UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
____________________
FORM 10-K
____________________
(Mark One)
|
x
|
ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the fiscal year ended September
27,
2008
OR
|
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|||||
|
For the transition period
from
|
to
|
|||||
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 Identification
No.)
|
|
incorporation or
organization)
|
|
|
4845 US Hwy 271 North
|
|
|
Pittsburg, Texas
|
75686-0093
|
|
(Address of principal executive
offices)
|
(Zip
code)
|
|
Registrant’s telephone number, including area
code: (903)
434-1000
|
|
|
Securities registered pursuant to
Section 12(b) of the Act: None
|
|
Securities registered pursuant to
Section 12(g) of the Act: Common Stock, Par Value
$0.01
|
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act. Yes ¨ No x
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. Yes ¨ No x
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer” and “large accelerated filer” in Rule 12B-2 of the Exchange
Act.
Large
Accelerated Filer x Accelerated
Filer o
Non-accelerated
Filer o (Do not check if a smaller reporting
company) Smaller reporting company o
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No x
The aggregate market value of the
Registrant’s Common Stock, $0.01 par value, held by
non-affiliates of the Registrant as of March 29, 2008, was $829,596,309. For purposes of the foregoing
calculation only, all directors, executive officers and 5% beneficial owners have been deemed
affiliates.
Indicate by check mark whether the
registrant has filed all documents and reports required to be filed by Section
12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities
under a plan confirmed by a court. Yes x No ¨
Number of shares of the
Registrant’s Common Stock outstanding as of
December 11,
2008, was 74,055,733.
DOCUMENTS INCORPORATED BY
REFERENCE
Portions of the Registrant’s proxy statement for the 2009 annual meeting of stockholders are
incorporated by reference into Part III.
PILGRIM’S PRIDE CORPORATION
FORM 10-K
|
PART I
|
Page
|
|
|
Business
|
4
|
|
|
Risk
Factors
|
22
|
|
|
Unresolved Staff
Comments
|
34
|
|
|
Properties
|
34
|
|
|
Legal
Proceedings
|
35
|
|
|
Submission of Matters to a Vote of
Security Holders
|
38
|
|
|
PART II
|
||
|
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
|
39
|
|
|
Selected Financial
Data
|
44
|
|
|
Management’s Discussion and Analysis of
Financial Condition and Results
|
48
|
|
|
of
Operations
|
||
|
Quantitative and Qualitative
Disclosures about Market Risk
|
75
|
|
|
Financial Statements and
Supplementary Data (see Index to Financial Statements
and
|
77
|
|
|
Schedules
below)
|
||
|
Changes in and Disagreements with
Accountants on Accounting and Financial
|
77
|
|
|
Disclosure
|
||
|
Controls and
Procedures
|
78
|
|
|
Other
Information
|
82
|
|
|
PART III
|
||
|
Directors and Executive Officers and Corporate
Governance
|
83
|
|
|
Executive
Compensation
|
83
|
|
|
Security Ownership of Certain
Beneficial Owners and Management and Related
|
83
|
|
|
Stockholder
Matters
|
||
|
Certain Relationships and Related
Transactions,
and Director
Independence
|
83
|
|
|
Principal Accounting Fees and
Services
|
84
|
|
|
PART IV
|
||
|
Exhibits and Financial Statement
Schedules
|
85
|
|
|
93
|
||
|
INDEX TO FINANCIAL STATEMENTS AND
SCHEDULES
|
||
|
96
|
||
|
Consolidated Balance
Sheets as of September 27, 2008 and September 29, 2007
|
98
|
|
|
Consolidated
Statements of Operations for each of the three years
ended
September 27, 2008
|
99
|
|
|
Consolidated
Statements of Stockholders’ Equity for each
of the three years
ended
September 27, 2008
|
100
|
|
|
Consolidated
Statements of Cash Flows for each of the three years
ended
September 27, 2008
|
101
|
|
|
102
|
||
|
Schedule
II—Valuation and Qualifying Accounts
for each of the three
years ended
September 27, 2008
|
153
|
|
PART
I
|
Item
1.
|
Pilgrim’s
Pride Corporation (“Pilgrim’s Pride” or the “Company”) operates on the basis of
a 52/53-week fiscal year that ends on the Saturday closest to September 30. The
reader should assume any reference we make to a particular year (for example,
2008) in this report applies to our fiscal year and not the calendar
year.
Chapter
11 Bankruptcy Filings
On
December 1, 2008 (the "Petition Date"), the Company and certain of its
subsidiaries (collectively, the “Debtor Subsidiaries,” and together with the
Company, the "Debtors") filed voluntary petitions for reorganization under
Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") in the
United States Bankruptcy Court for the Northern District of Texas, Fort Worth
Division (the "Bankruptcy Court"). The cases are being jointly administered
under Case No. 08-45664. The Company’s operations in Mexico and certain
operations in the United States were not included in the filing (the “Non-filing
Subsidiaries”) and will continue to operate outside of the Chapter 11
process.
Effective December
1, 2008, the New York Stock
Exchange delisted our common stock as a result of the Company's filing of
its Chapter 11 petitions. Our common stock is now quoted on the Pink Sheets Electronic
Quotation Service under the ticker symbol "PGPDQ.PK."
The
filing of the Chapter 11 petitions constituted an event of default under
certain of our debt obligations, and those debt obligations became automatically
and immediately due and payable, subject to an automatic stay of any action to
collect, assert, or recover a claim against the Company and the application of
applicable bankruptcy law. As a result, the accompanying Consolidated Balance
Sheet as of September 27, 2008 includes a reclassification of $1,872.1 million
to reflect as current certain long-term debt under its credit facilities that,
absent the stay, would have become automatically and immediately due and
payable.
Chapter
11 Process
The
Debtors are currently operating as "debtors in possession" under the
jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In
general, as debtors in possession, we are authorized under Chapter 11 to
continue to operate as an ongoing business, but may not engage in transactions
outside the ordinary course of business without the prior approval of the
Bankruptcy Court.
On
December 2, 2008, the Bankruptcy
Court granted interim approval authorizing the Company and the
Debtor Subsidiaries organized in the
United States (the "US Subsidiaries") to enter into
a Post-Petition Credit Agreement (the
"DIP Credit Agreement") among the Company, as borrower, the US Subsidiaries, as
guarantors, Bank of
Montreal, as agent, and the lenders party thereto. On December 2, 2008, the
Company, the US Subsidiaries and the other parties entered into the DIP Credit
Agreement, subject to final approval of the Bankruptcy
Court.
The DIP Credit Agreement provides for an aggregate
commitment of up to $450 million, which permits borrowings on a revolving basis.
The Company received interim approval to access $365 million of the commitment pending
issuance of the final order by the Bankruptcy Court. Outstanding borrowings
under the DIP Credit Agreement will bear interest at a per annum rate equal to
8.0% plus the greatest of (i) the prime rate as established by the DIP agent
from time to time, (ii) the average federal funds rate plus 0.5%, or
(iii) the LIBOR rate plus 1.0%, payable monthly. The loans under the DIP Credit Agreement
were used to repurchase all receivables sold under the Company's Amended and Restated Receivables Purchase Agreement
dated September
26, 2008, as amended
(“RPA”) and may be used to fund the working capital
requirements of the Company and its subsidiaries according to a budget as
approved by the required lenders under the DIP Credit Agreement. For additional information on the
RPA, see Item 7. "Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital
Resources."
Actual borrowings by the Company under
the DIP Credit Agreement are subject to a borrowing base, which is a formula
based on certain eligible inventory and eligible receivables. The borrowing base
formula is reduced by pre-petition obligations under the Fourth
Amended and Restated Secured Credit Agreement dated as of February 8, 2007,
among the Company and certain of its subsidiaries, Bank of Montreal, as
administrative agent, and the lenders parties thereto, as amended, administrative and professional expenses,
and the amount owed by the Company and the Debtor Subsidiaries to any person on
account of the purchase price of agricultural products or services (including
poultry and livestock) if that person is entitled to any grower's or producer's lien or other
security arrangement. The borrowing base is also limited to 2.22 times the
formula amount of total eligible receivables. As of December 6, 2008, the applicable borrowing base
was $324.8 million and the amount available for borrowings under the DIP Credit
Agreement was $210.9 million.
The principal amount of outstanding
loans under the DIP Credit Agreement, together with accrued and unpaid interest
thereon, are payable in full at maturity on December 1, 2009, subject to
extension for an additional
six months with the approval of all lenders thereunder. All obligations under
the DIP Credit Agreement are unconditionally guaranteed by the US Subsidiaries
and are secured by a first priority priming lien on substantially all
of the assets of the Company and the US
Subsidiaries, subject to specified permitted liens in the DIP Credit
Agreement.
The DIP Credit Agreement allows the Company to provide advances to the Non-filing Subsidiaries of up to approximately $25 million at
any time
outstanding. Management believes that all of the Non-filing
Subsidiaries, including
the Company’s Mexican subsidiaries, will be able to operate within this
limitation.
For additional information on the DIP
Credit Agreement, see Item 7. "Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Liquidity and Capital
Resources."
The Bankruptcy Court has approved
payment of certain of the Debtors’ pre-petition obligations, including,
among other things, employee wages, salaries and benefits, and the Bankruptcy
Court has approved the Company's payment of vendors and other providers in the
ordinary course for goods and services received from and after the Petition Date
and other business-related payments necessary to maintain the operation of our businesses. The
Debtors have retained, subject to Bankruptcy Court approval, legal and
financial professionals to advise the Debtors on the bankruptcy proceedings and
certain other "ordinary course" professionals. From time to time, the
Debtors may seek Bankruptcy Court approval
for the retention of additional professionals.
Shortly
after the Petition Date, the Debtors began notifying all known current or
potential creditors of the Chapter 11 filing. Subject to certain exceptions
under the Bankruptcy Code, the Debtors’ Chapter 11 filing automatically
enjoined, or stayed, the continuation of any judicial or administrative
proceedings or other actions against the Debtors or their property to recover
on, collect or secure a claim arising prior to the Petition Date. Thus, for
example, most creditor actions to obtain possession of property from the
Debtors, or to create, perfect or enforce any lien against the property of the
Debtors, or to collect on monies owed or otherwise exercise rights or remedies
with respect to a pre-petition claim are enjoined unless and until the
Bankruptcy Court lifts the automatic stay. Vendors are being paid for goods
furnished and services provided after the Petition Date in the ordinary course
of business.
As
required by the Bankruptcy Code, the United States Trustee for the Northern
District of Texas appointed an official committee of unsecured creditors (the
"Creditors’ Committee"). The Creditors’ Committee and its legal representatives
have a right to be heard on all matters that come before the Bankruptcy Court
with respect to the Debtors. There can be no assurance that the Creditors’
Committee will support the Debtors’ positions on matters to be presented to the
Bankruptcy Court in the future or on any plan of reorganization, once proposed.
Disagreements between the Debtors and the Creditors’ Committee could protract
the Chapter 11 proceedings, negatively impact the Debtors’ ability to operate
and delay the Debtors’ emergence from the Chapter 11 proceedings.
Under
Section 365 and other relevant sections of the Bankruptcy Code, we may assume,
assume and assign, or reject certain executory contracts and unexpired leases,
including, without limitation, leases of real property and equipment, subject to
the approval of the Bankruptcy Court and certain other conditions. Any
description of an executory contract or unexpired lease in this report,
including where applicable our express termination rights or a quantification of
our obligations, must be read in conjunction with, and is qualified by, any
overriding rejection rights we have under Section 365 of the Bankruptcy
Code.
In order
to successfully exit Chapter 11, the Debtors will need to propose, and obtain
confirmation by the Bankruptcy Court of a plan of reorganization that satisfies
the requirements of the Bankruptcy Code. A plan of reorganization would, among
other things, resolve the Debtors’ pre-petition obligations, set forth the
revised capital structure of the newly reorganized entity and provide for
corporate governance subsequent to exit from bankruptcy.
The
Debtors have the exclusive right for 120 days after the Petition Date to file a
plan of reorganization and, if we do so, 60 additional days to obtain necessary
acceptances of our plan. We will likely file one or more motions to request
extensions of these time periods. If the Debtors’ exclusivity period lapsed, any
party in interest would be able to file a plan of reorganization for any of the
Debtors. In addition to being voted on by holders of impaired claims and equity
interests, a plan of reorganization must satisfy certain requirements of the
Bankruptcy Code and must be approved, or confirmed, by the Bankruptcy Court in
order to become effective.
The
timing of filing a plan of reorganization by us will depend on the timing and
outcome of numerous other ongoing matters in the Chapter 11 proceedings. There
can be no assurance at this time that a plan of reorganization will be confirmed
by the Bankruptcy Court or that any such plan will be implemented
successfully.
We have
incurred and will continue to incur significant costs associated with our
reorganization. The amount of these costs, which are being expensed as incurred
commencing in November 2008, are expected to significantly affect our results of
operations.
Under the
priority scheme established by the Bankruptcy Code, unless creditors agree
otherwise, pre-petition liabilities and post-petition liabilities must be
satisfied in full before stockholders are entitled to receive any distribution
or retain any property under a plan of reorganization. The ultimate recovery to
creditors and/or stockholders, if any, will not be determined until confirmation
of a plan or plans of reorganization. No assurance can be given as to what
values, if any, will be ascribed in the Chapter 11 cases to each of these
constituencies or what types or amounts of distributions, if any, they would
receive. A plan of reorganization could result in holders of our liabilities
and/or securities, including our common stock, receiving no distribution on
account of their interests and cancellation of their holdings. Because of such
possibilities, the value of our liabilities and securities, including our common
stock, is highly speculative. Appropriate caution should be exercised with
respect to existing and future investments in any of the liabilities and/or
securities of the Debtors. At this time there is no assurance we will be able to
restructure as a going concern or successfully propose or implement a plan of
reorganization.
Going
Concern Matters
The
accompanying Consolidated Financial Statements have been prepared assuming that
the Company will continue as a going concern. However, there is substantial
doubt about the Company’s ability to continue as a going concern based on the
factors previously discussed. The Consolidated Financial Statements do not
include any adjustments related to the recoverability and classification of
recorded assets or the amounts and classification of liabilities or any other
adjustments that might be necessary should the Company be unable to continue as
a going concern. The Company’s ability to continue as a going concern is
dependent upon the ability of the Company to return to historic levels of
profitability and, in the near term, restructure its obligations in a manner
that allows it to obtain confirmation of a plan of reorganization by the
Bankruptcy Court.
Management
is addressing the Company’s ability to return to profitability by conducting
profitability reviews at certain facilities in an effort to reduce
inefficiencies and manufacturing costs. The Company reduced production capacity
in the near term by closing two production complexes and consolidating
operations at a third production complex into its other facilities. This action
resulted in a headcount reduction of approximately 2,300 production employees.
Subsequent to September 27, 2008, the Company also reduced headcount by 335
non-production employees.
On
November 7, 2008, the Board of
Directors appointed a Chief Restructuring Officer (“CRO”) for the Company. The appointment of a CRO was a
requirement included in the waivers received from the Company’s lenders on October 27, 2008.
The CRO will assist the Company with
cost reduction initiatives, restructuring plans development and long-term
liquidity improvement. The CRO reports to the Board of Directors of the
Company.
In order
to emerge from bankruptcy, the Company will need to obtain alternative financing
to replace the DIP Credit Agreement and to satisfy the secured claims of its
pre-bankruptcy creditors.
General
Development of Business
Overview
The
Company, which was incorporated in Texas in 1968 and re-incorporated in Delaware
in 1986, is the successor to a partnership founded in 1946 that operated a
retail feed store. Over the years, the Company grew as the result of expanding
markets, increased market penetration and various acquisitions of farming
operations and poultry processors. This included the significant acquisitions in
2004 and 2007 discussed below. Pilgrim’s Pride is one of the largest chicken
companies in the United States (“US”), Mexico and Puerto Rico. The Company’s prepared chicken products meet the needs of some of the
largest customers in the food service industry across the US. Under the well-established
Pilgrim's Pride brand name,
our fresh chicken retail line is sold in the southeastern, central, southwestern and western regions of the US, throughout Puerto Rico, and in the northern and central regions
of Mexico. Additionally, the Company exports commodity chicken products to 80
countries. As a vertically integrated company, we
control every phase of the production of our products. We operate feed mills, hatcheries, processing
plants and distribution centers in 14 US states, Puerto Rico and Mexico. We believe this vertical integration has made us
one of the highest-quality producers of chicken in North America.
We have
consistently applied a long-term business strategy of focusing our growth
efforts on the historically higher-value prepared chicken products and have
become a recognized industry leader in this market. Accordingly, we focused our
sales efforts on the foodservice industry, principally chain restaurants and
food processors. More recently, we also focused our sales efforts on retailers
seeking value-added products. In 2008, we sold 8.4 billion pounds of dressed
chicken and generated net sales of $8.5 billion. In 2008, our US operations,
including Puerto Rico, accounted for 93.2% of our net sales. Our Mexico
operations generated the remaining 6.8% of our net sales.
Recent
Business Acquisition Activities
In
December 2006, we acquired a majority of the outstanding common stock of Gold
Kist Inc. (“Gold Kist”) through a tender offer. We subsequently acquired all
remaining Gold Kist shares and, in January 2007, Gold Kist became our wholly
owned subsidiary. Gold Kist operated a fully-integrated chicken production
business that included live production, processing, marketing and distribution.
This acquisition positioned us as the largest chicken company in the US, and
that position provided us with opportunities to expand our geographic reach and
customer base and further pursue value-added and prepared chicken
opportunities.
In
November 2003, we completed the purchase of all the outstanding stock of the
corporations represented as the ConAgra Foods, Inc. chicken division (“ConAgra
Chicken”). The acquisition provided us with additional lines of specialty
prepared chicken products, well-known brands, well-established distributor
relationships, and processing facilities located in the southeastern region of
the US. The acquisition also included the largest distributor of chicken
products in Puerto Rico.
Financial
Information about Segments
We
operate in two reportable business segments as (i) a producer and seller of
chicken products and (ii) a seller of other products. See a discussion of our
business segments in Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”
Narrative
Description of Business
|
|
Products and
Markets
|
Our
chicken products consist primarily of:
|
(1)
|
Fresh
chicken products, which are refrigerated (non-frozen) whole or cut-up
chickens sold to the foodservice industry either pre-marinated or
non-marinated. Fresh chicken also includes prepackaged case-ready 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.
|
|
(2)
|
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.
|
|
(3)
|
Export
and other chicken products, which are primarily parts and whole chicken,
either refrigerated or frozen for US export or domestic use, and prepared
chicken products for US
export.
|
Our
chicken products are sold primarily to:
|
(1)
|
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 chicken and chicken parts in trays, bags or other consumer
packs.
|
|
(2)
|
Foodservice
customers, which are customers such as chain restaurants, food processors,
foodservice distributors and certain other institutions. We sell products
to our foodservice customers ranging from portion-controlled refrigerated
chicken parts to fully-cooked and frozen, breaded or non-breaded chicken
parts or formed products.
|
|
(3)
|
Export
and other product customers, who purchase chicken products for export to
Eastern Europe, including Russia; the Far East, including China; Mexico;
and other world markets. Our export and other chicken products, with the
exception of our exported prepared chicken products, consist of whole
chickens and chicken parts sold primarily in bulk, non-branded form,
either refrigerated to distributors in the US or frozen for distribution
to export markets.
|
Our other
products consist of:
|
(1)
|
Other
types of meat along with various other staples purchased and sold by our
distribution centers as a convenience to our chicken customers who
purchase through the distribution
centers.
|
|
(2)
|
The
production and sale of table eggs, commercial feeds and related items,
live hogs and proteins.
|
The
following table sets forth, for the periods beginning with 2004, net sales
attributable to each of our primary product lines and markets served with those
products. We based the table on our internal sales reports and their
classification of product types and customers.
|
2008
|
2007(a)
|
2006
|
2005
|
2004(a)
|
||||||||||||||||
|
(52
weeks)
|
(52
weeks)
|
(52
weeks)
|
(52
weeks)
|
(53
weeks)
|
||||||||||||||||
|
US
chicken:
|
(In
thousands)
|
|||||||||||||||||||
|
Prepared
chicken:
|
||||||||||||||||||||
|
Foodservice
|
$ | 2,033,489 | $ | 1,897,643 | $ | 1,567,297 | $ | 1,622,901 | $ | 1,647,904 | ||||||||||
|
Retail
|
518,576 | 511,470 | 308,486 | 283,392 | 213,775 | |||||||||||||||
|
Total
prepared chicken
|
2,552,065 | 2,409,113 | 1,875,783 | 1,906,293 | 1,861,679 | |||||||||||||||
|
Fresh
chicken:
|
||||||||||||||||||||
|
Foodservice
|
2,550,339 | 2,280,057 | 1,388,451 | 1,509,189 | 1,328,883 | |||||||||||||||
|
Retail
|
1,041,446 | 975,659 | 496,560 | 612,081 | 653,798 | |||||||||||||||
|
Total
fresh chicken
|
3,591,785 | 3,255,716 | 1,885,011 | 2,121,270 | 1,982,681 | |||||||||||||||
|
Export
and other:
|
||||||||||||||||||||
|
Export:
|
||||||||||||||||||||
|
Prepared
chicken
|
94,795 | 83,317 | 64,338 | 59,473 | 34,735 | |||||||||||||||
|
Fresh
chicken
|
818,239 | 559,429 | 257,823 | 303,150 | 212,611 | |||||||||||||||
|
Total
export(c)
|
913,034 | 642,746 | 322,161 | 362,623 | 247,346 | |||||||||||||||
|
Other
chicken by-products
|
20,163 | 20,779 | 15,448 | 21,083 |
(b)
|
|||||||||||||||
|
Total
export and other
|
933,197 | 663,525 | 337,609 | 383,706 | 247,346 | |||||||||||||||
|
Total
US chicken
|
7,077,047 | 6,328,354 | 4,098,403 | 4,411,269 | 4,091,706 | |||||||||||||||
|
Mexico
chicken
|
543,583 | 488,466 | 418,745 | 403,353 | 362,442 | |||||||||||||||
|
Total
chicken
|
7,620,630 | 6,816,820 | 4,517,148 | 4,814,622 | 4,454,148 | |||||||||||||||
|
Other
products:
|
||||||||||||||||||||
|
US
|
869,850 | 661,115 | 618,575 | 626,056 | 600,091 | |||||||||||||||
|
Mexico
|
34,632 | 20,677 | 17,006 | 20,759 | 23,232 | |||||||||||||||
|
Total
other products
|
904,482 | 681,792 | 635,581 | 646,815 | 623,323 | |||||||||||||||
|
Total
net sales
|
$ | 8,525,112 | $ | 7,498,612 | $ | 5,152,729 | $ | 5,461,437 | $ | 5,077,471 | ||||||||||
|
Total
prepared chicken
|
$ | 2,646,860 | $ | 2,492,430 | $ | 1,940,121 | $ | 1,965,766 | $ | 1,896,414 | ||||||||||
|
(a)
|
The
Gold Kist acquisition on December 27, 2006 and the ConAgra Chicken
acquisition on November 23, 2003 have been accounted for as
purchases.
|
|
(b)
|
The
Export and other
category historically included the sales of certain chicken by-products
sold in international markets as well as the export of chicken products.
Prior to 2005, by-product sales were not specifically identifiable within
the Export and
other category. Accordingly, a detail breakout is not available
prior to such time; however, the Company believes that the relative split
between these categories as shown in 2005 would not be dissimilar in
2004.
|
|
(c)
|
Export
items include certain chicken parts that have greater value in the
overseas markets than in the
US.
|
The
following table sets forth, beginning with 2004, the percentage of net US
chicken 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.
|
2008
|
2007(a)
|
2006
|
2005
|
2004(a)
|
||||||||||||||||
|
Prepared
chicken:
|
||||||||||||||||||||
|
Foodservice
|
28.8 | % | 30.1 | % | 38.2 | % | 36.8 | % | 40.3 | % | ||||||||||
|
Retail
|
7.3 | % | 8.1 | % | 7.5 | % | 6.4 | % | 5.2 | % | ||||||||||
|
Total
prepared chicken
|
36.1 | % | 38.2 | % | 45.7 | % | 43.2 | % | 45.5 | % | ||||||||||
|
Fresh
chicken:
|
||||||||||||||||||||
|
Foodservice
|
36.0 | % | 36.0 | % | 33.9 | % | 34.2 | % | 32.5 | % | ||||||||||
|
Retail
|
14.7 | % | 15.4 | % | 12.1 | % | 13.9 | % | 16.0 | % | ||||||||||
|
Total
fresh chicken
|
50.7 | % | 51.4 | % | 46.0 | % | 48.1 | % | 48.5 | % | ||||||||||
|
Export
and other:
|
||||||||||||||||||||
|
Export:
|
||||||||||||||||||||
|
Prepared
chicken
|
1.3 | % | 1.3 | % | 1.6 | % | 1.3 | % | 0.8 | % | ||||||||||
|
Fresh
chicken
|
11.6 | % | 8.8 | % | 6.3 | % | 6.9 | % | 5.2 | % | ||||||||||
|
Total
export(c)
|
12.9 | % | 10.1 | % | 7.9 | % | 8.2 | % | 6.0 | % | ||||||||||
|
Other
chicken by-products
|
0.3 | % | 0.3 | % | 0.4 | % | 0.5 | % |
(b)
|
|||||||||||
|
Total
export and other
|
13.2 | % | 10.4 | % | 8.3 | % | 8.7 | % | 6.0 | % | ||||||||||
|
Total
US chicken
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||
|
Total
prepared chicken as a percent of US chicken
|
37.4 | % | 39.5 | % | 47.3 | % | 44.5 | % | 46.3 | % | ||||||||||
|
(a)
|
The
Gold Kist acquisition on December 27, 2006 and the ConAgra Chicken
acquisition on November 23, 2003 have been accounted for as
purchases.
|
|
(b)
|
The
Export and other
category historically included the sales of certain chicken by-products
sold in international markets as well as the export of chicken products.
Prior to 2005, by-product sales were not specifically identifiable within
the Export and
other category. Accordingly, a detail breakout is not available
prior to such time; however, the Company believes that the relative split
between these categories as shown in 2005 would not be dissimilar in
2004.
|
|
(c)
|
Export
items include certain chicken parts that have greater value in the
overseas markets than in the US.
|
UNITED
STATES
Product
Types
Fresh Chicken
Overview. Our fresh chicken business is an important component
of our sales and accounted for $3,591.8 million, or 50.7%, of our total US
chicken sales for 2008. In addition to maintaining sales of mature, traditional
fresh chicken products, our strategy has been to shift the mix of our US fresh
chicken products by continuing to increase sales of faster-growing products,
such as marinated whole chicken and chicken parts, and to continually shift
portions of this product mix into the higher-value prepared chicken
category.
Most
fresh chicken products are sold to established customers, based upon certain
weekly or monthly market prices reported by the US Department of Agriculture
(“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. 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.
Prepared Chicken
Overview. During 2008, $2,522.1 million of our US chicken
sales were in prepared chicken products to foodservice customers and retail
distributors, as compared to $1,861.7 million in 2004. These numbers reflect the
impact of our historical strategic focus for growth in the prepared chicken
markets and our acquisition of Gold Kist. The market for prepared chicken
products has experienced, and we believe will continue to experience, greater
growth and higher average sales prices than fresh chicken products. Also,
the production and sale in the US of prepared chicken products reduce the impact
of the costs of feed ingredients on our profitability. Feed ingredient costs are
the single largest component of our total US cost of sales, representing
approximately 38.1% of our total US cost of sales for 2008. The production of
feed ingredients is positively or negatively affected primarily by the global
level of supply inventories, demand for feed ingredients, the agricultural
policies of the US and foreign governments and weather patterns throughout the
world. 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. Many times, these prices are dependent upon
the customer's location, volume, product specifications and other
factors.
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 US or frozen for distribution
to export markets, and branded and non-branded prepared chicken products for
distribution to export markets. In 2008, approximately $933.2 million, or
13.2%, of our total US chicken sales were attributable to US chicken export and
other products. These exports and other products, other than the prepared
chicken products, have historically been characterized by lower prices and
greater price volatility than our more value-added product lines.
Markets
for Chicken Products
Foodservice. The
foodservice market principally consists of chain restaurants, food processors,
broad-line distributors and certain other institutions located throughout the
continental US. 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 the Company is positioned to be the primary or secondary supplier to
national and international chain restaurants who require multiple suppliers of
chicken products. Additionally, we believe 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 operational 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 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, from 2003 through 2007, sales of chicken products to the foodservice
market grew at a compounded annual growth rate of approximately 7.5%, versus
6.6% growth for the chicken industry overall. Foodservice growth, outside of any
temporary effects resulting from the current recessionary impacts being
experienced in the US, is anticipated to continue as food-away-from-home
expenditures continue to outpace overall industry rates. According to Technomic
Information Services, food-away-from-home expenditures grew at a compounded
annual growth rate of approximately 4.9% from 2003 through 2007 and are
projected to grow at a 4.8% compounded annual growth rate from 2008 through
2012. Due to internal growth and the impact of both the Gold Kist and ConAgra
Chicken acquisitions, our sales to the foodservice market from 2004 through 2008
grew at a compounded annual growth rate of 11.4% and represented 64.8% of the
net sales of our US chicken operations in 2008.
Foodservice—Prepared
Chicken. Our prepared chicken sales to the foodservice market
were $2,033.5 million in 2008 compared to $1,647.9 million in 2004, a compounded
annual growth rate of approximately 5.4%. In addition to the significant
increase in sales created by the acquisition of Gold Kist, we attribute this
growth in sales of prepared chicken to the foodservice market to a number of
factors:
|
·
|
There
has been significant growth in the number of foodservice operators
offering chicken on their menus and in the number of chicken items
offered.
|
|
·
|
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.
|
|
·
|
There
is a strong need among larger foodservice companies for a limited-source
supplier base in the prepared chicken market. A viable 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 a supplier of choice by being the primary or secondary
prepared chicken 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, with a wide range of capabilities, are
particularly well suited to the high-volume production as well as
low-volume custom production runs necessary to meet both 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.
|
|
·
|
As
a result of the experience and reputation developed with larger customers,
we have increasingly become the principal supplier to mid-sized
foodservice organizations.
|
|
·
|
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.
|
|
·
|
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 US 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. Our fresh chicken products sales to the foodservice
market were $2,550.3 million in 2008 compared to $1,328.9 million in 2004, a
compounded annual growth rate of approximately 17.7%.
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 and chicken parts to grocery store
chains and retail distributors. 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® brand.
Our co-founder, Lonnie “Bo” Pilgrim, is the featured spokesperson 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® is a
well-known brand name in a number of markets. 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
markets. We also maintain an active program to identify consumer preferences.
The program primarily consists of discovering and validating new product ideas,
packaging designs and methods through sophisticated qualitative and quantitative
consumer research techniques in key geographic markets.
Due to
internal growth and the impact of both the Gold Kist and ConAgra Chicken
acquisitions, our sales to the retail market from 2004 through 2008 grew at a
compounded annual growth rate of 15.8% and represented 22.0% of the net sales of
our US chicken operations in 2008.
Retail—Prepared
Chicken. We sell retail-oriented prepared chicken products
primarily to grocery store chains located throughout the US. Our prepared
chicken products sales to the retail market were $518.6 million in 2008 compared
to $213.8 million in 2004, a compounded annual growth rate of approximately
24.8%. We believe that our growth in this market segment will continue as
retailers concentrate on satisfying consumer demand for more products that 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. Our retail fresh chicken products are sold in the
midwestern, southwestern, southeastern and western regions of the US. Our fresh
chicken sales to the retail market were $1,041.4 million in 2008 compared to
$653.8 million in 2004, a compounded annual growth rate of approximately 12.3%
resulting primarily from our acquisition of Gold Kist in 2007. 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, with
the exception of our exported prepared chicken products, consist of whole
chickens and chicken parts sold primarily in bulk, non-branded form either
refrigerated to distributors in the US or frozen for distribution to export
markets. In the US, 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 sell US-produced chicken products for export to Eastern
Europe, including Russia; the Far East, including China; Mexico; and other world
markets.
Historically,
we have targeted international markets to generate additional demand for our
dark chicken meat, which is a natural by-product of our US operations given our
concentration on prepared chicken products and the US customers’ general
preference for white chicken meat. We have also begun selling prepared chicken
products for export to the international divisions of our US chain restaurant
customers. We believe that US chicken exports will continue to grow as worldwide
demand increases for high-grade, low-cost meat protein sources. Also included in
this category are chicken by-products, which are converted into protein products
and sold primarily to manufacturers of pet foods.
Markets
for Other Products
We have
regional distribution centers located in Arizona, Texas and Utah that are
primarily focused on distributing our own chicken products; however, the
distribution centers also distribute certain poultry and non-poultry products
purchased from third parties to independent grocers and quick-service
restaurants. Our non-chicken distribution business is conducted as an
accommodation to our customers and to achieve greater economies of scale in
distribution logistics. Chicken sales from our regional distribution centers are
included in the chicken sales amounts contained in the above tables; however,
all non-chicken sales amounts are contained in the Other Products sales in the
above tables.
We market
fresh eggs under the Pilgrim’s Pride® brand
name, as well as under private labels, in various sizes of cartons and flats to
US retail grocery and institutional foodservice customers located primarily in
Texas. We have a housing capacity for approximately 2.1 million commercial egg
laying hens which can produce approximately 42 million dozen eggs annually. US
egg prices are determined weekly based upon reported market prices. The US egg
industry has been consolidating over the last few years, with the 25 largest
producers accounting for more than 65% of the total number of egg laying hens in
service during 2008. We compete with other US egg producers primarily on the
basis of product quality, reliability, price and customer service.
We market
a high-nutrient egg called EggsPlus™. 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™ has received national recognition for our
progress in being an innovator in the “functional foods” category.
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 US feed mills.
We also
have a small pork operation that we acquired through the Gold Kist acquisition
that raises and sells live hogs to processors.
MEXICO
Background
The
Mexico market represented approximately 6.8% of our net sales in 2008. We are
the second-largest producer and seller of chicken in Mexico. We believe that we
are one of the lower-cost producers of chicken in Mexico.
Product
Types
While the
market for chicken products in Mexico is less developed than in the US, with
sales attributed to fewer, more basic products, we have been successful in
differentiating our products through high-quality client service and product
improvements such as dry-air chilled, eviscerated products. The supermarket
chains consider us the leader in innovation for fresh products. The market for
value-added products is increasing. Our strategy is to capitalize on this trend
through our vast US experience in both products and quality and our well-known
service.
Markets
We sell
our chicken products primarily to wholesalers, large restaurant chains, fast
food accounts, supermarket chains and direct retail distribution in selected
markets. We have national presence and are currently present in all but 2 of the
32 Mexican States, which in total represent 99.7% of the Mexican
population.
Foreign
Operations Risks
Our
foreign operations pose special risks to our business and operations. A
discussion of foreign operations risks is included in Item 1A. “Risk
Factors.”
GENERAL
Competitive
Conditions
The
chicken industry is highly competitive and our largest US competitor has greater
financial and marketing resources than we do. In addition, our liquidity
constraints have had a negative effect on our competitive position, relative to
our competitors that are less highly leveraged. See Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Liquidity and Capital Resources.” In the US, Mexico and Puerto Rico,
we compete principally with other vertically integrated poultry companies. We
are one of the largest producers of chicken in the US, Mexico and Puerto
Rico, and the second largest producer in Mexico. The second largest producer in
the US is Tyson Foods, Inc. The largest producer in Mexico is Industrias Bachoco
S.A.B. de C.V.
In
general, the competitive factors in the US chicken industry include price,
product quality, product development, brand identification, breadth of product
line and customer service. Competitive factors vary by major market. In the US
retail market, we believe that product quality, brand awareness, customer
service and price are the primary bases of competition. In the foodservice
market, competition is based on consistent quality, product development, service
and price. There is some competition with non-vertically integrated further
processors in the US prepared chicken business. We believe vertical integration
generally provides 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. In
July 2003, the US and Mexico entered into a safeguard agreement with regard to
imports into Mexico of chicken leg quarters from the US. Under this agreement, a
tariff rate for chicken leg quarters of 98.8% of the sales price was
established. This tariff was imposed because of concerns that the duty-free
importation of such products as provided by the North American Free Trade
Agreement would injure Mexico’s poultry industry. This tariff rate was
eliminated on January 1, 2008. As a result of the elimination of this tariff, we
expect greater amounts of chicken to be imported into Mexico from the US. This
could negatively affect the profitability of Mexican chicken producers,
including our Mexico operations.
We are
not a significant competitor in the distribution business as it relates to
products other than chicken. We distribute these products solely as a
convenience to our chicken customers. The broad-line distributors do not
consider us to be a factor in those markets. The competition related to our
other products such as table eggs, feed and protein are much more regionalized
and no one competitor is dominant.
Key
Customers
Our two
largest customers accounted for approximately 16% of our net sales in 2008, and
our largest customer, Wal-Mart Stores Inc., accounted for 11% of our net
sales.
Regulation
and Environmental Matters
The
chicken industry is 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
(“EPA”) in the US and by similar governmental agencies in Mexico. Our chicken
processing facilities in the US are subject to on-site examination, inspection
and regulation by the USDA. The FDA inspects the production of our feed mills in
the US. Our Mexican food processing facilities and feed mills are subject to
on-site examination, inspection and regulation by a Mexican governmental agency
that 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 discharges to the environment. Although we do not anticipate
any regulations having a material adverse effect upon us, a material adverse
effect may occur.
Employees
and Labor Relations
As of
September 27, 2008, we employed approximately 44,750 persons in the US and
approximately 5,000 persons in Mexico. There are 13,771 employees at various
facilities in the US who are members of collective bargaining units. In Mexico,
2,832 employees are covered by collective bargaining agreements. We have not
experienced any work stoppage at any location in over five years. We believe our
relations with our employees are satisfactory. At any given time, we will be in
some stage of contract negotiation with various collective bargaining
units.
Financial
Information about Foreign Operations
The
Company’s foreign operations are in Mexico. Geographic financial information is
set forth in Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operation.”
Available
Information; NYSE CEO Certification
The
Company’s Internet website is http://www.pilgrimspride.com.
The Company makes available, free of charge, through its Internet website, the
Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, Directors and Officers Forms 3, 4 and 5, and amendments to
those reports, as soon as reasonably practicable after electronically filing
such materials with, or furnishing them to, the Securities and Exchange
Commission. The public may read and copy any materials that the Company files
with the Securities and Exchange Commission at its Public Reference Room at 100
F Street, NE, Washington, DC 20549 and may obtain information about the
operation of the Public Information Room by calling the Securities and Exchange
Commission at 1-800-SEC-0330.
In
addition, the Company makes available, through its Internet website, the
Company’s Business Code of Conduct and Ethics, Corporate Governance Guidelines
and the written charter of the Audit Committee, each of which is available in
print to any stockholder who requests it by contacting the Secretary of the
Company at 4845 US Highway 271 North, Pittsburg, Texas 75686-0093.
As
required by the rules of the New York Stock Exchange (“NYSE”), the Company
submitted its unqualified Section 303A.12(a) Co-Principal Executive Officers
Certification for the preceding year to the NYSE.
We
included the certifications of the Co-Principal Executive Officers and the Chief
Financial Officer of the Company required by Section 302 of the Sarbanes-Oxley
Act of 2002 and related rules, relating to the quality of the Company's public
disclosure, in this report on Form 10-K as Exhibits 31.1, 31.2 and
31.3.
Executive
Officers
Set forth
below is certain information relating to our current executive
officers:
|
Name
|
Age
|
Positions
|
||
|
Lonnie
"Bo" Pilgrim
|
80
|
Senior
Chairman of the Board
|
||
|
Lonnie
Ken Pilgrim
|
50
|
Chairman
of the Board
|
||
|
J.
Clinton Rivers
|
49
|
President,
Chief Executive Officer, and Director
|
||
|
Richard
A. Cogdill
|
48
|
Chief
Financial Officer, Secretary, Treasurer and Director
|
||
|
Robert
A. Wright
|
54
|
Chief
Operating Officer
|
||
|
William
K. Snyder
|
49
|
Chief
Restructuring Officer
|
Lonnie "Bo" Pilgrim has
served as Senior Chairman of the Board since July 2007. He served as
Chairman of the Board since the organization of Pilgrim's Pride in July 1968
until July 2007. He also served as 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.
Lonnie Ken Pilgrim has served
as Chairman of the Board since July 2007. Mr. Pilgrim served as Chairman of the
Board and Interim President from January 2008 to March 2008. He served as
Executive Vice President, Assistant to Chairman from November 2004 until July
2007, and he served as Senior Vice President, Transportation from August 1997 to
November 2004. Prior to that, he served as Vice President. He has been a member
of the Board of Directors since March 1985, and he has been employed by
Pilgrim’s Pride since 1977. He is a son of Lonnie “Bo” Pilgrim.
J. Clinton Rivers has served as President,
Chief Executive Officer and Director since March 2008. Mr. Rivers served as
Chief Operating Officer from October 2004 to March 2008. He served as Executive
Vice President of Prepared Food Operations from November 2002 to October 2004.
Mr. Rivers was the Senior Vice President of Prepared Foods Operations from 1999
to November 2002, and was the Vice President of Prepared Foods Operations from
1992 to 1999. From 1989 to 1992, he served as Plant Manager of the Mount
Pleasant, Texas Production Facility. Mr. Rivers joined Pilgrim’s Pride in
1986 as the Quality Assurance Manager, and also held positions at Perdue Farms
and Golden West Foods.
Richard A. Cogdill has served
as Chief Financial Officer, Secretary and Treasurer since January 1997. Mr.
Cogdill 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. Mr.
Cogdill is a Certified Public Accountant.
Robert A. Wright has served
as Chief Operating Officer since April 2008. Mr. Wright served as Executive Vice
President of Sales and Marketing from June 2004 to April 2008. He served as
Executive Vice President, Turkey Division from October 2003 to June 2004. Prior
to October 2003, Mr. Wright served as President of Butterball Turkey Company for
five years.
William K. Snyder has served
as Chief Restructuring Officer since November 2008. Mr. Snyder has served as a Managing Partner of CRG Partners Group, LLC ("CRG"), a
provider of corporate turnaround and restructuring services, since 2001. Mr.
Snyder will continue to be employed by CRG and will perform service as Chief
Restructuring Officer of the Company through CRG. In connection with his position as Managing Partner
of CRG, Mr. Snyder served as court-appointed examiner of Mirant Corporation, Corporate Responsible Partner of Furrs
Restaurant Group Inc., Chief Financial Officer of Reliant Building Products
Inc., and as a senior executive officer of a number of private
companies. Previously, Mr. Snyder was president of his own financial consulting
company, The Snyder Company.
Item 1A. Risk Factors
Forward
Looking Statements
Statements
of our intentions, beliefs, expectations or predictions for the future, denoted
by the words "anticipate," "believe," "estimate," "expect," "plan," "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 in information
contained in previous filings or communications. The risks described below are
not the only risks we face, and additional risks and uncertainties may also
impair our business operations. The occurrence of any one or more of the
following or other currently unknown factors could materially adversely affect
our business and operating results.
Risk
Factors
The
following risk factors should be read carefully in connection with evaluating
our business and the forward-looking information contained in this Annual Report
on Form 10-K. Any of the following risks could materially adversely affect our
business, operations, industry or financial position or our future financial
performance. While we believe we have identified and discussed below the most
significant risk factors affecting our business, there may be additional risks
and uncertainties that are not presently known or that are not currently
believed to be significant that may adversely affect our business, operations,
industry, financial position and financial performance in the
future.
Chapter 11
Filing. We filed for protection under Chapter 11 of the
Bankruptcy Code on December 1, 2008.
During
our Chapter 11 proceedings, our operations, including our ability to execute our
business plan, are subject to the risks and uncertainties associated with
bankruptcy. Risks and uncertainties associated with our Chapter 11 proceedings
include the following:
|
·
|
Actions
and decisions of our creditors and other third parties with interests in
our Chapter 11 proceedings may be inconsistent with our
plans;
|
|
·
|
Our
ability to obtain court approval with respect to motions in the Chapter 11
proceedings prosecuted from time to
time;
|
|
·
|
Our
ability to develop, prosecute, confirm and consummate a plan of
reorganization with respect to the Chapter 11
proceedings;
|
|
·
|
Our
ability to obtain and maintain commercially reasonable terms with vendors
and service providers;
|
|
·
|
Our
ability to maintain contracts that are critical to our
operations;
|
|
·
|
Our
ability to retain management and other key individuals;
and
|
|
·
|
Risks
associated with third parties seeking and obtaining court approval to
terminate or shorten the exclusivity period for us to propose and confirm
a plan of reorganization, to appoint a Chapter 11 trustee or to
convert the cases to Chapter 7
cases.
|
These
risks and uncertainties could affect our business and operations in various
ways. For example, negative events or publicity associated with our Chapter 11
proceedings could adversely affect our sales and relationships with our
customers, as well as with vendors and employees, which in turn could adversely
affect our operations and financial condition, particularly if the Chapter 11
proceedings are protracted. Also, transactions outside the ordinary course of
business are subject to the prior approval of the Bankruptcy Court, which may
limit our ability to respond timely to certain events or take advantage of
certain opportunities.
Because
of the risks and uncertainties associated with our Chapter 11 proceedings, the
ultimate impact that events that occur during these proceedings will have on our
business, financial condition and results of operations cannot be
accurately predicted or quantified. We cannot provide any assurance as to what
values, if any, will be ascribed in our bankruptcy proceedings to our various
pre-petition liabilities, common stock and other securities. As a result of
Chapter 11 proceedings, our currently outstanding common stock could have
no value and may be canceled under any plan of reorganization we might propose
and, therefore, we believe that the value of our various pre-petition
liabilities and other securities is highly speculative. Accordingly, caution
should be exercised with respect to existing and future investments in any of
these liabilities or securities.
Our stock is no longer listed on a
national securities exchange. It will likely be more difficult
for stockholders and investors to sell our common stock or to obtain accurate
quotations of the share price of our common stock.
Effective
December 1, 2008, the NYSE delisted our common stock from trading. Our stock is
now traded over the counter and is quoted on the Pink Sheet Electronic Quotation
Service (“Pink Sheets”). We can provide no assurance that we will be able to
re-list our common stock on a national securities exchange or that the stock
will continue being traded on the Pink Sheets. The trading of our
common stock over the counter negatively impacts the trading price of our common
stock and the levels of liquidity available to our stockholders. In addition, securities that trade on the Pink Sheets are not
eligible for margin loans and make our common stock subject to the provisions of
Rule 15g-9 of the Securities Exchange Act of 1934, commonly referred to as the
"penny stock rule." In connection with the delisting of our stock, there may also be other negative implications, including the potential
loss of confidence in our Company by suppliers, customers and employees and the
loss of institutional investor interest in our common stock.
Substantial
Leverage. Our substantial indebtedness could adversely affect
our financial condition.
We
currently have a substantial amount of indebtedness, which could adversely
affect our financial condition and could have important consequences to you and
we are not in compliance with covenants in a substantial portion of our
indebtedness. Our indebtedness:
|
·
|
Makes
it more difficult for us to satisfy our obligations under our debt
securities;
|
|
·
|
Increases
our vulnerability to general adverse economic
conditions;
|
|
·
|
Limits
our ability to obtain necessary financing and to fund future working
capital, capital expenditures and other general corporate
requirements;
|
|
·
|
Requires
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;
|
|
·
|
Limits
our flexibility in planning for, or reacting to, changes in our business
and the industry in which we
operate;
|
|
·
|
Places
us at a competitive disadvantage compared to our competitors that have
less debt;
|
|
·
|
Limits
our ability to pursue acquisitions and sell assets;
and
|
|
·
|
Limits,
along with the financial and other restrictive covenants in our
indebtedness, our ability to borrow additional funds. 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 and chicken and
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control.
Liquidity. Our liquidity
position imposes significant risks to our operations.
Because of the public disclosure of our
liquidity constraints, our ability to maintain normal credit terms with our
suppliers has become impaired. We have been required to pay cash in advance to certain vendors and have experienced
restrictions on the availability of trade credit, which has further reduced our
liquidity. If liquidity problems persist, our suppliers could refuse to provide
key products and services in the future. In addition, due to public perception
of our financial condition and results of operations, in particular with regard
to our potential failure to meet our debt obligations, some customers have
become reluctant to enter into long-term agreements with us.
