh chicken products by continuing to increase sales of higher
margin, faster growing products, such as marinated chicken and chicken parts
and to continually shift portions of this product mix into the higher value and
margin prepared chicken products, particularly in our Eastern Division.
Most fresh chicken products are sold to established customers based upon
certain weekly or monthly market prices reported by the USDA and other public
price reporting services, plus a markup, which is dependent upon the customer's
location, volume, product specifications and other factors. We believe our
practices with respect to sales of fresh chicken are generally consistent with
those of our competitors. Prices of these products are negotiated daily or
weekly and are generally related to market prices quoted by the USDA or other
public reporting services.
EXPORT AND OTHER CHICKEN PRODUCTS OVERVIEW. Our export and other products
consist of whole chickens and chicken parts sold primarily in bulk, non-branded
form either refrigerated to distributors in the U.S. or frozen for distribution
to export markets and branded and non-branded prepared foods products for
distribution to export markets. In fiscal 2002, approximately $124.1 million,
or 7.6% of our U.S. chicken net sales were attributable to U.S. chicken export
and other. These exports and other products, other than the prepared foods
products, have historically been characterized by lower prices and greater
price volatility than our more value-added product lines.
Turkey Products
Since March 2002, our sales of turkey products have been negatively impacted
by an outbreak of low-pathogenic avian influenza in Virginia in March 2002,
that resulted in the destruction of a significant number of our turkey flocks.
See further discussion in Item 7 Management's Discussion and Analysis of
Results of Operations and Financial Condition.
PREPARED FOODS OVERVIEW. During fiscal 2002, $192.1 million, or 55.2%, of
our U.S. turkey net sales were prepared turkey products sold to foodservice
customers and retail distributors. Like the U.S. chicken markets, the market
for prepared turkey products has experienced greater growth and higher margins
than fresh turkey products and the production and sale of prepared turkey
products reduce the impact of the costs of feed ingredients on our
profitability. Feed ingredient costs are the single largest component of our
turkey division cost of goods sold, representing approximately 30.0% of our
turkey cost of goods sold in fiscal 2002. Similarly with the chicken business,
as further processing is performed, feed ingredient costs become a decreasing
percentage of a product's total production cost, thereby reducing their impact
on our profitability.
We establish prices for our prepared turkey products based primarily upon
perceived value to the customer, production costs and prices of competing
products. The majority of these products are sold pursuant to agreements with
varying terms that either set a fixed price or are subject to a market driven
formula.
FRESH TURKEY OVERVIEW. Our fresh turkey business is an important
component of our sales and accounted for $143.7 million, or 41.3%, of our U.S.
turkey net sales in fiscal 2002. As is typical for the industry, a significant
portion of the sales of fresh and frozen whole turkeys is seasonal in nature,
with the height of sales occurring during the Thanksgiving and Christmas
holidays. In addition to maintaining sales of mature, traditional fresh turkey
products, our strategy is to shift the mix of our fresh turkey products by
continuing to increase sales of higher margin, faster growing value-added
prepared turkey products, such as deli meats, ground turkey, turkey burgers and
sausage, roasted turkey and salads.
Most fresh turkey products are sold to established customers pursuant to
agreements with varying terms that either set a fixed price or are subject to a
market driven formula with some agreements based upon market prices reported by
the USDA and other public price reporting services, plus a markup, which is
dependent upon the customer's location, volume, product specifications and
other factors. We believe our practices with respect to sales of fresh turkey
are generally consistent with those of our competitors with similar
programs. Prices of these products are generally negotiated daily or weekly.
EXPORT AND OTHER TURKEY PRODUCTS OVERVIEW. Our export and other turkey
products consist primarily of turkey parts sold primarily in bulk, non-branded
form frozen for distribution to export markets and refrigerated and frozen
frankfurters sold in a branded form. In fiscal 2002, approximately $15.1
million, or 4.3%, of our total U.S. turkey sales were attributable to export
and other sales. These exports and other products have historically been
characterized by lower prices and greater price volatility than our more value-
added product lines. Effective November 13, 2002, we are no longer producing
frankfurters, although we continue to distribute frankfurters produced by
others.
MARKETS FOR CHICKEN PRODUCTS
FOODSERVICE. The majority of our U.S. chicken sales are derived from
products sold to the foodservice market. This market principally consists of
chain restaurants, food processors and certain other institutions located
throughout the continental United States. We supply chicken products ranging
from portion-controlled refrigerated chicken parts to fully cooked and frozen,
breaded or non-breaded chicken parts or formed products.
We believe Pilgrim's Pride is well-positioned to be the primary or
secondary supplier to many national and international chain restaurants who
require multiple suppliers of chicken products. Additionally, we are well
suited to be the sole supplier for many regional chain restaurants. Regional
chain restaurants often offer better margin opportunities and a growing base of
business.
We believe we have significant competitive strengths in terms of full-line
product capabilities, high-volume production capacities, research and
development expertise and extensive distribution and marketing experience
relative to smaller and to non-vertically integrated producers. While the
overall chicken market has grown consistently, we believe the majority of this
growth in recent years has been in the foodservice market. According to the
National Chicken Council, during the 1997 through 2001 period, sales of chicken
products to the foodservice market grew at a compounded annual growth rate of
approximately 2.3%, versus 1.2% growth for the chicken industry overall.
Foodservice growth is anticipated to continue as food-away-from-home
expenditures continue to outpace overall industry rates. According to the
National Restaurant Association, food-away-from-home expenditures grew at a
compounded annual growth rate of approximately 5.0% during the 1997 through
2001 period and are projected to grow at a 4.4% compounded annual growth rate
from 2001 through 2010. As a result, the food-away-from-home category is
projected by the National Restaurant Association to account for 53% of total
food expenditures by 2010, as compared with 46% in 2001. Our sales to the
foodservice market from fiscal 1998 through fiscal 2002 grew at a compounded
annual growth rate of 14.8% and represented 67.2% of the net sales of our U.S.
chicken operations in fiscal 2002.
Foodservice - Prepared Foods. The majority of our sales to the
foodservice market consist of prepared foods products. Our prepared chicken
products sales to the foodservice market were $659.9 million in fiscal 2002
compared to $418.2 million in fiscal 1998, a compounded annual growth rate of
approximately 12.1%. We attribute this growth in sales of prepared chicken
products to the foodservice market to a number of factors:
First, there has been significant growth in the number of foodservice
operators offering chicken on their menus and the number of chicken items
offered.
Second, foodservice operators are increasingly purchasing prepared chicken
products, which allow them to reduce labor costs while providing greater
product consistency, quality and variety across all restaurant locations.
Third, there is a strong need among larger foodservice companies for an
alternative or additional supplier to our principal competitor in the prepared
chicken products market. A viable alternative supplier must be able to ensure
supply, demonstrate innovation and new product development and provide
competitive pricing. We have been successful in our objective of becoming the
alternative supplier of choice by being the primary or secondary prepared
chicken products supplier to many large foodservice companies because:
- We are vertically integrated, giving us control over our supply of
chicken and chicken parts;
- Our further processing facilities are particularly well suited to the
high-volume production
runs necessary to meet the capacity and quality requirements of the
foodservice market; and
- We have established a reputation for dependable quality, highly
responsive service and
excellent technical support.
Fourth, as a result of the experience and reputation developed with larger
customers, we have increasingly become the principal supplier to mid-sized
foodservice organizations.
Fifth, our in-house product development group follows a customer-driven
research and development focus designed to develop new products to meet
customers' changing needs. Our research and development personnel often work
directly with institutional customers in developing products for these
customers. Approximately $300 million, or 27%, of our chicken sales to
foodservice customers in fiscal 2002 consisted of new products which were not
sold by us in fiscal 1998.
Sixth, we are a leader in utilizing advanced processing technology, which
enables us to better meet our customers' needs for product innovation,
consistent quality and cost efficiency.
Foodservice - Fresh Chicken. We produce and market fresh, refrigerated
chicken for sale to U.S. quick-service restaurant chains, delicatessens and
other customers. These chickens have the giblets removed, are usually of
specific weight ranges, and are usually pre-cut to customer specifications.
They are often marinated to enhance value and product differentiation. By
growing and processing to customers' specifications, we are able to assist
quick-service restaurant chains in controlling costs and maintaining quality
and size consistency of chicken pieces sold to the consumer.
RETAIL. The retail market consists primarily of grocery store chains,
wholesale clubs and other retail distributors. We concentrate our efforts in
this market on sales of branded, prepackaged cut-up and whole chicken to
grocery store chains and retail distributors in the midwestern, southwestern,
western and eastern regions of the United States. This regional marketing
focus enables us to develop consumer brand franchises and capitalize on
proximity to the trade customer in terms of lower transportation costs, more
timely, responsive service, and enhanced product freshness. For a number of
years, we have invested in both trade and retail marketing designed to
establish high levels of brand name awareness and consumer preferences.
We utilize numerous marketing techniques, including advertising, to
develop and strengthen trade and consumer awareness and increase brand loyalty
for consumer products marketed under the Pilgrim's Pride{reg-trade-mark} brand.
Our founder, Lonnie "Bo" Pilgrim, is the featured spokesman in our television,
radio and print advertising, and a trademark cameo of a person wearing a
Pilgrim's hat serves as the logo on all of our primary branded products. As a
result of this marketing strategy, Pilgrim's Pride{reg-trade-mark} is a well-
known brand name in several southwestern markets, including Dallas/Fort Worth,
Houston and San Antonio, Texas, Oklahoma City, Oklahoma, Denver, Colorado,
Phoenix, Arizona and Los Angeles and San Diego, California. We believe our
efforts to achieve and maintain brand awareness and loyalty help to provide
more secure distribution for our products. We also believe our efforts at brand
awareness generate greater price premiums than would otherwise be the case in
certain southwestern markets. We also maintain an active program to identify
consumer preferences. The program primarily consists of testing new product
ideas, packaging designs and methods through taste panels and focus groups
located in key geographic markets.
Retail - Prepared Foods. We sell retail-oriented prepared chicken
products primarily to grocery store chains located in the midwestern,
southwestern, western and, eastern regions of the U.S. Our prepared chicken
products sales to the retail market were $158.3 million in fiscal 2002 compared
to $46.3 million in fiscal 1998, a compounded annual growth rate of
approximately 36.0%. We believe that our growth in this market segment will
continue as retailers concentrate on offering more products which are quick,
easy and convenient to prepare at home.
Retail - Fresh Chicken. Our prepackaged retail products include various
combinations of freshly refrigerated, whole chickens and chicken parts in
trays, bags or other consumer packs labeled and priced ready for the retail
grocer's fresh meat counter. We believe the retail, prepackaged fresh chicken
business will continue to be a large and relatively stable market, providing
opportunities for product differentiation and regional brand loyalty.
EXPORT AND OTHER CHICKEN PRODUCTS. Our export and other chicken products,
other than the prepared foods products, consist of whole chickens and chicken
parts sold primarily in bulk, non-branded form either refrigerated to
distributors in the U.S. or frozen for distribution to export markets. In the
U.S., prices of these products are negotiated daily or weekly and are generally
related to market prices quoted by the USDA or other public price reporting
services. We also sell U.S.-produced chicken products for export to Canada,
Mexico, Eastern Europe--including Russia, the Far East and other world markets.
On March 10, 2002 Russia announced it was imposing a ban on the importing of
U.S. poultry products. Russia accounted for approximately 35% of all U.S.
poultry exports in 2001, or approximately 7% of the total U.S. poultry
production. On April 10, 2002 Russia announced the lifting of the import ban.
However, U.S. markets continue to be affected as Russia continues to restrict
the import of U.S. poultry products. On September 15, 2002 new sanitary
guidelines were established by Russia that requires veterinary specialists from
the Agriculture Ministry of Russia to inspect and certify plants of U.S.
poultry producers interested in exporting to Russia. We expect this
certification process to be completed in calendar 2002 and expect that the
industry will resume exporting these products into Russia shortly thereafter;
however, once exports resume, there is no assurance that they will regain the
levels existing prior to the March 10, 2002 ban. Historically, we have
targeted international markets to generate additional demand for our chicken
dark meat, which is a natural by-product of our U.S. operations given our
concentration on prepared foods products and the U.S. customers' general
preference for white meat. We have also begun selling prepared chicken products
for export to the international divisions of our U.S. chain restaurant
customers. We believe that U.S. chicken exports will continue to grow as
worldwide demand increases for high-grade, low-cost protein sources. We also
believe that worldwide demand for higher margin prepared foods products will
increase over the next several years. Accordingly, we believe we are well
positioned to capitalize on such growth. Also included in these categories are
chicken by-products, which are converted into protein products sold primarily
to manufacturers of pet foods.
MARKETS FOR TURKEY PRODUCTS
FOODSERVICE. A portion of our turkey sales are derived from products sold
to the foodservice market. This market principally consists of chain
restaurants, food processors, foodservice distributors and certain other
institutions located throughout the continental United States. We supply turkey
products ranging from portion-controlled refrigerated turkey parts to ready-to-
cook turkey, fully cooked formed products, delicatessen products such as deli
meats and sausage, salads, ground turkey and turkey burgers and other
foodservice products.
We believe Pilgrim's Pride is well-positioned to be the primary or
secondary supplier to many national and international chain restaurants that
require multiple suppliers of turkey products. Additionally, we are well suited
to be the sole supplier for many regional chain restaurants.
We believe we have significant competitive strengths in terms of full-line
product capabilities, high-volume production capacities, research and
development expertise and extensive distribution and marketing experience
relative to smaller and to non-vertically integrated producers.
Foodservice - Prepared Foods. The majority of our turkey sales to the
foodservice market consist of prepared turkey products. Our prepared turkey
sales to the foodservice market were $134.7 million of our sales in fiscal
2002. We believe that future growth in this segment will be attributable to the
factors described above relating to the growth of prepared chicken sales to the
foodservice market.
Foodservice - Fresh Turkey. We produce and market fresh, refrigerated and
frozen turkey for sale to foodservice distributors, restaurant chains and other
customers. These turkeys are usually of specific weight ranges, and are usually
whole birds to customer specifications. They are often marinated to enhance
value and product differentiation. Our semi-boneless turkey, unique to
Pilgrim's Pride, is becoming very popular with cruiselines and other customers
where visual presentation of the whole turkey is critical.
RETAIL. A significant portion of our turkey sales is derived from
products sold to the retail market. This market consists primarily of grocery
store chains, wholesale clubs and other retail distributors. We concentrate our
efforts in this market on sales of branded, prepackaged cut-up and whole turkey
to grocery store chains and retail distributors in the eastern region of the
United States. This regional marketing focus enables us to develop consumer
brand franchises and capitalize on proximity to the trade customer in terms of
lower transportation costs, more timely and responsive service and enhanced
product freshness.
We utilize numerous marketing techniques, including advertising, to
develop and strengthen trade and consumer awareness and increase brand loyalty
for consumer products marketed under the Pilgrim's Pride{reg-trade-mark} and
Wampler{reg-trade-mark} brands. We believe our efforts to achieve and maintain
brand awareness and loyalty help to provide more secure distribution for our
products. We also believe our efforts at brand awareness generate greater price
premiums than would otherwise be the case in certain eastern markets. We also
maintain an active program to identify consumer preferences. The program
primarily consists of testing new product ideas, packaging designs and methods
through taste panels and focus groups located in key geographic markets.
Retail - Prepared Foods. We sell retail-oriented prepared turkey products
primarily to grocery store chains located in the eastern U.S. We also sell
these products to the wholesale club industry.
Retail - Fresh Turkey. Our prepackaged retail products include various
combinations of freshly refrigerated and frozen, whole turkey and turkey parts
in trays, bags or other consumer packs labeled and priced ready for the retail
grocer's fresh meat counter, ground turkey or sausage and turkey burgers. We
believe the retail prepackaged fresh turkey business will continue to be a
large and relatively stable market, providing opportunities for product
differentiation and regional brand loyalty with large seasonal spikes in the
holiday seasons.
EXPORT AND OTHER TURKEY PRODUCTS. Our export and other turkey products,
other than the prepared foods products, consist of whole turkeys and turkey
parts sold in bulk form, either non-branded or under the
Wampler{reg-trade-mark} and Rockingham{reg-trade-mark} brands. These products
are primarily sold frozen either to distributors in the U.S. or for
distribution to export markets. In the U.S., prices of these products are
negotiated daily or weekly and are generally related to market prices quoted by
the USDA or other public price reporting services. We also sell U.S.-produced
turkey products for export to Canada, Mexico, Eastern Europe---including
Russia, the Far East and other world markets. Historically, we have targeted
international markets to generate additional demand for our turkey dark meat,
and frankfurters made from turkey dark meat, which is a natural by-product of
our U.S. operations given our concentration of prepared foods products and the
U.S. customers' general preference for white meat. We believe that U.S. turkey
exports will continue to grow as worldwide demand increases for high-grade,
low-cost protein sources. We also believe that worldwide demand for higher
margin prepared turkey products will increase over the next several years.
Accordingly, we believe we are well positioned to capitalize on such growth,
especially in Mexico where we have established distribution channels. Also
included in these categories are turkey by-products, which are converted into
protein products sold primarily to manufacturers of pet foods.
MARKETS FOR OTHER U.S. PRODUCTS
We market fresh eggs under the Pilgrim's Pride{reg-trade-mark} brand name,
as well as under private labels, in various sizes of cartons and flats to U.S.
retail grocery and institutional foodservice customers located primarily in
Texas. We have a housing capacity for approximately 2.2 million commercial egg
laying hens which can produce approximately 42 million dozen eggs annually.
U.S. egg prices are determined weekly based upon reported market prices. The
U.S. egg industry has been consolidating over the last few years, with the 25
largest producers accounting for more than 58.6% of the total number of egg
laying hens in service during 2001. We compete with other U.S. egg producers
primarily on the basis of product quality, reliability, price and customer
service.
In 1997, we introduced a high-nutrient egg called EggsPlus{trademark}.
This egg contains high levels of Omega-3 and Omega-6 fatty acids along with
Vitamin E, making the egg a heart-friendly product. Our marketing of
EggsPlus{trademark} has received national recognition for our progress in being
an innovator in the "functional foods" category.
In addition, we produce and sell livestock feeds at our feed mill in Mt.
Pleasant, Texas and at our farm supply store in Pittsburg, Texas to dairy
farmers and livestock producers in northeastern Texas. We engage in similar
sales activities at our other U.S. feed mills.
MEXICO
BACKGROUND
The Mexican market represented approximately 13.5% of our net sales in
fiscal 2002. Recognizing favorable long-term demographic trends and improving
economic conditions in Mexico, in the 1980's we began exploring opportunities
to produce and market chicken in Mexico. In fiscal 1988, we acquired four
vertically integrated chicken production operations in Mexico for approximately
$15.1 million. Since this original acquisition, we have made subsequent
acquisitions and capital expenditures in Mexico to modernize our production
technology, improve our distribution network and expand our operations. In
addition, we have transferred experienced management personnel from the U.S.
and developed a strong local management team. As a result of these
expenditures, we have increased weekly production in our Mexican operations by
over 400% since our original investment in fiscal 1988. We are now the second
largest producer of chicken in Mexico. We believe that our facilities are among
the most technologically advanced in Mexico and that we are one of the lowest
cost producers of chicken in Mexico.
PRODUCT TYPES
While the market for chicken products in Mexico is less developed than in
the United States, with sales attributed to fewer, more basic products, the
market for value-added products is increasing. Our strategy is to lead this
trend. The products currently sold by us in Mexico consist primarily of lower
value-added products such as eviscerated chicken and chicken parts and basic
products such as New York dressed (whole chickens with only feathers and blood
removed) and live birds. We have increased our sales of value-added products,
primarily through national retail chains and restaurants, and it is our
business strategy to continue to do so. In addition, we remain opportunistic,
utilizing our low cost production to enter markets where profitable
opportunities exist. Other products sold by us in Mexico include commercial
feed, vaccines and other agricultural products.
MARKETS
We sell our Mexico chicken products primarily to large wholesalers and
retailers. Our customer base in Mexico covers a broad geographic area from
Mexico City, the capital of Mexico with a population estimated to be over 22
million, to Saltillo, the capital of the State of Coahuila, about 500 miles
north of Mexico City, and from Tampico and Veracruz on the Gulf of Mexico to
Acapulco on the Pacific, which region includes the cities of San Luis Potosi
and Queretaro, capitals of the states of the same name, and Cancun on the
Caribbean.
In Mexico, where product differentiation has traditionally been limited,
product quality, service and price have been the most critical competitive
factors. The North American Free Trade Agreement, which went into effect on
January 1, 1994, requires annual reductions in tariffs for chicken and chicken
products in order to eliminate those tariffs by January 1, 2003. On November
21,2002 the Mexican Secretariat of the Economy announced that it would initiate
an investigation to determine whether a temporary safeguard action is warranted
to protect the domestic poultry industry when import tariffs on poultry are
eliminated in January 2003. The action stems from concerns of the Union
Nacional Avicultores (UNA) that duty-free imports of leg quarters would injure
the Mexico poultry industry. A suggested safeguard by the UNA is to establish a
tariff rate for chicken leg quarters at the 2001 tariff level of 98.8% of the
sales price for a period of three to five years.
While the extent of the impact of the elimination of tariffs is
uncertain, we believe we are uniquely positioned to benefit from this
elimination. We have an extensive distribution network in Mexico, which
distributes products to 26 of the 32 Mexican states, encompassing approximately
85% of the total population of Mexico. Our distribution network is comprised of
eighteen distribution centers utilizing approximately 126 company-owned
vehicles. We believe this distribution network will be an important asset in
distributing our own, as well as other companies', U.S.-produced chicken into
Mexico.
COMPETITION
The chicken and turkey industries are highly competitive and some of our
competitors have greater financial and marketing resources than we do. In the
United States and Mexico, we compete principally with other vertically
integrated chicken and turkey companies.
In general, the competitive factors in the U.S. chicken and turkey
industries include price, product quality, product development, brand
identification, breadth of product line and customer service. Competitive
factors vary by major market. In the foodservice market, competition is based
on consistent quality, product development, service and price. In the U.S.
retail market, we believe that product quality, brand awareness and customer
service are the primary bases of competition. There is some competition with
non-vertically integrated further processors in the U.S. prepared food
business. We believe we have significant, long-term cost and quality
advantages over non-vertically integrated further processors.
In Mexico, where product differentiation has traditionally been limited,
product quality, service and price have been the most critical competitive
factors. The North American Free Trade Agreement, which went into effect on
January 1, 1994, requires annual reductions in tariffs for chicken and chicken
products in order to eliminate those tariffs by January 1, 2003. As such
tariffs are reduced, we expect greater amounts of chicken to be imported into
Mexico from the U.S., which could negatively affect the profitability of
Mexican chicken producers and positively affect the profitability of U.S.
exporters of chicken to Mexico. On November 21, 2002 the Mexican Secretariat
of the Economy announced that it would initiate an investigation to determine
whether a temporary safeguard action is warranted to protect the domestic
poultry industry when import tariffs on poultry are eliminated in January 2003.
The action stems from concerns of the Union Nacional Avicultores (UNA) that
duty-free imports of leg quarters would injure the Mexico poultry industry. A
suggested safeguard by the UNA is to establish a tariff rate for chicken leg
quarters at the 2001 tariff level of 98.8% of the sales price for a period of
three to five years.
While the extent of the impact of the elimination of tariffs is uncertain,
we believe we are uniquely positioned to benefit from this elimination for two
reasons. First, we have an extensive distribution network in Mexico, which
distributes products to 26 of the 32 Mexican states, encompassing approximately
85% of the total population of Mexico. We believe this distribution network
will be an important asset in distributing our own, as well as other
companies', U.S.-produced chicken into Mexico. Second, we have the largest U.S.
production and distribution capacities near the Mexican border, which will
provide us with cost advantages in exporting U.S. chicken into Mexico. These
facilities include our processing facilities in Mt. Pleasant, Pittsburg,
Lufkin, Nacogdoches, Dallas and Waco, Texas, and distribution facilities in San
Antonio and El Paso, Texas and Phoenix, Arizona.
OTHER ACTIVITIES
We have regional distribution centers located in Arlington, El Paso, Mt.
Pleasant and San Antonio, Texas, and Phoenix, Arizona that distribute our own
poultry products, along with certain poultry and non-poultry products purchased
from third parties, to independent grocers and quick service restaurants. Our
non-poultry distribution business is conducted as an accommodation to our
customers and to achieve greater economies of scale in distribution logistics.
The store-door delivery capabilities for our own poultry products provide a
strategic service advantage in selling to quick service, national chain
restaurants.
REGULATION AND ENVIRONMENTAL MATTERS
The chicken and turkey industries are subject to government regulation,
particularly in the health and environmental areas, including provisions
relating to the discharge of materials into the environment, by the Centers for
Disease Control, the USDA, the Food and Drug Administration (FDA) and the
Environmental Protection Agency in the United States and by similar
governmental agencies in Mexico. Our chicken processing facilities in the U.S.
are subject to on-site examination, inspection and regulation by the USDA. The
FDA inspects the production of our feed mills in the U.S. Our Mexican food
processing facilities and feed mills are subject to on-site examination,
inspection and regulation by a Mexican governmental agency, which performs
functions similar to those performed by the USDA and FDA. We believe that we
are in substantial compliance with all applicable laws and regulations relating
to the operations of our facilities.
We anticipate increased regulation by the USDA concerning food safety, by
the FDA concerning the use of medications in feed and by the EPA and various
other state agencies concerning the disposal of chicken by-products and
wastewater discharges. Although we do not anticipate any regulations having a
material adverse effect upon us, a material adverse effect may occur. See Item
1. Business-General-Overview and Recent Developments.
EMPLOYEES AND LABOR RELATIONS
As of September 28, 2002, we employed approximately 20,200 persons in the
U.S. and 4,600 persons in Mexico. Approximately 2,850 employees at our Lufkin
and Nacogdoches, Texas facilities are members of collective bargaining units
represented by the United Food and Commercial Workers Union. None of our other
U.S. employees have union representation. Collective bargaining agreements with
the United Food and Commercial Workers Union expired on August 10, 2001 with
respect to our Lufkin employees, where we are currently operating without a
contract, and expire in October 2004 with respect to our Nacogdoches employees.
Our Lufkin employees voted in July 2002 to retain union representation.
However, the election results have not yet been certified; objections are still
pending and are being reviewed by the National Labor Relations Board. We
believe that the terms of the Nacogdoches agreement are no more favorable than
those provided to our non-union U.S. employees. In Mexico, most of our hourly
employees are covered by collective bargaining agreements, as are most
employees in Mexico. We have not experienced any work stoppage since a two-day
work stoppage, with no significant operation disruption, at our Lufkin facility
in May 1993. We believe our relations with our employees are satisfactory.
EXECUTIVE OFFICERS
Set forth below is certain information relating to our current executive
officers:
NAME AGE POSITIONS
Lonnie "Bo" Pilgrim..........74 Chairman of the Board
Clifford E. Butler...........60 Vice Chairman of the Board
David Van Hoose(1)...........61 Chief Executive Officer and Director
O.B. Goolsby, Jr.............55 President and Chief Operating Officer
Richard A. Cogdill...........42 Executive Vice President,
Chief Financial Officer,
Secretary, Treasurer and Director
________________________________________________________________________
(1) On November 11, 2002, the Company announced the retirement of David Van
Hoose as Chief Executive Officer of the Company, effective March 29,
2003. During the transition and until a replacement Chief Executive
Officer is appointed, certain of Mr. Van Hoose's duties have been assumed
by Lonnie "Bo" Pilgrim, who served as the Company's Chief Executive
Officer until Mr. Van Hoose was promoted to the position in June 1998.
Lonnie "Bo" Pilgrim has served as Chairman of the Board since the
organization of Pilgrim's Pride in July 1968. He was previously Chief Executive
Officer from July 1968 to June 1998. Prior to the incorporation of Pilgrim's
Pride, Mr. Pilgrim was a partner in its predecessor partnership business
founded in 1946.
Clifford E. Butler serves as Vice Chairman of the Board. He joined us as
Controller and Director in 1969, was named Senior Vice President of Finance in
1973, became Chief Financial Officer and Vice Chairman of the Board in July
1983, became Executive President in January 1997 and served in such capacity
through July 1998 and continues to serve as Vice Chairman of the Board.
David Van Hoose serves as Chief Executive Officer of Pilgrim's Pride. He
became a Director in July 1998. He was named Chief Executive Officer and Chief
Operating Officer in June 1998 and President in July 1998. He was previously
President of Mexico Operations from April 1993 to June 1998 and Senior Vice
President, Director General, Mexico Operations from August 1990 to April 1993.
Mr. Van Hoose was employed by us in September 1988 as Senior Vice President,
Texas Processing. Prior to that, Mr. Van Hoose was employed by Cargill, Inc.,
as General Manager of one of its chicken operations. Mr. Van Hoose retired as
President and Chief Operating Officer in November 2002, and he will retire as
Chief Executive Officer of the Company in March 2003.
O.B. Goolsby, Jr. serves as President and Chief Operating Officer of
Pilgrim's Pride. Prior to being named as President and Chief Operating Officer
in November 2002, Mr. Goolsby served as Executive Vice President, Prepared
Foods Complexes from June 1998 to November 2002. He was previously Senior Vice
President, Prepared Foods Operations from August 1992 to June 1998 and Vice
President, Prepared Foods Operations from April 1986 to August 1992 and was
previously employed by us from November 1969 to January 1981.
Richard A. Cogdill has served as Executive Vice President, Chief Financial
Officer, Secretary and Treasurer since January 1997. He became a Director in
September 1998. Previously he served as Senior Vice President, Corporate
Controller, from August 1992 through December 1996 and as Vice President,
Corporate Controller from October 1991 through August 1992. Prior to October
1991 he was a Senior Manager with Ernst & Young LLP. He is a Certified Public
Accountant.
ITEM 2. PROPERTIES
Chicken Operations
Breeding and Hatching
We supply all of our chicks in the U.S. by producing our own hatching eggs
from domestic breeder flocks in the U.S. These flocks are owned by us, and
approximately 13.1% of them are maintained on 42 company-owned breeder farms.
In the U.S., we currently own or contract for approximately 15.0 million square
feet of breeder housing on approximately 429 breeder farms. In Mexico, all of
our breeder flocks are maintained on company-owned farms totaling approximately
4.1 million square feet.
We own eleven chicken hatcheries in the United States. These hatcheries
are located in Nacogdoches, Center and Pittsburg, Texas, DeQueen and Nashville,
Arkansas, Broadway, Virginia, Concord, North Carolina and Moorefield, West
Virginia, where eggs are incubated and hatched in a process requiring 21 days.
Once hatched, the day-old chicks are inspected and vaccinated against common
poultry diseases and transported by our vehicles to grow-out farms. Our eleven
hatcheries in the U.S. have an aggregate production capacity of approximately
15.5 million chicks per week. In Mexico, we own seven hatcheries, which have an
aggregate production capacity of approximately 3.5 million chicks per week.
Grow-out
We place our U.S. grown chicks on approximately 1,560 contract grow-out
farms located in Texas, Arkansas, Virginia, West Virginia, North Carolina and
Oklahoma, some of which are owned by our affiliates. These contract grow-out
farms contain approximately 5,818 chicken houses with approximately 81.0
million square feet of growing facilities. Additionally, we own and operate
grow-out farms containing approximately 390 chicken houses with approximately
4.4 million square feet of growing facilities in the U.S., which account for
approximately 5.2% of our total annual U.S. chicken capacity. On the contracted
grow-out farms, the farmers provide the facilities, utilities and labor. We
supply the chicks, the feed and all veterinary and technical services. Contract
grow-out farmers are paid based on live weight produced under an incentive
arrangement. In Mexico, we place our grown chicks on contract grow-out farms
containing approximately 756 chicken houses with approximately 9.7 million
square feet of growing facilities. Additionally, we own and operate grow-out
farms containing approximately 648 chicken houses with approximately 10.4
million square feet of growing facilities in Mexico, which account for
approximately 52.0% of our total annual Mexican chicken capacity. Arrangements
with independent farmers in Mexico are similar to our arrangements with
contractors in the United States. The average grow-out cycle of our chickens is
six to seven weeks.
Feed Mills
An important factor in the production of chicken is the rate at which feed
is converted into body weight. The quality and composition of the feed is
critical to the conversion rate. Accordingly, we formulate and produce our own
feed. We purchase feed ingredients on the open market. The primary feed
ingredients include corn, milo and soybean meal, which historically have been
the largest component of our total production costs. In the U.S., we operate
nine feed mills located in Nacogdoches, Tenaha and Pittsburg, Texas, Nashville
and Hope, Arkansas, Broadway, Virginia, Wingate, North Carolina and Moorefield,
West Virginia. In the U.S., we currently have annual feed requirements of
approximately 3.4 million tons and the capacity to produce approximately 6.1
million tons. We own four feed mills in Mexico, which produce all of the
requirements of our Mexico operations. Mexico's annual feed requirements are
approximately 0.7 million tons with a capacity to produce approximately 1.0
million tons. In fiscal 2002, approximately 67% of the feed ingredients used by
us in Mexico were imported from the United States, but this percentage
fluctuates based on the availability and cost of local feed ingredient
supplies.
Processing
Once the chickens reach processing weight, they are transported by truck
to our processing plants. These plants utilize modern, highly automated
equipment to process and package the chickens. We periodically review the
possible application of new processing technologies in order to enhance
productivity and reduce costs. We have nine U.S. processing plants, two of
which are located in Mt. Pleasant, Texas, and the remainder of which are
located in Dallas, Nacogdoches and Lufkin, Texas, DeQueen, Arkansas, Broadway,
Virginia, Marshville, North Carolina and Moorefield, West Virginia. These
processing plants have the capacity, under present USDA inspection procedures,
to slaughter approximately 12.5 million head of chicken per week, assuming a
five-day work week. The Company's plant in Alma, Virginia, which had been
acquired in the acquisition of WLR Foods, was closed during fiscal 2002, with
the production from the Alma plant being consolidated with the Company's other
processing plants in the area. Our three processing plants located in Mexico
have the capacity to slaughter approximately 3.3 million head of chicken per
week, assuming a six-day work week, which is typical in Mexico.
Turkey Operations
Breeding and Hatching
We purchase breeder poults, which we place with growers who supply labor
and housing to produce breeder flocks. These breeder flocks are owned by us,
and approximately 16.2% of them are maintained on three company-owned breeder
farms. We currently own or contract for approximately 2.0 million square feet
of turkey breeder housing on approximately 40 breeder farms, which produce eggs
that are taken to the company-owned turkey hatchery. Our breeder flocks provide
approximately 69% of our poult supply for grow-out. We own and operate one
turkey stud farm with approximately 50,000 square feet, which houses 3,600
breeder males and supplies semen for 52% of our breeder production. The
balance of our semen requirements and poults for grow-out are purchased from
third parties.
We own and operate one turkey hatchery, which is located in Harrisonburg,
Virginia, where eggs are incubated and hatched in a process requiring 28 days.
Once hatched, the day-old poults are inspected and vaccinated against common
poultry diseases and transported by our vehicles to grow-out farms. Our turkey
hatchery has an aggregate production capacity of approximately 450,000 poults
per week.
Grow-out
We place our turkey poults on approximately 350 contract grow-out farms
located in Virginia, West Virginia, Pennsylvania, Maryland and North and South
Carolina. These contract grow-out farms contain approximately 1,260 turkey
houses with approximately 23.6 million square feet of growing facilities. In
addition, we own and operate a grow-out farm containing 20 turkey houses with
approximately 251,000 square feet of growing facilities in the U.S., which
accounts for approximately 1.1% of our total annual turkey capacity. On the
contracted grow-out farms, the farmers provide the facilities, utilities and
labor. We supply the poults, the feed and all veterinary and technical
services. Contract grow-out farmers are paid based on live weight produced
under an incentive arrangement. The average grow-out cycle of our turkeys is 20
to 26 weeks.
Feed Mills
An important factor in the production of turkey is the rate at which feed
is converted into body weight. The quality and composition of the feed is
critical to the conversion rate. Accordingly, we formulate and produce the
majority of our own feed. We purchase feed ingredients on the open market. The
primary feed ingredients include corn, milo and soybean meal, which
historically have been the largest component of our total production costs. We
own and operate a turkey feed mill located in Harrisonburg, Virginia. We
currently have the capacity to annually produce approximately 520,000 tons of
turkey feed at this mill. We also produce turkey feed when required at our
other three eastern division mills or purchase it on the open market.
Processing
Once the poults reach processing weight, they are transported by truck to
our processing plants. These plants utilize modern, highly automated equipment
to process and package the turkeys. We periodically review the possible
application of new processing technologies in order to enhance productivity and
reduce costs. Our two turkey processing plants, located in Hinton, Virginia and
New Oxford, Pennsylvania, have the capacity, under present USDA inspection
procedures, to process approximately 450,000 turkeys per week, assuming a five-
day work week. The Company closed its Harrisonburg Plant, which had been
acquired in the acquisition of WLR Foods, at the end of fiscal 2002 and
consolidated all production from this plant to the Company's Hinton facility.
Prepared Foods Operations
We operate five prepared foods plants. Four of these plants process
primarily chicken prepared foods products and are located in Mt. Pleasant,
Waco, Dallas and Nacogdoches, Texas. Substantially all of our turkey prepared
foods products are processed in our plant located in Franconia, Pennsylvania.
In line with our stated business strategy to capitalize on the attractive U.S.
prepared foods market, we have increased our prepared foods production capacity
through expansion and acquisitions. The U.S. prepared foods market continues to
be one of the fastest growing and most profitable segments in the poultry
industry. Further processed prepared foods products include items such as
portion-controlled breast fillets, tenderloins and strips, formed nuggets and
patties, turkey hams and roasts, salads and bone-in chicken parts. Prepared
foods are sold frozen and may be either fully cooked, partially cooked or raw,
breaded or non-breaded, pre-marinated or non-marinated or smoked.
Our largest prepared foods plant is located in Mt. Pleasant, Texas and was
constructed in 1986 and has been expanded significantly since that time. This
facility includes 281,000 square feet and employs approximately 2,300 people.
This facility has de-boning lines, marinating systems, batter/breading systems,
fryers, ovens, both mechanical and cryogenic freezers, a variety of packaging
systems and cold storage including four fully-cooked lines and three ready-to-
cook/par-frying/Individually Quick Frozen ("IQF") lines and one batter-
breaded/IQF line and eight spiral freezers. This facility has capacity to
produce approximately 350 million pounds of further processed product annually
based on current production mix and is currently operating at 80% of capacity.
We measure our operating capacity of our prepared foods plants on the basis of
running two shifts per day, six days per week.
Our Waco, Texas prepared foods plant was purchased in 1999 and expanded in
fiscal 2000 and again in fiscal 2001. It is functionally equivalent to the Mt.
Pleasant plant and includes 150,146 square feet and employs approximately 700
people. This state of the art facility has marinating systems, batter/breading
systems, fryers, ovens, both mechanical and cryogenic freezers, a variety of
packaging systems and cold storage including two fully-cooked lines and two
ready-to-cook lines and four spiral freezers. This facility has capacity to
produce approximately 270 million pounds of further processed product annually
based on current production mix and is currently operating at approximately 60%
of capacity.
Our Franconia, Pennsylvania prepared foods plant was acquired in January
2001 and further processes chicken and turkey products, including grinding,
marinating, spicing and cooking, producing premium delicatessen, foodservice
and retail products, including roast turkey and salads. This facility includes
approximately 170,000 square feet and employs approximately 775 people. Our
Franconia facility employs the batching system of production as opposed to the
line-production system used in our other plants. This plant has approximately
95 million annual pounds of oven capacity and 17 million annual pounds of salad
capacity for a total capacity of approximately 112 million pounds of further
processed product annually based on current product mix and is currently
operating at approximately 80% of capacity. See Item 1. Business-General-
Overview and Recent Developments for a discussion of the recent events at this
facility.
Our Dallas, Texas prepared foods plant was constructed in 1999 and
includes 84,000 square feet and employs approximately 900 people. This facility
has de-boning and portioning capability, marinating systems, batter/breading
and frying systems and IQF capabilities. This plant is currently running one
par-frying line and one IQF production line, each with a spiral freezer. This
facility has the capacity to produce approximately 105 million pounds of
further processed product annually based on current product mix and is
currently operating at approximately 70% of capacity.
Our Nacogdoches, Texas prepared foods plant was constructed in fiscal
2001. It is functionally equivalent to our Dallas, Texas prepared foods plant
and includes 115,465 square feet and employs approximately 1,850 people. This
facility has de-boning and portioning capability, marinating systems,
batter/breading and frying systems and IQF capabilities. This plant is
currently running one par-frying line with a spiral freezer and two IQF lines
each with a spiral freezer with capability of making them par-fry lines as
sales dictate. This facility has capacity to produce approximately 80 million
pounds of further processed product annually based on current product mix and
is currently operating at approximately 90% of capacity.
Egg Production
We produce table eggs at three farms near Pittsburg, Texas. One farm is
owned by us, while two farms are leased from our major stockholder. The eggs
are cleaned, sized, graded and packaged for shipment at processing facilities
located on the egg farms. The farms have a housing capacity for approximately
2.2 million producing hens and are currently housing approximately 1.9 million
hens.
Other Facilities and Information
We operate three rendering plants that convert by-products into protein
products, located in Mt. Pleasant, Texas, Broadway, Virginia and Moorefield,
West Virginia. These rendering plants currently process by-products from
approximately 13.1 million chickens and 0.6 million turkeys weekly into protein
products. These products are used in the manufacture of poultry and livestock
feed and pet foods. In April 2002, we completed a partially automated
distribution freezer located outside of Pittsburg, Texas, which includes
125,000 square feet of storage area. We operate a commercial feed mill in Mt.
Pleasant, Texas, which produces various bulk and sacked livestock feed sold to
area dairies, ranches and farms. We also operate a feed supply store in
Pittsburg, Texas, from which we sell various bulk and sacked livestock feed
products, a majority of which is produced in our Mt. Pleasant commercial feed
mill. We own an office building in Pittsburg, Texas, which houses our executive
offices, and an office building outside of Pittsburg, Texas, which houses our
Logistics and Customer Service offices, an office building in Mexico City,
which houses our Mexican marketing offices, and an office building in Broadway,
Virginia, which houses our Eastern Division sales and marketing, research and
development, and Eastern Division support activities.
Substantially all of our U.S. property, plant and equipment, except those
in our turkey segment, are pledged as collateral on our secured debt.
ITEM 3. LEGAL PROCEEDINGS
On November 4, 2002, an individual who allegedly consumed our meat products
filed a putative class action lawsuit in the Philadelphia County Court of
Common Pleas in the Commonwealth of Pennsylvania. Plaintiff allegedly
contracted Listeriosis. The case is styled "Frank Niemtzow, individually and
on behalf of all others similarly situated, v. Pilgrim's Pride Corporation and
Wampler Foods, Inc" The complaint seeks recovery on behalf of a putative class
of all persons that purchased and/or consumed meat products manufactured by us
between May 1, 2002, and October 11, 2002, bearing establishment code P-1351
and who have suffered an injury. This class represents all individuals who
have suffered Listeriosis and symptoms of Listeriosis and other medical
injuries. Plaintiff also seeks to represent a putative class of all persons
that purchased and/or consumed meat products manufactured by us between May 1,
2002 and October 11, 2002 bearing establishment code P-1351 and who have not
suffered any personal injury. The complaint seeks compensatory and punitive
damages under theories of negligence, alleged violation of the Pennsylvania
Unfair Trade Practices Act and Consumer Protection Law, strict liability in
tort, and unjust enrichment. The time for responding to the complaint has not
yet arrived. We intend to defend vigorously both certification of the case as
a class action and questions concerning ultimate liability and damages, if any.
No discovery has been conducted to date. Neither the likelihood of an
unfavorable outcome nor the amount of ultimate liability, if any, with respect
to this case can be determined at this time. We do not expect this matter to
have a material impact on our financial position, operation or liquidity after
considering our available insurance coverage.
In January of 1998, seventeen of our current and/or former employees filed
the case of "Octavius Anderson, et al. v. Pilgrim's Pride Corporation" in the
United States District Court for the Eastern District of Texas, Lufkin Division
claiming Pilgrim's Pride violated requirements of the Fair Labor Standards Act.
The suit alleged Pilgrim's Pride failed to pay employees for all hours worked.
The suit generally alleged that (1) employees should be paid for time spent to
put on, take off, and clean certain personal gear at the beginning and end of
their shifts and breaks and (2) the use of a master time card or production
"line" time fails to pay employees for all time actually worked. Plaintiffs
sought to recover unpaid wages plus liquidated damages and legal fees.
Approximately 1,700 consents to join as plaintiffs were filed with the court by
current and/or former employees. During the week of March 5, 2001, the case was
tried in the Federal Court of the Eastern District of Texas, Lufkin, Texas.
The Company prevailed at the trial with a judgment issued by the judge, which
found no evidence presented to support the plaintiffs' allegations. The
plaintiffs filed an appeal in the Fifth Circuit Court of Appeals to reverse the
judge's decision. The plaintiff's brief was submitted to the court on November
5, 2001. Pilgrim's Pride's response to the plaintiff's brief to the Fifth
Circuit Court of Appeals was submitted on December 5, 2001. The Fifth Circuit
Court of Appeals heard oral arguments in this matter on June 4, 2002. On June
6, 2002 the Fifth Circuit Court of Appeals entered a per curiam opinion
affirming the opinion of the trial court. Appellants did not file any motion
for a rehearing and the deadline for filing of such a motion has passed.
In August of 2000, four of our current and/or former employees filed the
case of "Betty Kennell, et al. v. Wampler Foods, Inc." in the United States
District Court for the Northern District of West Virginia, claiming we violated
requirements of the Fair Labor Standards Act. The suit generally makes the
same allegations as "Anderson v. Pilgrim's Pride" discussed above. Plaintiffs
seek to recover unpaid wages plus liquidated damages and legal fees.
Approximately 150 consents to join as plaintiffs were filed with the court by
current and/or former employees. No trial date has been set. To date, only
limited discovery has been performed. Neither the likelihood of an unfavorable
outcome nor the amount of ultimate liability, if any, with respect to this case
can be determined at this time. We do not expect this matter, individually or
collectively, to have a material impact on our financial position, operations
or liquidity.
On August 20, 1999, the former WLR Foods brought legal action as a
plaintiff in an antitrust lawsuit filed in the U.S. District Court in
Washington D.C. alleging a world-wide conspiracy by approximately 34 named
defendants to control production capacity and raise prices of common vitamins
such as A, B-4, C, and E. The Company, as successor to WLR Foods in this suit,
received $9.5 million in fiscal 2002 in partial settlement of its claims, $4.3
million of which was recorded by the Company as a component of "Other Expense
(Income): Miscellaneous, Net" in fiscal 2002 as the recovery amount received
during the period exceeded the $5.2 million recovery amount recorded at the
time of the acquisition of WLR Foods. The initial estimate of the amount that
would be recovered under the WLR Foods claims was based on the ratio of
recoveries to vitamin purchases that was inherent in similar claims settled by
the Company in fiscal 2001 on substantially similar claims. To date, claims
related to approximately one-third of the WLR Foods affected vitamin purchases
have been settled by or on behalf of the former WLR Foods, which settlements
have resulted in payments to the Company and the former WLR Foods of $11.0
million. No assurances can be made regarding the likelihood or timing of
future settlements or whether or not future recoveries, if any, will be
proportionally less than, equal to or greater than these previous recovery
amounts.
On June 7, 2001, the Company brought legal action as a plaintiff in an
antitrust lawsuit filed in the U.S. District Court in San Francisco alleging a
world-wide conspiracy by defendant suppliers and producers of methionine to
control production capacity and raise prices of methionine. The Company
estimates that it was overcharged by approximately $50 million in connection
with the alleged conspiracy and expects the litigation of this matter to be
resolved during calendar year 2003. No assurances can be made regarding the
likelihood or timing of future awards or settlements.
On July 1, 2002, three individuals, on behalf of themselves and a putative
class of chicken growers, filed their original class action complaint against
us in the United States District Court for the Eastern District of Texas,
Texarkana Division. The case is styled "Wheeler vs. Pilgrim's Pride
Corporation". The complaint alleges that we violated the Packers and
Stockyards Act (7 U.S.C. Section 192) and breached fiduciary duties allegedly
owed to the plaintiff growers. The plaintiffs also brought individual actions
under the Packers and Stockyards Act alleging common law fraud, negligence,
breach of fiduciary duties and breach of contract. On July 29, 2002, we filed
our Motion to Dismiss under Rules 12(b) (1), 12(b) (6) and 9(b). We also filed
a Motion to Transfer Venue on August 19, 2002, and the plaintiffs have filed a
Motion for Preliminary Injunction to prohibit any alleged retaliation against
the growers. Discovery has not yet been conducted in this case. In addition,
the Court has not ruled upon any of the above-referenced motions. We intend to
defend vigorously both certification of the case as a class action and
questions concerning ultimate liability and damages, if any. Neither the
likelihood of an unfavorable outcome nor the amount of ultimate liability, if
any, with respect to this case can be determined at this time. We do not
expect this matter, to have a material impact on our financial position,
operations or liquidity.
The Company is subject to various other legal proceedings and claims, which
arise in the ordinary course of its business. In the opinion of management,
the amount of ultimate liability with respect to these actions will not
materially affect the financial position or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
QUARTERLY STOCK PRICES AND DIVIDENDS
High and low sales prices of and dividends on the Company's Class B and
Class A common stock for the periods indicated were:
Prices Prices
2002 2001 Dividends
Quarter High Low High Low 2002 2001
Class B Common Stock
First $14.48 $12.24 $ 8.15 $ 6.03 $.015 $.01
Second 14.45 12.05 12.33 7.67 .015 .01
Third 14.80 12.90 12.55 9.43 .015 .01
Fourth 13.92 8.49 15.35 11.90 .015 .01
Class A Common Stock
First 9.94 8.35 5.72 4.46 .015 .01
Second 10.90 8.66 8.42 5.47 .015 .01
Third 11.14 9.79 8.74 6.63 .015 .01
Fourth $10.53 $6.59 $10.98 $7.50 $.015 $.01
The Company's Class B common stock (ticker symbol "CHX") and Class A common
stock (ticker symbol "CHX.A") are traded on the New York Stock Exchange. The
Company estimates there were approximately 13,676 and 26,022 holders (including
individual participants in security position listings) of the Company's Class A
and Class B common stock, respectively, as of November 5, 2002. See Note
F-common stock of the Notes to Consolidated Financial Statements for additional
discussion of the Company's common stock.
With the exception of two quarters in 1993, the Company's Board of Directors
has declared cash dividends of $0.015 per share of common stock (on a split
adjusted basis) every fiscal quarter since the Company's initial public
offering in 1986. Payment of future dividends will depend upon the Company's
financial condition, results of operations and other factors deemed relevant by
the Company's Board of Directors, as well as any limitations imposed by lenders
under the Company's credit facilities. The Company's revolving credit facility
and revolving/term borrowing facility currently limit dividends to a maximum of
$3.4 million per year. See Note C - Notes Payable and Long-Term Debt of the
Notes to Consolidated Financial Statements for additional discussions of the
Company's credit facilities.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share data)Ten Years Ended September 28, 2002
2002 2001(a) 2000 1999(b) 1998
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
Profitability in the poultry industry is materially affected by the
commodity prices of feed ingredients, chicken and turkey, which are determined
by supply and demand factors. As a result, the chicken and turkey industries
are subject to cyclical earnings fluctuations. Cyclical earnings fluctuations
can be mitigated somewhat by:
- Business strategy;
- Product mix;
- Sales and marketing plans; and
- Operating efficiencies.
In an effort to reduce price volatility and to generate higher, more
consistent profit margins, we have concentrated on the production and marketing
of prepared foods products. Prepared foods products generally have higher
profit margins than our other products. Also, the production and sale in the
U.S. of prepared foods products reduce the impact of the costs of feed
ingredients on our profitability. Feed ingredient purchases are the single
largest component of our cost of goods sold, representing approximately 30% of
our consolidated cost of goods sold in fiscal 2002. The production of feed
ingredients is positively or negatively affected primarily by weather patterns
throughout the world, the global level of supply inventories and demand for
feed ingredients, and the agricultural policies of the United States and
foreign governments. As further processing is performed, feed ingredient costs
become a decreasing percentage of a product's total production cost, thereby
reducing their impact on our profitability. Products sold in this form enable
us to charge a premium, reduce the impact of feed ingredient costs on our
profitability and improve and stabilize our profit margins.
BUSINESS SEGMENTS
We operate in two reportable business segments as (1) a producer of
chicken and other products and (2) a producer of turkey products.
Our chicken and other products segment primarily includes sales of chicken
products we produce and purchase for resale in the United States and Mexico,
but also includes the sale of table eggs, feed and other items. Our chicken
and other products segment conducts separate operations in the United States
and Mexico and is reported as two separate geographical areas. Our turkey
segment includes sales of turkey products produced in our turkey operation,
which operate exclusively in the United States.
Inter-area sales and inter-segment sales, which are not material, are
accounted for at prices comparable to normal trade customer sales. Corporate
expenses are included with chicken and other products.
The following table presents certain information regarding our segments:
FISCAL YEAR ENDED
SEPTEMBER 28,SEPTEMBER 29,SEPTEMBER 30,
2002 2001(A) 2000
(IN THOUSANDS)
NET SALES TO CUSTOMERS:
Chicken and Other Products:
United States $1,842,749 $1,652,199 $1,192,077
Mexico 342,851 323,678 307,362
Sub-total 2,185,600 1,975,877 1,499,439
Turkey 348,118 238,835 --
Total $2,533,718 $2,214,712 $1,499,439
OPERATING INCOME:
Chicken and Other Products:
United States $ 32,663 $ 78,096 $ 45,928
Mexico 17,064 12,157 34,560
Sub-total 49,727 90,253 80,488
Turkey (19,823) 4,289 --
Total $ 29,904 $ 94,542 $ 80,488
DEPRECIATION AND AMORTIZATION:(B)
Chicken and Other Products:
United States $ 47,528 $ 38,155 $ 24,444
Mexico 13,526 11,962 11,583
Sub-total 61,054 50,117 36,027
Turkey 9,919 5,273 --
Total $ 70,973 $ 55,390 $ 36,027
(a) The acquisition of WLR Foods has been accounted for as a purchase,
and the results of operations for this acquisition have been included
in our consolidated results of operations since January 27, 2001 the
acquisition date.
(b) Includes amortization of capitalized financing costs of approximately
$1.4 million, $0.9 million and $1.2 million in fiscal years 2002,
2001, and 2000, respectively.
The following table presents certain items as a percentage of net sales for the
periods indicated:
2002 2001 2000
Net sales 100.0% 100.0% 100.0%
Cost of sales 93.5 90.3 88.9
Gross profit 6.5 9.7 11.1
Selling, general and
administrative expense 5.3 5.4 5.7
Operating income 1.2 4.3 5.4
Interest expense, net 1.3 1.4 1.2
Income before income taxes 0.1 2.9 4.2
Net income 0.6 1.9 3.5
RESULTS OF OPERATIONS
FISCAL 2002 COMPARED TO FISCAL 2001
On January 27, 2001, we completed the acquisition of WLR Foods (now the
Company's Eastern Division), a vertically integrated producer of chicken and
turkey products located in the eastern United States, for approximately $239.5
million and the assumption of approximately $45.5 million of indebtedness. The
acquisition was accounted for under the purchase method of accounting and the
purchase price was allocated based on the estimated fair value of assets and
liabilities. WLR Foods' operations have been included in our financial results
since the acquisition on January 27, 2001. Accordingly, only 35 weeks of
operations of the former WLR Foods are included in our results for fiscal 2001.
WLR Foods was the seventh largest poultry company in the United States with
$836.9 million of revenue in calendar year 2000. The WLR Foods acquisition
provided us with (1) chicken processing facilities in the eastern United
States, where we previously had no facilities, enabling us to deliver poultry
products within one day to markets accounting for approximately 40% of the U.S.
population; (2) significant opportunities to realize synergies between WLR
Foods and our pre-existing chicken operations; and (3) diversification of our
revenue stream into the $8 billion turkey industry, where we can capitalize on
our prepared foods processing expertise. Currently, our Eastern Division's
chicken sales mix consists mostly of lower margin fresh chicken products.
However, we intend to convert more of our Eastern Division chicken sales mix
into higher margin, fresh and prepared chicken products in the years to come.
By consistent and continued application of our long-term business strategy to
both our recently acquired Eastern Division and our existing fresh chicken mix,
we believe that our overall product mix will return to the levels existing
prior to the WLR Foods acquisition in subsequent years.
Since the acquisition of WLR Foods, our Eastern Division, which consists of
the former WLR Foods' operations, has been affected by two significant
unexpected challenges. First, on March 12, 2002 an outbreak of low-pathogenic
avian influenza, a disease contagious to turkey, chicken and other birds, was
discovered in Virginia. During fiscal 2002, we estimate that our operating
income was negatively impacted by approximately $26.0 million due to the
negative impact of the avian influenza. As of September 28, 2002, poultry
growers and producers have destroyed approximately 4.7 million head of poultry
affected as a result of the virus. Turkeys represent approximately 70.0% of
the destroyed poultry, with chickens representing approximately 30.0%.
Approximately one-half of the turkeys and approximately three-quarters of the
chickens destroyed by the poultry industry in Virginia belonged to the Company.
No new flocks have tested positive for the presence of avian influenza in
Virginia since July 2, 2002. We currently estimate that production in our
turkey operation will be significantly reduced over the first six months of
fiscal 2003 due to the effects of this viral outbreak. As a result of this
lower production output in our turkey operation, we anticipate that operating
income from our turkey operation will decrease for the first six months of
fiscal 2003 by approximately $8.0 to $14.0 million, when compared to the first
six months of fiscal 2002, assuming the outbreak of avian influenza has been
contained. On June 19, 2002, U.S. Secretary of Agriculture Ann Veneman
proposed to the Office of Management and Budget that the U.S. Department of
Agriculture (USDA) cover one-half of the total estimated economic loss suffered
by the poultry industry and independent growers in Virginia due to the avian
influenza outbreak. Secretary Veneman also recommended that the government of
Virginia cover the remaining portion. It is our understanding that, as part of
her proposal, Secretary Veneman is suggesting that independent chicken and
turkey growers are to be fully compensated for their losses first and that the
remainder is to be allocated to other poultry producers (including us) whose
flocks were destroyed by the virus. On November 4, 2002 the Department of
Agriculture made public their estimate of total federal compensation at $51
million, with growers being compensated $13.9 million and owners being
compensated $37.1 million. No assurance can be given as to the amount of
federal compensation that we may receive or that any state agencies will in
fact provide further economic assistance to the poultry growers and producers
affected by the avian influenza outbreak in Virginia. No anticipated
recoveries have been recorded by us as our portion of the compensation has not
yet been determined. In the event that state agencies do decide to grant
economic assistance to the affected poultry growers and producers, it is
impossible at this time to estimate how the state agencies would allocate any
such assistance between affected poultry growers and producers whose flocks
were destroyed by the virus.
The second challenge faced by our Eastern Division was that in October
2002 a limited number of USDA samples from the Company's Franconia,
Pennsylvania plant tested positive for Listeria. As a result the Company
voluntarily recalled all cooked deli products produced at the plant from May 1,
2002 through October 11, 2002. Additionally as a precautionary measure, we
immediately suspended operations at our Franconia facility to redouble our food
safety and sanitation efforts. No illnesses associated with the Listeria
strain in a Northeastern outbreak have been linked to any of our products, and
our Franconia facility has been reviewed and inspected by the USDA and reopened
on November 13, 2002. As the recall occurred in early fiscal 2003, it did not
have any significant impact on our consolidated financial statements as of
September 28, 2002. In addition, we carry insurance designed to cover the
direct recall related expenses and certain aspects of the related business
interruption caused by the recall. As a result, we believe that the recall and
its direct effects will not have a material impact on our financial position,
results of operations, or liquidity after considering available insurance
coverage. However, there will likely be differences between the accounting
periods in which certain recall effects are realized and when insurance
recoveries are received, and there can be no assurances as to the Company's
ability to re-establish the products and sales affected by the recall.
Consolidated Net Income Before Tax. Consolidated net income before tax is
affected by foreign exchange rate fluctuations between the U.S. dollar and the
Mexican peso. Assuming the peso exchange rate does not change from the rate at
the end of fiscal 2002, approximately $1.7 million of future devaluation will
result as remaining inventory is sold. On September 29, 2001, the Mexican peso
closed at 9.54 to 1 U.S. dollar, compared to 10.02 to 1 U.S. dollar on
September 28, 2002, and at 10.19 to 1 U.S. dollar on December 2, 2002. No
assurances can be given as to how future movements in the peso could affect our
future earnings.
Consolidated Net Sales. Consolidated net sales were $2.5 billion for
fiscal 2002, an increase of $319.0 million, or 14.4%, from fiscal 2001. The
increase in consolidated net sales resulted from a $176.7 million increase in
U.S. chicken sales to $1.6 billion, a $109.3 million increase in turkey sales
to $348.1 million, a $20.3 million increase in Mexico chicken sales to $323.8
million and a $13.8 million increase in sales of other products to $193.7
million. The increase in U.S. chicken sales was primarily due to a 17.2%
increase in dressed pounds produced, which resulted primarily from the
acquisition of WLR Foods on January 27, 2001 offset partially by a 4.4%
decrease in total revenue per dressed pound produced, caused in part by import
restrictions on poultry products typically sold to Russia and Japan by the
industry, resulting in production being liquidated at less favorable pricing
levels. The increase in turkey sales was due to the acquisition of WLR Foods,
partially offset by the impact of the avian influenza discussed above. The
$20.3 million increase in Mexico chicken sales was primarily due to an 8.0%
increase in average revenue per dressed pound produced, partially offset by a
1.9% decrease in pounds produced. The $13.8 million increase in sales of other
U.S. products was primarily due to poultry by-products sales price increases,
an increase in sales by the Company's wholesale feed division and the
acquisition of WLR Foods.
Cost of Sales. Consolidated cost of sales was $2.4 billion in fiscal
2002, an increase of $367.8 million, or 18.4%, when compared to fiscal 2001.
The U.S. operations accounted for $356.9 million of the increase in the cost of
sales and our Mexico operations accounted for $10.9 million of the increase.
The cost of sales increase in our U.S. operations of $356.9 million was due
primarily to the acquisition of WLR Foods, $121.6 million of which is related
to the turkey operations and was impacted by the avian influenza discussed
above. The increase in cost of sales of chicken products also resulted from
increased sales of higher cost prepared foods products.
The $10.9 million cost of sales increase in our Mexico operations was
primarily due to production of a higher cost, more value added product mix
compared to the prior year.
Gross Profit. Gross profit was $165.2 million for fiscal 2002, a decrease
of $48.8 million, or 22.8%, from the same period last year, due primarily to
the negative effects of the avian influenza outbreak in our Eastern Division
and to lower dark meat sales prices in the U.S. caused in part by import
restrictions on poultry products typically sold to Russia and Japan by the
industry.
Gross profit as a percentage of sales decreased to 6.5% in fiscal 2002,
from 9.7% in fiscal 2001, primarily due to increased operating expenses
incurred in connection with the avian influenza outbreak in our Eastern
Division and lower dark meat sales prices in the U.S. caused in part by import
restrictions on poultry products typically sold to Russia and Japan by the
industry.
Consolidated Selling, General and Administrative. Consolidated selling,
general and administrative expenses were $135.3 million in fiscal 2002 and
$119.4 million in fiscal 2001. The $15.9 million increase was due primarily to
the acquisition of WLR Foods, which was completed on January 27, 2001.
Consolidated selling, general and administrative expenses as a percentage of
sales decreased slightly in fiscal 2002 to 5.3%, compared to 5.4% in fiscal
2001.
Operating Income. Consolidated operating income was $29.9 million for
fiscal 2002, decreasing by approximately $64.6 million, when compared to fiscal
2001 due primarily to the negative effects of the avian influenza outbreak in
our Eastern Division and to lower dark meat sales prices in the U.S. caused in
part by import restrictions on poultry products typically sold to Russia and
Japan by the industry.
Interest Expense. Consolidated net interest expense increased 4.0% to
$32.0 million in fiscal 2002, when compared to $30.8 million for fiscal 2001,
due primarily to higher average outstanding debt balances experienced in the
year.
Income Tax Expense. Consolidated income tax benefit in fiscal 2002 was
$12.4 million compared to an income tax expense of $21.3 million in fiscal
2001. This decrease was primarily caused by the $11.9 million income tax
benefit resulting from changes in the Mexico tax law and lower pretax earnings
in fiscal 2002.
FISCAL 2001 COMPARED TO FISCAL 2000
On January 27, 2001, we completed the acquisition of WLR Foods, a
vertically integrated producer of chicken and turkey products located in the
eastern United States. Accordingly, 35 weeks of operations of the former WLR
Foods are included in our results for fiscal 2001.
Consolidated Net Sales. Consolidated net sales were $2.2 billion for
fiscal 2001, an increase of $715.3 million, or 47.7%, from fiscal 2000. The
increase in consolidated net sales resulted from a $422.0 million increase in
U.S. chicken sales to $1.5 billion, a $238.8 million increase in turkey sales,
a $36.7 million increase in sales of other products to $200.1 million and by a
$17.8 million increase in Mexico chicken sales to $303.4 million. The increase
in U.S. chicken sales was primarily due to a 35.6% increase in dressed pounds
produced, which resulted primarily from the acquisition of WLR Foods, and to a
3.4% increase in total revenue per dressed pound produced. The increase in
turkey sales was due to the acquisition of WLR Foods. The $36.7 million
increase in sales of other U.S. products to $200.1 million was primarily due to
the acquisition of WLR Foods and higher prices in our commercial egg
operations. The $17.8 million increase in Mexico chicken sales was primarily
due to a 13.4% increase in dressed pounds produced offset partially by a 7.1%
decrease in average revenue per dressed pound produced, primarily due to lower
prices caused by an over supply of chicken.
Cost of Sales. Consolidated cost of sales was $2.0 billion in fiscal
2001, an increase of $667.2 million, or 50.0%, compared to fiscal 2000. The
U.S. operations accounted for $630.8 million of the increase in the cost of
sales and our Mexico operations accounted for $36.4 million of the increase.
The cost of sales increase in our U.S. operations of $630.8 million was
due primarily to the acquisition of WLR Foods, $222.6 million of which related
to the turkey operations, but also resulted from increased production of higher
cost prepared foods products, higher energy costs and higher feed ingredient
costs.
The $36.4 million cost of sales increase in our Mexico operations was
primarily due to a 13.4% increase in dressed pounds produced.
Gross Profit. Gross profit was $214.0 million for fiscal 2001, an
increase of $48.1 million, or 29.0%, over the same period last year, due
primarily to the acquisition of WLR Foods. Gross profit as a percentage of
sales decreased to 9.7% in fiscal 2001, from 11.1% in fiscal 2000, due
primarily to lower sales prices in Mexico.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses were $119.4 million in fiscal 2001 and
$85.3 million in fiscal 2000. The $34.1 million increase was due primarily to
the acquisition of WLR Foods and certain integration costs related thereto.
Consolidated selling, general and administrative expenses as a percentage of
sales decreased in fiscal 2001 to 5.4%, compared to 5.7% in fiscal 2000, due
primarily to synergies resulting from the WLR Foods acquisition.
Operating Income. Consolidated operating income was $94.5 million for
fiscal 2001, an increase of $14.1 million when compared to fiscal 2000,
resulting primarily from higher volumes from the acquisition of WLR Foods and
higher sales prices in the U.S.
Interest Expense. Consolidated net interest expense increased 73.1% to
$30.8 million in fiscal 2001, when compared to $17.8 million for fiscal 2000,
due to higher outstanding balances incurred for the acquisition of WLR Foods.
Income Tax Expense. Consolidated income tax expense in fiscal 2001
increased to $21.3 million compared to an expense of $10.4 million in fiscal
2000. This increase resulted from higher U.S. pre-tax earnings in fiscal 2001
than in fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
We maintain $130.0 million in revolving credit facilities, $30 million of
which is related to our Mexican operations, and $400.0 million in a secured
revolving/term borrowing facility, subject to certain limitations including
availability of collateral. The $400.0 million revolving/term borrowing
facility provides for $285.0 million and $115.0 million of 10-year and 7-year
commitments, respectively. Borrowings under these facilities are split pro rata
between the 10-year and 7-year maturities as they occur. The credit facilities
provide for interest at rates ranging from LIBOR plus five-eighths percent to
LIBOR plus two and three-quarters percent, depending upon our total debt to
capitalization ratio. Interest rates on debt outstanding under these facilities
as of September 28, 2002 ranged from LIBOR plus one and three-quarters percent
to LIBOR plus two percent. These facilities are secured by inventory and fixed
assets; the $30 million facility in Mexico is further secured by Mexican
accounts receivables, inventories and certain fixed assets.
At September 28, 2002, $115.9 million was available under the revolving
credit facilities including $30.0 million in Mexico and $209.0 million was
available under the revolving/term borrowing facility. At December 2, 2002 we
had $76.1 million available under our revolving credit facilities and $180.0
million available under the revolving/term borrowing facility and cash on hand
of $81.3 million compared to $14.9 million at September 28, 2002, due primarily
to advances subsequent to year end on the various facilities, for a total
liquidity of $337.4 million at December 2, 2002 compared to $339.8 million at
September 28, 2002.
On June 26, 1998, we entered into an Asset Sale Agreement to sell up to
$60 million of accounts receivable. In connection with the Asset Sale
Agreement, we sell, on a revolving basis, certain of our trade receivables (the
"Pooled Receivables") to a special purpose corporation wholly owned by us,
which in turn sells a percentage ownership interest to third parties. At
September 28, 2002 and September 29, 2001, an interest in these Pooled
Receivables of $58.5 million had been sold to third parties and is reflected as
a reduction in accounts receivable during each period. This sales agreement
expires on June 30, 2003. If this facility is not replaced or extended the
Company will likely use its revolving/term borrowing facility to provide this
liquidity. These transactions have been recorded as sales in accordance with
Financial Accounting Standards Board Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
The gross proceeds resulting from the sale are included in cash flows from
operating activities in our consolidated statements of cash flows. Losses on
these sales were immaterial.
On June 29, 1999, the Camp County Industrial Development Corporation
issued $25.0 million of variable-rate environmental facilities revenue bonds
supported by letters of credit obtained by us. We may draw from these proceeds
over the construction period for new sewage and solid waste disposal facilities
at a poultry by-products plant to be built in Camp County, Texas. We are not
required to borrow the full amount of the proceeds from the bonds. All amounts
borrowed from these funds will be due in 2029. The amounts that we borrow will
be reflected as debt when received from the Camp County Industrial Development
Corporation. The interest rates on amounts borrowed will closely follow the
tax-exempt commercial paper rates. Presently, there are no borrowings
outstanding under the bonds.
On August 9, 2001, Pilgrim's Pride issued $200.0 million in senior unsecured
notes with an interest rate of 9 5/8% maturing on September 15, 2011. The
proceeds from the notes offering were used to redeem the remaining $90.8
million outstanding of our 10 7/8% senior subordinated notes due 2003. The
balance of the proceeds was used to reduce indebtedness under our $400.0
million revolving/term borrowing facility.
At September 28, 2002, our working capital decreased to $179.0 million and
our current ratio decreased to 1.68 to 1, compared with working capital of
$203.4 million and a current ratio of 1.85 to 1 at September 29, 2001,
primarily due to the working capital changes discussed below.
Contractual Obligations and Guarantees. Obligations under long-term debt and
non-cancelable operating leases at September 28, 2002 are as follows (in
millions):
Payments Due By Period
Less than After
Contractual Obligations Total 1 year 1-3 years 4-5 years 5 years
Long-term debt(a) $453.6 $3.4 $21.6 $49.1 $379.5
Guarantee Fees 13.2 2.5 4.8 4.1 1.8
Operating leases 110.3 32.4 38.2 26.8 12.9
Total $577.1 $38.3 $64.6 $80.0 $394.2
(a) Excludes $14.1 million in letters of credit outstanding related to normal
business transactions.
Trade accounts and other receivables were $85.3 million at September 28,
2002, compared to $95.0 million at September 29, 2001. The $9.7 million, or
10.2%, decrease in trade accounts and other receivables was primarily due to
improvements in collection efficiencies. Excluding the sale of receivables,
trade accounts and other receivables would have decreased $8.5 million, to
$143.8 million at the end of fiscal 2002 from $153.5 million at the end of
fiscal 2001.
Inventories were $326.8 million at September 28, 2002, compared to $314.4
million at September 29, 2001. The $12.4 million, or 3.9%, increase in
inventories was primarily due to increases in finished turkey products
inventories resulting from changes made in product mix in connection with the
outbreak of avian influenza (see General, Overview and Developments) which
inventories are expected to be liquidated during the 2002 Thanksgiving and
Christmas holiday seasons.
Accounts payable and accrued expenses increased $18.6 million to $248.5
million at September 28, 2002, compared to $229.9 million at September 29, 2001
due to an increase in higher feed, other ingredients, packaging costs, and
other expenses.
Capital expenditures of $80.4 million, $112.6 million and $92.1 million,
for fiscal years 2002, 2001 and 2000, respectively, were primarily incurred to
acquire and expand certain facilities, improve efficiencies, reduce costs and
for the routine replacement of equipment. We anticipate spending approximately
$65.0 million to $75.0 million in fiscal 2003 to improve efficiencies and for
the routine replacement of equipment. We expect to finance such expenditures
with available operating cash flows and existing revolving/term and revolving
credit facilities.
Cash flows provided by operating activities were $98.1 million, $87.8
million and $130.8 million for the fiscal years 2002, 2001 and 2000,
respectively. The increase in cash flows provided by operating activities for
fiscal 2002 when compared to fiscal 2001, was primarily due to a full year
impact from the former WLR Foods operations in fiscal 2002, compared to 35
weeks in fiscal 2001. The decrease in cash flows provided by operating
activities in fiscal 2001 compared to fiscal 2000, was primarily due to an
overall increase of accounts receivable, due primarily to a higher level of
sales activity and increased inventories, due primarily to higher levels of
live poultry and frozen turkey inventories due primarily to seasonal variations
in the live production cycle and sales of turkey products, both of which were
primarily a result of the WLR Foods acquisition; and lower net income for
fiscal 2001.
Cash flows (used in) provided by financing activities were ($21.2)
million, $254.2 million and ($22.6) million for the fiscal years 2002, 2001 and
2000, respectively. The increase in cash used in financing activities for
fiscal 2002, when compared to fiscal 2001, is primarily due to borrowings to
finance the acquisition of WLR Foods in 2001. The increase in cash flows
provided by financing activities for fiscal 2001, when compared to fiscal 2000,
reflects the net proceeds from borrowings to finance the acquisition of WLR
Foods.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
General. Our discussion and analysis of our financial condition and
results of operations are based upon our financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. On an ongoing basis, we evaluate our
estimates, including those related to revenue recognition, customer programs
and incentives, allowance for doubtful accounts, inventories and income taxes.
We base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements.
Revenue Recognition. Revenue is recognized upon shipment or upon transfer
of ownership of the product to the customer and is recorded net of estimated
incentive offerings including special pricing agreements, promotions and other
volume-based incentives. Revisions to these estimates are charged to income in
the period in which the facts that give rise to the revision become known.
Allowance for Doubtful Accounts. We maintain allowances for doubtful
accounts reflecting estimated losses resulting from the inability of our
customers to make required payments. The allowance for doubtful accounts is
based on management's review of the overall condition of accounts receivable
balances and review of significant past due accounts. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.
Inventory. Live poultry inventories are stated at the lower of cost or
market and breeder hens at the lower of cost, less accumulated amortization, or
market. The costs associated with breeder hens are accumulated up to the
production stage and amortized over the productive lives using the unit-of-
production method. Finished poultry products, feed, eggs and other inventories
are stated at the lower of cost (first-in, first-out method) or market. We
record valuations and adjustments for our inventory and for estimated
obsolescence at or equal to the difference between the cost of inventory and
the estimated market value based upon known conditions affecting the
inventories obsolescence, including significantly aged products, discontinued
product lines, or damaged or obsolete products. We allocate meat costs between
our various finished poultry products based on a by-product costing technique
that reduces the cost of the whole bird by estimated yields and amounts to be
recovered for certain by-product parts, primarily including leg quarters,
wings, tenders and offal, which are carried in inventory at the estimated
recovery amounts, with the remaining amount being reflected as our breast meat
cost. As a result, our lower of cost or market evaluation is done separately
on a pool basis for all chicken and turkey products. If actual market
conditions are less favorable than those projected by management, additional
inventory adjustments may be required.
Accrued Self Insurance. Insurance expense for casualty claims and
employee-related health care benefits are estimated using historical experience
and actuarial estimates. Stop-loss coverage is maintained with third party
insurers to limit the Company's total exposure. The assumption used to arrive
at periodic expenses is reviewed regularly by management. However, actual
expenses could differ from these estimates and could result in adjustments to
be recognized.
Income Taxes. We account for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, which requires that deferred tax assets and
liabilities be recognized for the effect of temporary differences between the
book and tax bases of recorded assets and liabilities. Taxes are provided for
international subsidiaries based on the assumption that these earnings are
indefinitely reinvested in the Company and within individual companies and as
such taxes are not provided in the U.S. or local jurisdictions that would be
required in the event of distribution of these earnings. SFAS No. 109 also
requires that deferred tax assets be reduced by a valuation allowance if it is
more likely than not that some portion or all of the deferred tax asset will
not be realized. We review the recoverability of any tax assets recorded on
the balance sheet, primarily operating loss carryforwards, based on both
historical and anticipated earnings levels of the individual operations and
provide a valuation allowance when it is more likely than not that amounts will
not be recovered.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The risk inherent in our market risk sensitive instruments and positions is
the potential loss arising from adverse changes in the price of feed
ingredients, foreign currency exchange rates and interest rates as discussed
below. The sensitivity analyses presented do not consider the effects that
such adverse changes may have on overall economic activity, nor do they
consider additional actions our management may take to mitigate our exposure to
such changes. Actual results may differ.
Feed Ingredients
We purchase certain commodities, primarily corn and soybean meal. As a
result, our earnings are affected by changes in the price and availability of
such feed ingredients. As market conditions dictate, we will from time to time
lock-in future feed ingredient prices using various hedging techniques,
including forward purchase agreements with suppliers and futures contracts. We
do not use such financial instruments for trading purposes and are not a party
to any leveraged derivatives. Market risk is estimated as a hypothetical 10%
increase in the weighted-average cost of our primary feed ingredients as of
September 28, 2002. Based on our feed consumption during fiscal 2002, such an
increase would have resulted in an increase to cost of sales of approximately
$69.5 million, excluding the impact of any hedging in that period. As of
September 28, 2002, we had hedged 1.7% of our 2003 feed requirements.
Foreign Currency
Our earnings are affected by foreign exchange rate fluctuations related to
the Mexican peso net monetary position of our Mexico subsidiaries denominated
in Mexican pesos. We manage this exposure primarily by attempting to minimize
our Mexican peso net monetary position, but from time to time we have also
considered executing hedges to help minimize this exposure. Such instruments,
however, have historically not been economically feasible. We are also exposed
to the effect of potential exchange rate fluctuations to the extent that
amounts are repatriated from Mexico to the United States. However, we currently
anticipate that the cash flows of our Mexico subsidiaries will continue to be
reinvested in our Mexico operations. In addition, the Mexican peso exchange
rate can directly and indirectly impact our results of operations and financial
position in several manners, including potential economic recession in Mexico
resulting from a devalued peso. The impact on our financial position and
results of operations of a hypothetical change in the exchange rate between the
U.S. dollar and the Mexican peso cannot be reasonably estimated. Foreign
currency exchange gains and losses, representing the change in the U.S. dollar
value of the net monetary assets of our Mexico subsidiaries denominated in
Mexican pesos, was a loss of $1.5 million in fiscal 2002 and a loss of $0.1
million and gain of $0.2 million in fiscal 2001 and 2000, respectively. On
December 2, 2002, the Mexican peso closed at 10.19 to 1 U.S. dollar, compared
to 10.02 at September 28, 2002. No assurance can be given as to how future
movements in the peso could affect our future earnings.
Interest Rates
Our earnings are also affected by changes in interest rates due to the
impact those changes have on our variable-rate debt instruments. The
acquisition of WLR Foods substantially increased our outstanding balances of
variable rate debt. We have variable-rate debt instruments representing
approximately 42.4% of our long-term debt at September 28, 2002. Holding other
variables constant, including levels of indebtedness, a 25 basis points
increase in interest rates would have increased our interest expense by $0.5
million for fiscal 2002. These amounts are determined by considering the impact
of the hypothetical interest rates on our variable-rate long-term debt at
September 28, 2002.
Market risk for fixed-rate long-term debt is estimated as the potential
increase in fair value resulting from a hypothetical 25 basis points decrease
in interest rates and amounts to approximately $11.6 million as of September
28, 2002, using discounted cash flow analysis.
Impact of Inflation
Due to low to moderate inflation in the U.S. and Mexico and our rapid
inventory turnover rate, the results of operations have not been significantly
affected by inflation during the past three-year period.
FORWARD LOOKING STATEMENTS
Statements of our intentions, beliefs, expectations or predictions for the
future, denoted by the words "anticipate," "believe," "estimate," "expect,"
"project," "imply," "intend," "foresee" and similar expressions, are forward-
looking statements that reflect our current views about future events and are
subject to risks, uncertainties and assumptions. Such risks, uncertainties and
assumptions include those described under "Risk Factors" below and elsewhere in
this Annual Report on Form 10-K.
Actual results could differ materially from those projected in these
forward-looking statements as a result of these factors, among others, many of
which are beyond our control.
In making these statements, we are not undertaking, and specifically
decline to undertake, any obligation to address or update each or any factor in
future filings or communications regarding our business or results, and we are
not undertaking to address how any of these factors may have caused changes or
information contained in previous filings or communications. Though we have
attempted to list comprehensively these important cautionary risk factors, we
wish to caution investors and others that other factors may in the future prove
to be important in affecting our business or results of operations.
RISK FACTORS
Cyclicality and Commodity Prices. Industry cyclicality can affect our
earnings, especially due to fluctuations in commodity prices of feed
ingredients, chicken and turkey.
Profitability in the chicken and turkey industries is materially affected by
the commodity prices of feed ingredients, chicken and turkey, which are
determined by supply and demand factors. As a result, the chicken and turkey
industries are subject to cyclical earnings fluctuations.
The production of feed ingredients is positively or negatively affected
primarily by weather patterns throughout the world, the global level of supply
inventories and demand for feed ingredients, and the agricultural policies of
the United States and foreign governments. In particular, weather patterns
often change agricultural conditions in an unpredictable manner. A sudden and
significant change in weather patterns could affect supplies of feed
ingredients, as well as both the industry's and our ability to obtain feed
ingredients, grow chickens and turkeys or deliver products.
High feed ingredient prices have had a material adverse effect on our
operating results in the past. We periodically seek, to the extent available,
to enter into advance purchase commitments or financial hedging contracts for
the purchase of feed ingredients in an effort to manage our feed ingredient
costs. The use of such instruments may not be successful.
Substantial Leverage. Our substantial indebtedness could adversely affect our
financial condition.
We presently have, and expect to continue to have, a substantial amount of
indebtedness. Our substantial indebtedness could have important consequences to
you. For example, it could:
- Make it more difficult for us to satisfy our obligations under our
indebtedness, including our debt securities;
- Increase our vulnerability to general adverse economic conditions;
- Limit our ability to obtain necessary financing and to fund future
working capital, capital expenditures and other general corporate
requirements;
- Require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures and for other general corporate purposes;
- Limit our flexibility in planning for, or reacting to, changes in
our business and the industry in which we operate;
- Place us at a competitive disadvantage compared to our competitors
that have less debt;
- Limit our ability to pursue acquisitions and sell assets;
- Make us vulnerable to increases in interest rates because a
substantial portion of our borrowings are at variable interest rates; and
- Limit, along with the financial and other restrictive covenants in
our indebtedness, our ability to borrow additional funds, and failing to
comply with those covenants could result in an event of default or
require redemption of indebtedness. Either of these events could have a
material adverse effect on us.
Our ability to make payments on and to refinance our indebtedness will
depend on our ability to generate cash in the future, which is dependent on
various factors. These factors include the commodity prices of feed
ingredients, chicken and chicken parts and general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control.
Additional Borrowings Available. Despite our substantial indebtedness, we may
still be able to incur significantly more debt. This could intensify the risks
described above.
Despite our substantial indebtedness, we are not prohibited from incurring
additional indebtedness in the future. If additional debt is added to our
current debt levels, the related risks that we now face could intensify.
Integration of the Eastern Division. We have only recently acquired the
Eastern Division and may not be able to successfully integrate its operations
over the long term.
We only recently began to operate the businesses of Pilgrim's Pride and the
Eastern Division as a combined entity. The acquisition of the Eastern Division
has significantly increased our size and operations. Our prospects should be
considered in light of the numerous risks commonly encountered in business
combinations. Although our management has significant experience in the
chicken industry, there can be no assurance as to our ability to effectively
integrate WLR Foods or fully realize the associated cost savings and operating
synergies currently anticipated.
Contamination of Products. If our poultry products become contaminated, we
may be subject to product liability claims and product recalls.
Poultry products may be subject to contamination by disease producing
organisms, or pathogens, such as Listeria monocytogenes, Salmonella and generic
E coli. These pathogens are generally found in the environment and, as a
result, there is a risk that they, as a result of food processing, could be
present in our processed poultry products. These pathogens can also be
introduced as a result of improper handling at the further processing,
foodservice or consumer level. These risks may be controlled, but may not be
eliminated, by adherence to good manufacturing practices and finished product
testing. The Company has little, if any, control over proper handling once the
product has been shipped. Illness and death may result if the pathogens are
not eliminated at the further processing, foodservice or consumer level. Even
an inadvertent shipment of contaminated products is a violation of law and may
lead to increased risk of exposure to product liability claims, product recalls
and increased scrutiny by federal and state regulatory agencies and may have a
material adverse effect on our business, reputation and prospects.
As described in detail under "Item 1. Business - General - Overview and
Recent Developments," in October 2002 one product sample produced in our
Franconia, Pennsylvania facility that had not been shipped to customers tested
positive for Listeria and we later received information from the USDA
suggesting that environmental samples taken at the facility had tested positive
for both the strain of Listeria identified in the product and a strain having
characteristics similar to those of the strain identified in a Northeastern
Listeria outbreak. As a result of these findings, we recalled all cooked deli
products produced at the facility from May 1, 2002 through October 11, 2002 and
temporarily suspended operations at the facility to redouble our food safety
and sanitation efforts. There can be no assurance that there will not be
additional recalls of our products in the future or that this recall or any
such future recall or any litigation arising therefrom will not have a material
adverse effect on our ability to market our products successfully or on our
business, reputation, prospects, financial condition and results of operations.
Livestock and Poultry Disease. Outbreaks of livestock diseases in general, and
poultry disease in particular, can significantly restrict our ability to
conduct our operations.
We take all reasonable precautions to ensure that our flocks are healthy and
that our processing plants and other facilities operate in a sanitary and
environmentally sound manner. However, events beyond our control, such as the
outbreak of disease, could significantly restrict our ability to conduct our
operations. Furthermore, an outbreak of disease could result in governmental
restrictions on the import and export of our fresh chicken, turkey or other
products to or from our suppliers, facilities or customers, or require us to
destroy one or more of our flocks. This could result in the cancellation of
orders by our customers and create adverse publicity that may have a material
adverse effect on our ability to market our products successfully and on our
business, reputation and prospects.
As described in more detail under "Item 1. Business - General - Overview and
Recent Developments," an outbreak of low-pathogenic avian influenza, a disease
contagious to turkey, chicken and other birds, has had a material adverse
effect on our fiscal 2002 operating results and is expected to continue to have
a material adverse effect on our results through at least the first six months
of fiscal 2003. There can be no assurance that the losses associated with this
avian influenza outbreak will not be greater than anticipated or that any
future poultry disease outbreaks will not have a material adverse effect on our
ability to market our products successfully or on our business, reputation,
prospects, financial condition and results of operations.
Product Liability. Product liability claims or product recalls can adversely
affect our business reputation and expose us to increased scrutiny by federal
and state regulators.
The packaging, marketing and distribution of food products entails an
inherent risk of product liability and product recall and the resultant adverse
publicity. We may be subject to significant liability if the consumption of
any of our products causes injury, illness or death. We could be required to
recall certain of our products in the event of contamination or damage to the
products. In addition to the risks of product liability or product recall due
to deficiencies caused by our production or processing operations, we may
encounter the same risks if any third party tampers with our products. We
cannot assure you that we will not be required to perform product recalls, or
that product liability claims will not be asserted against us, in the future.
Any claims that may be made may create adverse publicity that would have a
material adverse effect on our ability to market our products successfully or
on our business, reputation, prospects, financial condition and results of
operations.
As described above under "Contamination of Products - If our poultry
products become contaminated, we may be subject to product liability claims and
product recalls." We recently recalled all cooked deli products produced at one
of our facilities from May 1, 2002 through October 11, 2002. In connection
with this recall, a class action lawsuit was filed against us on behalf of a
putative class of persons that purchased and/or consumed meat products subject
to the recall and we have received a substantial amount of press. See Item 3.
Legal Proceedings. There can be no assurance that any class action litigation
or reputational injury associated with this or any future product recalls will
not have a material adverse effect on our ability to market our products
successfully and on our business, reputation, prospects, financial condition
and results of operations.
Insurance. We are exposed to risks relating to product liability, product
recalls, property damage and injuries to persons, for which insurance coverage
is expensive, limited and potentially inadequate.
Our business operations entail a number of risks, including risks relating
to product liability claims, product recalls, property damage and injuries to
persons. We currently maintain insurance with respect to certain of these
risks, including product liability and recall insurance, property insurance,
workers compensation insurance and general liability insurance, but in many
cases such insurance is expensive, difficult to obtain and no assurance can be
given that such insurance can be maintained in the future on acceptable terms,
or in sufficient amounts to protect us against losses due to any such events,
or at all. Moreover, even though our insurance coverage may be designed to
protect us from losses attributable to certain events, it may not adequately
protect us from liability and expenses we incur in connection with such events.
For example, in the past one of our insurers encountered financial difficulties
and was unable to fulfill its obligations under one of our insurance policies
and one of our insurers contested coverage with respect to a claim forcing us
to litigate the issue of coverage.
As described above under "Contamination of Products-If our poultry
products become contaminated, we may be subject to product liability claims and
product recalls," we recently recalled all cooked deli products produced at one
of our facilities from May 1, 2002 through October 11, 2002, and a class action
lawsuit was filed against us on behalf of a putative class of persons that
purchased and/or consumed meat products subject to the recall. We have
notified our insurers as to the occurrence of these events and made one claim
to date under our product recall insurance policy. While we carry insurance
designed to cover recall events such as this and we believe that the insurance
policies purchased will cover the direct costs associated with the product
recall and related product liability claims and, subject to the insurer's
reservation of rights, we have received a $4 million advance payment from our
insurer with respect to the product recall claim, no assurances can be given
that such insurance will in fact adequately protect us from liability and
expenses we incur in connection with this recall or any such future events.
Potential Acquisitions. We may pursue opportunities to acquire complementary
businesses, which could increase leverage and debt service requirements and
could adversely affect our financial situation if we fail to successfully
integrate the acquired business.
We intend to pursue selective acquisitions of complementary businesses in
the future. Inherent in any future acquisitions are certain risks such as
increasing leverage and debt service requirements and combining company
cultures and facilities, which could have a material adverse effect on our
operating results, particularly during the period immediately following such
acquisitions. Additional debt or equity capital may be required to complete
future acquisitions, and there can be no assurance that we will be able to
raise the required capital. Furthermore, acquisitions involve a number of
risks and challenges, including:
* Diversion of management's attention;
* The need to integrate acquired operations;
* Potential loss of key employees and customers of the acquired
companies;
* Lack of experience in operating in the geographical market of the
acquired business; and
* An increase in our expenses and working capital requirements.
Any of these and other factors could adversely affect our ability to achieve
anticipated cash flows at acquired operations or realize other anticipated
benefits of acquisitions.
Foreign Operations Risks. Our foreign operations pose special risks to our
business and operations.
We have substantial operations and assets located in Mexico. Foreign
operations are subject to a number of special risks, including among others:
* Currency exchange rate fluctuations;
* Trade barriers;
* Exchange controls;
* Expropriation; and
* Changes in laws and policies, including those governing foreign-
owned operations.
Currency exchange rate fluctuations have adversely affected us in the past.
Exchange rate fluctuations or one or more other risks may have a material
adverse effect on our business or operations in the future.
Our operations in Mexico are conducted through subsidiaries organized under
the laws of Mexico. We may rely in part on intercompany loans and distributions
from our subsidiaries to meet our obligations. Claims of creditors of our
subsidiaries, including trade creditors, will generally have priority as to the
assets of our subsidiaries over our claims. Additionally, the ability of our
Mexican subsidiaries to make payments and distributions to us will be subject
to, among other things, Mexican law. In the past, these laws have not had a
material adverse effect on the ability of our Mexican subsidiaries to make
these payments and distributions. However, laws such as these may have a
material adverse effect on the ability of our Mexican subsidiaries to make
these payments and distributions in the future.
Government Regulation. Regulation, present and future, is a constant factor
affecting our business.
The chicken and turkey industries are subject to federal, state and local
governmental regulation, including in the health and environmental areas. We
anticipate increased regulation by various agencies concerning food safety, the
use of medication in feed formulations and the disposal of poultry by-products
and wastewater discharges. Unknown matters, new laws and regulations, or
stricter interpretations of existing laws or regulations may materially affect
our business or operations in the future.
Control of Voting Stock. Voting control over Pilgrim's Pride is maintained by
Lonnie "Bo" Pilgrim and Lonnie Ken Pilgrim.
Through a limited partnership of which they are the only general partners,
Lonnie "Bo" Pilgrim and his son Lonnie Ken Pilgrim have voting control of 60.8%
of the voting power of our outstanding common stock. They are therefore in a
position to control the outcome of all actions requiring stockholder approval,
including the election of directors. This ensures their ability to control the
future direction and management of Pilgrim's Pride. If Lonnie "Bo" Pilgrim and
certain members of his family cease to own at least a majority of the voting
power of the outstanding common stock, it will constitute an event of default
under certain agreements relating to our indebtedness.
Risks Associated with Tax Status.
Potential payment of deferred taxes may affect our cash flow.
Before July 2, 1988, we used the cash method of accounting for income tax
purposes. Pursuant to changes in the laws enacted by the Revenue Act of 1987,
we were required to change our method of accounting for federal income tax
purposes from the cash method to the accrual method. As a consequence of this
change in our accounting method, we were permitted to create a "suspense
account" in the amount of approximately $89.7 million. The money in the
suspense account represents deferred income arising from our prior use of the
cash method of accounting.
Beginning in fiscal 1998, we are generally required to include 1/20th of the
amount in the suspense account, or approximately $4.5 million, in taxable
income each year for the next 20 years. As of September 28, 2002, the balance
in the suspense account was approximately $64 million. However, the full amount
must be included in taxable income in any year that Pilgrim's Pride ceases to
be a "family corporation." We will cease to be a "family corporation" if Lonnie
"Bo" Pilgrim's family ceases to own at least 50% of the total combined voting
power of all classes of stock entitled to vote. If that occurs, we would be
required to recognize the balance of the suspense account in taxable income.
Currently there exists no plan or intention on the part of Lonnie "Bo"
Pilgrim's family to transfer enough Pilgrim's Pride stock so that we cease to
qualify as a family corporation. However, this may happen, and the suspense
account might be required to be included in our taxable income.
Potential accrual of deferred taxes may affect our net income and cash flow.
The Company has not provided any deferred income taxes on the undistributed
earnings of its Mexico subsidiaries based upon its determination that such
earnings will be indefinitely reinvested. As of September 28, 2002, the
cumulative undistributed earnings of these subsidiaries were approximately
$191.7 million. If such earnings were not considered indefinitely reinvested,
deferred U.S. and foreign income taxes would have been provided, after
consideration of estimated foreign tax credits. However, determination of the
amount of deferred federal and foreign income taxes is not practical.
Significant Competition. Competition in the chicken and turkey industries with
other vertically integrated poultry companies, especially companies with
greater resources, may make us unable to compete successfully in these
industries, which could adversely affect our business.
The chicken and turkey industries are highly competitive. Some of our
competitors have greater financial and marketing resources than us. In both the
United States and Mexico, we primarily compete with other vertically integrated
poultry companies.
In general, the competitive factors in the U.S. poultry industry include:
* Price;
* Product quality;
* Brand identification;
* Breadth of product line; and
* Customer service.
Competitive factors vary by major market. In the foodservice market,
competition is based on consistent quality, product development, service and
price. In the U.S. retail market, we believe that competition is based on
product quality, brand awareness and customer service. Further, there is some
competition with non-vertically integrated further processors in the U.S.
prepared food business.
In Mexico, where product differentiation has traditionally been limited,
product quality and price have been the most critical competitive factors.
Additionally, the North American Free Trade Agreement, which went into effect
on January 1, 1994, requires annual reductions in tariffs for chicken and
chicken products in order to eliminate those tariffs by January 1, 2003. As
those tariffs are reduced, increased competition from chicken imported into
Mexico from the U.S. may have a material adverse effect on the Mexican chicken
industry in general, and on our Mexican operations in particular.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements together with the report of
independent auditors, and financial statement schedule are included on pages 71
through 95 this document. Financial statement schedules other than those
included herein have been omitted because the required information is contained
in the consolidated financial statements or related notes, or such information
is not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Certain information regarding our executive officers has been presented
under "Executive Officers" included in Item 1. Business, above.
Reference is made to the section entitled "Election of Directors" of the
Company's Proxy Statement for its 2002 Annual Meeting of Stockholders, which
section is incorporated herein by reference.
Reference is made to the section entitled "Compliance with Section 16(a) of
the Exchange Act" of the Company's Proxy Statement for its 2002 Annual Meeting
of Stockholders, which section is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
As of September 28, 2002, the Company did not have any compensation plans
(including individual compensation arrangements) under which equity securities
of the Company are authorized for issuance by the Company.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Additional information responsive to Items 11, 12 and 13 is incorporated by
reference from the sections entitled "Security Ownership", "Election of
Directors", "Executive Compensation" and "Certain Transactions" of the
Company's Proxy Statement for its 2002 Annual Meeting of Stockholders.
ITEM 14. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the
participation of the Company's management, including the Chairman, Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness
of the design and operation of the Company's disclosure controls and procedures
within 90 days of the filing date of this Annual Report on Form 10-K. Based on
that evaluation, the Company's management, including the Chairman, CEO and CFO,
concluded that the Company's disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these internal controls
subsequent to the date of their evaluation.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)Financial Statements
(1) The financial statements and schedule listed in the accompanying
index to financial statements and schedules are filed as part of
this report.
(2) All other schedules for which provision is made in the applicable
accounting regulations of the SEC are not required under the
related instructions or are not applicable and therefore have been
omitted.
(3) The financial statements schedule entitled "Valuation and Qualifying
Accounts and Reserves" is filed as part of this
report on page 92.
(a)Reports on Form 8-K
(1) The Company filed a Form 8-K on July 17, 2002, to report certain
supplemental historical financial information including quarterly
information regarding net sales by primary market line that had
generally previously only been reported on an annual basis.
(1) The Company filed a Form 8-K on August 8, 2002, attaching two
exhibits entitled "Statement under Oath of Principal Executive
Officer" and "Statement Under Oath of Principal Financial Officer",
that were executed to comply with Securities and Exchange Commission
Order No. 4-460.
(2) The Company filed a Form 8-K on October 15, 2002, to report two press
releases announcing a voluntary recall of cooked deli products
produced at its Franconia, Pennsylvania facility.
(3) The Company filed a Form 8-K on October 30, 2002, to report certain
supplemental historical financial information including quarterly
information regarding net sales by primary market line.
(c) Exhibits
Exhibit Number
2.1 Agreement and Plan of Reorganization dated September 15, 1986, by and among
Pilgrim's Pride Corporation, a Texas corporation; Pilgrim's Pride Corporation,
a Delaware corporation; and Doris Pilgrim Julian, Aubrey Hal Pilgrim, Paulette
Pilgrim Rolston, Evanne Pilgrim, Lonnie "Bo" Pilgrim, Lonnie Ken Pilgrim,
Greta Pilgrim Owens and Patrick Wayne Pilgrim (incorporated by reference from
Exhibit 2.1 to the Company's Registration Statement on Form S-1 (No. 33-8805)
effective November 14, 1986).
2.2 Agreement and Plan of Merger dated September 27, 2000 (incorporated by
reference from Exhibit 2 of WLR Foods, Inc.'s Current Report on Form 8-K
(No. 000-17060) dated September 28, 2000).
3.1 Certificate of Incorporation of the Company, as amended.*
3.2 Amended and Restated Corporate Bylaws of Pilgrim's Pride Corporation, a
Delaware Corporation, effective May 14,1999.
4.1 Certificate of Incorporation of the Company, as amended (included as Exhibit
3.1).
4.2 Amended and Restated Corporate Bylaws of Pilgrim's Pride Corporation, a
Delaware Corporation, effective May 14, 1999 (included as Exhibit 3.2).
4.3 Indenture dated as of August 9, 2001 by and between Pilgrim's Pride
Corporation and The Chase Manhattan Bank relating to Pilgrim's Pride's
9 5/8% Senior Notes Due 2011 (incorporated by reference from Exhibit 4.1
to Pilgrim's Pride's Current Report on Form 8-K (No. 001-09273) dated
August 9, 2001).
4.4 First Supplemental Indenture dated as of August 9, 2001 by and between
Pilgrim's Pride Corporation and The Chase Manhattan Bank relating to Pilgrim's
Pride's 9 5/8% Senior Notes Due 2011 (incorporated by reference from Exhibit
4.2 to Pilgrim's Pride's Current Report on Form 8-K (No. 001-09273) dated
August 9, 2001).
4.5 Form of 9 5/8% Senior Note Due 2011 (incorporated by reference from Exhibit
4.3 to Pilgrim's Pride's Current Report on Form 8-K (No. 001-09273) dated
August 9, 2001).
10.1 Pilgrim's Industries, Inc. Profit Sharing Retirement Plan, restated as of
July 1, 1987 (incorporated by reference from Exhibit 10.1 of the Company's
Form 8 filed on July 1, 1992).
10.2 Bonus Plan of the Company (incorporated by reference from Exhibit 10.2 to the
Company's Registration Statement on Form S-1 (No. 33-8805) effective November
14, 1986).
10.3 Employee Stock Investment Plan of the Company (incorporated by reference from
Exhibit 10.28 of the Company's Registration Statement on Form S-1
(No. 33-21057) effective May 2, 1988).