The DIP Credit Agreement provides for an
aggregate commitment of up to $450 million, which permits borrowings on a
revolving basis. The Company received interim approval to access
$365 million of the commitment pending
issuance of the final order by the Bankruptcy Court. As of December 6, 2008, the applicable borrowing
base was approximately $324.8 million and the amount available for
borrowings under the DIP Credit Agreement was $210.9 million. There can be no
assurance that the amounts of cash from operations together with amounts
available under our DIP Credit Agreement will be sufficient to fund operations.
In the event that cash flows and available borrowings under the DIP
Credit Agreement are not sufficient to meet our liquidity
requirements, we may be required to seek additional financing. There can be no
assurance that such additional financing would be available or, if available,
offered on acceptable terms. Failure to secure any necessary additional
financing would have a material adverse impact on our operations. For additional
information on our liquidity, see Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources.”
If the
Company is unable to return to profitability, we may be required to record an
impairment on tangible assets such as facilities and equipment as well as
intangible assets such as intellectual property, which would have a negative
impact on our financial results.
Cyclicality and Commodity Prices.
Industry cyclicality can affect our earnings, especially due to
fluctuations in commodity prices of feed ingredients and chicken.
Profitability
in the chicken industry is materially affected by the commodity prices of feed
ingredients and chicken, which are determined by supply and demand factors. As a
result, the chicken industry is subject to cyclical earnings
fluctuations.
The
production of feed ingredients is positively or negatively affected primarily by
the global level of supply inventories and demand for feed ingredients, the
agricultural policies of the United States and foreign governments and weather
patterns throughout the world. In particular, weather patterns often change
agricultural conditions in an unpredictable manner. A 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 or deliver
products.
The cost
of corn and soybean meal, our primary feed ingredients, increased significantly
from August 2006 to July 2008, before moderating by the date of this report, and
there can be no assurance that the price of corn or soybean meal will not
significantly rise again as a result of, among other things, increasing demand
for these products around the world and alternative uses of these products, such
as ethanol and biodiesel production.
High feed
ingredient prices have had, and may continue to have, a material adverse effect
on our operating results, which has resulted in, and may continue to result in,
additional non-cash expenses due to impairment of the carrying amounts of
certain of our assets. We periodically seek, to the extent available, to enter
into advance purchase commitments or financial derivative 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.
Livestock and Poultry Disease,
including Avian Influenza. Outbreaks of livestock diseases in
general and poultry diseases in particular, including avian influenza, can
significantly affect our ability to conduct our operations and demand for our
products.
We take
precautions designed 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
outbreaks of disease, either in our own flocks or elsewhere, could significantly
affect demand for our products or 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 or other products to or from our
suppliers, facilities or customers, or require us to destroy one or more of our
flocks. This could also 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.
During
the first half of 2006, there was substantial publicity regarding a highly
pathogenic strain of avian influenza, known as H5N1, which has been affecting
Asia since 2002 and which has also been found in Europe and Africa. It is widely
believed that H5N1 is being spread by migratory birds, such as ducks and geese.
There have also been some cases where H5N1 is believed to have passed from birds
to humans as humans came into contact with live birds that were infected with
the disease.
Although
highly pathogenic H5N1 has not been identified in North America, there have been
outbreaks of low pathogenic strains of avian influenza in North America, and in
Mexico outbreaks of both high and low-pathogenic strains of avian influenza are
a fairly common occurrence. Historically, the outbreaks of low pathogenic avian
influenza have not generated the same level of concern, or received the same
level of publicity or been accompanied by the same reduction in demand for
poultry products in certain countries as that associated with the highly
pathogenic H5N1 strain. Accordingly, even if the highly pathogenic H5N1 strain
does not spread to North or Central America, there can be no assurance that it
will not materially adversely affect demand for North or Central American
produced poultry internationally and/or domestically, and, if it were to spread
to North or Central America, there can be no assurance that it would not
significantly affect our ability to conduct our operations and/or demand for our
products, in each case in a manner having a material adverse effect on our
business, reputation and/or prospects.
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, although not eliminated, by adherence to good manufacturing
practices and finished product testing. We have 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.
In
October 2002, one product sample produced in our Franconia, Pennsylvania
facility that had not been shipped to customers tested positive for Listeria. We
later received information from the USDA suggesting 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, we
voluntarily recalled all cooked deli products produced at the plant from May 1,
2002 through October 11, 2002. We carried insurance designed to cover the direct
recall related expenses and certain aspects of the related business interruption
caused by the recall.
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 entail 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.
If our
poultry products become contaminated, we may be subject to product liability
claims and product recalls. There can be no assurance that any litigation or
reputational injury associated with product recalls 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.
Insurance. We are
exposed to risks relating to product liability, product recall, 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 insurance, property insurance, workers compensation
insurance, business interruption 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, the losses attributable to our October 2002 recall of cooked deli
products produced at one of our facilities significantly exceeded available
insurance coverage. Additionally, in the past, two of our insurers encountered
financial difficulties and were unable to fulfill their obligations under the
insurance policies as anticipated and, separately, two of our other insurers
contested coverage with respect to claims covered under policies purchased,
forcing us to litigate the issue of coverage before we were able to collect
under these policies.
Significant
Competition. Competition in the chicken industry with other
vertically integrated poultry companies may make us unable to compete
successfully in these industries, which could adversely affect our
business.
The
chicken industry is highly competitive. In both the US and Mexico, we primarily
compete with other vertically integrated chicken companies.
In
general, the competitive factors in the US chicken industry
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 US retail
market, we believe that competition is based on product quality, brand
awareness, customer service and price. Further, there is some competition with
non-vertically integrated further processors in the prepared chicken business.
In addition, our filing for protection under Chapter 11 of the Bankruptcy Code
and the associated risks and uncertainties may be used by competitors in an
attempt to divert our existing customers or may discourage future customers from
purchasing our products under long-term arrangements.
In
Mexico, where product differentiation has traditionally been limited, product
quality and price have been the most critical competitive factors. The North
American Free Trade Agreement eliminated tariffs for chicken and chicken
products sold to Mexico on January 1, 2003. However, in July 2003, the US and
Mexico entered into a safeguard agreement with regard to imports into Mexico of
chicken leg quarters from the US. Under this agreement, a tariff rate for
chicken leg quarters of 98.8% of the sales price was established. On January 1,
2008, the tariff was eliminated. In connection with the elimination of those
tariffs in Mexico, increased competition from chicken imported into Mexico from
the US may have a material adverse effect on the Mexican chicken industry in
general, and on our Mexican operations in particular.
Loss of Key
Customers. The loss of one or more of our largest customers
could adversely affect our business.
Our two
largest customers accounted for approximately 16% of our net sales in 2008, and
our largest customer, Wal-Mart Stores Inc., accounted for 11% of our net sales.
Our filing for protection under Chapter 11 of the Bankruptcy Code and the
associated risks and uncertainties may affect our customers' perception of our
business and increase our risk of losing key customers. Our business could
suffer significant setbacks in revenues and operating income if we lost one or
more of our largest customers, or if our customers' plans and/or markets should
change significantly.
Continued Integration of Gold
Kist. There can be no assurance that Gold Kist can be combined
successfully with our business.
In
evaluating the terms of our acquisition of Gold Kist, we analyzed the respective
businesses of the Company and Gold Kist and made certain assumptions concerning
their respective future operations. A principal assumption was that the
acquisition will produce operating results better than those historically
experienced or expected to be experienced in the future by us in the absence of
the acquisition. There can be no assurance, however, that this assumption is
correct or that any remaining separate businesses of the Company and Gold Kist
will be successfully integrated in a timely manner.
Synergies of Gold
Kist. There can be no assurance that we will achieve
anticipated synergies from our acquisition of Gold Kist.
We
consummated the Gold Kist acquisition with the expectation that it will result
in beneficial synergies, such as cost savings and enhanced growth. Success in
realizing these benefits and the timing of this realization depend upon the
successful integration of the operations of Gold Kist into the Company, and upon
general and industry-specific economic factors. The integration of two
independent companies has been and remains a complex, costly and time-consuming
process. The difficulties of combining the operations of the companies include,
among others:
|
·
|
Transitioning
and preserving Gold Kist's customer, contractor, supplier and other
important third-party
relationships;
|
|
·
|
Integrating
corporate and administrative
infrastructures;
|
|
·
|
Coordinating
sales and marketing functions;
|
|
·
|
Minimizing
the diversion of management's attention from ongoing business
concerns;
|
|
·
|
Coordinating
geographically separate organizations;
and
|
|
·
|
Retaining
key employees.
|
Even if
we are able to effectively integrate the remaining operations of Gold Kist into
our existing operations, there can be no assurance that the anticipated
synergies will be achieved.
Assumption of Unknown Liabilities in
Acquisitions. Assumption of unknown liabilities in
acquisitions may harm our financial condition and operating
results.
We do not
currently intend to make any acquisition in the near future. However, if we do,
acquisitions may be structured in such a manner that would result in the
assumption of unknown liabilities not disclosed by the seller or uncovered
during pre-acquisition due diligence. For example, our acquisition of Gold Kist
was structured as a stock purchase. In that acquisition we assumed all of the
liabilities of Gold Kist, including liabilities that may be unknown. These
obligations and liabilities could harm our financial condition and operating
results.
Foreign Operations
Risks. Our foreign operations pose special risks to our
business and operations.
We have
significant operations and assets located in Mexico and may participate in or
acquire operations and assets in other foreign countries in the future. 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.
Disruptions in International Markets
and Distribution Channels. Disruptions in international
markets and distribution channels could adversely affect our
business.
Historically, we have targeted
international markets to generate additional demand for our chicken dark meat,
specifically leg quarters, which are a natural by-product of our US operations, given our concentration on
prepared chicken products and the US customers’ general preference for white meat. As
part of this initiative, we have created a significant international
distribution network into several markets, including Eastern Europe, including
Russia; the Far East, including China; and Mexico. Our success in these markets could be,
and in recent periods has been, adversely affected by disruptions in poultry
export markets. These disruptions are often caused by restrictions on imports of
US-produced poultry products imposed by foreign governments for a variety of reasons, including the
protection of their domestic poultry producers and allegations of consumer
health issues, and may also be caused by outbreaks of disease such as avian
influenza, either in our own flocks or elsewhere in the world, and resulting changes in consumer
preferences. There can be no assurance that one or more of these or other
disruptions in our international markets and distribution channels will not
adversely affect our business.
Government
Regulation. Regulation, present and future, is a constant
factor affecting our business.
Our
operations are subject to federal, state and local governmental regulation,
including in the health, safety 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.
Also,
changes in laws or regulations or the application thereof may lead to government
enforcement actions and the resulting litigation by private litigants. We are
aware of an industry-wide investigation by the Wage and Hour Division of the US
Department of Labor to ascertain compliance with various wage and hour issues,
including the compensation of employees for the time spent on such activities
such as donning and doffing work equipment. We have been named a defendant in a
number of related suits brought by employees. Due, in part, to the government
investigation and the recent US Supreme Court decision in IBP, Inc. v. Alvarez, it is
possible that we may be subject to additional employee claims.
Unknown
matters, new laws and regulations, or stricter interpretations of existing laws
or regulations may materially affect our business or operations in the
future.
Immigration
Legislation and Enforcement. New immigration legislation or
increased enforcement efforts in connection with existing immigration
legislation could cause our costs of doing business to increase, cause us to
change the way in which we do business or otherwise disrupt our
operations.
Immigration
reform continues to attract significant attention in the public arena and the
United States Congress. If new federal immigration legislation is enacted or if
states in which we do business enact immigration laws, such laws may contain
provisions that could make it more difficult or costly for us to hire United
States citizens and/or legal immigrant workers. In such case, we may incur
additional costs to run our business or may have to change the way we conduct
our operations, either of which could have a material adverse effect on our
business, operating results and financial condition. Also, despite our past and
continuing efforts to hire only United States citizens and/or persons legally
authorized to work in the United States, we are unable to ensure that all of our
employees are United States citizens and/or persons legally authorized to work
in the United States. US Immigration and Customs Enforcement has recently been
investigating identity theft within our workforce. With our cooperation,
during 2008 US Immigration and Customs Enforcement arrested approximately
350 of our employees believed to have engaged in identity theft at five of our
facilities. No assurances can be given that further enforcement efforts by
governmental authorities will not disrupt a portion of our workforce or our
operations at one or more of our facilities, thereby negatively impacting our
business.
Key Employee
Retention. Loss of essential employees could have a
significant negative impact on our business.
Our success is largely dependent on the
skills, experience, and efforts of our management and other employees.
Our deteriorating financial performance, along with our Chapter 11
proceedings, creates uncertainty that could lead to an increase in unwanted
attrition. The loss of the
services of one or more members of our senior management or of numerous
employees with essential skills could have a negative effect on our business,
financial condition and results of operations. If we are not able to attract
talented, committed individuals to fill vacant positions when needs arise, it
may adversely affect our ability to achieve our business
objectives.
Extreme Weather and Natural
Disasters. Extreme weather or natural disasters could
negatively impact our business.
Extreme
weather or natural disasters, including droughts, floods, excessive cold or
heat, hurricanes or other storms, could impair the health or growth of our
flocks, production or availability of feed ingredients, or interfere with our
operations due to power outages, fuel shortages, damage to our production and
processing facilities or disruption of transportation channels, among other
things. Any of these factors could have an adverse effect on our financial
results.
Control of Voting
Stock. Control over the Company is maintained by affiliates
and members of the family of Lonnie "Bo" Pilgrim.
As
described in more detail in Item 12. "Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters," through two limited
partnerships and related trusts and voting agreements, Lonnie "Bo" Pilgrim,
Patricia R. Pilgrim, his wife, and Lonnie Ken Pilgrim, his son, control 62.25%
of the voting power of our outstanding common stock. Accordingly, they control
the outcome of all actions requiring stockholder approval, including the
election of directors and significant corporate transactions, such as a merger
or other sale of the Company or its assets. This ensures their ability to
control the foreseeable future direction and management of the Company. In
addition, an event of default under certain agreements related to our
indebtedness will occur 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.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Operating
Facilities
We
operate 31 poultry processing plants located in Alabama, Arkansas, Florida,
Georgia, Kentucky, Louisiana, North Carolina, South Carolina, Tennessee, Texas,
Virginia, and West Virginia. We have one chicken processing plant in Puerto Rico
and three chicken processing plants in Mexico.
The US
chicken processing plants have weekly capacity to process 43.0 million broilers
and operated at 90.7% of capacity in 2008.
Our
Mexico facilities have the capacity to process 3.27 million broilers per week
and operated at 82% of capacity in 2008. Our Puerto Rico processing plant has
the capacity to process 0.3 million birds per week based on one eight-hour
shift per day. For segment reporting purposes, we include Puerto Rico with our
US operations.
In the
US, the processing plants are supported by 41 hatcheries, 29 feed mills and 12
rendering plants. The hatcheries, feed mills and rendering plants operated at
88%, 85% and 69% of capacity, respectively, in 2008. In Puerto Rico, the
processing plant is supported by one hatchery and one feed mill which operated
at 82% and 80% of capacity, respectively, in 2008. In Mexico, the processing
plants are supported by six hatcheries, four feed mills and two rendering
facilities. The Mexico hatcheries, feed mills and rendering facilities operated
at 97%, 84% and 69% of capacity, respectively, in 2008.
We also
operate eleven prepared chicken plants. These plants are located in Alabama,
Georgia, Louisiana, Pennsylvania, South Carolina, Tennessee, Texas and West
Virginia. These plants have the capacity to produce approximately 1,453 million
pounds of further processed product per year and in 2008 operated at
approximately 90% of capacity.
Other
Facilities and Information
We own a
partially automated distribution freezer located outside of Pittsburg, Texas,
which includes 125,000 square feet of storage area. We operate a commercial egg
operation and farm store in Pittsburg, Texas, a commercial feed mill in Mt.
Pleasant, Texas and a pork grow-out operation in Jefferson, Georgia. We own
office buildings in Pittsburg, Texas and Atlanta, Georgia, which house our
executive offices, our Logistics and Customer Service offices and our general
corporate functions as well as an office building in Mexico City, which houses
our Mexican marketing offices, and an office building in Broadway, Virginia,
which houses additional sales and marketing, research and development, and
support activities. We lease offices in Dallas, Texas and Duluth, Georgia, which
house additional sales and marketing and support activities.
We have
five regional distribution centers located in Arizona, Texas, and Utah, one of
which we own and four of which we lease.
Most of
our domestic property,
plant and equipment is pledged as collateral on our long-term debt and credit
facilities. See Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operation.”
Item 3. Legal Proceedings
As
discussed in Part I above, on December 1, 2008, the Debtors filed voluntary
petitions for reorganization under Chapter 11 of the Bankruptcy Code in the
Bankruptcy Court. The cases are being jointly administered under Case No.
08-45664. The Debtors continue to operate their business as
"debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code and orders of
the Bankruptcy Court. As of the date of the Chapter 11 filing,
virtually all pending litigation against the Company (including the actions
described below) is stayed as to the Company, and absent further order of the
Bankruptcy Court, no party, subject to certain exceptions, may take any action,
also subject to certain exceptions, to recover on pre-petition claims against
the Debtors. At this time it is not possible to predict the outcome of the
Chapter 11 filings or their effect on our business or the actions described
below.
On
October 29, 2008, Ronald Alcaldo filed suit in the U.S. District Court for the
Eastern District of Texas, Marshall Division, styled Ronald Alcaldo, Individually and On
Behalf of All Others Similarly Situated v. Pilgrim's Pride Corporation, et
al, against the Company and individual defendants Lonnie “Bo” Pilgrim,
Lonnie Ken Pilgrim, J. Clinton Rivers, Richard A. Cogdill and Clifford E.
Butler. The complaint alleges that the Company and the individual defendants
violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as
amended, and Rule 10b-5 promulgated thereunder, by allegedly failing to disclose
that "(a) the Company’s hedges to protect it from adverse changes in costs were
not working and in fact were harming the Company’s results more than helping;
(b) the Company’s inability to continue to use illegal workers would adversely
affect its margins; (c) the Company’s financial results were continuing to
deteriorate rather than improve, such that the Company’s capital structure was
threatened; (d) the Company was in a much worse position than its competitors
due to its inability to raise prices for consumers sufficient to offset cost
increases, whereas it competitors were able to raise prices to offset higher
costs affecting the industry; and (e) the Company had not made sufficient
changes to its business to succeed in the more difficult industry conditions."
Mr. Alcaldo further alleges that he purports to represent a class of all persons
or entities who acquired the common stock of the Company from May 5, 2008
through September 24, 2008. The complaint seeks unspecified injunctive relief
and an unspecified amount of damages. On November 21, 2008, the Company and the
individual defendants filed a Motion to Dismiss the lawsuit for failure to state
a claim, failure to plead fraud with particularity, and failure to satisfy the
heightened pleading requirements of the Private Securities Litigation Reform Act
of 1995. The Company intends to defend vigorously against the merits of the
action and any attempts by Alcaldo to certify a class action. The likelihood of
an unfavorable outcome or the amount or range of any possible loss to the
Company cannot be determined at this time.
The Wage
and Hour Division of the US Department of Labor conducted an industry-wide
investigation to ascertain compliance with various wage and hour issues,
including the compensation of employees for the time spent on activities such as
donning and doffing clothing and personal protective equipment. Due, in part, to
the government investigation and the recent US Supreme Court decision in IBP, Inc. v. Alvarez,
employees have brought claims against the Company. The claims filed against the
Company as of the date of this report include: “Juan Garcia, et al. v. Pilgrim’s
Pride Corporation, a/k/a Wampler Foods, Inc.”, filed in Pennsylvania state court
on January 27, 2006 and subsequently removed to the US District Court for the
Eastern District of Pennsylvania; “Esperanza Moya, et al. v. Pilgrim’s Pride
Corporation and Maxi Staff, LLC”, filed March 23, 2006 in the Eastern District
of Pennsylvania; “Barry Antee, et al. v. Pilgrim’s Pride Corporation” filed
April 20, 2006 in the Eastern District of Texas; “Stephania Aaron, et al. v.
Pilgrim’s Pride Corporation” filed August 22, 2006 in the Western District of
Arkansas; “Salvador Aguilar, et al. v. Pilgrim’s Pride Corporation” filed August
23, 2006 in the Northern District of Alabama; “Benford v. Pilgrim’s Pride
Corporation” filed November 2, 2006 in the Northern District of Alabama; “Porter
v. Pilgrim’s Pride Corporation” filed December 7, 2006 in the Eastern District
of Tennessee; “Freida Brown, et al v. Pilgrim’s Pride Corporation” filed March
14, 2007 in the Middle District of Georgia, Athens Division; “Roy Menser, et al
v. Pilgrim’s Pride Corporation” filed February 28, 2007 in the Western District
of Paducah, Kentucky; “Victor Manuel Hernandez v. Pilgrim’s Pride Corporation”
filed January 30, 2007 in the Northern District of Georgia, Rome Division;
“Angela Allen et al v. Pilgrim’s Pride Corporation” filed March 27, 2007 in
United States District Court, Middle District of Georgia, Athens Division; Daisy
Hammond and Felicia Pope v. Pilgrim’s Pride Corporation, in the
Gainesville
Division,
Northern District of Georgia, filed on June 6, 2007; Gary Price v. Pilgrim’s
Pride Corporation, in the US District Court for the Northern District of
Georgia, Atlanta Division, filed on May 21, 2007; Kristin Roebuck et al v.
Pilgrim’s Pride Corporation, in the US District Court, Athens, Georgia, Middle
District, filed on May 23, 2007; and Elaine Chao v. Pilgrim’s Pride Corporation,
in the US District Court, Dallas, Texas, Northern District, filed on August 6,
2007. The plaintiffs generally purport to bring a collective action for unpaid
wages, unpaid overtime wages, liquidated damages, costs, attorneys' fees, and
declaratory and/or injunctive relief and generally allege that they are not paid
for the time it takes to either clear security, walk to their respective
workstations, don and doff protective clothing, and/or sanitize clothing and
equipment. The presiding judge in the consolidated action in El Dorado
issued an initial Case Management order on July 9, 2007. Plaintiffs’ counsel
filed a Consolidated Amended Complaint and the parties filed a Joint Rule 26(f)
Report. A complete scheduling order has not been issued, and discovery has not
yet commenced. The parties are currently negotiating the scope of discovery. On
March 13, 2008, Judge Barnes issued an opinion and order finding that plaintiffs
and potential class members are similarly situated and conditionally certifying
the class for a collective action. On May 14, 2008, the Court issued its order
modifying and approving the court-authorized notice for current and former
employees to opt into the class. Persons who choose to opt into the class are to
do so within 90 days after the date on which the first notice was mailed. The
opt-in period is now closed. As of October 2, 2008, approximately 12,605
plaintiffs have opted into the class.
As of the
date of this report, the following suits have been filed against Gold Kist, now
merged into Pilgrim’s Pride Corporation, which make one or more of the
allegations referenced above: Merrell v. Gold Kist, Inc., in the US District
Court for the Northern District of Georgia, Gainesville Division, filed on
December 21, 2006; Harris v. Gold Kist, Inc., in the US District Court for the
Northern District of Georgia, Newnan Division, filed on December 21, 2006;
Blanke v. Gold Kist, Inc., in the US District Court for the Southern District of
Georgia, Waycross Division, filed on December 21, 2006; Clarke v. Gold Kist,
Inc., in the US District Court for the Middle District of Georgia, Athens
Division, filed on December 21, 2006; Atchison v. Gold Kist, Inc., in the US
District Court for the Northern District of Alabama, Middle Division, filed on
October 3, 2006; Carlisle v. Gold Kist, Inc., in the US District Court for the
Northern District of Alabama, Middle Division, filed on October 2, 2006; Benbow
v. Gold Kist, Inc., in the US District Court for the District of South Carolina,
Columbia Division, filed on October 2, 2006; Bonds v. Gold Kist, Inc., in the US
District Court for the Northern District of Alabama, Northwestern Division,
filed on October 2, 2006. On April 23, 2007, Pilgrim’s filed a Motion to
Transfer and Consolidate with the Judicial Panel on Multidistrict Litigation
(“JPML”) requesting that all of the pending Gold Kist cases be consolidated into
one case. Pilgrim’s Pride withdrew its Motion subject to the Plaintiffs’
counsel’s agreement to consolidate the seven separate actions into the pending
Benbow case by
dismissing those lawsuits and refiling/consolidating them into the Benbow action. Motions to
Dismiss have been filed in all of the pending seven cases, and all of these
cases have been formally dismissed. Pursuant to an agreement between the
parties, which was approved by Court-order on June 6, 2007, these cases have
been consolidated with the Benbow case. On that date,
Plaintiffs were authorized to send notice to individuals regarding the pending
lawsuits and were instructed that individuals had three months to file consents
to opting in as plaintiffs in the consolidated cases. The opt-in period is now
closed. To date, there are approximately 3,006 named plaintiffs and opt-in
plaintiffs in the consolidated cases. The Company and Plaintiffs have jointly
requested the Court to remove 367 opt-in plaintiffs because they do not fall
within
the class
definition. The Court recently ordered that Pilgrim’s can depose and serve
written discovery on the named plaintiffs and approximately 10% of the opt-in
class. The Company intends to assert a vigorous defense to the litigation. The
amount of ultimate liability with respect to any of these cases cannot be
determined at this time.
We are
subject to various other legal proceedings and claims, which arise in the
ordinary course of our business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect our
financial condition, results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security
Holders
None.
PART
II
|
|
Item 5.Market for the Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
|
Market
Information
During
the period covered by this report, the Company’s common stock was traded on the
NYSE under the ticker symbol “PPC”. Effective December 1, 2008, the NYSE delisted our common stock
as a result of the Company's filing of its Chapter 11
petitions. Our common stock is now quoted on the Pink Sheets Electronic
Quotation Service under the ticker symbol "PGPDQ.PK."
High and low prices of and dividends
relating to the Company’s common stock for the periods indicated
were:
|
2008
Prices
|
2007
Prices
|
Dividends
|
||||||||||||||||||||||
|
Quarter
|
High
|
Low
|
High
|
Low
|
2008
|
2007
|
||||||||||||||||||
|
First
|
$ | 35.98 | $ | 22.52 | $ | 29.54 | $ | 23.64 | $ | 0.0225 | $ | 0.0225 | ||||||||||||
|
Second
|
$ | 28.96 | $ | 20.38 | $ | 33.19 | $ | 28.59 | $ | 0.0225 | $ | 0.0225 | ||||||||||||
|
Third
|
$ | 27.15 | $ | 12.90 | $ | 38.17 | $ | 32.77 | $ | 0.0225 | $ | 0.0225 | ||||||||||||
|
Fourth
|
$ | 18.16 | $ | 3.26 | $ | 40.59 | $ | 32.29 | $ | 0.0225 | $ | 0.0225 | ||||||||||||
Holders
The
Company estimates there were approximately 29,700 holders (including individual
participants in security position listings) of the Company’s common stock as of
December 9, 2008.
Dividends
Under the
terms of the DIP Credit Agreement and applicable bankruptcy law, the Company may
not pay dividends on the common stock while it is in bankruptcy. Any payment of
future dividends and the amounts thereof will depend on our emergence from
bankruptcy, our earnings, our financial requirements and other factors deemed
relevant by our Board of Directors at the time. See Note L—Notes Payable and
Long-Term Debt to the Consolidated Financial Statements included in Item 15 for
additional discussions of the Company's credit facilities.
Issuer
Purchases of Equity Security in 2008
The
Company did not repurchase any of its equity securities in 2008.
Total
Return on Registrant’s Common Equity
The
following graphs compare the performance of the Company with that of the Russell
2000 composite index and a peer group of companies with the investment weighted
on market capitalization. The total cumulative return on investment (change in
the year-end stock price plus reinvested dividends) for each of the periods for
the Company, the Russell 2000 composite index and the peer group is based on the
stock price or composite index at the beginning of the applicable period.
Companies in the peer group index include Cagle's, Inc., Sanderson Farms Inc.,
Hormel Foods Corp., Smithfield Foods Inc. and Tyson Foods Inc.
The first
graph covers the period from November 21, 2003 through September 27, 2008 and
shows the performance of the Company's single class of common stock. On November
21, 2003, each share of the Company's then outstanding Class A common stock and
Class B common stock was reclassified into one share of new common stock, which
is now the only authorized class of the Company's common stock.
The
second graph covers the five years ending September 27, 2008 and shows the
performance of the Company's Class A and Class B shares after giving effect to
the reclassification into the Company's single class of common stock on November
21, 2003 based on a one to one exchange ratio.
The third
graph covers the period from September 27, 2003 through November 20, 2003, the
last date on which the Company's Class A and Class B shares traded on the New
York Stock Exchange prior to reclassification into a single new class of shares
of common stock.
The stock
price performance represented by these graphs is not necessarily indicative of
future stock performance.
|
|
11/21/03
|
10/2/04
|
10/1/05
|
9/30/06
|
9/29/07
|
9/27/08
|
||||||||||||||||||
|
Pilgrim’s
Pride Corporation
|
$ | 100.00 | $ | 190.89 | $ | 254.14 | $ | 197.18 | $ | 251.08 | $ | 25.79 | ||||||||||||
|
Russell
2000
|
$ | 100.00 | $ | 113.10 | $ | 129.73 | $ | 142.61 | $ | 160.21 | $ | 160.21 | ||||||||||||
|
Peer
Group
|
$ | 100.00 | $ | 112.59 | $ | 131.40 | $ | 127.35 | $ | 140.41 | $ | 110.00 | ||||||||||||
|
9/27/03
|
11/20/03
|
10/2/04
|
10/1/05
|
9/30/06
|
9/29/07
|
9/27/08
|
||||||||||||||||||||||
|
Pilgrim's
Pride Corporation Class A(1)
|
$ | 100.00 | $ | 106.95 | $ | 212.12 | $ | 282.40 | $ | 219.11 | $ | 279.00 | $ | 28.65 | ||||||||||||||
|
Pilgrim's
Pride Corporation Class B(1)
|
$ | 100.00 | $ | 107.94 | $ | 211.79 | $ | 281.96 | $ | 218.77 | $ | 278.57 | $ | 28.61 | ||||||||||||||
|
Russell
2000
|
$ | 100.00 | $ | 107.93 | $ | 122.74 | $ | 140.79 | $ | 154.77 | $ | 173.86 | $ | 154.19 | ||||||||||||||
|
Peer
Group
|
$ | 100.00 | $ | 110.95 | $ | 123.52 | $ | 144.17 | $ | 139.71 | $ | 154.04 | $ | 120.69 | ||||||||||||||
|
(1)
|
On November 21, 2003, each share
of the Company’s then outstanding Class A common
stock and Class B common stock was reclassified
into one share of new common
stock, which is now
the only authorized class of the Company’s common
stock.
|
|
9/27/03
|
11/20/03
|
|||||||
|
Pilgrim's
Pride Corporation Class A(1)
|
$ | 100.00 | $ | 106.95 | ||||
|
Pilgrim's
Pride Corporation Class B(1)
|
$ | 100.00 | $ | 107.94 | ||||
|
Russell
2000
|
$ | 100.00 | $ | 107.93 | ||||
|
Peer
Group
|
$ | 100.00 | $ | 110.95 | ||||
|
(1)
|
On November 21, 2003, each share
of the Company’s then outstanding Class A common
stock and Class B common stock was reclassified
into one share of new common
stock, which is now the only authorized class of the Company’s common
stock.
|
Item 6. Selected Financial
Data
|
(In
thousands, except ratios and per share data)
|
Eleven
Years Ended September 27, 2008
|
|||||||||||||||||||
|
2008(a)
|
2007(a)(b)
|
2006(a)
|
2005(a)
|
|||||||||||||||||
|
Income
Statement Data:
|
||||||||||||||||||||
|
Net
sales
|
$ | 8,525,112 | $ | 7,498,612 | $ | 5,152,729 | $ | 5,461,437 | ||||||||||||
|
Gross
profit (loss)(e)
|
(163,495 | ) | 592,730 | 297,083 | 751,317 | |||||||||||||||
|
Goodwill
impairment
|
501,446 | — | — | — | ||||||||||||||||
|
Operating
income (loss)(e)
|
(1,057,696 | ) | 237,191 | 11,105 | 458,351 | |||||||||||||||
|
Interest
expense, net
|
131,627 | 118,542 | 38,965 | 42,632 | ||||||||||||||||
|
Loss
on early extinguishment of debt
|
— | 26,463 | — | — | ||||||||||||||||
|
Income
(loss) from continuing operations before income taxes(e)
|
(1,187,093 | ) | 98,835 | (26,626 | ) | 427,632 | ||||||||||||||
|
Income
tax expense (benefit)(f)
|
(194,921 | ) | 47,319 | 1,573 | 147,543 | |||||||||||||||
|
Income
(loss) from continuing operations(e)
|
(992,172 | ) | 51,516 | (28,199 | ) | 279,819 | ||||||||||||||
|
Net
income (loss)(e)
|
(998,581 | ) | 47,017 | (34,232 | ) | 264,979 | ||||||||||||||
|
Ratio
of earnings to fixed charges(g)
|
(g)
|
1.63 | x |
(g)
|
7.69 | x | ||||||||||||||
|
Per
Common Share Data:(h)
|
||||||||||||||||||||
|
Income
(loss) from continuing operations
|
$ | (14.31 | ) | $ | 0.77 | $ | (0.42 | ) | $ | 4.20 | ||||||||||
|
Net
income (loss)
|
(14.40 | ) | 0.71 | (0.51 | ) | 3.98 | ||||||||||||||
|
Cash
dividends
|
0.09 | 0.09 | 1.09 | 0.06 | ||||||||||||||||
|
Book
value
|
5.07 | 17.61 | 16.79 | 18.38 | ||||||||||||||||
|
Balance
Sheet Summary:
|
||||||||||||||||||||
|
Working
capital surplus (deficit)
|
$ | (1,262,242 | ) | $ | 395,858 | $ | 528,837 | $ | 404,601 | |||||||||||
|
Total
assets
|
3,298,709 | 3,774,236 | 2,426,868 | 2,511,903 | ||||||||||||||||
|
Notes
payable and current maturities of long-term debt
|
1,874,469 | 2,872 | 10,322 | 8,603 | ||||||||||||||||
|
Long-term
debt, less current maturities
|
67,514 | 1,318,558 | 554,876 | 518,863 | ||||||||||||||||
|
Total
stockholders’ equity
|
351,741 | 1,172,221 | 1,117,328 | 1,223,598 | ||||||||||||||||
|
Cash
Flow Summary:
|
||||||||||||||||||||
|
Cash
flows from operating activities
|
$ | (680,726 | ) | $ | 464,010 | $ | 30,329 | $ | 493,073 | |||||||||||
|
Depreciation
and amortization(i)
|
240,305 | 204,903 | 135,133 | 134,944 | ||||||||||||||||
|
Impairment
of goodwill and other assets
|
514,630 | — | 3,767 | — | ||||||||||||||||
|
Purchases
of investment securities
|
(38,043 | ) | (125,045 | ) | (318,266 | ) | (305,458 | ) | ||||||||||||
|
Proceeds
from sale or maturity of investment securities
|
27,545 | 208,676 | 490,764 | — | ||||||||||||||||
|
Acquisitions
of property, plant and equipment
|
(152,501 | ) | (172,323 | ) | (143,882 | ) | (116,588 | ) | ||||||||||||
|
Business
acquisitions, net of equity consideration(b)(c)(d)
|
— | (1,102,069 | ) | — | — | |||||||||||||||
|
Cash
flows from financing activities
|
797,743 | 630,229 | (38,750 | ) | 18,860 | |||||||||||||||
|
Other
Data:
|
||||||||||||||||||||
|
EBITDA(j)
|
$ | (820,878 | ) | $ | 414,139 | $ | 143,443 | $ | 599,274 | |||||||||||
|
Key
Indicators (as a percent of net sales):
|
||||||||||||||||||||
|
Gross
profit (loss)(e)
|
(1.9 | ) |
%
|
7.9 |
%
|
5.8 |
%
|
13.8 | % | |||||||||||
|
Selling,
general and administrative expenses
|
4.4 |
%
|
4.7 |
%
|
5.6 |
%
|
5.4 | % | ||||||||||||
|
Operating
income (loss)(e)
|
(12.4 | ) |
%
|
3.2 |
%
|
0.2 |
%
|
8.4 | % | |||||||||||
|
Interest
expense, net
|
1.5 |
%
|
1.6 |
%
|
0.8 |
%
|
0.8 | % | ||||||||||||
|
Income
(loss) from continuing operations(e)
|
(11.6 | ) |
%
|
0.7 |
%
|
(0.5 | ) |
%
|
5.1 | % | ||||||||||
|
Net
income (loss)(e)
|
(11.7 | ) |
%
|
0.6 |
%
|
(0.7 | ) |
%
|
4.9 | % | ||||||||||
|
Eleven
Years Ended September 27, 2008
|
|||||||||||||||||||||||||||||||||
|
2004(a)(c)
|
2003(a)
|
2002(a)
|
2001(a)(d)
|
2000
|
1999
|
1998
|
|||||||||||||||||||||||||||
|
(53
weeks)
|
(53
weeks)
|
||||||||||||||||||||||||||||||||
| $ | 5,077,471 | $ | 2,313,667 | $ | 2,185,600 | $ | 1,975,877 | $ | 1,499,439 | $ | 1,357,403 | $ | 1,331,545 | ||||||||||||||||||||
| 611,838 | 249,363 | 153,599 | 197,561 | 165,828 | 185,708 | 136,103 | |||||||||||||||||||||||||||
| — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| 385,968 | 137,605 | 48,457 | 90,253 | 80,488 | 109,504 | 77,256 | |||||||||||||||||||||||||||
| 48,419 | 30,726 | 24,199 | 25,619 | 17,779 | 17,666 | 20,148 | |||||||||||||||||||||||||||
| — | — | — | 1,433 | — | — | — | |||||||||||||||||||||||||||
| 332,899 | 144,482 | 28,267 | 62,728 | 62,786 | 90,904 | 56,522 | |||||||||||||||||||||||||||
| 127,142 | 37,870 | (2,475 | ) | 21,051 | 10,442 | 25,651 | 6,512 | ||||||||||||||||||||||||||
| 205,757 | 106,612 | 30,742 | 41,677 | 52,344 | 65,253 | 50,010 | |||||||||||||||||||||||||||
| 128,340 | 56,036 | 14,335 | 41,137 | 52,344 | 65,253 | 50,010 | |||||||||||||||||||||||||||
| 6.22 | x | 4.37 | x | 1.21 | x | 1.80 | x | 3.04 | x | 4.33 | x | 2.96 | x | ||||||||||||||||||||
| $ | 3.28 | $ | 2.59 | $ | 0.75 | $ | 1.01 | $ | 1.27 | $ | 1.58 | $ | 1.21 | ||||||||||||||||||||
| 2.05 | 1.36 | 0.35 | 1.00 | 1.27 | 1.58 | 1.21 | |||||||||||||||||||||||||||
| 0.06 | 0.06 | 0.06 | 0.06 | 0.06 | 0.05 | 0.04 | |||||||||||||||||||||||||||
| 13.87 | 10.46 | 9.59 | 9.27 | 8.33 | 7.11 | 5.58 | |||||||||||||||||||||||||||
| $ | 383,726 | $ | 211,119 | $ | 179,037 | $ | 203,350 | $ | 124,531 | $ | 154,242 | $ | 147,040 | ||||||||||||||||||||
| 2,245,989 | 1,257,484 | 1,227,890 | 1,215,695 | 705,420 | 655,762 | 601,439 | |||||||||||||||||||||||||||
| 8,428 | 2,680 | 3,483 | 5,099 | 4,657 | 4,353 | 5,889 | |||||||||||||||||||||||||||
| 535,866 | 415,965 | 450,161 | 467,242 | 165,037 | 183,753 | 199,784 | |||||||||||||||||||||||||||
| 922,956 | 446,696 | 394,324 | 380,932 | 342,559 | 294,259 | 230,871 | |||||||||||||||||||||||||||
| $ | 272,404 | $ | 98,892 | $ | 98,113 | $ | 87,833 | $ | 130,803 | $ | 81,452 | $ | 85,016 | ||||||||||||||||||||
| 113,788 | 74,187 | 70,973 | 55,390 | 36,027 | 34,536 | 32,591 | |||||||||||||||||||||||||||
| 45,384 | — | — | — | — | — | — | |||||||||||||||||||||||||||
| — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| (79,642 | ) | (53,574 | ) | (80,388 | ) | (112,632 | ) | (92,128 | ) | (69,649 | ) | (53,518 | ) | ||||||||||||||||||||
| (272,097 | ) | (4,499 | ) | — | (239,539 | ) | — | — | — | ||||||||||||||||||||||||
| 96,665 | (39,767 | ) | (21,793 | ) | 246,649 | (24,769 | ) | (19,634 | ) | (32,498 | ) | ||||||||||||||||||||||
| $ | 486,268 | $ | 239,997 | $ | 112,852 | $ | 136,604 | $ | 115,356 | $ | 142,043 | $ | 108,268 | ||||||||||||||||||||
| 12.1 |
%
|
10.8 |
%
|
7.0 |
%
|
10.0 |
%
|
11.1 |
%
|
13.7 |
%
|
10.2 | % | ||||||||||||||||||||
| 4.3 |
%
|
4.8 |
%
|
4.8 |
%
|
5.4 |
%
|
5.7 |
%
|
5.6 |
%
|
4.4 | % | ||||||||||||||||||||
| 7.6 |
%
|
5.9 |
%
|
2.2 |
%
|
4.6 |
%
|
5.4 |
%
|
8.1 |
%
|
5.8 | % | ||||||||||||||||||||
| 1.0 |
%
|
1.3 |
%
|
1.1 |
%
|
1.3 |
%
|
1.2 |
%
|
1.3 |
%
|
1.5 | % | ||||||||||||||||||||
| 4.1 |
%
|
4.6 |
%
|
1.4 |
%
|
2.1 |
%
|
3.5 |
%
|
4.8 |
%
|
3.8 | % | ||||||||||||||||||||
| 2.1 |
%
|
2.4 |
%
|
0.7 |
%
|
2.1 |
%
|
3.5 |
%
|
4.8 |
%
|
3.8 | % | ||||||||||||||||||||
|
(a)
|
In
March 2008, the Company sold certain assets of its turkey business. We are
reporting our operations with respect to this business as a discontinued
operation for all periods presented.
|
|
(b)
|
The
Company acquired Gold Kist Inc. on December 27, 2006 for $1.139 billion.
For financial reporting purposes, we have not included the operating
results and cash flows of Gold Kist in our consolidated financial
statements for the period
from December 27, 2006 through December 30, 2006. The operating
results and cash flows of Gold Kist from December 27, 2006 through
December 30, 2006 were not material.
|
|
(c)
|
The
Company acquired the ConAgra Chicken division on November 23, 2003 for
$635.2 million including the non-cash value of common stock issued of
$357.5 million. 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.
|
|
(d)
|
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.
|
|
(e)
|
Gross
profit, operating income and net income include the following
non-recurring recoveries, restructuring charges and other unusual items
for each of the years presented:
|
|
2008
|
2005
|
2004
|
2003
|
|||||||||||||
|
Effect
on gross profit and operating income:
|
(In
millions)
|
|||||||||||||||
|
Operational
restructuring charges
|
$ | (13.1 | ) | $ | — | $ | — | $ | — | |||||||
|
Non-recurring
recoveries for recall insurance
|
$ | — | $ | — | $ | 23.8 | $ | — | ||||||||
|
Non-recurring
recoveries for avian influenza
|
$ | — | $ | — | $ | — | $ | 26.6 | ||||||||
|
Non-recurring
recoveries for vitamin and methionine litigation
|
$ | — | $ | — | $ | 0.1 | $ | 19.9 | ||||||||
|
Additional
effect on operating income:
|
||||||||||||||||
|
Goodwill
impairment
|
$ | (501.4 | ) | $ | — | $ | — | $ | — | |||||||
|
Administrative
restructuring charges
|
(16.2 | ) | $ | — | $ | — | $ | — | ||||||||
|
Other
income for litigation settlement
|
$ | — | $ | 11.7 | $ | — | $ | — | ||||||||
|
Other
income for vitamin and methionine litigation
|
$ | — | $ | — | $ | 0.9 | $ | 36.0 | ||||||||
|
In
addition, the Company estimates its losses related to the October 2002
recall (excluding insurance recoveries) and the 2002 avian influenza
outbreak negatively affected gross profit and operating income in each of
the years presented as follows (in
millions):
|
|
2004
|
2003
|
2002
|
||||||||||
|
Recall
effects (estimated)
|
$ | (20.0 | ) | $ | (65.0 | ) | $ | — | ||||
|
Losses
from avian influenza (estimated)
|
$ | — | $ | (7.3 | ) | $ | (25.6 | ) | ||||
|
(f)
|
Income
tax benefit recognized in 2008 resulted primarily from net operating
losses incurred in 2008 which are offset by the tax effect of goodwill
impairment and valuation allowances. Income tax expense recognized in 2006
included $25.8 million associated with the restructuring of the Mexico
operations and subsequent repatriation of foreign earnings under the
American Jobs Creation Act of 2004. Income tax expense recognized in 2003
included a non-cash tax benefit of $16.9 million associated with the
reversal of a valuation allowance on net operating losses in the Company’s
Mexico operations. Income tax benefit recognized in 2002 included a tax
benefit of $11.9 million from changes in Mexican tax
laws.
|
|
(g)
|
For
purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest (including
capitalized interest) on all indebtedness, amortization of capitalized
financing costs and that portion of rental expense that we believe to be
representative of interest. Earnings were inadequate to cover fixed
charges by $1.2 billion and $30.9 million in 2008 and 2006,
respectively.
|
|
(h)
|
Historical
per share amounts represent both basic and diluted and have been restated
to give effect to a stock dividend issued on July 30, 1999. The stock
reclassification on November 21, 2003 that resulted in the new common
stock traded as PPC did not affect the number of shares
outstanding.
|
|
(i)
|
Includes
amortization of capitalized financing costs of approximately $4.9 million,
$6.6 million, $2.6 million, $2.3 million, $2.0 million,
$1.5 million, $1.4 million, $1.9 million, $1.2 million, $1.1 million,
and $1.0 million in 2008, 2007, 2006, 2005, 2004, 2003, 2002, 2001, 2000,
1999, and 1998, respectively.
|
|
(j)
|
“EBITDA”
is defined as the sum of income (loss) from continuing operations plus
interest, taxes, depreciation and amortization. EBITDA is presented
because it is used by us and we believe it is frequently used by
securities analysts, investors and other interested parties, in addition
to and not in lieu of results prepared in conformity with accounting
principles generally accepted in the US (“GAAP”), to compare the
performance of companies. EBITDA is not a measurement of financial
performance under GAAP and should not be considered as an alternative to
cash flow from operating activities or as a measure of liquidity or an
alternative to net income as indicators of our operating performance or
any other measures of performance derived in accordance with
GAAP.
|
A
reconciliation of income (loss) from continuing operations to EBITDA is as
follows:
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||
|
Income
(loss) from continuing operations
|
$ | (992,172 | ) | $ | 51,516 | $ | (28,199 | ) | $ | 279,819 | $ | 205,757 | ||||||||
|
Add:
|
||||||||||||||||||||
|
Interest
expense, net
|
131,627 | 118,542 | 38,965 | 42,632 | 48,419 | |||||||||||||||
|
Income
tax expense (benefit)
|
(194,921 | ) | 47,319 | 1,573 | 147,543 | 127,142 | ||||||||||||||
|
Depreciation
and amortization(i)
|
239,535 | 203,316 | 133,710 | 131,601 | 106,901 | |||||||||||||||
|
Minus:
|
||||||||||||||||||||
|
Amortization
of capitalized financing costs(i)
|
4,947 | 6,554 | 2,606 | 2,321 | 1,951 | |||||||||||||||
|
EBITDA
|
(820,878 | ) | 414,139 | 143,443 | $ | 599,274 | $ | 486,268 | ||||||||||||
|
Add:
|
||||||||||||||||||||
|
Goodwill
impairment
|
501,446 | — | — | |||||||||||||||||
|
Restructuring
charges
|
29,239 | — | 3,767 | |||||||||||||||||
|
Loss
on early extinguishment of debt
|
— | 26,463 | — | |||||||||||||||||
|
Adjusted
EBITDA
|
$ | (290,193 | ) | $ | 440,602 | $ | 147,210 | |||||||||||||
|
2003
|
2002
|
2001
|
2000
|
1999
|
1998
|
|||||||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||||||
|
Income
(loss) from continuing operations
|
$ | 106,612 | $ | 30,742 | $ | 41,677 | $ | 52,344 | $ | 65,253 | $ | 50,010 | ||||||||||||
|
Add:
|
||||||||||||||||||||||||
|
Interest
expense, net
|
30,726 | 24,199 | 25,619 | 17,779 | 17,666 | 20,148 | ||||||||||||||||||
|
Income
tax expense (benefit)
|
37,870 | (2,475 | ) | 21,051 | 10,442 | 25,651 | 6,512 | |||||||||||||||||
|
Depreciation
and amortization(i)
|
66,266 | 61,803 | 50,117 | 36,027 | 34,536 | 32,591 | ||||||||||||||||||
|
Minus:
|
||||||||||||||||||||||||
|
Amortization
of capitalized financing costs(i)
|
1,477 | 1,417 | 1,860 | 1,236 | 1,063 | 993 | ||||||||||||||||||
|
EBITDA
|
$ | 239,997 | $ | 112,852 | 136,604 | $ | 115,356 | $ | 142,043 | $ | 108,268 | |||||||||||||
|
Add:
|
||||||||||||||||||||||||
|
Loss
on early extinguishment of debt
|
1,433 | |||||||||||||||||||||||
|
Adjusted
EBITDA
|
$ | 138,037 | ||||||||||||||||||||||
Note: We
have included EBITDA adjusted to exclude goodwill impairment in 2008,
restructuring charges in 2008 and 2006, and losses on early extinguishment of
debt in 2007 and 2001. We believe investors may be interested in our EBITDA
excluding these items because this is how our management analyzes EBITDA from
continuing operations.