10.4 Aircraft Lease Extension Agreement between B.P. Leasing Co., (L.A. Pilgrim,
Individually) and Pilgrim's Pride Corporation (formerly Pilgrim's Industries,
Inc.) effective November 15, 1992 (incorporated by reference from Exhibit
10.48 of the Company's Quarterly Report on Form 10-Q for the three months
ended March 29, 1997).
10.5 Broiler Grower Contract dated May 6, 1997 between Pilgrim's Pride Corporation
and Lonnie "Bo" Pilgrim (Farm 30) (incorporated by reference from Exhibit
10.49 of the Company's Quarterly Report on Form 10-Q for the three months
ended March 29, 1997).
10.6 Commercial Egg Grower Contract dated May 7, 1997 between Pilgrim's Pride
Corporation and Pilgrim Poultry G.P. (incorporated by reference from
Exhibit 10.50 of the Company's Quarterly Report on Form 10-Q for the
three months ended March 29, 1997).
10.7 Agreement dated October 15, 1996 between Pilgrim's Pride Corporation and
Pilgrim Poultry G.P. (incorporated by reference from Exhibit 10.23 of the
Company's Quarterly Report on Form 10-Q for the three months ended
January 2, 1999).
10.8 Heavy Breeder Contract dated May 7, 1997 between Pilgrim's Pride Corporation
and Lonnie "Bo" Pilgrim (Farms 44, 45 & 46) (incorporated by reference from
Exhibit 10.51 of the Company's Quarterly Report on Form 10-Q for the three
months ended March 29, 1997).
10.9 Broiler Grower Contract dated January 9, 1997 by and between Pilgrim's Pride
and O.B. Goolsby, Jr. (incorporated by reference from Exhibit 10.25 of the
Company's Registration Statement on Form S-1 (No. 333-29163) effective June
27, 1997).
10.10 Broiler Grower Contract dated January 15, 1997 by and between Pilgrim's Pride
Corporation and B.J.M. Farms (incorporated by reference from Exhibit 10.26 of
the Company's Registration Statement on Form S-1 (No. 333-29163) effective
June 27, 1997).
10.11 Broiler Grower Agreement dated January 29, 1997 by and between Pilgrim's
Pride Corporation and Clifford E. Butler (incorporated by reference from
Exhibit 10.27 of the Company's Registration Statement on Form S-1
(No. 333-29163) effective June 27, 1997).
10.12 Receivables Purchase Agreement between Pilgrim's Pride Funding Corporation, as
Seller, Pilgrim's Pride Corporation, as Servicer, Pooled Accounts Receivable
Capital Corporation, as Purchaser, and Nesbitt Burns Securities Inc., as Agent
(incorporated by reference from Exhibit 10.33 of the Company's Quarterly
Report on Form 10-Q for the three months ended June 27, 1998).
10.13 Purchase and Contribution Agreement dated as of June 26, 1998 between
Pilgrim's Pride Funding Corporation and Pilgrim's Pride Corporation
(incorporated by reference from Exhibit 10.34 of the Company's Quarterly
Report on Form 10-Q for the three months ended June 27, 1998).
10.14 Second Amended and Restated Secured Credit Agreement between Pilgrim's
Pride Corporation and Harris Trust and Savings Bank, individually and as
agent, and the lenders from time to time parties thereto as lenders, dated
November 5, 1999 (incorporated by reference from Exhibit 10.23 of the
Company's Annual Report on Form 10-K for the fiscal year ended October 2,
1999).
10.15 Guaranty Fee Agreement between Pilgrim's Pride Corporation and Pilgrim
Interests, LTD., dated June 11, 1999 (incorporated by reference from Exhibit
10.24 of the Company's Annual Report on Form 10-K for the fiscal year ended
October 2, 1999).
10.16 Heavy Breeder Contract dated October 27, 1999 between Pilgrim's Pride
Corporation and David Van Hoose (Timberlake Farms) (incorporated by
reference from Exhibit 10.25 of the Company's Annual Report on Form 10-K
for the fiscal year ended October 2, 1999).
10.17 First Amendment to the Second Amended and Restated Secured Credit Agreement
between Pilgrim's Pride Corporation and Harris Trust and Savings Bank,
individually and as agent, and the lenders from time to time parties
thereto as lenders, dated November 5, 1999 (incorporated by reference from
Exhibit 10.27 of the Company's Quarterly Report on Form 10-Q for the three
months ended December 30, 2000).
10.18 Second Amendment to the Second Amended and Restated Secured Credit Agreement
between Pilgrim's Pride Corporation and Harris Trust and Savings Bank,
individually and as agent, and the lenders from time to time parties
thereto as lenders, dated November 5, 1999 (incorporated by reference from
Exhibit 10.28 of the Company's Quarterly Report on Form 10-Q for the three
months ended December 30, 2000).
10.19 Second Amended and Restated Credit Agreement between Pilgrim's Pride
Corporation and CoBank, ACB, individually and as agent and the lenders
from time to time parties hereto as lenders, dated November 16, 2000
(incorporated by reference from Exhibit 10.29 of the Company's Quarterly
Report on Form 10-Q for the three months ended December 30, 2000).
10.20 Commercial Property Lease dated December 29, 2000 between Pilgrim's Pride
Corporation and Pilgrim Poultry G.P. (incorporated by reference from Exhibit
10.30 of the Company's Quarterly Report on Form 10-Q for the three months
ended December 30, 2000).
10.21 Revolving Credit Agreement, made as of September 7, 2001 by and between
Grupo Pilgrim's Pride Funding S. de R.L. de C.V., Comerica Bank, and Comerica
Bank Mexico, S.A., Institucion de Banca Multiple (incorporated by reference
from Exhibit 10.27 of the Company's Annual Report on Form 10-K for the fiscal
year ended September 29, 2001).
10.22 Third Amendment to Second Amended and Restated Secured Credit Agreement
dated as of November 5, 1999, as amended, between Pilgrim's Pride
Corporation and Harris Trust and Savings Bank, individually and as agent,
and the lenders from time to time parties thereto as lenders, dated as
of September 26, 2001 (incorporated by reference from Exhibit 10.28 of
the Company's Annual Report on Form 10-K for the fiscal year ended
September 29, 2001).
10.23 Promissory note dated January 4, 2002 signed by David Van Hoose in
favor of Pilgrim's Pride Corporation (incorporated by reference from
Exhibit 10.29 of the Company's Quarterly Report on Form 10-Q for the
three months ended March 30, 2002).
10.24 Promissory note dated January 4, 2002 signed by Clifford E. Butler in favor
of Pilgrim's Pride Corporation (incorporated by reference from Exhibit 10.30
of the Company's Quarterly Report on Form 10-Q for the three months ended
March 30, 2002).
10.25 Promissory note dated January 4, 2002 signed by Richard A. Cogdill in favor
of Pilgrim's Pride Corporation (incorporated by reference from Exhibit 10.31
of the Company's Quarterly Report on Form 10-Q for the three months ended
March 30, 2002).
10.26 Promissory note dated January 4, 2002 signed by Robert L. Hendrix in favor
of Pilgrim's Pride Corporation (incorporated by reference from Exhibit
10.32 of the Company's Quarterly Report on Form 10-Q for the three months
ended March 30, 2002).
10.27 Promissory note dated January 4, 2002 signed by Mike Murray in favor of
Pilgrim's Pride Corporation (incorporated by reference from Exhibit 10.33
of the Company's Quarterly Report on Form 10-Q for the three months ended
March 30, 2002).
10.28 Promissory note dated January 4, 2002 signed by O.B. Goolsby, Jr. in
favor of Pilgrim's Pride Corporation (incorporated by reference from Exhibit
10.34 of the Company's Quarterly Report on Form 10-Q for the three months
ended March 30, 2002).
10.29 Promissory note dated January 4, 2002 signed by Lonnie Ken Pilgrim in
favor of Pilgrim's Pride Corporation (incorporated by reference from
Exhibit 10.35 of the Company's Quarterly Report on Form 10-Q for the
three months ended March 30, 2002).
10.30 First Amendment to Amended and Restated Credit Agreement made as of
December 14, 2001 by and among the Company, CoBank, ACB, individually
and as agent for the benefit of the present and future lenders,
Farm Credit Services of America, FLCA, individually and as a
co-arranger, and the lenders parties thereto individually
(incorporated by reference from Exhibit 10.36 of the Company's Quarterly
Report on Form 10-Q for the three months ended June 29, 2002).
10.31 Second Amendment to Amended and Restated Credit Agreement made as of
June 17, 2002 by and among the Company, CoBank, ACB, Individually and as
agent for the benefit of the present and future lenders, Farm Credit
Services of America, FLCA, individually and as co-arranger, and the
lenders parties thereto individually (incorporated by reference from Exhibit
10.37 of the Company's Quarterly Report on Form 10-Q for the three months
ended June 29, 2002).
10.32 Amendment No. 1 dated as of July 12, 2002 to Receivables Purchase
Agreement dated as of June 26, 1998 among Pilgrim's Pride Funding
Corporation, the Company, Fairway Finance Corporation (as successor
in interest to Pooled Accounts Receivable Capital Corporation) and BMO
Nesbitt Burns Corp. (f/k/a Nesbitt Burns Securities Inc.).*
10.33 Third Amended and Restated Note Purchase Agreement dated as of August 30,
2002 between the Company and John Hancock Life Insurance Company (formerly
known as John Hancock Mutual Life Insurance Company).*
10.34 Retirement agreement dated November 11, 2002 between Pilgrim's Pride
Corporation and David Van Hoose.*
10.35 Third Amendment to Amended and Restated Credit Agreement made as of
October 17, 2002 by and among the Company, CoBank, ACB, individually
and as agent for the benefit of the present and future lenders,
Farm Credit Services of America, FLCA, individually and as co-arranger,
and the lenders parties thereto individually.*
12 Ratio of Earnings to Fixed Charges for the years ended September 28, 2002,
September 29, 2001, September 30, 2000, October 2, 1999 and September 26,
1998.*
21 Subsidiaries of Registrant.*
23 Consent of Ernst & Young LLP.*
*Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 2nd day of December
2002.
PILGRIM'S PRIDE CORPORATION
By: /S/ Richard A. Cogdill
Richard A. Cogdill
Chief Financial Officer
Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ Lonnie "Bo" Pilgrim
________________________ Chairman of the Board 12/5/2002
Lonnie "Bo" Pilgrim (Co-Principal Executive Officer)
/s/ Clifford E. Butler
_______________________ Vice Chairman of the Board 12/5/2002
Clifford E. Butler
/s/ David Van Hoose
________________________ Chief Executive Officer 12/5/2002
David Van Hoose Director
(Co-Principal Executive Officer)
/s/ Richard A. Cogdill
_______________________ Executive Vice President 12/5/2002
Richard A. Cogdill Chief Financial Officer
Secretary and Treasurer
Director
(Principal Financial and Accounting
Officer)
Signature Title Date
/s/ Lonnie Ken Pilgrim
_______________________ Senior Vice President 12/5/2002
Lonnie Ken Pilgrim Director of Transportation
Director
/s/ Charles L. Black
_______________________ Director 12/5/2002
Charles L. Black
/s/ S. Key Coker
_______________________ Director 12/5/2002
S. Key Coker
/s/ Vance C. Miller
______________________ Director 12/5/2002
Vance C. Miller
/s/ James J. Vetter, Jr.
______________________ Director 12/5/2002
James J. Vetter, Jr.
/s/ Donald L. Wass, Ph.D.
_______________________ Director 12/5/2002
Donald L. Wass, Ph.D.
CERTIFICATIONS
I, Lonnie "Bo" Pilgrim, certify that:
1. I have reviewed this annual report on Form 10-K of Pilgrim's Pride
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Lonnie "Bo" Pilgrim
Date: December 5, 2002
Lonnie "Bo" Pilgrim
Chairman of the Board
Co-Principal Executive Officer
CERTIFICATIONS
I, David Van Hoose, certify that:
1. I have reviewed this annual report on Form 10-K of Pilgrim's Pride
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 5, 2002 /s/ David Van Hoose
David Van Hoose
Chief Executive Officer
Co-Principal Executive Officer
CERTIFICATIONS
I, Richard A. Cogdill, certify that:
1. I have reviewed this annual report on Form 10-K of Pilgrim's Pride
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Richard A. Cogdill
Date: December 5, 2002
Richard A. Cogdill
Chief Financial Officer
PILGRIM'S PRIDE CORPORATION
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (A) AND (B) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES
CODE)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of title 18, United States Code), each of the
undersigned officers of Pilgrim's Pride Corporation, (the "Company"), does
hereby certify, to such officer's knowledge, that:
The Annual Report on Form 10-K for the year ended September 28, 2002 (the "Form
10-K") of the Company fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934, and information contained in the
Form 10-K fairly presents, in all material respects, the financial condition
and results of operations of the Company.
/s/ Lonnie "Bo" Pilgrim
Date: December 5, 2002
Lonnie "Bo" Pilgrim
Chairman of the Board
Co-Principal Executive Officer
PILGRIM'S PRIDE CORPORATION
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (A) AND (B) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES
CODE)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of title 18, United States Code), each of the
undersigned officers of Pilgrim's Pride Corporation, (the "Company"), does
hereby certify, to such officer's knowledge, that:
The Annual Report on Form 10-K for the year ended September 28, 2002 (the "Form
10-K") of the Company fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934, and information contained in the
Form 10-K fairly presents, in all material respects, the financial condition
and results of operations of the Company.
/s/ David Van Hoose
Date: December 5, 2002
David Van Hoose
Chief Executive Officer
Co-Principal Executive Officer
PILGRIM'S PRIDE CORPORATION
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (A) AND (B) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES
CODE)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of title 18, United States Code), each of the
undersigned officers of Pilgrim's Pride Corporation, (the "Company"), does
hereby certify, to such officer's knowledge, that:
The Annual Report on Form 10-K for the year ended September 28, 2002 (the "Form
10-K") of the Company fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934, and information contained in the
Form 10-K fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Date: December 5, 2002
/s/Richard A. Cogdill
Richard A. Cogdill
Chief Financial Officer
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders, the Board of Directors and
Pilgrim's Pride Corporation
We have audited the accompanying consolidated balance sheets of Pilgrim's
Pride Corporation and subsidiaries as of September 28, 2002 and September 29,
2001, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended September 28,
2002. Our audits also included the financial statement schedule listed in the
index at Item 15(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pilgrim's
Pride Corporation as of September 28, 2002 and September 29, 2001, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 28, 2002, in conformance with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements, taken as a whole, presents fairly in all material
respects the information set forth therein.
Dallas, Texas Ernst & Young LLP
October 29, 2002,
except for Note J and the first paragraph
of Note C as to which
the date is December 2, 2002
Consolidated Balance Sheets
Pilgrim's Pride Corporation
(In thousands, except share and per share data) September 28, September 29,
2002 2001
ASSETS
CURRENT ASSETS :
Cash and cash equivalents $ 14,913 $ 20,916
Trade accounts and other receivables, less
allowance for doubtful accounts 85,347 95,022
Inventories 326,792 314,400
Other current assets 16,866 12,934
Total Current Assets 443,918 443,272
OTHER ASSETS 21,940 20,067
PROPERTY, PLANT AND EQUIPMENT:
Land 38,718 36,350
Buildings, machinery and equipment 1,039,581 929,922
Autos and trucks 54,609 53,264
Construction-in-progress 30,433 71,427
1,163,341 1,090,963
Less accumulated depreciation 401,309 338,607
762,032 752,356
$1,227,890 $1,215,695
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 163,892 $ 151,265
Accrued expenses 84,618 78,658
Current deferred income tax 12,888 4,900
Current maturities of long-term debt 3,483 5,099
Total Current Liabilities 264,881 239,922
LONG-TERM DEBT, LESS CURRENT MATURITIES 450,161 467,242
DEFERRED INCOME TAXES 116,911 126,710
MINORITY INTEREST IN SUBSIDIARY 1,613 889
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
authorized 5,000,000 shares; none issued -- --
Common stock - Class A, $.01 par value,
authorized 100,000,000 shares; and 13,794,529
shares issued and outstanding in 2002
and 2001, respectively; 138 138
Common stock - Class B, $.01 par value,
authorized 60,000,000 shares; 27,589,250 issued
and outstanding in 2002 and 2001 276 276
Additional paid-in capital 79,625 79,625
Retained earnings 314,626 302,758
Accumulated other comprehensive income (loss) 1,227 (297)
Less treasury stock, 271,100 shares (1,568) (1,568)
Total Stockholders' Equity 394,324 380,932
$1,227,890 $1,215,695
See Notes to Consolidated Financial Statements
Consolidated Statements of Income
Pilgrim's Pride Corporation
(In thousands, except per share data) Three Years Ended September 28, 2002
2002 2001 2000
NET SALES $2,533,718 $2,214,712 $1,499,439
COST AND EXPENSES:
Cost of sales 2,368,553 2,000,762 1,333,611
Selling, general and
administrative 135,261 119,408 85,340
2,503,814 2,120,170 1,418,951
Operating Income 29,904 94,542 80,488
OTHER EXPENSES (INCOME):
Interest expense, net 32,003 30,775 17,779
Foreign exchange (gain) loss 1,463 122 (152)
Miscellaneous, net (5,472) 351 75
27,994 31,248 17,702
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY CHARGE 1,910 63,294 62,786
INCOME TAX (BENEFIT) EXPENSE (12,425) 21,263 10,442
INCOME BEFORE EXTRAORDINARY CHARGE 14,335 42,031 52,344
EXTRAORDINARY CHARGE, NET OF TAX -- 894 --
NET INCOME $ 14,335 $ 41,137 $ 52,344
INCOME PER COMMON SHARE BEFORE EXTRAORDINARY
CHARGE - BASIC AND DILUTED $ 0.35 $ 1.02 $ 1.27
EXTRAORDINARY CHARGE, NET OF TAX -- (.02) --
NET INCOME PER COMMON SHARE-BASIC AND DILUTED $ 0.35 $ 1.00 $ 1.27
See Notes to Consolidated Financial Statements
Consolidated Statements of Stockholders' Equity
Pilgrim's Pride Corporation
( In thousands, except share data)
Shares of Common Stock Total Additional
Par Paid-In
Class A Class B Value Capital
Balance at October 2, 1999 13,794,529 27,589,250 $414 $79,625
Treasury stock purchased (271,100)
Net income for year
Cash dividends declared
($.06 per share)
Balance at September 30, 2000 13,523,429 27,589,250 414 79,625
Net income for year
Other comprehensive income (loss):
Losses on commodity hedging
Hedging losses reclassified as earnings
Total comprehensive income
Cash dividends declared
($.06 per share)
Balance at September 29, 2001 13,523,429 27,589,250 $414 $79,625
Net income for year
Other comprehensive income
Gains on commodity hedging
Hedging income reclassified as
earnings
Total comprehensive income
Cash dividends declared
($.06 per share)
Balance at September 28, 2002 13,523,429 27,589,250 $414 $79,625
Accumulated
Other
Retained Comprehensive Treasury
Earnings Loss Stock Total
Balance at October 2, 1999 $214,220 -- -- $294,259
Treasury stock purchased (1,568) (1,568)
Net income for year 52,344 52,344
Cash dividends declared
($.06 per share) (2,476) (2,476)
Balance at September 30, 2000 264,088 -- (1,568) 342,559
Net income for year 41,137 41,137
Other comprehensive income
(loss):
Losses on commodity hedging (994) (994)
Hedging losses reclassified as earnings 697 697
Total comprehensive income 40,840
Cash dividends declared
($.06 per share) (2,467) (2,467)
Balance at September 29, 2001 302,758 (297) (1,568) 380,932
Net income for year 14,335 14,335
Other comprehensive income
Gains on commodity hedging 81 81
Hedging income reclassified as
earnings 1,443 1,443
Total comprehensive income 15,858
Cash dividends declared
($.06 per share) (2,467) (2,467)
Balance at September 28, 2002 $314,626 $1,227 ($1,568) $394,324
See Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows
Pilgrim's Pride Corporation
(In thousands) Three Years Ended September 28, 2002
2002 2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $14,335 $41,137 $52,344
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 70,973 55,390 36,027
(Gain) loss on property disposals (149) 301 1,093
Deferred income taxes (1,811) 12,737 444
Extraordinary charge -- 1,434 --
Changes in operating assets and liabilities:
Accounts and other receivables 9,675 10,445 34,082
Inventories (12,392) (26,952) (13,202)
Other current assets (3,932) (4,494) 245
Accounts payable and accrued expenses 18,587 (1,030) 19,982
Other 2,827 (1,135) (212)
Cash Provided by Operating Activities 98,113 87,833 130,803
INVESTING ACTIVITIES:
Acquisitions of property, plant
and equipment (80,388) (112,632) (92,128)
Business acquisition -- (239,539) --
Proceeds from property disposals 1,426 2,472 2,319
Other, net (3,497) 571 (6,055)
Cash Used in Investing Activities (82,459) (349,128) (95,864)
FINANCING ACTIVITIES:
Borrowing for acquisition -- 285,070 --
Repayment on WLR Foods debt -- (45,531) --
Proceeds from notes payable to banks 214,500 136,000 71,000
Repayments on notes payable to banks (214,500) (136,000) (71,000)
Proceeds from long-term debt 182,950 425,423 20,047
Payments on long-term debt (201,646) (408,316) (38,622)
Purchase of treasury stock -- -- (1,568)
Cash dividends paid (2,467) (2,467) (2,476)
Cash Provided By (Used In) Financing Activities (21,163) 254,179 (22,619)
Effect of exchange rate changes on cash and
cash equivalents (494) (28) 37
Increase (decrease) in cash and cash
equivalents (6,003) (7,144) 12,357
Cash and cash equivalents at beginning of year 20,916 28,060 15,703
CASH AND CASH EQUIVALENTS AT END OF YEAR $14,913 $20,916 $28,060
SUPPLEMENTAL DISCLOSURE INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $35,234 $26,948 $17,178
Income taxes ($ 4,839) $ 7,255 $13,258
See Notes to Consolidated Financial Statements
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
September 28, 2002
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pilgrim's Pride Corporation (referred to herein as "the Company", "we", "us",
"our", or similar terms) is the second largest producer of poultry in both the
United States and Mexico. In the United States, we produce both prepared and
fresh chicken and turkey, while in Mexico, we produce exclusively fresh
chicken. Through vertical integration, we control the breeding, hatching and
growing of chickens and turkeys and the processing and preparation, packaging
and sale of our product lines.
Our prepared chicken products include portion-controlled breast fillets,
tenderloins and strips, delicatessen products, salads, formed nuggets and
patties and bone-in chicken parts. These products are sold either refrigerated
or frozen and may be fully cooked, partially cooked or raw. In addition, these
products are breaded or non-breaded and either pre-marinated or non-marinated.
The Company also sells fresh chicken products to the foodservice and retail
markets. Our fresh chicken products consist of refrigerated (non-frozen) whole
or cut-up chicken, either pre-marinated or non-marinated, and pre-packaged
chicken, which includes various combinations of freshly refrigerated, whole
chickens and chicken parts.
Our prepared turkey products include products such as turkey sausages, ground
turkey, turkey hams and roasts, ground turkey breast products, salads and
flavored turkey burgers. We also have an array of cooked, further processed
deli products. Effective November 13, 2002 we are no longer producing
frankfurters, although we continue to sell frankfurters produced by others.
Our fresh turkey includes fresh traypack products, turkey burgers and fresh and
frozen whole birds, as well as semi-boneless whole turkey, which has all bones
except the drumsticks removed.
On January 27, 2001, we acquired WLR Foods, Inc. (formerly Nasdaq: WLRF) for
$239.5 million and the assumption of $45.5 million of indebtedness. The
purchase price and refinancing were provided by borrowings on the Company's
existing secured term borrowing facility (see Note C). WLR operations have
been included since the acquisition on January 27, 2001. The acquisition is
being accounted for under the purchase method of accounting and the purchase
price has been allocated based on the estimated fair value of assets and
liabilities.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
September 28, 2002
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information for the year ended
September 29, 2001 has been presented as if the acquisition of WLR Foods, Inc.
had occurred as of the beginning of fiscal 2001. The pro forma financial
information does not necessarily reflect what the results of operations would
have been if the acquisition had been completed at the beginning of fiscal
2001. In addition, certain reclassifications have been made to the WLR
historical financial statements to conform to the presentation used by the
Company.
In thousands, except per share data Year ended
2001
Net Sales $2,479,259
Operating Income 99,128
Interest Expense, Net 39,790
Income Before Taxes 58,607
Income before Extraordinary Charge 39,171
Net Income 38,277
Income per Common Share before Extraordinary
Charge - Basic and Diluted $ 0.95
Extraordinary Charge, Net of Tax (0.02)
Net Income per Common Share $ 0.93
Other Information:
Depreciation and Amortization $ 64,565
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Pilgrim's Pride
Corporation and its wholly and majority owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated.
The Company reports on the basis of a 52/53-week fiscal year, which ends on the
Saturday closest to September 30. As a result, 2002, 2001 and 2000 each had 52
weeks.
The financial statements of the Company's Mexico subsidiaries are remeasured as
if the U.S. dollar were the functional currency. Accordingly, assets and
liabilities of the Mexico subsidiaries are translated at end-of-period exchange
rates, except for non-monetary assets, which are translated at equivalent
dollar costs at dates of acquisition using historical rates. Operations are
translated at average exchange rates in effect during the period. Foreign
exchange losses are separately stated as a component of "Other Expenses
(Income)" in the Consolidated Statement of Income.
REVENUE RECOGNITION
Revenue is recognized upon shipment or upon transfer of ownership of the
product to the customer and is recorded net, estimated incentive offerings
including special pricing agreements, promotions and other volume-based
incentives. Revisions to these estimates are charged to income in the period
in which the facts that give rise to the revision become known.
ALLOWANCE FOR DOUBTFUL ACCOUNTS. We maintain allowances for doubtful accounts
reflecting estimated losses resulting from the inability of our customers to
make required payments. The accounts receivable balances and review of
significant past due accounts. If the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents.
INVENTORIES
Live poultry inventories are stated at the lower of cost or market and breeder
hens at the lower of cost, less accumulated amortization, or market. The costs
associated with breeder hens are accumulated up to the production stage and
amortized over the productive lives using the unit-of-production method.
Finished poultry products, feed, eggs and other inventories are stated at the
lower of cost (first-in, first-out method) or market. Occasionally, the
Company hedges a portion of its purchases of major feed ingredients using
futures contracts to minimize the risk of adverse price fluctuations. The
changes in market value of such agreements have a high correlation to the price
changes of the feed ingredients being hedged. Gains and losses on the hedge
transactions are deferred and recognized as a component of cost of sales when
products are sold. Gains and losses on the futures contracts would be
recognized immediately were the changes in the market value of the agreements
cease to have a high correlation to the price changes of the feed ingredients
being hedged.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of these assets.
Depreciation expense was $69.6 million, $54.4 million and $34.7 million in
2002, 2001 and 2000, respectively. Estimated useful lives for building,
machinery and equipment is 5 years to 33 years and for automobiles and trucks
is 3 years to 5 years.
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of (SFAS 121), the Company records impairment charges on long-lived
assets used in operations when events and circumstances indicate that the
assets may be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amount of those assets.
The impairment charge is determined based upon the amount the net book value of
the assets exceeds their fair market value. In making these determinations,
the Company utilizes certain assumptions, including, but not limited to: (i)
estimated fair market value of the assets, and (ii) estimated future cash flows
expected to be generated by these assets, which are based on additional
assumptions such as asset utilization, length of service the asset will be used
in the Company's operations and estimated salvage values.
ACCRUED SELF INSURANCE. Insurance expense for casualty claims and employee-
related health care benefits are estimated using historical experience and
actuarial estimates. Stop-loss coverage is maintained with third party
insurers to limit the Company's total exposure. The assumption used to arrive
at periodic expenses is reviewed regularly by management. However, actual
expenses could differ from these estimates and could result in adjustments to
be recognized.
INCOME TAXES. We account for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, which requires that deferred tax assets and
liabilities be recognized for the effect of temporary differences between the
book and tax bases of recorded assets and liabilities. Taxes are provided for
international subsidiaries based on the assumption that these earning are
indefinitely reinvested in the Company and within individual companies and as
such taxes are not provided in the U.S. or local jurisdiction that would be
required in the event of distribution of these earnings. SFAS No. 109 also
requires that deferred tax assets be reduced by a valuation allowance if it is
more likely than not that some portion or all of the deferred tax asset will
not be realized. We review the recoverability of any tax assets recorded on
the balance sheet, primarily operating loss carryforwards, based on both
historical and anticipated earnings levels of the individual operations and
provided a valuation allowance when it is more likely than not that these
amounts will not be recovered.
ACCUMULATED OTHER COMPREHENSIVE INCOME
Statement of Accounting Standards No. 133; Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"), was adopted on October 1,
2000. No transitional impact resulted from the adoption of SFAS 133. The
Company recognizes all derivatives on the balance sheet at fair value.
Derivatives that are not hedges are adjusted to fair value through income. If
the derivative is a hedge, changes in the fair value of derivatives are offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value is immediately recognized in earnings. No
significant ineffectiveness was recognized in 2002. The Company evaluates the
effectiveness of the risk reduction and correlation criteria based on
forecasted future purchases (primarily corn and soybean) and continues to
evaluate the effectiveness of the hedge until the transaction is closed.
As of September 28, 2002 and September 29, 2001, accumulated other
comprehensive income consisted exclusively of mark-to-market adjustments on
commodity future contracts. Comprehensive income for the years ended September
28, 2002 and September 29, 2001 was net of the related tax expense of $738
thousand, and benefit of $179 thousand, respectively.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
September 28, 2002
NET INCOME PER COMMON SHARE
Net income per share is based on the weighted average number of shares of
common stock outstanding during the year. The weighted average number of
shares outstanding (basic and diluted) and per-share amounts included herein
were 41,112,679 in 2002 and 2001 and 41,289,142 in 2000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B - INVENTORIES
Inventories consist of the following:
(In thousands) 2002 2001
Chicken:
Live chicken and hens $106,450 $97,073
Feed, eggs and other 57,854 77,970
Finished chicken products 73,494 70,493
237,798 245,536
Turkey:
Live turkey and hens 29,140 30,694
Feed, eggs and other 12,871 3,906
Finished turkey products 46,983 34,264
88,994 68,864
Total Inventory $326,792 $314,400
NOTE C - NOTES PAYABLE AND LONG-TERM DEBT
At September 28, 2002, the Company maintained $130.0 million in revolving
credit facilities, $30 million of which related to our Mexican Operations, and
$400.0 million in a secured revolving/term borrowing facility in the U.S. and
Mexico. The $400.0 million revolving/term borrowing facility provides for
$285.0 million and $115.0 million of 10 year and 7 year commitments,
respectively. Borrowings under these facilities are split pro rata between the
10 year and 7 year maturities as they occur. The credit facilities provide for
interest at rates ranging from LIBOR plus five-eighths percent to LIBOR plus
two and three-quarters percent, depending upon the Company's total debt to
capitalization ratio. Interest rates on debt outstanding under these
facilities at September 28, 2002 ranged from LIBOR plus one and one-quarter
percent to LIBOR plus two. These facilities are secured by inventory and fixed
assets; the $30 million facility in Mexico is secured by Mexican accounts
receivables, inventories and certain fixed assets Borrowings against these
facilities are subject to the availability of collateral, and no material
adverse change provisions. At September 28, 2002, $115.9 million was available
under the revolving credit facilities, including $30.0 million in Mexico, and
$209.0 million was available under the term borrowing facilities. At December
2, 2002 we had $76.1 million available under revolving credit facilities,
$180.0 million available under the revolving/term borrowing facility and cash
on hand of $81.3 million compared to $14.9 million at September 28, 2002, due
primarily to advances subsequent to year end on the various facilities, for a
total liquidity of $337.4 million at December 2, 2002 compared to $339.8
million at September 28, 2002.
Annual maturities of long-term debt for the five years subsequent to September
28, 2002 adjusted to consider the subsequent borrowing are: 2003 -- $3.4
million; 2004 -- $3.7 million; 2005 -- $17.9 million; 2006 -- $23.8 million;
and 2007 -- $25.3 million.
In August 2002, the Company consolidated several notes payable from an
insurance company with fixed interest rates ranging from 7.11% to 9.45% into
one note with a fixed interest rate of 6.68% and extended the maturities from
2006 to 2012. The consolidation did not result in any gain or loss being
recognized.
On June 29, 1999, the Camp County Industrial Development Corporation issued
$25.0 million of variable-rate environmental facilities revenue bonds supported
by letters of credit obtained by the Company. The Company may draw from these
proceeds over the construction period of its new sewage and solid waste
disposal facilities at a poultry by-products plant to be built in Camp County,
Texas. The Company is not required to borrow the full amount of the proceeds
from the bonds. All amounts borrowed from these funds will be due in 2029.
The amounts the Company borrows will be reflected as debt when received from
the Camp County Industrial Development Corporation. The interest rates on
amounts borrowed will closely follow the tax-exempt commercial paper rates.
Presently, there are no borrowings outstanding under these bonds.
On August 9, 2001, the Company issued $200.0 million in senior unsecured notes
with an interest rate of 9 5/8% maturing on September 15, 2011. The proceeds
from the note offering were used to redeem the remaining $90.8 million
outstanding of our 10 7/8% senior subordinated notes due 2003. The balance of
the proceeds was used to reduce outstanding under our $400.0 million
revolving/term borrowing facility. As a result of the Company's decision to
retire all of the 10 7/8% Senior Subordinated Notes due 2003, the Company has
recorded an extraordinary loss of $894,000, net of a tax benefit of $539,000
for the year ended September 29, 2001.
The Company is required, by certain provisions of its debt agreements, to
maintain levels of working capital and net worth, to limit dividends to a
maximum of $3.4 million per year, and to maintain various fixed charge,
leverage, current and debt-to-equity ratios. Substantially all of the
Company's domestic property, plant and equipment, except those in its turkey
segment, are pledged as collateral on its long-term debt and credit facilities.
The Mexico credit facility is secured by accounts receivable, inventories and
certain fixed assets.
Total interest was $40.4 million, $38.9 million and $21.7 million in 2002, 2001
and 2000, respectively. Interest related to new construction capitalized in
2002, 2001 and 2000 was $6.0 million, $7.2 million and $3.3 million,
respectively.
Long-term debt consists of the following:
(In thousands) Final 2002 2001
Maturity
Senior unsecured notes, interest at 9 5/8% 2011 $200,000 $200,000
Revolving term/credit facility - 10 year
tranche at LIBOR plus 2.00%
payable monthly 2009 136,087 124,688
Note payable to an insurance company at 6.68%
payable Monthly 2012 60,958 65,474
Revolving term/credit facility - 7 year
tranche at LIBOR plus 1.75% payable monthly 2006 54,913 50,313
Notes payable to a bank at LIBOR plus
1.25 to 1.50 2004 -- 30,000
Other notes payable Various 1,686 1,866
453,644 472,341
Less current maturities 3,483 5,099
$450,161 $467,242
The fair value of long-term debt, at September 28, 2002 and September 29, 2001
based upon quoted market prices for the same or similar issues where available
or by using discounted cash flow analysis, was approximately $456.6 million and
$469.6 million, respectively.
NOTE D - INCOME TAXES
Income before income taxes after allocation of certain expenses to foreign
operations for 2002, 2001 and 2000 was ($7.3) million, $57.8 million and $32.7
million, respectively, for U.S. operations and $9.2 million, $5.5 million and
$30.0 million, respectively, for foreign operations. The provisions for income
taxes are based on pre-tax financial statement income.
Effective January 1, 2002, the Mexican Congress passed the Mexican tax reform
(the "Reform") legislation, which eliminated the previous tax exemption under
Simplified Regime for the Company's Mexico subsidiaries. The Reform requires
the Company's Mexico subsidiaries to calculate and pay taxes under a new
simplified regime pursuant to Mexico's income tax laws beginning January 1,
2002, subject to certain transitional provisions. The primary transitional
provision was an exit calculation, which generated a net operating loss
carryforward for Mexican income tax purposes.
As a result of the Reform, the Company recognized a tax benefit of
approximately $11.9 million during fiscal 2002, primarily to reflect the
benefit of the net operating loss carryforward for Mexican tax purposes. The
components of income tax expense (benefit) are set forth below:
(In thousands) 2002 2001 2000
Current:
Federal ($11,570) $6,045 $ 9,239
Foreign 1,712 1,594 138
State and other (756) 348 621
(10,614) 7,987 9,998
Deferred (1,811) 12,737 444
($12,425) $20,724 $10,442
The following is a reconciliation between the statutory U.S. federal income tax
rate and the Company's effective income tax rate:
2002 2001 2000
Federal income tax rate 35.0% 35.0% 35.0%
State tax rate, net (16.6) 2.4 1.4
Difference in U.S. statutory tax rate and
Mexico's effective tax rate (42.6) (3.9) (19.8)
Change in Mexico Tax Law (626.3)
(650.5)% 33.5% 16.6%
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets are
as follows:
(In thousands) 2002 2001
Deferred tax liabilities:
Property and equipment $ 115,364 $ 97,667
Inventories 37,917 27,926
Prior use of cash accounting 24,188 26,625
Other 11,666 2,419
Total deferred tax liabilities 189,135 154,637
Deferred tax assets:
Net operating losses 44,821 --
Expenses deductible in different years 22,148 23,027
Total deferred tax asset 66,969 23,027
Valuation allowance 7,633 --
Net deferred tax liabilities $129,799 $131,610
The Company has not provided any deferred income taxes on the undistributed
earnings of its Mexico subsidiaries based upon its determination that such
earnings will be indefinitely reinvested. As of September 28, 2002, the
cumulative undistributed earnings of these subsidiaries were approximately
$191.7 million. If such earnings were not considered indefinitely reinvested,
deferred U.S. and foreign income taxes would have been provided, after
consideration of estimated foreign tax credits. However, determination of the
amount of deferred federal and foreign income taxes is not practical.
The valuation allowance reflects the portion of the net operating losses
attributable to certain of the Company's Mexico subsidiaries that currently do
not have significant operations and, accordingly, such losses are expected to
expire unutilized.
The Mexican tax operating loss carryforwards expire in the years ranging from
2008 through 2012.
NOTE E - ACCOUNTS RECEIVABLE
The Company does not believe it has significant concentrations of credit risk
in its accounts receivable, which are generally unsecured. Credit evaluations
are performed on all significant customers and updated as circumstances
dictate. Allowances for doubtful accounts were $2.4 million and $3.9 million
at September 28, 2002 and September 29, 2001, respectively.
On June 26, 1998, the Company entered into an Asset Sale Agreement to sell up
to $60.0 million of accounts receivable. In connection with the Asset Sale
Agreement, the Company sells, on a revolving basis, certain of its trade
receivables (the "Pooled Receivables") to a special purpose corporation wholly
owned by the Company, which in turn sells a percentage ownership interest to
third parties. At September 28, 2002 and September 29, 2001, an interest in
these Pooled Receivables of $58.5 million had been sold to third parties and is
reflected as a reduction to accounts receivable during each period. This sales
agreement expires on June 30, 2003. If this facility is not replaced or
extended, the Company will likely use its revolving/term borrowing facility to
provide this liquidity. These transactions have been recorded as sales in
accordance with FASB Statement No. 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities. The gross proceeds
resulting from the sale are included in cash flows from operating activities in
the Consolidated Statements of Cash Flows. Losses on these sales were
immaterial.
NOTE F - COMMON STOCK
The Company has two series of authorized common stock, Class A common stock and
Class B common stock. The shares have substantially the same rights, powers
and limitations, except that each share of Class B common stock entitles the
holder thereof to 20 votes per share, except as otherwise provided by law, on
any matter submitted for a stockholder vote, while each share of Class A common
stock entitles the holder thereof to one vote per share on any such matter.
During fiscal 2000, the Company repurchased 271,100 shares of Class A common
stock at a total cost of $1.6 million. There was no repurchase of stock during
fiscal 2001 or fiscal 2002.
NOTE G - SAVINGS PLAN
The Company maintains a Section 401(k) Salary Deferral Plan (the "Plan").
Under the Plan, eligible U.S. employees may voluntarily contribute a percentage
of their compensation. The Plan provides for a contribution of up to four
percent of compensation subject to an overall Company contribution limit of
five percent of the U.S. operation's income before taxes. Under this plan, the
Company's expenses were $2.3 million, $3.7 million and $2.3 million in 2002,
2001 and 2000, respectively.
NOTE H - RELATED PARTY TRANSACTIONS
The major stockholder of the Company owns an egg laying and a chicken growing
operation. In addition, at certain times during the year the major stockholder
purchases from the Company live chickens and hens and certain feed inventories
during the grow-out process and then contracts with the Company to resell the
birds at maturity, determined on a market based formula price subject to a
ceiling price calculated at his cost plus 2%. During the years ended September
28, 2002, September 29, 2001 and September 30, 2000 the formula resulted in a
net operating profit (loss) to the major stockholder of ($428,000),
$1,103,000 and $100,000, respectively.
Transactions with related entities are summarized as follows:
(In thousands) 2002 2001 2000
Contract egg grower fees to
major stockholder $ -- $ 1,537 $ 5,100
Lease payment on commercial egg
property to major stockholder 750 564 --
Chick, feed and other
sales to major stockholder 44,857 38,771 31,879
Live chicken purchases from
major stockholder 44,429 39,784 31,979
Loan guaranty fees 2,615 3,142 795
Lease payments on airplane 396 396 396
On December 29, 2000 the Company entered into an agreement to lease a
commercial egg property and assume all of the ongoing costs of the operation
from the Company's major stockholder. The Company had previously purchased the
eggs produced from this operation pursuant to a contract grower arrangement.
The lease term runs for ten years with a monthly lease payment of $62,500. The
Company has an option to extend the lease for an additional five years, with an
option at the end of the lease to purchase the property at fair market value as
determined by an independent appraisal.
The Company pays fees to the Company's major stockholder in return for the
major stockholder's personal guarantee on certain debt obligations of the
Company.
The Company leases an airplane from its major stockholder under an operating
lease agreement that is renewable annually. The terms of the lease agreement
require monthly payments of $33,000 plus operating expenses. Lease expense was
$396,000 for each of the years 2002, 2001 and 2000. Operating expenses were
$212,520, $234,066, and $127,680 in 2002, 2001 and 2000, respectively.
The Company maintains depository accounts with a financial institution in which
the Company's major stockholder is also a major stockholder. Fees paid to
this bank in 2002, 2001 and 2000 are insignificant, and as of September 28,
2002 the Company had bank balances at this financial institution of
approximately $3.5 million.
On February 14, 2000, the Company purchased substantially all of the assets of
a chicken litter disposal and fertilizer business operated by the Company's
major stockholder's son for approximately $8.5 million.
NOTE I - COMMITMENTS
The Consolidated Statements of Income include rental expense for operating
leases of approximately $28.1 million, $28.7 million and $22.4 million in 2002,
2001 and 2000, respectively. The Company's future minimum lease commitments
under non-cancelable operating leases are as follows: 2003 -- $31.7 million;
2004 -- $20.9 million; 2005 -- $15.8 million; 2006 -- $13.9 million; 2007 --
$11.4 million and thereafter $10.5 million.
At September 28, 2002, the Company had $14.1 million in letters of credit
outstanding relating to normal business transactions.
NOTE J - CONTINGENCIES
In August of 2000, four of our current and/or former employees filed the case
of "Betty Kennell, et al. v. Wampler Foods, Inc." in the United States District
Court for the Northern District of West Virginia, claiming we violated
requirements of the Fair Labor Standards Act. The suit alleged Pilgrim's Pride
failed to pay employees for all hours worked. The suit generally alleged that
(1) employees should be paid for time spent to put on, take off, and clean
certain personal gear at the beginning and end of their shifts and breaks and
(2) the use of a master time card or production "line" time fails to pay
employees for all time actually worked. Plaintiffs seek to recover unpaid
wages plus liquidated damages and legal fees. Approximately 150 consents to
join as plaintiffs were filed with the court by current and/or former
employees. No trial date has been set. To date, only limited discovery has
been performed. Neither the likelihood of an unfavorable outcome nor the
amount of ultimate liability, if any, with respect to this case can be
determined at this time. We do not expect this matter, individually or
collectively, to have a material impact on our financial position, operations
or liquidity.
On August 20, 1999, the former WLR Foods brought legal action as a plaintiff in
an antitrust lawsuit filed in the U.S. District Court in Washington D.C.
alleging a world-wide conspiracy by approximately 34 named defendants to
control production capacity and raise prices of common vitamins such as A, B-4,
C, and E. The Company, as successor to WLR Foods in this suit, received $9.5
million in fiscal 2002 in partial settlement of its claims, $4.3 million of
which was recorded by the Company as a component of "Other Expense (Income):
Miscellaneous, Net" in fiscal 2002 as the recovery amount received during the
period exceeded the $5.2 million recovery amount recorded at the time of the
acquisition of WLR Foods. The initial estimate of the amount that would be
recovered under the WLR Foods claims was based on the ratio of recoveries to
vitamin purchases that was inherent in similar claims settled by the Company in
fiscal 2001 on substantially similar claims. To date, claims related to
approximately one-third of the WLR Foods affected vitamin purchases have been
settled by or on behalf of the former WLR Foods, which settlements resulted in
payments to the Company or the former WLR Foods, Inc. of $11.0 million. No
assurances can be made regarding the likelihood or timing of future settlements
or whether or not future recoveries, if any, will be proportionally less than,
equal to or greater than these previous recovery amounts.
In October 2002 a limited number of USDA samples from our Franconia,
Pennsylvania plant tested positive for Listeria. As a result, we voluntarily
recalled all cooked deli products produced at the plant from May 1, 2002
through October 11, 2002. The amount of product covered by the recall was
approximately 7% of our annual turkey production and less than 1% of our total
poultry production. As an additional precautionary measure, we immediately
suspended operations at our Franconia facility to redouble our food safety and
sanitation efforts. No illnesses associated with the Listeria strain in a
Northeastern outbreak have been linked to any of our products. Our Franconia
facility has been reviewed and inspected by the USDA and was reopened on
November 13, 2002. As the recall occurred in early fiscal 2003, it did not
have any significant impact on our consolidated financial statements as of
September 28, 2002. In addition, we carry insurance designed to cover the
direct recall related expenses and certain aspects of the related business
interruption caused by the recall, and subject to the insurer's reservation of
rights, we have received a $4 million advance payment from our insurer with
respect to the product recall claim. The Company believes that the recall and
its direct effects will not have a material impact on our financial position,
results of operations, or liquidity after considering available insurance
coverage. However, there will likely be differences between the accounting
periods in which certain recall effects are realized and when insurance
recoveries are received, and there can be no assurances as to our ability to
re-establish the products and sales affected by the recall.
As a result of the recall, on November 4, 2002, an individual who allegedly
consumed our meat products filed a putative class action lawsuit in the
Philadelphia County Court of Common Pleas in the Commonwealth of Pennsylvania.
Plaintiff allegedly contracted Listeriosis. The case is styled Frank Niemtzow,
individually and on behalf of all others similarly situated, v. Pilgrim's Pride
Corporation and Wampler Foods, Inc. The complaint seeks recovery on behalf of
a putative class of all persons that purchased and/or consumed meat products
manufactured at the Company's Franconia, Pennsylvania facility between May 1,
2002, and October 11, 2002, who have suffered an injury. This class represents
all individuals who have suffered Listeriosis and symptoms of Listeriosis and
other medical injuries. Plaintiff also seeks to represent a putative class of
all persons that purchased and/or consumed meat products manufactured at the
Company's Franconia, Pennsylvania facility between May 1, 2002 and October 11,
2002, who have not suffered any personal injury. The complaint seeks
compensatory and punitive damages under theories of negligence, alleged
violation of the Pennsylvania Unfair Trade Practices Act and Consumer
Protection Law, strict liability in tort, and unjust enrichment. The time for
responding to the complaint has not yet arrived. We intend to defend
vigorously both certification of the case as a class action and questions
concerning ultimate liability and damages, if any. No discovery has been
conducted to date. Neither the likelihood of an unfavorable outcome nor the
amount of ultimate liability, if any, with respect to this case can be
determined at this time. After considering our available insurance coverage,
we do not expect this matter to have a material impact on our financial
position, operation or liquidity.
On March 12, 2002 an outbreak of low-pathogenic avian influenza, a disease
contagious to turkey, chicken and other birds, was discovered in Virginia. As
a result we have destroyed a significant amount of poultry affected as a result
of the virus. No new flocks have tested positive for the presence of avian
influenza in Virginia since July 2, 2002 and the Company believes that the
outbreak has been contained. We currently estimate that production in our
turkey operation will be significantly reduced over the next six months due to
the effects of this viral outbreak. On June 19, 2002, U.S. Secretary of
Agriculture Ann Veneman proposed to the Office of Management and Budget that
the U.S. Department of Agriculture cover one-half of the total estimated
economic loss suffered by the poultry industry and independent growers in
Virginia due to the avian influenza outbreak. Secretary Veneman also
recommended that the government of Virginia cover the remaining portion. It is
our understanding that, as part of her proposal, Secretary Veneman is
suggesting that independent chicken and turkey growers are to be fully
compensated for their losses first and that the remainder is to be allocated to
other poultry producers (including us) whose flocks were destroyed by the
virus. On November 4, 2002 the Department of Agriculture made public their
estimate of total federal compensation at $51 million, with growers being
compensated $13.9 million and owners being compensated $37.1 million. No
assurance can be given as to the amount of federal compensation that we may
receive or that any state agencies will in fact provide further economic
assistance to the poultry growers and producers affected by the avian influenza
outbreak in Virginia. No anticipated recoveries have been recorded by us as
our portion of the compensation has not yet been determined. In the event that
state agencies do decide to grant economic assistance to the affected poultry
growers and producers, it is impossible at this time to estimate how the state
agencies would allocate any such assistance between affected poultry growers
and producers whose flocks were destroyed by the virus.
On June 7, 2001, the Company brought legal action as a plaintiff in an
antitrust lawsuit filed in the U.S. District Court in San Francisco alleging a
world-wide conspiracy by defendant suppliers and producers of methionine to
control production capacity and raise prices of methionine. The Company
estimates that it was overcharged by approximately $50 million in connection
with the alleged conspiracy and expects the litigation of this matter to be
resolved during calendar year 2003. No assurances can be made regarding the
likelihood or timing of future awards or settlements.
The Company is subject to various other legal proceedings and claims, which
arise in the ordinary course of its business. In the opinion of management,
the amount of ultimate liability with respect to these actions will not
materially affect the financial position or results of operations of the
Company.
NOTE K - FINANCIAL INSTRUMENTS
The Company is a purchaser of certain commodities, primarily corn and soybeans.
The Company periodically uses commodity futures and options for hedging
purposes to reduce the effect of changing commodity prices and as a mechanism
to procure the grains. The contracts that effectively meet risk reductions and
correlation criteria are recorded using hedge accounting. Gains and losses on
closed hedge transactions are recorded as a component of the underlying
inventory purchase.
At September 28, 2002, the Company held the following commodity contracts
consisting of delivery contracts settling between October 2002 and December
2003. The following table provides information about the Company's financial
instruments that is sensitive to changes in commodity prices:
Dollars in thousands, except per unit contract/strike prices
Weighted Average Fair Value
Units Notional Amount Contract/Strike Price Gain
Hedging Position:
Long positions in corn Bushels 2,645,000 $2.53 $50
Long positions in
Soybean Meal Tons 30,000 $149.7 $667
NOTE L - BUSINESS SEGMENTS
Since the acquisition of WLR Foods on January 27, 2001, the Company operates in
two reportable business segments as (1) a producer of chicken and other
products and (2) a producer of turkey products.
The Company's chicken and other products segment primarily includes sales of
chicken products the Company produces and purchases for resale in the United
States and Mexico, and also includes table eggs, feed and other items. The
Company's chicken and other products segment conducts separate operations in
the United States and Mexico and is reported as two separate geographical
areas. The Company's turkey segment includes sales of turkey products produced
in our turkey operation recently acquired from WLR Foods, whose operations are
exclusively in the United States.
Inter-area sales and inter-segment sales, which are not material, are accounted
for at prices comparable to normal trade customer sales. Total assets by
segment and geographic area are those assets, which are used in the Company's
operations in each segment or area. Corporate assets and expenses are included
with chicken and other products.
The following table presents certain information regarding our segments:
FISCAL YEAR ENDED
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 30,
2002 2001 2000
(IN THOUSANDS)
NET SALES TO CUSTOMERS:
Chicken and Other Products:
United States $1,842,749 $1,652,199 $1,192,077
Mexico 342,851 323,678 307,362
Sub-total 2,185,600 1,975,877 1,499,439
Turkey 348,118 238,835 --
Total $2,533,718 $2,214,712 $1,499,439
OPERATING INCOME:
Chicken and Other Products:
United States $ 32,663 $ 78,096 $ 45,928
Mexico 17,064 12,157 34,560
Sub-total 49,727 90,253 80,488
Turkey (19,823) 4,289 --
Total $ 29,904 $ 94,542 $ 80,488
DEPRECIATION AND AMORTIZATION: (B)
Chicken and Other Products:
United States $ 47,528 $ 38,155 $ 24,444
Mexico 13,526 11,962 11,583
Sub-total 61,054 50,117 36,027
Turkey 9,919 5,273 --
Total $ 70,973 $ 55,390 $ 36,027
TOTAL ASSETS:
Chicken and Other Products:
United States $ 769,561 $ 764,073
Mexico 241,281 247,681
Sub-total $1,010,842 1,011,754
Turkey 210,576 203,941
Total $1,221,418 $1,215,695
CAPITAL EXPENDITURES: (A)
Chicken and Other Products
United States $ 65,775 $ 80,173
Mexico 7,934 29,425
Sub-total 73,709 109,598
Turkey 6,679 3,034
Total $ 80,388 $ 112,632
(a)Excludes business acquisition cost of $239,539, incurred in connection with
the acquisition of WLR Foods on January 27, 2001.
(b)Includes amortization of capitalized financing costs of approximately $1.4
million, $0.9 million and $1.2 million in fiscal years 2002, 2001 and 2000,
respectively.
As of September 28, 2002, the Company had net assets in Mexico of $226.4
million. There were no customers representing 10% or more of revenue in fiscal
2002 and 2001. During 2000 revenue from one customer represented 13.5% of
consolidated net sales.
NOTE M - QUARTERLY RESULTS
Quarterly Results (Unaudited)
(In thousands, except per share data) Year ended September 28, 2002
First Second(a) Third(b) Fourth(a) Fiscal
Quarter Quarter Quarter Quarter Year
Net sales $656,030 $600,753 $637,116 $639,819 $2,533,718
Gross profit 57,865 28,631 47,000 31,670 165,166
Operating income (loss) 23,330 (4,372) 14,046 (3,100) 29,904
Net income (loss) 12,991 1,252 3,266 (3,174) 14,335
Per Share:
Net income (loss) 0.32 0.03 0.08 (0.08) 0.35
Cash dividends 0.015 0.015 0.015 0.015 0.060
(In thousands, except per share data) Year ended September 28, 2002
First Second(a) Third(b) Fourth(a) Fiscal
Quarter Quarter Quarter Quarter Year
Net sales $386,032 $541,593 $645,836 $641,251 $2,214,712
Gross profit 47,166 29,216 75,625 61,943 213,950
Operating income (loss) 23,211 (5,272) 45,486 31,117 94,542
Income (loss) before
extraordinary charge 12,737 (9,802) 25,267 13,829 42,031
Extraordinary charge,
net of tax -- -- -- 894 894
Net income (loss) 12,737 (9,802) 25,267 12,934 41,137
Per Share:
Net income (loss) .31 (.24) .61 .32 1.00
Cash dividends .015 .015 .015 .015 .06
(a) Includes tax benefit of $9.7 million in the second quarter and $2.2
million in the fourth quarter resulting from the change in the Mexico tax
law. See Note D.
(b) Includes settlement from vitamin lawsuit of $4.3 million. See Note J
(c) The Company acquired WLR Foods on January 27, 2001 for $239.5 million and
the assumption of $45.5 million of indebtedness. The acquisition has been
accounted for as a purchase, and the results of operations for this
acquisition have been included in our consolidated results of operations
since the acquisition date.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C
ADDITIONS
Balance at
Beginning Charged to Charged to
Costs Other
DESCRIPTION of Period and Expenses Accounts
Describe
Year ended September 28, 2002:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts
$3,961,000 $(506,000) $ --
Year ended September 29, 2001:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts $4,086,000 $1,132,000 $ --
Year ended September 30, 2000:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts $4,703,000 $(611,000) $ --
Col. A Col. D Col. E
Deductions- Balance at end
DESCRIPTION Describe of Period
Year ended September 28, 2002:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $1,111,000(1) $ 2,344,000
Year ended September 29, 2001:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $1,257,000(1) $ 3,961,000
Year ended September 30, 2000:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $ 6,000(1) $ 4,086,000
(1)Uncollectable accounts written off, net of recoveries.
EXHIBIT 12
PILGRIM'S PRIDE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended
C>
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 30,
2002 2001 2000
(amounts in thousands, except ratio)
EARNINGS:
Income before income taxes
and extraordinary charge $1,910 $63,294 $62,786
Add: Total fixed charges
(see below) 49,801 48,406 29,168
Less: Interest Capitalized 6,014 7,153 3,313
Total Earnings $45,697 $104,547 $88,641
FIXED CHARGES:
Interest (1) 40,444 $38,852 $21,712
Portion of rental expense representative of the
interest factor (2) 9,357 9,554 7,456
Total fixed charges $49,801 $48,406 $29,168
Ratio of earnings to fixed
charges (3) 2.16 3.04
Year Ended
C>
OCTOBER 2, SEPTEMBER 26,
1999 1998
(amounts in thousands, except ratio)
EARNINGS:
Income before income taxes
and extraordinary charge $90,904 $56,522
Add: Total fixed charges
(see below) 26,706 27,987
Less: Interest Capitalized 2,032 1,675
Total Earnings $115,578 $82,834
FIXED CHARGES:
Interest (1) $ 20,889 $23,239
Portion of rental expense representative of the
interest factor (2) 5,817 4,748
Total fixed charges $ 26,706 $27,987
Ratio of earnings to fixed
charges 4.33 2.96
(1) Interest includes amortization of capitalized financing fees.
(2) One-third of rental expenses is assumed to be representative of
the interest factor.
(3) Earnings were insufficient to cover fixed charges by $4,104.
EXHIBIT 21- SUBSIDIARIES OF REGISTRANT
1. COMERCIALIZADORA DE CARNES DE MEXICO S.A. DE C.V.
2. COMPANIA INCUBADORA HIDALGO S.A. DE C.V.
3. INMOBILIARIA AVICOLA PILGRIM'S PRIDE, S. DE R.L.
4. PILGRIM'S PRIDE S.A. DE C.V.
5. GALLINA PESADA S.A. DE C.V.
6. PILGRIM'S PRIDE FUNDING CORPORATION
7. PILGRIM'S PRIDE INTERNATIONAL INC.
8. PPC OF DELAWARE BUSINESS TRUST
9. PILGRIM'S PRIDE MKTG, LTD.
10. PILGRIM'S PRIDE AFFORDABLE HOUSING CORPORATION
11. GRUPO PILGRIM'S PRIDE FUNDING HOLDINGS S. DE R.L. DE C.V.
12. GRUPO PILGRIM'S PRIDE FUNDING S. DE R.L. DE C.V.
13. ROCKINGHAM POULTRY, INC. (FOREIGN SALES CORP.)
14. VALLEY RAIL SERVICE, INC.
15. PILGRIM'S PRIDE OF NEVADA, INC.
16. PILGRIM'S PRIDE DUTCH FUNDING B.V.
17. DALLAS REINSURANCE COMPANY, LTD
18. NACRAIL LLC
19. SERVICIOS ADMINISTRATIVOS PILGRIM'S PRIDE S.A. DE C.V.
20. FOOD PROCESSORS WATER COOPERATIVE INC.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 3-12043, Form S-8 No. 333-74984 and Form S-3 No. 333-84861) of
Pilgrim's Pride Corporation, and in the related Prospectuses, of our report
dated October 29, 2002, except for Note J and the first paragraph of Note C, as
to which the date is December 2, 2002, with respect to the consolidated
financial statements and schedule of Pilgrim's Pride Corporation included in
this Annual Report (Form 10-K) for the year ended September 28, 2002.
ERNST & YOUNG LLP
Dallas, Texas
December 2, 2002
CERTIFICATE OF INCORPORATION
OF
PILGRIM'S PRIDE CORPORATION
FIRST: THE NAME OF THE CORPORATION IS PILGRIM'S PRIDE
CORPORATION.
SECOND: THE ADDRESS OF THE REGISTERED OFFICE OF THE CORPORATION
IN THE STATE OF DELAWARE IS 1209 ORANGE STREET IN THE CITY OF
WILMINGTON, COUNTY OF NEW CASTLE. THE NAME OF ITS REGISTERED AGENT AT
THAT ADDRESS IS THE CORPORATION TRUST COMPANY.
THIRD: THE PURPOSE OF THE CORPORATION IS TO ENGAGE IN ANY
LAWFUL ACT OR ACTIVITY FOR WHICH A CORPORATION MAY BE ORGANIZED UNDER
THE GENERAL CORPORATION LAW OF DELAWARE AS SET FORTH IN TITLE 8 OF THE
DELAWARE CODE (THE "GCL').
FOURTH: THE AGGREGATE NUMBER OF SHARES OF CAPITAL STOCK WHICH
THE CORPORATION SHALL HAVE AUTHORITY TO ISSUE IS 50,000,000 SHARES,
CONSISTING OF 5,000,000 SHARES OF PREFERRED STOCK, PAR VALUE $.0L PER
SHARE ("PREFERRED STOCK"), AND 45,000,000 SHARES OF COMMON STOCK, PAR
VALUE $.01. PER SHARE (THE "COMMON STOCK").
THE FOLLOWING IS A STATEMENT OF THE DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS IN RESPECT
OF THE CLASSES OF STOCK OF THE CORPORATION, AND OF THE AUTHORITY WITH
RESPECT THERETO EXPRESSLY VESTED IN THE BOARD OF DIRECTORS OF THE
CORPORATION:
PREFERRED STOCK
SHARES OF THE PREFERRED STOCK MAY BE ISSUED FROM TIME TO TIME IN
ONE OR MORE SERIES, THE SHARES OF EACH SERIES TO HAVE SUCH VOTING
POWERS, FULL OR LIMITED, OR NO VOTING POWERS, AND SUCH DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS, AND QUALIFICATIONS LIMITATIONS OR RESTRICTIONS THEREOF, AS
SHALL BE STATED AND EXPRESSED IN A RESOLUTION OR RESOLUTIONS PROVIDING
FOR THE ISSUE OF SUCH SERIES ADOPTED BY THE BOARD OF DIRECTORS OF THE
CORPORATION. THE BOARD OF DIRECTORS OF THE CORPORATION IS HEREBY
EXPRESSLY AUTHORIZED, SUBJECT TO THE LIMITATIONS PROVIDED BY LAW, TO
ESTABLISH AND DESIGNATE SERIES OF THE PREFERRED STOCK, TO FIX THE
NUMBER OF SHARES CONSTITUTING EACH SERIES, AND TO FIX THE DESIGNATIONS
AND THE RELATIVE POWERS, RIGHTS, PREFERENCES AND LIMITATIONS OF THE
SHARES OF EACH SERIES AND THE VARIATIONS IN THE RELATIVE POWERS,
RIGHTS, PREFERENCES AND LIMITATIONS AS BETWEEN SERIES, AND TO INCREASE
AND TO DECREASE THE NUMBER OF SHARES CONSTITUTING EACH SERIES.
COMMON STOCK
A. DIVIDENDS. SUBJECT TO THE PRIOR RIGHTS AND PREFERENCES OF THE
PREFERRED STOCK AND SUBJECT TO THE PROVISIONS AND ON THE CONDITIONS SET FORTH
IN THE FOREGOING PART OF THIS ARTICLE FOURTH OR IN ANY RESOLUTION OF THE BOARD
OF DIRECTORS OF THE CORPORATION, DIVIDENDS MAY BE PAID ON THE COMMON STOCK IN
MONEY, PROPERTY OR COMMON STOCK, AS AND WHEN DECLARED BY THE BOARD OF DIRECTORS
OF THE CORPORATION OUT OF ANY FUNDS OF THE CORPORATION LEGALLY AVAILABLE FOR
THE PAYMENT THEREOF.
B. VOTING. THE SHARES OF COMMON STOCK SHALL BE FULLY VOTING STOCK AT THE
RATE OF ONE VOTE FOR EACH SHARE OF COMMON STOCK.
C. LIQUIDATION RIGHTS. IN THE EVENT OF ANY LIQUIDATION9 DISSOLUTION OR
WINDING UP OF THE AFFAIRS OF THE CORPORATION, WHETHER VOLUNTARY OR INVOLUNTARY,
AFTER PAYMENT OR PROVISION FOR PAYMENT OF THE DEBTS AND OTHER LIABILITIES OF
THE CORPORATION AND AFTER DISTRIBUTION IN FULL OF THE PREFERENTIAL AMOUNTS TO
BE DISTRIBUTED TO THE HOLDERS OF SHARES OF ANY AND ALL IES OF PREFERRED STOCK,
THE HOLDERS OF SHARES OF COMMON STOCK SHALL BE ENTITLED TO RECEIVE ALL THE
REMAINING ASSETS OF THE CORPORATION AVAILABLE FOR DISTRIBUTION TO ITS
STOCKHOLDERS, RATABLY IN PROPORTION TO THE NUMBER OF SHARES OF COMMON STOCK
HELD BY THEM.
FIFTH: THE NAME AND MAILING ADDRESS OF THE SOLE INCORPORATOR IS AS
FOLLOWS:
NAME MAILING ADDRESS
VAN M. JOLAS RAIN HARRELL EMERY YOUNG & DOKE
4200
REPUBLICBANK TOWER
DALLAS, TEXAS 75201
-2-
SIXTH: THE NAME AND MAILING ADDRESS OF EACH PERSON WHO IS TO SERVE AS A
DIRECTOR UNTIL THE FIRST ANNUAL MEETING OF THE STOCKHOLDERS OR UNTIL HIS
SUCCESSOR IS ELECTED AND QUALIFIED IS AS FOLLOWS:
NAME MAILING ADDRESS
LONNIE A. PILGRIM P.O. BOX 93, PITTSBURG, TEXAS 75686
CLIFFORD S. BUTLER P.O. BOX 93, PITTSBURG, TEXAS 75686
ROBERT E. HENDRIX P.O. BOX 93, PITTSBURG, TEXAS 75686
JAMES J. MINER, PH.D. P.O. BOX 93, PITTSBURG, TEXAS 75686
CHARLES L. BLACK P.O. BOX 93, PITTSBURG, TEXAS 75686
RICHARD C. LARKIN P.O. BOX 93, PITTSBURG, TEXAS 75686
JAMES G. VETTER, JR. P.O. BOX 93, PITTSBURG, TEXAS 75686
ROBERT E. HILGENFELD P.O. BOX 93, PITTSBURG, TEXAS 75686
SCOTT D. JACKSON P.O. BOX 93, PITTSBURG, TEXAS 75686
VANCE C. MILLER P.O. BOX 93, PITTSBURG, TEXAS 75686
LONNIE KEN PILGRIM P.O. BOX 93, PITTSBURG, TEXAS 75686
SEVENTH: THE FOLLOWING PROVISIONS ARE INSERTED FOR THE MANAGEMENT OF THE
BUSINESS AND THE CONDUCT OF THE AFFAIRS OF THE CORPORATION, AND FOR FURTHER
DEFINITION, LIMITATION AND REGULATION OF THE POWERS OF THE CORPORATION AND OF
ITS DIRECTORS AND STOCKHOLDERS,
(1) THE BUSINESS AND AFFAIRS OF THE CORPORATION SHALL BE MANAGED BY
OR UNDER THE DIRECTION OF THE BOARD OF DIRECTORS.
(2) THE DIRECTORS SHALL HAVE CONCURRENT POWER WITH THE STOCKHOLDERS
TO MAKE, ALTER, AMEND, CHANGE, ADD OR TO REPEAL THE BY-LAWS OF THE
CORPORATION.
(3) THE NUMBER OF DIRECTORS OF THE CORPORATION SHALL BE AS FROM TIME
TO TIME FIXED BY, OR IN THE MANNER PROVIDED IN, THE BY-LAWS OF THE
CORPORATION. ELECTION OF DIRECTORS NEED NOT BE BY WRITTEN BALLOT UNLESS
THE BY-LAWS SO PROVIDE.
-3-
(4) IN ADDITION TO THE POWERS AND AUTHORITY HEREIN-BEFORE OR BY
STATUTE EXPRESSLY CONFERRED UPON THEM, THE DIRECTORS ARE HEREBY EMPOWERED
TO EXERCISE ALL SUCH POWERS AND DO ALL SUCH ACTS AND THINGS AS MAY BE
EXERCISED OR DONE BY THE CORPORATION, SUBJECT, NEVERTHELESS, TO THE
PROVISIONS OF THE GCL,. THIS CERTIFICATE OF INCORPORATION, AND ANY BY-LAWS
ADOPTED BY THE STOCKHOLDERS; PROVIDED, HOWEVER, THAT NO BY-LAWS HEREAFTER
ADOPTED BY THE STOCKHOLDERS SHALL INVALIDATE ANY PRIOR ACT OF THE
DIRECTORS WHICH WOULD HAVE BEEN VALID IF SUCH BY-LAWS HAD NOT BEEN
ADOPTED.
EIGHTH: MEETINGS OF STOCKHOLDERS MAY BE HELD WITHIN OR WITHOUT THE STATE
OF DELAWARE, AS THE CORPORATION'S BYLAWS MAY PROVIDE. THE BOOKS OF THE
CORPORATION MAY BE KEPT (SUBJECT TO ANY PROVISION CONTAINED IN THE STATUTES)
OUTSIDE THE STATE OF DELAWARE AT SUCH PLACE OR PLACES AS MAY BE DESIGNATED FROM
TIME TO TIME BY THE BOARD OF DIRECTORS OR IN THE BYLAWS OF THE CORPORATION.
NINTH; WHENEVER A COMPROMISE OR ARRANGEMENT IS PROPOSED BETWEEN THE
CORPORATION AND ITS CREDITORS OR ANY CLASS OF THEM AND/OR BETWEEN THE
CORPORATION AND ITS STOCKHOLDERS OR ANY CLASS OF THEM, ANY COURT OF EQUITABLE
JURISDICTION WITHIN THE STATE OF DELAWARE MAY, ON THE APPLICATION IN A SUMMARY
WAY OF THE CORPORATION OR OF ANY CREDITOR OR STOCKHOLDER THEREOF OR ON THE
APPLICATION OF ANY RECEIVER OR RECEIVERS APPOINTED FOR THE CORPORATION UNDER
THE PROVISIONS OF SECTION 291 OF THE GCL OR ON THE APPLICATION OF TRUSTEES IN
DISSOLUTION OR OF ANY RECEIVER OR RECEIVERS APPOINTED FOR THE CORPORATION UNDER
SECTION 279 OF THE GCL, ORDER A MEETING OF THE CREDITORS OR CLASS OF CREDITORS,
AND/OR OF THE STOCKHOLDERS OR CLASS OF STOCKHOLDERS OF THE CORPORATION, AS THE
CASE MAY BE, TO BE SUMMONED IN SUCH MANNER AS THE SAID COURT DIRECTS. IF A
MAJORITY IN NUMBER REPRESENTING THREE-FOURTHS IN VALUE OF THE CREDITORS OR
CLASS OF CREDITORS, AND/OR OF THE STOCKHOLDERS OR CLASS OF STOCKHOLDERS OF THE
CORPORATION, AS THE CASE MAY BE, AGREE TO ANY COMPROMISE OR ARRANGEMENT AND TO
ANY REORGANIZATION OF THE CORPORATION AS A CONSEQUENCE OF MUCH COMPROMISE OR
ARRANGEMENT, THE SAID COMPROMISE OR ARRANGEMENT AND THE SAID REORGANIZATION
SHALL, IF SANCTIONED BY THE COURT TO WHICH THE SAID APPLICATION HAS BEEN MADE,
BE BINDING ON ALL THE CREDITORS OR CLASS OF CREDITORS, AND/OR ON ALL THE
STOCKHOLDERS OR CLASS OF STOCKHOLDERS, OF THE CORPORATION, AS THE CASE MAY BE,
AND ALSO ON THE CORPORATION.
TENTH: THE DIRECTORS OF THE CORPORATION SHALL NOT BE PERSONALLY LIABLE
TO THE CORPORATION OR ITS STOCKHOLDERS FOR MONETARY DAMAGES FOR BREACH OF
FIDUCIARY DUTY AS A DIRECTOR; PROVIDED, HOWEVER, THAT THIS PROVISION SHALL NOT
ELIMINATE OR LIMIT THE LIABILITY OF A DIRECTOR OF THE CORPORATION (I) FOR ANY
BREACH OF THE DIRECTOR'S DUTY OF LOYALTY TO THE CORPORATION OR ITS
STOCKHOLDERS, (II) FOR ACTS OR OMISSIONS NOT IN GOOD FAITH OR WHICH INVOLVE
INTENTIONAL MISCONDUCT OR A KNOWING VIOLATION OF LAW, (III) UNDER SECTION 174
OF THE GCL, OR (IV) FOR ANY TRANSACTION FROM WHICH THE DIRECTOR DERIVED AN
IMPROPER PERSONAL BENEFIT.
ELEVENTH: THE CORPORATION RESERVES THE RIGHT TO AMEND, ALTER, CHANGE OR
REPEAL ANY PROVISION CONTAINED IN THIS CERTIFICATE OF INCORPORATION, IN THE
MANNER NOW OR HEREAFTER PRESCRIBED BY STATUTE, AND ALL RIGHTS CONFERRED UPON
STOCKHOLDERS HEREIN ARE GRANTED SUBJECT TO THIS RESERVATION.
I, THE UNDERSIGNED, BEING THE SOLE INCORPORATOR HEREINBEFORE NAMED, FOR
THE PURPOSE OF FORMING A CORPORATION PURSUANT TO THE GCL, DO MAKE THIS
CERTIFICATE, HEREBY DECLARING AND CERTIFYING THAT THIS IS MY ACT AND DEED AND
THE FACTS HEREIN STATED ARE TRUE, AND ACCORDINGLY HAVE HEREUNTO SET MY HAND
THIS 9TA DAY OF
SEPTEMBER, 1986.
/s/ Van M. Jolas
VAN M.JOLAS
CERTIFICATE OF MERGER
PURSUANT TO THE PROVISIONS OF SECTION 252(C) OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE, PILGRIM'S PRIDE CORPORATION, A DELAWARE
CORPORATION, DOES HEREBY ADOPT THE FOLLOWING CERTIFICATE OF MERGER:
1. THE NAME AND STATE OF INCORPORATION OF EACH OF THE CONSTITUENT
CORPORATIONS IS:
NAME OF
CORPORATION STATE
PILGRIM'S PRIDE CORPORATION TEXAS
PILGRIM'S PRIDE CORPORATION DELAWARE
2. THE PLAN AND AGREEMENT OF MERGER (THE "MERGER AGREEMENT") BETWEEN
PILGRIM S PRIDE CORPORATION AND PILGRIM'S PRIDE CORPORATION, A TEXAS
CORPORATION ("PPC"), DATED OCTOBER 25, 1986. ATTACHED HERETO AS EXHIBIT A, HAS
BEEN APPROVED, ADOPTED, CERTIFIED, EXECUTED AND ACKNOWLEDGED BY EACH OF THE
CONSTITUENT CORPORATIONS IN ACCORDANCE WITH SUBSECTION (C) OF SECTION 252 OF
THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE.
3 THE NAME OF THE SURVIVING CORPORATION IS PILGRIM A PRIDE
CORPORATION, A DELAWARE CORPORATION.
4 THE CERTIFICATE OF INCORPORATION OF PILGRIM S PRIDE CORPORATION
SHALL BE THE CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION.
5. THE EXECUTED MERGER AGREEMENT IS ON FILE AT THE PRINCIPAL PLACE OF
BUSINESS OF PILGRIM'S PRIDE CORPORATION, 110 SOUTH TEXAS STREET, PITTSBURG,
TEXAS 75686.
6. A COPY OF THE MERGER AGREEMENT WILL BE FURNISHED BY PILGRIM'S PRIDE
CORPORATION ON REQUEST AND WITHOUT COST TO ANY STOCKHOLDER OF ANY CONSTITUENT
CORPORATION.
7. THE AUTHORIZED CAPITAL STOCK OF PPC IS 1,750,000 SHARES OF COMMON
STOCK, PAR VALUE $1.00 PER SHARE.
IN WITNESS WHEREOF, THE UNDERSIGNED HAS CAUSED THIS CERTIFICATE TO BE
SIGNED AS OF THE 1ST DAY OF NOVEMBER 1986.
ATTEST: PILGRIM'S PRIDE CORPORATION
A DELAWARE CORPORATION
CLIFFORD E BUTLER /s/ Lonnie A. Pilgrim
SECRETARYBY: /s/ Clifford E. Butler
LONNIE A. PILGRIM
CHAIRMAN OF THE BOARD OF DIRECTORS AND
CHIEF EXECUTIVE OFFICER
EXHIBIT A
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER, MADE AND ENTERED INTO AS OF THE 25TH
DAY OF OCTOBER, 1986, BY AND BETWEEN PILGRIMS PRIDE CORPORATION, A TEXAS
CORPORATION ("PPC"), AND PILGRIM'S PRIDE CORPORATION, A DELAWARE CORPORATION
("NEW PPC") (PPC AND NEW PPC ARE HEREINAFTER COLLECTIVELY REFERRED TO AS THE
"CONSTITUENT CORPORATIONS");
W I T N E S S E T H:
WHEREAS, THE RESPECTIVE BOARDS OF DIRECTORS OF PPC AND NEW PPC HAVE
DETERMINED THAT IT IS DESIRABLE AND IN THE BEST INTEREST OF EACH OF THE
CORPORATIONS TO EFFECT A MERGER OF THE CORPORATIONS, WHEREBY (I) PPC WILL BE
MERGED INTO NEW PPC, WHICH WILL BE THE SURVIVING CORPORATION IN THE MERGER.
(II) EACH ISSUED AND OUTSTANDING SHARE OF COMMON STOCK, PAR VALUE $.01. PER
SHARE ("NEW PPC COMMON STOCK"), OF NEW PCC OWNED BY PPC WILL BE CANCELLED AND
(III) EACH ISSUED AND OUTSTANDING SHARE OF COMMON STOCK, PAR VALUE $1.00 PER
SHARE ("PPC COMMON STOCK"), OF PPC WILL BE CONVERTED INTO AND BECOME SHARES OF
NEW PPC COMMON STOCK; AND
WHEREAS, THE RESPECTIVE BOARDS OF DIRECTORS OF PPC AND NEW PPC HAVE
DIRECTED THAT THE PLAN OF MERGER BE SUBMITTED TO A VOTE OF SHAREHOLDERS OF PPC
AND NEW PCC, RESPECTIVELY;
WHEREAS, THE RESPECTIVE BOARDS OF DIRECTORS OF PCC AND NEW PPC HAVE DULY
AUTHORIZED THE EXECUTION HEREOF;
NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND OF THE MUTUAL
COVENANTS AND AGREEMENTS HEREIN CONTAINED. PPC AND NEW PPC HEREBY AGREE THAT
PPC SHALL BE MERGED WITH AND INTO NEW PCC IN ACCORDANCE WITH THE TERMS AND
CONDITIONS OF THIS AGREEMENT AND PRESCRIBE THE TERMS AND CONDITIONS OF THE
MERGER OF PCC INTO NEW PPC, THE MODE OF CARRYING IT INTO EFFECT, THE NAME OF
THE SURVIVING CORPORATION, AND SUCH OTHER DETAILS AND PROVISIONS AS ARE DEEMED
NECESSARY OR DESIRABLE, AS FOLLOWS:
1. MERGER. SUBJECT TO THE CONDITIONS HEREINAFTER SET FORTH, UPON THE
FILING OF ARTICLES OF MERGER AS REQUIRED UNDER APPLICABLE LAW (THE "EFFECTIVE
TIME"), FF0 SHALL BE MERGED WITH AND INTO NEW PPC, AND NEW PPC SHALL BE THE
SURVIVING CORPORATION AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE.
2. TERMS AND CONDITIONS OF THE MERGER. AT THE EFFECTIVE TIME, (I) THE
CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION SHALL BE THE
CERTIFICATE OF INCORPORATION OF NEW PPC IN EFFECT IMMEDIATELY PRIOR TO THE
EFFECTIVE TIME, (II) THE BYLAWS OF THE SURVIVING CORPORATION SHALL BE THE
BYLAWS OF NEW PPC IN EFFECT IMMEDIATELY PRIOR TO THE EFFECTIVE TIME, (III) THE
DIRECTORS OF THE SURVIVING CORPORATION SHALL BE THE DIRECTORS OF NEW PPC IN
OFFICE IMMEDIATELY PRIOR TO THE EFFECTIVE TIME, WHO SHALL SERVE UNTIL THEIR
SUCCESSORS SHALL HAVE BEEN ELECTED AND SHALL QUALIFY, (IV) THE OFFICERS OF THE
SURVIVING CORPORATION SHALL BE THE OFFICERS OF PPC III OFFICE IMMEDIATELY PRIOR
TO THE EFFECTIVE TIME, AND (V) THE REGISTERED OFFICE OF THE SURVIVING
CORPORATION IN THE STATE OF DELAWARE SHALL BE CORPORATION TRUST CENTER, 1209
ORANGE STREET, WILMINGTON. DELAWARE.
THIS MERGER AGREEMENT SHALL CONSTITUTE A PLAN OF REORGANIZATION PURSUANT
TO SECTION 368(A)(L)(A) OF THE INTERNAL REVENUE CODE OF 1954, AS AMENDED.
AT THE EFFECTIVE TIME, THE SEPARATE CORPORATE EXISTENCE OF PPC SHALL
CEASE, AND NEW PCC SHALL POSSESS ALL THE RIGHTS, PRIVILEGES, POWERS AND
FRANCHISES OF A PUBLIC AS WELL AS OF A PRIVATE NATURE AND BE SUBJECT TO ALL THE
RESTRICTIONS, DISABILITIES AND DUTIES OF EACH OF THE CONSTITUENT CORPORATIONS;
AND ALL AND SINGULAR, THE RIGHTS, PRIVILEGES, POWERS AND FRANCHISES OF EACH OF
THE CONSTITUENT CORPORATIONS, AND ALL PROPERTY, REAL, PERSONAL AND MIXED, AND
ALL DEBTS DUE TO EITHER OF THE CONSTITUENT CORPORATIONS ON WHATEVER ACCOUNT,
INCLUDING STOCK SUBSCRIPTIONS AND ALL OTHER CHOSES OR THINGS IN ACTION OR
BELONGING TO EACH OF THE CONSTITUENT CORPORATIONS SHALL BE VESTED IN THE
SURVIVING CORPORATION; AND ALL PROPERTY, RIGHTS, PRIVILEGES, POWERS AND
FRANCHISES, AND ALL AND EVERY OTHER INTEREST SHALL BE. THEREAFTER AS
EFFECTUALLY THE PROPERTY OF THE SURVIVING CORPORATION AS THEY WERE OF THE
SEVERAL AND RESPECTIVE CONSTITUENT CORPORATIONS, AND THE TITLE TO ANY REAL
ESTATE VESTED BY DEED OR OTHERWISE, UNDER THE LAWS OF THE STATE OF DELAWARE, IN
EITHER OF SUCH CONSTITUENT CORPORATIONS, SHALL NOT REVERT OR BE IN ANY WAY
IMPAIRED BY REASON OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE; BUT
ALL TIGHTS OF CREDITORS AND ALL LIENS UPON ANY PROPERTY OF ANY OF THE
CONSTITUENT CORPORATIONS SHALL BE PRESERVED UNIMPAIRED, AND ALL DEBTS,
LIABILITIES AND DUTIES OF THE RESPECTIVE CONSTITUENT CORPORATIONS SHALL
THENCEFORTH ATTACH TO THE SURVIVING CORPORATION AND MAY BE ENFORCED AGAINST IT
TO THE SAME EXTENT AS IF SAID DEBTS, LIABILITIES AND DUTIES HAD BEEN INCURRED
OR CONTRACTED BY IT.
AT THE EFFECTIVE TIME, NEW PPC ASSUMES THE DUE AND PUNCTUAL PAYMENT OF THE
PRINCIPAL OF. AND PREMIUM, IF ANY, AND INTEREST ON, ALL OF THE NOTES (AS
DEFINED IN THE COLLATERAL TRUST INDENTURE RE: PILGRIM'S PRIDE CORPORATION DATED
AS OF OCTOBER 1. 1986 (THE "INDENTURE")), ACCORDING TO THEIR RESPECTIVE TENOR,
AND THE DUE AND PUNCTUAL PERFORMANCE AND OBSERVANCE OF ALL OF THE COVENANTS IN
THE NOTES, THE INDENTURE AND THE DOCUMENTS EVIDENCING OR CREATING ANY OTHER
OBLIGATIONS SECURED BY THE INDENTURE.
NEW PCC, THE SURVIVING CORPORATION, HEREBY (1) AGREES THAT IT MAY BE
SERVED WITH PROCESS IN THE STATE OF TEXAS IN ANY PROCEEDING FOR THE ENFORCEMENT
OF ANY OBLIGATION OF PPC AND IN ANY PROCEEDING FOR THE ENFORCEMENT OF THE
RIGHTS OF A DISSENTING SHAREHOLDER OF PPC AGAINST NEW PPC, (II) IRREVOCABLY
APPOINTS THE SECRETARY -OF STATE OF TEXAS AS ITS AGENT TO ACCEPT SERVICE OF
PROCESS IN ANY SUCH PROCEEDING, AND (III) AGREES THAT IT WILL PROMPTLY PAY TO
THE DISSENTING SHAREHOLDERS OF PPC THE AMOUNT, IF ANY, TO WHICH THEY SHALL BE
ENTITLED UNDER THE PROVISIONS OF THE TEXAS BUSINESS CORPORATION ACT WITH
RESPECT TO THE RIGHTS OF DISSENTING SHAREHOLDERS.
3. THE MANNER OF CONVERTING THE SHARES. AT THE EFFECTIVE TIME, (I) EACH
OF THE ISSUED AND OUTSTANDING SHARES OF NEW PPC COMMON STOCK OWNED BY PPC
SHALL BE CANCELLED AND RETURNED AND RESUME THE STATUS OF AUTHORIZED BUT
UNISSUED SHARES OF NEW PPC COMMON STOCK AND (II) THE ISSUED AND OUTSTANDING
SHARES OF PPC COMMON STOCK SHALL, BY VIRTUE OF THE MERGER AND WITHOUT ANY
ACTION, BE CONVERTED INTO AND BECOME FULLY PAID AND NONASSESSABLE SHARES OF
NEW PCC COMMON STOCK AS SET FORTH IN THE FOLLOWING TABLET
NUMBER OF SHARES
NUMBER
OF SHARES
OF NEW PPC COMMON
OF PPC COMMON
STOCK INTO WHICH
SHAREHOLDER
STOCK OUTSTANDING
CONVERTED
LONNIE A. PILGRIM 480,718 16,920,000
LONNIE A. PILGRIM, 10,228 360,000
TRUSTEE FOR
LONNIE KEN PILGRIM
LONNIE A. PILGRIM 10,228 360,000
TRUSTEE FOR
GRETA PILGRIM O~L4.
LONNIE A. PILGRIM, 10,228 360,000
TRUSTEE FOR
PATRICK WAYNE PILGRIM
4. TERMINATION. THIS AGREEMENT MAY BE TERMINATED AND ABANDONED AT ANY
TIME PRIOR TO THE EFFECTIVE TIME, WHETHER BEFORE OR AFTER ACTION THEREON BY
THE SHAREHOLDERS OF PVC OR NEW PVC. BY RESOLUTION OF THE BOARD OF DIRECTORS OF
EITHER PVC OR NEW PVC. IN THE EVENT OF THE TERMINATION AND ABANDONMENT OF THIS
AGREEMENT PURSUANT TO THE PROVISIONS OF THIS SECTION, THIS AGREEMENT SHALL BE
OF NO FURTHER FORCE OR EFFECT.
5. FURTHER ACTIONS. THE PARTIES HERETO AGREE TO TAKE ALL FURTHER ACTIONS
AND TO EXECUTE AND ACKNOWLEDGE AND DELIVER ALL SUCH FURTHER INSTRUMENTS OR
DOCUMENTS AS MAY BE NECESSARY OR DESIRABLE TO CARRY OUT THE TRANSACTIONS
PROVIDED FOR IN THIS AGREEMENT.
6. STOCK CERTIFICATES. AT AND AFTER THE EFFECTIVE TIME, ALL OF THE
OUTSTANDING CERTIFICATES WHICH, IMMEDIATELY PRIOR TO THE EFFECTIVE TIME,
REPRESENTED SHARES OF PPC COMMON STOCK SHALL BE DEEMED FOR ALL PURPOSES TO
EVIDENCE OWNERSHIP OF AND TO REPRESENT SHARES OF NEW PPC COMMON STOCK. THE
REGISTERED OWNER ON THE BOOKS AND RECORDS OF NEW PPC OR ITS TRANSFER AGENT OF
ANY SUCH OUTSTANDING STOCK CERTIFICATE SHALL, UNTIL SUCH CERTIFICATE SHALL HAVE
BEEN SURRENDERED FOR TRANSFER OR OTHERWISE ACCOUNTED FOR TO NEW PPC OR ITS
TRANSFER AGENT, HAVE AND BE ENTITLED TO EXERCISE ANY VOTING AND OTHER RIGHTS
WITH RESPECT TO, AND TO RECEIVE ANY DIVIDENDS AND OTHER DISTRIBUTIONS ON, THE
SHARES OF NEW PPC COMMON STOCK EVIDENCED BY SUCH OUTSTANDING CERTIFICATE AS
ABOVE PROVIDED.
7. CONDITION TO EFFECTIVENESS. THE OBLIGATIONS OF THE PARTIES HERETO TO
EFFECT THE MERGER CONTEMPLATED HEREBY ARE SUBJECT TO THE COMPLETION OF THE
PURCHASE BY PPC OF SHARES OF PPC COMMON STOCK FROM CERTAIN OF ITS SHAREHOLDERS
PURSUANT TO THE PROVISIONS OF THE STOCK PURCHASE AGREEMENT OF EVEN DATE
HEREWITH AMONG PVC, DORIS PILGRIM JULIAN, AUBREY HAL PILGRIM, PAULETTE PILGRIM
ROLSTON AND EVANNE PILGRIM BY MARCH 31, 1987.
IN WITNESS WHEREOF, EACH OF THE PARTIES HERETO HAS CAUSED THIS AGREEMENT
TO BE SIGNED AS OF THE DATE FIRST ABOVE WRITTEN.
ATTEST: PILGRIM'S PRIDE CORPORATION,
A TEXAS CORPORATION
/s/ Clifford E. Butler
_________________________________ /s/ Lonnie A. Pilgrim
CLIFFORD E. BUTLER BY:______________________________________
SECRETARY LONNIE A. PILGRIM
CHAIRMAN OF THE BOARD OF
DIRECTORS AND
CHIEF EXECUTIVE OFFICER
ATTEST PILGRIM'S PRIDE CORPORATION,
A DELAWARE COPORATION
/s/ Clifford E. Butler
__________________________________ /s/ Lonnie A. Pilgirm
CLIFFORD E. BUTLER
BY:______________________________
SECRETARY LONNIE A. PILGRIM
CHAIRMAN OF THE BOARD OF
DIRECTORS AND
CHIEF EXECUTIVE OFFICER
STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, A NOTARY PUBLIC IN AND FOR SAID COUNTY AND STATE, PERSONALLY
APPEARED LONNIE A. PILGRIM AND CLIFFORD E. BUTLER, WHO BEING BY ME DULY SWORN,
DECLARED THAT THEY ARE THE CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF
EXECUTIVE OFFICER AND SECRETARY, RESPECTIVELY, OF PILGRIM'S PRIDE CORPORATION,
A DELAWARE CORPORATION, THAT THEY SIGNED THE FOREGOING DOCUMENT AS CHAIRMAN OF
THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER AND SECRETARY, RESPECTIVELY,
OF SAID CORPORATION, THAT THE STATEMENTS THEREIN CONTAINED ARE TRUE AND
ACKNOWLEDGED THE INSTRUMENT TO BE THE FREE ACT AND DEEO OF SAID CORPORATION.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, THIS 30th DAY OF October
,1986
/s/Julia M. Martin
_____________________________
NOTARY PUBLIC IN AND OF
THE STATE OF TEXAS
STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME. A NOTARY PUBLIC IN AND FOR SAID COUNTY AND STATE, PERSONALLY
APPEARED LONNIE A. PILGRIM AND CLIFFORD E. BUTLER. WHO BEING BY ME DULY SWORN,
DECLARED THAT THEY ARE THE CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF
EXECUTIVE OFFICER AND SECRETARY, RESPECTIVELY, OF PILGRIM'S PRIDE CORPORATION,
A TEXAS CORPORATION, THAT THEY SIGNED THE FOREGOING DOCUMENT AS CHAIRMAN OF
THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER AND SECRETARY,
RESPECTIVELY, OF SAID CORPORATION, THAT THE STATEMENTS THEREIN CONTAINED ARE
TRUE AND ACKNOWLEDGED THE INSTRUMENT TO BE THE FREE ACT AND DEED OF SAID
CORPORATION.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, THIS 30th DAY OF October,1986.
/s/ Julia M. Martin
_________________________________
NOTARY PUBLIC IN AND OF THE
THE STATE OF TEXAS
-6-
SECRETARY'S CERTIFICATE
I, CLIFFORD E. BUTLER, DO HEREBY CERTIFY THAT I AM THE DULY ELECTED
AND QUALIFIED SECRETARY OF PILGRIM'S PRIDE CORPORATION, A DELAWARE
CORPORATION ("NEW PPC"), AND THAT THE HOLDER OF ALL OF THE ISSUED AND
OUTSTANDING SHARES OF COMMON STOCK, PAR VALUE $.OL PER SHARE, OF NEW PPC HAS
APPROVED AND ADOPTED THE PLAN AND AGREEMENT OF MERGER BY AND BETWEEN NEW PPC
AND PILGRIM'S PRIDE CORPORATION, A TEXAS CORPORATION, DATED AS OF OCTOBER 25
, 1986 BY UNANIMOUS WRITTEN CONSENT DATED AS OF OCTOBER 25 , 1986.
IN WITNESS WHEREOF,. I HAVE EXECUTED THIS CERTIFICATE AS OF
THE 1st DAY OF NOVEMBER , 1986.
/s/ Clifford E. Butler
___________________________________
CLIFFORD E. BUTLER
SECRETARY' S CERTIFICATE
I, CLIFFORD E. BUTLER, DO HEREBY CERTIFY THAT I AM THE DULY ELECTED
AND QUALIFIED SECRETARY OF PILGRIM'S PRIDE CORPORATION, A TEXAS CORPORATION
("PPC"), AND THAT THE HOLDERS OF ALL OF THE ISSUED AND OUTSTANDING SHARES OF
COMMON STOCK, PAR VALUE $1.00 PER SHARE, OF PPC HAVE APPROVED ARID ADOPTED
THE PLAN AND AGREEMENT OF MERGER BY AND BETWEEN PPC AND PILGRIM'S PRIDE
CORPORATION A DELAWARE CORPORATION, DATED AS OF OCTOBER 25
1986 BY UNANIMOUS WRITTEN CONSENT DATED AS OF
NOVEMBER 1 1986.
IN WITNESS WHEREOF, I HAVE EXECUTED THIS CERTIFICATE AS OF THE 1st DAY
OF NOVEMBER , 1986.
/s/ Clifford E. Butler
____________________________________
CLIFFORD E. BUTLER
CERTIFICATE OF MERGER OF PILGRIM' S PRIDE CORPORATION * A CORPORATION
ORGANIZED AND EXISTING UNDER THE LAWS OF TIC STATE OF TEXAS, MERGING WITH AND
INTO "PILGRIM'S PRIDE CORPORATION", CORPORATION ORGANIZED AND EXISTING UNDER
THE LAWS OF THE STATE OF DELAWARE, UNDER THE NAME OF "PILGRIM' S PRIDE
CORPORATION" * AS RECEIVED AND FILED IN THIS OFFICE THE TWELFTH DAY OF
NOVEMBER, A.D. 1986, AT 12 O'CLOCK NOON.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORSEAID CORPORATION SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
CERTIFICATE OF MERGER
PURSUANT TO THE PROVISIONS OF SECTION 252 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE, PILGRIM'S PRIDE CORPORATION, A DELAWARE
CORPORATION, DOES HEREBY ADOPT THE FOLLOWING CERTIFICATE OF OWNERSHIP AND
MERGER:
1. THE NAME AND STATE OF INCORPORATION OF EACH OF THE CONSTITUENT
CORPORATIONS IS:
NAME OF
CORPORATION STATE
CASH POULTRY, INC. ARIZONA
PILGRIM'S PRIDE CORPORATION DELAWARE
2. THE PLAN AND AGREEMENT OF MERGER (THE "MERGER AGREEMENT")
BETWEEN PILGRIM'S PRIDE CORPORATION AND CASH POULTRY, INC.
DATED March 10 , 1988, ATTACHED HERETO AS EXHIBIT A, HAS BEEN
APPROVED, ADOPTED, CERTIFIED, EXECUTED AND ACKNOWLEDGE BY EACH OF THE
CONSTITUENT CORPORATIONS.
3. THE NAME OF THE SURVIVING CORPORATION IS PILGRIM'S PRIDE
CORPORATION, A DELAWARE CORPORATION.
4. THE CERTIFICATE OF INCORPORATION OF PILGRIM'S PRIDE CORPORATION
SHALL BE THE CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION.
5. THE EXECUTED MERGER AGREEMENT IS ON FILE AT THE PRINCIPAL PLACE
OF BUSINESS OF PILGRIM'S PRIDE CORPORATION~ 110 SOUTH TEXAS STREET,
PITTSBURG, TEXAS 75686.
6. A COPY OF THE MERGER AGREEMENT WILL BE FURNISHED BY PILGRIM'S
PRIDE CORPORATION ON REQUEST AND WITHOUT COST TO ANY STOCKHOLDER OF ANY
CONSTITUENT CORPORATION.
7. THE AUTHORIZED CAPITAL STOCK OF CASH POULTRY, INC. IS 15,000
SHARES OF COMMON STOCK, PAR VALUE 100.00 PER SHARE, AND 15,000 SHARES OF
PREFERRED STOCK, PAR VALUE $100.00 PER SHARE.
8. PILGRIM'S PRIDE CORPORATION IS THE OWNER OF 100% OF THE ISSUED
AND OUTSTANDING SHARES OF CASH POULTRY, INC.
-1-
IN WITNESS WHEREOF, THE UNDERSIGNED HAS CAUSED. THIS CERTIFICATE TO BE
SIGNED AS OR THE 10th DAY OF MARCH, 1988.
PILGRIMS'S PRIDE CORPORATION
ATTEST:
A DELAWARE CORPORATION
/s/ Clifford E. Butler
_________________________ /s/ Lonnie A. Pilgrim
BY________________________
CLIFFORD E. BUTLER .
SECRETARY LONNIE A. PILGRIM
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
EXHIBIT A
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER, MADE AN ENTERED INTO AS OF THE 10th DAY
OF MARCH, 1988, BY AND BETWEEN CASH POULTRY, INC., AN ARIZONA CORPORATION
("CPI") AND PILGRIM'S PRIDE CORPORATION, A DELAWARE CORPORATION ("PPC")
(HEREINAFTER COLLECTIVEAY REFERRED TO AS THE "CONSTITUENT CORPORATIONS");
W I T N E S S E T H:
WHEREAS, THE RESPECTIVE BOARDS OF DIRECTORS OF CPI AND PPC HAVE DETERMINED
THAT IT IS DESIRABLE AND IN THE BEST INTEREST OF EACH OF THE CORPORATIONS TO
EFFECT A MERGER OF THE CORPORATIONS, WHEREBY (I) CPI WILL BE MERGED INTO PPC,
WHICH WILL BE THE SURVIVING CORPORATION IN THE MERGER, (II) EACH ISSUED AND
OUTSTANDING SHARE OF COMMON AND PREFERRED STOCK, PAR VALUE $100.00 PER SHARE
("CPI STOCK"), OF CPI OWNED BY PPC WILL BE CANCELLED ARID (III) NO NEW SHARES
OF PPC SHALL BE ISSUED IN EXCHANGE THEREFOR; A ~D
WHEREAS, THE RESPECTIVE BOARDS OF DIRECTORS OF CPI AND PPC HAVE DULY
AUTHORIZED THE EXECUTION HEREOF;
NOW THEREFORE, IN CONSIDERATION OF THE PREMISES AND OF THE MUTUAL
COVENANTS AND AGREEMENTS HEREIN CONTAINED, CPI AND PPC HEREBY AGREE THAT CPI
SHALL BE MERGED WITH AND INTO PPC IN ACCORDANCE WITH THE TERMS AND CONDITIONS
OF THIS AGREEMENT AND PRESCRIBE THE TERMS AND CONDITIONS OF THE MERGER OF CPI
INTO PPC, THE MODE OF CARRYING IT INTO EFFECT, THE NAME OF THE SURVIVING
CORPORATION, AND SUCH OTHER DETAILS AND PROVISIONS AS ARE DEEMED NECESSARY OF
DESIRABLE, AS FOLLOWS:
1. MERGER. SUBJECT TO THE CONDITIONS HEREINAFTER SET FORTH, UPON THE
FILING OF ARTICLES OF MERGER AS REQUIRED UNDER APPLICABLE LAW (THE "EFFECTIVE
TIME"), CPI SHALL BE MERGED WITH AND INTO PPC, AND PPC SHALL BE THE SURVIVING
CORPORATION AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
2. TERMS AND CONDITIONS OF THE MERGER. AT THE EFFECTIVE TIME, (I) THE
CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION SHALL BE THE
CERTIFICATE OF INCORPORATION OF PPC IN EFFECT IMMEDIATELY PRIOR TO THE
EFFECTIVE TIME, (II) THE BYLAWS OF THE SURVIVING CORPORATION SHALL BE THE
BYLAWS OF PPC IN EFFECT IMMEDIATELY PRIOR TO THE EFFECTIVE TIME, (III) THE
DIRECTORS OF THE SURVIVING CORPORATION SHALL BE THE DIRECTORS OF PPC IN OFFICE
IMMEDIATELY PRIOR TO THE EFFECTIVE TIME, WHO SHALL SERVE UNTIL THEIR SUCCESSORS
SHALL HAVE BEEN ELECTED AND SHALL QUALIFY, (IV) THE OFFICERS OF THE SURVIVING
CORPORATIONS SHALL BE THE OFFICES OF PPC IN OFFICE IMMEDIATELY PRIOR TO THE
EFFECTIVE TIME, AND (V) THE REGISTERED OFFICE OF THE SURVIVING CORPORATION IN
THE STATE OF DELAWARE SHALL BE THE CORPORATION TRUST CENTER, 1209 ORANGE
STREET, WILMINGTON, DELAWARE.