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Description
of the Company
Pilgrim's Pride Corporation is one the largest chicken companies in the US, Mexico and Puerto Rico. Our fresh chicken retail line is sold in
the southeastern,
central, southwestern and western regions of the US, throughout Puerto Rico, and in the northern and central regions of Me
xico. Our prepared chicken products meet the needs of some of the
largest customers in the food service industry across the US. Additionally, the Company exports commodity chicken
products to 80 countries. As a vertically integrated company, we
control every phase of the
production of our products. We operate feed mills, hatcheries, processing
plants and distribution centers in 14 US states, Puerto Rico and Mexico. Pilgrim’s Pride operates in two
business segments—Chicken and Other Products.
Our fresh
chicken products consist of refrigerated (non-frozen) whole or cut-up chicken,
either pre-marinated or non-marinated, and pre-packaged chicken in various
combinations of freshly refrigerated, whole chickens and chicken parts. 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.
Business
Environment
The
Company faced an extremely challenging business environment in 2008. We reported
a net loss of $998.6 million, or $14.40 per common share, for the year, which
included a negative gross margin of $163.5 million. As of September 27, 2008,
the Company’s accumulated deficit aggregated $317.1 million. During 2008, the
Company used $680.7 million of cash in operations. At September 27, 2008, we had
cash and cash equivalents totaling $61.6 million. The following factors
contributed to this performance:
|
·
|
Feed
ingredient costs increased substantially to unprecedented levels between
the first quarter of 2007 and the end of 2008 principally because of
increasing demand for these products around the world and alternative uses
of these products, such as ethanol and biodiesel production. The following
table compares the highest prices reached on nearby futures for one bushel
of corn and one ton of soybean meal during the past four years and for
each quarter in 2008:
|
|
Corn
|
Soybean
Meal
|
|||||||
|
2008:
|
||||||||
|
Fourth
Quarter
|
$ | 7.50 | $ | 455.50 | ||||
|
Third
Quarter
|
7.63 | 427.90 | ||||||
|
Second
Quarter
|
5.70 | 384.50 | ||||||
|
First
Quarter
|
4.57 | 341.50 | ||||||
|
2007
|
4.37 | 286.50 | ||||||
|
2006
|
2.68 | 204.50 | ||||||
|
2005
|
2.63 | 238.00 | ||||||
|
·
|
While
chicken selling prices generally improved over the first 18 months of the
same period, prices did not improve sufficiently to offset the higher
costs of feed ingredients. More recently, prices have actually declined as
the result of weak demand for breast meat and a general oversupply of
chicken in the US. Although many producers within the industry, including
Pilgrim’s Pride, cut production in an effort to correct the oversupply
situation, the cuts were neither timely nor deep enough to cause
noticeable improvement to date.
|
|
·
|
The
Company recognized losses on derivative financial instruments, primarily
futures contracts and options on corn and soybean meal, during 2008
totaling $38.3 million. In the fourth quarter of 2008, it recognized
losses on derivative financial instruments totaling $155.7 million. In
late June and July of 2008, management executed various derivative
financial instruments for August and September soybean meal and corn
prices because they were concerned that prices could escalate based on
various factors such as the recent flooding in the areas where these
grains were produced and recent trends in commodity prices. After entering
into these positions, the prices of the commodities decreased
significantly in July and August of 2008 creating these
losses.
|
|
·
|
As
the result of the downward pressure placed on earnings by the increased
cost of feed ingredients, weak demand for breast meat and the oversupply
of chicken and other animal-based proteins in the US, the Company
evaluated the carrying amount of its goodwill for potential impairment at
September 27, 2008. We obtained valuation reports as of September 27,
2008 that indicated the carrying amount of our goodwill should be fully
impaired based on current conditions. As a result, we recognized a pretax
impairment charge of $501.4 million during
2008.
|
|
·
|
Because
of the current-year losses, the Company was in a cumulative loss position
in both the US and Mexico for the purpose of assessing the realizability
of its net deferred tax assets position. The Company did not believe it
had sufficient positive evidence to conclude that realization of its net
deferred tax assets position in the US and Mexico was more likely than not
to occur. Therefore, the Company increased its valuation allowance and
recognized related income tax expense of approximately $71.2 million
during 2008.
|
In
September 2008, the Company notified its lenders that it expected to incur a
significant loss in the fourth quarter of 2008 and entered into agreements with
them to temporarily waive the fixed-charge coverage ratio covenant under its
credit facilities. The lenders agreed to continue to provide liquidity under the
credit facilities during the thirty-day period ended October 28, 2008. On
October 27, 2008, the Company entered into further agreements with its lenders
to temporarily waive the fixed-charge coverage ratio and leverage ratio
covenants under its credit facilities. The lenders agreed to continue to provide
liquidity under the credit facilities during the thirty-day period ended
November 26, 2008. On that same day, the Company also announced its intention to
exercise its 30-day grace period in making a $25.7 million interest payment due
on November 3, 2008 under its 8 3/8% senior subordinated notes and its 7 5/8%
senior notes. On November 17, 2008, the Company exercised its 30-day grace
period in making a $0.3 million interest payment due on November 17, 2008 under
its 9 1/4% senior subordinated notes. On November 26, 2008, the Company
entered into further agreements with its lenders to extend the temporary waivers
until December 1, 2008.
Chapter
11 Bankruptcy Filings
On
December 1, 2008, the Debtors filed voluntary petitions for reorganization under
the Bankruptcy Code in the Bankruptcy Court as a result of many of the items
discussed under Business Environment. The cases are being jointly administered
under Case No. 08-45664. The Company’s Non-filing Subsidiaries will continue to
operate outside the Chapter 11 process.
Subject
to certain exceptions under the Bankruptcy Code, the Debtors’ Chapter 11 filing
automatically enjoined, or stayed, the continuation of any judicial or
administrative proceedings or other actions against the Debtors or their
property to recover on, collect or secure a claim arising prior to the Petition
Date. Thus, for example, most creditor actions to obtain possession of property
from the Debtors, or to create, perfect or enforce any lien against the property
of the Debtors, or to collect on monies owed or otherwise exercise rights or
remedies with respect to a pre-petition claim are enjoined unless and until the
Bankruptcy Court lifts the automatic stay.
On
December 1, 2008, the New York
Stock Exchange delisted our common stock from trading as a result of the Company's filing of its Chapter 11 petitions.
Our common stock is now quoted on the Pink Sheets Electronic Quotation Service
under the ticker symbol "PGPDQ.PK."
The
filing of the Chapter 11 petitions constituted an event of default under
certain of our debt obligations, and those debt obligations became automatically
and immediately due and payable, subject to an automatic stay of any action to
collect, assert, or recover a claim against the Company and the application of
applicable bankruptcy law. As a result, the accompanying Consolidated Balance
Sheet as of September 27, 2008 includes a reclassification of $1,872.1 million
to reflect as current certain long-term debt under its credit facilities that,
absent the stay, would have become automatically and immediately due and
payable.
Chapter
11 Process
The
Debtors are currently operating as "debtors in possession" under the
jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In
general, as debtors in possession, we are authorized under Chapter 11 to
continue to operate as an ongoing business, but may not engage in transactions
outside the ordinary course of business without the prior approval of the
Bankruptcy Court.
On
December 2, 2008, the Bankruptcy
Court granted interim approval authorizing the Company and the US Subsidiaries to enter into the DIP
Credit Agreement,
and the Company, the US
Subsidiaries and the other parties entered into the DIP Credit Agreement,
subject to final approval
of the Bankruptcy Court.
The DIP Credit Agreement provides for an
aggregate commitment of up to $450 million, which permits borrowings on a
revolving basis. The Company received interim approval to access
$365 million of the commitment pending
issuance of the final order by the Bankruptcy Court. Outstanding borrowings
under the DIP Credit Agreement will bear interest at a per annum rate equal to
8.0% plus the greatest of (i) the prime rate as established by the DIP agent
from time to time, (ii) the average federal funds rate plus 0.5%, or
(iii) the LIBOR rate plus 1.0%, payable monthly. The loans under the DIP Credit Agreement
were used to repurchase all receivables sold under the Company's RPA and may be used to fund the working
capital requirements of the Company and its subsidiaries according to a budget
as approved by the required lenders under the DIP Credit Agreement. For
additional information on the RPA, see Item 7. "Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Liquidity and Capital
Resources."
Actual borrowings by the Company under
the DIP Credit Agreement are subject to a borrowing base, which is a formula
based on certain eligible inventory and eligible receivables. The borrowing base
formula is reduced by pre-petition obligations under the Fourth Amended and
Restated Secured Credit Agreement dated as of February 8, 2007, among the
Company and certain of its subsidiaries, Bank of Montreal, as administrative
agent, and the lenders parties thereto, as amended, administrative and professional expenses, and the amount
owed by the Company and the Debtor Subsidiaries to any person on account of the
purchase price of agricultural products or services (including poultry and
livestock) if that person is entitled to any grower's or producer's lien or other security
arrangement. The borrowing base is also limited to 2.22 times the formula amount
of total eligible receivables. As of December 6, 2008, the applicable borrowing base
was $324.8
million and the amount
available for borrowings under the DIP Credit Agreement was
$210.9 million.
The principal amount of outstanding
loans under the DIP Credit Agreement, together with accrued and unpaid interest
thereon, are payable in full at maturity on December 1, 2009, subject to
extension for an additional
six months with the approval of all lenders thereunder. All obligations under
the DIP Credit Agreement are unconditionally guaranteed by the US Subsidiaries
and are secured by a first priority priming lien on substantially all of the
assets of the Company and the US Subsidiaries,
subject to specified permitted liens in the DIP Credit
Agreement.
The DIP Credit Agreement allows the Company to provide advances to the Non-filing Subsidiaries of up to
approximately $25 million at any time outstanding. Management believes that all of the Non-filing
Subsidiaries, including
the Company’s Mexican subsidiaries, will be able to operate within this
limitation.
For additional information on the DIP
Credit Agreement, see Item 7. "Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital
Resources."
The Bankruptcy Court has approved
payment of certain of the Debtors’ pre-petition obligations, including,
among other things, employee wages, salaries and benefits, and the Bankruptcy Court has
approved the Company's payment of vendors and other providers in the ordinary
course for goods and services received from and after the Petition Date and
other business-related payments necessary to maintain the operation of our businesses. The Debtors have
retained, subject to Bankruptcy Court approval, legal and financial
professionals to advise the Debtors on the bankruptcy proceedings and certain
other "ordinary course" professionals. From time to time, the Debtors may seek
Bankruptcy Court approval for the
retention of additional professionals.
Shortly
after the Petition Date, the Debtors began notifying all known current or
potential creditors of the Chapter 11 filing. Subject to certain exceptions
under the Bankruptcy Code, the Debtors’ Chapter 11 filing automatically
enjoined, or stayed, the continuation of any judicial or administrative
proceedings or other actions against the Debtors or their property to recover
on, collect or secure a claim arising prior to the Petition Date. Thus, for
example, most creditor actions to obtain possession of property from the
Debtors, or to create, perfect or enforce any lien against the property of the
Debtors, or to collect on monies owed or otherwise exercise rights or remedies
with respect to a pre-petition claim are enjoined unless and until the
Bankruptcy Court lifts the automatic stay. Vendors are being paid for goods
furnished and services provided after the Petition Date in the ordinary course
of business.
As
required by the Bankruptcy Code, the United States Trustee for the Northern
District of Texas appointed an official committee of unsecured creditors (the
"Creditors’ Committee"). The Creditors’ Committee and its legal representatives
have a right to be heard on all matters that come before the Bankruptcy Court
with respect to the Debtors. There can be no assurance that the Creditors’
Committee will support the Debtors’ positions on matters to be presented to the
Bankruptcy Court in the future or on any plan of reorganization, once proposed.
Disagreements between the Debtors and the Creditors’ Committee could protract
the Chapter 11 proceedings, negatively impact the Debtors’ ability to operate
and delay the Debtors’ emergence from the Chapter 11 proceedings.
Under
Section 365 and other relevant sections of the Bankruptcy Code, we may assume,
assume and assign, or reject certain executory contracts and unexpired leases,
including, without limitation, leases of real property and equipment, subject to
the approval of the Bankruptcy Court and certain other conditions. Any
description of an executory contract or unexpired lease in this report,
including where applicable our express termination rights or a quantification of
our obligations, must be read in conjunction with, and is qualified by, any
overriding rejection rights we have under Section 365 of the Bankruptcy
Code.
In order
to successfully exit Chapter 11, the Debtors will need to propose, and obtain
confirmation by the Bankruptcy Court of a plan of reorganization that satisfies
the requirements of the Bankruptcy Code. A plan of reorganization would, among
other things, resolve the Debtors’ pre-petition obligations, set forth the
revised capital structure of the newly reorganized entity and provide for
corporate governance subsequent to exit from bankruptcy.
The
Debtors have the exclusive right for 120 days after the Petition Date to file a
plan of reorganization and, if we do so, 60 additional days to obtain necessary
acceptances of our plan. We will likely file one or more motions to request
extensions of these time periods. If the Debtors’ exclusivity period lapsed, any
party in interest would be able to file a plan of reorganization for any of the
Debtors. In addition to being voted on by holders of impaired claims and equity
interests, a plan of reorganization must satisfy certain requirements of the
Bankruptcy Code and must be approved, or confirmed, by the Bankruptcy Court in
order to become effective.
The
timing of filing a plan of reorganization by us will depend on the timing and
outcome of numerous other ongoing matters in the Chapter 11 proceedings. There
can be no assurance at this time that a plan of reorganization will be confirmed
by the Bankruptcy Court or that any such plan will be implemented
successfully.
We have
incurred and will continue to incur significant costs associated with our
reorganization. The amount of these costs, which are being expensed as incurred
commencing in November 2008, are expected to significantly affect our results of
operations.
Under the
priority scheme established by the Bankruptcy Code, unless creditors agree
otherwise, pre-petition liabilities and post-petition liabilities must be
satisfied in full before stockholders are entitled to receive any distribution
or retain any property under a plan of reorganization. The ultimate recovery to
creditors and/or stockholders, if any, will not be determined until confirmation
of a plan or plans of reorganization. No assurance can be given as to what
values, if any, will be ascribed in the Chapter 11 cases to each of these
constituencies or what types or amounts of distributions, if any, they would
receive. A plan of reorganization could result in holders of our liabilities
and/or securities, including our common stock, receiving no distribution on
account of their interests and cancellation of their holdings. Because of such
possibilities, the value of our liabilities and securities, including our common
stock, is highly speculative. Appropriate caution should be exercised with
respect to existing and future investments in any of the liabilities and/or
securities of the Debtors. At this time there is no assurance we will be able to
restructure as a going concern or successfully propose or implement a plan of
reorganization.
Going
Concern Matters
The
accompanying Consolidated Financial Statements have been prepared assuming that
the Company will continue as a going concern. However, there is substantial
doubt about the Company’s ability to continue as a going concern based on the
factors previously discussed. The Consolidated Financial Statements do not
include any adjustments related to the recoverability and classification of
recorded assets or the amounts and classification of liabilities or any other
adjustments that might be necessary should the Company be unable to continue as
a going concern. The Company’s ability to continue as a going concern is
dependent upon the ability of the Company to return to profitability and, in the
near term, restructure its obligations in a manner that allows it to obtain
confirmation of a plan or reorganization by the Bankruptcy Court.
Management
is addressing the Company’s ability to return to profitability by conducting
profitability reviews at certain facilities in an effort to reduce
inefficiencies and manufacturing costs. The Company has also reduced production
capacity in the near term by closing two production complexes and consolidating
operations at a third production complex into its other facilities. This action
resulted in a headcount reduction of approximately 2,300 production employees.
Subsequent to September 27, 2008, the Company also reduced headcount by 335
non-production employees.
On
November 7, 2008, the Board of
Directors appointed a Chief Restructuring Officer
(“CRO”) for the Company. The appointment of a CRO was a
requirement included in the waivers received from the Company’s lenders on October 27, 2008.
The CRO will assist the Company with
cost reduction initiatives, restructuring plans development and long-term
liquidity improvement. The CRO reports to the Board of Directors of the
Company.
In order
to emerge from bankruptcy, the Company will need to obtain alternative financing
to replace the DIP Credit Agreement and to satisfy the secured claims of its
pre-bankruptcy creditors.
Business
Segments
We
operate in two reportable business segments as (i) a producer and seller of
chicken products and (ii) a seller of other products. Our chicken segment
includes sales of chicken products we produce and purchase for resale in the US,
including Puerto Rico, and Mexico. Our chicken segment conducts separate
operations in the US, Puerto Rico and Mexico and is reported as two separate
geographical areas. Substantially all of the assets and operations of the Gold
Kist acquisition are included in our US chicken segment since the date of
acquisition.
Our other
products segment includes distribution of non-poultry products that are
purchased from third parties and sold to independent grocers and quick service
restaurants. Also included in this category are sales of table eggs, feed,
protein products, live hogs and other items, some of which are produced or
raised by the Company.
Inter-segment
sales, which are not material, are accounted for at prices comparable to normal
trade customer sales. Corporate expenses are allocated to Mexico based upon
various apportionment methods for specific expenditures incurred related thereto
with the remaining amounts allocated to the US portions of the segments based on
number of employees.
Assets
associated with our corporate functions, including cash and cash equivalents and
investments in available for sale securities, are included in our chicken
segment.
Selling,
general and administrative expenses related to our distribution centers are
allocated based on the proportion of net sales to the particular segment to
which the product sales relate.
Depreciation
and amortization, total assets and capital expenditures of our distribution
centers are included in our chicken segment based on the primary focus of the
centers.
The
following table presents certain information regarding our
segments:
|
As
of or for the Year Ended
|
September
27, 2008
|
September
29, 2007(a)
|
September
30, 2006
|
|||||||||
|
(In
thousands)
|
||||||||||||
|
Net
sales to customers:
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 7,077,047 | $ | 6,328,354 | $ | 4,098,403 | ||||||
|
Mexico
|
543,583 | 488,466 | 418,745 | |||||||||
|
Subtotal
|
7,620,630 | 6,816,820 | 4,517,148 | |||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
869,850 | 661,115 | 618,575 | |||||||||
|
Mexico
|
34,632 | 20,677 | 17,006 | |||||||||
|
Subtotal
|
904,482 | 681,792 | 635,581 | |||||||||
|
Total
|
$ | 8,525,112 | $ | 7,498,612 | $ | 5,152,729 | ||||||
|
Operating
income (loss):
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States(b)
|
$ | (1,135,370 | ) | $ | 192,447 | $ | 28,619 | |||||
|
Mexico
|
(25,702 | ) | 13,116 | (17,960 | ) | |||||||
|
Subtotal
|
(1,161,072 | ) | 205,563 | 10,659 | ||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
98,863 | 28,636 | (1,192 | ) | ||||||||
|
Mexico
|
4,513 | 2,992 | 1,638 | |||||||||
|
Subtotal
|
103,376 | 31,628 | 446 | |||||||||
|
Total
|
$ | (1,057,696 | ) | $ | 237,191 | $ | 11,105 | |||||
|
Depreciation
and amortization(c)(d)(e):
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 215,586 | $ | 183,808 | $ | 114,516 | ||||||
|
Mexico
|
10,351 | 11,015 | 11,305 | |||||||||
|
Subtotal
|
225,937 | 194,823 | 125,821 | |||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
13,354 | 8,278 | 7,743 | |||||||||
|
Mexico
|
244 | 215 | 146 | |||||||||
|
Subtotal
|
13,598 | 8,493 | 7,889 | |||||||||
|
Total
|
$ | 239,535 | $ | 203,316 | $ | 133,710 | ||||||
|
Total
assets(f):
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 2,733,089 | $ | 3,247,812 | $ | 1,909,129 | ||||||
|
Mexico
|
372,952 | 348,894 | 361,887 | |||||||||
|
Subtotal
|
3,106,041 | 3,596,706 | 2,271,016 | |||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
153,607 | 104,644 | 89,447 | |||||||||
|
Mexico
|
5,542 | 4,120 | 1,660 | |||||||||
|
Subtotal
|
159,149 | 108,764 | 91,107 | |||||||||
|
Total
|
$ | 3,265,190 | $ | 3,705,470 | $ | 2,362,123 | ||||||
|
Acquisitions
of property, plant and equipment (excluding business
acquisition)(g):
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 148,811 | $ | 164,449 | $ | 133,106 | ||||||
|
Mexico
|
545 | 1,633 | 6,536 | |||||||||
|
Subtotal
|
149,356 | 166,082 | 139,642 | |||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
2,815 | 5,699 | 3,567 | |||||||||
|
Mexico
|
330 | 40 | 416 | |||||||||
|
Subtotal
|
3,145 | 5,739 | 3,983 | |||||||||
|
Total
|
$ | 152,501 | $ | 171,821 | $ | 143,625 | ||||||
|
(a)
|
The
Company acquired Gold Kist on December 27, 2006 for $1.139
billion.
|
|
(b)
|
Includes
goodwill impairment of $501.4 million and restructuring charges of $29.3
million in 2008.
|
|
(c)
|
Includes
amortization of capitalized financing costs of approximately $4.9 million,
$6.6 million and $2.6 million in 2008, 2007 and 2006,
respectively.
|
|
(d)
|
Includes
amortization of intangible assets of $10.2 million, $8.1 million and $1.8
million recognized in 2008, 2007 and 2006 related primarily to the Gold
Kist and ConAgra Chicken acquisitions.
|
|
(e)
|
Excludes
depreciation costs incurred by our discontinued turkey business of $0.7
million, $1.6 million and $1.4 million during 2008, 2007 and 2006,
respectively.
|
|
(f)
|
Excludes
total assets of our discontinued turkey business of $33.5 million at
September 27, 2008, $68.8 million at September 29, 2007 and $64.7 million
at September 30, 2006.
|
|
(g)
|
Excludes
acquisitions of property, plant and equipment by our discontinued turkey
business of $0.5 million and $0.3 million during 2007 and 2006,
respectively. Acquisitions of property, plant and equipment by our
discontinued turkey business during 2008 were
immaterial.
|
The
following table presents certain items as a percentage of net sales for the
periods indicated:
|
2008
|
2007
|
2006
|
||||||||||
|
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Cost
of sales
|
101.8 | % | 92.1 | % | 94.2 | % | ||||||
|
Operational
restructuring charges
|
0.1 | % | — | % | — | % | ||||||
|
Gross
profit (loss)
|
(1.9 | ) % | 7.9 | % | 5.8 | % | ||||||
|
Selling,
general and administrative (“SG&A”) expenses
|
4.4 | % | 4.7 | % | 5.6 | % | ||||||
|
Goodwill
impairment
|
5.9 | % | — | % | — | % | ||||||
|
Administrative
restructuring charges
|
0.2 | % | — | % | — | % | ||||||
|
Operating
income (loss)
|
(12.4 | ) % | 3.2 | % | 0.2 | % | ||||||
|
Interest
expense, net
|
1.5 | % | 1.6 | % | 0.8 | % | ||||||
|
Income
(loss) from continuing operations before income taxes
|
(13.9 | ) % | 1.3 | % | (0.5 | ) % | ||||||
|
Income
(loss) from continuing operations
|
(11.6 | ) % | 0.7 | % | (0.5 | ) % | ||||||
|
Net
income (loss)
|
(11.7 | ) % | 0.6 | % | (0.7 | ) % | ||||||
All
percentage of net sales ratios reported above are calculated from the face of
the Consolidated Statements of Operations included elsewhere
herein.
Results
of Operations
2008 Compared to
2007
Net Sales. Net
sales for 2008 increased $1,026.5 million, or 13.7%, over 2007. The following
table provides additional information regarding net sales:
|
Source
|
2008
|
Change
from 2007
|
|||||||||||
|
Amount
|
Percent
|
||||||||||||
|
(In
millions, except percent data)
|
|||||||||||||
|
Chicken:
|
|||||||||||||
|
United
States
|
$ | 7,077.0 | $ | 748.7 | 11.8 | % |
(a)
|
||||||
|
Mexico
|
543.6 | 55.1 | 11.3 | % |
(b)
|
||||||||
|
Total
chicken
|
7,620.6 | 803.8 | 11.8 | % | |||||||||
|
Other
products:
|
|||||||||||||
|
United
States
|
869.9 | 208.8 | 31.6 | % |
(c)
|
||||||||
|
Mexico
|
34.6 | 13.9 | 67.1 | % |
(d)
|
||||||||
|
Total
other products
|
904.5 | 222.7 | 32.7 | % | |||||||||
|
Total
net sales
|
$ | 8,525.1 | $ | 1,026.5 | 13.7 | % | |||||||
|
(a)
|
US
chicken sales generated in 2008 increased 11.8% from US chicken sales
generated in 2007. Sales volume increased 8.6% primarily because of the
acquisition of Gold Kist on December 27, 2006. Net revenue per pound sold
increased 3.0% from the prior year.
|
||||||||||||||
|
(b)
|
Mexico
chicken sales generated in 2008 increased 11.3% from Mexico chicken sales
generated in 2007 primarily because of a 3.5% increase in revenue per
pound sold and a 7.6% increase in pounds sold. The increase in pounds sold
represents market penetration in Mexico’s avian influenza free states as
well as a shift in product mix toward live birds.
|
||||||||||||||
|
(c)
|
US
sales of other products generated in 2008 increased 31.6% from US sales of
other products generated in 2007 mainly as the result of improved pricing
on commercial eggs and protein conversion products and higher sales
volumes of protein conversion products. Protein conversion is the process
of converting poultry byproducts into raw materials for grease, animal
feed, biodiesel and feed-stock for the chemical
industry.
|
||||||||||||||
|
(d)
|
Mexico
sales of other products generated in 2008 increased 67.1% from Mexico
sales of other products generated in 2007 principally because of both
higher sales volumes and higher selling prices for commercial
feed.
|
||||||||||||||
Gross Profit
(Loss). Gross loss generated in 2008 decreased $756.2 million,
or 127.6%, from gross profit generated in 2007. The following table provides
gross profit (loss) information:
|
Change
from 2007
|
Percent
of Net Sales
|
||||||||||||||||||||
|
Components
|
2008
|
Amount
|
Percent
|
2008
|
2007
|
||||||||||||||||
|
(In
millions, except percent data)
|
|||||||||||||||||||||
|
Net
sales
|
$ | 8,525.1 | $ | 1,026.5 | 13.7 | % | 100.0 | % | 100.0 | % | |||||||||||
|
Cost
of sales
|
8,675.5 | 1,769.6 | 25.6 | % | 101.8 | % | 92.1 | % |
(a)
|
||||||||||||
|
Operational
restructuring charges
|
13.1 | 13.1 |
NM
|
0.1 | % | — | % |
(b)
|
|||||||||||||
|
Gross
loss
|
$ | (163.5 | ) | $ | (756.2 | ) | (127.6 | ) % | (1.9 | ) % | 7.9 | % |
(c)
|
||||||||
|
(a)
|
Cost
of sales incurred by the US operations during 2008 increased $1,661.6
million from cost of sales incurred by the US operations during 2007. This
increase occurred because of incremental costs resulting from increased
feed ingredients and energy costs as well as the acquisition of Gold Kist
on December 27, 2006. We also experienced in 2008, and continue to
experience, increased production and freight costs related to operational
inefficiencies, labor shortages at several facilities and higher fuel
costs. We believe the labor shortages are attributable in part to
heightened publicity of governmental immigration enforcement efforts,
ongoing Company compliance efforts and continued changes in the Company’s
employment practices in light of recently published governmental best
practices and new labor hiring regulations. During 2008, the Company
recognized losses totaling $38.3 million on derivative financial
instruments executed to manage its exposure to changes in corn and soybean
meal prices. The aggregate loss recognized on derivative financial
instruments in 2007 was immaterial. Cost of sales incurred by the Mexico
operations during 2008 increased $108.0 million from cost of sales
incurred by the Mexico operations during 2007 primarily because of
increased feed ingredients costs.
|
|
(b)
|
The
Company recognized operational restructuring charges, composed entirely of
non-cash asset impairment charges, in 2008 related to (i) the closing of
two operating complexes in Arkansas and North Carolina, (ii) the closing
of seven distribution centers in Florida (2), Iowa, Mississippi, Ohio,
Tennessee and Texas, and (iii) the idling of an operating complex in
Louisiana.
|
|
(c)
|
Gross
loss as a percent of net sales generated in 2008 decreased 9.8 percentage
points from gross profit as a percent of sales generated in 2007 primarily
because of incremental costs resulting from increased feed ingredients,
energy, production and freight costs, charges related to 2008
restructuring actions and the Gold Kist acquisition partially offset by
improved selling prices.
|
|
NM
|
Not
meaningful.
|
Operating Income
(Loss). Operating loss generated in 2008 decreased $1,294.9
million, or 545.9%, from operating income generated in 2007. The following
tables provide operating income (loss) information:
|
Source
|
2008
|
Change
from 2007
|
|||||||||||
|
Amount
|
Percent
|
||||||||||||
|
(In
millions, except percent data)
|
|||||||||||||
|
Chicken:
|
|||||||||||||
|
United
States
|
$ | (1,135.4 | ) | $ | (1,327.8 | ) | (690.0 | ) % |
|
||||
|
Mexico
|
(25.7 | ) | (38.8 | ) | (296.2 | ) % |
|
||||||
|
Total
chicken
|
(1,161.1 | ) | (1,366.6 | ) | (694.8 | ) % | |||||||
|
Other
products:
|
|||||||||||||
|
United
States
|
98.9 | 70.2 | 245.2 | % |
|
||||||||
|
Mexico
|
4.5 | 1.5 | 50.0 | % |
|
||||||||
|
Total
other products
|
103.4 | 71.7 | 226.9 | % | |||||||||
|
Total
net sales
|
$ | (1,057.7 | ) | $ | (1,294.9 | ) | (545.9 | ) % | |||||
|
Change
from 2007
|
Percent
of Net Sales
|
||||||||||||||||||||
|
Components
|
2008
|
Amount
|
Percent
|
2008
|
2007
|
||||||||||||||||
|
(In
millions, except percent data)
|
|||||||||||||||||||||
|
Gross
profit (loss)
|
$ | (163.5 | ) | $ | (756.2 | ) | (127.6 | ) % | (1.9 | ) % | 7.9 | % | |||||||||
|
SG&A
expenses
|
376.6 | 21.1 | 5.9 | % | 4.4 | % | 4.7 | % |
(a)
|
||||||||||||
|
Goodwill
impairment
|
501.4 | 501.4 |
NM
|
5.9 | — |
(b)
|
|||||||||||||||
|
Administrative
restructuring charges
|
16.2 | 16.2 |
NM
|
0.2 | % | — | % |
(c)
|
|||||||||||||
|
Operating
loss
|
$ | (1,057.7 | ) | $ | (1,294.9 | ) | (545.9 | ) % | (12.4 | ) % | 3.2 | % |
(d)
|
||||||||
|
(a)
|
SG&A
expenses incurred by the US operations during 2008 increased 6.9% from
SG&A expenses incurred by the US operations during 2007 primarily
because of the acquisition of Gold Kist on December 27,
2006.
|
|
(b)
|
As
the result of the downward pressure placed on earnings by increased feed
ingredients costs, weak demand for breast meat and the oversupply of
chicken and other animal-based proteins in the US, the Company evaluated
the carrying amount of its goodwill for potential impairment at September
27, 2008. We obtained valuation reports as of September 27, 2008 that
indicated the carrying amount of our goodwill should be fully impaired
based on current conditions. As a result, we recognized a pretax
impairment charge of $501.4 million during 2008.
|
|
(c)
|
The
Company incurred administrative restructuring charges, composed entirely
of cash-based severance, employee retention, lease commitment and other
facility closing charges, in 2008 related to (i) the closing of two
operating complexes in Arkansas and North Carolina, (ii) the closing of
seven distribution centers in Florida (2), Iowa, Mississippi, Ohio,
Tennessee and Texas, (iii) the idling of an operating complex in
Louisiana, (iv) the transfer of operations from an operating complex in
Arkansas to several of the Company’s other operating complexes, and (v)
the closing of an administrative office in Georgia.
|
|
(d)
|
Operating
loss as a percent of net sales generated in 2008 decreased 15.6 percentage
points from operating income as a percent of sales generated in 2007
primarily because of deterioration in gross profit (loss) performance,
goodwill impairment recognized in 2008, charges related to 2008
restructuring actions and incremental SG&A expenses resulting from the
Gold Kist acquisition.
|
|
NM
|
Not
meaningful.
|
Interest
Expense. Consolidated interest expense increased 9.0% to
$134.2 million in 2008 from $123.2 million in 2007 primarily because of
increased borrowings related to the acquisition of Gold Kist and the funding of
losses as well as a decrease in amounts of interest capitalized during the year.
These factors were partially offset by early extinguishment of debt totaling
$299.6 million in September 2007 and lower interest rates on our
variable-rate credit facilities. Interest expense represented 1.6% of net sales
in both 2008 and 2007.
Loss on Early Extinguishment of
Debt. During 2007, the Company recognized loss on early
extinguishment of debt of $26.4 million, which included premiums of $16.9
million along with unamortized loan costs of $9.5 million. These losses related
to the redemption of $77.5 million of our 9 1/4/% Senior Subordinated Notes
due 2013 and all of our 9 5/8% Senior Notes due 2011.
Income Tax
Expense. The Company’s consolidated income tax benefit in 2008
was $(194.9) million, compared to tax expense of $47.3 million in 2007. The
change in income tax expense (benefit) resulted primarily from net operating
losses incurred in 2008 which are offset by the tax effect of goodwill
impairment and valuation allowances established for deferred tax assets we
believe no longer meet the more likely than not realization criteria of SFAS
109, Accounting for Income
Taxes. See Note M—Income Taxes to the Consolidated Financial
Statements.
Loss from operation of discontinued
business. The Company generated a loss from the operation of
its discontinued turkey business of $11.7 million ($7.3 million, net of tax)
during 2008 compared to a loss of $7.2 million ($4.5 million, net of tax) during
2007. Net sales generated by the discontinued turkey business in 2008 and 2007
were $86.3 million and $100.0 million, respectively.
Gain on disposal of discontinued
business. In March 2008, the Company sold certain assets of
its discontinued turkey business and recognized a gain of $1.5 million ($0.9
million, net of tax).
2007 Compared to
2006
Net Sales. Net sales
generated in 2007 increased $2,345.9 million, or 45.5%, from net sales generated
in 2006. The following table provides additional information regarding net
sales:
|
Source
|
2007
|
Change
from 2006
|
|||||||||||
|
Amount
|
Percent
|
||||||||||||
|
(In
millions, except percent data)
|
|||||||||||||
|
Chicken:
|
|||||||||||||
|
United
States
|
$ | 6,328.3 | $ | 2,229.9 | 54.4 | % |
(a)
|
||||||
|
Mexico
|
488.5 | 69.8 | 16.7 | % |
(b)
|
||||||||
|
Total
chicken
|
6,816.8 | 2,299.7 | 50.9 | % | |||||||||
|
Other
products:
|
|||||||||||||
|
United
States
|
661.1 | 42.5 | 6.9 | % |
(c)
|
||||||||
|
Mexico
|
20.7 | 3.7 | 21.6 | % |
(d)
|
||||||||
|
Total
other products
|
681.8 | 46.2 | 7.3 | % | |||||||||
|
Total
net sales
|
$ | 7,498.6 | $ | 2,345.9 | 45.5 | % | |||||||
|
(a)
|
US
chicken sales generated in 2007 increased 54.4% from US chicken sales
generated in 2006 primarily as the result of a 41.1% increase in volume
due to the acquisition of Gold Kist on December 27, 2006, increases
in the average selling prices of chicken and, for legacy Pilgrim’s Pride
products, an improved product mix containing more higher-margin,
value-added products.
|
||||||||||||||
|
(b)
|
Mexico
chicken sales generated in 2007 increased 16.7% from Mexico chicken sales
generated in 2006 due primarily to increases in production and a 21.2%
increase in pricing per pound sold.
|
||||||||||||||
|
(c)
|
US
sales of other products generated in 2007 increased 6.9% from US sales of
other products generated in 2007 primarily due to the acquisition of Gold
Kist on December 27, 2006 and improved pricing on protein conversion
products.
|
||||||||||||||
|
(d)
|
Mexico
sales of other products generated in 2007 increased 21.6% from Mexico
sales of other products generated in 2006 principally because of both
higher sales volumes and higher selling prices for commercial
feed.
|
||||||||||||||
Gross Profit. Gross profit
generated in 2007 increased $295.7 million, or 99.5%, from gross profit
generated in 2006. The following table provides gross profit
information:
|
Change
from 2006
|
Percent
of Net Sales
|
||||||||||||||||||||
|
Components
|
2007
|
Amount
|
Percent
|
2007
|
2006
|
||||||||||||||||
|
(In
millions, except percent data)
|
|||||||||||||||||||||
|
Net
sales
|
$ | 7,498.6 | $ | 2,345.9 | 45.5 | % | 100.0 | % | 100.0 | % | |||||||||||
|
Cost
of sales
|
6,905.9 | 2,050.2 | 42.2 | % | 92.1 | % | 94.2 | % |
(a)
|
||||||||||||
|
Gross
profit
|
$ | 592.7 | $ | 295.7 | 99.5 | % | 7.9 | % | 5.8 | % |
(b)
|
||||||||||
|
(a)
|
Cost
of sales incurred by the US operations in 2008 increased $2,007.7 million
due primarily to the acquisition of Gold Kist and increased quantities and
costs of energy and feed ingredients. We also experienced in 2007, and
continue to experience, increased production and freight costs related to
operational inefficiencies, labor shortages at several facilities and
higher fuel costs. We believe the labor shortages are attributable in part
to heightened publicity of governmental immigration enforcement efforts,
ongoing Company compliance efforts and continued changes in the Company’s
employment practices in light of recently published governmental best
practices and new labor hiring regulations. Cost of sales incurred by our
Mexico operations increased $42.5 million primarily due to increased feed
ingredient costs.
|
||||||||||||||||||||
|
(b)
|
Gross
profit as a percent of net sales generated in 2007 improved 2.1 percentage
points from gross profit as a percent of net sales generated in 2006 due
primarily to increased selling prices throughout the industry in response
to increased feed ingredients
costs.
|
||||||||||||||||||||
Operating Income. Operating
income generated in 2007 increased $226.1 million, or 2,035.9%, from operating
income generated in 2006. The following table provides operating income
information:
|
Source
|
2007
|
Change
from 2006
|
|||||||||||
|
Amount
|
Percent
|
||||||||||||
|
(In
millions, except percent data)
|
|||||||||||||
|
Chicken:
|
|||||||||||||
|
United
States
|
$ | 192.5 | $ | 163.9 | 572.4 | % |
|
||||||
|
Mexico
|
13.1 | 31.0 | 173.0 | % |
|
||||||||
|
Total
chicken
|
205.6 | 194.96 | 1,828.5 | % | |||||||||
|
Other
products:
|
|||||||||||||
|
United
States
|
28.6 | 29.8 | 2,502.3 | % |
|
||||||||
|
Mexico
|
3.0 | 1.4 | 82.7 | % |
|
||||||||
|
Total
other products
|
31.6 | 31.2 | 6,691.5 | % | |||||||||
|
Total
net sales
|
$ | 237.2 | $ | 226.1 | 2,035.9 | % | |||||||
|
Change
from 2006
|
Percent
of Net Sales
|
|||||||||||||||||||||
|
Components
|
2007
|
Amount
|
Percent
|
2007
|
2006
|
|||||||||||||||||
|
(In
millions, except percent data)
|
||||||||||||||||||||||
|
Gross
profit
|
$ | 592.7 | $ | 295.7 | 99.5 | % | 7.9 | % | 5.8 |
%
|
|
|||||||||||
|
SG&A
expenses
|
355.5 | 69.6 | 24.3 | % | 4.7 | % | 5.6 | % |
|
(a)
|
||||||||||||
|
Operating
income
|
$ | 237.2 | $ | 226.1 | 2,035.9 | % | 3.2 | % | 0.2 | % |
|
(b)
|
||||||||||
|
(a)
|
SG&A
expenses incurred during 2007 increased from SG&A expenses incurred
during 2006 primarily because of the acquisition of Gold Kist on December
27, 2006.
|
|||||||||||||||||||||
|
(b)
|
Operating
income as a percent of net sales generated in 2007 increased 3.0
percentage points from operating income as a percent of sales generated in
2006 primarily because of the acquisition of Gold Kist, increases in the
average selling prices of chicken, improved product mix and a reduction of
SG&A expenses as a percentage of net sales partially offset by
increased production and freight costs and the other factors described
above.
|
|||||||||||||||||||||
Interest Expense.
Consolidated interest expense increased 151.3% to $123.2 million in 2007 from
$49.0 million in 2006 due primarily to increased borrowing for the acquisition
of Gold Kist.
Interest Income. Interest
income decreased 53.8% to $4.6 million in 2007 from $10.0 million in 2006
because of lower investment balances.
Loss on Early Extinguishment of
Debt. During 2007, the Company recognized loss on early extinguishment of
debt of $26.4 million, which included premiums of $16.9 million along with
unamortized loan costs of $9.5 million. These losses related to the redemption
of $77.5 million of our 9 1/4% Senior Subordinated Notes due 2013 and all
of our 9 5/8% Senior Notes due 2011.
Income Tax Expense.
Consolidated income tax expense in 2007 was $47.3 million compared to tax
benefit of $1.6 million in 2006. The increase in consolidated income tax expense
is the result of the pretax earnings in 2007 versus pretax loss in 2006 and an
increase in tax contingency reserves. In addition, 2006 results included income
tax expense of $25.8 million for the restructuring of the Mexico operations and
subsequent repatriation of earnings from Mexico under the American Jobs Creation
Act of 2004 and a $10.6 million benefit from a change in an estimate. See Note
M—Income Taxes to the Consolidated Financial Statements.
Loss from operation of discontinued
business. The Company incurred a loss from the operation of its
discontinued turkey business of $7.2 million ($4.5 million, net of tax) during
2007 compared to $9.7 million ($6.0 million, net of tax) during 2006. Net sales
generated by the discontinued turkey business in 2007 and 2006 were $100.0
million and $82.8 million, respectively.
Liquidity
and Capital Resources
Our disclosure regarding liquidity and
capital resources has three distinct sections,
the first relating to our historical flow of funds, the second relating to our
liquidity, debt obligations and off-balance sheet
arrangements at
September 27, 2008 and the third discussing our liquidity
after filing for Chapter 11
bankruptcy protection on
December 1, 2008.
Historical Flow of
Funds
Cash
flows used in operating activities were $680.7 million in 2008 compared to cash
flows provided by operating activities of $464.0 million in 2007. The decrease
in operating cash flows from 2007 to 2008 was primarily due to the net loss
incurred in 2008 as compared to net income generated in 2007 and unfavorable
changes in operating assets and liabilities.
At
September 27, 2008, our working capital decreased to a deficit of $1,262.2
million and our current ratio decreased to 0.53 to 1, compared with a working
capital surplus of $394.7 million and a current ratio of 1.44 to 1 at September
29, 2007 primarily due to an increase in the balance of current maturities of
long-term debt and a decrease in the income taxes receivable balance partially
offset by higher accounts receivable, inventories as well as lower accounts
payable and accrued expenses balances.
Current
maturities of long-term debt were $1,874.5 million at September 27, 2008
compared to $2.9 million at September 29, 2007. The $1,871.6 million increase in
current maturities was primarily due to the Company’s reclassification of
$1,872.1 million to reflect as current the long-term debt under its various
credit facilities that will become payable on November 27, 2008 unless the
lenders thereunder agree to extend previously granted waivers.
Income
taxes receivable were $21.7 million at September 27, 2008 compared to
$61.9 million at September 29, 2007. The $40.2 million decrease in income
taxes receivable was primarily due to the reclassification of net operating
losses incurred in 2007 to deferred income taxes.
Trade
accounts and other receivables were $144.2 million at September 27, 2008
compared to $114.7 million at September 29, 2007. The $29.5 million increase in
trade accounts and other receivables was primarily due to higher sales volumes
in the later portion of the fourth quarter of 2008 than were generated in the
later portion of the fourth quarter of 2007.
Inventories
were $1,036.2 million at September 27, 2008 compared to $925.3 million at
September 29, 2007. The $110.9 million increase in inventories was primarily due
to increased product costs in finished chicken products and live inventories as
a result of higher feed ingredient costs.
Current
deferred tax assets were $54.3 million at September 27, 2008 compared to $8.1
million at September 29, 2007. The $46.2 million increase in deferred tax assets
was primarily the result of net operating losses incurred during 2007 and
2008.
Accounts
payable decreased $19.6 million to $378.9 million at September 27, 2008 compared
to $398.5 million at September 29, 2007. The decrease was primarily due to the
impact of closing one operating complex and six distribution centers in the
second quarter of 2008 partially offset by higher feed ingredients
costs.
Accrued
expenses decreased $48.4 million to $448.8 million at September 27, 2008
compared to $497.3 million at September 29, 2007. This decrease is due
principally to a reduction in interest payable resulting from lower interest
rates on our variable-rate notes payable, decreased incentive compensation
accruals and amortization of acquisition-related liabilities such as unfavorable
sales contracts and unfavorable lease contracts.
Cash
flows used in investing activities were $121.6 million and $1,184.5 million in
2008 and 2007, respectively. Cash of $1.102 billion was used to acquire Gold
Kist in 2007. Capital expenditures (excluding business acquisitions) of $152.5
million and $172.3 million in 2008 and 2007, respectively, were primarily
incurred to acquire and expand certain facilities, improve efficiencies, reduce
costs and for the routine replacement of equipment. Capital expenditures for
2009 will be restricted to routine replacement of equipment in our current
operations in addition to important projects we began in 2008 and will not
exceed the $150 million amount allowed under the DIP Credit Agreement. Cash was
used to purchase investment securities of $38.0 million in 2008 and $125.0
million in 2007. Cash proceeds received in 2008 and 2007 from the sale or
maturity of investment securities totaled $27.5 million and $208.7 million,
respectively. Cash proceeds received in 2008 and 2007 totaled $41.4 million and
$6.3 million from the disposal of property, plant and equipment.
Cash
flows provided by financing activities totaled $797.7 million and $630.2 million
in 2008 and 2007, respectively. Cash proceeds received in 2008 and 2007 from
long-term debt were $2,264.9 million and $1,981.3 million, respectively.
Cash proceeds received in 2008 from the sale of the Company’s common stock
totaled $177.2 million (net of costs incurred to complete the sale). Cash was
used to repay long-term debt totaling $1,646.0 million in 2008 and
$1,368.7 million in 2007. Cash provided in 2008 and 2007 because of an
increase in outstanding cash management obligations totaled $13.6 million and
$39.2 million, respectively. Cash was used to pay debt issue and amendment costs
totaling $5.6 million and $15.6 million in 2008 and 2007,
respectively. Cash was also used to pay dividends of $6.3 million and $6.0
million to holders of the Company’s common stock in 2008 and 2007,
respectively.