THIS MERGER AGREEMENT SHALL CONSTITUTE A PLAN OF REORGANIZATION PURSUANT
TO SECTION 368(A) (L) (A) OF THE INTERNAL REVENUE CODE OF 1954, AS AMENDED.
AT THE EFFECTIVE TIME, THE SEPARATE CORPORATE EXISTENCE OF CPI SHALL
CEASE, AND PPC SHALL POSSESS ALL THE RIGHTS, PRIVILEGES, POWERS AND FRANCHISES
OF A PUBLIC AS WELL AS OF A PRIVATE NATURE AND BE SUBJECT TO ALL THE
RESTRICTIONS, DISABILITIES AND DUTIES OF EACH OF THE CONSTITUENT CORPORATIONS:
AND ALL AND SINGULAR, THE RIGHTS, PRIVILEGES, POWERS AND FRANCHISES OF EACH OF
THE CONSTITUENT CORPORATIONS, AND ALL PROPERTY, REAL, PERSONAL AND MIXED, AND
ALL DEBTS DUE TO EITHER OF THE CONSTITUENT CORPORATIONS ON WHATEVER ACCOUNT,
INCLUDING STOCK SUBSCRIPTIONS AND ALL OTHER CHOSES OR THINGS IN ACTION OR
BELONGING TO EACH OF THE CONSTITUENT CORPORATIONS SHALL BE VESTED IN THE
SURVIVING CORPORATION; AND ALL PROPERTY, RIGHTS, PRIVILEGES, POWERS AND
FRANCHISES, AND ALL AND EVERY OTHER INTEREST SHALL BE THEREAFTER AS EFFECTUALLY
THE PROPERTY OF THE SURVIVING CORPORATION AS THEY WERE OF THE SEVERAL AND
RESPECTIVE CONSTITUENT CORPORATIONS, AND THE TITLE TO ANY REAL ESTATE VESTED BY
DEED OR OTHERWISE, UNDER THE LAWS OF THE STATE OF DELAWARE, IN EITHER OF SUCH
CONSTITUENT CORPORATIONS, SHALL NOT REVERT OR BE IN ANY WAY IMPAIRED BY REASON
OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE: BUT ALL RIGHTS OF
CREDITORS AND ALL LIENS UPON ANY PROPERTY OF ANY OF THE CONSTITUENT
CORPORATIONS SHALL BE PRESERVED, UNIMPAIRED, AND ALL DEBTS, LIABILITIES AND
DUTIES OF THE RESPECTIVE CONSTITUENT CORPORATIONS SHALL THENCEFORTH ATTACH TO
THE SURVIVING CORPORATION AND MAY BE ENFORCED AGAINST IT TO THE SAME EXTENT AS
IF SAID DEBTS, LIABILITIES AND DUTIES HAD BEEN INCURRED OR CONTRACTED TO IT.
PPC, THE SURVIVING CORPORATION, HEREBY (I) AGREES THAT IT MAY BE SERVED
WITH PROCESS IN THE STATE OF ARIZONA IN ANY PROCEEDING FOR THE ENFORCEMENT OF
ANY OBLIGATION OF CPI AND IN ANY PROCEEDING FOR THE ENFORCEMENT OF THE RIGHTS
OF A DISSENTING SHAREHOLDER OF CPI AGAINST PPC, (II) IRREVOCABLY APPOINTS THE
COMMISSIONER OF THE STATE OF ARIZONA AS ITS AGENT TO ACCEPT SERVICE OF PROCESS
IN ANY SUCH PROCEEDING, AND (III) AGREES THAT IT WILL PROMPTLY PAY TO THE
DISSENTING SHAREHOLDERS OF CPI THE AMOUNT, IF ANY, TO WHICH THEY SHALL BE
ENTITLED UNDER THE PROVISIONS OF ~10-007 OF THE CORPORATE LAWS OF THE STATE OF
ARIZONA WITH RESPECT TO THE RIGHTS OF DISSENTING SHAREHOLDERS.
3. THE MANNER OF CONVERTING THE SHARES. AT THE EFFECTIVE TIME, EACH OF
THE ISSUED AND OUTSTANDING SHARES OF CPI STOCK OWNED BY PPC SHALL BE CANCELLED
AND RETURNED. NO SHARES OF STOCK OF PPC SHALL BE ISSUED IN EXCHANGE THEREFOR.
4. TERMINATION. THIS AGREEMENT MAY BE TERMINATED AND ABANDONED AT ANY
TIME PRIOR TO THE EFFECTIVE TIME, WHETHER BEFORE OR AFTER ACTION THEREON BY THE
SHAREHOLDERS OF CPI OR PPC, BY RESOLUTION OF THE BOARD OF DIRECTORS OF EITHER
CPI OR PPC. IN THE EVENT OF THE TERMINATION AND ABANDONMENT OF THIS AGREEMENT
PURSUANT TO THE PROVISIONS OF THIS SECTION, THIS AGREEMENT SHALL BE OF NO
FURTHER FORCE OR EFFECT.
5. FURTHER ACTIONS. THE PARTIES HERETO AGREE TO TAKE ALL FURTHER ACTIONS
AND TO EXECUTE AND ACKNOWLEDGE AND DELIVER ALL SUCH FURTHER INSTRUMENTS OR
DOCUMENTS AS MAY BE NECESSARY OR DESIRABLE TO CARRY OUT THE TRANSACTIONS
PROVIDED FOR IN THIS AGREEMENT.
IN WITNESS WHEREOF, EACH OF THE PARTIES HERETO HAS CAUSED THIS AGREEMENT
TO BE SIGNED AS OF THE DATE FIRST ABOVE WRITTEN.
ATTEST CASH POULTRY, INC.
AN ARIZONA CORPORATION
/s/ Clifford E. Butler /s/ Lonnie A. Pilgrim
____________________________ ____________________________________
CLIFFORD E. BUTLER LONNIE A. PILGRIM
SECRETARY PRESIDENT
ATTEST PILGRIM'S PRIDE CORPORATION
A DELAWARE CORPORATION
/s/ Clifford E. Butler /s/ Lonnie A. Pilgrim
______________________________ BY:_______________________________
CLIFFORD E. BUTLER LONNIE A. PILGRIM
SECRETARY CHIEF EXECUTIVE OFFICER
STATE OF TEXAS
COUNTY OF CAMP
BEFORE ME, A NOTARY PUBLIC IN AND FOR SAID COUNTY AND STATE, PERSONALLY
APPEARED LONNIE A. PILGRIM AND CLIFFORD E. BUTLER, WHO BEING BY ME DULY SWORN,
DECLARED THAT THEY ARE THE CHIEF EXECUTIVE OFFICER AND SECRETARY, RESPECTIVELY,
OF PILGRIM'S PRIDE CORPORATION, A DELAWARE CORPORATION, THAT THEY SIGNED THE
FOREGOING DOCUMENT AS CHIEF EXECUTIVE OFFICER AND SECRETARY, RESPECTIVELY, OF
SAID CORPORATION, THAT THE STATEMENTS THEREIN CONTAINED ARE TRUE, AND
ACKNOWLEDGED THE INSTRUMENT TO BE THE FREE ACT AND DEED OF SAID CORPORATION.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, THIS 10th DAY OF MARCH, 1988
/s/ Cynthia A. Jackson
___________________________
MY COMMISSION EXPIRES: NOTARY PUBLIC IN AND FOR
7-12-89 THE STATE OF TEXAS
_______________________________
STATE OF TEXAS
COUNTY OF CAMP
BEFORE ME, A NOTARY PUBLIC IN AND FOR SAID COUNTY AND STATE, PERSONALLY
APPEARED LONNIE A. PILGRIM AND CLIFFORD E. BUTLER, WHO BEING BY ME DULY SWORN,
DECLARED THAT THEY ARE THE PRESIDENT AND SECRETARY, RESPECTIVELY, OF CASH
POULTRY, INC., AN ARIZONA CORPORATION, THAT THEY SIGNED THE FOREGOING DOCUMENT
AS PRESIDENT AND SECRETARY, RESPECTIVELY, OF SAID CORPORATION, THAT THE
STATEMENTS THEREIN CONTAINED ARE TRUE, AND ACKNOWLEDGED THE INSTRUMENT TO BE
THE FREE ACT AND DEED OF SAID CORPORATION.
GIVEN UNDER NY HAND AND SEAL OF OFFICE, THIS 10th DAY OF MARCH, 1988
7-12-89 /s/ Cynthia A. Jackson
_________________________________
MY COMMISSION EXPIRES: NOTARY PUBLIC IN AND OF
THE STATE OF TEXAS
SECRETARY'S CERTIFICATE
I, CLIFFORD E. BUTLER, DO HEREBY CERTIFY THAT I AM THE DULY ELECTED AND
QUALIFIED SECRETARY OF CASH POULTRY, INC. AND THAT THE HOLDERS OF ALL OF THE
ISSUED AND OUTSTANDING SHARES OF NON-VOTING COMMON AND VOTING PREFERRED
STOCK, PAR VALUE $100.00 PER SHARE, OF CPI HAVE APPROVED AND ADOPTED THE
PLAN AND AGREEMENT OF MERGER BY AND BETWEEN EN AND PILGRIM'S PRIDE
CORPORATION, A DELAWARE CORPORATION, DATED MARCH 10, 1988 BY UNANIMOUS
CONSENT DATED MARCH 10, 1988.
IN WITNESS WHEREOF, I HAVE EXECUTED THE CERTIFICATE AS OF THE 10th DAY
OF MARCH, 1988
/s/ Clifford E. Butler
___________________________
CLIFFORD E. BUTLER
CERTIFIED RESOLUTIONS APPROVING PLAN
AND AGREEMENT MERGER
WHEREAS, THERE HAS BEEN PRESENTED TO AND DISCUSSED AT THIS MEETING A
PROPOSED PLAN AND AGREEMENT OF MERGER, A COPY OF WHICH IS ATTACHED HERETO,
PROVIDING FOR THE MERGER OF CASH POULTRY, INC. INTO THIS CORPORATION; AND
WHEREAS, THIS BOARD OF DIRECTORS DEEMS IT TO BE IN THE BEST INTERESTS
OF THIS CORPORATION AND ITS SHAREHOLDERS THAT THE PLAN AND AGREEMENT OF
MERGER BE APPROVED AND THAT CASH POULTRY, INC. AND THIS CORPORATION BE
MERGED;
RESOLVED, THAT THE TERMS AND CONDITIONS OF THE PROPOSED PLAN AND
AGREEMENT OR MERGER PRESENT TO THIS MEETING, AND MODE OF CARRYING THEM INTO
EFFECT AS VEIL AS THE MANNER AND BASIS OF CONVERTING THE SHARES OF THE
CONSTITUENT CORPORATIONS INTO SHARES OF THE SURVIVING CORPORATION AS SET
FORTH IN THE PLAN AND AGREEMENT OF MERGER, ARE HEREBY APPROVED;
RESOLVED FURTHER, THAT THE PRESIDENT AND THE SECRETARY OF THIS
CORPORATION ARE DIRECTED TO EXECUTE SAID PLAN AND AGREEMENT OF MERGER IN THE
NAME AND ON BEHALF OF THIS CORPORATION AND TO DELIVER A DULY EXECUTED COPY
THEREOF TO PILGRIM'S PRIDE, INC.;
SECRETARY'S CERTIFICATE
II, CLIFFORD F. BUTLER, DO HEREBY CERTIFY THAT I AM THE DULY ELECTED
AND QUALIFIED SECRETARY OF PILGRIM'S PRIDE CORPORATION, AND THAT THE
DIRECTORS OF PILGRIM'S PRIDE CORPORATION HAVE APPROVED THE ABOVE AND
FOREGOING RESOLUTIONS BY UNANIMOUS CONSENT AT A MEETING OF THE BOARD OF
DIRECTORS DULY HELD ON FEBRUARY 3, 1988.
SIGNED AND DATES THIS 10th DAY OF MARCH, 1988.
/s/ Clifford E. Butler
______________________________________________
CLIFFORD E. BUTLER
CERTIFICATE OF MERGER OF THE CASH POULTRY, INC.", A CORPORATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE STATE OF ARIZONA MERGING 'WITH AND INTO THE
"PILGRIM'S PRIDE CORPORATION". A CORPORATION ORGANIZED AND EXISTING UNDER THE
LAWS OF THE STATE OF DELAWARE UNDER THE NAME OF "PILGRIMS PRIDE CORPORATION",
AS RECEIVED AND FILED IN THIS OFFICE THE TWENTY-FIRST DAY OF March 1988, AT 9
O'CLOCK AM.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CORPORATION SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
STAVE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:00 PM 06/307199S
98125161-2101254
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
PILGRIM'S PRIDE CORPORATION
PILGRIM'S PRIDE CORPORATION A CORPORATION ORGANIZED AND EXISTING UNDER THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE (THE "CORPORATION"), DOES
HEREBY CERTIFY THAT:
ARTICLE FOURTH OF THE CORPORATION CERTIFICATE INCORPORATION IS AMENDED TO
READ IN ITS ENTIRETY AS FOLLOWS
"FOURTH:
AUTHORIZED SHARES
THE TOTAL NUMBER OF SHARES OF STOCK WHICH THE CORPORATION SHALL HAVE
AUTHORITY TO ISSUE IS
165,000,000 SHARES CONSISTING OF THE FOLLOWING:
(1) 100,000,000 SHARES OF CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
(THE "CLASS A COMMON STOCK"):
(2) 60,000,000 SHARES OF CLASS B COMMON STOCK PAR VALUE $.01 PER SHARE (THE
"CLASS B COMMON STOCK" AND, TOGETHER WITH THE CLASS A COMMON STOCK, THE "COMMON
STOCK"); AND
(3) 5,000,000 SHARES OF PREFERRED STOCK PAR VALUE $.01 PER SHARE (THE
"PREFERRED STOCK").
UPON THE FILING OF THIS CERTIFICATE OF AMENDMENT OF CERTIFICATE OF
INCORPORATION WITH THE SECRETARY OF STATE OF DELAWARE (THE" EFFECTIVE
TIME"), AND WITHOUT ANY FURTHER ACTION ON THE PART OF THE CORPORATION OR
ITS STOCKHOLDERS, EACH SHARE OF THE CORPORATION'S COMMON STOCK, PAR VALUE
$.01 PER SHARE, ISSUED AND OUTSTANDING IMMEDIATELY PRIOR TO THE EFFECTIVE
TIME (THE "EXISTING COMMON STOCK"), INCLUDING SHARES HELD IN THE TREASURY
OF THE CORPORATION, SHALL BE AUTOMATICALLY RECLASSIFIED, CHANGED, AND
CONVERTED INTO ONE FULLY PAID AND NONASSESSABLE SHARE OF CLASS B COMMON
STOCK, PAR VALUE $.01 SHARE. ANY STOCK CERTIFICATE THAT, IMMEDIATELY
PRIOR TO THE EFFECTIVE TIME, REPRESENTS SHARES OF THE EXISTING COMMON
STOCK WILL FROM AND AFTER THE EFFECTIVE TIME AUTOMATICALLY AND WITHOUT
THE NECESSITY OF PRESENTING THE SAME EXCHANGE REPRESENT THAT NUMBER OF
SHARES OF CLASS B COMMON STOCK EQUAL TO THE NUMBER OF SHARES OF THE
EXISTING COMMON STOCK REPRESENTED BY SUCH CERTIFICATE PRIOR TO THE
EFFECTIVE TIME.
DESIGNATIONS,PREFERENCES,ETC. OF THE CAPITAL STOCK
THE DESIGNATIONS, PREFERENCES, POWERS, QUALIFICATIONS, AND SPECIAL
RELATIVE RIGHTS OR PRIVILEGES OF THE CAPITAL STOCK OF THE CORPORATION SHALL BE
AS SET FORTH BELOW.
COMMON STOCK
(1) IDENTICAL RIGHTS EXPCEPT AS HEREIN OTHERWISE EXPRESSLY PROVIDED ALL
SHARES OF COMMON STOCK SHALL BE IDENTICAL AND SHALL
ENTITLE THE HOLDERS THEREOF TO THE SAME RIGHTS AND PRIVILEGES.
(2) DIVIDENDS ON THE COMMON STOCK
(A) SUBJECT TO THE PRIOR RIGHTS AND PREFERENCES, IF ANY,
APPLICABLE TO SHARES OF THE PREFERRED STOCK OR ANY SERIES
THEREOF, THE HOLDERS OF SHARES OF COMMON STOCK SHALL BE
ENTITLED TO RECEIVE SUCH DIVIDENDS (PAYABLE IN CASH,
STOCK, OR OTHERWISE) AS MAY BE DECLARED THEREOF BY THE
CORPORATION'S BOARD OF DIRECTORS (THE" BOARD OF
DIRECTORS") AT ANY TIME AND FROM TIME TO TIME OUT OF ANY
FUNDS OF THE CORPORATION LEGEALLY AVAILABLE THEREFORE,
EXCEPT THAT (I) IF DIVIDENDS ARE DECLARED THAT ARE
PAYABLE IN SHARES OF COMMON STOCK, THEN SUCH STOCK
DIVIDENDS SHALL BE PAYABLE AT THE SAME RATE ON EACH CLASS
OF COMMON STOCK AND SHALL BE PAYABLE ONLY IN SHARES OF
CLASS A COMMON STOCK TO HOLDERS OF CLASS A COMMON STOCK
AND IN SHARES OF CLASS B COMMON STOCK TO HOLDERS OF CLASS
B COMMON STOCK AND (II) IF DIVIDENDS ARE DECLARED THAT
ARE PAYABLE IN SHARES OF COMMON STOCK OF ANOTHER
CORPORATION, THE SUCH SHARES MAY DIFFER AS TO VOTING
RIGHTS TO EXTENT THAT VOTING RIGHTS NOW DIFFER AMONG THE
CLASS A COMMON STOCK AND THE CLASS THE CLASS B COMMON
STOCK.
(B) DIVIDENDS PAYABLE UNDER THIS SUBPARAGRAPH (2) SHALL BE PAID
TO THE HOLDERS OF RECORD OF THE OUTSTANDING SHARES OF COMMON
STOCK AS THEIR NAMES SHALL APPEAR ON THE STOCK REGISTER OF
THE CORPORATION ON THE RECORD DATE FIXED BY THE BOARD OF
DIRECTORS IN ADVANOM OF DECLARATION AND PAYMENT OF EACH
DIVIDEND. ANY SHARES OF COMMON STOCK ISSUED AS A DIVIDEND
PURSUANT TO THIS SUBPARAGRAPH (2) SHALL WHEN SO ISSUED, BE
DULY AUTHORIZED VALIDLY ISSUED, FULLY PAID AND NON
ASSESSABLE AND FREE OF ALL LIENS AND CHARGES.
(C) NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY,
NO DIVIDENDS ON SHARES OF COMMON STOCK SHALL BE DECLARED BY
THE BOARD OF DIRECTORS OR PAID OR SET APART FOR PAYMENT BY
THE CORPORATION AT ANY TIME THAT SUCH DECLARATION PAYMENT
OR SETTING APART IS PROHIBITED BY APPLICABLE LAW.
(3) STOCK SPLITS RELATING TO THE COMMON STOCK 'THE
CORPORATION SHALL NOT IN ANY MANNER SUBDIVIDE (BY ANY STOCK SPLIT,
RECLASSIFICATION, STOCK DIVIDEND, RECAPITALIZATION OR OTHERWISE) OR
COMBINE THE OUTSTANDING SHARES OF ONE CLASS OF COMMON STOCK
UNLESS THE OUTSTANDING SHARES OF BOTH CLASSES OF COMMON STOCK
SHALL BE PROPORTIONATELY SUBDIVIDED OR COMBINED.
(4) LIQUIDATION RIGHTS OF THE COMMON STOCK, IN THE EVENT OF
ANY VOLUNTARY OR INVOLUNTARY LIQUIDATION DISSOLUTION, OR WINDING
-UP OF THE CORPORATION AFTER DISTRIBUTION IN FULL OF THE
PREFERENTIAL AMOUNTS, IF ANY, TO BE DISTUBUTED TO THE
HOLDERS OF SHARES OF THE PREFERRED STOCK OR ANY SERIES THEREOF
THE HOLDERS OF SHARES OF COMMON STOCK SHALL BE ENTITLED TO
RECEIVE ALL OF THE REMAINING ASSETS OF THE CORPORATION
AVAILABLE FOR DISTRIBUTION TO ITS STOCKHOLDERS RATABLY IN
PROPORTION TO THE NUMBER OF SHARES OF COMMON STOCK HELD BY THEM.
A LIQUIDATION DISSOLUTION OR WINDING UP OF THE CORPORATION AS SUCH.
TERMS ARE USED IN THIS SUBPARAGRAPH (4) SHALL NOT BE DEEMED TO BE
OCCASIONED BY OR TO INCLUDE ANY CONSOLIDATION OR MERGER OF THE
CORPORATION WITH OR INTO ANY OTHER CORPORATION OR
CORPORATIONS OR OTHER ENTRY OR SALE LEASE EXCHANGE OR CONVEYANCE OF
ALL OR A PART OF THE ASSETS OF THE CORPORATION.
(5) VOTING RIGHTS OF THE COMMON STOCK
(A) THE HOLDERS OF THE CLASS A COMMON STOCK AND 'THE CLASS
B COMMON STOCK SHALL VOTE AS A SINGLE CLASS ON ALL
MATTERS SUBMITTED TO A VOTE OF THE STOCKHOLDERS, WITH EACH
SHARES OF CLASS A COMMON STOCK BEING ENTITLED TO
ONE (1) VOTE AND EACH SHARE OF CLASS B COMMON STOCK
BEING ENTITLED TO TWENTY (20) VOTES, EXCEPT AS
OTHERWISE PROVIDED BY LAW.
(B) NO HOLDER OF COSTS STOCK SHALL BE ENTITLED TO
PREEMPTIVE OR SUBSCRIPTION RIGHTS.
(6) CONSIDERATION ON MERGER CONSOLIDATION ETC IN MY MERGER ,
CONSOLIDATION OR BUSINESS COMBINATION THE CONSIDERATION
TO BE RECEIVED PER SHARE BY THE HOLDER OF CLASS A COMMON STOCK
AND CLASS B COMMON STOCK MUST BE IDENTICAL FOR EACH CLASS OF
STOCK, EXCEPT THAT IN ANY SUCH TRANSACTION IN WHICH SHARES OF
COMMON STOCK ARE TO BE DISTRIBUTED, SUCH SHARES MAY DIFFER AS
TO VOTING RIGHTS TO THE EXTENT THAT VOTING RIGHTS NOW DIFFER
AMONG THE CLASS A COMMON STOCK AND THE CLASS B COMMON STOCK.
PERFERRED STOCK
SHARES OF THE PREFERRED STOCK MAY BE ISSUED FROM TIME TO TIME IN
ONE OR MORE SERIES THE SHARES OF EACH SERIES TO HAVE SUCH VOTING
POWERS FULL OR LIMITED OR NO VOTING POWERS, AND SUCH
DESIGNATIONS LIMITATIONS OR RESTRICTIONS THEREOF AS SHALL BE
STATED AND EXPRESSED IN A RESOLUTION OR RESOLUTIONS PROVIDING
FOR THE ISSUE OF SUCH SERIES ADOPTED BY THE BOARD OF DIRECTORS oF
THE CORPORATION. THE BOARD OF DIRECTORS OF THE CORPORATION IS
HEREBY EXPRESSLY AUTHORIZED SUBJECT TO THE LIMITATIONS PROVIDED
BY LAW, TO ESTABLISH AND DESIGNATE SERIES OF THE PREFERRED STOCK
TO FIX THE NUMBER OF SHARES CONSTITUTING EACH SERIES AND TO
FIX THE DESIGNATIONS AND THE RELATIVE POWERS RIGHTS, PREFERENCES
AND LIMITATIONS OF THE SHARES OF EACH SERIES AND THE VARIATIONS
IN THE RELATIVE POWERS, RIGHTS, PREFERENCES AND LIMITATIONS AS
BETWEEN SERIES AND TO INCREASE AND TO DECREASE THE NUMBER OF
SHARES CONSTITUTING EACH SERIES.
IN WITNESS WHEREOF, PILGRIM'S PRIDE CORPORATION HAS
CAUSED THIS CERTIFICATE TO BE EXECUTED BY LONNIE A. PILGRIM ITS
AUTHORIZED OFFICER ON THE 30TH DAY OF JUNE 1998.
PILGRIM'S PRIDE CORPORATION
___________________________________
LONNIE A PILGRIM CHAIRMAN OF THE
BOARD OF DIRECTOS
AND CHIEF EXECUTIVE OFFICER
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF
CORPORATION
FILED 10:00 AM
07/20/1999
991296614-2101254
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
PILGRIM'S PRIDE CORPORATION
PILGRIM'S PRIDE CORPORATION , A CORPORATION ORGANIZED AND EXISTING
UNDER THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE (THE "CORPORATION")
DOES HEREBY CERTIFY THAT
1 THE AMENDMENT TO THE CORPORATION'S CERTIFICATE OF INCORPORATION SET
FORTH BELOW WAS DULY ADOPTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION
242 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
2 ARTICLE FOURTH OF THE CORPORATION'S CERTIFICATE OF INCORPORATION IS
AMENDED TO READ IN ITS ENTIRELY AS FOLLOWS
"FOURTH:
AUTHORIZED SHARES
THE TOTAL NUMBER OF SHARES TO STOCK WHICH THE CORPORATION SHALL HAVE
AUTHORITY TO ISSUE IS 165,000,000 SHARES, CONSISTING OF THE FOLLOWING
(1) 100,000,000 SHARES OF CLASS A COMMON STOCK , PAR
VALUE $.01 PER SHARE (THE "CLASS A COMMON STOCK");
(2) 60,000.000 SHARES OF CLASS B COMMON STOCK, PAR VALUE
$.01 PER SHARE (THE "CLASS B COMMON STOCK" AND, TOGETHER WITH
THE CLASS A COMMON STOCK THE COMMON STOCK"); AND
(3) 5,000.000 SHARES OF PREFERRED STOCK, PAR VALUE $.01 PER
SHARE (THE "PREFERRED STOCK")
DESIGNATIONS PREFERENCES ETC OF THE CAPITAL STOCK
THE DESIGNATIONS PREFERENCES POWERS QUALIFICATIONS AND SPECIAL
OR RELATIVE RIGHTS OR PRIVILEGES OF THE CAPITAL STOCK OF THE CORPORATION
SHALL BE AS SET FORTH BELOW.
COMMON STOCK
(1) IDENTICAL RIGHTS EXCEPT AS HEREIN OTHERWISE EXPRESSLY
PROVIDED, ALL SHARES OF COMMON STOCK SHALL BE IDENTICAL AND
SHALL ENTITLE THE HOLDERS THEREOF TO THE SAME RIGHTS AND
PRIVILEGES.
(2) DIVIDENDS ON THE COMMON STOCK.
(A) SUBJECT TO THE PRIOR RIGHTS AND PREFERENCES IF ANY
APPLICABLE TO SHARES OF THE PREFERRED STOCK OR
ANY SERIES THEREOF THE HOLDERS OF SHARES OF
COMMON STOCK SHALL BE ENTITLED TO RECEIVE SUCH
DIVIDENDS (PAYABLE IN CASH, STOCK, OR OTHERWISE)
AS MAY BE DECLARED THEREON BY THE CORPORATION'S BOARD
OF DIRECTORS (THE "BOARD OF DIRECTORS) AT ANY TIME AND
FROM TIME TO TIME OUT OF ANY FUNDS OF THE CORPORATION
LEGALLY AVAILABLE THEREFORE EXECEPT THAT (1) IF DIVIDENDS
ARE DECLARED THAT ARE PAYABLE IN
SHARES OF COMMON STOCK, THEN SUCH STOCK
DIVIDENDS SHALL BE PAYABLE AT THE SAME RATE ON
EACH CLASS OF COMMON STOCK AND SHALL BE PAYABLE
ONLY IN SHARES OF CLASS A COMMON STOCK TO
HOLDERS OF CLASS A COMMON STOCK AND IN SHARES
OF EITHER CLASS A COMMON STOCK OR CLASS B
COMMON STOCK AS MAY BE SPECIFIED BY THE BOARD
OF DIRECTORS IN A RESOLUTION AUTHORIZING AND
SUCH STOCK DIVIDEND TO HOLDERS OF CLASS B
COMMON STOCK AND (II) IF DIVIDENDS ARE DECLARED
THAT ARE PAYABLE IN SHARES OF COMMON STOCK OF
ANOTHER CORPORATION, THEN SUCH SHARES MAY
DIFFER AS TO VOTING RIGHTS TO THE EXTENT THAT
VOTING RIGHTS DIFFER AMONG THE CLASS A COMMON
STOCK AND THE CLASS B COMMON STOCK.
(B) DIVIDENDS PAYABLE UNDER THIS SUBPARAGRAPH (2) SHALL
BE PAID TO THE HOLDERS OF RECORD OF THE OUTSTANDING SHARES OF
COMMON STOCK AS THEIR NAMES SHALL APPEAR ON THE STOCK REGISTER
OF TO CORPORATION ON THE RECORD DATE FIXED BY THE BOARD OF
DIRECTORS IN ADVANCE OF DECLARATION AND PAYMENT OF EACH
PURSUANT TO THIS SUBPARAGRAPH (2) SHALL, WHEN SO ISSUED, BE
DULY AUTHORIZED, VALIDLY ISSUED, FULLY PAID AND NON ASSESSABLE
AND FREE OF ALL LIENS AND CHARGES.
(C) NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO FLUE
CONTRARTY, NO DIVIDENDS ON SHARES OF COMMON STOCK SHALL BE
DECLARED BY THE BOARD OF DIRECTORS OR PAID OR SET APART FOR
PAYMENT BY THE CORPORATION AT ANY TIME THAT SUCH DECLARATION,
PAYMENT OR SETTING APART IS PROHIBITED BY APPLICABLE LAW,
(3) STOCK SPLITS RELATING TO THE COMMON STOCK. EXECPT AS
EXPRESSLY PROVIDED IN SUBPARAGRAPH (2) ABOVE, THE CORPORATION SHALL
NOT IN ANY MANNER SUBDIVIDE (BY ANY STOCK SPLIT RECLASSIFICATION
STOCK DIVIDEND RECAPITALIZATION OR OTHERWISE) OR COMBINE THE
OUTSTANDING SHARES OF ONE CLASS OF COMMON STOCK UNLESS THE
OUTSTANDING SHARES OF BOTH CLASSES OF COMMON STOCK SHALL BE
PROPORTIONATELY SUBDIVIDED OR COMBINED.
(4) LIQUIDATION RIGHTS OF THE COMMON STOCK. IN THE EVENT OF
ANY VOLUNTARY OR INVOLUNTARY LIQUIDATION. DISSOLUTION, OR WINDING
UP OF THE CORPORATION AFTER DISTRIBUTION IN FILL OF THE
PREFERENRIAL AMOUNTS IF ANY TO BE DISTRIBUTED TO THE HOLDERS OF
SHARES OF THE PREFERRED STOCK OR ANY SERIES THEREOF, THE HOLDERS OF
SHARES OF COMMON STOCK SHALL BE ENTITLED TO RECEIVE ALL OF THE
REMAINING ASSETS OF THE CORPORATION AVAILABLE FOR DISTRIBUTION TO
ITS STOCKHOLDERS RATABLY IN PROPORTION TO THE NUMBER OF SHARE OF
COMMON STOCK HELD BY THEM. A LIQUIDATION DISSOLUTION OR WINDING UP
OF THE CORPORATION AS SUCH TERMS ARE USED IN THIS SUBPARAGRAPH (4)
SHALL NOT BE DEEMED TO BE OCCASIONED BY OR TO INCLUDE ANY
CONSOLIDATION OR MERGER OF THE CORPORATION WITH OR INTO ANY OTHER
CORPORATION OR CORPORATIONS OR OTHER ENTITY OR A SALE, LEASE
EXCHANGE OR CONVEYANCE OF ALL OR A PART OF THE ASSETS OF THE
CORPORATION .
(5) VOTING RIGHTS OF THE COMMON STOCK
(A) THE HOLDER OF THE CLASS A COMMON STOCK AND THE CLASS
B COMMON STOCK SHALL VOTE AS A SINGE CLASS ON ALL MATTERS
SUBMITTED TO A VOTE OF THE STOCKHOLDERS WITH EACH SHARE OF
CLASS A COMMON STOCK BEING ENTITLED TO ONE (1) VOTE AND EACH
SHARE OF CLASS B COMMON STOCK BEING ENTITLED TO TWENTY (20)
VOTES EXCEPT AS OTHERWISE PROVIDED BY LAW.
(B) NO HOLDER OF COMMON STOCK SHALL BE ENTITLED TO
PREEMPTIVE OR SUBSCRIPTION RIGHTS.
(6) CONSIDERATION ON MERGER. CONSOLIDATION ETC. IN ANY MERGER
CONSOLIDATION, OR BUSINESS COMBINATION, THE CONSIDERATION TO BE.
RECEIVED PER SHARE BY THE HOLDERS OF CLASS A. COMMON STOCK AND CLASS
B COMMON STOCK MUST BE IDENTICAL FOR EACH CLASS OF STOCK, EXCEPT
THAT IN ANY SUCH TRANSACTION IN WHICH SHARES OF COMMON STOCK ARE TO
BE DISTRIBUTED SUCH SHARES MAY DIFFER AS TO VOTING RIGHTS TO THE
EXTENT THAT VOTING RIGHTS NOW DIFFER AMONG THE CLASS A COMMON STOCK
AND THE CLASS B COMMON STOCK.
PREFERRED STOCK
SHARES OF THE PREFERRED STOCK MAY BE ISSUED FROM TIME TO TIME
IN ONE OR MOST SERIES , THE SHARES OF EACH SERIES TO HAVE SUCH
VOTING POWERS FULL OR LIMITED, OR NO VOTING POWERS AND SUCH
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS, END QUALIFICATIONS LIMITATIONS OR RESTRICTIONS
THEREOF AS SHALL BE STATED AND EXPRESSED IN A RESOLUTION OR
RESOLUTIONS PROVIDING FOR THE ISSUE OF SUCH SERIES BY THE BOARD OF
DIRECTORS OF THE CORPORATION. THE BOARD OF DIRECTORS OF THE
CORPORATION IS HEREBY EXPRESSLY AUTHORIZED SUBJECT TO THE
LIMITATIONS PROVIDED BY LAW NO ESTABLISH AND DESIGNATE SERIES OF THE
PREFERRED STOCK TO FIX THE NUMBER OF SHARES CONSTITUTING EACH SERIES
AND TO FIX THE DESIGNATIONS AND THE RELATIVE POWERS, RIGHTS,
PREFERENCES AND LIMITATIONS OF THE SHARES OF EACH SERIES AND THE
VARIATIONS IN THE RELATIVE POWERS, RIGHTS, PREFENENCES AND
LIMITATIONS AS BETWEEN SERIES AND TO INCREASE AND TO DECREASE THE
NUMBER OF SHARES CONSULTING EACH SERIES .
IN WITNESS WHEREOF PILGRIM'S PRIDE CORPORATION CAUSED THIS CERTIFICATE
TO BE EXECUTED BY LONNIE A. PILGRIM ITS AUTHORIZED OFFICER ON THE 20TH DAY OF
JULY 1999
PILGRIM'S PRIDE CORPORATION
/s/ Lonnie A. Pilgrim
_________________________________
LONNIE A. PILGRIM, CHAIRMAN OF THE
BOARD OF DIRECTORS
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
PILGRIM'S PRIDE CORPORATION OF VIRGINIA, INC.
PILGRIM'S PRIDE CORPORATION
PURSUANT TO SECTION 253 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
PILGRIM'S PRIDE CORPORATION, A CORPORATION ORGANIZED AND EXISTING
UNDER AND BY VIRTUE OF THE GENERAL CORPORATION LAW OF THE STATE OF
DELAWARE (THE "CORPORATION"), DOES HEREBY CERTIFY' THAT:
1. THE NAME AND THE STATE OF INCORPORATION OF EACH OF THE
CONSTITUENT CORPORATIONS (HEREIN SO CALLED) IN THE MERGER IT AS FOLLOWS
NAME OF CORPORATION STATE
PILGRIM PRIDE CORPORATION DELAWARE
PILGRIM'S
PRIDE CORPORATION OF VIRGINIA, INC.
VIRGINIA
2. THE CORPORATION OWNS ALL OF THE OUTSTANDING SHARES OF CAPITAL
STOCK OF PILGRIM% PRIDE CORPORATION OF VIRGINIA, INC.. A VIRGINIA
CORPORATION.
3. THE CORPORATION, BY A CONSENT IN WRITING EXECUTED BY ITS BOARD
OF DIRECTORS, A COPY OF WHICH IS ATTACHED HERETO AS EXHIBIT "A" AND DULY
ADOPTED ON THE 16TH DAY OF JULY, 2001, DETERMINED TO MERGE PILGRIM'S
PRIDE CORPORATION OF VIRGINIA, INC. WITH AND INTO ITSELF ON THE
CONDITIONS SET FORTH IN SODA RESOLUTIONS.
4. THE CORPORATION SHALL BE THE SURVIVING CORPORATION IN THE
MERGER AND THE NAME OF THE CORPORATION AS THE SURVIVING CORPORATION SHALL
CONTINUE TO BE PILGRIM'S PRIDE CORPORATION" (THE SURVIVING CORPORATION)
5. THE CERTIFICATE OF INCORPORATION OF THE CORPORATION AS IN
EFFECT IMMEDIATELY PRIOR TO THE EFFECTIVE TIME (AS DEFINED HEREIN) SHALL
CONSTITUTE THE CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION.
6. THE MERGE SHALL BECOME EFFECTIVE ON JULY 17, 2001, AT 11:59
P.M. (EASTERN TIME) (THE 'EFFECTIVE TIME") IN ACCORDANCE WITH THE
PROVISIONS OF SECTION 103(D) OF THE GENERAL CORPORATION LAW OF THE STATE
OF DELAWARE
IN WITNESS WHEREOF, THIS CERTIFICATE WAS EXECUTED FOR AND ON BEHALF
AND BRA THE NAME OF THE UNDERSIGNED CORPORATION ON JULY 16,2001.
PILGRIM'S PRIDE CORPORATION
BY:_________________________________
NAME: RICHARD A. COGDILL
TITLE EXECUTIVE VICE PRESIDENT
CHIEF FINANCIAL OFFICER
SECRETARY AND TREASURER
EXHIBIT A
UNANIMOUS WRITTEN CONSENT
OF THE BOARD OF DIRECTORS
OF
PILGRIM'S PRIDE CORPORATION
DATED AS OF JULY16, 2001
THE UNDERSIGNED, BEING ALL OF THE MEMBERS OF THE BOARD OF DIRECTORS
OF PILGRIM'S PRIDE CORPORATION. A DELAWARE CORPORATION (THE
"CORPORATION"), HEREBY, PURSUANT TO THE PROVISIONS OF SECTIONS 141(F) AND
253 OF THE DELAWARE GENERAL CORPORATION LAW (DGCL"). CONSENT TO, APPROVE
AND ADOPT THE FOLLOWING RESOLUTIONS AND EACH AND EVERY ACTION EFFECTED
THEREBY.
WHEREAS, IT IS PROPOSED THAT PILGRIM'S PRIDE CORPORATION OF
VIRGINIA, INC., A VIRGINIA CORPORATION AND A WHOLLY OWNED SUBSIDIARY OF
THE CORPORATION ("SUBSIDIARY"), MERGE WITH AND INTO THE CORPORATION (THE
"MERGER"); AND
WHEREAS, THE BOARD OF DIRECTORS OF THE CORPORATION HAS DETERMINED
THAT IT IS ADVISABLE AND IN THE BEST INTEREST OF THE CORPORATION THAT
SUBSIDIARY MERGE WITH AND INTO THE CORPORATION, WITH THE CORPORATION
BEING THE SURVIVING CORPORATION UNDER THE NAME OF "PILGRIM'S PRIDE
CORPORATION".
RESOLVED, THAT SUBSIDIARY MERGE WITH AND INTO THE CORPORATION
PURSUANT TO THE FOLLOWING TERMS AND PROVISIONS:
(A) IN ACCORDANCE WITH SECTION 253 OF THE DGCL AND AS A
WHOLLY OWNED SUBSIDIARY OF THE CORPORATION. SUBSIDIARY SHALL BE
MERGED WITH AND INTO THE CORPORATION EFFECTIVE ON JULY 17, 2001, AT
11:59 P.M. (EASTERN TIME) (THE EFFECTIVE TIME");
(B) AS A RESULT OF THE MERGER, THE OUTSTANDING SHARES OF
CAPITAL STOCK OF SUBSIDIARY SHALL BE CANCELED, THE SEPARATE
CORPORATE EXISTENCE OF SUBSIDIARY SHALL CEASE, AND THE CORPORATION
WILL BE THE SURVIVING CORPORATION IN THE MERGER (THE "CORPORATION");
C) EACH SHARE OF CAPITAL STOCK OF THE CORPORATION ISSUED AND
OUTSTANDING IMMEDIATELY PRIOR TO THE EFFECTIVE TIME SHALL REMAIN
OUTSTANDING AND SHALL CONSTITUTE THE ONLY OUTSTANDING SHARES OF
CAPITAL STOCK OF THE SURVIVING CORPORATION.
D) THE CERTIFICATE OF INCORPORATION OF THE CORPORATION SHALL
CONSTITUTE THE CERTIFICATE OF INCORPORATION OF THE SURVIVING
CORPORATION;
E) THE NAME OF THE SURVIVING CORPORATION SHALL BE "PILGRIM'S
PRIDE CORPORATION"; AND
F) THE CORPORATION SHALL CAUSE THE MERGER TO BE CONSUMMATED
BY FILING THE CERTIFICATE OF OWNERSHIP AND MERGER (THE
"CERTIFICATE") WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE
IN SUCH FORM AS IS REQUIRED BY, AND EXECUTED IN ACCORDANCE WITH, THE
RELEVANT PROVISIONS OF THE DCCL, AND BY FILING ARTICLES OF MERGER
(THE "ARTICLES") WITH THE STATE CORPORATION COMMISSION OF THE
COMMNONWEALTH OF VIRGINIA IN SUCH FORM AS IS REQUIRED BY, AND
EXECUTED IN ACCORDANCE WITH, THE RELEVANT PROVISIONS OF THE VIRGINIA
STOCK CORPORATION ACT;
RESOLVED, THAT SAID TERMS AND PROVISIONS ARE HEREBY RATIFIED,
ADOPTED, APPROVED AND CONFIRMED;
RESOLVED, THAT FURTHER TO SUCH RESOLUTIONS AND FOR PURPOSES OF
COMPLIANCE WITH VIRGINIA LAW AND FOR INCLUSION IN THE ARTICLES:
THE BOARD OF DIRECTORS OF THE CORPORATION, DETERMINING IT TO BE IN
THE BEST INTEREST OF THE CORPORATION, HEREBY ADOPTS AND APPROVES THE
FOLLOWING PLAN OF MERGER:
1. MERGER. PURSUANT TO 8 DEL C. 1953 & 253(A), AT THE
EFFECTIVE TIME (AS DEFINED BELOW), PILGRIM'S PRIDE CORPORATION OF
VIRGINIA, INC., A VIRGINIA CORPORATION ("PILGRIM'S OF VIRGINIA",
SHALL BE MERGED (THE "MERGER") WITH AND INTO PILGRIM'S PRIDE
CORPORATION, A DELAWARE CORPORATION ("PILGRIM'S"). PILGRIM'S SHALL
CONTINUE IN EXISTENCE AS THE SURVIVING CORPORATION, AND THE SEPARATE
CORPORATE EXISTENCE OF PILGRIM'S OF VIRGINIA SHALL CEASE.
2. EFFECTIVE DATE. PURSUANT TO 8 DEL C. 1953 & 103(D), THE
EFFECTIVE TIME AND DATE OF THE MERGER SHALL BE 11:59 P.M., JULY 17,
2001 (THE "EFFECTIVE TIME").
3. EFFECT OF MERGER ON OUTSTANDING SHARES. AT THE EFFECTIVE
TIME, EACH ISSUED AND OUTSTANDING SHARE OF COMMON STOCK OF PILGRIM'S
OF VIRGINIA SHALL BE AUTOMATICALLY CANCELED AND CEASE TO EXIST.
4. CERTIFICATE OF INCORPORATION AND BYLAWS. THE CERTIFICATE
OF INCORPORATION AND BYLAWS OF PILGRIM'S IN EFFECT IMMEDIATELY PRIOR
TO THE EFFECTIVE TIME SHALL REMAIN IN EFFECT UNTIL THEREAFTER
AMENDED AS PROVIDED BY LAW.
RESOLVED, THAT THE PROPER OFFICERS OF THE CORPORATION BE, AND EACH
IS, HEREBY AUTHORIZED, EMPOWERED, AND DIRECTED, FOR AND ON BEHALF AND IN
THE NAME OF THE CORPORATION, TO EXECUTE AND DELIVER THE CERTIFICATE FOR
FILING WITH THE SECRETARY OF STATE OF THE STATE OF DELAWARE IN ACCORDANCE
WITH THE RELEVANT PROVISIONS OF DELAWARE LAW AND THE ARTICLES FOR FILING
WITH THE STATE CORPORATION COMMISSION OF THE COMMONWEALTH OF VIRGINIA IN
ACCORDANCE WITH THE RELEVANT PROVISIONS OF VIRGINIA LAW;
RESOLVED, THAT THE OFFICERS OF THE CORPORATION ARE HEREBY SEVERALLY
AUTHORIZED (A) TO SIGN, EXECUTE, CERTIFY, VERIFY, ACKNOWLEDGE, DELVER,
ACCEPT, FILE, AND RECORD ANY AND ALL INSTRUMENTS AND DOCUMENTS, AND (B)
TO TAKE, OR CAUSE TO BE TAKEN, ANY AND ALL SUCH ACTIONS, IN THE NAME AND
ON BEHALF OF THE CORPORATION, AS (IN SUCH OFFICERS' JUDGMENT) SHALL BE
NECESSARY, DESIRABLE OR APPROPRIATE IN ORDER TO EFFECT THE PURPOSES OF
THE FORGOING RESOLUTIONS AND THE TRANSACTIONS CONTEMPLATED THEREBY; AND
RESOLVED, THAT ANY AND A11 ACTION TAKEN BY ANY PROPER OFFICERS OF
THE CORPORATION PRIOR TO THE DATE THIS CONSENT IS ACTUALLY EXECUTED IN
EFFECTING THE PURPOSES OF THE FOREGOING RESOLUTIONS IS HEREBY RATIFIED,
APPROVED. CONFIRMED, AND ADOPTED IN ALL RESPECTS.
IN WITNESS WHEREOF, THE UNDERSIGNED DIRECTORS OF THE CORPORATION HAVE
EXECUTED THIS CONSENT AS OF THE DATE FIRST ABOVE WRITTEN.
/S/ LONNIE "BO" PILGRIM
LONNIE "BO" PILGRIM
/S/CLIFFORD E. BUTLER
CLIFFORD E. BUTLER
/S/ DAVID VAN LOOSE
DAVID VAN HOOSE
/S/ RICHARD A. COGDILL
RICHARD A. COGDILL
/S/ LONNIE KEN PILGRIM
LONNIE KEN PILGRIM
/S/ CHARLES L. BLACK
CHARLES L. BLACK
/S/ S. KEY COKER
S. KEY COKER
/S/ VANCE C. MILLER
VANCE C. MILLER
/S/ JAMES G. VETTER, JR.
JAMES G. VETTER, JR.
/S/ DONALD L. WASS, PH.D.
DONALD L. WASS, PH.D.
AMENDMENT No. 1
Dated as of July 12, 2002
to
RECEIVABLES PURCHASE AGREEMENT
Dated as of June 26, 1998
This AMENDMENT NO. 1 (this "Amendment") dated as of July 12, 2002 is entered
into among PILGRIM'S PRIDE FUNDING CORPORATION ("Seller"), PILGRIM'S PRIDE
CORPORATION ("Pilgrim's Pride") as initial Servicer, FAIRWAY FINANCE
CORPORATION (as successor in interest to Pooled Accounts Receivable Capital
Corporation)
("Purchaser") and BMO NESBITT BURNS CORP. (f/k/a Nesbitt Burns Securities
Inc.), as agent for the Purchaser (in such capacity, together with its
successors and assigns, the "Agent").
RECITALS
WHEREAS, the parties hereto have entered into a certain Receivables Purchase
Agreement dated as of June 26, 1998 (the "Agreement");
WHEREAS, the parties hereto wish to make certain changes to the Agreement as
herein provided;
NOW, THEREFORE, in consideration of the promises and the mutual agreements
contained herein and in the Agreement, the parties hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise defined herein are
used as defined in the Agreement.
SECTION 2. Amendments to the Agreement. The Agreement is hereby amended as
follows:
2.1. The definition of "Receivable" set forth in Exhibit I to the
Agreement is hereby amended in its entirety as follows:
"Receivable" means any indebtedness and other obligations owed to the
Originator or the Seller or any right of the Originator or Seller to payment
from or on behalf of an Obligor, or any right to reimbursement for funds paid
or advanced by the Originator or Seller on behalf of an Obligor (other than any
such indebtedness, obligation or right which arises from the sale and delivery
of goods or services relating to the Originator's inventory of turkey and/or
turkey related products), whether constituting an account, chattel paper,
payment intangible, instrument or general intangible, however arising in
connection with the sale of goods or the rendering of services by Originator or
Seller (whether or not earned by performance), and includes, without
limitation, the obligation to pay any finance charges, fees and other charges
with respect thereto. Indebtedness and other obligations arising from any one
transaction, including, without limitation, indebtedness and other obligations
represented by an individual invoice or agreement, shall constitute a
Receivable separate from a Receivable consisting of the indebtedness and other
obligations arising from any other transaction.
2.2. Exhibit IV of the Agreement is hereby amended by adding to the end
thereof the following new paragraph (s):
"(s) Turkey Operations. In addition to and without limiting any other
obligations of the Seller or the Servicer herein or in the other Transaction
Documents, the Seller and the Servicer shall have established, and shall at all
times maintain, procedures for identifying and segregating collections relating
to turkey and/or turkey related products from Collections on the Receivables
which are financed under the Agreement and the other Transaction Documents, and
have notified all applicable Obligors or other applicable Persons to make all
payments in respect of such turkey and/or turkey related products other than to
the Lock-Box Account(s) and/or the Collection Account (into which Collections
solely on the Receivables are and will continue to be deposited), and no
collections relating to turkey and/or turkey related products are or will be
deposited in the Lock-Box Accounts and/or Collection Account or otherwise
commingled with Collections on the Receivables. In addition, the Seller and/or
the Servicer shall (or shall cause the applicable Originator to) invoice all
sales or services relating to turkey and/or turkey related products separately
from invoices relating to the Receivables which are financed under the
Agreement and the other Transaction Documents."
SECTION 3. Miscellaneous.
3.1. Effectiveness. This Amendment shall become effective on the date
when the Agent shall have received (a) an original counterpart (or
counterparts) of this Amendment, executed and delivered by each of the parties
hereto, (b) an opinion from counsel to the Seller, in form and substance
satisfactory to the Agent, regarding such UCC matters as the Agent may request,
(c) executed amendments to the Lock-Box Agreements, in form and substance
satisfactory to the Agent, which amend the original Lock-Box Agreements to
cover only those Lock-Box Accounts into which Collections on Receivables (as
such term is amended by this Amendment) are deposited and (d) evidence,
satisfactory to the Agent, that all amendments to the UCC financing statements,
of the Seller and/or the Originator, necessary to reflect the amendments
contemplated hereby, have been filed in all applicable jurisdictions.