Liquidity, Debt Obligations
and Off-Balance Sheet Arrangements at September 27, 2008
Liquidity. The
following table presents our available sources of liquidity as of September 27,
2008.
|
Facility
|
Amount
|
Amount
|
|||||||||||
|
Source
of Liquidity
|
Amount
|
Outstanding
|
Available
|
||||||||||
|
(In
millions)
|
|||||||||||||
|
Cash
and cash equivalents
|
$ | — | $ | — | $ | 61.6 | |||||||
|
Investments
in available-for-sale securities
|
$ | — | — | $ | 10.4 | ||||||||
|
Receivables
purchase agreement
|
$ | 300.0 | $ | 236.3 | $ | — |
(a)
|
||||||
|
Debt
facilities:
|
|||||||||||||
|
Revolving
credit facilities
|
$ | 351.6 | $ | 233.5 | $ | 32.1 |
(b)(c)
|
||||||
|
Revolving/term
facility
|
$ | 550.0 | $ | 415.0 | $ | 135.0 |
(c)
|
||||||
|
(a)
|
The aggregate amount of
receivables sold plus the remaining receivables available for sale
declined from $300.0 million at September 29, 2007 to $236.3 million at September 27, 2008.
|
|||||||
|
(b)
|
At
September 27, 2008, the Company had $86.0 million in letters of credit
outstanding relating to normal business transactions that reduce the
amount of available liquidity under the revolving credit
facilities.
|
|||||||
|
(c)
|
The
Company entered into waiver agreements with certain of its lenders on
September 26, 2008. In connection with those agreements, the Company
agreed to have at all times during the term of those waiver agreements
undrawn commitments in an aggregate amount not less than $100 million,
which effectively reduced the aggregate available amount under these
facilities as of September 27, 2008 to approximately $67.1 million. On
October 10, 2008, the required lenders under the Company's credit
agreements agreed to reduce the required undrawn commitment holdback to
$75 million. On October 26, 2008, the required lenders agreed
to further reduce the required undrawn commitment holdback to $35
million.
|
|||||||
Debt Obligations. In September 2006, the Company entered into an amended and restated revolver/term credit agreement with a maturity date of September 21, 2016. At September 27, 2008, this revolver/term credit agreement provided for an aggregate commitment of $1.172 billion consisting of (i) a $550 million revolving/term loan commitment and (ii) $622.4 million in various term loans. At September 27, 2008, the Company had $415.0 million outstanding under the revolver and $620.3 million outstanding in various term loans. The total credit facility is presently secured by certain fixed assets. On September 21, 2011, outstanding borrowings under the revolving/term loan commitment will be converted to a term loan maturing on September 21, 2016. The fixed rate term loans bear interest at rates ranging from 7.34% to 7.56%. The voluntary converted loans bear interest at rates ranging from LIBOR plus 1.0%-2.0%, depending upon the Company’s total debt to capitalization ratio. The floating rate term loans bear interest at LIBOR 1.50%-1.75% based on the ratio of the Company’s debt to EBITDA, as defined in the agreement. The revolving/term loans provide for interest rates ranging from LIBOR plus 1.0%-2.0%, depending upon the Company’s total debt to capitalization ratio. Commitment fees charged on the unused balance of this facility range from 0.20% to 0.40%, depending upon the Company’s total debt to capitalization ratio. In connection with temporary amendments to certain of the financial covenants in this agreement on April 30, 2008, the interest rates were temporarily increased until September 26, 2009 to the following ranges: (i) voluntary converted loans: LIBOR plus 1.5%-3.0%; (ii) floating rate terms loans: LIBOR plus 2.00%-2.75%; and (iii) revolving term loans: LIBOR plus 1.5%-3.0%. In connection with these amendments, the commitment fees were temporarily increased for the same period to range from 0.275%-0.525%. As a result of the Company's Chapter 11 filing, after December 1, 2008, interest will accrue at the default rate, which is two percent above the interest rate otherwise applicable under the credit agreement. One-half of the outstanding obligations under the revolver/term credit agreement are guaranteed by Pilgrim
Interests,
Ltd., an entity affiliated with our Senior Chairman, Lonnie “Bo” Pilgrim. The filing of the bankruptcy petitions
also constituted an event
of default under this credit agreement. The total principal amount owed under
this credit agreement was approximately $1,126.4 million as of December 1, 2008. As a result of such event of default,
all obligations under the agreement became automatically and immediately due and payable, subject
to an automatic stay of any action to collect, assert, or recover a claim
against the Company and the application of applicable bankruptcy
law.
In
January 2007, the Company borrowed (i) $780 million under our revolver/term
credit agreement and (ii) $450 million under our Bridge Loan agreement to fund
the Gold Kist acquisition. On January 24, 2007, the Company closed on the sale
of $400 million of 7 5/8% Senior Notes due 2015 (the “Senior Notes”) and $250
million of 8 3/8% Senior Subordinated Notes due 2017 (the “Subordinated Notes”),
sold at par. Interest is payable on May 1 and November 1 of each year, beginning
November 1, 2007. Prior to the Chapter 11 filings, the notes were subject to
certain early redemption features. The proceeds from the sale of the notes,
after underwriting discounts, were used to (i) retire the loans outstanding
under our Bridge Loan agreement, (ii) repurchase $77.5 million of the Company’s
9 1/4% Senior Subordinated Notes due 2013 at a premium of $7.4 million plus
accrued interest of $1.3 million and (iii) reduce outstanding revolving loans
under our revolving/term credit agreement. Loss on early extinguishment of debt
includes the $7.4 million premium along with unamortized loan costs of $7.1
million related to the retirement of these Notes.
In
September 2007, the Company redeemed all of its 9 5/8% Senior Notes due 2011 at
a total cost of $307.5 million. To fund a portion of the aggregate redemption
price, the Company sold $300 million of trade receivables under its RPA. Loss on
early extinguishment of debt includes the $9.5 million premium along with
unamortized loan costs of $2.5 million related to the retirement of these
Notes.
In
February 2007, the Company entered into a domestic revolving credit agreement of
up to $300.0 million with a final maturity date of February 18, 2013. The
associated revolving credit facility provides for interest rates ranging from
LIBOR plus 0.75-1.75%, depending upon our total debt to capitalization ratio.
The obligations under this facility are secured by domestic chicken inventories
and receivables that were not sold pursuant to the RPA. Commitment fees charged
on the unused balance of this facility range from 0.175% to 0.35%, depending
upon the Company’s
total debt to capitalization ratio. In
connection with temporary amendments to certain of the financial covenants in
this agreement on April 30, 2008, the interest rates were temporarily increased
until September 26, 2009 to range between LIBOR plus 1.25%-2.75%. In connection
with these amendments, the commitment fees were temporarily increased for the
same period to range from 0.25%-0.50%. As a result of the Company's Chapter 11
filing, after December 1, 2008, interest will accrue at the default rate, which
is two percent above the interest rate otherwise applicable under the credit
agreement. One-half of the outstanding obligations under the domestic revolving
credit facility are guaranteed by Pilgrim Interests, Ltd., an entity affiliated
with our Senior Chairman, Lonnie “Bo” Pilgrim. The filing of the bankruptcy petitions
also constituted an event of default under this credit agreement. The total
principal amount owed under this credit agreement was approximately
$199.5 million as of December 1,
2008. As a result of such event of default, all
obligations under the agreement
became automatically and immediately due
and payable, subject to an automatic stay of any action to collect, assert, or
recover a claim against the Company and the application of applicable
bankruptcy law.
In
September 2006, a subsidiary of the Company, Avícola Pilgrim’s Pride de México,
S. de R.L. de C.V. (the “Borrower”), entered into a secured revolving
credit agreement of up to $75 million with a final maturity date of September
25, 2011. In March 2007, the Borrower elected to reduce the commitment under
this agreement to 558 million Mexican pesos, a US dollar-equivalent 51.6 million
at September 27, 2008. Outstanding amounts bear interest at rates ranging from
the higher of the Prime Rate or Federal Funds Effective Rate plus 0.5%; LIBOR
plus 1.65%-3.125%; or TIIE plus 1.05%-2.55% depending on the loan designation.
Obligations under this agreement are secured by a security interest in and lien
upon all capital stock and other equity interests of the Company’s Mexican
subsidiaries. All the obligations of the Borrower are secured by unconditional
guaranty by the Company. At September 27, 2008, $51.6 million was outstanding
and no other funds were available for borrowing under this line. Borrowings are
subject to “no material adverse effect” provisions.
On
November 30, 2008, the Company and certain non-Debtor Mexico subsidiaries of the
Company (the "Mexico Subsidiaries") entered into a Waiver Agreement and Second
Amendment to Credit Agreement (the "Waiver Agreement") with ING Capital LLC, as
agent (the "Mexico Agent"), and the lenders signatory thereto (the "Mexico
Lenders"). Under the Waiver Agreement, the Mexico Agent and the Mexico Lenders
waived any default or event of default under the Credit Agreement dated as of
September 25, 2006, by and among the Company, the Mexico Subsidiaries, the
Mexico Agent and the Mexico Lenders, the administrative agent, and the lenders
parties thereto (the "ING Credit Agreement"), resulting from the Company's
filing of its bankruptcy petition with the Bankruptcy Court. Pursuant to the
Waiver Agreement, outstanding amounts under the ING Credit Agreement now bear
interest at a rate per annum equal to: the LIBOR Rate, the Base Rate, or the
TIIE Rate, as applicable, plus the Applicable Margin (as those terms are defined
in the ING Credit Agreement). While the Company is operating under its petitions
for reorganization relief, the Waiver Agreement provides for an Applicable
Margin for LIBOR loans, Base Rate loans, and TIIE loans of 6.0%, 4.0%, and 5.8%,
respectively. The Waiver Agreement further amended the ING Credit Agreement to
require the Company to make a mandatory prepayment of the revolving loans, in an
aggregate amount equal to 100% of the net cash proceeds received by any Mexico
Subsidiary, as applicable, in excess of thresholds specified in the ING Credit
Agreement (i) from the occurrence of certain asset sales by the Mexico
Subsidiaries; (ii) from the occurrence of any casualty or other insured damage
to, or any taking under power of eminent domain or by condemnation or similar
proceedings of, any property or asset of any Mexico Subsidiary; or (iii) from
the incurrence of certain indebtedness by a Mexico Subsidiary. Any such
mandatory prepayments will permanently reduce
the
amount of
the commitment under the ING Credit Agreement. In connection with the
Waiver Agreement, the Mexico Subsidiaries pledged substantially all of their
receivables, inventory, and equipment and certain fixed assets.
Our loan
agreements generally obligate us to reimburse the applicable lender for
incremental increased costs due to a change in law that imposes (i) any reserve
or special deposit requirement against assets of, deposits with or credit
extended by such lender related to the loan, (ii) any tax, duty or other charge
with respect to the loan (except standard income tax) or (iii) capital adequacy
requirements. In addition, some of our loan agreements contain a withholding tax
provision that requires us to pay additional amounts to the applicable lender or
other financing party, generally if withholding taxes are imposed on such lender
or other financing party as a result of a change in the applicable tax law.
These increased cost and withholding tax provisions continue for the entire term
of the applicable transaction, and there is no limitation on the maximum
additional amounts we could be obligated to pay under such
provisions.
At September 27, 2008, the Company was
not in compliance with the provisions that required it to maintain levels of working capital and net worth
and to maintain various fixed charge, leverage, current and debt-to-equity
ratios. In September 2008, the Company notified its lenders that it
expected to incur a significant loss in the fourth quarter of 2008 and entered
into agreements with them to temporarily waive the fixed-charge coverage ratio
covenant under its credit facilities. The lenders agreed to continue to provide
liquidity under the credit facilities during the thirty-day period ended October
28, 2008. On October 27, 2008, the Company entered into further agreements with
its lenders to temporarily waive the fixed-charge coverage ratio and leverage
ratio covenants under its credit facilities. The lenders agreed to continue to
provide liquidity under the credit facilities during the thirty-day period ended
November 26, 2008. On November 26, 2008, the Company entered into further
agreements with its lenders to extend the temporary waivers until December 1,
2008.
The filing of the bankruptcy petitions
also constituted an event of default under the 7 5/8% Senior Notes due 2015, the
8 3/8% Senior Subordinated Notes due 2017 and the 9 1/4% Senior Subordinated
Notes due 2013. The total principal amount of the Notes was approximately
$657 million as of December 1,
2008. As a result of such event of
default, all obligations under the Notes became automatically and immediately
due and payable, subject to an automatic stay of any action to collect, assert,
or recover a claim against the Company and the application of applicable
bankruptcy law.
Off-Balance Sheet
Arrangements. In
June 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. At September 27, 2008 and prior
to our bankruptcy filing, the proceeds were available for the Company to draw
from over the construction period in order to construct new sewage and solid
waste disposal facilities at a poultry by-products plant in Camp County, Texas.
There was no requirement that we borrow the full amount of the proceeds from
these revenue bonds and we had not drawn on the proceeds or commenced
construction of the facility as of September 27, 2008. Had the Company borrowed
these funds, they would have become due in 2029. The revenue bonds are supported
by letters of credit obtained by us under our revolving credit facilities, which
are secured by our domestic chicken inventories. The bonds would have been
recorded as debt of the Company if and when they were spent to fund
construction. The original proceeds from the issuance of the revenue bonds
continue to be held by the trustee of the bonds. The interest payment on the
revenue bonds, which was due on December 1, 2008, was not paid. The
filing of the bankruptcy petitions constituted an event of default under these
bonds. As a result of the
event of default, the trustee has the right to accelerate all obligations under
the bonds such that they become immediately due
and payable, subject to an automatic stay of any action to collect, assert, or
recover a claim against the Company and the application of applicable bankruptcy
law.
In addition, the holders of the bonds may tender the bonds for remarketing at
any time. We
have been notified that the holders have tendered the bonds, which are required
to be remarketed on or before December 16, 2008. If the bonds are not
successfully remarketed by that date, the holders of the bonds may draw upon the
letters of credit supporting
the bonds.
In
connection with the RPA, the Company sold, on a revolving basis, certain of its
trade receivables (the “Pooled Receivables”) to a special purpose entity (“SPE”)
wholly owned by the Company, which in turn sold a percentage ownership interest
to third parties. The SPE was a separate corporate entity and its assets
were available first and foremost to satisfy the claims of its creditors. The
aggregate amount of Pooled
Receivables sold plus the
remaining Pooled Receivables available for sale under the RPA declined from $300.0 million at
September 29, 2007 to $236.3 million at September 27,
2008. The outstanding amount of Pooled Receivables sold at September 27,
2008 and September 29, 2007
were $236.3 million and $300.0 million, respectively. The gross
proceeds resulting from the sale are included in cash flows from operating
activities in the Consolidated Statements of Cash Flows. The losses recognized on the sold receivables
during 2008 and
2007 were not material. On December 3, 2008, the RPA was
terminated and all receivables thereunder were repurchased with proceeds of
borrowings under the DIP Credit Agreement.
We
maintain operating leases for various types of equipment, some of which contain
residual value guarantees for the market value of assets at the end of the term
of the lease. The terms of the lease maturities range from one to seven years.
We estimate the maximum potential amount of the residual value guarantees is
approximately $19.9 million; however, the actual amount would be offset by any
recoverable amount based on the fair market value of the underlying leased
assets. No liability has been recorded related to this contingency as the
likelihood of payments under these guarantees is not considered to be probable
and the fair value of the guarantees is immaterial. We historically have not
experienced significant payments under similar residual guarantees.
We are a
party to many routine contracts in which we provide general indemnities in the
normal course of business to third parties for various risks. Among other
considerations, we have not recorded a liability for any of these indemnities
as, based upon the likelihood of payment, the fair value of such indemnities is
immaterial.
Liquidity after Chapter 11
Bankruptcy Filings
As
previously discussed, on December 1, 2008, the Debtors filed voluntary petitions
in the Bankruptcy Court seeking reorganization relief under the Bankruptcy Code.
The filing of the Chapter 11 petitions constituted an event of default
under certain of our debt obligations, and those debt obligations became
automatically and immediately due and payable, subject to an automatic stay of
any action to collect, assert, or recover a claim against the Company and the
application of applicable bankruptcy law. As a result, the accompanying
Consolidated Balance Sheet as of September 27, 2008 includes a reclassification
of $1,872.1 million to reflect as current certain long-term debt under its
credit facilities that became automatically and immediately due and
payable.
On December 2, 2008, the Bankruptcy Court granted interim
approval authorizing the Company and US Subsidiaries to enter into the DIP
Credit Agreement, and the Company, the US Subsidiaries
and the other parties
entered into the DIP Credit Agreement, subject to final approval of the
Bankruptcy Court.The DIP Credit Agreement provides for an
aggregate commitment of up to $450 million, which permits borrowings on a
revolving basis. The Company received interim approval to access
$365 million of the commitment pending issuance of the final order
by the Bankruptcy Court. Outstanding borrowings
under the DIP Credit Agreement will bear interest at a per annum rate equal to
8.0% plus the greatest of (i) the prime rate as established by the DIP agent
from time to time, (ii) the average federal funds rate plus 0.5%, or
(iii) the LIBOR rate plus 1.0%, payable monthly. The loans under the DIP Credit Agreement
were used to repurchase all receivables sold under the Company's RPA and may be used to fund the working
capital requirements of the
Company and its subsidiaries according to a budget as approved by the required
lenders under the DIP Credit Agreement. For additional information on the
RPA, see Item 7. "Management’s Discussion and Analysis of Financial
Condition and Results of
Operations—Liquidity and Capital
Resources."
Actual borrowings by the Company under the DIP Credit Agreement are subject to a borrowing base, which is a formula based on certain eligible inventory and eligible receivables. The borrowing base formula is reduced by pre-petition obligations under the Fourth Amended and Restated Secured Credit Agreement dated as of February 8, 2007, among the Company and certain of its subsidiaries, Bank of Montreal, as administrative agent, and the lenders parties thereto, as amended, administrative and professional expenses, and the amount owed by the Company and the Debtor Subsidiaries to any person on account of the purchase price of agricultural products or services (including poultry and livestock) if that person is entitled to any grower's or producer's lien or other security arrangement. The borrowing base is also limited to 2.22 times the formula amount of total eligible receivables. As of December 6, 2008, the applicable borrowing base was $324.8 million and the amount available for borrowings under the DIP Credit Agreement was $210.9 million.
The principal amount of outstanding
loans under the DIP Credit Agreement, together with accrued and unpaid interest
thereon, are payable in full at maturity on December 1, 2009, subject to
extension for an additional six months with the approval of all lenders
thereunder. All obligations under the DIP Credit Agreement are unconditionally guaranteed by the
US Subsidiaries and are
secured by a first priority priming lien on substantially all of the
assets of the Company and the US Subsidiaries, subject to specified permitted
liens in the DIP Credit Agreement.
Under the
terms of the DIP Credit Agreement and applicable bankruptcy law, the Company may
not pay dividends on the common stock while it is in bankruptcy. Any payment of
future dividends and the amounts thereof will depend on our emergence from
bankruptcy, our earnings, our financial requirements and other factors deemed
relevant by our Board of Directors at the time.
Capital
expenditures for 2009 will be restricted to routine replacement of equipment in
our current operations in addition to important projects we began in 2008 and
will not exceed the $150 million amount allowed under the DIP Credit
Agreement.
In addition to our debt commitments at
September 27, 2008, we had other commitments and contractual obligations that
obligate us to make specified payments in the future. The filing of the
Chapter 11 petitions constituted an event of default under certain of our
debt obligations, and those debt obligations became automatically and
immediately due and payable, subject to an automatic stay of any action to
collect, assert, or recover a claim against the Company and the application of
applicable bankruptcy law. The
following table summarizes the total amounts due as of September 27, 2008
under all debt agreements, commitments and other contractual obligations.
We are in the process of
evaluating our executory contracts in order to determine which contracts will be
assumed in our Chapter 11 proceedings. Therefore, obligations as currently
quantified in the table below and in the footnotes to the table are expected to
change. The table indicates
the years in which payments are due under the contractual
obligations.
Assuming
that acceleration of certain long-term debt maturities did not occur,
contractual obligations at September 27, 2008 were as follows:
|
Payments
Due By Period
|
||||||||||||||||||||
|
Contractual
Obligations
|
Total
|
Less
than 1 year
|
1-3
years
|
3-5
years
|
More
than 5 years
|
|||||||||||||||
|
(In
millions)
|
||||||||||||||||||||
|
Long-term
debt(a)(b(c))
|
$ | 1,941.9 | $ | 2.4 | $ | 56.7 | $ | 203.4 | $ | 1,679.4 | ||||||||||
|
Guarantee
fees(d)
|
43.5 | 6.1 | 12.1 | 12.1 | 13.2 | |||||||||||||||
|
Operating
leases
|
130.7 | 43.6 | 62.1 | 23.3 | 1.7 | |||||||||||||||
|
Purchase
obligations(e)
|
164.9 | 164.9 | — | — | — | |||||||||||||||
|
Other
commitments(f)
|
65.3 | — | 33.1 | 32.2 | — | |||||||||||||||
|
Total
|
$ | 2,346.3 | $ | 217.0 | $ | 164.0 | $ | 271.0 | $ | 1,694.3 | ||||||||||
|
(a)
|
Excludes
$86.0 million in letters of credit outstanding related to normal business
transactions.
|
|
(b)
|
As a result of the Chapter 11
filing, substantially all long-term debt became automatically and
immediately due and payable, subject to an automatic stay of any action to
collect, assert, or recover a claim against the Company and the
application of applicable bankruptcy
law.
|
|
(c)
|
Interest
rates on long-term debt were increased as a result of the Chapter 11
filing and the amounts that will actually be paid related to interest are
uncertain as they will be subject to the claims process in the bankruptcy
case.
|
|
(d)
|
Pursuant to the terms of the DIP
Credit Agreement, the
Company may not pay any guarantee fees without the consent of the lenders
party thereto.
|
|
(e)
|
Includes agreements to purchase
goods or services that are enforceable and legally binding on us and that
specify all significant terms, including fixed or minimum quantities to be purchased;
fixed, minimum, or variable price provisions; and the approximate timing
of the transaction.
|
|
(f)
|
Includes unrecognized tax benefits
under FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes – an
interpretation of FASB Statement No. 109 (“FIN 48”).
|
Pending
Adoption of Recent Accounting Pronouncements
Discussion
regarding our pending adoption of Statement of Financial Accounting Standards
(“SFAS”) No. 157, Fair Value
Measurements; SFAS No. 141(R), Business Combinations; SFAS
No. 160, Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No.
51; and SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133, is
included in Note B—Summary of Significant Accounting Policies to our
Consolidated Financial Statements included elsewhere in this Annual
Report.
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 US. 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, income taxes and product recall accounting. 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 and 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 back to net
sales in the period in which the facts that give rise to the revision become
known.
Inventory. Live
chicken 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 their 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 inventory obsolescence, including significantly
aged products, discontinued product lines, or damaged or obsolete products. We
allocate meat costs between our various finished chicken 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. This
primarily includes 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. Generally, the Company performs an evaluation
of whether any lower of cost or market adjustments are required at the segment
level based on a number of factors, including: (i) pools of related inventory,
(ii) product continuation or discontinuation, (iii) estimated market selling
prices and (iv) expected distribution channels. If actual market conditions or
other factors are less favorable than those projected by management, additional
inventory adjustments may be required. At September 27, 2008, the Company has
lowered the carrying value of its inventories by $26.6 million due to
lower-of-cost-or-market adjustments.
Property, Plant and
Equipment. 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) future cash flows estimated to be generated
by these assets, which are based on additional assumptions such as asset
utilization, remaining length of service and estimated salvage values; (ii)
estimated fair market value of the assets; and (iii) determinations with respect
to the lowest level of cash flows relevant to the respective impairment test,
generally groupings of related operational facilities. Given the interdependency
of the Company’s individual facilities during the production process, which
operate as a vertically integrated network, and the fact that the Company does
not price transfers of inventory between its vertically integrated facilities at
market prices, it evaluates impairment of assets held and used at the country
level (i.e., the US and Mexico) within each segment. Management believes this is
the lowest level of identifiable cash flows for its assets that are held and
used in production activities. At the present time, the Company’s forecasts
indicate that it can recover the carrying value of its assets based on the
projected cash flows of the operations. A key assumption in management’s
forecast is that the Company’s sales volumes will return to historical margins
as supply and demand between commodities and chicken and other animal-based
proteins become more balanced. However, the exact timing of the return to
historical margins is not certain and if the return to historical margins is
delayed, impairment charges could become necessary in the future. The Company
recognized impairment charges related to closed production complexes and
distribution centers totaling $10.2 million during 2008.
Goodwill. The Company evaluates goodwill for impairment annually or at
other times when events and circumstances indicate the carrying
value of this asset may no longer be fully recoverable. The Company first compares the fair value of each reporting
unit, determined using both
income and market approaches, to its carrying value. To determine the fair value of each
reporting unit, the Company utilizes certain assumptions, including, but not
limited to: (i) future cash flows estimated to be generated by each reporting
unit, which are based on additional assumptions such as future market growth and trends,
forecasted revenue and costs, appropriate discount rates and other
variables, (ii) estimated
value of the enterprise in the equity markets, and (iii) determinations with
respect to the combination of operations that comprise a reporting unit.
If the fair value of
a reporting unit exceeds the carrying
value of the net assets assigned to that unit, goodwill is not impaired and
the Company does
not perform further
testing. If the carrying value of a reporting unit’s net assets exceeds the
fair value of the reporting unit, then the Company determines the implied fair
value of the reporting
unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds
its implied fair value, then an impairment of goodwill has occurred and
the Company recognizes an impairment loss for the difference
between the carrying amount and the implied fair value of goodwill. At September 27, 2008, the Company
recognized an impairment charge of $501.4 million, which eliminated all
goodwill.
Litigation and Contingent
Liabilities. The Company is subject to lawsuits,
investigations and other claims related to employment, environmental, product,
and other matters. It is required to assess the likelihood of any adverse
judgments or outcomes to these matters as well as potential ranges of probable
losses. A determination of the amount of reserves required, including legal
defense costs, if any, for these contingencies is made when losses are
determined to be probable and loss amounts can be reasonably estimated, and
after considerable analysis of each individual issue. With respect to our
environmental remediation obligations, the accrual for environmental remediation
liabilities is measured on an undiscounted basis. These reserves may change in
the future due to favorable or adverse judgments, changes in the Company’s
assumptions, the effectiveness of strategies or other factors beyond the
Company’s control.
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. Certain categories of claim
liabilities are actuarially determined. The assumptions used to arrive at
periodic expenses are reviewed regularly by management. However, actual expenses
could differ from these estimates and could result in adjustments to be
recognized.
Business
Combinations. The Company allocates the total purchase price
in connection with acquisitions to assets and liabilities based upon their
estimated fair values. For property, plant and equipment and intangible assets
other than goodwill, for significant acquisitions, the Company has historically
relied upon the use of third party valuation experts to assist in the estimation
of fair values. Historically, the carrying value of acquired accounts
receivable, inventory and accounts payable have approximated their fair value as
of the date of acquisition, though adjustments are made within purchase price
accounting to the extent needed to record such assets and liabilities at fair
value. With respect to accrued liabilities, the Company uses all available
information to make its best estimate of the fair value of the acquired
liabilities and, when necessary, may rely upon the use of third party actuarial
experts to assist in the estimation of fair value for certain liabilities,
primarily self-insurance accruals.
Income Taxes. The
provision for income taxes has been determined using the asset and liability
approach of accounting for income taxes. Under this approach, deferred income
taxes reflect the net tax effect of temporary differences between the book and
tax bases of recorded assets and liabilities, net operating losses and tax
credit carry forwards. The amount of deferred tax on these temporary differences
is determined using the tax rates expected to apply to the period when the asset
is realized or the liability is settled, as applicable, based on the tax rates
and laws in the respective tax jurisdiction enacted as of the balance sheet
date.
Realizability of Deferred Tax
Assets. The Company reviews its deferred tax assets for
recoverability and establishes a valuation allowance based on historical taxable
income, projected future taxable income, applicable tax strategies, and the
expected timing of the reversals of existing temporary differences. A valuation
allowance is provided when it is more likely than not that some or all of the
deferred tax assets will not be realized. Valuation allowances have been
established primarily for US federal and state net operating loss carry forwards
and Mexico net operating loss carry forwards. See Note M—Income Taxes to the
Consolidated Financial Statements.
Indefinite Reinvestment in Foreign
Subsidiaries. Taxes are provided for foreign subsidiaries
based on the assumption that their earnings will be indefinitely reinvested. As
such, US deferred income taxes have not been provided on these earnings. If such
earnings were not considered indefinitely reinvested, certain deferred foreign
and US income taxes would be provided.
Accounting for Uncertainty in Income
Taxes. On September 30, 2007, and effective for 2008, we
adopted the provisions of FIN 48. FIN 48 provides a recognition threshold and
measurement criteria for the financial statement recognition of a tax benefit
taken or expected to be taken in a tax return. Tax benefits are recognized only
when it is more likely than not, based on the technical merits, that the
benefits will be sustained on examination. Tax benefits that meet the
more-likely-than-not recognition threshold are measured using a probability
weighting of the largest amount of tax benefit that has greater than 50%
likelihood of being realized upon settlement. Whether the more-likely-than-not
recognition threshold is met for a particular tax benefit is a matter of
judgment based on the individual facts and circumstances evaluated in light of
all available evidence as of the balance sheet date. See Note M—Income Taxes to
the Consolidated Financial Statements.
Pension and Other
Postretirement Benefits. The Company’s pension and other postretirement benefit costs and obligations are
dependent on the various actuarial assumptions used in calculating such amounts.
These assumptions relate to discount rates, salary growth, long-term return on
plan assets, health care cost trend rates and other factors. The Company bases the discount rate assumptions on
current investment yields on high-quality corporate long-term bonds. The salary
growth assumptions reflect our long-term actual experience and future or
near-term outlook. Long-term return on plan assets is determined based on
historical portfolio results and management’s expectation of the future economic
environment. Our health care cost trend assumptions are developed based on
historical cost data, the near-term outlook and an assessment of likely
long-term trends. Actual results that differ from our assumptions are
accumulated and, if in excess of the lesser of 10% of the project benefit
obligation or the fair market value of plan assets, amortized over the estimated
future working life of the plan participants.
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 primarily the
potential loss arising from adverse changes in the price of feed ingredients,
foreign currency exchange rates, interest rates and the credit quality of its
available-for-sale securities 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, for use as ingredients in the feed we either sell commercially
or consume in our live operations. As a result, our earnings are affected by
changes in the price and availability of such feed ingredients. As market
conditions dictate, we will attempt to minimize our exposure to the changing
price and availability of such feed ingredients using various techniques,
including, but not limited to: (i) executing purchase agreements with suppliers
for future physical delivery of feed ingredients at established prices and (ii)
purchasing or selling derivative financial instruments such as futures and
options. 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 27, 2008. Based on our feed consumption during 2008,
such an increase would have resulted in an increase to cost of sales of
approximately $343.0 million, excluding
the impact of any feed ingredients derivative financial instruments in that
period. A 10% change in ending feed ingredients inventories at September 27,
2008 would be $9.5 million, excluding any potential impact on the production
costs of our chicken inventories. As of September 27, 2008, the fair market
value of the Company’s open derivative commodity positions was an $18.0 million
liability. During October 2009, all of the Company’s positions were liquidated
and an additional loss of $21.8 million was recognized.
Foreign
Currency. Our earnings are affected by foreign exchange rate
fluctuations related to the Mexican peso net monetary position of our Mexico
subsidiaries. We manage this exposure primarily by attempting to minimize our
Mexican peso net monetary position. We are also exposed to the effect of
potential exchange rate fluctuations to the extent that amounts are repatriated
from Mexico to the US. However, we currently anticipate that the future cash
flows of our Mexico subsidiaries will be reinvested in our Mexico operations. In
addition, the Mexican peso exchange rate can directly and indirectly impact our
financial condition and results of operations in several ways, including
potential economic recession in Mexico because of devaluation of their currency.
The impact on our financial position and results of operations resulting from a
hypothetical change in the exchange rate between the US dollar and the Mexican
peso cannot be reasonably estimated. Foreign currency exchange gains and losses,
representing the change in the US dollar value of the net monetary assets of our
Mexico subsidiaries denominated in Mexican pesos, was a gain of $0.6 million in
2008, a loss of $1.4 million in 2007 and a loss of $0.1 million in 2006.
The average exchange rates for 2008, 2007 and 2006 were 10.61 Mexican pesos to 1
US dollar, 10.95 Mexican pesos to 1 US dollar and 10.87 Mexican pesos to 1 US
dollar, respectively. No assurance can be given as to how future movements in
the Mexican peso could affect our future financial condition or results of
operations.
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. We had variable-rate debt instruments representing approximately
54.7% of our total debt at September 27, 2008. Holding other variables constant,
including levels of indebtedness, an increase in interest rates of 25 basis
points would have increased our interest expense by $2.7 million for 2008. These
amounts are determined by considering the impact of the hypothetical interest
rates on our variable-rate debt at September 27, 2008.
Market
risk for fixed-rate debt is estimated as the potential increase in fair value
resulting from a hypothetical decrease in interest rates of 25 basis points.
Using a discounted cash flow analysis, the market risk on fixed-rate debt
totaled $30.1 million as of September 27, 2008. Due to our current financial
condition, our public debt is trading at a substantial discount. As of November
28, 2008, the most recent trades of our 7 5/8% senior unsecured notes and 8 3/8%
senior subordinated unsecured notes were executed at $14.00 per $100.00 par
value and $4.50 per $100.00 par value, respectively. Management also expects
that the fair value of our non-public credit facilities has also decreased, but
cannot reliably estimate the fair value at this time.
Available-for-Sale
Securities. The Company and certain
retirement plans that it sponsors invest in a variety of financial instruments.
In response to the continued turbulence in global financial markets, we have
analyzed our portfolios of investments and, to the best of our knowledge, none
of our investments, including money market funds units, commercial paper and
municipal securities, have been downgraded because of this turbulence, and
neither we nor any fund in which we participate hold significant amounts of
structured investment vehicles, mortgage backed securities, collateralized debt
obligations, auction-rate securities, credit derivatives, hedge funds
investments, fund of funds investments or perpetual preferred securities. At
September 27, 2008, the fair value of the Company’s available-for-sale portfolio
was $66.3 million. Management does not believe a hypothetical change in interest
rates of 25 basis points or a 10% decrease in equity prices would be material to
the Company.
Impact of
Inflation. Due to low to moderate inflation in the US 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.
Item 8. Financial Statements and Supplementary
Data
The
consolidated financial statements together with the report of our independent
registered public accounting firm and financial statement schedule are included
on pages 95 through 151 of this report. 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.
Item 9A. Controls and Procedures
As of
September 27, 2008, an evaluation was performed under the supervision and with
the participation of the Company’s management, including the Senior Chairman of
the Board of Directors, Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of the Company’s “disclosure
controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation,
the Company’s management, including the Senior Chairman of the Board of
Directors, Chief Executive Officer and Chief Financial Officer, concluded the
Company’s disclosure controls and procedures were effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms, and that information we are required to disclose in our reports filed
with the Securities and Exchange Commission is accumulated and communicated to
our management, including our Senior Chairman of the Board of Directors, Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
In
connection with the evaluation described above, the Company’s management,
including the Senior Chairman of the Board, Chief Executive Officer and Chief
Financial Officer, identified no other change in the Company’s internal control
over financial reporting that occurred during the Company’s quarter ended
September 27, 2008 and that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Pilgrim's
Pride Corporation’s (“PPC”) management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rule 13a-15(f). PPC’s internal control system is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements in accordance with
generally accepted accounting principles.
Under the
supervision and with the participation of management, including its principal
executive officer and principal financial officer, PPC’s management assessed the
design and operating effectiveness of internal control over financial reporting
as of September 27, 2008 based on the framework set forth in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organization of the
Treadway Commission.
Based on
this assessment, management concluded that PPC’s internal control over financial
reporting was effective as of September 27, 2008. Ernst & Young LLP, an
independent registered public accounting firm, has issued an attestation report
on the effectiveness of the Company’s internal control over financial reporting
as of September 27, 2008. That report is included herein.
/s/ Lonnie “Bo”
Pilgrim
Lonnie
“Bo” Pilgrim
Senior
Chairman of the Board of Directors
/s/ J. Clinton
Rivers
J.
Clinton Rivers
President,
Chief
Executive Officer
Director
/s/ Richard A.
Cogdill
Richard
A. Cogdill
Chief
Financial Officer,
Secretary
and Treasurer
Director
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
The Board
of Directors and Stockholders
Pilgrim’s
Pride Corporation
We have
audited Pilgrim's Pride Corporation’s internal control over financial reporting
as of September 27, 2008, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Pilgrim's Pride Corporation’s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an
opinion on the effectiveness of the Company’s internal control over financial
reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Pilgrim's Pride Corporation maintained, in all material respects,
effective internal control over financial reporting as of September 27, 2008,
based on the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Pilgrim's
Pride Corporation as of September 27, 2008 and September 29, 2007, and the
related consolidated statements of operations, stockholders’ equity, and cash
flows for each of the three years in the period ended September 27, 2008, of
Pilgrim's Pride Corporation, and our report dated December 10, 2008, expressed
an unqualified opinion thereon.
Ernst
& Young LLP
Dallas,
Texas
December
10, 2008
Item 9B. Other Information
Not
applicable.
|
|
PART
III
|
Item 10. Directors and Executive Officers and
Corporate Governance
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 2009 Annual Meeting of Stockholders, which section is
incorporated herein by reference.
Reference
is made to the section entitled “Section 16(a) Beneficial Ownership Reporting
Compliance” of the Company’s Proxy Statement for its 2009 Annual Meeting of
Stockholders, which section is incorporated herein by reference.
We have
adopted a Code of Business Conduct and Ethics, which applies to all employees,
including our Chief Executive Officer and our Chief Financial Officer and
Principal Accounting Officer. The full text of our Code of Business Conduct and
Ethics is published on our website, at www.pilgrimspride.com,
under the “Investors-Corporate Governance” caption. We intend to disclose future
amendments to, or waivers from, certain provisions of this Code on our website
within four business days following the date of such amendment or
waiver.
See Item
13. “Certain Relationships and Related Transactions, and Director
Independence.”
Item
11. Executive
Compensation
See Item
13. “Certain Relationships and Related Transactions, and Director
Independence.”
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
See Item
13. “Certain Relationships and Related Transactions, and Director
Independence.”
As of
September 27, 2008, 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, and Director Independence
Additional
information responsive to Items 10, 11, 12 and 13 is incorporated by reference
from the sections entitled “Security Ownership,” “Board of Directors
Independence,” “Committees of the Board of Directors,” “Election of Directors,”
“Report of the Compensation Committee,” “Compensation Discussion and Analysis,”
“Executive Compensation,” “Compensation Committee Interlocks and Insider
Participation” and “Certain Transactions” of the Company’s Proxy Statement for
its 2009 Annual Meeting of Stockholders.
Item 14. Principal Accounting Fees and
Services
The
information required by this item is incorporated herein by reference from the
section entitled “Independent Registered Public Accounting Firm Fee Information”
of the Company’s Proxy Statement for its 2009 Annual Meeting of
Stockholders.
PART
IV
Item
15. Exhibits
and Financial Statement Schedules
|
(a)
|
Financial
Statements
|
|
|
(1)
|
The
financial statements and schedules listed in the index to financial
statements and schedules on page 3 of this report 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
151.
|
|
|
(b)
|
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).
|
|
|
2.3
|
Agreement
and Plan of Merger dated as of December 3, 2006, by and among the Company,
Protein Acquisition Corporation, a wholly owned subsidiary of the Company,
and Gold Kist Inc. (incorporated by reference from Exhibit 99.(D)(1) to
Amendment No. 11 to the Company’s Tender Offer Statement on Schedule TO
filed on December 5, 2006).
|
|
|
3.1
|
Certificate
of Incorporation of the Company, as amended (incorporated by reference
from Exhibit 3.1 of the Company’s Annual Report on Form 10-K for the year
ended October 2, 2004).
|
|
|
3.2
|
Amended
and Restated Corporate Bylaws of the Company (incorporated by reference
from Exhibit 4.4 of the Company’s Registration Statement on Form S-8 (No.
333-111929) filed on January 15, 2004).
|
|
|
4.1
|
Certificate
of Incorporation of the Company, as amended (included as Exhibit
3.1).
|
|
|
4.2
|
Amended
and Restated Corporate Bylaws of the Company (included as
Exhibit 3.2).
|
|
|
4.3
|
Indenture,
dated November 21, 2003, between Pilgrim's Pride Corporation and The Bank
of New York as Trustee relating to Pilgrim’s Pride’s 9 1/4% Senior Notes
due 2013 (incorporated by reference from Exhibit 4.1 of the Company's
Registration Statement on Form S-4 (No. 333-111975) filed on January 16,
2004).
|
|
|
4.4
|
Form
of 9 1/4% Note due 2013 (incorporated by reference from Exhibit 4.3 of the
Company's Registration Statement on Form S-4 (No. 333-111975) filed on
January 16, 2004).
|
|
|
4.5
|
Senior
Debt Securities Indenture dated as of January 24, 2007, by and between the
Company and Wells Fargo Bank, National Association, as trustee
(incorporated by reference from Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed on January 24, 2007).
|
|
|
4.6
|
First
Supplemental Indenture to the Senior Debt Securities Indenture dated as of
January 24, 2007, by and between the Company and Wells Fargo Bank,
National Association, as trustee (incorporated by reference from Exhibit
4.2 to the Company’s Current Report on Form 8-K filed on January 24,
2007).
|
|
|
4.7
|
Form
of 7 5/8% Senior Note due 2015 (incorporated by reference from Exhibit 4.3
to the Company’s Current Report on Form 8-K filed on January 24,
2007).
|
|
|
4.8
|
Senior
Subordinated Debt Securities Indenture dated as of January 24, 2007, by
and between the Company and Wells Fargo Bank, National Association, as
trustee (incorporated by reference from Exhibit 4.4 to the Company’s
Current Report on Form 8-K filed on January 24, 2007).
|
|
|
4.9
|
First
Supplemental Indenture to the Senior Subordinated Debt Securities
Indenture dated as of January 24, 2007, by and between the Company and
Wells Fargo Bank, National Association, as trustee (incorporated by
reference from Exhibit 4.5 to the Company’s Current Report on Form 8-K
filed on January 24, 2007).
|
|
|
4.10
|
Form
of 8 3/8% Subordinated Note due 2017 (incorporated by reference from
Exhibit 4.6 to the Company’s Current Report on Form 8-K filed on January
24, 2007).
|
|
|
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-K filed on July 1, 1992). …
|
|
|
10.2
|
Senior
Executive Performance Bonus Plan of the Company (incorporated by reference
from Exhibit A in the Company’s Proxy Statement dated December 13, 1999).
…
|
|
|
10.3
|
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).
|
|
|
10.4
|
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).
|
|
|
10.5
|
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).
|
|
|
10.6
|
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).
|
|
|
10.7
|
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).
|
|
|
10.8
|
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).
|
|
|
10.9
|
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).
|
|
|
10.10
|
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).
|
|
|
10.11
|
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).
|
|
|
10.12
|
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 year ended
October 2, 1999).
|
|
|
10.13
|
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).
|
|
|
10.14
|
Amendment
No. 1 dated as of December 31, 2003 to 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 10.5
of the Company’s Quarterly Report on Form 10-Q filed February 4,
2004).
|
|
|
10.15
|
Employee
Stock Investment Plan of the Company (incorporated by reference from
Exhibit 4.1 of the Company’s Registration Statement on Form S-8 (No.