3.2. References to Agreement. Upon the effectiveness of this Amendment,
each reference in the Agreement to "this Agreement", "hereunder", "hereof",
"herein", or words of like import shall mean and be a reference to the
Agreement as amended hereby, and each reference to the Agreement in any other
document, instrument or agreement executed and/or delivered in connection with
the Agreement shall mean and be a reference to the Agreement as amended hereby.
3.3. Effect on the Agreement. Except as specifically amended above, the
Agreement and all other documents, instruments and agreements executed and/or
delivered in connection therewith shall remain in full force and effect and are
hereby ratified and confirmed.
3.4. No Waiver. The execution, delivery and effectiveness of this
amendment shall not operate as a waiver of any right, power or remedy of any
party under the Agreement or any other document, instrument or agreement
executed in connection therewith, nor constitute a waiver of any provision
contained therein, except as specifically set forth herein.
3.5. Governing Law. This Amendment, including the rights and duties of
the parties hereto, shall be governed by, and construed in accordance with, the
laws of the State of Texas (without giving effect to the conflict of laws
principles thereof).
3.6. Successors and Assigns. This Amendment shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns.
3.7. Headings. The Section headings in this Amendment are inserted for
convenience of reference only and shall not affect the meaning or
interpretation of this Amendment or any provision hereof.
3.8. Counterparts. This Amendment may be executed by the parties hereto
in several counterparts, each of which shall be deemed to be an original and
all of which shall constitute together but one and the same agreement. IN
WITNESS WHEREOF, the parties have caused this Amendment to be executed by their
respective officers thereunto duly authorized as of the date first above
written.
PILGRIM'S PRIDE FUNDING CORPORATION
By: /s/ R. A. Cogdill
Name: R. A. Cogdill
Title: Chief Financial Officer
PILGRIM'S PRIDE CORPORATION
By: /s/ R. A. Cogdill
Name: R. A. Cogdill
Title: Chief Financial Officer
FAIRWAY FINANCE CORPORATION, as Purchaser
By:
Name:
Title:
BMO NESBITT BURNS CORP., as Agent
By:
Name:
Title:
By:
Name:
Title:
EXHIBIT 10.33
PILGRIM'S PRIDE CORPORATION
and
JOHN HANCOCK LIFE INSURANCE COMPANY
(formerly known as John Hancock Mutual Life Insurance Company)
THIRD AMENDED AND RESTATED
NOTE PURCHASE AGREEMENT
Dated as of August 30, 2002
TABLE OF CONTENTS
ARTICLE PAGE
1.1. Defined Terms..........................................................
1.2. Miscellaneous..........................................................
ARTICLE 2. THE NOTES........................................................
2.1. Authorization of 2002 Notes............................................
2.2. Sale and Purchase of 2002 Notes........................................
2.3. Sale and Purchase of Additional Notes..................................
ARTICLE 3. CLOSING..........................................................
ARTICLE 4. CONDITIONS TO CLOSING............................................
4.1. Conditions to Purchase of 2002 Notes...................................
4.2. Conditions to Purchase of Additional Notes.............................
ARTICLE 5. REPRESENTATIONS AND WARRANTIES RELATING TO
THE COMPANY......................................................
5.1. Organization, Standing, etc............................................
5.2. Qualification..........................................................
5.3. Business and Financial Statements......................................
5.4. Adverse Changes........................................................
5.5. Tax Returns and Payments...............................................
5.6. Debt...................................................................
5.7. Title to Properties and Assets; Liens..................................
5.8. Litigation.............................................................
5.9. Compliance with Collateral Agreements..................................
5.10. Compliance with Other Instruments......................................
5.11. Governmental Consents..................................................
5.12. Permits and Licenses...................................................
5.13. Status Under Certain Federal Statutes..................................
5.14. Use of Proceeds; Margin Regulations....................................
5.15. Compliance with ERISA..................................................
5.16. Disclosure.............................................................
5.17. Solvency of the Company................................................
5.18. Environmental Matters..................................................
5.19. Brokers................................................................
5.20. No Defaults............................................................
5.21. Offer of Notes.........................................................
ARTICLE 6. REPRESENTATIONS AND WARRANTIES RELATING..........................
6.1. Easements and Utility Services.........................................
6.2. Contracts..............................................................
6.3. Permits................................................................
6.4. Reports of Engineers...................................................
6.5. Plans and Specifications...............................................
6.6. Soil Reports...........................................................
6.7. Zoning.................................................................
6.8. Certificates of Occupancy..............................................
6.9. Compliance with Laws...................................................
ARTICLE 7. INTEREST RATE PROVISIONS.........................................
7.1. Interest on Fixed Notes................................................
7.2. Interest on Floating Notes.............................................
7.3. Interest Rate Lock.....................................................
7.4. Setting of Interest Rates on Additional Notes..........................
7.5. Past Due Payments......................................................
ARTICLE 8. PAYMENT OF NOTES.................................................
8.1. Required Payments of Notes.............................................
8.2. Optional Prepayments of Notes; Allocations.............................
8.3. Notice of Prepayments; Officers' Certificate...........................
8.4. Maturity; Surrender....................................................
ARTICLE 9. ACCOUNTING, REPORTING AND INSPECTION COVENANTS...................
9.1. Accounting.............................................................
9.2. Financial Statements and Other Information.............................
9.3. Inspection.............................................................
9.4. Acquired Real Property.................................................
ARTICLE 10. BUSINESS AND FINANCIAL COVENANTS OF THE COMPANY..................
10.1. Consolidated Net Worth.................................................
10.2. Consolidated Working Capital...........................................
10.3. Current Ratio..........................................................
10.4. Fixed Charge Coverage..................................................
10.5. Funded Debt to Capitalization..........................................
10.6. Liens..................................................................
10.7. Investments; Debt; Guarantees..........................................
10.8. Restricted Payments....................................................
10.9. Leases.................................................................
10.10.Consolidation, Merger and Sale of Substantially All Assets.............
10.11.Formation of Subsidiaries..............................................
10.12.Interested Party Transactions..........................................
10.13.Existence..............................................................
10.14.Payment of Taxes and Claims; Tax Consolidation.........................
10.15.Compliance with Laws...................................................
10.16.Compliance with ERISA..................................................
10.17.Maintenance of Properties; Insurance...................................
10.18.Title..................................................................
10.19.Conduct of Business....................................................
10.20.Sale of Assets.........................................................
10.21.Substitution of Collateral.............................................
10.22.Permits and Licenses...................................................
10.23.Further Assurances.....................................................
ARTICLE 11. ENVIRONMENTAL MATTERS............................................
11.1. Definitions............................................................
11.2. Indemnification........................................................
11.3. Agreement to Remediate.................................................
11.4. Covenants..............................................................
11.5. Site Assessments.......................................................
11.6. Default; Remedies; Subrogation.........................................
11.7. Survival...............................................................
11.8. Conflicts..............................................................
ARTICLE 12. REGISTRATION, TRANSFER, AND SUBSTITUTION OF NOTES................
12.1. Note Register; Ownership of Notes......................................
12.2. Transfer and Exchange of Notes.........................................
12.3. Replacement of Notes...................................................
ARTICLE 13. PAYMENTS ON NOTES................................................
ARTICLE 14. EVENTS OF DEFAULT AND ACCELERATION...............................
14.1. Events of Default......................................................
14.2. Acceleration...........................................................
14.3. Remedies...............................................................
ARTICLE 15. EXPENSES.........................................................
ARTICLE 16. MISCELLANEOUS....................................................
16.1. Survival...............................................................
16.2. Amendments and Waivers.................................................
16.3. Indemnification........................................................
16.4. Usury Not Intended.....................................................
16.5. Notices................................................................
16.6. Reproduction of Documents..............................................
16.7. Successors and Assigns.................................................
16.8. Entire Agreement.......................................................
16.9. GOVERNING LAW..........................................................
16.10.Invalid Provisions.....................................................
16.11.Headings...............................................................
16.12.Counterparts...........................................................
16.13.Further Action.........................................................
16.14.Creditors..............................................................
16.15.Waiver.................................................................
16.16.Release................................................................
EXHIBITS
A-1 Form of Fixed Note
A-2 Form of Floating Note
B-1 Form of Opinion (Closing)
B-2 Form of Opinion (Additional Notes)
C Receipt of Exchanged Notes
D Closing Certificate
E Officer's Certificate
F Closing Documents (Additional Notes)
THIRD AMENDED AND RESTATED NOTE PURCHASE AGREEMENT
This Third Amended and Restated Note Purchase Agreement (this
"Agreement") dated as of August 30, 2002, by and between John Hancock Life
Insurance Company (formerly known as John Hancock Mutual Life Insurance
Company) ("Purchaser") and Pilgrim's Pride Corporation, a Delaware corporation
(the "Company").
R E C I T A L S :
WHEREAS, the Company, Purchaser and Signature 1A (Cayman), Ltd. have
heretofore entered into that certain Second Amended and Restated Note Purchase
Agreement dated July 15, 2000 (the "2000 Note Purchase Agreement"), which
amended and restated that certain Amended and Restated Note Purchase Agreement
dated April 14, 1997 (the "1997 Note Purchase Agreement"), which amended and
restated that certain Note Purchase Agreement dated February 15, 1996 (the
"Original Note Purchase Agreement") between the Company and Purchaser in its
entirety (collectively, the "Prior Note Purchase Agreements"); and
WHEREAS, pursuant to the Prior Note Purchase Agreements, the following
promissory notes remain outstanding: a 9.39% note in the original principal
amount of $5,624,071.72, a 9.45% note in the original principal amount of
$1,614,122.43, a 7.21% note in the original principal amount of $50,000,000.00,
two 7.11% notes in the original principal amounts of $9,761,805.00, and
$3,000,000.00, respectively, and a 7.07% note in the original principal amount
of $15,000,000.00 (each individually an "Old Note" and collectively, the "Old
Notes"); and
WHEREAS, the parties desire to amend and restate the 2000 Note Purchase
Agreement in its entirety pursuant to the terms and conditions of this
Agreement, and in connection therewith, the parties desire to modify and
restate the Old Notes through the issuance of new notes.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements set forth in this Agreement, the parties to this Agreement mutually
agree as follows:
ARTICLE 1.
DEFINITIONS
1.1. Defined Terms. As used herein the following terms have the
following respective meanings:
Acquired Property: the meaning specified in Section 9.4.
Additional Fixed Notes: the meaning specified in Section 2.3.
Additional Floating Notes: the meaning specified in Section 2.3.
Additional Notes: collectively, the Additional Fixed Notes and
Additional Floating Notes, if any.
Adverse Environmental Impact: the meaning specified in Section 11.1.
Affiliate: with respect to any Person, (a) any other Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with, such Person, or (b) any director, officer or partner of such
Person. A Person shall be deemed to control another Person if such Person
possesses, directly or indirectly, the power to direct or cause the direction
of the management and policies of such other Person, whether through the
ownership of voting securities, by contract or otherwise. The term "control"
shall mean the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise, and shall in any
event include the ownership or power to vote ten percent (10%) or more of the
outstanding equity interests of such other Person. For purposes hereof, Archer
Daniels Midland Company ("ADM") shall not be deemed an Affiliate of the Company
so long as ADM does not own or control more than twenty percent (20%) of the
outstanding stock of the Company.
Appraised Value: The appraised value of the Mortgaged Properties or
other Collateral acceptable to Purchaser, as determined by Bryan A. Carrell,
MIA, or such other appraiser selected by Purchaser.
Bankruptcy Code: the meaning provided in Section 14.1(f).
Business Day: any day on which national banks are open in Dallas, Texas
and Boston, Massachusetts.
Called Principal: with respect to any Fixed Note, the principal of such
Fixed Note that is to be prepaid pursuant to Section 8.2 or is declared to be
immediately due and payable pursuant to Article 14, as the context requires.
Capital Lease Obligations: all obligations to pay rent or other amounts
under a lease of (or other agreement conveying the right to use) Property to
the extent such obligations are required to be classified and accounted for as
a capital lease on a balance sheet under GAAP, and for purposes of this
Agreement, the amount of such obligation shall be the capitalized amount
thereof, determined in accordance with GAAP.
Capitalization: as at any date of determination, and in conformity with
GAAP, the amount of capital stock and additional paid-in-capital plus retained
earnings (or minus accumulated deficits) of the Company.
Cash Equivalents: any type of instrument that would qualify as a
Permitted Investment, but not otherwise.
Certificate: the meaning specified in Section 4.1(d).
Closing: the meaning specified in Article 3.
Closing Date: the meaning specified in Article 3.
Code: the Internal Revenue Code of 1986, as amended from time to time.
Collateral: the Mortgaged Properties and the properties described in the
Financing Statements.
Collateral Agreements: the Security Documents, the Financing Statements,
the Receipt of Exchanged Notes, the Certificate and all other documents and
instruments that may be executed or delivered hereunder or in connection
herewith.
Commission: the Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act.
Company: Pilgrim's Pride Corporation, a Delaware corporation, or any
successor thereto by merger, consolidation, or otherwise.
Consolidated Free Cash Flow: in respect of any period, the sum of (a)
Consolidated Net Income for such period and (b) the amount of all depreciation
and amortization allowances and other non-cash expenses of the Company and its
Subsidiaries but only to the extent deducted in the determination of
Consolidated Net Income for such period.
Consolidated Intangible Assets: license agreements, trademarks, trade
names, patents, capitalized research and development, proprietary products (the
results of past research and development treated as long term assets and
excluded from inventory) and goodwill (all determined on a consolidated basis
in accordance with GAAP.
Consolidated Interest Expense: for any period, the aggregate
consolidated interest expense of the Company and the Subsidiaries for such
period, as determined in accordance with GAAP (minus, to the extent included
therein, any interest expense not paid or payable in cash) including, without
limitation (and without duplication in any instance), (a) all interest paid on
Debt of the Company and the Subsidiaries, (b) all commissions, discounts and
other fees and charges owed with respect to letters of credit and banker's
acceptances allocable to or amortized over such period, (c) net costs under
Interest Rate Agreements and (d) the portion of any amount payable under
Capital Lease Obligations that is, in accordance with GAAP, allocable to
interest expense.
Consolidated Net Income: for any period means all amounts which, in
conformity with GAAP, would be included under net income (or deficit) on a
consolidated income statement of the Company and the Subsidiaries for such
period, after deducting all operating expenses, provisions for all taxes and
reserves (including, but not limited to, reserves for deferred income taxes),
and all other proper deductions, all in conformity with GAAP.
Consolidated Net Worth: the total assets minus the total liabilities of
the Borrower and its Subsidiaries, all determined on a consolidated basis as in
accordance with GAAP.
Consolidated Working Capital: total Current Assets less Current
Liabilities of the Company and its Subsidiaries on a consolidated basis.
Current Assets: the consolidated assets of the Company and its
Subsidiaries which can be readily converted into cash within one year and all
other assets deemed current assets in accordance with GAAP.
Current Liabilities: Debt, trade payables, accrued expenses and other
obligations which must be satisfied or have maturities within one year,
including the outstanding balance of the Company's revolving credit facility to
the extent due and payable within one year.
Debt: (a) indebtedness for borrowed money, including long-term and
short-term debt, obligations and liabilities secured by any Lien existing on
property owned subject to such Lien, whether or not the indebtedness,
obligation or liability secured thereby shall have been assumed, and (b) all
guarantees given by such Person with respect to obligations described in clause
(a) of this definition (other than with respect to the Company, guarantees of
trade payables of Pilgrim's-Pride-Mexico).
Default Rate: an amount equal to the applicable interest rate for each
Note plus two percent (2%), but not to exceed the Highest Lawful Rate.
Discounted Value: with respect to the Called Principal of any Fixed
Note, the amount obtained by discounting all Remaining Scheduled Payments with
respect to such Called Principal from their respective scheduled due dates to
the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on a semiannual
basis) equal to the Reinvestment Yield with respect to such Called Principal.
EBITDA: for any period, shall mean consolidated net income of the
Company and the Subsidiaries after restoring amounts deducted for depreciation,
amortization, interest expense and taxes.
Eligible Subsidiary: any corporation or other legal entity organized
under the laws of a state of the United States and located entirely within the
United States and 100% of all equity interests of which is owned by the Company
either directly or through another Eligible Subsidiary.
Environmental Activity: the meaning specified in Section 11.1.
Environmental Condition: the meaning specified in Section 11.1.
Environmental Damages: the meaning specified in Section 11.1.
Environmental Laws: the meaning specified in Section 11.1.
ERISA: the Employee Retirement Income Security Act of 1974, as amended
from time to time.
Event of Default: the meaning specified in Section 14.1.
Exchange Act: the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time.
Financial Statements: the meaning specified in Section 5.3.
Financing Statements: the financing statements specified in
Section 4.1(d) and any other financing statements delivered by the Company to
the Purchaser evidencing the lien granted by the Security Documents.
Fiscal Year: the fiscal year of the Company.
Fixed Charge Coverage Ratio: the ratio of (a) EBITDA plus total lease
payments relating to non-cancelable operating leases (other than payments under
Capital Lease Obligations) to (b) the sum of (i) Consolidated Interest Expense,
(ii) total lease payments relating to non-cancelable operating leases (other
than Capital Lease Obligations), (iii) principal payments due on or scheduled
mandatory redemptions of Debt (including the Notes) within one year, whether or
not actually paid and (iv) the current portion of Capital Lease Obligations,
all determined on a consolidated basis for the Company and its Subsidiaries.
Fixed Notes: the 2002 Notes and any Additional Fixed Notes.
Floating Notes: any Additional Floating Notes.
Funded Debt: with respect to the Company and its Subsidiaries, all Debt
of the Company and its Subsidiaries which by its terms or by the terms of any
instrument or agreement relating thereto matures, or which is otherwise payable
or unpaid, one year or more from, or is directly or indirectly renewable or
extendible at the option of the obligor in respect thereof to a date one year
or more (including, without limitation, an option of such obligor under a
revolving credit or similar agreement obligating the lender or lenders to
extend credit over a period of one year or more) from, the date of the creation
thereof.
GAAP: generally accepted accounting principles as in effect from time to
time in the United States of America as set forth from time to time in the
opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements of the Financial Accounting
Standards Board or in such opinions and statements of such other entities as
shall be approved by a significant segment of the accounting profession.
Governmental Authority: any nation or government, any state or other
political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to any government.
Hazardous Substances: the meaning specified in Section 11.1.
Highest Lawful Rate: the meaning specified in Section 16.4.
Indemnified Party: the meaning specified in Section 11.2.
Interest Period: with respect to the Floating Notes, a period commencing
(a) the date of issuance thereof (with respect to any Additional Floating
Notes) or (b) in the case of subsequent Interest Periods under any Additional
Floating Notes or Interest Period under any other Floating Notes, on the
termination date of the immediately preceding Interest Period applicable
thereto in the case of a rollover to a new Interest Period in accordance with
Section 7.2, and ending in each case three (3) months, six (6) months or one
year thereafter as the Company shall select in accordance with Section 7.2;
provided, however, that (i) any Interest Period that would otherwise end on a
day that is not a LIBOR Business Day shall be extended to the next succeeding
LIBOR Business Day unless such next succeeding LIBOR Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding LIBOR Business Day and (ii) any Interest Period that would
otherwise end after the Maturity Date shall end on the Maturity Date.
Interest Rate Agreement: any interest rate protection agreement,
interest rate future, interest rate option, interest rate swap, interest rate
cap or other interest rate hedge or arrangement under which the Company or any
of the Subsidiaries is a party or a beneficiary.
Interest Rate Set Window: the period of time not more than ten (10) days
nor less than five (5) days prior to the commencement of each Interest Period.
Investment: any direct or indirect purchase or other acquisition by a
Person of stock or other securities of any other Person, or any direct or
indirect loan, advance or capital contribution by a Person to any other Person,
including all indebtedness and accounts receivable from such other Person that
did not arise from sales to such other Person in the ordinary course of
business.
LIBOR Business Day: a Business Day on which dealings in dollars are
carried out in the London interbank eurodollar market.
LIBOR Premium: with respect to any Floating Note, a premium of (a) five
percent (5%) of the principal amount prepaid, if the prepayment occurs after
the date that is five (5) years following and on or before the date that is six
(6) years following the date of issuance of such Floating Note; (b) four
percent (4%) of the principal amount prepaid, if the prepayment occurs after
the date that is six (6) years following and on or before the date that is
seven (7) years following the date of issuance of such Floating Note;
(c) three percent (3%) of the principal amount prepaid, if the prepayment
occurs after the date that is seven (7) years following and on or before the
date that is eight (8) years following the date of issuance of such Floating
Note; (d) two percent (2%) of the principal amount prepaid, if the prepayment
occurs after the date that is eight (8) years following and on or before the
date that is nine (9) years following the date of issuance of such Floating
Note; and (e) one percent (1%) of the principal amount prepaid, if the
prepayment occurs after the date that is nine (9) years following and on or
before the date that is ten (10) years following the date of issuance of such
Floating Note.
LIBOR Rate: for any Interest Period in effect under the Floating Notes,
the rate announced in The Wall Street Journal (Northeast Edition) as the London
Interbank Offered Rates (LIBOR) for a period of corresponding duration.
Lien: with respect to any Property, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such Property. For
purposes of this Agreement, a Person shall be deemed to own, subject to a Lien,
any Property that it has acquired or holds subject to the interest of a vendor
or lessor under any conditional sale agreement, capital lease or other title
retention agreement (other than an operating lease) relating to such Property.
Make-Whole Premium: with respect to any Fixed Note (including any
Floating Note that becomes a Fixed Note pursuant to the Company's election to
fix the interest rate thereunder in accordance with Section 7.3), a premium
equal to the excess, if any, of (a) the Discounted Value of the Called
Principal of such Fixed Note over (b) such Called Principal. The Make-Whole
Premium shall in no event be less than zero.
Material Adverse Effect: a material adverse effect on the business,
operations, affairs, condition or properties of the Company or the ability of
the Company to perform its obligations hereunder or under the Collateral
Agreements.
Maturity Date: the stated date of maturity of a Note or such earlier
date upon which the maturity of the Note is accelerated pursuant to
Section 14.2.
Moody's: Moody's Investors Services, Inc.
Mortgaged Properties: the aggregate of all properties pledged, conveyed
and encumbered under or pursuant to the Security Documents.
Net Tangible Assets: total consolidated assets of the Company and its
Subsidiaries less Consolidated Intangible Assets of the Company and its
Subsidiaries determined in accordance with GAAP.
Note: collectively, any of the 2002 Notes and the Additional Notes, if
any.
Officers' Certificate: a certificate executed by the Chief Financial
Officer of the Company.
Old Notes: the meaning specified in the recitals.
Original Security Documents: the Texas Deed of Trust and Security
Agreement and the Assignment of Leases, each dated February 15, 1996, that were
executed and delivered by the Company pursuant to the Original Note Purchase
Agreement and the Texas Deed of Trust and Security Agreement and the Assignment
of Leases and Rents, each dated as of April 14, 1997, that were executed and
delivered by the Company pursuant to the 1997 Note Purchase Agreement, in each
case as amended.
PBGC: the Pension Benefit Guaranty Corporation or any Governmental
Authority succeeding to any of its functions.
Payment Date: the first day of each calendar month, but if such day is
not a Business Day, the first Business Day of such month.
Permitted Exceptions: those Liens permitted under the Security Documents
and this Agreement.
Permitted Investments: (a) direct obligations of the United States, or
of any agency thereof, or obligations guaranteed as to principal and interest
by the United States, or of any agency thereof, in either case maturing not
more than one year from the date of acquisition thereof; (b) direct obligations
issued by any state of the United States or any political subdivision of any
such state or any public instrumentality thereof maturing within one year from
the date of the acquisition thereof and, at the time of such acquisition,
having the highest rating obtainable from either S&P or Moody's;
(c) certificates of deposit and banker's acceptances issued by any bank or
trust company organized under the laws of the United States or any state
thereof and having capital, surplus and undivided profits of at least
$50,000,000, maturing not more than one year from the date of acquisition
thereof; (d) commercial paper rated A-1 or better or P-1 or better by S&P or
Moody's, respectively, maturing not more than six months from the date of
acquisition thereof; (e) Eurodollar time deposits having a maturity of less
than six months purchased directly from any such bank (whether such deposit is
with such bank or any other such bank); and (f) money market funds at least 95%
of the assets of which constitute Investments of the kinds described in clauses
(a) through (e) above. Notwithstanding the foregoing, the Company shall be
permitted to have collected balances with Pilgrim's Bank, Pittsburg, Texas, in
an amount not to exceed at any time 80% of such bank's capital base.
Person: a corporation, an association, a limited liability company, a
partnership, an organization, a business, an individual, a government or
political subdivision thereof or a governmental agency.
Pilgrim's Pride-Mexico: Avicola Pilgrim's Pride de Mexico S.A. de C.V.,
a Mexican corporation and a wholly owned Subsidiary of the Company, and its
Subsidiaries.
Plan: an "employee pension benefit plan" (as defined in Section 3(2) of
ERISA) that is or has been established or maintained, or to which contributions
are or have been made, by the Company or any of the Subsidiaries or any Related
Person with respect to any of them, or an employee pension benefit plan as to
which the Company or any of the Subsidiaries or any Related Person with respect
to any of them, would be treated as a contributory sponsor under Section 4069
of ERISA if it were to be terminated but excluding any such Plan that is
maintained outside of the United States primarily for the benefit of Persons
substantially all of whom are nonresident aliens.
Potential Event of Default: a default that, with notice or lapse of time
or both, becomes an Event of Default.
Premium: a LIBOR Premium or a Make-Whole Premium, as the case may be.
Property: any right or interest in or to property of any kind
whatsoever, whether real, personal (including, without limitation, cash) or
mixed and whether tangible or intangible.
Purchaser: John Hancock Life Insurance Company and its successors and
assigns.
Receipt of Exchanged Notes: the meaning specified in Section 4.1(d).
Reinvestment Yield: with respect to the Called Principal of any Fixed
Note, the yield to maturity implied by (a) the yields reported, as of
10:00 a.m. (New York City time) on the Business Day next preceding the
Settlement Date with respect to such Called Principal, on the display
designated as "Page 678" on the Telerate Service (or such other display as may
replace Page 678 on the Telerate Service) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Life of such Called
Principal as of such Settlement Date, plus 100 basis points or (b) if such
yields shall not be reported as of such time or the yields reported as of such
time shall not be ascertainable, the Treasury Constant Maturity Series yields
reported, for the latest day for which such yields shall have been so reported
as of the Business Day next preceding the Settlement Date with respect to such
Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S. Treasury securities
having a constant maturity equal to the Remaining Life of such Called Principal
as of such Settlement Date, plus 100 basis points. Such implied yield shall be
determined, if necessary, by (x) converting U.S. Treasury bill quotations to
bond-equivalent yields in accordance with accepted financial practice and
(y) interpolating linearly between reported yields.
Related Person: as to any Person, either (a) any corporation or trade or
business that is a member of the same controlled group of corporations (within
the meaning of Section 414(b) of the Code) as such Person, or (b) is under
common control (within the meaning of Section 414(c) of the Code) with such
Person, or (c) is a member of any affiliated service group (within the meaning
of Section 414(m) of the Code) that includes such Person, or (d) is otherwise
treated as part of the controlled group that includes such Person (within the
meaning of Section 414(o) of the Code).
Release: the meaning specified in Section 11.1.
Remaining Life: with respect to the Called Principal of any Fixed Note,
the number of years (calculated to the nearest one-twelfth year) that will
elapse between the Settlement Date with respect to such Called Principal and
the scheduled due date of such Remaining Scheduled Payment.
Remaining Scheduled Payments: with respect to the Called Principal of
any Fixed Note, all payments of such Called Principal and interest thereon that
would be due on or after the Settlement Date with respect to such Called
Principal if no payment of such Called Principal were made prior to its
scheduled due date.
Reportable Quantity: the meaning specified in Section 11.1.
Responsible Officer: the President, the Secretary, the Treasurer, the
Chief Executive Officer, the Chief Operating Officer or the Chief Financial
Officer of the Company.
S&P: Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc.
Schedule of Information for Payment and Notices: the meaning specified
in Article 13.
Securities Act: the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at the time.
Security Documents: the Original Security Documents, the documents
delivered pursuant to clauses (i), (ii), and (iii) of Section 4.1(d) and any
other security agreements, mortgages, deeds of trust, leasehold mortgages or
deeds of trust, pledge agreements, leasehold assignment, and/or other documents
executed by the Company in favor of the Purchaser, to secure the Company's
performance of its obligations under the Notes and this Agreement with a lien
on the Collateral.
Settlement Date: with respect to the Called Principal of any Fixed Note,
the date on which such Called Principal is to be prepaid pursuant to
Section 8.2 or is declared to be immediately due and payable pursuant to
Article 14.
Special Counsel: Locke Liddell & Sapp LLP, as special counsel to
Purchaser in connection with this Agreement.
Subsidiary: any corporation or other entity of which more than fifty
percent (50%) of the outstanding voting shares are at the time owned (either
alone or through Subsidiaries or together with Subsidiaries) by the Company or
another Subsidiary.
2002 Notes: the meaning specified in Section 2.1.
Unfunded Current Liability: as to any Plan, the amount, if any, by which
the actuarial present value of the accumulated plan benefits under the Plan as
of the close of its most recent plan year, determined in accordance with
Statement of Financial Accounting Standards No. 35, based upon the actuarial
assumptions used by the Plan's actuary in the most recent annual valuation of
the Plan, exceeds the fair market value of the assets allocable thereto,
determined in accordance with Section 412 of the Code.
Welfare Plan: an employee welfare benefit plan (as defined in
Section 3(1) of ERISA) or a group health plan (as defined in
Section 4980B(g)(2) of the Code) which is or has been established or
maintained, or to which contributions are or have been made, by the Company or
any of the Subsidiaries or any Related Person with respect to any of them.
1.2. Miscellaneous. References herein to an "Exhibit" or "Schedule"
are, unless otherwise specified, to one of the exhibits or schedules attached
to this Agreement, and references herein to a "Section" are, unless otherwise
specified, to one of the Sections of this Agreement. As used in this
Agreement, the words "herein," "hereof," "hereby," and "hereunder" refer to
this Agreement as a whole and not to any particular Section or subdivision of
this Agreement. References herein to masculine or neuter are construed to
include masculine, feminine or neuter, where applicable, and references herein
to singular include plural and to plural include singular, where applicable.
ARTICLE 2.
THE NOTES
2.1. Authorization of 2002 Notes. The Company has authorized the issue
and sale of $60,960,846.08 aggregate principal amount of its 6.68% Fixed Notes
(together with all notes issued in substitution or exchange therefor pursuant
to Article 12, the "2002 Notes") pursuant to this Agreement in exchange for the
Old Notes. The 2002 Notes will bear interest on the unpaid principal balance
thereof from the date of such Notes as prescribed herein, payable as set forth
in Articles 7 and 8, will mature on August 30, 2012 and will be substantially
in the form of Exhibit A-1.
2.2. Sale and Purchase of 2002 Notes. The Company will issue and sell
to Purchaser and, subject to the terms and conditions hereof, at the Closing
provided for in Article 3, Purchaser will accept the 2002 Notes in exchange for
the Old Notes.
2.3. Sale and Purchase of Additional Notes.
(a) The Company may authorize the issue and sale from time to
time of up to an additional $50,000,000 of its notes ("Additional Notes"),
consisting of fixed rate notes (together with all notes issued in substitution
or exchange therefor pursuant to Article 12, the "Additional Fixed Notes") and
floating rate notes (together with all notes issued in substitution or exchange
therefor pursuant to Article 12, the "Additional Floating Notes") pursuant to
this Agreement. Each Additional Note will be in the amount of $5,000,000 (or
at Purchaser's option, such smaller denominations that in the aggregate equal
$5,000,000), will bear interest on the unpaid principal balance thereof from
the date of the Additional Note as prescribed herein, payable as set forth in
Articles 7 and 8, will mature on a date which is ten (10) years from the date
of issuance and sale and will be substantially in the form of Exhibit A-1 (in
the case of Additional Fixed Notes) or Exhibit A-2 (in the case of Additional
Floating Notes).
(b) The Company shall give Purchaser not less than ten (10)
Business Days prior written notice of its intent to issue and sell to Purchaser
an Additional Note, which at the Company's option may be either an Additional
Fixed Note or an Additional Floating Note, the issuance and sale of which shall
be subject to the conditions set forth in Section 4.2. Subject to the
satisfaction of the conditions set forth in Section 4.2, Purchaser agrees to
purchase the Additional Notes authorized by the Company under this Section 2.3.
No Additional Note may be issued and sold after August 30, 2005.
ARTICLE 3.
CLOSING
The closing of the sale of the 2002 Notes to Purchaser (the "Closing")
shall take place at the offices of Locke Liddell & Sapp LLP, 2200 Ross Avenue,
Suite 2200, Dallas, Texas 75201, at 10:00 a.m. Dallas, Texas time on such date
as the parties may mutually agree (the "Closing Date"). At the Closing, the
Company will deliver to Purchaser the 2002 Notes in the form of a single Note
or Notes as prescribed by Purchaser, dated the Closing Date and registered in
Purchaser's name (or the name of its nominee), against delivery by Purchaser to
the Company of the Old Notes.
ARTICLE 4.
CONDITIONS TO CLOSING
4.1. Conditions to Purchase of 2002 Notes. Purchaser's obligation to
accept the 2002 Notes in exchange for the Old Notes is subject to the
fulfillment to Purchaser's satisfaction, at or prior to the Closing, of the
following conditions:
(a) Opinion of Counsel. Purchaser shall have received an
opinion, dated the Closing Date and satisfactory in form and substance to
Purchaser, from Baker & McKenzie, counsel for the Company, in the form of
Exhibit B-1.
(b) Representations, Warranties and Covenants. The
representations and warranties of the Company contained in this Agreement shall
be true and correct at the time of Closing as if made at and as of such time,
and the Company shall have complied with all agreements and covenants hereunder
required to be performed by the Company on or prior to the time of Closing.
(c) Notes. The 2002 Notes (with appropriate insertions) to be
issued to and accepted by Purchaser, shall have been duly executed by the
Company and delivered to Purchaser and shall be in full force and effect and no
term or condition thereof shall have been amended, modified or waived, except
with the prior written consent of Purchaser and the Company.
(d) Collateral Agreements.
(i) Modifications and Extensions of Deed of Trust and Assignment
of Leases and Rents in form and substance satisfactory to Purchaser shall have
been duly executed and delivered by the Company for the benefit of Purchaser
and the registered holders from time to time of the Notes and shall be in full
force and effect.
(ii) A Texas Deed of Trust and Security Agreement in form and
substance satisfactory to Purchaser shall have been executed and delivered by
the Company for the benefit of Purchaser and the registered holders of the
Notes and shall be in full force and effect.
(iii) UCC Financing Statements and amendments shall have been
authorized by the Company for filing.
(iv) A Receipt of Exchanged Notes, substantially in the form of
Exhibit C (the "Receipt of Exchanged Notes"), shall have been duly executed and
delivered by the Company and shall be in full force and effect.
(v) A certificate, substantially in the form of Exhibit D (the
"Certificate"), shall have been duly executed and delivered by the Company and
shall be in full force and effect.
(e) Recordings, Filings and Priority. Except as waived in
writing by Purchaser, all recordings and filings of or with respect to the
Security Documents and the Financing Statements shall have been duly made and
all other instruments relating thereto shall have been duly executed, delivered
and recorded or filed, in all such places as may be required by law, or as may
be deemed necessary or desirable by Special Counsel, in order to establish,
protect and perfect as of the Closing Date the interests and rights (and the
priority thereof) created or intended to be created thereby. The Lien of the
Security Documents and Financing Statements shall constitute a first Lien of
record on and a first security interest of record in the Mortgaged Properties,
subject only to the Permitted Exceptions.
(f) Title Insurance. Purchaser shall have received title policy
endorsements to its existing mortgagee policies of title insurance issued by
Lawyers Title Insurance Corporation and Stewart Title Guaranty Company. Such
endorsements shall be subject only to the same exceptions to title as now are
specified in such policies and any additional conditions or exceptions to title
as may be acceptable to Purchaser.
(g) Compliance with Securities Laws. The offering and sale of
the 2002 Notes to be issued at the Closing shall have complied with all
applicable requirements of federal and state securities laws.
(h) Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be reasonably
satisfactory to Purchaser and Special Counsel, and Purchaser and Special
Counsel shall have received an original executed counterpart of this Agreement,
and all such other counterpart originals or certified or other copies of such
documents as Purchaser or Special Counsel may reasonably request.
(i) No Event of Default or Potential Event of Default. There
shall not exist and, upon consummation of the transactions contemplated hereby,
there shall not exist any Event of Default or Potential Event of Default.
(j) Payment of Closing Fees. The Company shall have paid the
reasonable fees, expenses and disbursements of Special Counsel and special
local counsel that are reflected in statements of such counsel rendered prior
to or on the Closing Date, without limitation on the Company's obligation to
pay any additional fees and disbursements of all such counsel pursuant to
Article 15.
(k) Loan to Appraised Values. Upon consummation of the
transactions contemplated at the Closing, the ratio of the aggregate principal
amount of the then outstanding Notes (including any Additional Notes to be
issued at the Closing) to Appraised Value shall not be greater than seventy-
five percent (75%).
(l) Insurance. Purchaser shall have received certificates
reasonably satisfactory to Purchaser as to, or copies of, all insurance
policies required by the Security Documents.
(m) Due Diligence. The results of any due diligence review of
the Company and the Subsidiaries and their respective Properties, businesses,
operations, affairs, results of operations, financial condition and prospects
and the proposed organizational, legal and tax aspects of the proposed
transactions, performed by or on behalf of Purchaser shall be reasonably
satisfactory to Purchaser and Special Counsel.
4.2. Conditions to Purchase of Additional Notes. Purchaser's obligation
to purchase each Additional Note is subject to the fulfillment to Purchaser's
satisfaction prior to each such purchase of an Additional Note, of the
following conditions:
(a) Representations, Warranties and Covenants. The
representations and warranties of the Company contained in this Agreement shall
be true and correct at the time of the purchase of each Additional Note, as if
made at and as of such time, and the Company shall have complied with all
agreements and covenants hereunder required to be performed at or prior to the
purchase of such Additional Note.
(b) Notes. The Additional Note, in the form and substance of
Exhibit A-1 (in the case of an Additional Fixed Note) or Exhibit A-2 (in the
case of an Additional Floating Note) (with appropriate insertions) to be issued
to and accepted by Purchaser, shall have been duly executed and delivered to
Purchaser by the Company and shall be in full force and effect and no term or
condition thereof shall have been amended, modified or waived, except with the
prior written consent of Purchaser and the Company.
(c) Opinion of Counsel. Purchaser shall have received an
opinion, dated the date of issuance of the Additional Note and satisfactory in
form and substance to Purchaser, from counsel for the Company, substantially
in the form of Exhibit B-2.
(d) Compliance with Securities Laws. The offering and sale of
each Additional Note to be issued shall have complied with all applicable
requirements of federal and state securities laws.
(e) No Event of Default or Potential Event of Default. There
shall not exist and, upon consummation of the transactions contemplated hereby,
there shall not exist any Event of Default or Potential Event of Default.
(f) No Material Adverse Effect. There shall not have been any
Material Adverse Effect on the Company since September 30, 2001, which Material
Adverse Effect is continuing.
(g) Loan to Appraised Value. Upon consummation of any purchase
of an Additional Note, the ratio of the aggregate principal amount of the then
outstanding Notes (including any Additional Notes to be issued pursuant
thereto) to Appraised Value immediately prior to the consummation of any such
transaction shall not be greater than seventy-five percent (75%). In the event
the Company desires or is required to pledge additional assets or property as
security for its obligations under this Agreement and the Collateral
Agreements, the appraised value of such assets or property shall be included
within the Appraised Value in calculating the Loan to Appraised Value ratio
pursuant to this Section 4.2(g), and Company shall execute (where required) and
cause to be delivered to Purchaser such closing documents, as Purchaser may
require, as set forth in Exhibit F.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY
The Company represents and warrants to Purchaser as follows:
5.1. Organization, Standing, etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority (a) to own and operate its
properties, (b) to carry on its business as now conducted and as proposed to be
conducted, (c) to enter into this Agreement, the Security Documents and each of
the other Collateral Agreements, (d) to issue and sell the Notes, and (e) to
carry out the terms of this Agreement, the Notes, the Security Documents and
each of the other Collateral Agreements. This Agreement, the 2002 Notes, the
Security Documents and the other Collateral Agreements (i) have been, and the
Additional Notes upon issuance thereof will be, duly authorized by all
necessary corporate action on the part of the Company, and duly executed and
delivered and (ii) are, and the Additional Notes upon issuance thereof will be,
valid and binding agreements of the Company, enforceable in accordance with
their terms, except as enforceability may be subject to and limited by
applicable principles of equity and by bankruptcy, reorganization, moratorium,
insolvency or other similar laws from time-to-time in effect affecting the
enforcement of creditors' rights generally.
5.2. Qualification. The Company is duly qualified and in good standing
as a foreign corporation authorized to do business in each jurisdiction in
which the nature of its activities or the character of the properties it owns
or leases makes such qualification necessary, other than those jurisdictions
where the failure to qualify would not have a Material Adverse Effect.
5.3. Business and Financial Statements. The Company has delivered to
Purchaser true, complete and correct copies of the Company's audited
consolidated financial statements for the Fiscal Year ended September 30, 2001,
and the unaudited financial statements for the nine months ended June 29, 2002
(collectively, the "Financial Statements"). The Financial Statements have been
prepared in accordance with GAAP (except that the unaudited financial
statements contain no footnotes) applied on a consistent basis throughout the
periods specified and present fairly in all material respects the historical
financial positions of the Company as of the respective dates and for the
respective periods specified.
5.4. Adverse Changes. There has been no Material Adverse Effect on the
Company since September 30, 2001 that is continuing.
5.5. Tax Returns and Payments. The Company is a corporation subject to
United States federal income taxation. The Company has timely and accurately
filed all tax returns required by law to be filed by it and has paid all taxes,
assessments and other governmental charges levied upon it or any of its
properties, assets, income or franchises that are due and payable, other than
those presently being contested in good faith by appropriate proceedings
diligently conducted for which such reserves and other appropriate provision as
are required by GAAP have been made or where the failure to make such filing or
payment could not reasonably be expected to result in a Material Adverse
Effect. As of the Closing Date, there are no material tax Liens upon any of
the assets of the Company except for statutory liens in respect of taxes or
assessments the payment of which is not yet delinquent. If the Company is
contesting any such tax or assessment in accordance with this Section 5.5, the
Company has disclosed to Purchaser, in writing, the nature and extent of such
contest.
5.6. Debt. Other than the Notes and the indebtedness disclosed in the
Financial Statements or as listed on Schedule 5.6, the Company has no secured
or unsecured Debt outstanding as of the Closing Date. Other than as provided
in this Agreement and the Collateral Agreements, or in the instruments and
agreements listed on Schedule 5.6 (as such schedule may be updated from time to
time), no instrument or agreement applicable to or binding on the Company
contains any restrictions on the incurrence by the Company of any Debt.
5.7. Title to Properties and Assets; Liens. The Company has good and
marketable fee title to all the real property purported to be owned by it and
good and marketable title to all other property and assets purported to be
owned by it, free and clear of all Liens, except for Liens and other matters
that constitute Permitted Exceptions. At the time of the Closing and upon
giving effect to the transactions contemplated hereby, and except for the
Permitted Exceptions, (a) no currently effective financing statement under the
Uniform Commercial Code that names the Company as debtor or lessee will be on
file in any jurisdiction in which the Company owns or leases real or personal
property or in which the inventory of the Company is located or in any other
jurisdiction, (b) neither the Company nor any Subsidiary has signed any
currently effective financing statement or any currently effective security
agreement authorizing any secured party thereunder to file any such financing
statement, except (i) as required to perfect the Liens created by the
Collateral Agreements, (ii) as listed on Schedule 5.7, or (iii) as evidenced by
any Permitted Exception, and (c) the personal property comprising any portion
of the Mortgaged Properties is free and clear of any and all purchase money
security interests and other Liens.
5.8. Litigation. Except as set forth on Schedule 5.8, there is no
action, proceeding or investigation pending or, to the best knowledge of the
Company, threatened (or any basis therefor known to the Company) against the
Company or any of its Subsidiaries or any of their respective Properties which
is not adequately covered by insurance, which could reasonably be expected to
have a Material Adverse Effect.
5.9. Compliance with Collateral Agreements. The Company has performed
and complied in all material respects with every term, covenant, condition and
provision of the Collateral Agreements to be performed or complied with by the
Company on or prior to the date hereof, every representation or warranty of the
Company contained in the Collateral Agreements is true and correct in all
material respects on and as of the date hereof, and no default or Event of
Default (as any such term may be defined in the Collateral Agreements) has
occurred and is continuing (without regard to any applicable cure period) under
the Collateral Agreements.
5.10. Compliance with Other Instruments. The Company (a) is not in
violation of any term of any agreement or instrument to which it is a party or
by which it is bound, or of any applicable law, ordinance, rule or regulation
of any Governmental Authority, or of any applicable order, judgment or decree
of any court, arbitrator or Governmental Authority (including, without
limitation, any such law, ordinance, rule, regulation, order, judgment or
decree relating to environmental protection or pollution control, occupational
health and safety standards and controls, consumer protection or equal
employment practice requirements), the consequence of any of which violations
would, with reasonable probability, result in a Material Adverse Effect; and
(b) is not in violation of any term of its Certificate of Incorporation or
Bylaws. Neither the execution, delivery and performance of this Agreement, any
Collateral Agreement, or the Notes nor the consummation of the transactions
contemplated hereby or thereby will result in any violation of or be in
conflict with or constitute a default under any such term or result in the
creation of (or impose any obligation on the Company to create) any Lien upon
any of the properties of the Company pursuant to any such term. There are no
such terms in the aforementioned documents that, either in any individual case
or in the aggregate, materially and adversely affect the business, operations,
affairs, condition or properties of the Company, including the Mortgaged
Properties.
5.11. Governmental Consents. Other than those that have been duly
obtained and are in full force and effect (copies of which have been delivered
to Purchaser or Special Counsel) and any filings contemplated by the Security
Documents and the Financing Statements (which filings will be made promptly
after Closing), no consent, approval or authorization of, or declaration or
filing with, any Governmental Authority on the part of the Company is currently
required for the valid execution and delivery of this Agreement or any
Collateral Agreement, or the consummation of the transactions contemplated
hereby or thereby, or the valid offer, issue, sale and delivery of the Notes
pursuant to this Agreement.
5.12. Permits and Licenses. Except for any failure to obtain or recover
permits and licenses that could not reasonably be expected to have a Material
Adverse Effect, the Company has all permits and licenses necessary for the
operation of its business as presently conducted.
5.13. Status Under Certain Federal Statutes. Neither the Company nor any
Subsidiary is subject to regulation under the Investment Company Act of 1940,
as amended, the Public Utility Holding Company Act of 1935, as amended, the
Interstate Commerce Act, as amended, or the Federal Power Act, as amended.
5.14. Use of Proceeds; Margin Regulations. The Company will apply the
proceeds of the sale of Additional Notes for general corporate purposes. No
part of the proceeds from the sale of the Notes hereunder will be used,
directly or indirectly, for the purpose of buying or carrying any margin stock
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System (12 CFR 221), or for the purpose of buying or carrying or
trading in any securities under such circumstances as to involve the Company in
a violation of Regulation X of said Board (12 CFR 224) or to involve any broker
or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin
stock does not constitute more than 10% of the value of the consolidated assets
of the Company and its Subsidiaries and the Company does not have any present
intention that margin stock will constitute more than 10% of the value of such
assets. As used in this Section, the terms "margin stock" and "purpose of
buying or carrying" shall have the meanings assigned to them in said Regulation
U.
5.15. Compliance with ERISA.
(a) As of the Closing Date, each Plan that is or has been
maintained for employees of the Company or any of the Subsidiaries, or any
Related Person with respect to any of them, or to which the Company or any of
the Subsidiaries, or any Related Person with respect to any of them, has made
or was required to make contributions has been administered in material
compliance with its terms and all applicable statutes (including but not
limited to ERISA and the Code, and all regulations and interpretations
thereunder). No reportable event (as defined in Section 4043 of ERISA and
regulations issued thereunder) has occurred with respect to any Plan that is a
defined benefit plan (as defined in Section 3(35) of ERISA and regulations
issued thereunder) and subject to Title IV of ERISA ("Title IV Plan"). As of
the Closing Date, no material liability to the PBGC has been incurred, or is
expected to be incurred, by the Company or any of the Subsidiaries or any
Related Person with respect to any Title IV Plan. The PBGC has not instituted
any proceedings, and there exists no event or condition that would constitute
grounds for institution of proceedings, against the Company, the Subsidiaries
or any Related Person by the PBGC to terminate any Title IV Plan under
Section 4042 of ERISA. No case, matter or action with respect to any Plan,
pursuant to any federal or state law, is pending or, to the Company's
knowledge, is threatened, against the Company or any of the Subsidiaries or any
Related Person with respect to any of them, or any officer, director or
employee of any of them, or any fiduciary of any Plan which could reasonably be
expected to result in a Material Adverse Effect.
(b) No Title IV Plan had an accumulated funding deficiency (as
such term is defined in Section 302 of ERISA and regulations issued thereunder)
as of the last day of the most recent plan year of such Plan ended prior to the
date hereof. All contributions payable to each qualified Plan of the Company
or any of the Subsidiaries (that is an employee pension benefit plan as defined
in Section 3(2) of ERISA and regulations issued thereunder and that is intended
to meet the qualification requirements of the Code ("Qualified Plan")), for all
benefits earned or other liabilities accrued through the end of the latest plan
year for such Qualified Plan, determined in accordance with the terms and
conditions of such Qualified Plan, ERISA and the Code, have been paid or
otherwise provided for, and to the extent unpaid are reflected in the pro forma
consolidated balance sheet of the Company. No waiver of the minimum funding
standard requirements of Section 302 of ERISA and Section 412 of the Code has
been obtained, applied for or is contemplated with respect to any Title IV
Plan.
(c) Except as disclosed to Purchaser in writing, none of the
Company or any of the Subsidiaries nor any Related Person with respect to any
of them, is or has been a contributor to any multi-employer plan within the
meaning of Section 3(37) of ERISA and regulations issued thereunder.
(d) The execution and delivery of this Agreement and the
Collateral Agreements, the issue of the Notes hereunder and the consummation of
the transactions contemplated hereby will not involve any transaction that is
subject to the prohibitions of Section 406 of ERISA or in connection with which
a tax would be imposed pursuant to Section 4975 of the Code.
(e) No Lien imposed under Section 412(n) of the Code exists in
favor of any Plan upon any property belonging to the Company or any of the
Subsidiaries, or any Related Person of any of them.
5.16. Disclosure. Neither this Agreement, the Financial Statements nor
any other document, certificate or instrument delivered to Purchaser by or on
behalf of the Company in connection with the transactions contemplated hereby,
when all such documents, certificates and instruments are taken as a whole,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading. There is no fact actually known to the Company that could
reasonably be expected to have a Material Adverse Effect that has not been set
forth herein or in the other documents, certificates and instruments delivered
to Purchaser by or on behalf of the Company specifically for use in connection
with the transactions contemplated hereby.
5.17. Solvency of the Company. The fair saleable value of the business
and assets of the Company, upon giving effect to the transactions contemplated
hereby, will be in excess of the amount that will be required to pay the
probable liabilities of the Company (including contingent, subordinated,
unmatured and unliquidated liabilities) on existing debts as they may become
absolute and matured. The Company, upon giving effect to the transactions
contemplated hereby, will not be engaged in any business or transaction, or
about to engage in any business or transaction, for which the Company has an
unreasonably small capital, and the Company has no intent (a) to hinder, delay
or defraud any entity to which it is, or will become, on or after the Closing
Date, indebted, or (b) to incur debts that would be beyond its ability to pay
as they mature.
5.18. Environmental Matters. The Company has been complying with, and is
in compliance with, all Environmental Laws in each jurisdiction where it is
presently doing business except for failures to comply which would not have a
Material Adverse Effect. As of the Closing Date, to the best knowledge of the
Company, none of the Mortgaged Properties is impacted by Hazardous Substances
in any respect that would require investigation, reporting, monitoring, cleanup
or other response under any Environmental Law.
5.19. Brokers. The Company represents that it has not dealt with any
brokers or finders in connection with the transactions contemplated by this
Agreement.
5.20. No Defaults. At the time of the Closing, there exists no Event of
Default or Potential Event of Default.
5.21. Offer of Notes. Neither Company nor any Person acting on its
behalf has directly or indirectly offered the Notes or any part thereof or any
similar securities for sale to, or solicited any offer to buy any of the same
from, or otherwise approached or negotiated in respect thereof with anyone
other than Purchaser. Neither the Company nor any Person acting on its behalf
has taken or will take any action that would subject the issuance and sale of
the Notes to the provisions of Section 5 of the Securities Act, or to the
provisions of any state securities law requiring registration of securities,
notification of the issuance or sale thereof or confirmation of the
availability of any exemption from such registration.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES RELATING
TO SECURITY FOR THE NOTES
The Company represents and warrants to Purchaser as follows:
6.1. Easements and Utility Services. The Company has all easements and
other rights, including those for use, maintenance, repair and replacement of
and access to structures, facilities or space for support, mechanical systems,
roads, utilities (including electricity, gas, water, sewer disposal, telephone
and CATV) and any other private or municipal improvements, services and
facilities necessary or appropriate to the proper operation, repair,
maintenance, occupancy or use of the Mortgaged Properties as currently being
and proposed to be used.
6.2. Contracts. There are no service (other than utility) or
construction contracts currently outstanding relating to any part of the
Mortgaged Properties providing for payment in excess of $500,000 per year, per
contract (but not in excess of $5,000,000 in the aggregate), except those
contracts that have been delivered to Purchaser. As of the Closing Date, no
labor or materials have been supplied to the Mortgaged Properties, other than
in the ordinary course of business, that have not been fully paid for.
6.3. Permits. There are no permits, licenses, certificates or approvals
that are required to occupy or operate (except as specified in Section 5.12)
any part of the Mortgaged Properties as presently operated, except those
permits, licenses, certificates and approvals that have been delivered to
Purchaser.
6.4. Reports of Engineers. The Company does not possess and is not
aware of any reports of engineers, architects or other Persons relating to any
part of the Mortgaged Properties, except those reports that have been delivered
to Purchaser.
6.5. Plans and Specifications. The Company does not possess and is not
aware of any plans and specifications relating to any part of the Mortgaged
Properties, except those plans and specifications that have been delivered to
Purchaser.
6.6. Soil Reports. There are no soil reports in the possession of the
Company or its Affiliates relating to any part of the Mortgaged Properties
except as delivered to Purchaser.
6.7. Zoning. The Mortgaged Properties that constitute real property are
zoned in the manner that permits the use of the Mortgaged Properties as
currently being and proposed to be used by the Company and its Subsidiaries.
6.8. Certificates of Occupancy. A certificate of occupancy or similar
permit has been issued by the appropriate Governmental Authority for each of
the Mortgaged Properties that constitutes improvements to real property that
permits the occupancy of the Mortgaged Properties as currently occupied by the
Company.
6.9. Compliance with Laws. Each Mortgaged Property, and the current
activities at each Mortgaged Property, comply in all material respects with
applicable laws, ordinances, rules and regulations of any Governmental
Authority and any applicable order, judgment or decree of any court, arbitrator
or Governmental Authority.
ARTICLE 7.
INTEREST RATE PROVISIONS
7.1. Interest on Fixed Notes.
(a) Interest on the outstanding principal balance of the 2002
Notes shall accrue at the lesser of (i) 6.68% per annum or (ii) the Highest
Lawful Rate, and shall be due and payable in accordance with Section 8.1.
(b) In the event the Company elects to issue an Additional Fixed
Note pursuant to Section 2.3, not more than forty-five (45) nor less than five
(5) days prior to the issuance of such Additional Fixed Note, the Company shall
give written notice thereof to Purchaser, at which point the parties shall
determine the interest rate applicable to such Additional Fixed Note based on
the interest rates then quoted by Purchaser as provided in Section 7.4.
Interest on the outstanding principal balance of such Additional Fixed Note
shall accrue at the lesser of (i) the rate as so determined or (ii) the Highest
Lawful Rate, and shall be due and payable in accordance with Section 8.1.
(c) Interest on the unpaid principal of the Fixed Notes shall be
calculated on the basis of the actual days elapsed in a year consisting of 360
days.
7.2. Interest on Floating Notes.
(a) Interest on the outstanding principal balance of the Floating
Notes shall accrue at an interest rate per annum during the applicable Interest
Period equal to the lesser of (i) the LIBOR Rate plus the interest rate spread
as provided in Section 7.4 or (ii) the Highest Lawful Rate. Interest on the
Floating Notes accrued during a calendar month shall be due and payable in
accordance with Section 8.1. Interest on the unpaid principal of the Floating
Notes shall be calculated on the basis of the actual days elapsed in a year
consisting of 360 days.
(b) Not more than ten (10) days nor less than five (5) days prior
to Closing and during each Interest Rate Set Window, the Company shall notify
Purchaser of its selection of the duration of the immediately following
Interest Period with respect to the Floating Notes then outstanding, which may
be three (3) months, six (6) months or one year (the "Interest Option Notice").
The duration of the Interest Period selected shall be the same for all Floating
Notes with the same date of issuance. The Interest Option Notice must be in
writing and must be sent via telecopy, with the originally executed copy
delivered to Purchaser immediately thereafter. The LIBOR Rate for the
following Interest Period shall be the applicable rate for a period of
corresponding duration announced in The Wall Street Journal (Northeast Edition)
on the first Business Day following receipt of the Interest Option Notice.
(c) In connection with determining the applicable LIBOR Rate for
the following Interest Period, Purchaser shall calculate the principal and
interest payments due on the Floating Notes during such Interest Period, as
required under Section 8.1(b), and shall provide such amount to the Company.
7.3. Interest Rate Lock. With respect to the Floating Notes, during any
Interest Rate Set Window, the Company shall have the option to permanently set
the interest rate on the Floating Notes. The Company shall provide notice to
Purchaser of its desire to set the rate and Purchaser shall promptly thereafter
notify the Company of the then prevailing fixed interest rates (based on
Purchaser's interest rate spreads and the average remaining life of the
Floating Notes) (the "Fixed Rate"). If the Company elects to have the Floating
Notes accrue interest at the Fixed Rate, the Company shall so notify Purchaser
in the Interest Option Notice (which election shall be irrevocable) and
immediately following the then current Interest Period, the Floating Notes
shall thereafter accrue interest at the Fixed Rate, and the Floating Notes
shall for all purposes be deemed Fixed Notes. Any such election shall be with
respect to any or all of the then outstanding Floating Notes and shall be made
in full and not in part. Purchaser shall recompute the principal and interest
payments required under Section 8.1(b) based on the outstanding principal
balance on the Floating Notes and the Fixed Rate, and the Company shall
thereafter make principal and interest payments on such Notes equal to such
amount.
7.4. Setting of Interest Rates on Additional Notes. During the period
of time not more than thirty (30) days nor less than five (5) days prior to the
proposed issuance by the Company of any Additional Note(s), Purchaser shall set
the interest rate on any Additional Fixed Note and the interest rate spread on
any Additional Floating Note proposed to be issued. Purchaser shall consider
its then-current interest rate spreads (based on average remaining life of such
Additional Notes), the then-current financial condition of the Company and
then-current market conditions when establishing the rates and interest rate
spreads. The Company shall have no obligation to issue and sell any Additional
Notes if it is not satisfied with the rate or interest rate spreads established
by Purchaser. If the parties agree upon new rates, they shall promptly execute
an amendment to this Agreement and the Company shall execute and deliver to
Purchasers new notes reflecting the new rates.
7.5. Past Due Payments. All payments of principal and, to the extent
permitted by law, the applicable Premium (if any) and interest on or in respect
of any Note or this Agreement that are not made when due shall bear interest at
the Default Rate from the date due and payable to the date paid. Any payment
in respect of any other obligation or amount payable hereunder that is not paid
when due shall bear interest at the Default Rate for the 2002 Notes from the
date due and payable to the date paid.
ARTICLE 8.
PAYMENT OF NOTES
8.1. Required Payments of Notes.
(a) On each Payment Date while the 2002 Notes are outstanding,
the Company shall make a payment on the 2002 Notes, in cash, in an aggregate
amount equal to $537,085.21, which payment shall consist of principal and
accrued interest. Each payment shall be allocated pro rata among the 2002
Notes then outstanding.
(b) Upon the issuance of any Additional Floating Notes, Company
shall pay equal monthly payments of principal, plus interest accrued thereon,
on each Payment Date based on a fifteen (15) year amortization. With respect
to the issuance of each Additional Fixed Note, Purchaser shall compute the
equal monthly combined principal and interest payment for each such Fixed Note
based on a fifteen (15) year amortization. On each Payment Date following the
issuance of such Additional Note, the Company shall make a payment on such
Additional Note, in cash, in an amount equal to the payment calculated by
Purchaser in accordance with this Agreement for such Additional Note, which
shall consist of principal and accrued interest.
(c) If at any time the outstanding principal balance of the
remaining Notes exceeds seventy-five percent (75%) of the Appraised Value, the
Company shall immediately make a prepayment of principal of the Notes (together
with accrued interest thereon) in an amount such that following the prepayment,
the outstanding principal balance is less than or equal to seventy-five percent
(75%) of the Appraised Value. The prepayment shall be applied pro rata among
all of the Notes at the time outstanding.
(d) No partial prepayment of the Notes pursuant to Section 8.2
shall relieve the Company from its obligation to make the payments required
under this Section 8.1, except to the extent that the outstanding principal
balance of the Notes is less than the amount of the scheduled payment otherwise
due under this Section 8.1.
8.2. Optional Prepayments of Notes; Allocations.
(a) At any time or from time to time, the Company is hereby
granted the right, at its option, upon notice as provided in Section 8.3, to
prepay all or any part (in a minimum amount of $1,000,000 and in integral
multiples of $100,000 or the entire outstanding balance, if less) of the Fixed
Notes, which prepayment shall be applied pro rata among all of the Fixed Notes
at the time outstanding and shall be applied to the outstanding principal
amount thereof in the inverse order of maturity.
(b) From time to time from and after the date that is five (5)
years following the date of issuance of any Floating Note, the Company shall
have the right, at its option, upon notice as provided in Section 8.3, to
prepay all or any part (in a minimum amount of $1,000,000 and in integral
multiples of $100,000 or the entire outstanding balance, if less) of such
Floating Notes, which prepayment shall be applied to the outstanding principal
amount in the inverse order of maturity. Notwithstanding the foregoing, from
time to time from and after the date of issuance of any Floating Note until the
date that is five (5) years following the date of issuance of such Floating
Note, the Company shall have the right, at its option, upon notice as provided
in Section 8.3, to prepay, without Premium, up to ten percent (10%) of the
original principal balance of such Floating Note during each of the first five
(5) years following the date of issuance of such Floating Note; provided,
however, that the source of the funds used by the Company to make any such
prepayment shall be Consolidated Free Cash Flow generated from the Company's
normal and usual business operations or from contributions made to the capital
of the Company and shall exclude any funds generated by the Company through the
refinancing of any Debt or any sale, transfer, lease or other disposition of
any assets.
(c) Each such prepayment shall include the principal amount of
the Notes so prepaid, plus interest accrued thereon to the date of payment,
plus the Premium described in Section 8.2(d) (based on such principal amount so
prepaid). In the case of each partial prepayment of the Notes, the principal
amount of the Notes to be prepaid shall be allocated among all of the Notes at
the time outstanding (to the extent such Note may be prepaid) in proportion, as
nearly as practicable, to the respective unpaid principal amounts thereof not
theretofore called for prepayment, rounded upward to the nearest $1,000 for
each Note, with adjustments to the extent practicable, to compensate for any
prior prepayments not made exactly in such proportion.
(d) Any prepayment of the Fixed Notes shall be subject to and
include the Make-Whole Premium. Any prepayment of the Floating Notes shall be
subject to and include the LIBOR Premium. Notwithstanding the foregoing, no
Premium shall be due if (i) any of the Floating Notes are prepaid pursuant to
the provisions of the last sentence of Section 8.2(b), (ii) any of the Notes
are prepaid pursuant to Section 8.1(c) or (iii) any of the Notes are prepaid
with insurance proceeds or proceeds of any condemnation award in accordance
with the terms of the Security Documents.
8.3. Notice of Prepayments; Officers' Certificate. The Company will
give each registered holder of any Note written notice of each prepayment of
the Notes under Section 8.2 not less than thirty (30) days and not more than
sixty (60) days prior to the date fixed for such prepayment, which notice shall
be irrevocable. Each such notice and each such prepayment shall be accompanied
by an Officers' Certificate (a) stating the principal amount and serial number
of each Note to be prepaid and the principal amount thereof to be prepaid; (b)
stating the proposed date of prepayment; (c) stating the accrued interest on
each such Note to such date to be paid in accordance with Section 8.4; and (d)
estimating the applicable Premium required under Section 8.2 (calculated as of
the date of such prepayment and proffered solely as an estimate of the Premium
due upon prepayment) and setting forth the method of determination and
calculations used in computing such Premium, accompanied by a copy of the
Statistical Release H.15(519) (or other source of market data) used in
determining the United States Treasury Yield.
8.4. Maturity; Surrender. In the case of each prepayment of the Notes,
the principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the Premium payable, if any. From
and after such date, unless the Company shall fail to pay such principal amount
when so due and payable, together with the interest and Premium, if any, as
aforesaid, interest on such principal amount shall cease to accrue. Any Note
paid or prepaid in full shall be surrendered to the Company and canceled and
shall not be reissued, and no Note shall be issued in lieu of any prepaid
principal amount of any Note.
ARTICLE 9.
ACCOUNTING, REPORTING AND INSPECTION COVENANTS
OF THE COMPANY
From the date hereof through the Closing and thereafter so long as any
Note shall be outstanding, the Company will perform and comply with each of the
following covenants:
9.1. Accounting. The Company will maintain a system of accounting
established and administered in accordance with GAAP and will accrue all such
liabilities as shall be required by GAAP.
9.2. Financial Statements and Other Information. The Company will
deliver (in duplicate) to Purchaser (except as hereinafter provided) so long as
Purchaser or Purchaser's nominee shall hold any Note, and to each other
registered holder of a Note:
(a) within ninety (90) days after the end of each Fiscal Year,
the balance sheet of the Company as of the end of such Fiscal Year and the
related statements of income and retained earnings and of cash flows of the
Company for such Fiscal Year, setting forth in each case in comparative form
the figures for the previous Fiscal Year, all in reasonable detail and
(i) accompanied by the report thereon of any independent public accountants of
recognized national standing selected by the Company, which report shall state
that (x) such financial statements present fairly in all material respects, the
financial position of the Company as of the dates indicated and the results of
its operations and cash flows for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years (except as otherwise specified
in the report), and (y) the audit by such accountants in connection with such
financial statements has been made in accordance with generally accepted
accounting principles, and (ii) certified by the Chief Financial Officer of the
Company as presenting fairly in all material respects, in accordance with GAAP,
applied (except as specifically set forth therein) on a basis consistent with
such prior fiscal periods, the information contained therein;
(b) within forty-five (45) days after the end of each of the
first three fiscal quarters of each Fiscal Year, the balance sheet of the
Company as of the end of such fiscal quarter and the related statements of
income and of cash flows of the Company for such fiscal quarter and for the
portion of the Fiscal Year from the first day of such Fiscal Year through the
end of such fiscal quarter, setting forth in each case in comparative form the
figures for the corresponding periods in the previous Fiscal Year, all in
reasonable detail and certified by the Chief Financial Officer of the Company
as presenting fairly, in accordance with GAAP, applied (except as specifically
set forth therein) on a basis consistent with such prior fiscal periods, the
information contained therein;
(c) together with each delivery of financial statements pursuant
to subsections (a) or (b) above, an officer's certificate in the form of
Exhibit E (i) showing in detail the determination of the ratios and other
financial calculations specified in Sections 10.1 through 10.6 during the
accounting period covered by such financial statements, (ii) stating that the
signer has reviewed the terms hereof and of the Notes and has made, or caused
to be made under his supervision, a review of the transactions and condition of
the Company during the accounting period covered by such financial statements
and that such review has not disclosed the existence during or at the end of
such accounting period, and that the signer does not have knowledge of the
existence as of the date of such officer's certificate, of any condition or
event that constitutes an Event of Default or Potential Event of Default, or,
if any such condition or event existed or exists, specifying the nature and
period of existence thereof and what action the Company has taken or is taking
or proposes to take with respect thereto; and (iii) if not specified in the
related financial statements being delivered pursuant to subsection (a) above,
specifying the aggregate amount of interest and rentals received or accrued by
the Company, and the aggregate amount of depreciation, depletion and
amortization charged on the books of the Company during the accounting period
covered by such financial statements;
(d) promptly upon receipt thereof, copies of all reports
submitted to the Company by independent public accountants in connection with
each annual audit, or special audit (if any) of the books of the Company made
by such accountants, including, without limitation, any comment letter
submitted to management by such accountants in connection with their annual
audit;
(e) promptly upon their becoming available, copies of all press
releases and other statements made available generally by the Company to the
public concerning material developments in the business of the Company;
(f) within five (5) days of any Responsible Officer of the
Company obtaining knowledge of any condition or event that constitutes an Event
of Default or Potential Event of Default, or that the registered holder of any
Note has given any notice or taken any other action with respect to a claimed
Event of Default or Potential Event of Default under this Agreement or that any
Person has given notice to the Company or taken any other action with respect
to a claimed default or event or condition of the type referred to in
Article 14, an Officers' Certificate describing the same and the period of
existence thereof and specifying what action the Company has taken, is taking
and proposes to take with respect thereto;
(g) promptly upon (and in any event within ten (10) Business Days
of) any Responsible Officer of the Company obtaining knowledge of the
occurrence of any (i) "reportable event," as such term is defined in
Section 4043 of ERISA, or (ii) "prohibited transaction," as such term is
defined in Section 4975 of the Code, that is not exempt by law or ruling in
connection with any Plan relating to the Company or any trust created
thereunder, a written notice specifying the nature thereof, what action the
Company has taken, is taking and proposes to take with respect thereto, and any
action taken or threatened by the Internal Revenue Service or the PBGC with
respect thereto, provided that, with respect to the occurrence of any
"reportable event" as to which the PBGC has waived the 30-day reporting
requirement, such written notice need not be given;
(h) immediately upon the occurrence of any of the following
events, an Officers' Certificate describing such event: (i) the Certificate of
Incorporation or Bylaws of the Company shall have been amended or the Company
shall have changed its jurisdiction of organization; or (ii) the Company shall
have changed its name or shall do business under any name other than as set
forth on Schedule 9.2; or (iii) the Company shall have changed its principal
place of business or its chief executive offices; or (iv) the Company shall
have become a party to any suit, action or proceeding that, if adversely
determined, would have a Material Adverse Effect or in which the projected
settlement amount involved therein could reasonably be expected to equal
$5,000,000 or more (in addition to any insurance coverage); or (v) the Company
shall have opened or closed any material place of business; or (vi) there shall
occur any strike, walkout, work stoppage or other material employee disruption
relating to any of the Mortgaged Properties, or the expiration of any labor
contract affecting any of the Mortgaged Properties (unless there exists a new
labor contract in substitution therefor) that reasonably could be expected to
have a Material Adverse Effect; or (vii) the Company shall have obtained
knowledge that any of its insurance policies or any insurance policies
affecting any of the Mortgaged Properties will be canceled or not renewed
(unless there exists a similar insurance policy in substitution therefor);
(i) promptly (i) upon receipt thereof, copies of any notices to
the Company from any federal or state administrative agency relating to any
order, ruling, statute or other law or regulation that would, with reasonable
probability, have a Material Adverse Effect; and (ii) following filing with the
Commission, any reports or statements filed with the Commission;
(j) promptly upon receipt thereof, copies of any notice delivered
pursuant to Article 14; and
(k) with reasonable promptness, such other information and data
with respect to the Company as from time to time may be reasonably requested by
any registered holder of a Note, including, without limitation, any projections
or business plans prepared by or for the Company.
9.3. Inspection. The Company will permit, subject to rights of parties
in possession, any authorized representatives designated by Purchaser, so long
as Purchaser or its nominee shall hold any Notes, or designated by any other
registered holder of any Notes, without expense to the Company, at such
reasonable times and as often as may be reasonably requested, to (a) visit and
inspect the Mortgaged Properties and other properties subject to the Collateral
Agreements, as well as the Company's books of account, and to make copies and
take extracts therefrom, and (b) upon the prior written consent of the Company,
which consent shall not be unreasonably withheld, discuss the Company's
affairs, finances and accounts with the Company's directors, officers and
independent public accountants (and by this provision the Company authorizes
such directors, officers and accountants to discuss with such representatives
the affairs, finances and accounts of the Company, whether or not an officer or
other representative of the Company is present, provided that the Company shall
receive notice of any such meeting and be given a reasonable opportunity to
have a representative attend); provided, however, that if any Event of Default
or Potential Event of Default then exists, no such written consent of the
Company shall be necessary.
9.4. Acquired Real Property. The Company shall deliver to Purchaser so
long as such Purchaser or Purchaser's nominee shall hold any Note, and to each
other registered holder of a Note, upon request of a Purchaser or any other
registered holder of a Note, but in any event not less than ninety (90) days
after the end of each Fiscal Year of the Company, a list and description of all
real property purchased or newly leased by the Company during the period
specified in such request or the past Fiscal Year, as applicable, that is to be
used for any new processing plant, hatchery or feed mill in which an existing
processing plant, hatchery or feed mill on any Mortgaged Property is to be shut
down or operations are to be substantially decreased ("Acquired Property"),
and, unless otherwise specified in this Agreement or by the registered holder
or registered holders (other than the Company or any Affiliate) of the Notes,
the Company shall execute and deliver a deed of trust or mortgage and
assignment of leases and rents, substantially in form and substance
satisfactory to Purchaser (with any changes to such form of mortgage as
appropriate in the applicable jurisdiction and as requested by Purchaser or
Purchaser's nominee or any registered holder of a Note other than the Company
or any of the Company's Affiliates), to Purchaser or a mortgage trustee, for
the benefit of Purchaser so long as Purchaser or Purchaser's nominee shall hold
any Note, and to each other registered holder of a Note or a mortgage trustee,
for the benefit of each such other holder, granting a first Lien of record on
and a first security interest in the Acquired Property, subject only to
existing Liens, the Permitted Exceptions, and any purchase money Liens incurred
by the Company in connection with the acquisition of any Acquired Property, and
the Acquired Property shall thereafter be part of the Mortgaged Properties.
The Company shall permit Purchaser so long as Purchaser or Purchaser's nominee
shall hold any Note, and each other registered holder of a Note, the right to
inspect any Acquired Property and to conduct such other investigation and due
diligence with respect to any Acquired Property that such Purchaser or such
other registered holder deems necessary, and to the extent the proposed
acquisition is in excess of $3,000,000, the Company shall pay all reasonable
costs of Purchaser or such other registered holder in inspecting any Acquired
Property and conducting such investigation, including, without limitation, any
costs of an environmental consulting firm and attorneys' fees.
ARTICLE 10.
BUSINESS AND FINANCIAL COVENANTS OF THE COMPANY
So long as any Note shall be outstanding, the Company will perform and
comply, and will cause each Subsidiary to perform and comply, as applicable,
with each of the following covenants:
10.1. Consolidated Net Worth. The Company shall at all times maintain a
Consolidated Net Worth of not less than $250,000,000, as increased from time to
time by twenty-five percent (25%) of the Company's annual positive Consolidated
Net Income, if any.
10.2. Consolidated Working Capital. The Company shall at all times
maintain Consolidated Working Capital of not less than $65,000,000.
10.3. Current Ratio. The Company shall at all times maintain a ratio on
a consolidated basis of Current Assets to Current Liabilities of not less that
1.25:1.
10.4. Fixed Charge Coverage. The Company shall at all times maintain for
the period of eight (8) consecutive fiscal quarters then ended on a
consolidated basis a Fixed Charge Coverage Ratio of not less than 1.40:1.
10.5. Funded Debt to Capitalization. The Company shall at all times
maintain a ratio (a) of Funded Debt, less unrestricted cash and Cash
Equivalents to (b) the aggregate of Funded Debt included in clause (a), less
unrestricted cash and Cash Equivalents, plus Capitalization of no greater than
0.675:1.
10.6. Liens. The Company will not, and will not permit any Subsidiary
to, directly or indirectly, create, incur, assume or permit to exist any Lien
on or with respect to any property or asset of the Company or such Subsidiary,
whether now owned or held or hereafter acquired, or any income or profits
therefrom, other than (a) the Liens and security interests created to secure
the Notes, (b) Liens that constitute Permitted Exceptions, (c) any Lien on any
property acquired, constructed or improved by the Company after Closing and
created contemporaneously with or within twelve (12) months of such
acquisition, construction or improvement to secure Debt incurred to provide for
all or a portion of the purchase price of such property as acquired,
constructed or improved, (d) Liens on property of the Company in favor of the
United States of America or any political subdivision thereof to secure partial
payments pursuant to any contract, (e) pledges or deposits to secure
obligations under worker's compensation laws or similar judgments thereunder
that are not currently dischargeable, and pledges, deposits, performance bonds
or similar security interests in connection with bids, tenders, contracts and
leases to which the Company is a party (all of which are in the ordinary course
of business and which do not relate to indebtedness of the Company), (f) Liens
for taxes, assessments or governmental charges not then due and delinquent or
the validity of which is being contested in good faith and a bond or other
security satisfactory to Purchaser has been posted by the Company, (g) Liens
arising in connection with court proceedings, provided the execution of such
Liens is effectively stayed and such Liens are contested in good faith and a
bond or other security satisfactory to Purchaser has been posted by the
Company, (h) Liens arising in the ordinary course of business (including
easements and similar encumbrances) that are not incurred in connection with
the borrowing of money, provided that such Liens do not materially interfere
with the conduct of the business of the Company, (i) inchoate Liens, (j) any
Lien resulting from renewing, extending or refunding outstanding Secured Debt
provided that the principal amount of the Debt secured thereby is not increased
and the Lien is not extended to any other property, (k) Liens on assets (other
than the Collateral) to secure Debt provided that no Event of Default or
Potential Event of Default exists or would result therefrom, and (l) Liens
described on Schedule 10.6 hereto.
10.7. Investments; Debt; Guarantees.
(a) The Company shall not, and shall not permit any Subsidiary
to, directly or indirectly, make or own any Investment other than Permitted
Investments, except that the Company or a Subsidiary may (i) purchase or own
assets or stock and other securities of a Subsidiary; (ii) make loans to
officers, directors, stockholders, employees, contract growers or Subsidiaries
to the extent that following such loan, no Event of Default or Potential Event
of Default would exist; (iii) make investments, payments, loans and capital
contributions to entities other than Subsidiaries to the extent such Investment
is made from the net cash proceeds received by the Company from the issuance of
additional shares of capital stock or other securities subsequently converted
into capital stock; and (iv) Investments permitted under Section 10.10; and
(v) investments not covered by clauses (i) through (iv) above; provided that
after giving effect to such investment there would be no Event of Default or
Potential Event of Default.
(b) The Company shall not, and shall not permit any Subsidiary
to, directly or indirectly, create, assume, incur, or guarantee any Debt after
the Closing Date except (i) to the extent that following the creation,
assumption, incurrence or guarantee of such Debt, no Event of Default or
Potential Event of Default would exist and (ii) the Company may guarantee the
trade payables of Pilgrim's Pride-Mexico.
10.8. Restricted Payments. The Company shall not, and shall not permit
any Subsidiary to, directly or indirectly, redeem, purchase, or otherwise
acquire for value any shares of the Company's capital stock, except out of the
net cash proceeds received by the Company after Closing from the issuance of
additional shares of capital stock or other securities subsequently converted
into capital stock. Notwithstanding the foregoing restriction, the Company may
(a) redeem, purchase, or otherwise acquire for value up to an aggregate of
$25,000,000 of shares of the Company's capital stock, or (b) declare or pay any
dividends or any other distributions (other than dividends payable in shares of
capital stock of the Company) on any shares of the Company's capital stock
after Closing in excess of $3,400,000 in the aggregate in any Fiscal Year,
provided in each case that no Event of Default or Potential Event of Default
exists or would result therefrom.
10.9. Leases. The Company shall not, and shall not permit any Subsidiary
to, incur non-cancelable non-Capitalized Lease Obligations or sale and
leaseback transactions if the aggregate annual amount of all minimum or
guaranteed net rentals payable under such leases would exceed four percent (4%)
of Net Tangible Assets (as determined immediately preceding the execution of
such lease).
10.10.Consolidation, Merger and Sale of Substantially All Assets. The
Company shall not, and shall not permit any Subsidiary to, directly or
indirectly, (a) sell, transfer, lease, abandon or otherwise dispose of all or
substantially all of its assets in a single or series of related transactions;
or (b) consolidate with or merge into any other Person or permit any other
Person to consolidate with or merge into it. Notwithstanding the foregoing,
the Company or any Subsidiary may engage in any such consolidation or merger
if, after giving effect thereto, either clauses (i), (iii) or (iv) are
satisfied or clauses (ii), (iii) and (iv) are satisfied: (i) both the fair
market value of all consideration paid or payable to the Company and/or its
Subsidiaries on account of all such consolidations or mergers does not exceed
$50,000,000 in the aggregate in any Fiscal Year and the Company (or, if the
consolidation or merger is between a Subsidiary and any corporation or other
entity which is not a Subsidiary, then the Subsidiary) is the surviving entity;
(ii) the consolidation or merger is between (A) the Company and a Subsidiary
and the Company is the surviving entity, (B) an Eligible Subsidiary and another
Subsidiary and the Eligible Subsidiary is the surviving entity or (C) a
Subsidiary not organized under the laws of a state of the United States and
another Subsidiary not organized under the laws of a state of the United
States; (iii) no Event of Default or Potential Event of Default shall have
occurred and be continuing; and (iv) after giving effect to the consolidation
or merger on a proforma basis there would be no Event of Default or Potential
Event of Default.
10.11.Formation of Subsidiaries. Without the prior notice to Purchaser,
the Company shall not, and shall not permit any of its existing Subsidiaries
to, directly or indirectly, form or acquire any new Subsidiaries and in
connection therewith or thereafter transfer, assign or convey any material
assets of the Company to such new Subsidiary.
10.12.Interested Party Transactions. The Company shall not, nor permit
any Subsidiary to, conduct any transactions with any Affiliate on terms that
are not fair and reasonable and not materially less favorable to the Company or
such Subsidiary than it would obtain in a comparable arm's-length transaction
with a Person not an Affiliate other than ongoing transactions with Affiliates
of a similar nature to those disclosed in the Company's Proxy Statement
relating to the Fiscal Year-end September 30, 2001.
10.13.Existence. The Company will do, or will cause to be done, all
things necessary to, and cause the Company and each Subsidiary to, preserve,
keep and maintain in full force and effect its corporate existence, rights
(charter and statutory), franchises and authority to do business and the
corporate existence, rights (charter and statutory), franchises and authority
to do business of the Company and each of the Subsidiaries, except for such
matters that would not result in a Material Adverse Effect.
10.14.Payment of Taxes and Claims; Tax Consolidation. The Company will,
and cause the Subsidiaries to, pay and cause to be paid all taxes, assessments
and other governmental charges imposed upon it or any of its properties or
assets or in respect of any of the franchises, business, income or profits of
the Company before any penalty or interest accrues thereon, and all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums that have become due and payable and that by law have or
might become a Lien upon any of the properties or assets of the Company,
provided that (a) no such charge or claim need be paid if being contested in
good faith by appropriate proceedings promptly initiated and diligently
conducted, such bonds or escrows are in place as registered holders of the
Notes at the time shall request, or if such reserves or other appropriate
provision, if any, as shall be required by GAAP shall have been made therefor
or (b) in the case of all properties (other than the Mortgaged Properties), the
Company shall not be deemed to have breached this Section 10.14 where the
failure to pay such taxes, assessments, or other governmental charges could not
reasonably be expected to result in a Material Adverse Effect. The Company
will not file or permit the filing of any consolidated income tax return with
any Person (other than a Subsidiary).
10.15.Compliance with Laws. The Company will, and will cause its
Subsidiaries to, comply with all laws, statutes, rules, regulations and
ordinances of any Governmental Authority, the failure to comply with would have
a Material Adverse Effect.
10.16.Compliance with ERISA. The Company will not, and will not permit
any employee benefit plan (as that term is defined in Section 3 of ERISA)
maintained by the Company, any Subsidiary or any Related Person to (a) engage
in any "prohibited transaction" as such term is defined in Section 4975 of the
Code, as amended from time to time, which is likely to result in a liability
for such Person; (b) incur any "accumulated funding deficiency", as such term
is defined in Section 302 of ERISA, whether or not waived which is likely to
result in a liability of such Person; or (c) terminate any such benefit plan in
a manner which could result in the imposition of a lien or encumbrance on the
assets of such Person pursuant to Section 4068 of ERISA.
10.17.Maintenance of Properties; Insurance. The Company will maintain or
cause to be maintained in good repair, working order and condition (reasonable
wear and tear excepted) all properties used or useful in, and deemed material
to, the business of the Company or any Subsidiary and from time to time will
make or cause to be made all appropriate repairs, renewals and replacements
thereof as the Company in its judgment deems reasonably necessary. The Company
will maintain or cause to be maintained, with financially sound and reputable
insurers, insurance with respect to the properties and business of the Company
and its Subsidiaries, against loss or damage of the kinds customarily insured
against by companies of established reputation engaged in the same or similar
business and similarly situated, of such types and in such amounts as are
customarily carried under similar circumstances by such other companies. In
any event, the Company shall, at a minimum, comply with all maintenance,
insurance and similar requirements under the Security Documents.
10.18.Title. As of the Closing Date, except Liens and other matters that
may constitute Permitted Exceptions, the Company has good (and, with respect to
non-leasehold real property, indefeasible) title to all of its properties and
assets that are material to its business as presently conducted and as proposed
to be conducted and none of such properties or assets will be subject to any
Liens, other than Permitted Exceptions. As of the Closing Date, the Company
has good (and, with respect to non-leasehold real property, indefeasible) fee
simple title to the Mortgaged Properties subject only to the Permitted
Exceptions.
10.19.Conduct of Business. The Company will not, and will not permit any
Subsidiary to, directly or indirectly engage in any material respects in any
business other than businesses engaged in by the Company on the date hereof,
other operations or activities in the poultry industry and in the processing,
packaging, distribution and wholesales of poultry products and other businesses
or activities substantially similar or related thereto.
10.20.Sale of Assets. Except as permitted in Section 10.10, the Company
shall not, and shall not permit any Subsidiary to, voluntarily or by operation
of law, sell, lease, transfer, or otherwise dispose of Collateral in excess of
five percent (5%) in any instance or twenty percent (20%) in the aggregate of
the lower of the book value or fair market value of the Company's total assets.
Within twelve (12) months after the occurrence of any such permitted
disposition, the Company shall reinvest the entire proceeds resulting therefrom
in assets or property which are the same or substantially similar to the
transferred assets, which assets or property shall be subject to a first Lien
of record and a first security interest in favor of Purchaser, Purchaser's
nominee and any registered holder of a Note. The provisions of this Section
10.20 shall not restrict or impair the provisions of Section 10.21 regarding
substitution of Collateral.
10.21.Substitution of Collateral. The Company shall not, and shall not
permit any Subsidiary to, directly or indirectly, substitute or replace any
machinery or equipment constituting Collateral if (a) the fair market value of
such substitute or replacement machinery or equipment is materially less than
the fair market value of the substituted or replaced machinery or equipment,
(b) Purchaser's first Lien of record or first security interest in the
Collateral would be materially adversely effected or impaired or (c) the
Company would not be able to provide Purchaser a first Lien of record and a
first security interest therein. All substitute and replacement machinery and
equipment shall be at least equal in quality and class to the original
machinery and equipment.
10.22.Permits and Licenses. Except where the failure would not
reasonably be expected to result in a Material Adverse Effect, the Company
will, and will cause its Subsidiaries to, promptly obtain, maintain, apply for
renewal, and not allow to lapse, any authorization, consent, approval, permit,
license or order, and accomplish any filing or registration with, any
Governmental Authority which may be or may become necessary for the operation
of its business or in order that it perform all of its obligations under this
Agreement or the Collateral Agreements and in order that the same may be valid
and binding and effective in accordance with their terms and in order that
Purchaser may be able freely to exercise and enforce any and all of its rights
under this Agreement or the Collateral Agreements.
10.23.Further Assurances. The Company shall take, and shall cause each
Subsidiary to take, all such further actions and execute all further documents
and instruments as Purchaser may at any time reasonably determine in its sole
discretion to be necessary or desirable to further carry out and consummate the
transactions contemplated by this Agreement and the Collateral Agreements, to
cause the execution, delivery and performance of this Agreement and the
Collateral Agreements to be duly authorized and to perfect or protect the Liens
(and the priority status thereof) on the Collateral.
ARTICLE 11.
ENVIRONMENTAL MATTERS
11.1. Definitions. As used in this Article 11, the following terms shall
be defined as indicated:
(a) "Acquisition Date," with respect to any portion of the
Mortgaged Properties, means the date on which Purchaser or the registered
holder of any Note becomes an owner of such portion of the Mortgaged
Properties.
(b) "Adverse Environmental Impact" means (i) a Release of a
Hazardous Substance in a Reportable Quantity or (ii) any material adverse
impact on human health, livestock or the quality of any Mortgaged Property.
(c) "Environmental Activity" shall mean any storage, holding,
manufacture, emission, discharge, generation, processing, treatment, abatement,
removal, disposition, handling, transportation or disposal, or any actual or
threatened release of any "Hazardous Substances" from, under, into or on the
Mortgaged Properties or otherwise relating to the Mortgaged Properties,
including but not limited to (i) the migration or emanation of "Hazardous
Substances" from the Mortgaged Properties onto or into the environment beyond
the physical boundaries of the Mortgaged Properties; (ii) the off-site disposal
of Hazardous Substances from the Mortgaged Properties; and (iii) any of the
previously described activities occurring in connection with ambient air,
surface and subsurface soil conditions, and all surface and subsurface waters.
(d) "Environmental Condition" shall mean (i) the presence or
existence in, on, at, or under the Mortgaged Properties of any Hazardous
Substances, "industrial or solid waste," as that term is defined under the
Environmental Laws, and (ii) the presence or existence in, on, at, or under the
environment beyond the physical boundaries of the Mortgaged Properties of any
Hazardous Substances, that migrated or emanated from the Mortgaged Properties.
(e) "Environmental Damages" means all claims, judgments, damages,
losses, penalties, fines, liabilities (including strict liability),
encumbrances, liens, costs and expenses of investigation and defense of any
claim, whether or not such is ultimately defeated, and of any settlement of
judgment, of whatever kind or nature, contingent or otherwise, matured or
unmatured, foreseeable or unforeseeable, including, without limitation,
reasonable attorneys' fees and disbursements and consultants' fees, any of
which are incurred at any time, and including, but not limited to (i) damages
for personal injury, or injury to property or natural resources occurring upon
or off of the Mortgaged Properties, foreseeable or unforeseeable, including,
without limitation, lost profits, consequential damages, the cost of
demolition, redesign and rebuilding of any improvements on real property, and
interest and penalties as allowed by law; (ii) diminution in the value of the
Mortgaged Properties, and damages for the loss of or restriction on the use of
or adverse impact on the marketing of rentable or usable space or of any
amenity of the Mortgaged Properties; (iii) reasonable fees incurred for the
services of consultants, contractors, experts, laboratories and all other
reasonable costs incurred in connection with the investigation, remediation,
removal, or disposal of Hazardous Substances or violation of the Environmental
Laws, including, but not limited to, the preparation of any feasibility studies
or reports or the performance of any response, cleanup, remediation, removal,
abatement, containment, closure, restoration, disposal, or monitoring work
required by and in conformity with any federal, state or local governmental
agency or political subdivision, or reasonably necessary to make full economic
use of the Mortgaged Properties or any other property or otherwise expended in
connection with such conditions, and including, without limitation, any
reasonable attorneys' fees, costs and expenses incurred in connection with any
of the foregoing or in enforcing this Agreement or collecting any sums due
hereunder; and (iv) liability to any person or entity to indemnify such person
or entity for costs expended in connection with the items referenced in this
subsection (d).
(f) "Environmental Laws" means all federal, state or local laws,
rules or regulations pertaining to the protection of human health or the
environment, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. {section} 9601, et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. {section} 6901, et seq.),
the Federal Clean Air Act (42 U.S.C. {section} 7401, et seq.), and the Federal
Clean Water Act (42 U.S.C. {section} 1251, et seq.), each as amended from time
to time, and regulations and rules issued thereunder.
(g) "Hazardous Substances" means (i) any "hazardous substance,"
as such term is defined in either the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. {section} 9601 et seq.) and
the regulations promulgated thereunder (as amended, "CERCLA"); (ii) any
"hazardous waste," as such term is defined in the Resource Conservation and
Recovery Act of 1976 (42 U.S.C. {section} 6901 et seq.) and the regulations
promulgated thereunder (as amended, "RCRA"); (iii) any substances or materials
listed as hazardous or toxic in the United States Department of Transportation
Table, as amended from time to time; (iv) asbestos in any form or any asbestos
containing materials; (v) polychlorinated biphenyls ("PCB's"); (vi) any
explosive or radioactive materials; (vii) hydrocarbons, petroleum products, or
any derivative thereof; or (viii) any other chemical, material or substance
that is regulated as hazardous or toxic or exposure to which is prohibited,
limited or regulated by any federal, state, county, regional, local or other
Governmental Authority or that, even if not so regulated, poses a material
threat to the health and safety of the occupants or livestock of the Mortgaged
Properties or the owners or occupants of property adjacent thereto.
(h) "Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the environment (including, without limitation, the abandonment
or discarding of barrels, containers or other receptacles containing any
Hazardous Substance).
(i) "Reportable Quantity" means that quantity of a material as
set forth in 40 C.F.R. Part 302 or the quantity of a material that is
sufficient to trigger a remediation, response, closure or notification
obligation under applicable Environmental Laws.
11.2. Indemnification.
(a) Subject to subsections (b) and (c) below, notwithstanding any
provision in this Agreement or any Collateral Agreement limiting or negating
the Company's liability, the Company shall protect, indemnify, save harmless
and defend Purchaser and each present and former registered holder (or
beneficial holder through participation or otherwise) of a Note and their
respective past, present and future officers, directors, shareholders,
partners, managers, members, employees, agents, contractors, tenants and
representatives (individually, an "Indemnified Party," and collectively, the
"Indemnified Parties") from and against any and all Environmental Damages
imposed upon, suffered or incurred by or asserted against any Indemnified Party
or the Mortgaged Properties arising in any manner in connection with the
existence of an Environmental Condition at the Mortgaged Properties or the
occurrence of any Environmental Activity at the Mortgaged Properties, whether
arising, occurring, or in existence during or prior to the Company's ownership
or operation of the Mortgaged Properties, whether arising, occurring, or in
existence prior to the issuance of the Notes or at any time thereafter, whether
arising, occurring, or in existence before, during or after enforcement of the
rights and remedies of Purchaser or any other registered holder of a Note upon
default and whether or not the Company is responsible therefor, including,
without limitation, the violation of Environmental Laws, or any
representations, warranties or covenants contained herein, any imposition by
any Governmental Authority of any lien or so-called "super priority lien" upon
the Mortgaged Properties, cleanup costs, liability for personal injury or
property damage or damage to the environment and any fines, penalties and
punitive damages with respect thereto. An Indemnified Party may elect to
conduct its own defense through counsel of its own choice, and the Company
agrees to pay the reasonable fees and expenses of such counsel for conducting
such defense but only if an Indemnified Party determines in good faith that the
conduct of its defense by the Company could be materially prejudicial to the
Indemnified Party's interests. THESE PROVISIONS ARE INTENDED TO INDEMNIFY THE
INDEMNIFIED PARTIES AGAINST (i) THE RESULTS OF THEIR OWN NEGLIGENCE AND
(ii) ANY STRICT LIABILITY IMPOSED ON THE INDEMNIFIED PARTIES.
(b) Notwithstanding the foregoing, the Company's obligations
hereunder shall not apply with respect to an Environmental Condition or
Environmental Activity arising for the first time after the Acquisition Date
unless such Environmental Condition or Environmental Activity is caused by the
Company or its contractors, agents or representatives after the Acquisition
Date or arose out of an Environmental Condition or Environmental Activity,
whether caused by the Company or not, occurring or existing prior to the
Acquisition Date. For purposes of this Agreement, the Company shall bear the
burden of proving when an Environmental Condition or Environmental Activity
occurred or existed. In addition, any Hazardous Substances located upon, about
or beneath the Mortgaged Properties or having migrated to or from the Mortgaged
Properties shall be presumed to have been present prior to the Acquisition Date
unless the Company can demonstrate (i) that a portion of the Hazardous
Substances were introduced to the Mortgaged Properties after the Acquisition
Date and were not introduced by the Company, and (ii) the Environmental Damages
are divisible between the portion of the Hazardous Substances introduced before
and after the Acquisition Date. If the Company can demonstrate both
conditions, then its indemnity shall not extend to the portion of any divisible
Environmental Damages attributable to Hazardous Substances introduced to the
Mortgaged Properties after the Acquisition Date by parties other than the
Company.
(c) In no event shall the provisions of this Agreement be deemed
to constitute a waiver of, or to be in lieu of, any right or claim, including,
without limitation, any right of contribution or other right of recovery that
any person entitled to enforce this Agreement might otherwise have against the
Company under the Environmental Laws.
11.3. Agreement to Remediate. Notwithstanding the obligation of the
Company to indemnify the Indemnified Parties pursuant to this Agreement, the
Company shall upon demand of the registered holders (other than the Company or
any Affiliate) of, in the aggregate, sixty-six and two-thirds percent (66-2/3%)
or more in principal amount of the Notes at the time outstanding (excluding any
Notes directly or indirectly owned by the Company or any Affiliate), and at the
sole cost and expense of the Company, promptly take all actions in connection
with an Environmental Condition or Environmental Activity causing an Adverse
Environmental Impact that are required by any Governmental Authority or by
Environmental Laws. Such actions shall include, but not be limited to, the
investigation of the Environmental Condition of the Mortgaged Properties, the
preparation of any feasibility studies, reports or remedial plans, and the
performance of any cleanup, remediation, containment, operation, maintenance,
monitoring or restoration work, whether on or off of the Mortgaged Properties.
All such work shall be performed by one or more qualified and experienced
contractors, selected by the Company. The Company shall proceed continuously
and diligently with such investigatory and remedial actions, provided that in
all cases such actions shall be in accordance with all applicable requirements
of the appropriate governmental agencies. Any such actions shall be performed
in a good, safe and workmanlike manner and shall minimize any impact on the
business conducted at the Mortgaged Properties. The Company shall pay all
costs in connection with such investigatory and remedial activities, including,
but not limited to, all power and utility costs, and any and all taxes or fees
that may be applicable to such activities. The Company shall promptly provide
to Purchaser and the registered holder of any Note copies of testing results
and reports that are generated in connection with the above activities.
Promptly upon completion of such investigation and remediation, the Company
shall permanently seal or cap all monitoring wells and test holes to industrial
standards as required by the Environmental Laws, remove all associated
equipment, and restore the Mortgaged Properties to the maximum extent possible,
which shall include, without limitation, the repair of any material surface
damage, including paving, and the repair, restoration or reconstruction of any
damaged improvements caused by such investigation or remediation.
11.4. Covenants. The Company shall during its ownership or operation of
the Mortgaged Properties (i) comply in all material respects with all
Environmental Laws relating to the Mortgaged Properties and the ownership or
operation of the Mortgaged Properties, and not engage in or permit others to
engage in any Environmental Activity in violation of the Environmental Laws;
(ii) establish and maintain, as required by the Environmental Laws, policies,
procedures and programs to monitor and assure compliance in all material
respects with the Environmental Laws relating to the Mortgaged Properties or
the ownership or operation of the Mortgaged Properties and provide an
Indemnified Party upon request with evidence of the existence and
implementation of these policies, procedures, and programs; (iii) deliver to
Purchaser and the registered holder of any Note within fifteen (15) days
following the occurrence of any such event, written notice of the discovery by
the Company of any event, the occurrence of which would render any
representation or warranty contained in Section 5.19 incorrect if made at the
time of such discovery; (iv) promptly comply in all material respects with
Environmental Laws requiring the remediation, abatement, removal, treatment or
disposal of Hazardous Substance with respect to the Mortgaged Properties or
remediation of an Environmental Condition; (v) cause any party who occupies the
Mortgaged Properties to comply with this Section 11.4; and (vi) not cause or
suffer any liens to be recorded against or imposed against any of the Mortgaged
Properties as a result of an Environmental Condition or Environmental Activity
and which liens violate the terms of Section 10.6. The Company shall work
diligently to complete all investigations of Environmental Issues needed to
make such a determination, shall correct any violation of Environmental Laws
identified, and shall remediate any Adverse Environmental Impact in the manner
described in Section 11.3. The Company acknowledges and agrees that these
Environmental Issues and any Environmental Damages related to them are within
the scope of the indemnification obligation of Section 11.2.
11.5. Site Assessments. The registered holders (other than the Company
or any Affiliate) of, in the aggregate, a majority of the principal amount of
the Notes at the time outstanding (excluding any Notes directly or indirectly
owned by the Company or any Affiliate) (by its officers, employees and agents,
as applicable) at any time and from time to time, either prior to or after the
occurrence of an Event of Default, may contract for the services of persons
(the "Site Reviewers") to perform environmental site assessments ("Site
Assessments") on the Mortgaged Properties for the purpose of determining
whether there exists on the Mortgaged Properties any Environmental Condition or
Environmental Activity, or other ownership or operation of the Mortgaged
Properties that is in violation of Environmental Laws or could reasonably be
expected to result in Environmental Damages. The Site Assessments may be
performed at any time or times, upon reasonable notice, and under reasonable
conditions established by the Company that do not unreasonably impede the
performance of the Site Assessments. The Company hereby grants, and shall
cause any tenant to grant, to an Indemnified Party, its agents, attorneys,
employees, consultants, and contractors and the Site Reviewers, an irrevocable
license and authorization to enter upon and inspect the Mortgaged Properties
and perform such tests, including, without limitation, subsurface testing, soil
and ground water testing, and other tests that may physically invade the
Mortgaged Properties, as the registered holders (other than the Company or any
Affiliate) of, in the aggregate, a majority of the principal amount of the
Notes at the time outstanding (excluding any Notes directly or indirectly owned
by the Company or any Affiliate), in their sole discretion, determine is
necessary to protect their liens, assignments, and/or security interests in the
Mortgaged Properties. The Company will supply to the Site Reviewers such
historical and operational information regarding the Mortgaged Properties as
may be reasonably requested by the Site Reviewers to facilitate the Site
Assessments and will make reasonably available for meetings with the Site
Reviewers appropriate personnel having knowledge of such matters. On request,
Purchaser (if it shall remain the holder of any Notes) or any registered holder
of any Note shall make the results of such Site Assessments fully available to
the Company within a reasonable period of time after such request, and the
Company (prior to an Event of Default) may at its election participate under
reasonable procedures in the direction of such Site Assessments and the
description of tasks of the Site Reviewers. The cost of performing such Site
Assessments shall be paid by the Company upon demand of the registered holders
(other than the Company or any Affiliate) of, in the aggregate, a majority of
the principal amount of the Notes at the time outstanding (excluding any Notes
directly or indirectly owned by the Company or any Affiliate).