333-111929) filed on January 15, 2004). …
|
|
|
10.16
|
2005
Deferred Compensation Plan of the Company (incorporated by reference from
Exhibit 10.1 of the Company’s Current Report on Form 8-K dated December
27, 2004). …
|
|
|
10.17
|
Vendor
Service Agreement dated effective December 28, 2005 between Pilgrim's
Pride Corporation and Pat Pilgrim (incorporated by reference from Exhibit
10.2 of the Company's Current Report on Form 8-K dated January 6,
2006).
|
|
|
10.18
|
Transportation
Agreement dated effective December 28, 2005 between Pilgrim's Pride
Corporation and Pat Pilgrim (incorporated by reference from Exhibit 10.3
of the Company's Current Report on Form 8-K dated January 6,
2006).
|
|
|
10.19
|
Credit
Agreement by and among the Avícola Pilgrim’s Pride de México, S. de R.L.
de C.V. (the "Borrower"), Pilgrim's Pride Corporation, certain Mexico
subsidiaries of the Borrower, ING Capital LLC, and the lenders signatory
thereto dated as of September 25, 2006 (incorporated by reference from
Exhibit 10.1 of the Company's Current Report on Form 8-K filed on
September 28, 2006).
|
|
|
10.20
|
2006
Amended and Restated Credit Agreement by and among CoBank, ACB, Agriland,
FCS and the Company dated as of September 21, 2006 (incorporated by
reference from Exhibit 10.2 of the Company's Current Report on Form 8-K
filed on September 28, 2006).
|
|
|
10.21
|
First
Amendment to the Pilgrim’s Pride Corporation Amended and Restated 2005
Deferred Compensation Plan Trust, dated as of November 29, 2006
(incorporated by reference from Exhibit 10.03 of the Company’s Current
Report on Form 8-K filed on December 05, 2006). …
|
|
|
10.22
|
Agreement
and Plan of Merger dated as of December 3, 2006, by and among the Company,
Protein Acquisition Corporation, a wholly owned subsidiary of the Company,
and Gold Kist Inc. (incorporated by reference from Exhibit 99.(D)(1) to
Amendment No. 11 to the Company’s Tender Offer Statement on Schedule TO
filed on December 5, 2006).
|
|
|
10.23
|
First
Amendment to Credit Agreement, dated as of December 13, 2006, by and among
the Company, as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and sole book runner, and as administrative, documentation and
collateral agent, Agriland, FCS, as co-syndication agent, and as a
syndication party, and the other syndication parties signatory thereto
(incorporated by reference from Exhibit 10.01 to the Company’s Current
Report on Form 8-K filed on December 19, 2006).
|
|
|
10.24
|
Second
Amendment to Credit Agreement, dated as of January 4, 2007, by and among
the Company, as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and sole book runner, and as administrative, documentation and
collateral agent, Agriland, FCS, as co-syndication agent, and as a
syndication party, and the other syndication parties signatory thereto
(incorporated by reference from Exhibit 10.01 to the Company’s Current
Report on Form 8-K filed on January 9, 2007).
|
|
|
10.25
|
Fourth
Amended and Restated Secured Credit Agreement, dated as of February 8,
2007, by and among the Company, To-Ricos, Ltd., To-Ricos Distribution,
Ltd., Bank of Montreal, as agent, SunTrust Bank, as syndication agent,
U.S. Bank National Association and Wells Fargo Bank, National Association,
as co-documentation agents, BMO Capital Market, as lead arranger, and the
other lenders signatory thereto (incorporated by reference from Exhibit
10.01 of the Company’s Current Report on Form 8-K dated February 12,
2007).
|
|
|
10.26
|
Third
Amendment to Credit Agreement, dated as of February 7, 2007, by and among
the Company as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and the sole book runner, and as administrative, documentation and
collateral agent, Agriland, FCS, as co-syndication agent, and as a
syndication party, and the other syndication parties signatory thereto
(incorporated by reference from Exhibit 10.02 of the Company’s Current
Report on Form 8-K dated February 12, 2007).
|
|
|
10.27
|
First
Amendment to Credit Agreement, dated as of March 15, 2007, by and among
the Borrower, the Company, the Subsidiary Guarantors, ING Capital LLC, and
the Lenders (incorporated by reference from Exhibit 10.01 of the Company’s
Current Report on Form 8-K dated March 20, 2007).
|
|
|
10.28
|
Fourth
Amendment to Credit Agreement, dated as of July 3, 2007, by and among the
Company as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and the sole book runner, and as administrative, documentation and
collateral agent, Agriland, FCS, as co-syndication agent, and as
syndication party, and the other syndication parties signatory thereto
(incorporated by reference from Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q filed July 31, 2007).
|
|
|
10.29
|
Retirement
and Consulting Agreement dated as of October 10, 2007, between the Company
and Clifford E. Butler (incorporated by reference from Exhibit 10.1 of the
Company’s Current Report on Form 8-K dated October 10, 2007). …
|
|
|
10.30
|
Fifth
Amendment to Credit Agreement, dated as of August 7, 2007, by and among
the Company as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and the sole book runner, and as administrative, documentation and
collateral agent, Agriland, FCS, as co-syndication agent, and as
syndication party, and the other syndication parties signatory thereto
(incorporated by reference from Exhibit 10.39 of the Company’s Annual
Report on Form 10-K filed on November 19, 2007).
|
|
|
10.31
|
Sixth
Amendment to Credit Agreement, dated as of November 7, 2007, by and among
the Company as borrower, CoBank, ACB, as administrative agent, and the
other syndication parties signatory thereto (incorporated by reference
from Exhibit 10.1 of the Company’s Current Report on Form 8-K dated
November 13, 2007).
|
|
|
10.32
|
Ground
Lease Agreement effective February 1, 2008 between Pilgrim's Pride
Corporation and Pat Pilgrim (incorporated by reference from Exhibit 10.1
of the Company's Current Report on Form 8-K dated February 1,
2008).
|
|
|
10.33
|
Seventh
Amendment to Credit Agreement, dated as of March 10, 2008, by and among
the Company as borrower, CoBank, ACB, as administrative agent, and the
other syndication parties signatory thereto (incorporated by reference
from Exhibit 10.1 to the Company's Current Report on Form 8-K filed on
February 20, 2008).
|
|
|
10.34
|
First
Amendment to the Fourth Amended and Restated Secured Credit Agreement,
dated as of March 11, 2008, by and among the Company, To-Ricos, Ltd.,
To-Ricos Distribution, Ltd., Bank of Montreal, as administrative agent,
and the other lenders signatory thereto (incorporated by reference from
Exhibit 10.2 to the Company's Current Report on Form 8-K filed on February
20, 2008).
|
|
|
10.35
|
Eighth
Amendment to Credit Agreement, dated as of April 30, 2008, by and among
the Company as borrower, CoBank, ACB, as administrative agent, and the
other syndication parties signatory thereto (incorporated by reference
from Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May
5, 2008).
|
|
|
10.36
|
Second
Amendment to the Fourth Amended and Restated Secured Credit Agreement,
dated as of April 30, 2008, by and among the Company, To-Ricos, Ltd.,
To-Ricos Distribution, Ltd., Bank of Montreal, as administrative agent,
and the other lenders signatory thereto (incorporated by reference from
Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 5,
2008).
|
|
|
10.37
|
Change
to Company Contribution Amount Under the Amended and Restated 2005
Deferred Compensation Plan of the Company (incorporated by reference from
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed July 30,
2008). …
|
|
|
10.38
|
Limited Duration Waiver
of Potential Defaults and Events of Default under Credit Agreement dated
September 26, 2008 by and among Pilgrim's Pride Corporation, as
borrower, CoBank, ACB, as administrative agent, and the other syndication
parties signatory thereto (incorporated by reference from Exhibit
10.1 to the Company's Current Report on Form 8-K filed on September 29,
2008).
|
|
|
10.39
|
Limited Duration Waiver
Agreement dated as of September 26, 2008 by and among Pilgrim's Pride
Corporation, as borrower, Bank of Montreal, as administrative agent, and
certain other bank parties thereto (incorporated
by reference from Exhibit 10.2 to the Company's Current Report on Form 8-K
filed on September 29, 2008).
|
|
|
10.40
|
Limited Duration Waiver
Agreement dated as of September 26, 2008 by and among Pilgrim's Pride
Corporation, Pilgrim's Pride Funding Corporation,
BMO Capital Markets Corp., as administrator, and Fairway Finance Company,
LLC (incorporated by reference from Exhibit 10.3 to the Company's
Current Report on Form 8-K filed on September 29,
2008).
|
|
|
10.41
|
Amended and Restated
Receivables Purchase
Agreement dated as of September 26, 2008 among Pilgrim's Pride
Corporation, Pilgrim's Pride Funding Corporation, BMO Capital Markets
Corp., as administrator, and the various purchasers and purchaser agents
from time to time parties thereto (incorporated
by reference from Exhibit 10.4 to the Company's Current Report on Form 8-K
filed on September 29, 2008).
|
|
|
10.42
|
Amendment
No. 1 dated as of October 10, 2008 to Amended and Restated Receivables
Purchase Agreement, dated as of September 26, 2008 among Pilgrim's Pride
Corporation, Pilgrim's Pride Funding Corporation, BMO Capital Markets
Corp., as administrator, and the various purchasers and purchaser agents
from time to time parties thereto.*
|
|
|
10.43
|
Amendment No. 2 to
Purchase and Contribution Agreement
dated as of September 26, 2008 among Pilgrim's Pride Funding Corporation
and Pilgrim's Pride Corporation (incorporated by reference from
Exhibit 10.5 to the Company's Current Report on Form 8-K filed on
September 29, 2008).
|
|
|
10.44
|
Limited Duration Waiver
of Potential Defaults and Events of Default under Credit Agreement dated
October 26, 2008 by and among Pilgrim's Pride Corporation, as borrower,
CoBank, ACB, as administrative agent, and the other syndication parties
signatory thereto (incorporated
by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on October 27, 2008).
|
|
|
10.45
|
Limited Duration Waiver
Agreement dated as of October 26, 2008 by and among Pilgrim's Pride
Corporation, as borrower, Bank of Montreal, as
administrative agent, and certain other bank parties thereto
(incorporated by reference from Exhibit 10.2 to the Company's
Current Report on Form 8-K filed on October 27, 2008).
|
|
|
10.46
|
Limited Duration Waiver
Agreement dated as of October 26, 2008 by and
among Pilgrim's Pride Corporation, Pilgrim's Pride Funding Corporation,
BMO Capital Markets Corp., as administrator, and Fairway Finance Company,
LLC (incorporated by reference from Exhibit 10.3 to the Company's
Current Report on Form 8-K filed on October 27, 2008).
|
|
|
10.47
|
Form of Change in
Control Agreement dated as of October 21, 2008 between the Company and
certain of its executive officers (incorporated by reference from
Exhibit 10.4 to the Company's Current Report on Form 8-K filed on October
27, 2008). …
|
|
|
10.48
|
First
Amendment to Limited Duration Waiver
of Potential Defaults and Events of Default under Credit Agreement dated
November 25, 2008 by and among Pilgrim's Pride Corporation, as
borrower, CoBank, ACB, as administrative agent, and the
other syndication parties signatory thereto.*
|
|
|
10.49
|
First
Amendment to Limited Duration Waiver Agreement dated as of
November 25, 2008 by and among Pilgrim's Pride Corporation, as
borrower, Bank of Montreal, as administrative agent, and certain other
bank parties thereto.*
|
|
|
10.50
|
First
Amendment to Limited Duration Waiver Agreement dated as of
November 25, 2008 by and among Pilgrim's Pride Corporation, Pilgrim's
Pride Funding Corporation, BMO Capital Markets Corp., as administrator,
and Fairway Finance Company, LLC. *
|
|
|
10.51
|
Waiver
Agreement and Second Amendment to Credit Agreement dated November 30,
2008, by and among the Company and certain non-debtor Mexico subsidiaries
of the Company, ING Capital LLC, as agent, and the lenders signatory
thereto.*
|
|
|
10.52
|
Post-Petition
Credit Agreement dated December 2, 2008 by and among the Company, as
borrower, the US Subsidiaries, as guarantors, Bank of Montreal, as agent,
and the lenders party thereto.*
|
|
|
12
|
Ratio
of Earnings to Fixed Charges for the years ended September 27, 2008,
September 29, 2007, September 30, 2006, October 1, 2005, October 2, 2004,
and September 27, 2003.*
|
|
|
21
|
Subsidiaries
of Registrant.*
|
|
|
23
|
Consent
of Ernst & Young LLP.*
|
|
|
31.1
|
Certification
of Co-Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
|
|
|
31.2
|
Certification
of Co-Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
|
|
|
31.3
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
|
|
|
32.1
|
Certification
of Co-Principal Executive Officer of Pilgrim's Pride Corporation pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
|
32.2
|
Certification
of Co-Principal Executive Officer of Pilgrim's Pride Corporation pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
|
32.3
|
Certification
of Chief Financial Officer of Pilgrim's Pride Corporation pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.*
|
|
|
*Filed
herewith
|
|
|
…Represents
a management contract or compensation plan
arrangement
|
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 11th day of December
2008.
PILGRIM’S PRIDE
CORPORATION
|
By:
|
/s/ Richard A. Cogdill
|
|
Richard
A. Cogdill
|
|
|
Chief
Financial Officer, Secretary and Treasurer
|
|
|
(Principal
Financial and Accounting
Officer)
|
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
|
Senior
Chairman of the Board
|
12/11/08
|
||
|
Lonnie
“Bo” Pilgrim
|
||||
|
/s/
Lonnie Ken Pilgrim
|
Chairman
of the Board
|
12/11/08
|
||
|
Lonnie
Ken Pilgrim
|
||||
|
/s/
J. Clinton Rivers
|
President
|
12/11/08
|
||
|
J.
Clinton Rivers
|
Chief
Executive Officer and Director
|
|||
|
/s/
Richard A. Cogdill
|
Chief
Financial Officer, Secretary, Treasurer and
|
12/11/08
|
||
|
Richard
A. Cogdill
|
Director
|
|||
|
(Principal
Financial and Accounting Officer)
|
||||
|
/s/
Charles L. Black
|
Director
|
12/11/08
|
||
|
Charles
L. Black
|
||||
|
/s/
Linda Chavez
|
Director
|
12/11/08
|
||
|
Linda
Chavez
|
||||
|
/s/
S. Key Coker
|
Director
|
12/11/08
|
||
|
S.
Key Coker
|
||||
|
/s/
Keith W. Hughes
|
Director
|
12/11/08
|
||
|
Keith
W. Hughes
|
||||
|
/s/
Blake D. Lovette
|
Director
|
12/11/08
|
||
|
Blake
D. Lovette
|
|
Signature
|
Title
|
Date
|
||
|
/s/
Vance C. Miller, Sr.
|
Director
|
12/11/08
|
||
|
Vance
C. Miller, Sr.
|
||||
|
/s/
James G. Vetter, Jr.
|
Director
|
12/11/08
|
||
|
James
G. Vetter, Jr.
|
||||
|
/s/
Donald L. Wass, Ph.D.
|
Director
|
12/11/08
|
||
|
Donald
L. Wass, Ph.D.
|
||||
Report of Independent Registered Public Accounting
Firm
The Board
of Directors and Stockholders
Pilgrim’s
Pride Corporation
We have
audited the accompanying consolidated balance sheets of Pilgrim’s Pride
Corporation (the “Company”) as of September 27, 2008 and September 29, 2007, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended September 27, 2008.
Our audits also include 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 the standards of the Public Company
Accounting Oversight Board (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 at September 27, 2008 and September 29, 2007, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended September 27, 2008, in conformity with U.S. generally accepted
accounting principles. 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.
The
accompanying financial statements have been prepared assuming that Pilgrim’s
Pride Corporation will continue as a going concern. As more fully described in
Note A, the Company filed for reorganization under Chapter 11 of the United
States Bankruptcy Code on December 1, 2008. This, and the other business
environment factors discussed, raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in regard to this
matter are also described in Note A. The accompanying consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
As
discussed in Note M to the consolidated financial statements, Pilgrim’s Pride
Corporation adopted Financial Accounting Standards Board Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109," effective September 30, 2007.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Pilgrim’s Pride Corporation’s internal control
over financial reporting as of September 27, 2008, based on criteria established
in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated December 10, 2008, expressed an
unqualified opinion thereon.
Ernst & Young LLP
Dallas,
Texas
December
10, 2008
Consolidated
Balance Sheets
Pilgrim’s
Pride Corporation
|
September
27, 2008
|
September
29, 2007
|
|||||||
|
Assets
|
(In
thousands, except shares and per share data)
|
|||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 61,553 | $ | 66,168 | ||||
|
Investment
in available-for-sale securities
|
10,439 | 8,153 | ||||||
|
Trade
accounts and other receivables, less
allowance
for doubtful accounts
|
144,156 | 114,678 | ||||||
|
Inventories
|
1,036,163 | 925,340 | ||||||
|
Income
taxes receivable
|
21,656 | 61,901 | ||||||
|
Current
deferred taxes
|
54,312 | 8,095 | ||||||
|
Prepaid
expenses and other current assets
|
71,552 | 47,959 | ||||||
|
Assets
held for sale
|
17,370 | 15,534 | ||||||
|
Assets
of discontinued business
|
33,519 | 53,232 | ||||||
|
Total
current assets
|
1,450,720 | 1,301,060 | ||||||
|
Investment
in available-for-sale securities
|
55,854 | 46,035 | ||||||
|
Other
assets
|
51,768 | 60,113 | ||||||
|
Identified
intangible assets, net
|
67,363 | 78,433 | ||||||
|
Goodwill
|
— | 505,166 | ||||||
|
Property,
plant and equipment, net
|
1,673,004 | 1,783,429 | ||||||
| $ | 3,298,709 | $ | 3,774,236 | |||||
|
Liabilities
and stockholders’ equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 378,887 | $ | 398,512 | ||||
|
Accrued
expenses
|
448,823 | 497,262 | ||||||
|
Current
maturities of long-term debt
|
1,874,469 | 2,872 | ||||||
|
Liabilities
of discontinued business
|
10,783 | 6,556 | ||||||
|
Total
current liabilities
|
2,712,962 | 905,202 | ||||||
|
Long-term
debt, less current maturities
|
67,514 | 1,318,558 | ||||||
|
Deferred
income taxes
|
80,755 | 326,570 | ||||||
|
Other
long-term liabilities
|
85,737 | 51,685 | ||||||
|
Commitments
and contingencies
|
— | — | ||||||
|
Stockholders’
equity:
|
||||||||
|
Preferred
stock, $.01 par value, 5,000,000 shares authorized; no shares
issued
|
— | — | ||||||
|
Common
stock, $.01 par value, 160,000,000 shares authorized; 74,055,733 and
66,555,733 shares issued and outstanding at year end 2008 and 2007,
respectively
|
740 | 665 | ||||||
|
Additional
paid-in capital
|
646,922 | 469,779 | ||||||
|
Accumulated
earnings (deficit)
|
(317,082 | ) | 687,775 | |||||
|
Accumulated
other comprehensive income
|
21,161 | 14,002 | ||||||
|
Total
stockholders’ equity
|
351,741 | 1,172,221 | ||||||
| $ | 3,298,709 | $ | 3,774,236 | |||||
The accompanying notes are an integral
part of these Consolidated Financial Statements.
Consolidated
Statements of Operations
Pilgrim’s
Pride Corporation
|
Three
Years Ended September 27, 2008
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
(In
thousands, except per share data)
|
||||||||||||
|
Net
sales
|
$ | 8,525,112 | $ | 7,498,612 | $ | 5,152,729 | ||||||
|
Costs
and expenses:
|
||||||||||||
|
Cost
of sales
|
8,675,524 | 6,905,882 | 4,855,646 | |||||||||
|
Operational
restructuring charges
|
13,083 | — | — | |||||||||
|
Gross
profit (loss)
|
(163,495 | ) | 592,730 | 297,083 | ||||||||
|
Selling,
general and administrative expenses
|
376,599 | 355,539 | 285,978 | |||||||||
|
Goodwill
impairment
|
501,446 | — | — | |||||||||
|
Administrative
restructuring charges
|
16,156 | — | — | |||||||||
|
Total
costs and expenses
|
9,582,808 | 7,261,421 | 5,141,624 | |||||||||
|
Operating
income (loss)
|
(1,057,696 | ) | 237,191 | 11,105 | ||||||||
|
Other
expenses (income):
|
||||||||||||
|
Interest
expense
|
134,220 | 123,183 | 49,013 | |||||||||
|
Interest
income
|
(2,593 | ) | (4,641 | ) | (10,048 | ) | ||||||
|
Loss
on early extinguishment of debt
|
— | 26,463 | — | |||||||||
|
Miscellaneous,
net
|
(2,230 | ) | (6,649 | ) | (1,234 | ) | ||||||
| 129,397 | 138,356 | 37,731 | ||||||||||
|
Income
(loss) from continuing operations before income taxes
|
(1,187,093 | ) | 98,835 | (26,626 | ) | |||||||
|
Income
tax expense (benefit)
|
(194,921 | ) | 47,319 | 1,573 | ||||||||
|
Income
(loss) from continuing operations
|
(992,172 | ) | 51,516 | (28,199 | ) | |||||||
|
Income
(loss) from operations of discontinued business, net of
tax
|
(7,312 | ) | (4,499 | ) | (6,033 | ) | ||||||
|
Gain
on disposal of discontinued business, net of tax
|
903 | — | — | |||||||||
|
Net
income (loss)
|
$ | (998,581 | ) | $ | 47,017 | $ | (34,232 | ) | ||||
|
Net
income (loss) per common share—basic and
diluted:
|
||||||||||||
|
Continuing
operations
|
$ | (14.31 | ) | $ | 0.77 | $ | (0.42 | ) | ||||
|
Discontinued
business
|
(0.09 | ) | (0.06 | ) | (0.09 | ) | ||||||
|
Net
income (loss)
|
$ | (14.40 | ) | $ | 0.71 | $ | (0.51 | ) | ||||
|
The accompanying notes
are an integral part
of these Consolidated Financial Statements.
|
||||||||||||
Consolidated
Statements of Stockholders’ Equity
Pilgrim’s
Pride Corporation
|
Accumulated
|
||||||||||||||||||||||||||||
|
Additional
|
Accumulated
|
Other
|
||||||||||||||||||||||||||
|
Common Stock
|
Paid-In
|
Earnings
|
Comprehensive
|
Treasury
|
||||||||||||||||||||||||
|
Shares
|
Value
|
Capital
|
(Deficit)
|
Income (Loss)
|
Stock
|
Total
|
||||||||||||||||||||||
|
(In
thousands, except shares and per share data)
|
||||||||||||||||||||||||||||
|
Balance
at October 1, 2005
|
66,826,833 | $ | 668 | $ | 471,344 | $ | 753,527 | $ | (373 | ) | $ | (1,568 | ) | $ | 1,223,598 | |||||||||||||
|
Net
loss
|
(34,232 | ) | (34,232 | ) | ||||||||||||||||||||||||
|
Other
comprehensive income
|
507 | 507 | ||||||||||||||||||||||||||
|
Total
comprehensive loss
|
(33,725 | ) | ||||||||||||||||||||||||||
|
Cancellation
of treasury stock
|
(271,100 | ) | (3 | ) | (1,565 | ) | 1,568 | — | ||||||||||||||||||||
|
Cash
dividends declared
($1.09
per share)
|
(72,545 | ) | (72,545 | ) | ||||||||||||||||||||||||
|
Balance
at September 30, 2006
|
66,555,733 | 665 | 469,779 | 646,750 | 134 | — | 1,117,328 | |||||||||||||||||||||
|
Net
income
|
47,017 | 47,017 | ||||||||||||||||||||||||||
|
Other
comprehensive income
|
13,868 | 13,868 | ||||||||||||||||||||||||||
|
Total
comprehensive income
|
60,885 | |||||||||||||||||||||||||||
|
Cash
dividends declared
($.09
per share)
|
(5,992 | ) | (5,992 | ) | ||||||||||||||||||||||||
|
Balance
at September 29, 2007
|
66,555,733 | 665 | 469,779 | 687,775 | 14,002 | — | 1,172,221 | |||||||||||||||||||||
|
Net
loss
|
(998,581 | ) | (998,581 | ) | ||||||||||||||||||||||||
|
Other
comprehensive income
|
7,159 | 7,159 | ||||||||||||||||||||||||||
|
Total
comprehensive loss
|
(991,422 | ) | ||||||||||||||||||||||||||
|
Sale
of common stock
|
7,500,000 | 75 | 177,143 | 177,218 | ||||||||||||||||||||||||
|
Cash
dividends declared
($.09
per share)
|
(6,328 | ) | (6,328 | ) | ||||||||||||||||||||||||
|
Other
|
52 | 52 | ||||||||||||||||||||||||||
|
Balance
at September 27, 2008
|
74,055,733 | $ | 740 | $ | 646,922 | $ | (317,082 | ) | $ | 21,161 | $ | — | $ | 351,741 | ||||||||||||||
The accompanying notes are an
integral part of these
Consolidated Financial Statements.
Consolidated
Statements of Cash Flows
Pilgrim’s
Pride Corporation
|
Three
Years Ended September 27, 2008
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
(In
thousands)
|
||||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
income (loss)
|
$ | (998,581 | ) | $ | 47,017 | $ | (34,232 | ) | ||||
|
Adjustments
to reconcile net income (loss) to cash provided by (used in) operating
activities
|
||||||||||||
|
Depreciation
and amortization
|
240,305 | 204,903 | 135,133 | |||||||||
|
Non-cash
loss on early extinguishment of debt
|
— | 9,543 | — | |||||||||
|
Tangible
asset impairment
|
13,184 | — | 3,767 | |||||||||
|
Goodwill
impairment
|
501,446 | — | — | |||||||||
|
Loss
(gain) on property disposals
|
(14,850 | ) | (446 | ) | 1,781 | |||||||
|
Deferred
income taxes
|
(195,944 | ) | 83,884 | 20,455 | ||||||||
|
Changes
in operating assets and liabilities, net of the effect of business
acquired
|
||||||||||||
|
Accounts
and other receivables
|
(19,864 | ) | 247,217 | 31,121 | ||||||||
|
Income
taxes payable/receivable
|
(1,552 | ) | 5,570 | (55,363 | ) | |||||||
|
Inventories
|
(103,937 | ) | (129,645 | ) | (58,612 | ) | ||||||
|
Prepaid
expenses and other current assets
|
(23,392 | ) | (2,981 | ) | (6,594 | ) | ||||||
|
Accounts
payable and accrued expenses
|
(71,293 | ) | (5,097 | ) | (3,501 | ) | ||||||
|
Other
|
(6,248 | ) | 4,045 | (3,626 | ) | |||||||
|
Cash
provided by (used in) operating activities
|
(680,726 | ) | 464,010 | 30,329 | ||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Acquisitions
of property, plant and equipment
|
(152,501 | ) | (172,323 | ) | (143,882 | ) | ||||||
|
Purchase
of investment securities
|
(38,043 | ) | (125,045 | ) | (318,266 | ) | ||||||
|
Proceeds
from sale or maturity of investment securities
|
27,545 | 208,676 | 490,764 | |||||||||
|
Business
acquisition, net of cash acquired
|
— | (1,102,069 | ) | — | ||||||||
|
Proceeds
from property disposals
|
41,367 | 6,286 | 4,148 | |||||||||
|
Other,
net
|
— | — | (506 | ) | ||||||||
|
Cash
provided by (used in) investing activities
|
(121,632 | ) | (1,184,475 | ) | 32,258 | |||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from notes payable to banks
|
— | — | 270,500 | |||||||||
|
Repayments
on notes payable to banks
|
— | — | (270,500 | ) | ||||||||
|
Proceeds
from long-term debt
|
2,264,912 | 1,981,255 | 74,683 | |||||||||
|
Payments
on long-term debt
|
(1,646,028 | ) | (1,368,700 | ) | (36,950 | ) | ||||||
|
Changes
in cash management obligations
|
13,558 | 39,231 | — | |||||||||
|
Sale
of common stock
|
177,218 | — | — | |||||||||
|
Debt
issue costs
|
(5,589 | ) | (15,565 | ) | (3,938 | ) | ||||||
|
Cash
dividends paid
|
(6,328 | ) | (5,992 | ) | (72,545 | ) | ||||||
|
Cash
provided by (used in) financing activities
|
797,743 | 630,229 | (38,750 | ) | ||||||||
|
Increase
(decrease) in cash and cash equivalents
|
(4,615 | ) | (90,236 | ) | 23,837 | |||||||
|
Cash
and cash equivalents, beginning of year
|
66,168 | 156,404 | 132,567 | |||||||||
|
Cash
and cash equivalents, end of year
|
$ | 61,553 | $ | 66,168 | $ | 156,404 | ||||||
|
Supplemental
Disclosure Information:
|
||||||||||||
|
Cash
paid during the year for:
|
||||||||||||
|
Interest
(net of amount capitalized)
|
$ | 142,339 | $ | 104,394 | $ | 48,590 | ||||||
|
Income
taxes paid
|
$ | 6,411 | $ | 11,164 | $ | 37,813 | ||||||
|
The accompanying notes are an
integral part of these Consolidated Financial Statements.
|
||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE
A—BUSINESS, CHAPTER 11 BANKRUPTCY FILINGS AND PROCESS, AND GOING CONCERN
MATTERS
|
Business
Pilgrim's Pride Corporation (referred to herein as “the Company,” “we,” “us,” “our,” or similar terms) is one of the largest chicken companies in the United States (“US”), Mexico and Puerto Rico. Our fresh chicken retail line is sold in
the southeastern,
central, southwestern and western regions of the US, throughout Puerto Rico, and in the northern and central regions of Me
xico. Our prepared-foods products meet the
needs of some of the largest customers in the food service industry across the
US. Additionally, the Company exports commodity chicken
products to 80 countries. As a vertically integrated company, we control every phase of the
production of our products. We operate feed mills, hatcheries, processing
plants and distribution centers in 14 US states, Puerto Rico and Mexico.
Our fresh
chicken products consist of refrigerated (non-frozen) whole or cut-up chicken,
either pre-marinated or non-marinated, and pre-packaged chicken in various
combinations of freshly refrigerated, whole chickens and chicken parts. 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.
We
reported a net loss of $998.6 million, or $14.40 per common share, for the year,
which included a negative gross margin of $163.5 million. As of September 27,
2008, the Company’s accumulated deficit aggregated $317.1 million. During 2008,
the Company used $680.7 million of cash in operations. At September 27, 2008, we
had cash and cash equivalents totaling $61.6 million. The following factors
contributed to this performance:
|
·
|
Feed
ingredient costs increased substantially between the first quarter of 2007
and the end of 2008. While chicken selling prices generally improved over
the same period, prices did not improve sufficiently to offset the higher
costs of feed ingredients. More recently, prices have actually declined as
the result of weak demand for breast meat and a general oversupply of
chicken in the US.
|
|
·
|
The
Company recognized losses on derivative financial instruments, primarily
futures contracts and options on corn and soybean meal, during 2008
totaling $38.3 million. In the fourth quarter of 2008, it recognized
losses on derivative financial instruments totaling $155.7 million. In
late June and July of 2008, management executed various derivative
financial instruments for August and September soybean meal and corn
prices. After entering into these positions, the prices of the commodities
decreased significantly in July and August of 2008 creating these
losses.
|
|
·
|
The
Company evaluated the carrying amount of its goodwill for potential
impairment at September 27, 2008. We obtained valuation reports as of
September 27, 2008 that indicated the carrying amount of our goodwill
should be fully impaired based on current conditions. As a result, we
recognized a pretax impairment charge of $501.4 million during
2008.
|
|
·
|
The
Company assessed the realizability of its net deferred tax assets position
and increased its valuation allowance and recognized additional income tax
expense of approximately $71.2 million during
2008.
|
In
September 2008, the Company entered into agreements with its lenders to
temporarily waive the fixed-charge coverage ratio covenant under its credit
facilities. The lenders agreed to continue to provide liquidity under the credit
facilities during the thirty-day period ended October 28, 2008. On October 27,
2008, the Company entered into further agreements with its lenders to
temporarily waive the fixed-charge coverage ratio and leverage ratio covenants
under its credit facilities. The lenders agreed to continue to provide liquidity
under the credit facilities during the thirty-day period ended November 26,
2008. On that same day, the Company also announced its intention to exercise its
30-day grace period in making a $25.7 million interest payment due on November
3, 2008 under its 8 3/8% senior subordinated notes and its 7 5/8% senior notes.
On November 17, 2008, the Company exercised its 30-day grace period in making a
$0.3 million interest payment due on November 17, 2008 under its 9 1/4% senior
subordinated notes. On November
26, 2008, the Company entered into further agreements with its lenders to extend
the temporary waivers until December 1, 2008.
Chapter
11 Bankruptcy Filings
On
December 1, 2008 (the "Petition Date"), the Company and certain of its
subsidiaries (collectively, the "Debtors") filed voluntary petitions for
reorganization under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Northern
District of Texas, Fort Worth Division (the "Bankruptcy Court"). The cases are
being jointly administered under Case No. 08-45664. The Company’s operations in
Mexico and certain operations in the US were not included in the filing (the
“Non-filing Subsidiaries) and will continue to operate outside the Chapter 11
process.
Subject
to certain exceptions under the Bankruptcy Code, the Debtors’ Chapter 11 filing
automatically enjoined, or stayed, the continuation of any judicial or
administrative proceedings or other actions against the Debtors or their
property to recover on, collect or secure a claim arising prior to the Petition
Date. Thus, for example, most creditor actions to obtain possession of property
from the Debtors, or to create, perfect or enforce any lien against the property
of the Debtors, or to collect on monies owed or otherwise exercise rights or
remedies with respect to a pre-petition claim are enjoined unless and until the
Bankruptcy Court lifts the automatic stay.
The
filing of the Chapter 11 petitions constituted an event of default under
certain of our debt obligations, and those debt obligations became automatically
and immediately due and payable, subject to an automatic stay of any action to
collect, assert, or recover a claim against the Company and the application of
applicable bankruptcy law. As a result, the accompanying Consolidated Balance
Sheet as of September 27, 2008 includes a reclassification of $1,872.1 million
to reflect as current certain long-term debt under its credit facilities that,
absent the stay, would have become automatically and immediately due and
payable.
Chapter
11 Process
The
Debtors are currently operating as "debtors in possession" under the
jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In
general, as debtors in possession, we are authorized under Chapter 11 to
continue to operate as an ongoing business, but may not engage in transactions
outside the ordinary course of business without the prior approval of the
Bankruptcy Court.
On
December 2, 2008, the Bankruptcy
Court granted interim approval authorizing the Company and the Subsidiaries
organized in the United States (the "US Subsidiaries") to enter into that
certain Post-Petition Credit Agreement (the "DIP Credit Agreement") among the
Company, as borrower, the
US Subsidiaries, as guarantors, Bank of Montreal, as agent (the "DIP Agent"),
and the lenders party thereto. On December 2, 2008, the Company, the US
Subsidiaries and the other parties entered into the DIP Credit Agreement,
subject to final approval of the Bankruptcy
Court.
The DIP Credit Agreement provides for an
aggregate commitment of up to $450 million, which permits borrowings on a
revolving basis. The Company received interim approval to access
$365 million of the commitment
pending issuance of the
final order by the Bankruptcy Court. Outstanding borrowings
under the DIP Credit Agreement will bear interest at a per annum rate equal to
8.0% plus the greatest of (i) the prime rate as established by the DIP agent
from time to time, (ii) the average federal funds rate plus 0.5%, or
(iii) the LIBOR rate plus 1.0%, payable monthly. The loans under the DIP Credit Agreement were
used to repurchase all receivables sold under the Company's Receivables Purchase
Agreement (“RPA”) and may be used to fund the working capital requirements of the
Company and its subsidiaries according to a budget as approved by the required
lenders under the DIP Credit Agreement. For additional information on the
RPA, see Note F—Accounts
Receivable.
Actual borrowings by the Company under the DIP Credit
Agreement are subject to a borrowing base, which is a formula based on certain
eligible inventory and eligible receivables. The borrowing base formula is
reduced by pre-petition obligations under the Fourth Amended and Restated Secured Credit Agreement dated
as of February 8, 2007, among the Company and certain of its subsidiaries, Bank
of Montreal, as administrative agent, and the lenders parties thereto, as
amended, administrative and professional expenses, and the amount owed by the Company and the Debtor
Subsidiaries to any person on account of the purchase price of agricultural
products or services (including poultry and livestock) if that person is
entitled to any grower's or producer's lien or other security arrangement. The borrowing base is also
limited to 2.22 times the formula amount of total eligible receivables.
As of December 6, 2008, the applicable borrowing base
was $324.8
million and the amount
available for borrowings under the DIP Credit Agreement was $210.9 million.
The principal amount of outstanding
loans under the DIP Credit Agreement, together with accrued and unpaid interest
thereon, are payable in full at maturity on December 1, 2009, subject to
extension for an additional six months with the approval of all lenders thereunder. All
obligations under the DIP Credit Agreement are unconditionally guaranteed by the
US Subsidiaries and are secured by a first priority priming lien on
substantially all of the assets of the Company and the US
Subsidiaries, subject to specified permitted liens
in the DIP Credit Agreement.
The DIP Credit Agreement allows the Company to provide advances to the Non-filing Subsidiaries of up to
approximately $25 million at any time outstanding. Management believes that all of the Non-filing Subsidiaries, including the Company’s Mexican subsidiaries, will be able to operate within this
limitation.
For additional information on the DIP
Credit Agreement, see Note
L—Notes Payable and Long-Term
Debt.
The Bankruptcy Court has
approved payment of certain
of the Debtors’ pre-petition obligations, including,
among other things, employee wages, salaries and benefits, and the Bankruptcy
Court has approved the Company's payment of vendors and other providers in the
ordinary course for goods and services received from and after
the Petition Date and other business-related payments necessary to maintain the
operation of our businesses. The Debtors have retained, subject to Bankruptcy Court approval, legal and
financial professionals to advise the Debtors on the bankruptcy
proceedings and certain other "ordinary course" professionals. From time to
time, the Debtors may seek Bankruptcy Court approval for the retention of
additional professionals.
Shortly
after the Petition Date, the Debtors began notifying all known current or
potential creditors of the Chapter 11 filing. Subject to certain exceptions
under the Bankruptcy Code, the Debtors’ Chapter 11 filing automatically
enjoined, or stayed, the continuation of any judicial or administrative
proceedings or other actions against the Debtors or their property to recover
on, collect or secure a claim arising prior to the Petition Date. Thus, for
example, most creditor actions to obtain possession of property from the
Debtors, or to create, perfect or enforce any lien against the property of the
Debtors, or to collect on monies owed or otherwise exercise rights or remedies
with respect to a pre-petition claim are enjoined unless and until the
Bankruptcy Court lifts the automatic stay. Vendors are being paid for goods
furnished and services provided after the Petition Date in the ordinary course
of business.
As
required by the Bankruptcy Code, the United States Trustee for the Northern
District of Texas appointed an official committee of unsecured creditors (the
"Creditors’ Committee"). The Creditors’ Committee and its legal representatives
have a right to be heard on all matters that come before the Bankruptcy Court
with respect to the Debtors. There can be no assurance that the Creditors’
Committee will support the Debtors’ positions on matters to be presented to the
Bankruptcy Court in the future or on any plan of reorganization, once proposed.
Disagreements between the Debtors and the Creditors’ Committee could protract
the Chapter 11 proceedings, negatively impact the Debtors’ ability to operate
and delay the Debtors’ emergence from the Chapter 11 proceedings.
Under
Section 365 and other relevant sections of the Bankruptcy Code, we may assume,
assume and assign, or reject certain executory contracts and unexpired leases,
including, without limitation, leases of real property and equipment, subject to
the approval of the Bankruptcy Court and certain other conditions. Any
description of an executory contract or unexpired lease in this report,
including where applicable our express termination rights or a quantification of
our obligations, must be read in conjunction with, and is qualified by, any
overriding rejection rights we have under Section 365 of the Bankruptcy
Code.
In order
to successfully exit Chapter 11, the Debtors will need to propose, and obtain
confirmation by the Bankruptcy Court of a plan of reorganization that satisfies
the requirements of the Bankruptcy Code. A plan of reorganization would, among
other things, resolve the Debtors’ pre-petition obligations, set forth the
revised capital structure of the newly reorganized entity and provide for
corporate governance subsequent to exit from bankruptcy.
The
Debtors have the exclusive right for 120 days after the Petition Date to file a
plan of reorganization and, if we do so, 60 additional days to obtain necessary
acceptances of our plan. We will likely file one or more motions to request
extensions of these time periods. If the Debtors’ exclusivity period lapsed, any
party in interest would be able to file a plan of reorganization for any of the
Debtors. In addition to being voted on by holders of impaired claims and equity
interests, a plan of reorganization must satisfy certain requirements of the
Bankruptcy Code and must be approved, or confirmed, by the Bankruptcy Court in
order to become effective.
The
timing of filing a plan of reorganization by us will depend on the timing and
outcome of numerous other ongoing matters in the Chapter 11 proceedings. There
can be no assurance at this time that a plan of reorganization will be confirmed
by the Bankruptcy Court or that any such plan will be implemented
successfully.
We have
incurred and will continue to incur significant costs associated with our
reorganization. The amount of these costs, which are being expensed as incurred
commencing in November 2008, are expected to significantly affect our results of
operations.
Under the
priority scheme established by the Bankruptcy Code, unless creditors agree
otherwise, pre-petition liabilities and post-petition liabilities must be
satisfied in full before stockholders are entitled to receive any distribution
or retain any property under a plan of reorganization. The ultimate recovery to
creditors and/or stockholders, if any, will not be determined until confirmation
of a plan or plans of reorganization. No assurance can be given as to what
values, if any, will be ascribed in the Chapter 11 cases to each of these
constituencies or what types or amounts of distributions, if any, they would
receive. A plan of reorganization could result in holders of our liabilities
and/or securities, including our common stock, receiving no distribution on
account of their interests and cancellation of their holdings. Because of such
possibilities, the value of our liabilities and securities, including our common
stock, is highly speculative. Appropriate caution should be exercised with
respect to existing and future investments in any of the liabilities and/or
securities of the Debtors. At this time there is no assurance we will be able to
restructure as a going concern or successfully propose or implement a plan of
reorganization.
Going
Concern Matters
The
accompanying Consolidated Financial Statements have been prepared assuming that
the Company will continue as a going concern. However, there is substantial
doubt about the Company’s ability to continue as a going concern based on the
factors previously discussed. The Consolidated Financial Statements do not
include any adjustments related to the recoverability and classification of
recorded assets or the amounts and classification of liabilities or any other
adjustments that might be necessary should the Company be unable to continue as
a going concern. The Company’s ability to continue as a going concern is
dependent upon the ability of the Company to return to historic levels of
profitability and, in the near term, restructure its obligations in a manner
that allows it to obtain confirmation of a plan of reorganization by the
Bankruptcy Court.
Management
is addressing the Company’s ability to return to profitability by conducting
profitability reviews at certain facilities in an effort to reduce
inefficiencies and manufacturing costs. The Company reduced production capacity
in the near term by closing two production complexes and consolidating
operations at a third production complex into its other facilities. This action
resulted in a headcount reduction of approximately 2,300 production employees.
Subsequent to September 27, 2008, the Company also reduced headcount by 335
non-production employees.
On
November 7, 2008, the Board of
Directors appointed a Chief Restructuring Officer
(“CRO”) for the Company. The appointment of a CRO was a requirement included in the waivers
received from the Company’s lenders on October 27, 2008. The CRO will assist the Company with
cost reduction initiatives, restructuring plans development and long-term
liquidity improvement. The CRO reports to the Board of Directors of the
Company.
In order
to emerge from bankruptcy, the Company will need to obtain alternative financing
to replace the DIP Credit Agreement and to satisfy the secured claims of its
pre-bankruptcy creditors.
NOTE
B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts of Pilgrim’s Pride
Corporation and its majority owned subsidiaries. We eliminate all significant affiliate
accounts and transactions upon consolidation.
The
Company reports on the basis of a 52/53-week year that ends on the Saturday
closest to September 30. As a result, 2008, 2007, and 2006 each had 52
weeks.
The
Company re-measures the financial statements of its Mexico subsidiaries as if
the US dollar were the functional currency. Accordingly, we translate assets and
liabilities, other than non-monetary assets, of the Mexico subsidiaries at
current exchange rates. We translate non-monetary assets using the historical
exchange rate in effect on the date of each asset’s acquisition. We translate
income and expenses at average exchange rates in effect during the period.
Currency exchange gains or losses are included in the line item Other Expenses (Income) in
the Consolidated Statements of Operations.
Accounting
Adjustments and Reclassifications
In 2006,
the Company recognized tax-effected costs totaling $4.6 million related to
events that occurred prior to 2006 affecting the Pilgrim’s Pride Retirement Plan
for Union Employees and certain postretirement obligations in Mexico. The
Company believes these costs, considered individually and in the aggregate, are
not material to our Consolidated Financial Statements for 2006.
We have made certain reclassifications
to the 2007 and 2006 Consolidated Financial Statements with
no impact to reported net income (loss) in order to conform to the 2008 presentation.
Revenue
Recognition
Revenue
is recognized upon shipment and 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 back to net sales in the period in which the facts
that give rise to the revision become known.
Shipping
and Handling Costs
Costs
associated with the products shipped to customers are recognized in cost of
sales.
Cash
Equivalents
The
Company considers highly liquid investments with a maturity of three months or
less when purchased to be cash equivalents.
Current
and Long-Term Investments
The
Company’s current and long-term investments consist primarily of
investment-grade debt and equity securities, bond and equity mutual funds, and
insurance contracts. The investment-grade debt and equity securities as well as
the bond and equity mutual funds are classified as available-for-sale. These
securities are recorded at fair value, and unrealized holding gains and losses
are recorded, net of tax, as a separate component of accumulated other
comprehensive income. Debt securities with remaining maturities of less than one
year and those identified by management at the time of purchase for funding
operations in less than one year are classified as current. Debt securities with
remaining maturities greater than one year that management has not identified at
the time of purchase for funding operations in less than one year are classified
as long-term. All equity securities are classified as long-term. Unrealized
losses are charged against net earnings when a decline in fair value is
determined to be other than temporary. Management reviews several factors to
determine whether a loss is other than temporary, such as the length of time a
security is in an unrealized loss position, the extent to which fair value is
less than amortized cost, the impact of changing interest rates in the short and
long term, and the Company’s intent and ability to hold the security for a
period of time sufficient to allow for any anticipated recovery in fair value.
The Company determines the cost of each security sold and each amount
reclassified out of accumulated other comprehensive income into earnings using
the specific identification method. Purchases and sales are recorded on a trade
date basis. The insurance contracts are held in the Company’s deferred
compensation trusts. They are recorded at fair value with the gains and losses
resulting from changes in fair value immediately recognized in
earnings.
Investments
in joint ventures and entities in which the Company has an ownership interest
greater than 50% and exercises control over the venture are consolidated in the
Consolidated Financial Statements. Minority interests in the years presented,
amounts of which are not material, are included in the line item Other Long-Term Liabilities
in the Consolidated Balance Sheets. Investments in joint ventures and entities
in which the Company has an ownership interest between 20% and 50% and exercises
significant influence are accounted for using the equity method. The Company
owns a 49% interest in Merit Provisions LLC (“Merit”) that it consolidates
because the Company provided financial support to the entity that owns a 51%
interest in Merit. The operations of Merit are not significant to the Company as
a whole at this time. The Company invests from time to time in ventures in which
its ownership interest is less than 20% and over which it does not exercise
significant influence. Such investments are accounted for under the cost method.
The fair values for investments not traded on a quoted exchange are estimated
based upon the historical performance of the ventures, the ventures’ forecasted
financial performance and management’s evaluation of the ventures’ viability and
business models. To the extent the book value of an investment exceeds its
assessed fair value, the Company will record an appropriate impairment charge.
Thus, the carrying value of the Company’s investments approximates fair
value.
Accounts
Receivable
The
Company records accounts receivable upon shipment and transfer of ownership of
its products to customers. We record an allowance for doubtful accounts,
reducing our receivables balance to an amount we estimate is collectible from
our customers. Estimates used in determining the allowance for doubtful accounts
are based on historical collection experience, current trends, aging of accounts
receivable, and periodic credit evaluations of our customers’ financial
condition. We write off accounts receivable when it becomes apparent, based upon
age or customer circumstances, that such amounts will not be collected.
Generally, the Company does not require collateral for its accounts
receivable.
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. 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 inventory’s 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. Generally, the Company performs an evaluation
of whether any lower-of-cost-or-market adjustments are required at the segment
level based on a number of factors, including (i) pools of related inventory,
(ii) product age, condition and continuation or discontinuation, (iii) estimated
market selling prices and (iv) expected distribution channels. If actual market
conditions or other factors are less favorable than those projected by
management, additional inventory adjustments may be required.
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost, and repair and maintenance costs are
expensed as incurred. Depreciation is computed using the straight-line method
over the estimated useful lives of these assets. Estimated useful lives for
building, machinery and equipment are 5 years to 33 years and for automobiles
and trucks are 3 years to 10 years. The charge to income resulting from
amortization of assets recorded under capital leases is included with
depreciation expense.
The
Company recognizes 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) future cash flows estimates expected to be
generated by these assets, which are based on additional assumptions such as
asset utilization, remaining length of service and estimated salvage values;
(ii) estimated fair market value of the assets; and (iii) determinations with
respect to the lowest level of cash flows relevant to the respective impairment
test, generally groupings of related operational facilities.
Given the
interdependency of the Company’s individual facilities during the production
process, which operate as a vertically integrated network, and the fact that the
Company does not price transfers of inventory between its vertically integrated
facilities at market prices, it evaluates impairment of assets held and used at
the country level (i.e., the US and Mexico) within each segment. Management
believes this is the lowest level of identifiable cash flows for its assets that
are held and used in production activities. At the present time, the Company’s
forecasts indicate that it can recover the carrying value of its assets based on
the projected cash flows of the operations. A key assumption in management’s
forecast is that the Company’s sales volumes will return to historical margins
as supply and demand between commodities and chicken and other animal-based
proteins become more balanced. However, the exact timing of the return to
historical margins is not certain, and if the return to historical margins is
delayed, impairment charges could become necessary in the future.
Goodwill
and Other Intangible Assets
Our intangible assets consist of
goodwill and assets subject to amortization such as
trade names, customer
relationships and non-compete agreements. We calculate amortization of
those assets that are
subject to amortization on
a straight-line basis over the estimated useful lives of the related
assets. The useful
lives range from three years for trade names and
non-compete agreements to thirteen years for customer
relationships.
We evaluate goodwill for impairment
annually or at other times if events have occurred or circumstances exist that
indicate the carrying value of goodwill may no longer be recoverable. We compare
the fair value of each reporting unit to its carrying value. We determine the
fair value using a weighted
average of results derived from both the income approach and the market approach. Under the income approach, we
calculate the fair value of a reporting unit based on the present value of
estimated future cash flows. Under the market approach, we calculate
the fair value of a reporting unit based on the market values of key
competitors. If the fair
value of the reporting unit exceeds the carrying value of the net assets
including goodwill assigned to that unit, goodwill is not impaired. If the
carrying value of the reporting unit’s net assets including goodwill exceeds the
fair value of the reporting unit, then we determine the implied fair value of
the reporting unit’s goodwill. If the carrying value of a reporting unit’s
goodwill exceeds its implied fair value, then an impairment of goodwill has
occurred and we recognize an impairment loss for the difference between the
carrying amount and the implied fair value of goodwill as a component of operating income.
We review intangible assets subject to
amortization for impairment
whenever an event or change
in circumstances indicates the carrying values of the assets may not be
recoverable. We test intangible assets subject to amortization for impairment
and estimate their fair values using the same assumptions and techniques we
employ on property, plant and equipment.
Litigation
and Contingent Liabilities
The
Company is subject to lawsuits, investigations and other claims related to
employment, environmental, product, and other matters. The Company is required
to assess the likelihood of any adverse judgments or outcomes, as well as
potential ranges of probable losses, to these matters. The Company estimates the
amount of reserves required, including anticipated cost of defense, if any, for
these contingencies when losses are determined to be probable and after
considerable analysis of each individual issue. With respect to our
environmental remediation obligations, the accrual for environmental remediation
liabilities is measured on an undiscounted basis. These reserves may change in
the future due to changes in the Company’s assumptions, the effectiveness of
strategies, or other factors beyond the Company’s control.
Accrued
Self Insurance
Insurance
expense for casualty claims and employee-related health care benefits are
estimated using historical and current experience and actuarial estimates.
Stop-loss coverage is maintained with third-party insurers to limit the
Company’s total exposure. Certain categories of claim liabilities are
actuarially determined. 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
The
provision for income taxes has been determined using the asset and liability
approach of accounting for income taxes. Under this approach, deferred income
taxes reflect the net tax effect of temporary differences between the book and
tax bases of recorded assets and liabilities, net operating losses and tax
credit carry forwards. The amount of deferred tax on these temporary differences
is determined using the tax rates expected to apply to the period when the asset
is realized or the liability is settled, as applicable, based on the tax rates
and laws in the respective tax jurisdiction enacted as of the balance sheet
date.