11.6. Default; Remedies; Subrogation. If the Company fails to proceed
with any removal or remediation of Hazardous Substances causing any Adverse
Environmental Impact required by Environmental Laws or to comply with
Environmental Laws or otherwise fails to perform its obligations under this
Article 11, at the option of the registered holders (other than the Company or
any Affiliate) of, in the aggregate, a majority of the principal amount of the
Notes at the time outstanding (excluding any Notes directly or indirectly owned
by the Company or any Affiliate), such registered holders may, but shall not be
obligated to, do whatever is reasonable and in conformity with the
Environmental Laws at the Company's sole cost and expense to remove or
remediate such Hazardous Substances causing an Adverse Environmental Impact or
otherwise comply with Environmental Laws, and the indemnity provided in
Section 11.2 hereof shall cover all such reasonable and necessary costs and
expenses and shall be payable by the Company on demand. Without in any way
limiting or affecting the Company's liability hereunder, Purchaser and each
registered holder of a Note shall be subrogated to any rights the Company may
have under any indemnifications from or agreements entered into with any
present, future or former owners, tenants, occupants or other users of the
Mortgaged Properties.
11.7. Survival. The obligations of the Company under this Article 11
shall survive any payment of the Notes, any discharge, satisfaction, release or
assignment of any Security Document, the discharge of the Company's obligations
under the Collateral Agreements, any transfer of the Mortgaged Properties or
any part thereof, any exercise of remedies by Purchaser or the registered
holder of any Notes, including, without limitation, the appointment of a
receiver, any foreclosure of the Security Documents or any transfer of the
Mortgaged Properties (or any part thereof) by deed in lieu of foreclosure, any
investigation or any information that may be obtained by Purchaser or the
registered holder of any Notes before or after the Acquisition Date, and any
other event or circumstance whatsoever.
11.8. Conflicts. In the event of any conflict between the terms of this
Article 11 and those contained in the Mortgages, the terms hereof shall
control.
ARTICLE 12.
REGISTRATION, TRANSFER, AND SUBSTITUTION OF NOTES
12.1. Note Register; Ownership of Notes. The Company will keep at its
principal office a register in which the Company will provide for the
registration of the Notes and the registration of transfers of the Notes. The
Company may treat the Person in whose name any Note is registered on such
register as the owner thereof for the purpose of receiving payment of the
principal of and the applicable Premium, if any, and interest on such Note and
for all other purposes, whether or not such Note shall be overdue, and the
Company shall not be affected by any notice to the contrary.
12.2. Transfer and Exchange of Notes. Upon surrender of any Note for
registration of transfer or for exchange to the Company at its principal
office, at the expense of the transferring parties, the Company will execute
and the Company will authenticate and deliver in exchange therefor a new Note
or Notes in denominations, as requested by the registered holder or transferee,
which aggregate the unpaid principal amount of such surrendered Note. Each
such new Note shall be registered in the name of such Person as such registered
holder or transferee may request, shall be dated so that there will be no loss
of interest on such surrendered Note and shall be otherwise of like tenor.
12.3. Replacement of Notes. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
any Note and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity agreement reasonably satisfactory to the Company from the
registered holder of such Note and financial information reasonably
satisfactory to the Company verifying such registered holder's ability to
provide such indemnification, or in the case of any such mutilation, upon the
surrender of such Note for cancellation to the Company at its principal office,
at the expense of the party requesting replacement, the Company will execute,
authenticate and deliver, in lieu thereof, a new Note of like tenor, dated so
that there will be no loss of interest on such lost, stolen, destroyed or
mutilated Note. Any Note in lieu of which any such new Note has been executed
and delivered by the Company shall not be deemed to be an outstanding Note for
any purpose hereof.
ARTICLE 13.
PAYMENTS ON NOTES
So long as Purchaser or its nominee shall hold any Note, the Company will
pay all sums becoming due on such Note for principal, the applicable Premium,
if any, and interest in immediately available funds by the method and at the
address specified for such purpose in the Schedule of Information for Payment
and Notices at the end hereof (the "Schedule of Information for Payment and
Notices"), or by such other method or at such other address as Purchaser shall
have specified from time to time to the Company in writing for such purpose,
without the presentation or surrender of such Note or the making of any
notation thereon, except that any Note paid or prepaid in full shall be
surrendered to the Company for cancellation at its principal office. Prior to
any sale or other disposition of any Note held by Purchaser or its nominee,
Purchaser will, at its election, either (a) endorse thereon the amount of
principal paid thereon and the last date to which interest has been paid
thereon, or (b) surrender such Note to the Company in exchange for a new Note
or Notes pursuant to Section 12.2. The Company will afford the benefits of
this Article 13 to any registered holder of a Note that has made the same
agreement relating to such Note as Purchaser has made in this Article 13.
ARTICLE 14.
EVENTS OF DEFAULT AND ACCELERATION
14.1. Events of Default. The occurrence of any of the following
conditions or events shall constitute an "Event of Default" under this
Agreement:
(a) Payments. The Company shall default in the payment when due
of any principal, Premium, if any, or interest on any Note (whether the same
becomes due and payable at maturity, by declaration or otherwise) or any other
amounts owing hereunder; or
(b) Representations, Etc. Any representation or warranty made in
writing by or on behalf of the Company herein or in any Collateral Agreement or
in any statement or certificate delivered or required to be delivered pursuant
hereto or thereto shall prove to be untrue in any material respect on the date
as of which made or deemed made; or
(c) Breach of Certain Covenants. The Company shall default in
the due performance or observance by it of any term, covenant or agreement
contained in Section 10.6 (to the extent such default could reasonably be
expected to have a Material Adverse Effect or adversely affect Purchaser's
rights in the Collateral), 10.7, 10.8, 10.10, 10.11, 10.12, 10.13, 10.18 or
10.19; or
(d) Breach of Other Covenants. The Company shall default in the
due performance or observance by it of any term, covenant or agreement (other
than those referred to in subsections (a), (b) or (c) of this Section 14.1)
contained in this Agreement and such default shall continue unremedied for a
period of at least thirty (30) calendar days after the earlier of (i) written
notice to the defaulting party by any registered holder of a Note or (ii) a
Responsible Officer has knowledge of such default; or
(e) Default Under Other Agreements. (i) The Company shall
default in the payment when due of any principal of or interest on any Debt
(which Debt is in an aggregate principal amount of $10,000,000 or more) and
such default shall not be waived or cured within any applicable grace or cure
period; or (ii) the maturity of any Debt of the Company in an aggregate
principal amount of $10,000,000 or more shall be accelerated or subject to
acceleration due to a default thereunder; or
(f) Bankruptcy, etc. The Company shall commence a voluntary case
concerning itself under title 11 of the United States Code entitled
"Bankruptcy", as now or hereafter in effect, or any successor statute thereto
(the "Bankruptcy Code"); or an involuntary case is commenced against the
Company under the Bankruptcy Code and the petition is not controverted within
ten (10) Business Days, or is not dismissed within sixty (60) days, after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
the Company; or the Company commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the Company; or there is
commenced against the Company any such proceeding which remains undismissed for
a period of sixty (60) days; or the Company is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Company suffers any appointment of any custodian
or the like for it or any substantial part of its property to continue
undischarged or unstayed for a period of sixty (60) days; or the Company makes
a general assignment for the benefit of creditors; or any corporate action is
taken by the Company for the purpose of effecting any of the foregoing; or
(g) ERISA. (i) Any Plan shall fail to satisfy the minimum
funding standard required for any plan year or part thereof or a waiver of such
standard or extension of any amortization period is sought or granted under
Section 412 of the Code, any Plan is, shall have been or is reasonably likely
to be terminated or the subject of termination proceedings under ERISA, any
Plan shall have an Unfunded Current Liability, the Company or any Related
Person has incurred or is reasonably likely to incur a liability to or on
account of a Plan under Section 405, 409, 502(i), 501(1), 515, 4062, 4063,
4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of the Code, or
the Company or any Related Person has incurred or is reasonably likely to incur
liabilities pursuant to one or more employee welfare benefit plan that provide
benefits to retired employees or other former employees (other than as required
by Section 601 of ERISA); and (ii) there shall result from any event or events
described in clause (i) of this subsection (f) the imposition or granting of a
Lien, or a liability or a material risk of incurring a liability; and (iii) any
Lien or liability referred to in clause (ii) of this subsection (f) could
reasonably be expected to have a Material Adverse Effect; or
(h) Judgments. There shall remain in force, undischarged,
unsatisfied, unstayed and unbonded, for more than sixty (60) days, any final
judgment entered against any one or more of the Company which is not funded by
insurance in due course in accordance with applicable insurance coverage, from
which no further appeal may be taken and which, with other outstanding
undischarged, unsatisfied, unstayed and unbonded final judgments against such
Person not funded by insurance in due course in accordance with applicable
insurance coverage, exceeds $10,000,000 in the aggregate.
14.2. Acceleration.
(a) Upon the occurrence of any Event of Default described in
Section 14.1(f), the unpaid principal amount of and accrued interest on the
Notes shall automatically become due and payable, and there shall also be due
and payable the applicable Premium in respect of the unpaid principal amount of
the Notes, all without presentment, demand, protest, notice of intent to
accelerate, notice of acceleration, or any other notice of any kind, which are
hereby waived.
(b) Upon the occurrence of any Event of Default other than as
described in Section 14.1(f), any registered holder or registered holders
(other than the Company or any Affiliate thereof) of, in the aggregate, fifty-
one percent (51%) or more in principal amount of the Notes at the time
outstanding (excluding any Notes directly or indirectly owned by the Company or
any Affiliate) may at any time (unless all defaults shall theretofore have been
remedied and all costs and expenses including, without limitation, reasonable
attorneys' fees and expenses incurred by or on behalf of the registered holders
of the Notes by reason thereof shall have been paid in full by the Company) at
its or their option, by written notice or notices to the Company, declare all
the Notes to be due and payable, whereupon the same shall forthwith mature and
become due and payable, together with interest accrued thereon, and there shall
also be due and payable the applicable Premium in respect of the principal
amount of the Notes so declared due and payable, all without presentment,
demand, protest, notice of intent to accelerate, notice of acceleration, or any
other notice of any kind (except as otherwise specifically provided herein),
which are hereby waived. The Company acknowledges that Purchaser purchased the
Notes on the basis and assumption that Purchaser and the registered holders
from time to time of the Notes would receive the payments of principal and/or
interest set forth in Articles 2, 7 and 8 hereof for the full term of the
Notes; therefore, whenever the maturity of the Notes has been accelerated by
reason of an Event of Default, a tender of the amount necessary to satisfy any
part or all of the indebtedness represented by the Notes paid at any time
following such Event of Default and prior to a foreclosure or trustee's sale
shall be deemed a voluntary prepayment, and such payment shall include the
applicable Premium. Similarly, any purchase at a foreclosure sale or a
trustee's sale shall be deemed a voluntary prepayment, and the registered
holders of the Notes shall, to the extent permitted by law, receive out of the
proceeds of such sale, in addition to all other amounts to which they are
entitled, the applicable Premium.
14.3. Remedies. If any Event of Default shall occur and be continuing,
the registered holder of any Note at the time outstanding may proceed to
protect and enforce the rights available to such registered holder at law, in
equity, by statute or otherwise, whether for the specific performance of any
agreement contained herein or, in the case of any registered holder of Notes,
in such Note, or for an injunction against a violation of any of the terms
hereof or thereof, or in aid of the exercise of any power granted hereby or
thereby or by law or otherwise. In case of a default in the payment of any
principal of or applicable Premium, if any, or interest on any Note, the
Company will pay to the registered holder thereof such further amount as shall
be sufficient to cover the costs and expenses of collection, including, without
limitation, reasonable attorneys' fees, expenses and disbursements incurred in
connection therewith. No course of dealing and no delay on the part of any
registered holder of any Note in exercising any right, power or remedy shall
operate as a waiver thereof or otherwise prejudice such registered holder's
rights, powers or remedies except as expressly provided for herein. No right,
power or remedy conferred hereby upon any registered holder of any Note or by
any Note upon any registered holder thereof shall be exclusive of any other
right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise. Subject to
Section 14.2(b), any registered holder or registered holders (other than the
Company or any Affiliate) of, in the aggregate, a majority in principal amount
of the Notes at the time outstanding (excluding any Notes directly or
indirectly owned by the Company or any Affiliate) may at any time pursue any
remedies available under this Agreement or any of the Collateral Agreements.
ARTICLE 15.
EXPENSES
The Company will pay all reasonable expenses in connection with the
negotiation, execution and delivery, performance and enforcement, and amendment
or waiver of any terms or provisions of this Agreement, any Collateral
Agreement, and the Notes, including, without limitation: (a) the cost and
expenses of preparing and reproducing this Agreement, the Collateral Agreements
and the Notes, of furnishing all opinions of Special Counsel, Purchaser's
special local counsel, and counsel for the Company (including any opinions
requested by Special Counsel as to any legal matter arising hereunder) and all
certificates on behalf of the Company and of the Company's performance of and
compliance with all agreements and conditions contained therein on its part to
be performed or complied with; (b) all out of pocket expenses and fees,
expenses and disbursements of Special Counsel and Purchaser's special local
counsel in connection with the negotiation and preparation of this Agreement
and the Closing of the transactions contemplated hereunder; (c) the cost of
delivering to Purchaser's principal office, insured to Purchaser's
satisfaction, the Notes sold to Purchaser hereunder; (d) the reasonable out-of
pocket expenses and reasonable fees, expenses and disbursements of Special
Counsel and Purchaser's special local counsel in connection with any amendments
or waivers hereunder; and (e) the cost and expense related to title insurance
and charges, survey, environmental audit, engineering and architect fees,
recording fees, and real estate taxes contemplated herein or in the Collateral
Agreements. The Company also will pay, and will save Purchaser and each
registered holder of any Notes harmless from, (i) all claims in respect of the
fees of any brokers and finders, except those engaged by Purchaser, and
(ii) any and all liabilities with respect to any taxes (including interest and
penalties), other than federal income taxes, that may be payable in respect of
(A) the execution and delivery hereof and of the Collateral Agreements, (B) the
issue of the Notes hereunder, and (C) any amendment or waiver under or in
respect hereof, of any Collateral Agreement or of the Notes.
ARTICLE 16.
MISCELLANEOUS
16.1. Survival. All representations, warranties and covenants contained
herein, in the Notes and in any other Collateral Agreement or made in writing
by or on behalf of the Company in connection with the transactions contemplated
hereby and thereby shall survive the execution and delivery hereof, any
investigation at any time made by Purchaser or on Purchaser's behalf, the
purchase of the Notes hereunder, or any disposition or payment of the Notes.
All statements contained in any certificate delivered by or on behalf of the
Company pursuant hereto or in connection with the transactions contemplated
hereby shall be deemed representations and warranties of the Company hereunder.
16.2. Amendments and Waivers. Any term hereof or of the Notes may be
amended (with written consent of the Company), and the observance of any term
hereof or of the Notes may be waived (either generally or in a particular
instance and either retroactively or prospectively), only upon the written
consent of the registered holder or registered holders (other than the Company
or any Affiliate) of, in the aggregate, sixty-six and two-thirds percent (66-
2/3%) or more in principal amount of the Notes at the time outstanding
(excluding any Notes directly or indirectly owned by the Company or any
Affiliate), provided that without the prior written consent of the registered
holders of all the Notes at the time outstanding (excluding any Notes directly
or indirectly owned by the Company or any Affiliate), no such amendment or
waiver shall (a) extend the fixed maturity or reduce the amount or extend the
time of payment of any principal or Premium payable (whether as an installment
or upon any prepayment) on any Note of such class; (b) reduce the percentage
set forth above of the principal amount of the Notes, the registered holders of
which are required to consent to any amendment or waiver set forth in such
subdivision; or (c) change the percentage of the principal amount of the Notes,
the registered holders of which may declare the Notes to be due and payable as
provided in Section 14.2. Any amendment or waiver effected in accordance with
this Section 16.2 shall be binding upon each registered holder of any Note, at
the time outstanding, each future registered holder of any Note, and the
Company.
16.3. Indemnification. The Company will indemnify and hold harmless each
Indemnified Party from and against any and all losses, claims, damages and
liabilities, joint or several (including all reasonable legal fees or other
expenses reasonably incurred by any Indemnified Party in connection with the
preparation for or defense of any pending or threatened claim, action or
proceeding, whether or not resulting in any liability), to which such
Indemnified Party may become subject (whether or not such Indemnified Party is
a party thereto) under any applicable federal or state law or otherwise caused
by or arising out of, or allegedly caused by or arising out of, this Agreement,
any Collateral Agreement, or any transaction contemplated hereby, other than
losses, claims, damages or liabilities resulting from any grossly negligent or
unlawful act by Indemnified Party seeking indemnification hereunder. THESE
PROVISIONS ARE INTENDED TO INDEMNIFY THE INDEMNIFIED PARTIES AGAINST THE
RESULTS OF THEIR OWN NEGLIGENCE.
Promptly after receipt by an Indemnified Party of notice of any claim,
action or proceeding with respect to which an Indemnified Party is entitled to
indemnity hereunder, such Indemnified Party will notify the Company of such
claim or the commencement of such action or proceeding, provided that the
failure of an Indemnified Party to give notice as provided herein shall not
relieve the Company of its obligations under this Section 16.3 with respect to
such Indemnified Party, except to the extent that the Company is actually
prejudiced by such failure. The Company will assume the defense of such claim,
action or proceeding and will employ counsel satisfactory to the Indemnified
Party and will pay the fees and expenses of such counsel. Notwithstanding the
preceding sentence, the Indemnified Party will be entitled, at the expense of
the Company, to employ counsel separate from counsel for the Company, and for
any other party in such action, if the Indemnified Party reasonably determines
that a conflict of interest or other reasonable basis exists that makes
representation by counsel chosen by the Company not advisable. If an
Indemnified Party appears as a witness in any action or proceeding brought
against the Company or any of its Affiliates (or any of their partners,
managers, members, officers, directors or employees) in which an Indemnified
Party is not named as a defendant, the Company agrees to reimburse such
Indemnified Party for all out-of-pocket expenses incurred by it (including fees
and expenses of counsel) in connection with the appearance as a witness. The
Indemnified Party shall settle no claim or take any other action prejudicing
the Company's defense without the consent of the Company, which consent will
not be unreasonably withheld or delayed. Purchaser agrees to reasonably
cooperate with the Company in the defense of any such action or proceeding.
16.4. Usury Not Intended. The Company, Purchaser and all other
registered holders of any Notes intend to conform strictly to the usury laws in
force that apply to the transactions evidenced or contemplated hereby.
Accordingly, all agreements among the Company, Purchaser, and any other
registered holder of any Notes, whether now existing or hereafter arising and
whether written or oral, are hereby limited so that in no contingency, whether
by reason of acceleration of the maturity of the Notes, or otherwise, shall the
interest (and all other sums that are deemed to be interest) contracted for,
charged, received, paid or agreed to be paid exceed the Highest Lawful Rate (as
defined below). The Company and Purchaser stipulate and agree that the terms
and provisions contained in this Agreement and the Collateral Agreements are
not intended to and shall never be construed to create a contract to pay for
the use, forbearance or detention of money an amount in excess of the maximum
amount permitted to be charged by applicable law, if any.
Anything in this Agreement or the Collateral Agreements to the contrary
notwithstanding, neither the Company nor any other party now or hereafter
becoming liable for payment of the Notes shall ever be required to pay interest
on or with respect to the Notes or any other obligation hereunder at a rate in
excess of the Highest Lawful Rate, and if the effective rate of interest that
would otherwise be payable under this Agreement or on or with respect to the
Notes would exceed the Highest Lawful Rate, or if the registered holders of
such Notes or obligation shall receive anything of value that is deemed or
determined to constitute interest that would increase the effective rate of
interest payable under this Agreement or on or with respect to the Notes or the
Collateral Agreements to a rate in excess of the Highest Lawful Rate, then (a)
the amount of interest that would otherwise be payable under this Agreement,
the Notes or the Collateral Agreements shall be reduced to the amount allowed
at the Highest Lawful Rate under applicable law, and (b) any unearned interest
paid by the Company or any interest paid by the Company in excess of the
Highest Lawful Rate shall, at the option of the registered holders of the
Notes, be either refunded to the Company or credited on the principal of such
Notes. It is further agreed that, without limitation of the foregoing, all
calculations of the rate of interest contracted for, charged or received by any
registered holder of the Notes, or under this Agreement, that are made for the
purpose of determining whether such rate exceeds the Highest Lawful Rate, shall
be made, to the extent permitted by applicable law (now or, to the extent
permitted by law, hereafter enacted) governing the Highest Lawful Rate, by
(i) characterizing any nonprincipal payment as an expense, fee or premium
rather than as interest, and (ii) amortizing, prorating, allocating and
spreading in equal parts during the period of the full term of the Notes
(including the period of any renewal or extension thereof), all interest at any
time contracted for, charged or received by such registered holder in
connection therewith. As used in this Section 16.4, the term "Highest Lawful
Rate" means the maximum nonusurious rate of interest permitted from time to
time to be contracted for, taken, charged or received with respect to the Notes
by the registered holders thereof, under applicable law as in effect with
respect to this Agreement or the Notes.
16.5. Notices.
(a) For all purposes under this Agreement, the address of the
Company shall be P.O. Box 93, 110 South Texas Street, Pittsburg, Texas 75686,
Attention: Richard Cogdill, Chief Financial Officer, telecopy no. 903-855-4934
and for Purchaser shall be the address set forth on the Schedule of Information
for Payment and Notices or such other address of which all such Persons have
received ten (10) days prior written notice.
(b) Any notice, demand, request or report required or permitted
to be given or made to the Company or Purchaser under this Agreement shall be
in writing and shall be deemed given or made when delivered in person, when
sent if by overnight courier or telecopy (if followed by hard copy) or five (5)
Business Days after the date when sent by United States registered or certified
mail to any such Person at its address referenced in Section 16.5(a) above.
16.6. Reproduction of Documents. This Agreement and all documents
relating thereto, including, without limitation, (a) consents, waivers and
modifications that may hereafter be executed, (b) documents received by
Purchaser at the Closing (except the Notes themselves), and (c) financial
statements, certificates and other information previously or hereafter
furnished to Purchaser, may be reproduced by Purchaser or the registered holder
of any Notes by any photographic, photostatic, microfilm, microcard, miniature
photographic or other similar process and Purchaser or the registered holder of
any Notes may destroy any original document so reproduced. The Company agrees
and stipulates that any such reproduction shall be admissible in evidence as
the original itself in any judicial or administrative proceeding (whether or
not the original is in existence and whether or not such reproduction was made
by Purchaser or the registered holder of any Notes in the regular course of
business) and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence.
16.7. Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the respective successors and assigns of the parties
hereto, whether so expressed or not, and shall inure to the benefit of and be
enforceable by any registered holder or registered holders from time to time of
any Notes. The representations, warranties and covenants of the Company
hereunder are intended to be for the benefit of, and inure to, all registered
holders from time to time of any of the Notes.
(b) The Company acknowledges that Purchaser intends to
participate all or a portion of the Notes to one or more of Purchaser's
Affiliates and that all of the representations, warranties, covenants and
agreements of the Company shall be for the benefit of Purchaser's Affiliates as
well as Purchaser.
16.8. Entire Agreement. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
16.9. GOVERNING LAW. THIS AGREEMENT AND THE NOTES SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS
(WITHOUT REGARD TO ITS CONFLICT OF LAW PROVISIONS).
16.10.Invalid Provisions. If any provision hereof or any application
thereof shall be invalid or unenforceable, the remainder hereof and any other
application of such provision shall not be affected thereby.
16.11.Headings. The Table of Contents and Section headings herein are
for purposes of reference only and shall not constitute a part hereof.
16.12.Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
16.13.Further Action. The parties shall execute all documents, provide
all information, and take or refrain from taking all actions as may be
necessary or appropriate to achieve the purposes of this Agreement.
16.14.Creditors. None of the provisions of this Agreement shall be for
the benefit of or enforceable by any creditors of the Company, except as
otherwise expressly provided herein.
16.15.Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement, or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or any other covenant, duty, agreement,
or condition. No single or partial exercise of any power or right shall
preclude any other or further exercise thereof or the exercise of any other
power or right. No waiver by a party of any right hereunder or of any default
by another shall be binding upon such party unless in writing.
16.16.Release. Purchaser acknowledges and agrees that at the Closing all
of Purchaser's security interests and other liens in all assets of the Company
located in Camp County, Texas, Upshur County, Texas, Angelina County, Texas,
Howard County, Arkansas and Sevier County, Arkansas, which were granted to or
held by Purchaser as security for Company's obligations to Purchaser, shall be
forever satisfied, released and discharged. Purchaser hereby authorizes
Company to file at any time after the Closing such Uniform Commercial Code
financing statement amendments (including without Purchaser's signature) as may
be necessary to reflect in the public record the release of the security
interests and liens described above in favor of Purchaser. Purchaser will,
from and after the Closing, deliver such other financing statement amendments
or documents as Company may from time to time reasonably request to effectuate
or reflect of public record the release and discharge of such security
interests and liens.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PILGRIM'S PRIDE CORPORATION
By:
Name:
Title:
JOHN HANCOCK LIFE INSURANCE COMPANY
By:
Name:
Title:
EXHIBIT 10.34
RETIREMENT AGREEMENT
This Retirement Agreement (this "Agreement"), effective as of the
latest date signed below ("Effective Date"), is between David Van Hoose,
including any executor, administrator, heir, assign, and anyone else acting by
or for him or on his behalf ("Van Hoose"), and Pilgrim's Pride Corporation,
including any agent, officer, director, employee, affiliate, parent,
subsidiary, division, successor or assign of Pilgrims Pride Corporation
("Pilgrim").
Van Hoose is the President, Chief Executive Officer, and Chief
Operating Officer of Pilgrim and is an at-will employee of Pilgrim. In
exchange for Van Hoose's promises and representations made in this Agreement,
Pilgrim agrees to provide certain payments and benefits to Van Hoose, to which
Van Hoose is not otherwise entitled except as set forth in this Agreement.
Van Hoose and Pilgrim agree that this Agreement constitutes their
full and entire agreement and is intended completely, permanently and amicably
to terminate any and every legal claim, duty or obligation existing between
them as of the Effective Date of this Agreement, except as otherwise provided
in this Agreement. This Agreement can be modified only by a statement in
writing signed by both Van Hoose and Pilgrim.
In consideration of the promises and mutual agreements hereinafter
set forth, the adequacy and sufficiency which is hereby acknowledged by Van
Hoose and Pilgrim, Van Hoose and Pilgrim agree to the following terms:
I. STATUS OF EMPLOYMENT UNTIL MARCH 29, 2003.
1. Immediately upon the Effective Date, (a) Van Hoose shall retain only the
title of Chief Executive Officer and shall remain a Director of Pilgrim, and
in his capacity as an officer of Pilgrim shall have only those duties and
responsibilities as are specifically assigned to him by the Pilgrim Board of
Directors ("Board") and (b) the Board within its sole discretion may change
or terminate, at any time prior to March 29, 2003, and for any reason (1)
his title and position as an officer, or (2) any or all of his duties or
responsibilities as an officer or employee. Further, upon request by the
Board, Van Hoose shall resign his position as a Director of Pilgrim. From
the Effective Date until March 29, 2003, Van Hoose shall devote all of his
time and efforts to his duties for and the business of Pilgrim as are
assigned to him, and shall not undertake work or employment, whether as an
employee or independent contractor, for any other person or entity. Any
action by Pilgrim or the Board pursuant to this paragraph with respect to
Van Hoose shall not relieve Pilgrim of its other obligations and duties
under this Agreement.
2. From the Effective Date until March 29, 2003, Van Hoose will continue to
receive his current salary and benefits, but he shall not receive any Key
Bonus or incentive compensation.
#
II. VOLUNTARY RETIREMENT AND TERMINATION
3. Van Hoose agrees to voluntary retire from Pilgrim as of March 29, 2003, and
he agrees that his employment with Pilgrim will permanently terminate at
that time.
4. Notwithstanding the above, Van Hoose shall become a contract consultant to
Pilgrim for a period of three years beginning March 29, 2003 and ending
March 29, 2006 (the "Consultancy"), and will perform such consulting duties
as may be directed by Pilgrim from time to time. Van Hoose's Consultancy to
Pilgrim shall terminate on March 29, 2006 unless the Board exercises its
option to renew this Consultancy for any particular period of time, which
the Board may do at its sole discretion, but in no event may any such
renewals extend beyond March 29, 2008. Nothing herein shall prohibit Van
Hoose from acting as an employee for another person or entity during the
Consultancy.
5. During the period of his Consultancy, Van Hoose shall be paid $13,888.89
(Thirteen Thousand Eight Hundred and Eighty Eight Dollars and No Cents) per
month, with the first scheduled payment on or about April 29, 2003 (the
"Consultancy Payments"). Van Hoose shall be reimbursed, according to the
Pilgrim Expense Reimbursement Policy, for any expenses incurred in
performing his duties as a consultant. In the event that Van Hoose becomes
physically or mentally disabled or incapacitated such that he can not
perform the consulting duties assigned to him by Pilgrim for a continuous
period of 60 days, then Pilgrim's obligation to make payments for the
remainder of any such Consultancy shall terminate.
6. It is agreed and Van Hoose acknowledges that no withholding of taxes will be
made by Pilgrim with respect to the Consultancy Payments and the payment in
Section 7 below and that Van Hoose is solely responsible for paying any and
all taxes, including but not limited to all Social Security, self-
employment, federal income taxes, and any other applicable federal, state
and local taxes, including all penalties, interest and late payments, that
may apply to the Consultancy Payments and the payment in Section 7. Van
Hoose further agrees to indemnify and hold harmless Pilgrim from any and all
liability that may result in the event the Internal Revenue Service or any
other governmental authority or a court of competent jurisdiction may
characterize the Consultancy Payments or the payments in Section 7(A) and
(B) as taxable income or wages.
III. ADDITIONAL PAYMENTS AND BENEFITS ACCORDED TO VAN HOOSE
7. Pilgrim agrees to pay Van Hoose the sum of $1,300,000. (One Million Three
Hundred Thousand Dollars and No Cents) on the Effective Date. Van Hoose
acknowledges that he is not entitled to receive, and has no right or claim
to receive, this payment except as provided in this Agreement and in
consideration of his promises and representations made in this Agreement.
Van Hoose acknowledges that he must continue to comply with all
requirements and restrictions to which he is subject, whether
individually or in his capacity as Chief Executive Officer or as a
Director of Pilgrim, pursuant to applicable state and federal securities
laws.
8. Pilgrim will continue to provide Van Hoose with health insurance and life
insurance benefits until March 29, 2003. Upon Van Hoose's retirement on
March 29, 2003, Van Hoose will be eligible for continued medical, dental,
and vision benefits through the Consolidated Omnibus Benefits Reconciliation
Act (COBRA), if Van Hoose makes a timely election and payment for such
benefits. Benefit continuation information through COBRA and an election
form will be sent to Van Hoose upon his qualification date.
9. In the event Van Hoose desires to sell his current home at 204 Turnberry
Street, Mount Pleasant, Texas, Van Hoose may request that Pilgrim purchase
such property by giving written notification to Pilgrim at the office of
Chief Financial Officer. Upon timely request, Pilgrim agrees to purchase
this home from Van Hoose for the cash sum of $625,000.00 (Six Hundred and
Twenty Five Thousand Dollars and No Cents), less usual and customary
seller's expenses (e.g. Title Policy, survey, documentary fees, filing fees
and pro-rated taxes), provided such written request is received by Pilgrim
within 12 months of the Effective Date. The parties agree to use reasonable
efforts to close any sale made pursuant to this paragraph within 45 days of
the date Pilgrim receives the written request, assuming no incurable defects
in title to the property.
10.In the event Van Hoose desires to sell his farm property located in Shelby
County, Texas, Van Hoose may request that Pilgrim purchase such property by
giving written notification to Pilgrim at the office of the Chief Financial
Officer. Upon timely request, Pilgrim agrees to purchase this property from
Van Hoose for the cash sum of $1,200,000.00 (One Million Two Hundred
Thousand Dollars and No Cents), less usual and customary seller's expenses
(e.g. Title Policy, survey, documentary fees, filing fees and pro-rated
taxes), provided that such written request is received by Pilgrim within 12
months of the Effective Date. The parties agree to make reasonable efforts
to close any sale made pursuant to this paragraph within 45 days of the date
Pilgrim receives the written request, assuming no incurable defects in title
to the property and assuming no material problems related to environmental
contamination on the property.
11.Pilgrim will reimburse Van Hoose for reasonable and customary moving
expenses, in the event that Van Hoose sells his home and relocates within
one year of the Effective Date. To qualify for reimbursement, all expenses
submitted for reimbursement must be supported by verifiable documentation,
such as receipts, invoices, or other documentation, and Van Hoose must
obtain and submit for approval in advance by Pilgrim a minimum of three
competitive bids for the cost of moving household and personal items.
#
IV. OBLIGATIONS TO PILGRIM
A. CONFIDENTIALITY AND NON-DISCLOSURE
12.Van Hoose agrees that Pilgrim owns or has rights to valuable, confidential,
and proprietary information and trade secrets. Van Hoose agrees that he
shall not disclose to any person or entity without express written
authorization of Pilgrim any proprietary or confidential information,
whether written or oral, received, gained or known by Van Hoose in the
course of his performance of services and work for Pilgrim, nor shall he
make use of any such confidential information on his own behalf or on behalf
of any other person or entity. Van Hoose also agrees to use all reasonable
safeguards to prevent the unauthorized disclosure of such proprietary or
confidential information. Van Hoose's obligations of non-disclosure
pursuant to this Agreement are permanent and exist indefinitely. Pilgrim's
confidential and proprietary information shall not include information that
is in the public domain or becomes publicly available without breach of this
Agreement or any other obligation of confidentiality.
A. Such confidential or proprietary information of Pilgrim includes,
but is not limited to: all information or ideas in whatever form,
tangible or intangible (written, oral, photographic, electronic,
magnetic or otherwise), pertaining in any manner to the business of
Pilgrim, including, but not limited to, products, services,
systems, methods, designs, specifications, scientific or technical
knowledge or techniques, information concerning customers or
potential customers and their requirements, strategies,
negotiations of contracts, price lists, pricing policies, financial
information, marketing information, mailing lists, employee data,
supplier data, internal cost and profit information, legal
information, and all other materials or information relating to
Pilgrim's business.
13.Van Hoose agrees that the provisions of Section 12 are essential for the
protection of Pilgrim and that any breach or threatened breach would cause
immediate and irreparable damage to Pilgrim, for which Pilgrim would have no
adequate remedy at law. Accordingly, Van Hoose agrees that in the event of
any breach or threatened breach hereof, Pilgrim may, without limitation on
any other rights Pilgrim may have, obtain a temporary restraining order,
preliminary injunction, or other form of equitable relief to enforce the
provisions herein, and may do so prior to the commencement of any
arbitration proceeding provided for under this Agreement. Van Hoose agrees
that because of the uncertainty inherent in quantifying money damages for a
breach of the provisions of Section 12, and in the event of a breach,
Pilgrim may terminate Van Hoose's Consultancy and recover from Van Hoose as
liquidated damages, in addition to its equitable remedy of injunction, an
amount equal to any monies due but not yet paid to Van Hoose under this
Agreement, specifically the weekly payments referenced in Section 5 of this
Agreement.
#
B. CONTINUING ASSISTANCE TO PILGRIM AND INDEMNIFICATION
14.Van Hoose shall provide full assistance to and cooperation with Pilgrim in
connection with the product recall controversy and investigation currently
being conducted, and any other litigation or investigation on which the
Company requests his assistance, concerning alleged presence of Listeria at
Pilgrims' production facilities or any other matter. Such assistance and
cooperation shall include, but not be limited to, providing truthful
testimony on behalf of Pilgrim in connection with any civil, administrative,
or other legal proceeding which has or may be brought by or against Pilgrim.
15.Pilgrim agrees to indemnify and hold harmless Van Hoose if he is made a
party or threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal administrative
or investigative by reason of the fact that he served as an employee,
officer or director of Pilgrim or by his continued service under this
Agreement as an Officer or Director of Pilgrim, against expenses, attorneys
fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with the action, suit or proceeding
if Van Hoose acted in good faith and in a manner in which he reasonably
believed to be in and not opposed to the best interest of Pilgrim.
V. MUTUAL RELEASE AND COVENANT NOT TO SUE
16.Van Hoose settles, releases and waives all claims, liens, demands, causes of
action, obligations, damages and liabilities of any kind, known or unknown,
that Van Hoose ever had, now has or may hereafter claim to have against
Pilgrim or any of its agents, officers, directors, employees, affiliates,
assigns, parents, subsidiaries, divisions, successors or any other
representative acting for or on behalf of Pilgrim as of the Effective Date
of this Agreement, including, but not limited to, all claims arising out of
or from his employment with or termination from Pilgrim, all claims of
unlawful discrimination, harassment or retaliation under state, local or
federal law (including but not limited to, the Texas Workers Compensation
Act, Age Discrimination in Employment Act, Older Workers' Benefit Protection
Act, Title VII of the Civil Rights Act of 1964, as amended, Texas Commission
on Human Rights Act, Civil Rights Act of 1991, and Americans with
Disabilities Act); any claim for unpaid wages, bonuses, expense
reimbursements, vacation, profit sharing pay-out, stock options, or employee
benefits; any rights or causes of action that Van Hoose has as a shareholder
of Pilgrim; all claims for any violation of any other federal, state or
local statute, ordinance or regulation, or the Constitution of the United
States or the State of Texas; any claims of personal injury or contract
breach; any and every other claim arising under the common law of the State
of Texas or any other jurisdiction; and all claims for attorneys' fees. Van
Hoose further covenants not to sue Pilgrim for any claim or cause of action
arising out of his employment, any change in his title or duties as an
officer of Pilgrim, or the
termination of his employment. Nothing herein shall be construed as (1)
releasing Pilgrim from its obligations in this Agreement or its obligations
to perform this Agreement, or (2) waiving any right of Van Hoose to enforce
the performance of, or seek redress for any breach of, this Agreement
17.Pilgrim hereby settles, releases, and waives all claims, liens, demands,
causes of action, obligations, damages and liabilities of any kind, known or
unknown, that Pilgrim ever had, now has or may hereafter claim to have
against Van Hoose or any of his agents, officers, directors, employees,
affiliates, assigns, successors or any other representative acting for or on
behalf of Van Hoose as of the Effective Date of this Agreement, including
but not limited to any claims arising out of his employment with Pilgrim or
separation from Pilgrim, any claims under any employment or other agreement
executed by Van Hoose and Pilgrim, all claims for any violation of any other
federal, state or local statute, ordinance or regulation, or the
Constitution of the United States or the State of Texas; any claims of
personal injury or contract breach; and all claims for attorneys' fees. and
any and every other claim arising under the common law of the State of Texas
or any other jurisdiction. Nothing herein shall be construed as (1)
releasing Van Hoose from his obligations in this Agreement or his
obligations to perform this Agreement, or (2) waiving any right of Pilgrim
to enforce the performance of, or seek redress for any breach of, this
Agreement .
VI. MISCELLANEOUS PROVISIONS
18.This Agreement contains all the promises and understandings of the parties
and supersedes any prior agreements or previous communications (whether oral
or written) between Pilgrim and Van Hoose. There are no other agreements or
understandings besides this Agreement, and Van Hoose and Pilgrim
specifically disclaim any reliance on any promises, statements or
understandings that are not specifically set forth in this Agreement.
19.Neither Van Hoose nor Pilgrim shall disclose to any person the facts
surrounding this Agreement, or any of the terms of this Agreement. The only
exceptions to this confidentiality provision are that the parties may
disclose the fact of this Agreement or its terms to their respective
attorneys, and Pilgrim may make such disclosure of this Agreement or its
terms as it deems necessary in SEC filings, earnings releases or other
filings or statements made pursuant to applicable securities laws. In
addition, either party or its attorneys may make such disclosure as is
necessary to their respective tax attorneys, accountants, or advisors for
the purposes of taking tax positions and preparing tax returns.
20.Van Hoose and Pilgrim agree that they and their agents will respond to any
inquiry concerning the terms or existence of this Agreement only by
reference to the press releases attached hereto as Exhibit "A" "B" and "C".
Van Hoose and Pilgrim agree that no other public statement or press release
shall be given or issued by either of them without advance agreement in
writing by both parties, except that Pilgrim may disclose this Agreement or
its terms as it deems necessary in SEC filings, earnings releases or other
filings or statements made pursuant to applicable securities laws.
21.Van Hoose and Pilgrim agree that they will not make any written or verbal
statements, cause, participate, or encourage others to make any written or
verbal statements, that either publicly or privately defame, disparage, or
in any way publicly criticize or call into question the personal or business
reputation, practices, or conduct of Van Hoose or Pilgrim.
22.Pilgrim and Van Hoose acknowledge that the consideration given by the other
pursuant to this Agreement is adequate and sufficient to make their
respective obligations under this Agreement final and binding.
23.Pilgrim and Van Hoose acknowledge that neither is relying upon any
representations of the other or the other's attorneys but instead is relying
upon his or its own evaluation of the facts. Van Hoose acknowledges and
agrees that, in deciding to execute this Agreement, Van Hoose has relied
entirely upon his own judgment, and advice of an attorney of his own
choosing, that he has read this Agreement, and that he has executed this
Agreement voluntarily and with full understanding of its terms and effects.
With respect to Van Hoose's release and waiver of claims under the Federal
Age Discrimination in Employment Act ("ADEA), Van Hoose acknowledges that he
has been given twenty one days to consider the release and waiver of such
claims, and that he may revoke his consent to such waiver and release of
claims by notifying Pilgrim in writing within seven days of the date Van
Hoose signs this Agreement. Should Van Hoose exercise his right to revoke
his consent to the waiver and release of claims under the ADEA, then Van
Hoose shall not receive, and Pilgrim shall be relieved of its obligation to
pay or provide, any of the compensation or benefits listed in paragraphs 5,
9, 10, and 11, but Van Hoose's promises, obligations and duties under this
Agreement shall continue in full force and effect.
24.The provisions of this Agreement are severable. If a court of competent
jurisdiction rules that any provision of this Agreement is invalid or
unenforceable, such a ruling will not affect the validity or enforceability
of any other provision of this Agreement, and the Agreement shall be deemed
to be modified and amended so as to be enforceable to the extent permitted
by the law.
25.This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas, the principles of conflict of laws
notwithstanding. Venue for enforcement of this Agreement shall be in Camp
County, Texas.
26.Van Hoose hereby agrees that any and all claims, disputes or controversies
between Van Hoose and Pilgrim relating to his employment with Pilgrim,
termination thereof, this Agreement, and the parties obligations to perform
as provided in this Agreement shall be resolved by final binding arbitration
in accordance with the rules of the American Arbitration Association.
Judgment upon the award rendered by the arbitrator or arbitrators may be
entered in any court having jurisdiction thereof. The Arbitrator shall be
selected from a panel provided by the American Arbitration Association.
Venue for any such arbitration proceeding shall be in Dallas County, Texas
or such other place as may be mutually agreed upon by Van Hoose and Pilgrim.
VAN HOOSE UNDERSTANDS AND AGREES THAT HIS SIGNATURE TO THIS AGREEMENT
CONSTITUTES A WAIVER OF HIS RIGHT TO A TRIAL BY JURY OF ANY MATTERS
SUBJECT TO ARBITRATION UNDER THIS AGREEMENT.
27.All statements in this Agreement are contractual and not mere recitals.
28.This Agreement may be signed in multiple originals, each of which shall have
full force and effect.
SIGNED on the dates indicated below.
Pilgrim's Pride Corporation
By: _________________________
Date: _________________________
__________________________
David Van Hoose
Date: __________________________
#
EXHIBIT A
FOR IMMEDIATE RELEASE
Contact:
Rick Cogdill
Chief Financial Officer, Pilgrim's Pride
(903) 855-4205
PILGRIM'S PRIDE ANNOUNCES THE PENDING RETIREMENT OF
DAVID VAN HOOSE, CHIEF EXECUTIVE OFFICER,
AND PROMOTION OF O.B. GOOLSBY TO PRESIDENT AND
CHIEF OPERATING OFFICER
PITTSBURG, TX - November 11, 2002 - Pilgrim's Pride Corporation (NYSE:CHX)
announced today the pending retirement of David Van Hoose, Chief Executive
Officer
and the promotion of O.B. Goolsby, currently executive vice president of
prepared food
operations, to president and chief operating officer of Pilgrim's Pride.
The leadership at Pilgrim's Pride expressed its gratitude to Van Hoose
for his
many years of dedicated service to the company, and, in particular, its
appreciation of his
experience, judgment and leadership in addressing the opportunities and
challenges the
company has faced. Van Hoose will take an active role in the transition of
responsibility
in the next several months and will serve the company as a consultant following
his
retirement. No successor has yet been named for the position of chief executive
officer.
"My 14 years at the company have been extremely fulfilling, and as I
prepare to
make changes in my own life, I will continue to work hard to make sure
Pilgrim's Pride
is in a position to grow and succeed," said Van Hoose. "I look forward to
assisting the
company to ensure a smooth and orderly transition to new management."
In his new role, Goolsby will report to Van Hoose, who will continue in
his
position as chief executive officer and as a director of the company, until his
retirement,
which will occur on March 29, 2003.
"With more than 20 years of experience at Pilgrim's Pride, Mr. Goolsby
brings
with him a wealth of knowledge and experience," said Bo Pilgrim, founder and
chairman
of the board of Pilgrim's Pride. "We are confident that this broad range of
experience, in
addition to O.B.'s longstanding dedication to the company, will enable him not
only to
maintain, but to enhance the reputation of Pilgrim's Pride as a world class
organization."
"I am very proud to have been selected to serve in this role," Goolsby
said.
"Pilgrim's Pride is a company filled with excellent people and I look forward
to serving
our customers and consumers with continued commitment to quality, service and
integrity."
Pilgrim's Pride Corporation is the second largest poultry producer in the
United
States -- the third largest in chicken and fifth largest in turkey -- and is
the second largest
chicken company in Mexico. Pilgrim's Pride employs more than 24,500 persons and
operates processing and further processing plants, distribution centers,
hatcheries and
feed mills in Texas, Arkansas, Arizona, North Carolina, Pennsylvania, Virginia,
West
Virginia and Mexico.
Products are sold to foodservice, retail and frozen entr{e'}e customers.
The
Company's primary distribution is through retailers and restaurants throughout
the United
States and in the Northern and Central regions of Mexico and to the foodservice
industry
nation-wide in both countries.
# # #
EXHIBIT B
Message from Mike Murray, Executive Vice President, Sales and Marketing
In the event we were unable to reach you directly by phone, we would like to
take this opportunity to share with you news regarding changes in our senior
management. The pending retirement of David Van Hoose has been announced, as
well as the promotion of O.B. Goolsby, current executive vice president of
Prepared Foods Operations, to president and COO of Pilgrim's Pride.
On March 29, 2003, David will end his 14-year tenure with Pilgrim's Pride as
CEO, COO, president and director, and begin his new role as a consultant for
the company. He will continue to serve as CEO and director of the company
until his retirement.
After joining the Pilgrim's Pride family in 1988 as senior vice president,
Texas Processing, David went on to serve as senior vice president, director
general and eventually president of Mexico Operations. He has served in his
current role since 1998.
We are pleased to announce O.B.'s promotion to president and COO. He brings
with him a wealth of knowledge and experience gained during more than 20 years
with Pilgrim's Pride including serving as vice president, Prepared Foods
Operations (1986-92); senior vice president, Prepared Foods Operations (1992-
98) and executive vice president, Prepared Foods Operations (since 1998). In
addition to this, O.B. spent 13 years (1969-81) in various sales, distribution
and plant operations positions throughout the company.
We are confident that O.B.'s broad range of experience, in addition to his
longstanding dedication to the company, will enable him and his team members
not only to maintain, but to enhance, Pilgrim's Pride's reputation as a world
class food company.
O.B. will continue to report to David in the interim until a new CEO is named.
A press release regarding these developments has been issued and is available
on the Pilgrim's Pride website at www.pilgrimspride.com. We will continue to
share additional information with you in the coming days.
In the meantime, we'd like to extend our gratitude to our valued customers and
thank you for your continued support over the past several weeks. We look
forward to continuing to provide you with the same quality, service and
products you have come to expect from Pilgrim's Pride.
If you have any questions, please do not hesitate to contact your sales
representative.
Best regards,
Mike Murray
#
EXHIBIT C
> -----Original Message-----
> From: Jane Brookshire
> Sent:Monday, November 11, 2002 8:19 PM
> To: _All E-Mail Users
> Subject: Message from Bo Pilgrim, Chairman
>
>
> I would like to take this opportunity to share with you news regarding
> changes in our senior management. This evening, Pilgrim's Pride announced
> the pending retirement of David Van Hoose, Chief Executive Officer and the
> promotion of O. B. Goolsby, currently executive vice president of prepared
> food operations, to president and chief operating officer of Pilgrim's
> Pride.
>
> On March 29, 2003, David will end his 14-year tenure with Pilgrim's Pride
> as CEO, COO, president and director, and begin his new role as a
> consultant for the company. He will continue to serve as CEO and director
> of the company until his retirement.
>
> After joining the Pilgrim's Pride family in 1988 as senior vice president,
> Texas Processing, David went on to serve as senior vice president,
> director general and eventually president of Mexico Operations. He has
> served in his current role since 1998.
>
> We are pleased to announce O.B.'s promotion to president and COO. He
> brings with him a wealth of knowledge and experience gained during more
> than 20 years with Pilgrim's Pride including serving as vice president,
> Prepared Foods Operations (1986-92); senior vice president, Prepared Foods
> Operations (1992-98) and executive vice president, Prepared Foods
> Operations (since 1998). In addition to this, O.B. spent 13 years
> (1969-81) in various sales, distribution and plant operations positions
> throughout the company.
>
> We are confident that O.B.'s broad range of experience, in addition to his
> longstanding dedication to the company, will enable him and his team
> members not only to maintain, but to enhance, Pilgrim's Pride's reputation
> as a world class food company.
>
> This evening's press release is attached below. We will be sharing
> additional information with you in the coming days.
>
> In the meantime, we'd like to once again extend our gratitude to our
> Partners and thank you for your continued support. Your hard work and
> dedication are greatly appreciated. I pray that God will continue to bless
us.
#
10.35 Third Amendment to Amended and Restated Credit Agreement made as of
October 17, 2002 by and among the Company, CoBank, ACB, individually and
as agent for the benefit of the present and future lenders, Farm Credit
Services of America, FLCA, individually and as co-arranger, and the
lenders parties thereto individually.*