The
Company reviews its deferred tax assets for recoverability and establishes a
valuation allowance based on historical taxable income, projected future taxable
income, applicable tax strategies, and the expected timing of the reversals of
existing temporary differences. A valuation allowance is provided when it is
more likely than not that some or all of the deferred tax assets will not be
realized. Valuation allowances have been established primarily for US federal
and state net operating loss carry forwards and Mexico net operating loss carry
forwards. See Note M—Income Taxes to the Consolidated Financial
Statements.
Taxes are
provided for foreign subsidiaries based on the assumption that their earnings
will be indefinitely reinvested. As such, US deferred income taxes have not been
provided on these earnings. If such earnings were not considered indefinitely
reinvested, certain deferred foreign and US income taxes would be
provided.
On
September 30, 2007, and effective for our year ended 2008, we adopted the
provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes – an
interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 provides a
recognition threshold and measurement criteria for the financial statement
recognition of a tax benefit taken or expected to be taken in a tax return. Tax
benefits are recognized only when it is more likely than not, based on the
technical merits, that the benefits will be sustained on examination. Tax
benefits that meet the more-likely-than-not recognition threshold are measured
using a probability weighting of the largest amount of tax benefit that is
greater than 50% likely of being realized upon settlement. Whether the
more-likely-than-not recognition threshold is met for a particular tax benefit
is a matter of judgment based on the individual facts and circumstances
evaluated in light of all available evidence as of the balance sheet date. See
Note M—Income Taxes to the Consolidated Financial Statements.
Pension and Other
Postretirement Benefits
Our pension and other postretirement
benefit costs and obligations are dependent on the various actuarial assumptions
used in calculating such amounts. These assumptions relate to discount rates,
salary growth, long-term return on plan assets, health care cost trend rates and
other factors. We base the discount rate assumptions on current investment
yields on high-quality corporate long-term bonds. The salary growth assumptions
reflect our long-term actual experience and future or near-term outlook. We
determine the long-term return on plan assets based on historical portfolio
results and management’s expectation of the future economic environment. Our
health care cost trend assumptions are developed based on historical cost data,
the near-term outlook and an assessment of likely long-term trends. Actual
results that differ from our assumptions are accumulated and, if in excess of
the lesser of 10% of the projected benefit obligation or the fair market value
of plan assets, amortized over the estimated future working life of the plan
participants.
Business
Combinations
The
Company allocates the total purchase price in connection with acquisitions to
assets and liabilities based upon their estimated fair values. For significant
acquisitions, the Company has historically relied upon the use of third-party
valuation experts to assist in the estimation of the fair values of property,
plant and equipment and intangible assets other than goodwill. Historically, the
carrying value of acquired accounts receivable, inventory and accounts payable
have approximated their fair value as of the date of acquisition, though
adjustments are made within purchase price accounting to the extent needed to
record such assets and liabilities at fair value. With respect to accrued
liabilities, the Company uses all available information to make its best
estimate of the fair value of the acquired liabilities and, when necessary, may
rely upon the use of third-party actuarial experts to assist in the estimation
of fair value for certain liabilities, primarily pension and self-insurance
accruals.
Operating
Leases
Rent
expense for operating leases is recorded on a straight-line basis over the lease
term unless the lease contains an escalation clause which is not fixed and
determinable. The lease term begins when we have the right to control the use of
the leased property, which is typically before rent payments are due under the
terms of the lease. If a lease has a fixed and determinable escalation clause,
the difference between rent expense and rent paid is recorded as deferred rent
and is included in the Consolidated Balance Sheets. Rent for operating leases
that do not have an escalation clause or where escalation is based on an
inflation index is expensed over the lease term as it is payable.
Derivative
Financial Instruments
The
Company attempts to mitigate certain financial exposures, including commodity
purchase exposures and interest rate risk, through a program of risk management
that includes the use of derivative financial instruments. We recognize all
derivative financial instruments in the Consolidated Balance Sheets at fair
value.
We have
elected not to designate derivative financial instruments executed to mitigate
commodity purchase exposures as hedges of forecasted transactions or of the
variability of cash flows to be received or paid related to recognized assets or
liabilities (“cash flow hedges”). Therefore, we recognize changes in the fair
value of these derivative financial instruments immediately in earnings. Gains
or losses related to these derivative financial instruments are included in the
line item Cost of sales
in the Consolidated Statements of Operations. We generally do not attempt to
mitigate price change exposure on anticipated commodities transactions beyond 18
months.
We
occasionally execute derivative financial instruments to manage exposure to
interest rate risk. In particular, we executed a Treasury lock instrument in
2007 to “lock in”, or secure, the Treasury rate that served as the basis for the
pricing of a prospective public debt issue. A “treasury lock” is a synthetic
forward sale of a US Treasury note or bond that is settled in cash based upon
the difference between an agreed upon Treasury rate and the prevailing Treasury
rate at settlement. We designated the lock instrument as a cash flow hedge and
recognized changes in the fair value of the instrument in accumulated other
comprehensive income until the prospective public debt issue occurred. Once the
public debt was issued, we began recognizing the change in the fair value of the
lock instrument as an adjustment to interest expense over the term of the
related debt.
Fair
Value of Financial Instruments
The asset
(liability) amounts recorded in the Consolidated Balance Sheet (carrying
amounts) and the estimated fair values of financial instruments at September 27,
2008 consisted of the following:
|
Carrying
Amount
|
Fair
Value
|
Reference
|
|||||||
|
(In
thousands)
|
|||||||||
|
Cash
and cash equivalents
|
$ | 61,553 | $ | 61,553 | |||||
|
Investments
in available-for-sale securities
|
66,293 | 66,293 |
Note
H
|
||||||
|
Accounts
receivable
|
144,156 | 144,156 |
Note
F
|
||||||
|
Derivative
financial instruments
|
(17,968 | ) | (17,968 | ) |
Note
Q
|
||||
|
Accounts
payable and accrued expenses
|
(827,710 | ) | (827,710 | ) |
Note
K
|
||||
|
Public
debt obligations
|
(656,996 | ) | (371,206 | ) |
Note
L
|
||||
|
Non-public
credit facilities
|
(1,284,987 | ) |
(a)
|
Note
L
|
|||||
|
(a)
|
Management
also expects that the fair value of our non-public credit facilities has
also decreased, but cannot reliably estimate the fair value at this
time.
|
||||||||
The
carrying amounts of our cash and cash equivalents, accounts receivable, accounts
payable and certain other liabilities approximate their fair values due to their
relatively short maturities. The Company adjusts its investments to fair value
based on quoted market prices. Derivative financial instruments are adjusted to
fair value at least once each quarter using inputs that are readily available in
public markets or can be derived from information available in public
markets.
Concentrations
of Various Risks
The
Company’s financial instruments that are exposed to concentrations of credit
risk consist primarily of cash equivalents, investment securities, derivative
financial instruments and trade accounts receivable. The Company’s cash
equivalents and investment securities are high-quality debt and equity
securities placed with major banks and financial institutions. Our derivative
financial instruments are generally exchange-traded futures or options contracts
placed with major financial institutions. The Company’s trade accounts
receivable are generally unsecured. Credit evaluations are performed on all
significant customers and updated as circumstances dictate. Concentrations of
credit risk with respect to trade accounts receivable are limited due to the
large number of customers and their dispersion across geographic areas. With the
exception of one customer that accounts for approximately 13% of trade accounts
receivable at September 27, 2008 and approximately 11% of net sales for
2008 primarily related to our chicken segment, the Company does not believe it
has significant concentrations of credit risk in its trade accounts
receivable.
At
September 27, 2008, approximately 33% of the Company’s employees were covered
under collective bargaining agreements and approximately 26% of the employees
covered under collective bargaining agreements are covered under agreements that
will expire in 2009. We have not experienced any work stoppage at any location
in over five years. We believe our relations with our employees are
satisfactory. At any given time, we will be in some stage of contract
negotiation with various collective bargaining units.
Net
Income (Loss) per Common Share
Net
income (loss) per common 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) included herein were 69,337,326 shares in
2008 and 66,555,733 shares in both 2007 and 2006.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the US 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. We make significant estimates in regard
to receivables collectibility; inventory valuation; realization of deferred tax
assets; valuation of long-lived assets,
including goodwill;
valuation of contingent
liabilities and self
insurance liabilities; valuation of pension and other postretirement
benefits obligations; and valuation of acquired
businesses.
Pending
Adoption of Recent Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements. This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS No. 157 does not require any new fair value
measurements. However, for some enterprises, the application of this Statement
will change current practice. The Company must adopt SFAS No. 157 in the
first quarter of fiscal 2009. The adoption of SFAS No. 157 will not require
material modification of our fair value measurements and will be substantially
limited to expanded disclosures in the notes to our Consolidated Financial
Statements.
In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations. This
Statement improves the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects by establishing
principles and requirements for how the acquirer (i) recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase, and (iii) determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination. The Company must apply prospectively SFAS No.
141(R) to business combinations for which the acquisition date occurs during or
subsequent to the first quarter of 2010. The impact that adoption of SFAS No.
141(R) will have on the Company’s financial condition, results of operations and
cash flows is dependent upon many factors. Such factors would include, among
others, the fair values of the assets acquired and the liabilities assumed in
any applicable business combination, the amount of any costs the Company would
incur to effect any applicable business combination, and the amount of any
restructuring costs the Company expected but was not obligated to incur as the
result of any applicable business combination. Thus, we cannot accurately
predict the effect SFAS No. 141(R) will have on future acquisitions at this
time.
In
December 2007, the FASB also issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51. This
Statement improves the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards for how
that reporting entity (i) identifies, labels and presents in its consolidated
statement of financial position the ownership interests in subsidiaries held by
parties other than itself, (ii) identifies and presents on the face of its
consolidated statement of operations the amount of consolidated net income
attributable to itself and to the noncontrolling interest, (iii) accounts
for changes in its ownership interest while it retains a controlling financial
interest in a subsidiary, (iv) initially measures any retained noncontrolling
equity investment in a subsidiary that is deconsolidated, and (v) discloses
other information about its interests and the interests of the noncontrolling
owners. The Company must apply prospectively the accounting requirements of
SFAS No. 160 in the first quarter of 2010. The Company should also apply
retroactively the presentation and disclosure requirements of the Statement for
all periods presented at that time. The Company does not expect the adoption of
SFAS No. 160 will have a material impact on its financial position,
financial performance or cash flows.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133. This Statement changes the disclosure requirements for derivative
instruments and hedging activities. Entities are required to provide enhanced
disclosures about (i) how and why an entity uses derivative instruments,
(ii) how derivative instruments and related hedged items are accounted for
under Statement 133 and its related interpretations, and (iii) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. The Company must apply the requirements
of SFAS No. 161 in the first quarter of 2010. The Company does not expect
the adoption of SFAS No. 161 will have a material impact on its financial
position, financial performance or cash flows.
NOTE
C—BUSINESS ACQUISITION
On
December 27, 2006, we acquired 45,343,812 shares, representing 88.9% of shares
outstanding, of Gold Kist Inc. (“Gold Kist”) common stock through a tender
offer. We subsequently acquired all remaining Gold Kist shares and, on January
9, 2007, Gold Kist became a wholly owned subsidiary of the Company. Gold Kist,
based in Atlanta, Georgia, was the third largest chicken company in the United
States, accounting for more than nine percent of chicken produced in the United
States in recent years. Gold Kist operated a fully-integrated chicken production
business that included live production, processing, marketing and
distribution.
For
financial reporting purposes, we have not included the operating results and
cash flows of Gold Kist in our consolidated financial statements for the period
from December 27, 2006 through December 30, 2006. The operating results and
cash flows of Gold Kist from December 27, 2006 through December 30, 2006
were not material. We have included the acquired assets and assumed liabilities
in our balance sheet using an allocation of the purchase price based on an
appraisal received from a third-party valuation specialist.
The
following summarizes the purchase price for Gold Kist at December 27, 2006 (in
thousands):
|
Purchase
of 50,146,368 shares at $21.00 per share
|
$ | 1,053,074 | ||
|
Premium
paid on retirement of debt
|
22,208 | |||
|
Retirement
of share-based compensation awards
|
25,677 | |||
|
Transaction
costs and fees
|
37,740 | |||
|
Total
purchase price
|
$ | 1,138,699 |
We
retired the Gold Kist 10 1/4% Senior Notes due 2014 with a book value of $128.5
million at a cost of $149.8 million plus accrued interest and the Gold Kist
Subordinated Capital Certificates of Interest at par plus accrued interest and a
premium of one year’s interest. We also paid acquisition transaction costs and
funded change in control payments to certain Gold Kist employees. This
acquisition was initially funded by (i) $780.0 million borrowed under our
revolving-term secured credit facility and (ii) $450.0 million borrowed under
our $450.0 million Senior Unsecured Term Loan Agreement (“Bridge Loan”). For
additional information, see Note L—Notes
Payable and Long-Term Debt.
In
connection with the acquisition, we elected to freeze certain of the Gold Kist
benefit plans with the intent to ultimately terminate them. We recorded a
purchase price adjustment of $65.6 million to increase the benefit plans
liability to the $82.5 million current estimated cost of these plan
terminations. We do not anticipate any material net periodic benefit costs
(income) related to these plans in the future. Additionally, we conformed Gold
Kist’s accounting policies to our accounting policies and provided for deferred
income taxes on all related purchase adjustments.
The
following summarizes our estimates of the fair value of the assets acquired and
liabilities assumed at the date of acquisition (in thousands):
|
Current
assets
|
$ | 418,583 | ||
|
Property,
plant and equipment
|
674,444 | |||
|
Goodwill
|
499,669 | |||
|
Intangible
assets
|
64,500 | |||
|
Other
assets
|
65,597 | |||
|
Total
assets acquired
|
1,722,793 | |||
|
Current
liabilities
|
269,619 | |||
|
Long-term
debt, less current maturities
|
140,674 | |||
|
Deferred
income taxes
|
93,509 | |||
|
Other
long-term liabilities
|
80,292 | |||
|
Total
liabilities assumed
|
584,094 | |||
|
Total
purchase price
|
$ | 1,138,699 |
Goodwill and other intangible assets
reflected above were determined to meet the criteria for recognition apart from tangible
assets acquired and liabilities assumed. Intangible assets related to the
acquisition consisted of the following at December 27,
2006:
|
Estimated
|
Amortization
|
|||||||
|
Fair Value
|
Period
|
|||||||
|
(In
millions)
|
(In years)
|
|||||||
|
Intangible assets subject to
amortization:
|
||||||||
|
Customer
relationships
|
$ | 51,000 | 13.0 | |||||
|
Trade name
|
13,200 | 3.0 | ||||||
|
Non-compete
agreements
|
300 | 3.0 | ||||||
|
Total intangible assets subject to
amortization
|
64,500 | |||||||
|
Goodwill
|
499,669 | |||||||
|
Total intangible
assets
|
$ | 564,169 | ||||||
|
Weighted average amortization
period
|
10.9 | |||||||
Goodwill,
which is recognized in the Company’s chicken segment, represents the purchase
price in excess of the value assigned to identifiable tangible and intangible
assets. We elected to acquire Gold Kist at a price that resulted in the
recognition of goodwill because we believed the following strategic and
financial benefits were present:
|
·
|
The
combined company would be positioned as the world’s leading chicken
producer and that position would provide us with enhanced abilities
to:
|
|
§
|
Compete
more efficiently and provide even better customer
service;
|
|
§
|
Expand
our geographic reach and customer
base;
|
|
§
|
Further
pursue value-added and prepared chicken opportunities;
and
|
|
§
|
Offer
long-term growth opportunities for our stockholders, employees, and
growers.
|
|
·
|
The
combined company would be better positioned to compete in the industry
both internationally and in the US as additional consolidation
occurred.
|
As
discussed in Note I—Goodwill, because of the deterioration in the chicken
industry subsequent to the acquisition, the Company determined that this
goodwill was fully impaired at September 27, 2008.
The amortizable intangible assets were
determined by us to have finite lives. The useful life for the customer
relationships intangible asset we recognized was based on our forecasts of customer
turnover. The useful life for the trade name intangible asset we recognized was based on the estimated length of
our use of the Gold Kist trade name while it is phased out and replaced with the
Pilgrim’s Pride trade name. The useful life of
the non-compete agreements intangible asset we recognized was based on the remaining life of the
agreements. We amortize these intangible assets over their remaining useful
lives on a straight-line basis. Annual amortization expense for these
intangible assets was $8.4 million in 2008 and $6.3 million in 2007. We
expect to recognize annual
amortization expense of $8.4 million in 2009, $5.1 million in 2010,
$3.9 million in each
year from 2011 through 2019, and $1.0 million in
2020.
The
following unaudited pro forma financial information has been presented as if the
acquisition had occurred at the beginning of each period
presented.
|
2007
|
2006
|
|||||||
|
Pro
forma
|
Pro
forma
|
|||||||
|
(In
thousands, except shares and per share data)
|
||||||||
|
Net
sales
|
$ | 8,026,422 | $ | 7,269,182 | ||||
|
Depreciation
and amortization
|
$ | 228,539 | $ | 221,512 | ||||
|
Operating
income (loss)
|
$ | 206,640 | $ | (45,482 | ) | |||
|
Interest
expense, net
|
$ | 144,354 | $ | 123,726 | ||||
|
Income
(loss) from continuing operations before taxes
|
$ | 43,900 | $ | (163,049 | ) | |||
|
Income
(loss) from continuing operations
|
$ | 17,331 | $ | (112,538 | ) | |||
|
Net
income (loss)
|
$ | 12,832 | $ | (118,571 | ) | |||
|
Income
(loss) from continuing operations per common share
|
$ | 0.26 | $ | (1.69 | ) | |||
|
Net
income (loss) per common share
|
$ | 0.19 | $ | (1.78 | ) | |||
|
Weighted
average shares outstanding
|
66,555,733 | 66,555,733 | ||||||
NOTE
D—DISCONTINUED BUSINESS
The
Company sold certain assets of its turkey business for $18.6 million and recognized a gain
of $1.5 million ($0.9 million, net of tax) during 2008 that is included in the
line item Gain on sale of
discontinued business, net of tax in the 2008 Consolidated Statement of
Operations. This business was composed of substantially our entire former
turkey segment. The results of this business are included in the line item Income (loss) from operation of
discontinued business, net of tax in the Consolidated Statements of
Operations for all periods presented.
For a
period of time, we will continue to incur cash flow activities that are
associated with our former turkey business. These activities are transitional in
nature. We have entered into a short-term co-pack agreement with the acquirer of
the former turkey business under which they will process turkeys for sale to our
customers through the end of 2008. For the period of time until we have
collected funds on the sale of these turkeys, we will continue to incur cash
flow activity and to report operating activity, although at a substantially
reduced level. Upon completion of these activities, the cash flows and the
operating activity will be eliminated.
Neither
our continued involvement in the distribution and sale of these turkeys or the
co-pack agreement confers upon us the ability to influence the operating and/or
financial policies of the turkey business under its new ownership.
No debt was assumed by the acquirer of
the discontinued turkey business or required to be repaid as a result of the
disposal transaction. We elected to allocate to the discontinued turkey
operation other
consolidated interest that was not
directly attributable to or related to other operations of the Company based on
the ratio of net assets to be sold or discontinued to the sum of the total net
assets of the Company plus consolidated debt. Interest allocated to the
discontinued business totaled $1.4 million, $2.6 million, and $1.6 million in
2008, 2007 and 2006, respectively.
The
following amounts related to our turkey business have been segregated from
continuing operations and included in the line items Income (loss) from operation of
discontinued business, net of tax and Gain on sale of
discontinued business, net of tax in the Consolidated Statements of
Operations:
|
2008
|
2007
|
2006
|
||||||||||
|
(In
thousands)
|
||||||||||||
|
Net
sales
|
$ | 86,261 | $ | 99,987 | $ | 82,836 | ||||||
|
Loss
from operation of discontinued business before income
taxes
|
$ | (11,746 | ) | $ | (7,228 | ) | $ | (9,691 | ) | |||
|
Income
tax benefit
|
(4,434 | ) | (2,729 | ) | (3,658 | ) | ||||||
|
Loss
from operation of discontinued business, net of tax
|
$ | (7,312 | ) | $ | (4,499 | ) | $ | (6,033 | ) | |||
|
Gain
on sale of discontinued business before income taxes
|
$ | 1,450 | $ | — | $ | — | ||||||
|
Income
tax expense
|
547 | — | — | |||||||||
|
Gain
on sale of discontinued business, net of tax
|
$ | 903 | $ | — | $ | — | ||||||
Property,
plant and equipment related to our turkey business in the amount of $15.5
million was segregated and included in the line item Assets held for sale in the
Consolidated Balance Sheet as of September 29, 2007. The following assets and
liabilities related to our turkey business have been segregated and included in
the line items Assets of
discontinued business and Liabilities of discontinued
business, as appropriate, in the Consolidated Balance Sheets as of
September 27, 2008 and September 29, 2007.
|
September
27,
2008
|
September
29,
2007
|
|||||||
|
(In
thousands)
|
||||||||
|
Trade
accounts and other receivables, less allowance for doubtful
accounts
|
$ | 5,881 | $ | 16,687 | ||||
|
Inventories
|
27,638 | 36,545 | ||||||
|
Assets
of discontinued business
|
$ | 33,519 | $ | 53,232 | ||||
|
Accounts
payable
|
$ | 7,737 | $ | 3,804 | ||||
|
Accrued
expenses
|
3,046 | 2,752 | ||||||
|
Liabilities
of discontinued business
|
$ | 10,783 | $ | 6,556 | ||||
NOTE
E—RESTRUCTURING ACTIVITIES
During
2008, the Company completed the following restructuring activities:
|
·
|
Closed
two processing complexes in Arkansas and North
Carolina,
|
|
·
|
Idled
a processing complex in Louisiana,
|
|
·
|
Transferred
certain operations previously performed at a processing complex in
Arkansas to other complexes,
|
|
·
|
Closed
seven distribution centers in Florida (2), Iowa, Mississippi, Ohio,
Tennessee and Texas, and
|
|
·
|
Closed
an administrative office building in
Georgia.
|
The
Company’s Board of Directors approved the actions as part of a plan intended to
curtail losses amid record-high costs for corn, soybean meal and other feed
ingredients and an oversupply of chicken in the United States. The actions began
in March 2008 and were completed in September 2008. The affected processing
complexes and distribution centers employed approximately 2,300 individuals.
Virtually all of these individuals were impacted by the restructuring
activities.
The Company recognized impairment
charges during 2008 to reduce the carrying amounts of the following
assets located at or related to the facilities discussed above to their
estimated fair values:
|
Impairment
Charge
|
||||
|
(In
thousands)
|
||||
|
Property, plant and
equipment
|
$ | 10,210 | ||
|
Inventories
|
2,021 | |||
|
Intangible
assets
|
852 | |||
|
Total
|
$ | 13,083 | ||
Consistent
with our previous practice and because management believes the realization of
the carrying amount of the affected assets is directly related to the Company's
production activities, the charges were reported as a component of gross profit
(loss).
Results
of operations for 2008 included restructuring charges totaling
$16.2 million related to these actions. All of the restructuring charges,
with the exception of certain lease commitment costs, have resulted in cash
expenditures or will result in cash expenditures within one year.
The following table sets forth
restructuring activity that occurred during 2008:
|
September
29, 2007
|
2008
|
September
27, 2008
|
||||||
|
Accruals
|
Payments
|
|||||||
|
(In
thousands)
|
||||||||
|
Lease
continuation
|
$
|
—
|
$
|
4,778
|
$
|
312
|
$
|
4,466
|
|
Severance
and employee retention
|
—
|
4,000
|
1,306
|
2,694
|
||||
|
Grower
compensation
|
—
|
3,989
|
—
|
3,989
|
||||
|
Other
restructuring costs
|
—
|
3,389
|
1,727
|
1,662
|
||||
|
Total
|
$
|
—
|
$
|
16,156
|
$
|
3,345
|
$
|
12,811
|
Consistent
with the Company's previous practice and because management believes these costs
are related to ceasing production at these facilities and not directly related
to the Company's ongoing production, they are classified as a component of
operating income (expense).
We continue to review our business
strategies and evaluate further restructuring activities. This could result in additional
restructuring charges in
future periods.
NOTE
F—RECEIVABLES
Trade
accounts and other receivables, less allowance for doubtful accounts, consisted
of the following:
|
September
27, 2008
|
September
29, 2007
|
|||||||
|
(In
thousands)
|
||||||||
|
Trade
accounts receivable
|
$ | 135,003 | $ | 89,555 | ||||
|
Other
receivables
|
13,854 | 30,140 | ||||||
| 148,857 | 119,695 | |||||||
|
Allowance
for doubtful accounts
|
(4,701 | ) | (5,017 | ) | ||||
|
Receivables,
net
|
$ | 144,156 | $ | 114,678 | ||||
In
connection with the RPA, the Company sold, on a revolving basis, certain of its
trade receivables (the “Pooled Receivables”) to a special purpose entity (“SPE”)
wholly owned by the Company, which in turn sold a percentage ownership interest
to third parties. The SPE was a separate corporate entity and its assets
were available first and foremost to satisfy the claims of its creditors. The
aggregate amount of Pooled
Receivables sold plus the remaining Pooled Receivables available for sale under
this RPA declined from $300.0 million at
September 29, 2007 to $236.3 million at September 27, 2008. The
outstanding amount of
Pooled Receivables sold at September 27, 2008 and September 29, 2007 were
$236.3 million and $300.0 million, respectively. The gross
proceeds resulting from the sale are included in cash flows from operating
activities in the Consolidated Statements of Cash Flows. The losses recognized on the sold
receivables during 2008 and 2007 were not material. On December 3, 2008, the RPA was
terminated and all receivables thereunder were repurchased with proceeds of
borrowings under the DIP Credit Agreement.
NOTE
G—INVENTORIES
Inventories
consist of the following:
|
September
27,
2008
|
September
29,
2007
|
|||||||
|
(In
thousands)
|
||||||||
|
Chicken:
|
||||||||
|
Live
chicken and hens
|
$ | 385,511 | $ | 343,185 | ||||
|
Feed
and eggs
|
265,959 | 223,631 | ||||||
|
Finished
chicken products
|
365,123 | 337,052 | ||||||
|
Total
chicken inventories
|
1,016,593 | 903,868 | ||||||
|
Other
products:
|
||||||||
|
Commercial
feed, table eggs, retail farm store and other
|
$ | 13,358 | $ | 11,327 | ||||
|
Distribution
inventories (other than chicken products)
|
6,212 | 10,145 | ||||||
|
Total
other products inventories
|
19,570 | 21,472 | ||||||
|
Total
inventories
|
$ | 1,036,163 | $ | 925,340 | ||||
Inventories
included a lower-of-cost-or-market allowance of $26.6 million at September 27,
2008. Inventories did not include a lower-of-cost-or-market allowance at
September 29, 2007.
NOTE
H—INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES
The
following is a summary of our current and long-term investments in
available-for-sale securities:
|
September
27, 2008
|
September
29, 2007
|
|||||||
|
Current
investments:
|
(In
thousands)
|
|||||||
|
Fixed
income securities
|
$ | 9,835 | $ | 7,549 | ||||
|
Other
|
604 | 604 | ||||||
|
Total
current investments
|
$ | 10,439 | $ | 8,153 | ||||
|
Long-term
investments:
|
||||||||
|
Fixed
income securities
|
$ | 44,127 | $ | 35,451 | ||||
|
Equity
securities
|
9,775 | 9,591 | ||||||
|
Other
|
1,952 | 993 | ||||||
| $ | 55,854 | $ | 46,035 | |||||
The
Company and certain retirement plans that it sponsors invest in a variety of
financial instruments. In response to the continued turbulence in global
financial markets, we have analyzed our portfolios of investments and, to the
best of our knowledge, none of our investments, including money market funds
units, commercial paper and municipal securities, have been downgraded because
of this turbulence, and neither we nor any fund in which we participate hold
significant amounts of structured investment vehicles, mortgage backed
securities, collateralized debt obligations, auction-rate securities, credit
derivatives, hedge funds investments, fund of funds investments or perpetual
preferred securities.
Certain
investments are held in trust as compensating balance arrangements for our
insurance liability and are classified as long-term based on a maturity date
greater than one year from the balance sheet date and management’s intention not
to use such assets in the next twelve months.
Maturities
for the Company’s investments in fixed income securities as of September 27,
2008 were as follows:
|
Amount
|
Percent
|
|||||||
|
(In
thousands)
|
||||||||
|
Matures
in less than one year
|
$ | 9,835 | 18.2 | % | ||||
|
Matures
between one and two years
|
7,952 | 14.8 | % | |||||
|
Matures
between two and five years
|
28,690 | 53.1 | % | |||||
|
Matures
in excess of five years
|
7,485 | 13.9 | % | |||||
| $ | 53,962 | 100.0 | % | |||||
The
Company has recorded unrealized pretax losses totaling $1.4 million, related to
its investments at September 27, 2008 as accumulated other comprehensive income,
a separate component of stockholders’ equity.
NOTE
I—GOODWILL AND IDENTIFIED INTANGIBLE ASSETS
The
Company generally plans to perform its annual impairment test of goodwill at the
beginning of its fourth quarter. However, the Company evaluated goodwill as of
September 27, 2008 because of the significant deterioration in the
operating environment during the fourth quarter of 2008. The Company’s
impairment test resulted in a non-cash, pretax impairment charge of $501.4
million ($7.40 per share) related to a write-down of the goodwill reported in
the Chicken segment. The goodwill was primarily related to the 2007 acquisition
of Gold Kist. The charge is not tax deductible because the acquisition of Gold
Kist was structured as a tax-free stock transaction. The impairment charge is
included in the line item Goodwill impairment in the
Consolidated Statement of Operations for the year ended September 27,
2008.
The
impairment of goodwill mainly resulted from declines in current and projected
operating results and cash flows of the Company because of, among other factors,
record-high costs for corn, soybean meal and other feed ingredients and an
oversupply of chicken and other animal-based proteins in the United States.
These factors resulted in the carrying value of the goodwill being greater than
its implied fair value; therefore, a write-down to the implied fair value was
required.
The
implied fair value of goodwill is the residual fair value after allocating the
total fair value of the Company to its other assets, net of liabilities. The
total fair value of the Company was estimated using a combination of a
discounted cash flow model (present value of future cash flows) and a market
approach model (a multiple of various metrics based on comparable businesses and
market transactions).
Identified
intangible assets consisted of the following:
|
Useful
Life
(Years)
|
Original
Cost
|
Accumulated
Amortization
|
Carrying
Amount
|
|||||||||||||
|
(In
thousands)
|
||||||||||||||||
|
September
27, 2008:
|
||||||||||||||||
|
Trade
names
|
3–15 | $ | 39,271 | $ | (16,168 | ) | $ | 23,103 | ||||||||
|
Customer
relationships
|
13 | 51,000 | (6,865 | ) | 44,135 | |||||||||||
|
Non-compete
agreement and other identified intangibles
|
3–15 | 300 | (175 | ) | 125 | |||||||||||
|
Total
intangible assets
|
$ | 90,571 | $ | (23,208 | ) | $ | 67,363 | |||||||||
|
September
29, 2007:
|
||||||||||||||||
|
Trade
names
|
$ | 39,271 | $ | (10,007 | ) | $ | 29,264 | |||||||||
|
Customer
relationships
|
51,000 | (2,943 | ) | 48,057 | ||||||||||||
|
Non-compete
agreement and other identified intangibles
|
1,343 | (231 | ) | 1,112 | ||||||||||||
|
Total
identified intangible assets
|
$ | 91,614 | $ | (13,181 | ) | $ | 78,433 | |||||||||
We
recognized amortization expense of $10.2 million, $8.1 million and $1.8 million
in 2008, 2007 and 2006, respectively.
We expect
to recognize amortization expense associated with identified intangible assets
of $10.2 million in 2009, $6.8 million in 2010 and $5.7 million in each year from 2011 through
2013.
NOTE
J—PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment, net consisted of the following:
|
September
27,
2008
|
September
29,
2007
|
|||||||
|
(In
thousands)
|
||||||||
|
Land
|
$ | 111,567 | $ | 114,365 | ||||
|
Buildings,
machinery and equipment
|
2,465,608 | 2,366,418 | ||||||
|
Autos
and trucks
|
64,272 | 59,489 | ||||||
|
Construction-in-progress
|
74,307 | 123,001 | ||||||
|
Property,
plant and equipment, gross
|
2,715,754 | 2,663,273 | ||||||
|
Accumulated
depreciation
|
(1,042,750 | ) | (879,844 | ) | ||||
|
Property, plant
and equipment, net
|
$ | 1,673,004 | $ | 1,783,429 | ||||
Impairment
The
Company recognized non-cash asset impairment charges totaling $10.2 million
during 2008 to reduce the carrying amounts of certain property, plant and
equipment located at the facilities discussed in Note E—Restructuring Activities
to their estimated fair values.
Depreciation
We
recognized depreciation expense related to our continuing operations of $224.4
million, $188.6 million and $129.3 million in 2008, 2007 and 2006, respectively.
We also recognized depreciation charges related to our discontinued turkey
business of $0.7 million, $1.6 million and $1.4 million in 2008, 2007 and 2006,
respectively.
Assets
Held for Sale
During
2008, the Company classified certain assets in the amount of $19.8 million
related to its closed production complexes in North Carolina and Arkansas and
its closed distribution centers in Florida and Texas as assets held for sale.
The Company sold certain assets related to one of its closed distribution
centers in Florida for $4.4 million in the third quarter of 2008 and recognized
a gain of $2.0 million. At September 27, 2008, the Company reported $17.4
million of assets held for sale on its Consolidated Balance Sheet.
NOTE
K—ACCRUED EXPENSES
Accrued
expenses consisted of the following:
|
September
27, 2008
|
September
29, 2007
|
|||||||
|
(In
thousands)
|
||||||||
|
Compensation
and benefits
|
$ | 118,803 | $ | 159,322 | ||||
|
Interest
and debt maintenance
|
35,488 | 49,100 | ||||||
|
Self
insurance
|
170,787 | 158,851 | ||||||
|
Other
|
123,745 | 129,989 | ||||||
|
Total
|
$ | 448,823 | $ | 497,262 | ||||
NOTE
L—NOTES PAYABLE AND LONG-TERM DEBT
As
previously discussed under Note A—Business, Chapter 11 Bankruptcy Filing and
Process and Going Concern Matters, the Company filed for bankruptcy protection
on December 1, 2008. The following discussion has two distinct sections, the first relating
to our notes payable and
long-term debt at
September 27, 2008 and the second discussing our notes payable and long-term
debt after filing for
Chapter 11 bankruptcy protection on December 1, 2008.
Notes
Payable and Long-Term Debt at September 27, 2008
Our notes
payable and long-term debt consisted of the following:
|
Final
Maturity
|
September
27, 2008
|
September
29, 2007
|
|||||||
|
(In
thousands)
|
|||||||||
|
Senior
unsecured notes, at 7 5/8%
|
2015
|
$ | 400,000 | $ | 400,000 | ||||
|
Senior
subordinated unsecured notes, at 8 3/8%
|
2017
|
250,000 | 250,000 | ||||||
|
Secured
revolving credit facility with notes payable at LIBOR plus 1.25% to LIBOR
plus 2.75%
|
2013
|
181,900 | — | ||||||
|
Secured
revolving credit facility with notes payable at LIBOR plus 1.65% to LIBOR
plus 3.125%
|
2011
|
51,613 | 26,293 | ||||||
|
Secured
revolving/term credit facility with four notes payable at LIBOR plus a
spread, one note payable at 7.34% and one note payable at
7.56%
|
2016
|
1,035,250 | 622,350 | ||||||
|
Other
|
Various
|
23,220 | 22,787 | ||||||
|
Notes
payable and long-term debt
|
1,941,983 | 1,321,430 | |||||||
|
Current
maturities of long-term debt
|
(1,874,469 | ) | (2,872 | ) | |||||
|
Notes
payable and long-term debt, less current maturities
|
$ | 67,514 | $ | 1,318,558 | |||||
In
September 2006, the Company entered into an amended and restated revolver/term
credit agreement with a maturity date of September 21, 2016. At September 27,
2008 this revolver/term credit agreement provided for an aggregate commitment of
$1.172 billion consisting of (i) a $550 million revolving/term loan
commitment and (ii) $622.4 million in various term loans. At September 27, 2008,
the Company had $415.0 million outstanding under the revolver and
$620.3 million outstanding in various term loans. The total credit facility
is presently secured by certain fixed assets. On September 21, 2011, outstanding
borrowings under the revolving/term loan commitment will be converted to a term
loan maturing on September 21, 2016. The fixed rate term loans bear
interest at rates ranging from 7.34% to 7.56%. The voluntary converted loans
bear interest at rates ranging from LIBOR plus 1.0%-2.0%, depending upon the
Company’s total debt to capitalization ratio. The floating rate term loans bear
interest at LIBOR plus 1.50%-1.75% based on the ratio of the Company’s debt to
EBITDA, as defined in the agreement. The revolving/term loans provide for
interest rates ranging from LIBOR plus 1.0%-2.0%, depending upon the Company’s
total debt to capitalization ratio. Commitment fees charged on the unused
balance of this facility range from 0.20% to 0.40%, depending upon the Company’s
total debt to capitalization ratio. In connection with temporary amendments to
certain of the financial covenants in this agreement on April 30, 2008, the
interest rates were temporarily increased until September 26, 2009 to the
following ranges: (i) voluntary converted loans: LIBOR plus 1.5%-3.0%; (ii)
floating rate terms loans: LIBOR plus 2.00%-2.75%; and (iii) revolving term
loans: LIBOR plus 1.5%-3.0%. In connection with these amendments, the commitment
fees were temporarily increased for the same period to range from 0.275%-0.525%.
As a result of the Company's Chapter 11 filing, after December 1, 2008, interest
will accrue at the default rate, which is two percent above the interest rate
otherwise applicable under the credit agreement. One-half of the outstanding
obligations under the revolver/term credit agreement are guaranteed by Pilgrim
Interests, Ltd., an entity affiliated with our Senior Chairman, Lonnie “Bo”
Pilgrim. The filing of the
bankruptcy petitions also
constituted an event of default under this credit agreement. The total principal
amount
owed under this credit agreement was approximately $1,126.4 million as of December 1,
2008. As a result of such event of
default, all obligations under the agreement became automatically
and immediately due and payable, subject to an automatic stay of any action to
collect, assert, or recover a claim against the Company and the application of
applicable bankruptcy law.
In
January 2007, the Company borrowed (i) $780 million under our revolver/term
credit agreement and (ii) $450 million under our Bridge Loan agreement to fund
the Gold Kist acquisition. On January 24, 2007, the Company closed on the sale
of $400 million of 7 5/8% Senior Notes due 2015 (the “Senior Notes”) and $250
million of 8 3/8% Senior Subordinated Notes due 2017 (the “Subordinated Notes”),
sold at par. Interest is payable on May 1 and November 1 of each year, beginning
November 1, 2007. Prior to the Chapter 11 filings, the notes were subject to
certain early redemption features. The proceeds from the sale of the notes,
after underwriting discounts, were used to (i) retire the loans outstanding
under our Bridge Loan agreement, (ii) repurchase $77.5 million of the Company’s
9 1/4% Senior Subordinated Notes due 2013 at a premium of $7.4 million plus
accrued interest of $1.3 million and (iii) reduce outstanding revolving loans
under our revolving/term credit agreement. Loss on early extinguishment of debt
includes the $7.4 million premium along with unamortized loan costs of $7.1
million related to the retirement of these Notes.
In
September 2007, the Company redeemed all of its 9 5/8% Senior Notes due 2011 at
a total cost of $307.5 million. To fund a portion of the aggregate redemption
price, the Company sold $300 million of trade receivables under the RPA. Loss on
early extinguishment of debt includes the $9.5 million premium along with
unamortized loan costs of $2.5 million related to the retirement of these
Notes.
In
February 2007, the Company entered into a domestic revolving credit agreement of
up to $300.0 million with a final maturity date of February 18, 2013. The
associated revolving credit facility provided for interest rates ranging from
LIBOR plus 0.75-1.75%, depending upon our total debt to capitalization ratio.
The obligations under this facility are secured by domestic chicken inventories
and receivables that were not sold pursuant to the RPA. Commitment fees charged
on the unused balance of this facility range from 0.175% to 0.35%, depending
upon the Company’s total debt to capitalization ratio. In connection with
temporary amendments to certain of the financial covenants in this agreement on
April 30, 2008, the interest rates were temporarily increased until September
26, 2009 to range between LIBOR plus 1.25%-2.75%. In connection with these
amendments, the commitment fees were temporarily increased for the same period
to range from 0.25%-0.50%. As a result of the Company's Chapter 11 filing, after
December 1, 2008, interest will accrue at the default rate, which is two percent
above the interest rate otherwise applicable under the credit agreement.
One-half of the outstanding obligations under the domestic revolving credit
facility are guaranteed by Pilgrim Interests, Ltd., an entity affiliated with
our Senior Chairman, Lonnie “Bo” Pilgrim. The filing of the bankruptcy petitions
also constituted an event of default under this credit agreement. The total
principal amount owed under this credit agreement was approximately
$199.5 million as of December 1,
2008. As a result of such event of
default, all obligations under the agreement became automatically and
immediately due and payable, subject to an automatic stay of any action to
collect, assert, or recover a claim against the Company and the application of
applicable bankruptcy law.
In September 2006, a subsidiary of the Company, Avícola Pilgrim’s
Pride de México, S. de R.L. de C.V. (the “Borrower”), entered into a
secured revolving credit agreement of up to $75 million with a final maturity
date of September 25, 2011. In March 2007, the Borrower elected to reduce the
commitment under this agreement to 558 million Mexican pesos, a US
dollar-equivalent 51.6 million at September 27, 2008. Outstanding amounts bear
interest at rates ranging from the higher of the Prime Rate or Federal Funds
Effective Rate plus 0.5%; LIBOR plus 1.65%-3.125%; or TIIE plus 1.05%-2.55%
depending on the loan designation. Obligations under this agreement are secured
by a security interest in and lien upon all capital stock and other equity
interests of the Company’s Mexican subsidiaries. All the obligations of the
Borrower are secured by unconditional guaranty by the Company. At September 27,
2008, $51.6 million was outstanding and no other funds were available for
borrowing under this line. Borrowings are subject to “no material adverse
effect” provisions.
On
November 30, 2008, the Company and certain non-Debtor Mexico subsidiaries of the
Company (the "Mexico Subsidiaries") entered into a Waiver Agreement and Second
Amendment to Credit Agreement (the "Waiver Agreement") with ING Capital LLC, as
agent (the "Mexico Agent"), and the lenders signatory thereto (the "Mexico
Lenders"). Under the Waiver Agreement, the Mexico Agent and the Mexico Lenders
waived any default or event of default under the Credit Agreement dated as of
September 25, 2006, by and among the Company, the Mexico Subsidiaries, the
Mexico Agent and the Mexico Lenders, the administrative agent, and the lenders
parties thereto (the "ING Credit Agreement"), resulting from the Company's
filing of its bankruptcy petition with the Bankruptcy Court. Pursuant to the
Waiver Agreement, outstanding amounts under the ING Credit Agreement now bear
interest at a rate per annum equal to: the LIBOR Rate, the Base Rate, or the
TIIE Rate, as applicable, plus the Applicable Margin (as those terms are defined
in the ING Credit Agreement). While the Company is operating under its petitions
for reorganization relief, the Waiver Agreement provides for an Applicable
Margin for LIBOR loans, Base Rate loans, and TIIE loans of 6.0%, 4.0%, and 5.8%,
respectively. The Waiver Agreement further amended the ING Credit Agreement to
require the Company to make a mandatory prepayment of the revolving loans, in an
aggregate amount equal to 100% of the net cash proceeds received by any Mexico
Subsidiary, as applicable, in excess of thresholds specified in the ING Credit
Agreement (i) from the occurrence of certain asset sales by the Mexico
Subsidiaries; (ii) from the occurrence of any casualty or other insured damage
to, or any taking under power of eminent domain or by condemnation or similar
proceedings of, any property or asset of any Mexico Subsidiary; or (iii) from
the incurrence of certain indebtedness by a Mexico Subsidiary. Any such
mandatory prepayments will permanently reduce the amount of the commitment under
the ING Credit Agreement. In connection with the Waiver Agreement,
the Mexico Subsidiaries pledged substantially all of their receivables,
inventory, and equipment and certain fixed assets.
Our loan agreements generally obligate
us to reimburse the applicable lender for incremental increased costs due to a
change in law that imposes (i) any reserve or special deposit requirement
against assets of, deposits with or credit extended by such lender related to
the loan, (ii) any tax, duty or other charge with respect to the loan (except
standard income tax) or (iii) capital adequacy requirements. In addition, some
of our loan agreements contain a withholding tax provision that requires us to
pay additional amounts to the applicable lender or other financing party,
generally if withholding taxes are imposed on such lender or other financing
party as a result of a change in the applicable tax law. These increased cost
and withholding tax provisions continue for the entire term of the applicable
transaction, and there is no limitation on the maximum additional amounts we
could be obligated to pay under such provisions.
In June
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. At September 27, 2008 and prior
to our bankruptcy filing, the proceeds were available for the Company to draw
from over the construction period in order to construct new sewage and solid
waste disposal facilities at a poultry by-products plant in Camp County, Texas.
There was no requirement that we borrow the full amount of the proceeds from
these revenue bonds and we had not drawn on the proceeds or commenced
construction of the facility as of September 27, 2008. Had the Company borrowed
these funds, they would have become due in 2029. The revenue bonds are supported
by letters of credit obtained by us under our revolving credit facilities, which
are secured by our domestic chicken inventories. The bonds would have been
recorded as debt of the Company if and when they were spent to fund
construction. The original proceeds from the issuance of the revenue bonds
continue to be held by the trustee of the bonds. The interest payment on the
revenue bonds, which was due on December 1, 2008, was not paid. The filing of the bankruptcy petitions constituted an
event of default under these bonds. As a result of the event of default, the trustee has the
right to accelerate all obligations under the bonds such that they become immediately due
and payable, subject to an automatic stay of any action to collect,
assert, or recover a claim against the Company and the application of applicable
bankruptcy law. In
addition, the holders of the bonds may tender the bonds for remarketing at any
time. We have been notified that the holders have tendered the bonds, which
are required to be remarketed on or before December 16, 2008. If the bonds are
not successfully remarketed by that date, the holders of the bonds may draw upon
the letters of credit supporting the bonds.
Most of our domestic inventories and domestic fixed
assets are pledged as collateral on our long-term debt and credit
facilities.
At
September 27, 2008, the Company was not in compliance with the provisions that
required it to maintain levels of working capital and net worth and to maintain various fixed
charge, leverage, current and debt-to-equity ratios. In September 2008,
the Company notified its lenders that it expected to incur a significant loss in
the fourth quarter of 2008 and entered into agreements with them to temporarily
waive the fixed-charge coverage ratio covenant under its credit facilities. The
lenders agreed to continue to provide liquidity under the credit facilities
during the thirty-day period ended October 28, 2008. On October 27, 2008, the
Company entered into further agreements with its lenders to temporarily waive
the fixed-charge coverage ratio and leverage ratio covenants under its credit
facilities. The lenders agreed to continue to provide liquidity under the credit
facilities during the thirty-day period ended November 26, 2008. On November 26,
2008, the Company entered into further agreements with its lenders to extend the
temporary waivers until December 1, 2008.
The filing of the bankruptcy petitions
also constituted an event of default under the 7 5/8% Senior Notes due 2015, the
8 3/8% Senior Subordinated Notes due 2017 and the 9 1/4% Senior Subordinated
Notes due 2013. The total principal amount of the Notes was approximately
$657 million as of December 1,
2008. As a result of such event of
default, all obligations under the Notes became automatically and immediately
due and payable, subject to an automatic stay of any action to collect, assert,
or recover a claim against the Company and the application of applicable
bankruptcy law.
Assuming no amounts are accelerated,
annual maturities of
long-term debt for the five years subsequent to September 27, 2008 are: 2009—$2.4 million; 2010—$2.4 million; 2011—$54.3 million; 2012—$2.5 million; 2013—$200.9 million and thereafter—$1,679.4 million.
Total interest expense was $134.2 million, $123.2 million and $49.0 million in 2008, 2007 and 2006, respectively. Inter
est related to new
construction capitalized in 2008, 2007 and 2006 was $5.3 million, $5.7 million and $4.3 million,
respectively.
The fair
value of our public debt obligations at September 27, 2008 based upon quoted
market prices for the issues, was approximately $371.2 million. Due to our
current financial condition, our public debt is trading at a substantial
discount. As of November 28, 2008, the most recent trades of our 7 5/8% senior
unsecured notes and 8 3/8% senior subordinated unsecured notes were executed at
$14.00 per $100.00 par value and $4.50 per $100.00 par value, respectively.
Management also expects that the fair value of our non-public credit facilities
has also decreased, but cannot reliably estimate the fair value at this
time.
Notes
Payable and Long-Term Debt after Chapter 11 Bankruptcy Filings
The
filing of the Chapter 11 petitions constituted an event of default under
certain of our debt obligations, and those debt obligations became automatically
and immediately due and payable, subject to an automatic stay of any action to
collect, assert, or recover a claim against the Company and the application of
applicable bankruptcy law. As a result, the accompanying Consolidated Balance
Sheet as of September 27, 2008 includes a reclassification of $1,872.1 million
to reflect as current certain long-term debt under its credit facilities that
became automatically and immediately due and payable.
On December 2, 2008, the Bankruptcy Court granted interim approval
authorizing the Company and US Subsidiaries to enter into the DIP Credit
Agreement among the Company, as borrower, the US Subsidiaries, as guarantors,
Bank of Montreal, as agent, and the lenders party thereto. On December 2, 2008,
the Company, the US Subsidiaries and the other parties entered into the DIP
Credit Agreement, subject to final approval of the Bankruptcy Court.
The DIP Credit Agreement provides for an
aggregate commitment of up
to $450 million, which permits borrowings on a revolving basis. The Company
received interim approval to access $365 million of the commitment pending
issuance of the final order by the Bankruptcy Court. Outstanding borrowings
under the DIP Credit Agreement will bear interest at a per annum rate equal to
8.0% plus the greatest of (i) the prime rate as established by the DIP agent
from time to time, (ii) the average federal funds rate plus 0.5%, or
(iii) the LIBOR rate plus 1.0%, payable monthly. The loans under the DIP Credit Agreement
were used to repurchase all receivables sold under the Company's RPA and may be used to fund the working
capital requirements of the Company and its subsidiaries according to a budget
as approved by the required
lenders under the DIP Credit Agreement. For additional information on the
RPA, see Note F—Accounts Receivable.
Actual borrowings by the Company under
the DIP Credit Agreement are subject to a borrowing base, which is a formula
based on certain eligible
inventory and eligible receivables. The borrowing base formula is reduced by
pre-petition obligations under the Fourth Amended and Restated Secured Credit
Agreement dated as of February 8, 2007, among the Company and certain of its
subsidiaries, Bank of Montreal, as administrative agent,
and the lenders parties thereto, as amended, administrative and professional
expenses, and the amount owed by the Company and the Debtor Subsidiaries to any
person on account of the purchase price of agricultural products or services (including poultry and
livestock) if that person is entitled to any grower's or producer's lien or
other security arrangement. The borrowing base is also limited to 2.22 times the
formula amount of total eligible receivables. As of December 6, 2008, the applicable borrowing base
was $324.8
million and the amount
available for borrowings under the DIP Credit Agreement was $201.2 million.
The principal amount of outstanding
loans under the DIP Credit Agreement, together with accrued and unpaid interest thereon, are payable in
full at maturity on December 1, 2009, subject to extension for an additional six
months with the approval of all lenders thereunder. All obligations under the
DIP Credit Agreement are unconditionally guaranteed by the US Subsidiaries and are secured by a
first priority priming lien on substantially all of the assets of the Company
and the US Subsidiaries, subject to specified permitted liens in the DIP Credit
Agreement.
Under the
terms of the DIP Credit Agreement and applicable bankruptcy law, the Company may
not pay dividends on the common stock while it is in bankruptcy. Any payment of
future dividends and the amounts thereof will depend on our emergence from
bankruptcy, our earnings, our financial requirements and other factors deemed
relevant by our Board of Directors at the time.
On December 2, 2008, the
Bankruptcy Court granted interim approval authorizing the Company and US
Subsidiaries to enter into the DIP Credit Agreement among the Company, as
borrower, the US Subsidiaries, as guarantors, Bank of Montreal, as agent, and
the lenders party thereto. On December 2, 2008, the Company, the US Subsidiaries
and the other parties entered into the DIP Credit Agreement, subject to final
approval of the Bankruptcy Court.
The DIP Credit
Agreement provides for an aggregate commitment of
up to $450 million, which permits borrowings on a revolving basis. The Company
received interim approval to access $365 million of the
commitment pending issuance of the final order by the Bankruptcy
Court. Outstanding
borrowings under the DIP Credit Agreement will bear interest at a per annum rate
equal to 8.0% plus the greatest of (i) the prime rate as established by the DIP
agent from time to time, (ii) the average federal funds rate plus 0.5%, or
(iii) the LIBOR rate plus 1.0%, payable monthly. The loans under the
DIP Credit Agreement were used to repurchase all receivables sold under the
Company's RPA and may be used to
fund the working capital requirements of the Company and its subsidiaries
according to a budget as approved by the required lenders
under the DIP Credit Agreement. For additional information on the RPA, see Note F—Accounts
Receivable.
Actual borrowings
by the Company under the DIP Credit Agreement are subject to a borrowing base,
which is a formula based on certain eligible inventory
and eligible receivables. The borrowing base formula is reduced by pre-petition
obligations under the Fourth Amended and Restated Secured Credit Agreement dated
as of February 8, 2007, among the Company and certain of its subsidiaries,
Bank of Montreal, as
administrative agent, and the lenders parties thereto, as amended,
administrative and professional expenses, and the amount owed by the Company and
the Debtor Subsidiaries to any person on account of the purchase price of
agricultural products or services
(including poultry and livestock) if that person is entitled to any grower's or
producer's lien or other security arrangement. The borrowing base is also
limited to 2.22 times the formula amount of total eligible receivables.
As of
December 6, 2008, the
applicable borrowing base was $324.8 million and the amount available for borrowings under the
DIP Credit Agreement was $210.9 million.
The
principal amount of outstanding loans under the DIP Credit Agreement, together
with accrued and unpaid interest
thereon, are payable in full at maturity on December 1, 2009, subject to
extension for an additional six months with the approval of all lenders
thereunder. All obligations under the DIP Credit Agreement are unconditionally
guaranteed by the US Subsidiaries and
are secured by a first priority priming lien on substantially all of the assets
of the Company and the US Subsidiaries, subject to specified permitted liens in
the DIP Credit Agreement.
Under
the terms of the DIP Credit Agreement and applicable bankruptcy law, the Company
may not pay dividends on the common stock while it is in bankruptcy. Any payment
of future dividends and the amounts thereof will depend on our emergence from
bankruptcy, our earnings, our financial requirements and other factors deemed
relevant by our Board of Directors at the time.
NOTE
M—INCOME TAXES
Income
(loss) from continuing operations before income taxes by jurisdiction is as
follows:
|
2008
|
2007
|
2006
|
||||||||||
|
(In
thousands)
|
||||||||||||
|
US
|
$ | (1,165,208 | ) | $ | 87,235 | $ | (10,026 | ) | ||||
|
Foreign
|
(21,885 | ) | 11,600 | (16,600 | ) | |||||||
|
Total
|
$ | (1,187,093 | ) | $ | 98,835 | $ | (26,626 | ) | ||||
The
components of income tax expense (benefit) are set forth below:
|
2008
|
2007
|
2006
|
||||||||||
|
(In
thousands)
|
||||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 925 | $ | (35,434 | ) | $ | (20,294 | ) | ||||
|
Foreign
|
(1,649 | ) | 1,573 | 5,130 | ||||||||
|
State
and other
|
1,747 | (2,704 | ) | (3,718 | ) | |||||||
|
Total
current
|
1,023 | (36,565 | ) | (18,882 | ) | |||||||
|
Deferred:
|
||||||||||||
|
Federal
|
(212,151 | ) | 73,285 | 9,511 | ||||||||
|
Foreign
|
35,277 | (1,637 | ) | 10,221 | ||||||||
|
State
and other
|
(19,070 | ) | 12,236 | 723 | ||||||||
|
Total
deferred
|
(195,944 | ) | 83,884 | 20,455 | ||||||||
| $ | (194,921 | ) | $ | 47,319 | $ | 1,573 | ||||||
The
effective tax rate for continuing operations for 2008 was (16.4%) compared to
47.9% for 2007. The effective tax rate for 2008 differed from 2007 primarily as
a result of net operating losses incurred in 2008 which are offset by the tax
effect of goodwill impairment and valuation allowances established for deferred
tax assets we believe no longer meet the more likely than not realization
criteria of SFAS 109, Accounting for Income
Taxes.
NOTE
M—INCOME TAXES
Income
(loss) from continuing operations before income taxes by jurisdiction is as
follows:
|
2008
|
2007
|
2006
|
||||||||||
|
(In
thousands)
|
||||||||||||
|
US
|
$ | (1,165,208 | ) | $ | 87,235 | $ | (10,026 | ) | ||||
|
Foreign
|
(21,885 | ) | 11,600 | (16,600 | ) | |||||||
|
Total
|
$ | (1,187,093 | ) | $ | 98,835 | $ | (26,626 | ) | ||||
The
components of income tax expense (benefit) are set forth below:
|
2008
|
2007
|
2006
|
||||||||||
|
(In
thousands)
|
||||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 925 | $ | (35,434 | ) | $ | (20,294 | ) | ||||
|
Foreign
|
(1,649 | ) | 1,573 | 5,130 | ||||||||
|
State
and other
|
1,747 | (2,704 | ) | (3,718 | ) | |||||||
|
Total
current
|
1,023 | (36,565 | ) | (18,882 | ) | |||||||
|
Deferred:
|
||||||||||||
|
Federal
|
(212,151 | ) | 73,285 | 9,511 | ||||||||
|
Foreign
|
35,277 | (1,637 | ) | 10,221 | ||||||||
|
State
and other
|
(19,070 | ) | 12,236 | 723 | ||||||||
|
Total
deferred
|
(195,944 | ) | 83,884 | 20,455 | ||||||||
| $ | (194,921 | ) | $ | 47,319 | $ | 1,573 | ||||||
The
effective tax rate for continuing operations for 2008 was (16.4%) compared to
47.9% for 2007. The effective tax rate for 2008 differed from 2007 primarily as
a result of net operating losses incurred in 2008 which are offset by the tax
effect of goodwill impairment and valuation allowances established for deferred
tax assets we believe no longer meet the more likely than not realization
criteria of SFAS 109, Accounting for Income
Taxes.
The
following table reconciles the statutory US federal income tax rate to the
Company’s effective income tax rate:
|
2008
|
2007
|
2006
|
||||||||||
|
Federal
income tax rate
|
(35.0 | ) % | 35.0 | % | (35.0 | ) % | ||||||
|
State
tax rate, net
|
(2.2 | ) | 2.6 | — | ||||||||
|
Permanent
items
|
0.8 | 2.7 | — | |||||||||
|
Difference
in US statutory tax rate and foreign country effective tax
rate
|
0.2 | (0.7 | ) | (1.4 | ) | |||||||
|
Goodwill
impairment
|
14.8 | — | — | |||||||||
|
Tax
credits
|
(0.5 | ) | (7.4 | ) | (17.9 | ) | ||||||
|
Tax
effect of American Jobs Creation Act repatriation
|
— | — | 93.1 | |||||||||
|
Currency
related differences
|
— | 3.5 | 11.5 | |||||||||
|
Change
in contingency / FIN 48 reserves
|
0.2 | 6.3 | (40.5 | ) | ||||||||
|
Change
in valuation allowance
|
6.0 | — | — | |||||||||
|
Change
in tax rate
|
— | 3.0 | — | |||||||||
|
Other
|
(0.7 | ) | 2.9 | (4.0 | ) | |||||||
|
Total
|
(16.4 | ) % | 47.9 | % | 5.8 | % | ||||||
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:
|
2008
|
2007
|
|||||||
|
(In
thousands)
|
||||||||
|
Deferred
tax liabilities:
|
||||||||
|
Property
and equipment
|
$ | 207,706 | $ | 256,341 | ||||
|
Inventories
|
84,261 | 109,410 | ||||||
|
Prior
use of cash accounting
|
15,243 | 16,936 | ||||||
|
Acquisition-related
items
|
13,832 | 14,820 | ||||||
|
Deferred
foreign taxes
|
30,361 | 25,002 | ||||||
|
Identified
intangibles
|
23,346 | 29,266 | ||||||
|
Other
|
6,722 | 51,654 | ||||||
|
Total
deferred tax liabilities
|
381,471 | 503,429 | ||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating losses
|
212,421 | — | ||||||
|
Foreign
net operating losses
|
50,824 | 41,257 | ||||||
|
Credit
carry forwards
|
20,322 | — | ||||||
|
Expenses
deductible in different years
|
142,619 | 143,697 | ||||||
|
Subtotal
|
426,186 | 184,954 | ||||||
|
Valuation
allowance
|
(71,158 | ) | — | |||||
|
Total
deferred tax assets
|
355,028 | 184,954 | ||||||
|
Net
deferred tax liabilities
|
$ | 26,443 | $ | 318,475 | ||||
The
Company maintains valuation allowances when it is more likely than not that all
or a portion of a deferred tax asset will not be realized. Changes in valuation
allowances from period to period are included in the tax provision in the period
of change. We evaluate the recoverability of our deferred income tax assets by
assessing the need for a valuation allowance on a quarterly basis. If we
determine that it is more likely than not that our deferred income tax assets
will be recovered, the valuation allowance will be reduced.
At
September 27, 2008, domestically we have recorded gross deferred tax assets of
approximately $1,717.2 million with a valuation allowance of $24.6 million,
offset by gross deferred tax liabilities of $1,693.0 million. In Mexico, we have
recorded gross deferred tax assets of approximately $87.0 million with a
valuation allowance of approximately $46.6 million, offset by deferred tax
liabilities of $66.9 million.
Due to a
recent history of losses, the Company does not believe it has sufficient
positive evidence to conclude that realization of its net deferred tax asset
position at September 27, 2008 in the US and Mexico is more likely than
not.
As of
September 27, 2008, the Company had US federal net operating loss carry forwards
in the amount of $608.0 million that will begin to expire in 2027 and state net
operating loss carry forwards in the amount of $523.7 million that will begin to
expire in 2009. The Company also had Mexico net operating loss carry forwards at
September 27, 2008 approximating $191.3 million that will begin to expire
in 2011.
The
Company has not provided any deferred income taxes on the undistributed earnings
of its Mexico subsidiaries based upon the determination that such earnings will
be indefinitely reinvested. As of September 27, 2008, the cumulative
undistributed earnings of these subsidiaries were approximately $38.0 million.
If such earnings were not considered indefinitely reinvested, certain deferred
foreign and US income taxes would have been provided, after consideration of
estimated foreign tax credits.
In
October 2007, Mexico’s legislative bodies enacted La Ley del Impuesto Empresarial a
Tasa Unica (“IETU”), a new minimum corporate tax that was assessed on
companies doing business in Mexico beginning January 1, 2008. While the Company
has determined that it does not anticipate paying any significant taxes under
IETU, the new law did affect the Company’s tax planning strategies to fully
realize its deferred tax assets under Mexico’s regular income tax. The Company
has evaluated the impact of IETU on its Mexico operations, and because of the
treatment of net operating losses under the new law, established a valuation
allowance for net operating losses it believes do not meet the more likely than
not realization criteria of SFAS No. 109, Accounting for Income Taxes.
This valuation allowance resulted in a $24.5 million charge to tax expense for
2008.
During
the fourth quarter of 2006, the Company repatriated $155.0 million in previously
unremitted, untaxed earnings under the provisions of the American Jobs Creation
Act (“AJCA”). The AJCA, which was enacted in October 2004, included a temporary
incentive to US multinationals to repatriate foreign earnings at an approximate
effective 5.25% US federal tax rate. The total income tax effect of
repatriations under the AJCA was $28.2 million.
The
Company adopted the provisions of FIN 48 on September 30, 2007, effective for
its year ended September 27, 2008. FIN 48 clarifies the accounting for income
taxes by prescribing a minimum recognition threshold a tax benefit is required
to meet before being recognized in the financial statements. FIN 48 also
provides guidance on derecognition, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and transition. As a result
of the implementation of FIN 48, the Company increased deferred tax assets by
$22.9 million and goodwill by $0.5 million. Unrecognized tax benefits at
September 27, 2008 relate to various US jurisdictions.
A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:
|
2008
|
||||
|
(In
thousands)
|
||||
|
Unrecognized
tax benefits, beginning of year
|
$ | 58,557 | ||
|
Increases
in tax positions for the current year
|
3,716 | |||
|
Increases
in tax positions for prior years
|
4,120 | |||
|
Decreases
in tax positions for prior years
|
(1,071 | ) | ||
|
Unrecognized
tax benefits, end of year
|
$ | 65,322 | ||
Included
in unrecognized tax benefits of $65.3 million at September 27, 2008 was
$36.6 million of tax benefits that, if recognized, would reduce the
Company’s effective tax rate.
The Company recognizes interest and penalties
related to unrecognized tax benefits in its provision for income taxes. As of
September 27, 2008, the Company had recorded a liability of $15.0 million for
interest and penalties. This amount includes an increase of $3.3 million
recognized for 2008.
The
Company operates in the United States (including multiple state jurisdictions),
Puerto Rico and Mexico. With few exceptions, the Company is no longer
subject to US federal, state or local income tax examinations for years prior to
2003 and is no longer subject to Mexico income tax examinations by taxing
authorities for years prior to 2005. We are currently under audit by the
Internal Revenue Service for the tax years ended September 26, 2003 to
September 30, 2006. It is likely that the examination phase of the audit
will conclude in late 2009. As a result, no adjustments to our FIN 48
liability is expected within the next 12 months.
NOTE
N—COMPREHENSIVE INCOME (LOSS)
For
the year ending September 27, 2008, comprehensive loss, net of taxes, was $991.4
million, consisting of net loss of $998.6 million, unrealized loss related to
our investments in debt securities of $2.2 million, gains related to
pension and other postretirement benefits plans of $9.8 million and loss on
cash flow hedges of $0.4 million. This compares to the year ended September 29,
2007 in which comprehensive income, net of taxes, was $60.9 million, consisting
of net income of $47.0 million, unrealized gains related to our investments in
debt securities of $0.8 million, gains related to pension and other
postretirement benefits plans of $7.9 million and realized gains on cash flow
hedges of $3.4 million. Comprehensive loss for the year ended September 30, 2006
was $33.7 million, consisting of net loss of $34.2 million and
unrealized gains related to our investments in debt securities of $0.5
million.
Accumulated other comprehensive income at September
27, 2008 was $21.2 million, net of taxes of $13.4 million, and consisted of
pretax adjustments for gains related to pension and other postretirement
benefits plans totaling $31.2 million, accumulated unrealized gains on cash flow
hedges totaling $4.8 million and accumulated unrealized loss on our investments
in debt securities totaling $1.4 million. Accumulated other comprehensive income
at September 29, 2007 was $14.0 million, net of taxes of $6.6 million, and
consisted of pretax adjustments for gains related to pension and postretirement
benefits plans totaling $14.3 million, accumulated unrealized gains on cash flow hedges totaling $5.3
million and accumulated unrealized gain on our investments in debt securities
totaling $0.9 million.
NOTE O—COMMON STOCK
Prior
to November 21, 2003, the Company had two classes of authorized common stock,
Class A common stock and Class B common stock. After the New York Stock Exchange
(“NYSE”) closed on November 21, 2003, each share of Class A common stock and
each share of Class B common stock was reclassified into one share of new common
stock. The new common stock is our only class of authorized common stock. The
new common stock was listed on the NYSE under the symbol “PPC” and registered
under the Securities Exchange Act of 1934. Except as to voting rights, the
rights of the new common stock are substantially identical to the rights of the
Class A common stock and Class B common stock. Each share of common stock that
was reclassified into our new common stock is generally entitled to cast twenty
votes on all matters submitted to a vote of the stockholders until there is a
change in the beneficial ownership of such share. The reclassification had no
significant effect on our Consolidated Financial Statements, as the combination
of the Class A and Class B shares into a new class of common stock did not
affect the overall shares of common stock outstanding. As of September 27, 2008,
we estimate that approximately 25.9 million shares of our common stock still
carry twenty votes per share. We also estimate that 25.3 million shares of this
common stock are beneficially owned by our Senior Chairman, Lonnie “Bo” Pilgrim,
or certain affiliated entities.
In
May 2008, the Company completed a public offering of 7.5 million shares of its
common stock for total consideration of approximately $177.4 million ($177.2
million, net of costs incurred to complete the sale). The Company used the net
proceeds of the offering to reduce outstanding indebtedness under two of its
revolving credit facilities and for general corporate purposes.
Effective December
1, 2008, the
NYSE delisted our common stock
as a result of the Company's filing of its Chapter 11 petitions. Our
common
stock is now quoted on the Pink Sheets Electronic Quotation Service under the
ticker symbol "PGPDQ.PK."
NOTE
P—PENSION AND OTHER POSTRETIREMENT BENEFITS
Retirement
Plans
The
Company maintains the following retirement plans for eligible
employees:
|
·
|
The
Pilgrim’s Pride Retirement Savings Plan (the “RS Plan”), a Section 401(k)
salary deferral plan,
|
|
·
|
The
Pilgrim’s Pride Retirement Plan for Union Employees (the “Union Plan”), a
defined benefit plan,
|
|
·
|
The
Pilgrim’s Pride Retirement Plan for El Dorado Union Employees (the “El
Dorado” Plan), a defined benefit
plan,
|
|
·
|
The
To-Ricos Employee Cash or Deferred Arrangement Profit Sharing Plan (the
“To-Ricos Plan”), a Section 1165(e) salary deferral plan,
and
|
|
·
|
The
Gold Kist Pension Plan (the “GK Pension Plan”), a defined benefit
plan.
|
The
Company also maintains three postretirement plans for eligible Mexico employees
as required by Mexico law that primarily cover termination benefits. Separate
disclosure of plan obligations is not considered material.
The
RS Plan is maintained for certain eligible US employees. Under the RS Plan,
eligible employees may voluntarily contribute a percentage of their compensation
and there are various Company matching provisions. The Union Plan covers certain
locations or work groups within the Company. The El Dorado Plan was spun off
from the Union Plan effective January 1, 2008 and covers certain eligible
locations or work groups within the Company. The To-Ricos Plan is maintained for
certain eligible Puerto Rican employees. Under the To-Ricos Plan, eligible
employees may voluntarily contribute a percentage of their compensation and
there are various Company matching provisions. The GK Pension Plan covers
certain eligible US employees who were employed at locations that Pilgrim’s
Pride acquired in its acquisition of Gold Kist in 2007. Participation in the GK
Pension Plan was frozen as of February 8, 2007 for all participants with the
exception of terminated vested participants who are or may become permanently
and totally disabled. The plan was frozen for that group as of March 31,
2007.
Under
all of our retirement plans, the Company’s expenses were $4.1 million,
$10.0 million and $16.0 million in 2008, 2007 and 2006, respectively,
including the correction of $4.6 million, pretax, in 2006 as described in Note
B—Summary of Significant Accounting Policies.
The
Company used a year-end measurement date of September 27, 2008 for its pension
and postretirement benefits plans. Certain disclosures are listed below; other
disclosures are not material to the financial statements.
Medical
and Life Insurance Plans
Pilgrim’s
Pride assumed postretirement medical and life insurance obligations through its
acquisition of Gold Kist in 2007. In January 2001, Gold Kist began to
substantially curtail its programs for active employees. On July 1, 2003, Gold
Kist terminated medical coverage for retirees age 65 and older, and only retired
employees in the closed group between ages 55 and 65 could continue their
coverage at rates above the average cost of the medical insurance plan for
active employees. These retired employees will all reach the age of 65 by 2012
and liabilities of the postretirement medical plan will then end.
Benefit
Obligations and Plan Assets
The following tables provide
reconciliations of the changes in the plans’ projected benefit obligations and fair value of
assets as well as statements of the funded status, balance sheet reporting and economic assumptions for these plans.
|
Pension
Benefits
|
Other
Benefits
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Change
in projected benefit obligation:
|
(In
thousands)
|
|||||||||||||||
|
Projected
benefit obligation, beginning of year
|
$ | 196,803 | $ | 9,882 | $ | 2,432 | $ | — | ||||||||
|
Service
cost
|
1,246 | 2,029 | — | — | ||||||||||||
|
Interest
cost
|
9,576 | 8,455 | 132 | 103 | ||||||||||||
|
Plan
participant contributions
|
29 | 61 | 79 | 681 | ||||||||||||
|
Actuarial
gains
|
(56,589 | ) | (12,933 | ) | (477 | ) | (41 | ) | ||||||||
|
Acquisitions
|
— | 218,623 | — | 2,689 | ||||||||||||
|
Prior
year service cost
|
— | 237 | — | — | ||||||||||||
|
Benefits
paid
|
(23,553 | ) | (29,551 | ) | (273 | ) | (1,000 | ) | ||||||||
|
Other
|
(158 | ) | — | — | — | |||||||||||
|
Projected
benefit obligation, end of year
|
$ | 127,354 | $ | 196,803 | $ | 1,893 | $ | 2,432 | ||||||||
|
Pension
Benefits
|
Other
Benefits
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Change
in plan assets:
|
(In
thousands)
|
|||||||||||||||
|
Fair
value of plan assets, beginning of year
|
$ | 138,024 | $ | 6,252 | $ | — | $ | — | ||||||||
|
Acquisitions
|
— | 139,229 | — | — | ||||||||||||
|
Actual
return on plan assets
|
(24,063 | ) | 11,571 | — | — | |||||||||||
|
Contributions
by employer
|
2,543 | 10,462 | 194 | 319 | ||||||||||||
|
Plan
participant contributions
|
29 | 61 | 79 | 681 | ||||||||||||
|
Benefits
paid
|
(23,553 | ) | (29,551 | ) | (273 | ) | (1,000 | ) | ||||||||
|
Fair
value of plan assets, end of year
|
$ | 92,980 | $ | 138,024 | $ | — | $ | — | ||||||||
|
Pension
Benefits
|
Other
Benefits
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Funded
status:
|
(In
thousands)
|
|||||||||||||||
|
Funded
status
|
$ | (34,374 | ) | $ | (58,779 | ) | $ | (1,893 | ) | $ | (2,432 | ) | ||||
|
Unrecognized
prior service cost
|
121 | 237 | — | — | ||||||||||||
|
Unrecognized
net actuarial gain
|
(30,714 | ) | (14,824 | ) | (670 | ) | (41 | ) | ||||||||
|
Accrued
benefit cost
|
$ | (64,967 | ) | $ | (73,366 | ) | $ | (2,563 | ) | $ | (2,473 | ) | ||||
|
Pension
Benefits
|
Other
Benefits
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Amounts
recognized in the balance sheets:
|
(In
thousands)
|
|||||||||||||||
|
Accrued
benefit cost (current)
|
$ | (13,596 | ) | $ | (17,614 | ) | $ | (203 | ) | $ | (380 | ) | ||||
|
Accrued
benefit cost (long-term)
|
(20,778 | ) | (41,165 | ) | (1,690 | ) | (2,052 | ) | ||||||||
|
Long-term
deferred income taxes
|
(11,549 | ) | (4,942 | ) | (253 | ) | (16 | ) | ||||||||
|
Accumulated
other comprehensive income
|
(19,044 | ) | (9,645 | ) | (417 | ) | (25 | ) | ||||||||
|
Net
amount recognized
|
$ | (64,967 | ) | $ | (73,366 | ) | $ | (2,563 | ) | $ | (2,473 | ) | ||||
The accumulated benefit obligation for
all defined benefit plans was $126.8 million and $196.2 million at September 27, 2008 and September 29,
2007, respectively.
All of the Company’s
defined benefit plans
had an accumulated benefit obligation in
excess of plan assets at
September 27, 2008 and September 29, 2007.
Net
Periodic Benefit Cost (Income)
The following table provides the
components of net periodic benefit cost (income) for the plans.
|
Pension
Benefits
|
Other
Benefits
|
|||||||||||||||||||||||
|
2008
|
2007
|
2006
|
2008
|
2007
|
2006
|
|||||||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||||||
|
Service
cost
|
$ | 1,246 | $ | 2,029 | $ | 2,242 | $ | — | $ | — | $ | — | ||||||||||||
|
Interest
cost
|
9,576 | 8,455 | 458 | 132 | 103 | — | ||||||||||||||||||
|
Estimated return on plan
assets
|
(10,200 | ) | (8,170 | ) | (454 | ) | — | — | — | |||||||||||||||
|
Settlement
gain
|
(6,312 | ) | (2,327 | ) | — | 153 | — | — | ||||||||||||||||
|
Amortization of prior service
cost
|
116 | — | — | — | — | — | ||||||||||||||||||
|
Effect of special
events
|
(158 | ) | — | — | — | — | — | |||||||||||||||||
|
Amortization of net
gain
|
(125 | ) | — | — | — | — | — | |||||||||||||||||
|
Net periodic benefit cost
(income)
|
$ | (5,857 | ) | $ | (13 | ) | $ | 2,246 | $ | 285 | $ | 103 | $ | — | ||||||||||
Economic
Assumptions
The following table presents the
assumptions used in determining the benefit obligations and the net periodic
benefit cost amounts.
|
Pension
Benefits
|
Other
Benefits
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Weighted
average assumptions for benefit obligations at year end:
|
||||||||||||||||
|
Discount
rate
|
7.38 | % | 5.06 | % | 7.53 | % | 5.87 | % | ||||||||
|
Rate
of increase in compensation levels
|
3.00 | % | 3.00 | % |
NA
|
NA
|
||||||||||
|
Weighted
average assumptions for net periodic cost for the year:
|
||||||||||||||||
|
Discount
rate
|
5.08 | % | 5.06 | % | 5.87 | % | 5.50 | % | ||||||||
|
Rate
of increase in compensation levels
|
3.00 | % | 3.00 | % |
NA
|
NA
|
||||||||||
|
Expected
return on plan assets
|
7.77 | % | 7.75 | % | 7.75 | % | 7.75 | % | ||||||||
|
Assumed
health care cost trend rates:
|
||||||||||||||||
|
Health
care cost trend rate assumed for next year
|
NA
|
NA
|
9.00 | % | 8.00 | % | ||||||||||
|
Rate
to which the cost trend rate gradually declines
|
NA
|
NA
|
6.00 | % | 5.00 | % | ||||||||||
|
Year
that the rate will reach the rate at which it is assumed to
remain
|
NA
|
NA
|
2015
|
2014
|
||||||||||||
The Company changed its approach in determining the discount
rate from an annuity purchase rate approach to a yield curve approach. The effect
has been an increase in the discount rate from September 29, 2007 to September
27, 2008. The yield curve approach better mirrors the Company’s expectation that the termination of
the GK Pension Plan and
other benefit plans will
not occur in the near future.
A one percentage-point change in the
assumed health care cost trend rates would have an insignificant impact on 2008 expense and year-end liabilities.
Plan
Assets
The following table reflects the pension
plans’ actual asset allocations.
|
2008
|
2007
|
|||||||
|
Asset
allocation:
|
||||||||
|
Cash
and money market funds
|
1 | % | 2 | % | ||||
|
Equity
securities
|
68 | % | 71 | % | ||||
|
Debt
securities
|
31 | % | 27 | % | ||||
|
Total
assets
|
100 | % | 100 | % | ||||
Absent regulatory or statutory
limitations, the target asset allocation for the investment of the assets for
our ongoing pension plans is 25% in debt securities and 75% in equity
securities. The plans only invest in debt and equity instruments for which there is a ready public
market. We develop our expected long-term rate of return assumptions based on
the historical rates of returns for equity and debt securities of the type in
which our plans invest.
Benefit
Payments
The following table reflects the benefits as of
December 31, 2007 expected to be paid in each of the next five years and in
the aggregate for the five years thereafter from our pension and other
postretirement plans.
Because our pension plans
are primarily funded plans, the anticipated benefits with respect to
these plans will come primarily from the trusts established for these
plans. Because our other postretirement plans
are unfunded, the anticipated benefits with respect to these plans will come
from our own assets.
|
Pension
Benefits
|
Other
Benefits
|
|||||||||
|
Expected
benefit payments for year:
|
(In
thousands)
|
|||||||||
|
2009
|
$ | 13,596 | $ | 204 | ||||||
|
2010
|
13,235 | 197 | ||||||||
|
2011
|
12,554 | 171 | ||||||||
|
2012
|
11,996 | 174 | ||||||||
|
2013
|
11,459 | 176 | ||||||||
| 2014—2018 | 51,807 | 887 | ||||||||
|
Total
|
$ | 114,647 | $ | 1,809 | ||||||
We anticipate contributing $1.8 million and $0.2 million to our pension and other
postretirement plans, respectively, during 2009.
Unrecognized
Benefit Amounts in Accumulated Other Comprehensive Income
The amounts in accumulated other
comprehensive income that have not yet been recognized as components of net
periodic benefits cost at September 27, 2008 and the changes in these amounts during
2008 are as
follows.
|
Pension
Benefits
|
Other
Benefits
|
|||||||
|
Components
of accumulated other comprehensive income, before tax:
|
(In
thousands)
|
|||||||
|
Net
actuarial gain
|
$ | (30,714 | ) | $ | (670 | ) | ||
|
Net
prior service cost
|
121 | — | ||||||
|
Total
|
$ | (30,593 | ) | $ | (670 | ) | ||
|
Pension
Benefits
|
Other
Benefits
|
|||||||
|
Changes
in accumulated other comprehensive income, before tax:
|
(In
thousands)
|
|||||||
|
Net
actuarial gain, beginning of year
|
$ | (14,824 | ) | $ | (41 | ) | ||
|
Amortization
|
125 | — | ||||||
|
Curtailment
and settlement adjustments
|
6,312 | (153 | ) | |||||
|
Liability
gain
|
(56,589 | ) | (477 | ) | ||||
|
Asset
loss
|
34,264 | — | ||||||
|
Other
|
(2 | ) | 1 | |||||
|
Net
actuarial gain, end of year
|
$ | (30,714 | ) | $ | (670 | ) | ||
|
Net
prior service cost, beginning of year
|
$ | 237 | $ | — | ||||
|
Amortization
|
(116 | ) | — | |||||
|
Net
prior service cost, end of year
|
$ | 121 | $ | — | ||||
NOTE
Q—DERIVATIVE FINANCIAL INSTRUMENTS
The
Company purchases certain commodities, primarily corn and soybean meal, for use
as ingredients in the feed it either sells commercially or consumes in its live
operations. As a result, the Company’s operating results and cash flows are
affected by changes in the price and availability of such feed ingredients. The
Company attempts to mitigate its exposure to these changes through a program of
risk management that includes the use of (i) contracts for the future delivery
of commodities at fixed prices and (ii) derivative financial instruments such as
exchange-traded futures and options. The Company has elected not to designate
the derivative financial instruments it executes to mitigate its exposure to
commodity price changes as cash flow hedges. The Company recognized $38.3
million in losses related to changes in the fair value of these derivative
financial instruments during 2008. These losses are recorded in cost of sales.
The impact of changes in the fair value of these derivative financial
instruments in 2007 and 2006 was immaterial. The impact of changes in the fair value
of these derivative financial instruments in 2007 and 2006 was immaterial. At
September 27, 2008, the Company recorded a liability for futures contracts with an aggregate
fair value of $18.0 million executed to manage the price
risk on 19.1 million bushels of corn and
0.3 million tons of soybean
meal.
In
October 2008, the Company suspended the use of derivative financial instruments
in response to its current financial condition. It immediately settled all
outstanding derivative financial instruments and recognized losses in October
totaling $18.4 million.
NOTE
R—RELATED PARTY TRANSACTIONS
Lonnie
“Bo” Pilgrim, the Senior Chairman, and certain entities related to Mr. Pilgrim
are, collectively, the major stockholder of the Company (the “major
stockholder”).
Transactions
with the major stockholder or related entities are summarized as
follows:
|
2008
|
2007
|
2006
|
||||||||||
|
(In
thousands)
|
||||||||||||
|
Loan
guaranty fees
|
$ | 4,904 | $ | 3,592 | $ | 1,615 | ||||||
|
Contract
grower pay
|
1,008 | 885 | 976 | |||||||||
|
Lease
payments on commercial egg property
|
750 | 750 | 750 | |||||||||
|
Other
sales to major stockholder
|
710 | 620 | 747 | |||||||||
|
Lease
payments and operating expenses on airplane
|
456 | 507 | 492 | |||||||||
|
Live
chicken purchases from major stockholder
|
— | — | 231 | |||||||||
Pilgrim
Interests, Ltd., an entity related to Lonnie “Bo” Pilgrim, guarantees a portion
of the Company's debt obligations. In consideration of such guarantees, the
Company has paid Pilgrim Interests, Ltd. a quarterly fee equal to 0.25% of
one-half of the average aggregate outstanding balance of such guaranteed debt.
During 2008, 2007 and 2006, we paid $4.9 million, $3.6 million and $1.6
million, respectively, to Pilgrim Interests, Ltd. Pursuant to the terms of the DIP Credit
Agreement, the Company may not pay any guarantee fees without the consent of the
lenders party thereto.
The
Company has executed chicken grower contracts involving farms owned by the major
stockholder as well as a farm owned by one former officer and director that
provide for the placement of Company-owned flocks on these farms during the
grow-out phase of production. These contracts are on terms substantially the
same as contracts executed by the Company with unaffiliated parties and can be
terminated by either party upon completion of the grow-out phase for each flock.
The aggregate amounts paid by the Company to the officers and directors party to
these grower contracts were less than $2.0 million in each of the years 2008,
2007 and 2006.
The
Company leases a commercial egg property including all of the ongoing costs of
the operation from the Company’s major stockholder. The lease, which was
executed in December 2000, runs for ten years with a monthly lease payment of
$62.5 thousand.
The major
stockholder owns both an egg laying operation and a chicken growing operation.
At certain times during the year, the major stockholder may purchase live
chickens and hens, and certain feed inventories during the grow-out phase for
his flocks, from the Company and then sell the birds to the Company at maturity
using a market-based formula in which the price is subject to a ceiling
calculated at his cost plus two percent. The Company has not purchased chickens
under this agreement since the first quarter of 2006 when the major stockholder
recognized an operating margin of $4.5 thousand on the aggregate amount paid by
the Company to the major stockholder reflected in the line item Live chicken purchases from major
stockholder in the table above.
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 $33.0 thousand plus operating expenses. Lease expense was
$396.0 thousand for each of the years 2008, 2007 and 2006. Operating expenses
were $60.0 thousand, $111.2 thousand and $96.5 thousand in 2008, 2007 and 2006,
respectively. The lease was terminated on November 18, 2008.
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 2008, 2007 and 2006 were insignificant. As of September 27, 2008, the Company
had account balances at this financial institution of approximately $2.4
million.
The major
stockholder has deposited $0.3 million with the Company as an advance on
miscellaneous expenditures.
A son of
the major stockholder sold commodity feed products and a limited amount of other
services to the Company aggregating approximately $0.4 million and $0.6 million
in 2008 and 2007, respectively. He also leases an insignificant amount of land
from the Company.
NOTE
S—COMMITMENTS AND CONTINGENCIES
General
We are a
party to many routine contracts in which we provide general indemnities in the
normal course of business to third parties for various risks. Among other
considerations, we have not recorded a liability for any of these indemnities as
based upon the likelihood of payment, the fair value of such indemnities is
immaterial.
Purchase
Obligations
The
Company will sometimes enter into non-cancelable contracts to purchase capital
equipment and certain commodities such as corn, soybean meal, cooking oil and
natural gas. At September 27, 2008, the Company was party to outstanding
purchase contracts totaling $164.9 million. Payments for purchases made
under these contracts are due in less than 1 year.
Operating
Leases
The
Consolidated Statements of Operations include rental expense for operating
leases of approximately $71.3 million, $67.3 million and $54.0 million in 2008,
2007 and 2006, respectively. The Company’s future minimum lease commitments
under non-cancelable operating leases are as follows: 2009—$43.6 million;
2010—$34.6 million; 2011—$27.4 million; 2012—$15.3 million; 2013—$8.0
million and thereafter—$1.7 million.
Certain
of the Company’s operating leases include rent escalations. The Company includes
the rent escalation in its minimum lease payments obligations and recognizes
them as a component of rental expense on a straight-line basis over the minimum
lease term.
The
Company also maintains operating leases for various types of equipment, some of
which contain residual value guarantees for the market value of assets at the
end of the term of the lease. The terms of the lease maturities range from one
to seven years. The maximum potential amount of the residual value guarantees is
estimated to be approximately $19.9 million; however, the actual amount would be
offset by any recoverable amount based on the fair market value of the
underlying leased assets. No liability has been recorded related to this
contingency as the likelihood of payments under these guarantees is not
considered to be probable and the fair value of such guarantees is immaterial.
The Company historically has not experienced significant payments under similar
residual guarantees.
Financial
Instruments
At
September 27, 2008, the Company had $111.2 million in letters of credit
outstanding relating to normal business transactions. Letters of credit totaling
$86.0 million affect the availability of credit under our $300.0 million secured
revolving credit facility with notes payable at LIBOR plus 1.25% to LIBOR plus
2.75%.
The
Company’s loan agreements generally obligate the Company to reimburse the
applicable lender for incremental increased costs due to a change in law that
imposes (i) any reserve or special deposit requirement against assets of,
deposits with or credit extended by such lender related to the loan, (ii) any
tax, duty or other charge with respect to the loan (except standard income tax)
or (iii) capital adequacy requirements. In addition, some of the Company’s loan
agreements contain a withholding tax provision that requires the Company to pay
additional amounts to the applicable lender or other financing party, generally
if withholding taxes are imposed on such lender or other financing party as a
result of a change in the applicable tax law. These increased cost and
withholding tax provisions continue for the entire term of the applicable
transaction, and there is no limitation on the maximum additional amounts the
Company could be obligated to pay under such provisions. Any failure to pay
amounts due under such provisions generally would trigger an event of default,
and, in a secured financing transaction, would entitle the lender to foreclose
upon the collateral to realize the amount due.
Litigation
The
Company is subject to various legal proceedings and claims which arise in the
ordinary course of business. In the Company’s opinion, it has made appropriate
and adequate accruals for claims where necessary, and the Company believes the
probability of material losses beyond the amounts accrued to be remote; however,
the ultimate liability for these matters is uncertain, and if significantly
different than the amounts accrued, the ultimate outcome could have a material
effect on the financial condition or results of operations of the Company. On
December 1, 2008, the Debtors filed voluntary petitions for reorganization under
Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The cases are being
jointly administered under Case No. 08-45664. The Debtors continue to operate
their business as "debtors-in-possession" under the jurisdiction of the
Bankruptcy Court and in accordance with the applicable provisions of the
Bankruptcy Code and orders of the Bankruptcy Court. As of the date of the
Chapter 11 filing, virtually all pending litigation against the Company
(including the actions described below) is stayed as to the Company, and absent
further order of the Bankruptcy Court, no party, subject to certain exceptions,
may take any action, also subject to certain exceptions, to recover on
pre-petition claims against the Debtors. At this time it is not possible to
predict the outcome of the Chapter 11 filings or their effect on our business.
Below is a summary of the most significant claims outstanding against the
Company. The Company believes it has substantial defenses to the claims made and
intends to vigorously defend these cases.
Among the
claims presently pending against the Company are claims seeking unspecified
damages brought by a stockholder, individually and on behalf of a putative
class, alleging violations of certain antifraud provisions of the Securities
Exchange Act of 1934. The Company intends to defend vigorously against the
merits of the action and any attempts by the plaintiff to certify a class
action. The likelihood of an unfavorable outcome or the amount or range of any
possible loss to the Company cannot be determined at this time.
Other
claims presently pending against the Company are claims seeking unspecified
damages brought by current and former employees seeking compensation for the
time spent donning and doffing clothing and personal protective equipment. We
are aware of an industry-wide investigation by the Wage and Hour Division of the
US Department of Labor to ascertain compliance with various wage and hour
issues, including the compensation of employees for the time spent on activities
such as donning and doffing clothing and personal protective equipment. Due, in
part, to the government investigation and the recent US Supreme Court decision
in IBP, Inc. v. Alvarez, it is
possible that we may be subject to additional employee claims. We intend to
assert vigorous defenses to the litigation. Nonetheless, there can be no
assurances that other similar claims may not be brought against the
Company.
US
Immigration and Customs Enforcement has recently been investigating identity
theft within our workforce. With our cooperation, during the past eleven months
US Immigration and Customs Enforcement has arrested approximately 350 of our
employees believed to have engaged in identity theft at five of our facilities.
No assurances can be given that further enforcement efforts by governmental
authorities against our employees or the Company will not disrupt a portion of
our workforce or our operations at one or more of our facilities, thereby
negatively impacting our business.
NOTE
T—BUSINESS SEGMENTS
We
operate in two reportable business segments as (i) a producer and seller of
chicken products and (ii) a seller of other products.
Our
chicken segment includes sales of chicken products we produce and purchase for
resale in the US, including Puerto Rico, and Mexico. Our chicken segment
conducts separate operations in the US and Puerto Rico and in Mexico and is
reported as two separate geographical areas.
Our other
products segment includes distribution of non-poultry products that are
purchased from third parties and sold to independent grocers and quick service
restaurants. Also included in this category are sales of table eggs, feed,
protein products, live hogs and other items, some of which are produced or
raised by the Company.
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
allocated to Mexico based upon various apportionment methods for specific
expenditures incurred related thereto with the remaining amounts allocated to
the US portions of the segments based on number of employees.
Assets
associated with our corporate functions, included cash and cash equivalents and
investments in available for sale securities are included in our chicken
segment.
Selling,
general and administrative expenses related to our distribution centers are
allocated based on the proportion of net sales to the particular segment to
which the product sales relate.
Depreciation
and amortization, total assets and capital expenditures of our distribution
centers are included in our chicken segment based on the primary focus of the
centers.
The
following table presents certain information regarding our
segments:
|
As
of or for the Year Ended
|
September
27, 2008
|
September
29, 2007(a)
|
September
30, 2006
|
|||||||||
|
(In
thousands)
|
||||||||||||
|
Net
sales to customers:
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 7,077,047 | $ | 6,328,354 | $ | 4,098,403 | ||||||
|
Mexico
|
543,583 | 488,466 | 418,745 | |||||||||
|
Subtotal
|
7,620,630 | 6,816,820 | 4,517,148 | |||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
869,850 | 661,115 | 618,575 | |||||||||
|
Mexico
|
34,632 | 20,677 | 17,006 | |||||||||
|
Subtotal
|
904,482 | 681,792 | 635,581 | |||||||||
|
Total
|
$ | 8,525,112 | $ | 7,498,612 | $ | 5,152,729 | ||||||
|
Operating
income (loss):
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States(b)
|
$ | (1,135,370 | ) | $ | 192,447 | $ | 28,619 | |||||
|
Mexico
|
(25,702 | ) | 13,116 | (17,960 | ) | |||||||
|
Subtotal
|
(1,161,072 | ) | 205,563 | 10,659 | ||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
98,863 | 28,636 | (1,192 | ) | ||||||||
|
Mexico
|
4,513 | 2,992 | 1,638 | |||||||||
|
Subtotal
|
103,376 | 31,628 | 446 | |||||||||
|
Total
|
$ | (1,057,696 | ) | $ | 237,191 | $ | 11,105 | |||||
|
Depreciation
and amortization(c)(d)(e):
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 215,586 | $ | 183,808 | $ | 114,516 | ||||||
|
Mexico
|
10,351 | 11,015 | 11,305 | |||||||||
|
Subtotal
|
225,937 | 194,823 | 125,821 | |||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
13,354 | 8,278 | 7,743 | |||||||||
|
Mexico
|
244 | 215 | 146 | |||||||||
|
Subtotal
|
13,598 | 8,493 | 7,889 | |||||||||
|
Total
|
$ | 239,535 | $ | 203,316 | $ | 133,710 | ||||||
|
Total
assets(f):
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 2,733,089 | $ | 3,247,812 | $ | 1,909,129 | ||||||
|
Mexico
|
372,952 | 348,894 | 361,887 | |||||||||
|
Subtotal
|
3,106,041 | 3,596,706 | 2,271,016 | |||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
153,607 | 104,644 | 89,447 | |||||||||
|
Mexico
|
5,542 | 4,120 | 1,660 | |||||||||
|
Subtotal
|
159,149 | 108,764 | 91,107 | |||||||||
|
Total
|
$ | 3,265,190 | $ | 3,705,470 | $ | 2,362,123 | ||||||
|
Acquisitions
of property, plant and equipment (excluding business
acquisition)(g):
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 148,811 | $ | 164,449 | $ | 133,106 | ||||||
|
Mexico
|
545 | 1,633 | 6,536 | |||||||||
|
Subtotal
|
149,356 | 166,082 | 139,642 | |||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
2,815 | 5,699 | 3,567 | |||||||||
|
Mexico
|
330 | 40 | 416 | |||||||||
|
Subtotal
|
3,145 | 5,739 | 3,983 | |||||||||
|
Total
|
$ | 152,501 | $ | 171,821 | $ | 143,625 | ||||||
|
(a)
|
The
Company acquired Gold Kist on December 27, 2006 for $1.139
billion.
|
|
(b)
|
Includes
goodwill impairment of $501.4 million and restructuring charges of $29.3
million in 2008.
|
|
(c)
|
Includes
amortization of capitalized financing costs of approximately $4.9 million,
$6.6 million and $2.6 million in 2008, 2007 and 2006,
respectively
|
|
(d)
|
Includes
amortization of intangible assets of $10.2 million, $8.1 million and $1.8
million recognized in 2008, 2007 and 2006 related primarily to the Gold
Kist and ConAgra Chicken acquisitions.
|
|
(e)
|
Excludes
depreciation costs incurred by our discontinued turkey business of $0.7
million, $1.6 million and $1.4 million during 2008, 2007 and 2006,
respectively.
|
|
(f)
|
Excludes
total assets of our discontinued turkey business of $33.5 million at
September 27, 2008, $68.8 million at September 29 2007 and $64.7 million
at September 30, 2006.
|
|
(g)
|
Excludes
acquisitions of property, plant and equipment by our discontinued turkey
business of $0.5 million and $0.3 million during 2007 and 2006,
respectively. Acquisitions of property, plant and equipment by our
discontinued turkey business during 2008 were
immaterial.
|
The
Company had one customer that represented 10% or more of annual net sales in
2008, 2007 and 2006.
The
Company’s Mexico operations had net long-lived assets of $97.2 million,
$106.2 million, and $116.9 million at September 27, 2008, September 29,
2007 and September 30, 2006, respectively.
The
Company’s Mexico operations had net assets of $230.5 million and $284.8 million
and at September 27, 2008 and September 29, 2007, respectively.
NOTE
U—QUARTERLY RESULTS (UNAUDITED)
|
2008
|
First
|
Second(a)
|
Third(b)
|
Fourth(c)
|
Year
|
|||||||||||||||
|
(In
thousands, except per share data)
|
||||||||||||||||||||
|
Net
sales
|
$ | 2,047,353 | $ | 2,100,794 | $ | 2,207,476 | $ | 2,169,489 | $ | 8,525,112 | ||||||||||
|
Gross
profit (loss)
|
105,103 | (35,401 | ) | 53,211 | (286,408 | ) | (163,495 | ) | ||||||||||||
|
Operating
income (loss)
|
670 | (143,629 | ) | (42,531 | ) | (872,206 | ) | (1,057,696 | ) | |||||||||||
|
Loss
from continuing operations
|
(33,166 | ) | (111,501 | ) | (48,344 | ) | (799,161 | ) | (992,172 | ) | ||||||||||
|
Income
(loss) from operation of discontinued business
|
837 | (850 | ) | (4,437 | ) | (2,862 | ) | (7,312 | ) | |||||||||||
|
Gain
on disposal of discontinued business
|
— | 903 | — | — | 903 | |||||||||||||||
|
Net
loss
|
(32,329 | ) | (111,448 | ) | (52,781 | ) | (802,023 | ) | (998,581 | ) | ||||||||||
|
Per
share amounts:
|
||||||||||||||||||||
|
Continuing
operations
|
$ | (0.50 | ) | $ | (1.67 | ) | $ | (0.69 | ) | $ | (10.79 | ) | $ | (14.31 | ) | |||||
|
Discontinued
business
|
0.01 | — | (0.06 | ) | (0.04 | ) | (0.09 | ) | ||||||||||||
|
Net
loss
|
(0.49 | ) | (1.67 | ) | (0.75 | ) | (10.83 | ) | (14.40 | ) | ||||||||||
|
Dividends
|
0.0225 | 0.0225 | 0.0225 | 0.0225 | 0.0900 | |||||||||||||||
|
Number
of days in quarter
|
91 | 91 | 91 | 91 | 364 | |||||||||||||||
|
(a)
|
The
company recognized restructuring charges of $17.7 million in the second
quarter of 2008.
|
|||||||||||||||||||
|
(b)
|
The
Company recognized gains on derivative financial instruments of $102.4
million in the third quarter of 2008.
|
|||||||||||||||||||
|
(c)
|
The
Company recognized goodwill impairment of $501.4 million, losses on
derivative financial instruments of $155.7 million, restructuring charges
of $8.1 million and valuation allowances of $34.6 million in the fourth
quarter of 2008.
|
|||||||||||||||||||
|
2007
|
First(a)
|
Second
|
Third
|
Fourth
|
Year
|
|||||||||||||||
|
(In
thousands, except per share data)
|
||||||||||||||||||||
|
Net
sales
|
$ | 1,291,957 | $ | 1,987,185 | $ | 2,104,499 | $ | 2,114,971 | $ | 7,498,612 | ||||||||||
|
Gross
profit
|
62,238 | 84,049 | 234,825 | 211,618 | 592,730 | |||||||||||||||
|
Operating
income (loss)
|
(4,902 | ) | (10,674 | ) | 136,896 | 115,871 | 237,191 | |||||||||||||
|
Income
(loss) from continuing operations
|
(9,827 | ) | (39,018 | ) | 63,277 | 37,084 | 51,516 | |||||||||||||
|
Income
(loss) from operation of discontinued business
|
1,091 | (1,059 | ) | (636 | ) | (3,895 | ) | (4,499 | ) | |||||||||||
|
Net
income (loss)
|
(8,736 | ) | (40,077 | ) | 62,641 | 33,189 | 47,017 | |||||||||||||
|
Per
share amounts:
|
||||||||||||||||||||
|
Continuing
operations
|
$ | (0.15 | ) | $ | (0.59 | ) | $ | 0.95 | $ | 0.56 | $ | 0.77 | ||||||||
|
Discontinued
business
|
0.02 | (0.01 | ) | (0.01 | ) | (0.06 | ) | (0.06 | ) | |||||||||||
|
Net
income (loss)
|
(0.13 | ) | (0.60 | ) | 0.94 | 0.50 | 0.71 | |||||||||||||
|
Dividends
|
0.0225 | 0.0225 | 0.0225 | 0.0225 | 0.0900 | |||||||||||||||
|
Number
of days in quarter
|
91 | 91 | 91 | 91 | 364 | |||||||||||||||
|
(a)
|
The
Company acquired Gold Kist on December 27, 2006 for $1.139 billion. For
financial reporting purposes, we have not included the operating results
and cash flows of Gold Kist in our consolidated financial statements for
the period from December 27, 2006 through December 30, 2006. The operating
results and cash flows of Gold Kist from December 27, 2006 through
December 30, 2006 were not
material.
|
||||||||||
|
PILGRIM'S
PRIDE CORPORATION
|
||||||||||||||||||||||
|
VALUATION
AND QUALIFYING ACCOUNTS
|
||||||||||||||||||||||
|
Additions
|
||||||||||||||||||||||
|
Beginning
Balance
|
Charged
to Costs and Expenses
|
Charged
to Other Accounts
|
Deductions
(b)
|
Ending
Balance
|
||||||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||||
|
Trade
Accounts and Other Receivables—
Allowance
for Doubtful Accounts:
|
||||||||||||||||||||||
|
2008
|
$ | 5,017 | $ | 1,956 | $ | — | $ | 2,272 | $ | 4,701 | ||||||||||||
|
2007
|
2,155 | 4,751 | 424 |
(a)
|
2,313 | 5,017 | ||||||||||||||||
|
2006
|
4,818 | (185 | ) | — | 2,478 | 2,155 | ||||||||||||||||
|
Deferred
Tax Assets—
Valuation
Allowance:
|
||||||||||||||||||||||
|
2008
|
$ | 308 | $ | 70,850 | $ | — | $ | — | $ | 71,158 | ||||||||||||
|
2007
|
— | — | 308 | — | 308 | |||||||||||||||||
|
2006
|
— | — | — | — | — | |||||||||||||||||
|
(a)
|
Adjustment
to balance established for accounts receivable acquired from Gold
Kist.
|
|||||||||||||||||||||
|
(b)
|
Uncollectible
accounts written off, net of
recoveries.
|
|||||||||||||||||||||
Exhibit
Index
|
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).
|
|
|
2.3
|
Agreement
and Plan of Merger dated as of December 3, 2006, by and among the Company,
Protein Acquisition Corporation, a wholly owned subsidiary of the Company,
and Gold Kist Inc. (incorporated by reference from Exhibit 99.(D)(1) to
Amendment No. 11 to the Company’s Tender Offer Statement on Schedule TO
filed on December 5, 2006).
|
|
|
3.1
|
Certificate
of Incorporation of the Company, as amended (incorporated by reference
from Exhibit 3.1 of the Company’s Annual Report on Form 10-K for the year
ended October 2, 2004).
|
|
|
3.2
|
Amended
and Restated Corporate Bylaws of the Company (incorporated by reference
from Exhibit 4.4 of the Company’s Registration Statement on Form S-8 (No.
333-111929) filed on January 15, 2004).
|
|
|
4.1
|
Certificate
of Incorporation of the Company, as amended (included as Exhibit
3.1).
|
|
|
4.2
|
Amended
and Restated Corporate Bylaws of the Company (included as
Exhibit 3.2).
|
|
|
4.3
|
Indenture,
dated November 21, 2003, between Pilgrim's Pride Corporation and The Bank
of New York as Trustee relating to Pilgrim’s Pride’s 9 1/4% Senior Notes
due 2013 (incorporated by reference from Exhibit 4.1 of the Company's
Registration Statement on Form S-4 (No. 333-111975) filed on January 16,
2004).
|
|
|
4.4
|
Form
of 9 1/4% Note due 2013 (incorporated by reference from Exhibit 4.3 of the
Company's Registration Statement on Form S-4 (No. 333-111975) filed on
January 16, 2004).
|
|
|
4.5
|
Senior
Debt Securities Indenture dated as of January 24, 2007, by and between the
Company and Wells Fargo Bank, National Association, as trustee
(incorporated by reference from Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed on January 24, 2007).
|
|
|
4.6
|
First
Supplemental Indenture to the Senior Debt Securities Indenture dated as of
January 24, 2007, by and between the Company and Wells Fargo Bank,
National Association, as trustee (incorporated by reference from Exhibit
4.2 to the Company’s Current Report on Form 8-K filed on January 24,
2007).
|
|
|
4.7
|
Form
of 7 5/8% Senior Note due 2015 (incorporated by reference from Exhibit 4.3
to the Company’s Current Report on Form 8-K filed on January 24,
2007).
|
|
|
4.8
|
Senior
Subordinated Debt Securities Indenture dated as of January 24, 2007, by
and between the Company and Wells Fargo Bank, National Association, as
trustee (incorporated by reference from Exhibit 4.4 to the Company’s
Current Report on Form 8-K filed on January 24, 2007).
|
|
|
4.9
|
First
Supplemental Indenture to the Senior Subordinated Debt Securities
Indenture dated as of January 24, 2007, by and between the Company and
Wells Fargo Bank, National Association, as trustee (incorporated by
reference from Exhibit 4.5 to the Company’s Current Report on Form 8-K
filed on January 24, 2007).
|
|
|
4.10
|
Form
of 8 3/8% Subordinated Note due 2017 (incorporated by reference from
Exhibit 4.6 to the Company’s Current Report on Form 8-K filed on January
24, 2007).
|
|
|
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-K filed on July 1, 1992). …
|
|
|
10.2
|
Senior
Executive Performance Bonus Plan of the Company (incorporated by reference
from Exhibit A in the Company’s Proxy Statement dated December 13, 1999).
…
|
|
|
10.3
|
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).
|
|
|
10.4
|
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).
|
|
|
10.5
|
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).
|
|
|
10.6
|
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).
|
|
|
10.7
|
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).
|
|
|
10.8
|
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).
|
|
|
10.9
|
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).
|
|
|
10.10
|
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).
|
|
|
10.11
|
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).
|
|
|
10.12
|
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 year ended
October 2, 1999).
|
|
|
10.13
|
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).
|
|
|
10.14
|
Amendment
No. 1 dated as of December 31, 2003 to 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 10.5
of the Company’s Quarterly Report on Form 10-Q filed February 4,
2004).
|
|
|
10.15
|
Employee
Stock Investment Plan of the Company (incorporated by reference from
Exhibit 4.1 of the Company’s Registration Statement on Form S-8 (No.
333-111929) filed on January 15, 2004). …
|
|
|
10.16
|
2005
Deferred Compensation Plan of the Company (incorporated by reference from
Exhibit 10.1 of the Company’s Current Report on Form 8-K dated December
27, 2004). …
|
|
|
10.17
|
Vendor
Service Agreement dated effective December 28, 2005 between Pilgrim's
Pride Corporation and Pat Pilgrim (incorporated by reference from Exhibit
10.2 of the Company's Current Report on Form 8-K dated January 6,
2006).
|
|
|
10.18
|
Transportation
Agreement dated effective December 28, 2005 between Pilgrim's Pride
Corporation and Pat Pilgrim (incorporated by reference from Exhibit 10.3
of the Company's Current Report on Form 8-K dated January 6,
2006).
|
|
|
10.19
|
Credit
Agreement by and among the Avícola Pilgrim’s Pride de México, S. de R.L.
de C.V. (the "Borrower"), Pilgrim's Pride Corporation, certain Mexico
subsidiaries of the Borrower, ING Capital LLC, and the lenders signatory
thereto dated as of September 25, 2006 (incorporated by reference from
Exhibit 10.1 of the Company's Current Report on Form 8-K filed on
September 28, 2006).
|
|
|
10.20
|
2006
Amended and Restated Credit Agreement by and among CoBank, ACB, Agriland,
FCS and the Company dated as of September 21, 2006 (incorporated by
reference from Exhibit 10.2 of the Company's Current Report on Form 8-K
filed on September 28, 2006).
|
|
|
10.21
|
First
Amendment to the Pilgrim’s Pride Corporation Amended and Restated 2005
Deferred Compensation Plan Trust, dated as of November 29, 2006
(incorporated by reference from Exhibit 10.03 of the Company’s Current
Report on Form 8-K filed on December 05, 2006). …
|
|
|
10.22
|
Agreement
and Plan of Merger dated as of December 3, 2006, by and among the Company,
Protein Acquisition Corporation, a wholly owned subsidiary of the Company,
and Gold Kist Inc. (incorporated by reference from Exhibit 99.(D)(1) to
Amendment No. 11 to the Company’s Tender Offer Statement on Schedule TO
filed on December 5, 2006).
|
|
|
10.23
|
First
Amendment to Credit Agreement, dated as of December 13, 2006, by and among
the Company, as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and sole book runner, and as administrative, documentation and
collateral agent, Agriland, FCS, as co-syndication agent, and as a
syndication party, and the other syndication parties signatory thereto
(incorporated by reference from Exhibit 10.01 to the Company’s Current
Report on Form 8-K filed on December 19, 2006).
|
|
|
10.24
|
Second
Amendment to Credit Agreement, dated as of January 4, 2007, by and among
the Company, as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and sole book runner, and as administrative, documentation and
collateral agent, Agriland, FCS, as co-syndication agent, and as a
syndication party, and the other syndication parties signatory thereto
(incorporated by reference from Exhibit 10.01 to the Company’s Current
Report on Form 8-K filed on January 9, 2007).
|
|
|
10.25
|
Fourth
Amended and Restated Secured Credit Agreement, dated as of February 8,
2007, by and among the Company, To-Ricos, Ltd., To-Ricos Distribution,
Ltd., Bank of Montreal, as agent, SunTrust Bank, as syndication agent,
U.S. Bank National Association and Wells Fargo Bank, National Association,
as co-documentation agents, BMO Capital Market, as lead arranger, and the
other lenders signatory thereto (incorporated by reference from Exhibit
10.01 of the Company’s Current Report on Form 8-K dated February 12,
2007).
|
|
|
10.26
|
Third
Amendment to Credit Agreement, dated as of February 7, 2007, by and among
the Company as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and the sole book runner, and as administrative, documentation and
collateral agent, Agriland, FCS, as co-syndication agent, and as a
syndication party, and the other syndication parties signatory thereto
(incorporated by reference from Exhibit 10.02 of the Company’s Current
Report on Form 8-K dated February 12, 2007).
|
|
|
10.27
|
First
Amendment to Credit Agreement, dated as of March 15, 2007, by and among
the Borrower, the Company, the Subsidiary Guarantors, ING Capital LLC, and
the Lenders (incorporated by reference from Exhibit 10.01 of the Company’s
Current Report on Form 8-K dated March 20, 2007).
|
|
|
10.28
|
Fourth
Amendment to Credit Agreement, dated as of July 3, 2007, by and among the
Company as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and the sole book runner, and as administrative, documentation and
collateral agent, Agriland, FCS, as co-syndication agent, and as
syndication party, and the other syndication parties signatory thereto
(incorporated by reference from Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q filed July 31, 2007).
|
|
|
10.29
|
Retirement
and Consulting Agreement dated as of October 10, 2007, between the Company
and Clifford E. Butler (incorporated by reference from Exhibit 10.1 of the
Company’s Current Report on Form 8-K dated October 10, 2007). …
|
|
|
10.30
|
Fifth
Amendment to Credit Agreement, dated as of August 7, 2007, by and among
the Company as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and the sole book runner, and as administrative, documentation and
collateral agent, Agriland, FCS, as co-syndication agent, and as
syndication party, and the other syndication parties signatory thereto
(incorporated by reference from Exhibit 10.39 of the Company’s Annual
Report on Form 10-K filed on November 19, 2007).
|
|
|
10.31
|
Sixth
Amendment to Credit Agreement, dated as of November 7, 2007, by and among
the Company as borrower, CoBank, ACB, as administrative agent, and the
other syndication parties signatory thereto (incorporated by reference
from Exhibit 10.1 of the Company’s Current Report on Form 8-K dated
November 13, 2007).
|
|
|
10.32
|
Ground
Lease Agreement effective February 1, 2008 between Pilgrim's Pride
Corporation and Pat Pilgrim (incorporated by reference from Exhibit 10.1
of the Company's Current Report on Form 8-K dated February 1,
2008).
|
|
|
10.33
|
Seventh
Amendment to Credit Agreement, dated as of March 10, 2008, by and among
the Company as borrower, CoBank, ACB, as administrative agent, and the
other syndication parties signatory thereto (incorporated by reference
from Exhibit 10.1 to the Company's Current Report on Form 8-K filed on
February 20, 2008).
|
|
|
10.34
|
First
Amendment to the Fourth Amended and Restated Secured Credit Agreement,
dated as of March 11, 2008, by and among the Company, To-Ricos, Ltd.,
To-Ricos Distribution, Ltd., Bank of Montreal, as administrative agent,
and the other lenders signatory thereto (incorporated by reference from
Exhibit 10.2 to the Company's Current Report on Form 8-K filed on February
20, 2008).
|
|
|
10.35
|
Eighth
Amendment to Credit Agreement, dated as of April 30, 2008, by and among
the Company as borrower, CoBank, ACB, as administrative agent, and the
other syndication parties signatory thereto (incorporated by reference
from Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May
5, 2008).
|
|
|
10.36
|
Second
Amendment to the Fourth Amended and Restated Secured Credit Agreement,
dated as of April 30, 2008, by and among the Company, To-Ricos, Ltd.,
To-Ricos Distribution, Ltd., Bank of Montreal, as administrative agent,
and the other lenders signatory thereto (incorporated by reference from
Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 5,
2008).
|
|
|
10.37
|
Change
to Company Contribution Amount Under the Amended and Restated 2005
Deferred Compensation Plan of the Company (incorporated by reference from
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed July 30,
2008). …
|
|
|
10.38
|
Limited Duration Waiver
of Potential Defaults and Events of
Default under Credit Agreement dated September 26, 2008 by and among
Pilgrim's Pride Corporation, as borrower, CoBank, ACB, as administrative
agent, and the other syndication parties signatory thereto
(incorporated by reference from Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on September 29,
2008).
|
|
|
10.39
|
Limited Duration Waiver
Agreement dated as of September 26, 2008 by and among Pilgrim's Pride
Corporation, as borrower, Bank of Montreal, as administrative
agent, and
certain other bank parties thereto (incorporated by reference from
Exhibit 10.2 to the Company's Current Report on Form 8-K filed on
September 29, 2008).
|
|
|
10.40
|
Limited Duration Waiver
Agreement dated as of September 26, 2008 by and among Pilgrim's Pride Corporation,
Pilgrim's Pride Funding Corporation, BMO Capital Markets Corp., as
administrator, and Fairway Finance Company, LLC (incorporated by
reference from Exhibit 10.3 to the Company's Current Report on Form 8-K
filed on September 29, 2008).
|
|
|
10.41
|
Amended and Restated
Receivables Purchase Agreement dated as of September 26, 2008 among
Pilgrim's Pride Corporation, Pilgrim's Pride Funding Corporation, BMO
Capital Markets Corp., as administrator, and the various purchasers and
purchaser agents from time to time
parties thereto (incorporated by reference from Exhibit 10.4 to the
Company's Current Report on Form 8-K filed on September 29,
2008).
|
|
|
Amendment
No. 1 dated as of October 10, 2008 to Amended and Restated Receivables
Purchase Agreement, dated as of September 26, 2008 among Pilgrim's Pride
Corporation, Pilgrim's Pride Funding Corporation, BMO Capital Markets
Corp., as administrator, and the various purchasers and purchaser agents
from time to time parties thereto.*
|
||
|
10.43
|
Amendment No. 2 to
Purchase and Contribution Agreement dated as of September 26, 2008 among
Pilgrim's Pride Funding Corporation and Pilgrim's Pride Corporation
(incorporated by reference from Exhibit 10.5 to the Company's
Current Report on Form 8-K filed on September 29,
2008).
|
|
|
10.44
|
Limited Duration Waiver
of Potential Defaults and Events of Default under Credit Agreement dated
October 26, 2008 by and among Pilgrim's Pride Corporation, as borrower,
CoBank, ACB, as administrative agent, and the other syndication
parties signatory thereto (incorporated by reference from Exhibit
10.1 to the Company's Current Report on Form 8-K filed on October 27,
2008).
|
|
|
10.45
|
Limited Duration Waiver
Agreement dated as of October 26, 2008 by and among Pilgrim's Pride Corporation,
as borrower, Bank of Montreal, as administrative agent, and certain other
bank parties thereto (incorporated by reference from Exhibit 10.2
to the Company's Current Report on Form 8-K filed on October 27,
2008).
|
|
|
10.46
|
Limited Duration Waiver
Agreement dated as of October 26, 2008 by and among Pilgrim's Pride
Corporation, Pilgrim's Pride Funding Corporation, BMO Capital Markets
Corp., as administrator, and Fairway Finance Company, LLC
(incorporated by reference from Exhibit 10.3 to the Company's
Current Report on Form 8-K filed on October 27, 2008).
|
|
|
10.47
|
Form of Change in
Control Agreement dated as of October 21, 2008 between the Company and
certain of its executive officers (incorporated by reference from
Exhibit 10.4 to the Company's Current Report on Form 8-K filed on October
27, 2008). …
|
|
|
First
Amendment to Limited Duration Waiver
of Potential Defaults and Events of Default under Credit Agreement dated
November 25, 2008 by and among Pilgrim's Pride
Corporation, as borrower, CoBank,
ACB, as administrative agent, and the other syndication parties signatory
thereto.*
|
||
|
First
Amendment to Limited Duration Waiver Agreement dated as of
November 25, 2008 by and among Pilgrim's Pride Corporation, as
borrower, Bank of Montreal, as administrative agent, and certain other
bank parties thereto.*
|
||
|
First
Amendment to Limited Duration Waiver Agreement dated as of
November 25, 2008 by and among Pilgrim's Pride Corporation, Pilgrim's
Pride Funding Corporation, BMO Capital Markets Corp., as administrator,
and Fairway Finance Company, LLC. *
|
||
|
Waiver
Agreement and Second Amendment to Credit Agreement dated November 30,
2008, by and among the Company and certain non-debtor Mexico subsidiaries
of the Company, ING Capital LLC, as agent, and the lenders signatory
thereto.*
|
||
|
Post-Petition
Credit Agreement dated December 2, 2008 by and among the Company, as
borrower, the US Subsidiaries, as guarantors, Bank of Montreal, as agent,
and the lenders party thereto.*
|
|
Ratio
of Earnings to Fixed Charges for the years ended September 27, 2008,
September 29, 2007, September 30, 2006, October 1, 2005, October 2, 2004,
and September 27, 2003.*
|
||
|
Subsidiaries
of Registrant.*
|
||
|
Consent
of Ernst & Young LLP.*
|
||
|
Certification
of Co-Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
|
||
|
Certification
of Co-Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
|
||
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
|
||
|
Certification
of Co-Principal Executive Officer of Pilgrim's Pride Corporation pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
||
|
Certification
of Co-Principal Executive Officer of Pilgrim's Pride Corporation pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
||
|
Certification
of Chief Financial Officer of Pilgrim's Pride Corporation pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002.*
|
|
|
*Filed
herewith
|
|
|
…Represents
a management contract or compensation plan
arrangement
|
EXECUTION
COPY
Exhibit
10.42
AMENDMENT
No. 1
Dated
as of October 10, 2008
to
AMENDED
AND RESTATED RECEIVABLES PURCHASE AGREEMENT
Dated
as of September 26, 2008
This
AMENDMENT NO. 1 (this “Amendment”) dated as
of October 10, 2008 is entered into among PILGRIM’S PRIDE FUNDING CORPORATION
(“Seller”),
PILGRIM’S PRIDE CORPORATION (“Pilgrim’s Pride”) as
initial Servicer, THE VARIOUS PURCHASERS AND PURCHASER AGENTS FROM TIME TO TIME
PARTY THERETO and BMO CAPITAL MARKETS CORP., as administrator (in such capacity,
together with its successors and assigns, the “Administrator”).
RECITALS
WHEREAS,
the parties hereto have entered into a certain Amended and Restated Receivables
Purchase Agreement dated as of September 26, 2008 (the “Agreement”);
WHEREAS,
in order to make the most efficient use of the financing facility contemplated
by the Agreement and the other Transaction Documents, the Seller has requested
the Purchaser and the Administrator to agree to certain amendments and/or
modifications to such facility as described herein for various
purposes;
WHEREAS,
the Purchaser and the Administrator are willing to agree to such amendments
solely on the terms and subject to the conditions set forth herein;
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 used, but not otherwise defined, herein shall have
the respective meanings for such terms set forth in Exhibit I to the
Agreement.
SECTION
2. Amendments to the
Agreement. The Agreement is hereby amended as
follows:
2.1. The
definition of “Loss Percentage” set forth in Exhibit I to the
Agreement is hereby amended and restated in its entirety as
follows:
“Loss
Percentage” means, on any date, (a) solely during the Waiver Period, the
greatest of (i) 4 times the sum of (x) the highest average of the Default Ratios
for any three consecutive calendar months during the twelve most recent calendar
months, plus (y) the greater of (1) the highest average of the Dilution Ratios
for any three consecutive calendar months during the twelve most recent calendar
months and (2) 1.75%, (ii) 3.5 times the quotient (expressed as a percentage) of
(x) the aggregate Outstanding Balance of the Eligible Receivables then included
in the Net Receivable Pool Balance of the non-Investment Grade Obligor with the
greatest amount of Receivables included in the Net Receivables Pool Balance
divided by (y)
Net Receivables Pool Balance on such date, and (iii) 12%; and
(b) at all
times following the expiration of the Waiver Period, the greatest of (i) 5 times
the sum of (x) the highest average of the Default Ratios for any three
consecutive calendar months during the twelve most recent calendar months, plus
(y) the greater of (1) the highest average of the Dilution Ratios for any three
consecutive calendar months during the twelve most recent calendar months and
(2) 2.25%, (ii) 4 times the quotient (expressed as a percentage) of (x) the
aggregate Outstanding Balance of the Eligible Receivables then included in the
Net Receivable Pool Balance of the non-Investment Grade Obligor with the
greatest amount of Receivables included in the Net Receivables Pool Balance
divided by (y)
Net Receivables Pool Balance on such date, and (iii) 18%.
2.2.
The definition of “Normal Concentration Percentage” set forth in Exhibit I to the
Agreement is hereby amended and restated in its entirety as
follows:
“Normal Concentration
Percentage” means, at any time, (1) solely during the Waiver Period (a)
for any Obligor that is not a Special Obligor or Wal-Mart, 3%; (b) for any
Obligor that is a Special Obligor, (i) if such Special Obligor is rated A+ or
better by S&P and A1 or better by Moody’s, 12% or (ii) if such Special
Obligor is not so rated but is rated at least BBB- by S&P and Baa3 by
Moody’s, 6%; or (c) for any Obligor that is Wal-Mart, (i) if Wal-Mart is rated
AA or better by S&P and Aa2 or better by Moody’s, 18%, or (ii) if Wal-Mart
is not so rated but is rated at least AA- by S&P and Aa3 by Moody’s, 15% or
(iii) if Wal-Mart is rated A+ or lower by S&P and A1 or lower by Moody’s,
the applicable percentage shall be as set forth for Obligors and Special
Obligors in this definition. If the ratings from S&P and Moody’s
fall within different categories, the Normal Concentration Percentage shall be
based on the category in which the lower of the two ratings falls. If
any Obligor is rated only by S&P or only by Moody’s, the Normal
Concentration Percentage shall be based on the rating by such Rating Agency
without regard to a rating by any other Rating Agency; and
(2) at all
times following the expiration of the Waiver Period (a) for any Obligor that is
not a Special Obligor, 3%; or (b) for any Obligor that is a Special Obligor, (i)
if such Special Obligor is rated A+ or better by S&P and A1 or better by
Moody’s, 12% or (ii) if such Special Obligor is not so rated but is rated at
least BBB- by S&P and Baa3 by Moody’s, 6%. If the ratings from
S&P and Moody’s fall within different categories, the Normal Concentration
Percentage shall be based on the category in which the lower of the two ratings
falls. If any Obligor is rated only by S&P or only by Moody’s,
the Normal Concentration Percentage shall be based on the rating by such Rating
Agency without regard to a rating by any other Rating Agency.
2.3. The
definition of “Net Receivables Pool Balance” set forth in Exhibit I to the
Agreement is hereby amended by inserting, immediately prior to the period at the
end of such definition, the following proviso:
; provided, that, for
purposes of calculating the Outstanding Balance of each such Eligible Receivable
then in the Receivables Pool, to the extent that the Outstanding Balance of such
Receivable has been reduced by the Servicer by application of payments on
account of such Receivable deposited to the Lock-Box Accounts, Collection
Account and/or Liquidation Account but not yet available funds, the Outstanding
Balance of such Receivable shall be deemed increased solely to the extent of
such payments until such time as such payments become available
funds.
2.4. The
definition of “NRB” set forth in the definition of “Participation” set forth in
Exhibit I to the Agreement is hereby amended in its entirety as
follows:
NRB=the
Net Receivables Pool Balance at the time of computation.
2.5. Exhibit I to the
Agreement is hereby amended by adding the following new definition thereto in
the appropriate alphabetical order:
“PPC Limited Duration Waiver
Agreement” means the Pilgrim’s Pride Corporation Limited Duration Waiver
Agreement, dated as of September 26, 2008, among Pilgrims Pride Corporation,
Pilgrim’s Pride Funding Corporation, the various purchasers and purchaser agents
from time to time party thereto and BMO Capital Markets Corp.
“Waiver Period” has
the meaning set forth in the PPC Limited Duration Waiver Agreement.
“Wal-Mart” means
Wal-Mart Stores, Inc., a Delaware corporation, and its
subsidiaries.
SECTION
3. Representations and
Warranties. Each of the Seller and the Servicer hereby
represents and warrants to the Purchaser and the Administrator that the
representations and warranties of such Person contained in Exhibit III to the
Agreement are true and correct as of the date hereof (unless stated to relate
solely to an earlier date, in which case such representations and warranties
were true and correct as of such earlier date), and that as of the date hereof,
no Termination Event or Unmatured Termination Event has occurred and is
continuing or will result from this Amendment.
SECTION
4. Effect of
Amendment. (a) All provisions of the Agreement, as expressly
amended and modified by this Amendment, shall remain in full force and effect
and are hereby ratified and confirmed in all respects. After this
Amendment becomes effective, all references in the Agreement (or in any other
Transaction Document) to “this Agreement”, “hereof”, “herein” or words of
similar effect referring to the Agreement shall be deemed to be references to
the Agreement as amended by this Amendment. This Amendment shall not
be deemed, either expressly or impliedly, to waive, amend or supplement any
provision of the Agreement other than as set forth herein.
(b) Notwithstanding
anything in the Agreement or any other Transaction Document to the contrary,
each of the parties hereto, hereby consents and agrees to the amendments
contemplated hereby and that all of the provisions in the Agreement, the
Purchase and Contribution Agreement, the Purchase Agreement and the other
Transaction Documents shall be interpreted so as to give effect to the intent of
the parties hereto as set forth in this Amendment.
SECTION
5. Effectiveness. This
Amendment shall become effective as of the date hereof upon receipt by the
Administrator of the following (each, in form and substance satisfactory to the
Administrator):
(a) Counterparts
of this Amendment executed by each of the parties hereto (including facsimile or
electronic copies);
(b) (i)
Evidence, in form and substance satisfactory to the Administrator that the
Seller and the Servicer have complied with the Administrator’s request (as
described in its letter to the Seller and the Servicer with respect thereto
delivered on October 9, 2008) to provide the Administrator with a daily
Collateral Report and to direct Collections to the Administrator or an account
designated by the Administrator on a daily basis and (ii) a signed copy of an
account control agreement, in form and substance satisfactory to the
Administrator, covering each of the Lock-Box Accounts at Bank of America,
N.A.;
(c) Evidence,
in form and substance satisfactory to the Administrator, that any requirement
for there to be undrawn commitments under either or both of the BMO Credit
Agreement and the CoBank Credit Agreement, be reduced to an aggregate amount of
not greater than $75,000,000; and
(d) Such
other documents, resolutions, certificates, agreements and opinions as the
Administrator may reasonably request in connection herewith.
For
purposes of this Section 5, (a) “BMO Credit Agreement”, means the Fourth Amended
and Restated Credit Agreement dated as of February 8, 2007 among Pilgrim Pride
Corporation , To-Ricos, Ltd and To-Ricos Distribution Ltd, the various banks
party thereto and Bank of Montreal as agent (as amended, supplemented or
otherwise modified from time to time) and (b) “CoBank Credit Agreement” means,
the Amended and Restated Credit Agreement dated as of September 21, 2006, among
Pilgrims Pride Funding Corporation, CoBank, ACB, Farm Credit Services of
America, FLCA and the various other parties thereof (as amended, supplemented or
otherwise modified from time to time).
SECTION
6. Additional
Covenant. The Company and the Servicer hereby covenant and
agree that, if any upfront fees are paid to the agents, or if pricing or other
fees are otherwise increased, under the BMO Credit Agreement or the CoBank
Credit Agreement in connection with any amendments thereto during the Waiver
Period, the Company (or the Servicer on its behalf) shall (a) in the case of any
upfront fees, pay to the Administrator, within one Business Day of any payment
of fees under any amendments to the BMO Credit Agreement or the CoBank Credit
Agreement, a corresponding fee to the Administrator (calculated by converting
any such fee under the amendments to the BMO Credit Agreement or the CoBank
Credit Agreement into an equivalent rate based on the relative commitments
thereunder and multiplying such equivalent rate by the Commitment) and (b) in
the case of increased pricing or other fees, as soon as practicable thereafter
amend the Agreement or Purchaser Group Fee Letter or execute such other
documents as may be requested by the Administrator, in form and substance
satisfactory to the Administrator, to reflect increased pricing or other fees on
similarly favorable terms.
SECTION
7. RELEASE. FOR VALUE RECEIVED,
INCLUDING WITHOUT LIMITATION, THE AGREEMENTS OF THE ADMINISTRATOR AND THE
PURCHASERS IN THIS AMENDMENT AND THE AGREEMENT AS AMENDED HEREBY, EACH OF THE
SELLER AND THE SERVICER HEREBY RELEASES THE ADMINISTRATOR, EACH PURCHASER AGENT,
EACH PURCHASER, EACH INDEMNIFIED PARTY AND THEIR RESPECTIVE CURRENT AND FORMER
SHAREHOLDERS, DIRECTORS, OFFICERS, AGENTS, EMPLOYEES, ATTORNEYS, CONSULTANTS,
AND PROFESSIONAL ADVISORS (COLLECTIVELY, THE “RELEASED PARTIES”) OF AND FROM ANY AND ALL
DEMANDS, ACTIONS, CAUSES OF ACTION, SUITS, CONTROVERSIES, ACTS AND OMISSIONS,
LIABILITIES, AND OTHER CLAIMS OF EVERY KIND OR NATURE WHATSOEVER, BOTH IN LAW
AND IN EQUITY, KNOWN OR UNKNOWN, WHICH SUCH SELLER OR SERVICER HAS OR EVER HAD
AGAINST THE RELEASED PARTIES FROM THE BEGINNING OF THE WORLD TO THIS DATE
ARISING IN ANY WAY OUT OF THE EXISTING FINANCING ARRANGEMENTS BETWEEN THE
SELLER, THE SERVICER, THE ADMINISTRATOR, THE PURCHASER AGENTS AND THE
PURCHASERS, AND EACH OF THE SELLER AND THE SERVICER FURTHER ACKNOWLEDGES THAT,
AS OF THE DATE HEREOF, IT DOES NOT HAVE ANY COUNTERCLAIM, SET-OFF, OR DEFENSE
AGAINST THE RELEASED PARTIES, EACH OF WHICH EACH OF THE SELLER AND THE SERVICER
HEREBY EXPRESSLY WAIVES.
SECTION
8. Counterparts. This
Amendment may be executed in any number of counterparts and by different parties
on separate counterparts, each of which when so executed shall be deemed to be
an original and all of which when taken together shall constitute but one and
the same instrument.
SECTION
9. 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).
SECTION
10. Section
Headings. The various headings of this Amendment are included
for convenience only and shall not affect the meaning or interpretation of this
Amendment, the Agreement or any provision hereof or thereof.
SECTION
11. JURY
TRIAL. THE JURY TRIAL WAIVER SET FORTH IN SECTION 6.10 OF THE
AGREEMENT SHALL APPLY TO THIS AMENDMENT AS IF IT WERE FULLY SET FORTH
HEREIN.
(continued
on following page)
5225406 98442494
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,
as
Seller
By: /s/ Richard A.
Cogdill
Richard A. Cogdill
Chief Financial Officer, Secretary and
Treasurer
PILGRIM’S
PRIDE CORPORATION,
as
initial Servicer
By: /s/ Richard A.
Cogdill
Richard A. Cogdill
Chief Financial Officer, Secretary and
Treasurer
FAIRWAY
FINANCE COMPANY, LLC,
as
Uncommitted Purchaser and as Related Committed Purchaser for the BMOCM Purchaser
Group
By: /s/ Phillip A.
Martone
Name:
Phillip A. Martone
Title: Vice
President
BMO
CAPITAL MARKETS CORP.,
as
Administrator and as Purchaser Agent for the BMOCM Purchaser Group
By: /s/ Brian
Zaban
Name:
Brian Zaban
Title: Managing
Director
|
S-
|
Amendment
No. 1 to A&R RPA
|
5225406 98442494
EXHIBIT
10.48
FIRST
AMENDMENT TO LIMITED DURATION WAIVER OF POTENTIAL DEFAULTS AND EVENTS OF DEFAULT
UNDER CREDIT AGREEMENT
This
First Amendment to Limited Duration Waiver Of Potential Defaults And Events Of
Default Under Credit Agreement (the “Amendment”) is made as
November 25, 2008, by and among the Pilgrim’s Pride Corporation, a Delaware
Corporation (“Borrower”), the Syndication
Parties (whose signatures appear below), and CoBank ACB, as Administrative Agent
for the Syndication Parties (“CoBank”).
Recitals:
A.The
Borrower, the Syndication Parties and the Agent are parties to that certain
Limited Duration Waiver Of Potential Defaults And Events Of Default Under Credit
Agreement dated as of October 26, 2008 (the “Waiver
Agreement”).
B.Pursuant
to the Waiver Agreement, the Required Lenders agreed, among other things, to
waive the Subject Defaults for during the period ending on November 26,
2008.
C.The
Borrower has requested that the Required Lenders amend the Waiver Agreement to
extend the Waiver Period and to amend certain other provisions thereof, and the
Required Lenders are willing to do so subject to the terms and conditions set
forth herein.
Accordingly,
subject to the satisfaction of the conditions precedent set forth below, the
Borrower and the Required Lenders agree as follows:
Now,
Therefore, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1.Incorporation of Recitals; Defined
Terms. The Borrower acknowledges that the Recitals set forth
above are true and correct in all material respects. The defined
terms in the Recitals set forth above are hereby incorporated into this
Amendment by reference. All other capitalized terms used herein
without definition shall have the same meanings herein as such terms have in the
Waiver Agreement.
2.Amendment of Section 2.1 of the
Waiver Agreement.
Section 2.1
of the Waiver Agreement shall be amended to read as follows:
2.1.Except as
provided in this Subsection 2.1 of this Agreement, the Agent and the Syndication
Parties reserve the right to exercise any and all of their rights, powers and
remedies under the Credit Agreement and the other Loan Documents, including the
right to cease making Loans, and the right to accelerate the maturity of all
outstanding Bank Debt. Subject to satisfaction of the terms and
conditions contained in this Agreement, the Agent and the Syndication Parties
agree to waive the Subject Defaults and shall, with respect to the Subject
Defaults (but not with respect to any other Potential Default or Event of
Default that may be existing or that may occur), not exercise their rights,
powers and remedies under the Credit Agreement or the other Loan Documents but
only for the period beginning October 28, 2008, and ending at 12:00 Noon,
Chicago time, on December 1, 2008 (the “Waiver Period”).
3.Amendment of the Waiver
Agreement. The definition of "Subject Defaults" in the Waiver
Agreement shall be amended to include the Indenture Payment Event (as defined
below).
4.Amendment of Section 4.3 of
the Waiver Agreement.
Section 4.3
of the Waiver Agreement shall be amended to read as follows:
No later
than December 1, 2008, the Borrower shall execute and deliver a deed of trust or
mortgage and assignment of leases and rents with respect to Borrower’s interest
in each unencumbered property of the Borrower pursuant to section 10.18(f) of
the Credit Agreement.
5.Acknowledgement of
Liens. The Borrower hereby acknowledges and agrees that all
indebtedness, obligations and liabilities of the Borrower, owing to the Agent
and the Syndication Parties arising out of or in any manner relating to the Loan
Documents, shall continue to be secured by liens and security interests on all
of the Collateral pursuant to the Loan Documents heretofore or hereafter
executed and delivered by the Borrower, and nothing herein
contained shall in any manner affect or impair the priority of the liens and
security interests created and provided for thereby as to the indebtedness,
obligations, and liabilities which would be secured thereby prior to giving
effect to this Amendment.
6.Representations and
Warranties. The Borrower represents and warrants to the Agent
and the Syndication Parties that:
(a)the
Borrower has full right and authority to enter into this Amendment and to
perform all of its obligations under the Waiver Agreement as amended
hereby;
(b)this
Amendment and the performance or observance by the Borrower of any of the
matters and things herein provided for do not (i) contravene or constitute
a default under any provision of law or any judgment, injunction, order or
decree binding upon the Borrower or any provision of the organizational
documents (e.g.,
certificate or articles of incorporation and by-laws) of the Borrower, or
(ii) contravene or constitute a default under any covenant, indenture or
agreement of or affecting the Borrower or any of its Property;
(c)the obligations of the Borrower under
the Waiver Agreement as amended hereby are legal, valid, enforceable (except
as enforcement may be limited by equitable principles or by bankruptcy,
insolvency, reorganization, moratorium, or similar laws relating to or limiting
creditors’ rights generally) and subsisting and not subject to set-off, defense
(other than payment) or counterclaim;
(d)no
Potential Default or Event of Default has occurred and is continuing, other than
the Subject Defaults;
(e)the Company’s indebtedness, obligations
and liabilities to the Agent and the Syndication Parties under the Loan
Documents constitute “Designated Senior Indebtedness” as defined in the First
Supplemental Indenture dated as of January 24, 2007, between the Company and
Wells Fargo Bank, National Association, as Trustee, relating to the Company’s
8-3/8% Senior Subordinated
Notes due 2017; and
(f)the
Company has decided that during the Waiver Period as extended by this Amendment
it will not pay any interest on its 8-3/8% Senior Subordinated Notes due 2017
or its 7-5/8% Senior Notes due May-1, 2015 (the "Indenture Payment
Event").
7.Release. For value
received, including without limitation, the agreements of the Syndication
Parties in this Amendment, the Borrower hereby releases the Agent and each
Syndication Party, its current and former shareholders, directors, officers,
agents, employees, attorneys, consultants, and professional advisors
(collectively, the “Released
Parties”) of and from any and all demands, actions, causes of action,
suits, controversies, acts and omissions, liabilities, and other claims of every
kind or nature whatsoever, both in law and in equity, known or unknown, which
such Borrower has or ever had against the Released Parties from the beginning of
the world to this date arising in any way out of the existing financing
arrangements between the Borrower and the Syndication Parties, and the Borrower
further acknowledges that, as of the date hereof, it does not have any
counterclaim, set-off, or defense against the Released Parties, each of which
the Borrower hereby expressly waives.
8.Waiver Agreement Remains
Effective. Except as expressly set forth in this Amendment,
the Waiver Agreement and all of the obligations of the Borrower thereunder, the
rights and benefits of the Agent and Syndication Parties thereunder, and the
liens and security interests created thereby remain in full force and
effect. Without limiting the foregoing, the Borrower agrees to comply
with all of the terms, conditions, and provisions of the Waiver Agreement except
to the extent such compliance is irreconcilably inconsistent with the express
provisions of this Amendment. This Amendment is intended by the
Syndication Parties as a final expression of their agreement and is intended as
a complete and exclusive statement of the terms and conditions of this
Amendment.
9.Fees and
Expenses. The Company shall pay on demand all fees and
expenses (including attorneys’ fees) incurred by the Agent and its counsel in
connection with this Amendment and the other instruments and documents being
executed and delivered in connection herewith, and all fees and expenses of
counsel to the Agent with respect to the credit facilities subject to the Credit
Agreement.
10.Conditions
Precedent. The effectiveness of this Amendment is subject to
the satisfaction of the following conditions precedent:
(a)the
Borrower, the Agent, and the Required Lenders shall have executed and delivered
this Amendment and consent in the space provided for that purpose below, on or
before November 26, 2008;
(b)the Agent
shall have received a copy of a fully executed amendment to the BMO Limited
Duration Waiver extending the waiver under the BMO Limited Duration Waiver of
any default under the BMO Credit Agreement that is analogous to the Subject
Defaults for a period ending no earlier that the Waiver Period as extended by
this Amendment, which amendment shall not contain or add to the BMO Limited
Duration Waiver any other terms or provisions that are not contained in the
Waiver Agreement as amended by this Amendment or that are inconsistent with the
terms of the Waiver Agreement as amended by this Amendment or that are more
favorable to the lenders under the BMO Credit Agreement than the terms of the
Waiver Agreement as amended by this Amendment are favorable to the Syndication
Parties, and which otherwise shall be in form and substance reasonably
satisfactory to the Agent, and such amendment to the BMO Limited Duration Waiver
shall be effective;
(c)the Agent
shall have received a copy of a fully executed amendment to the Fairway Limited Duration Waiver
extending the waiver thereunder of any default under the Receivables Purchase
Agreement that is analogous to the Subject Defaults for a period ending no
earlier that the Waiver Period as extended by this Amendment, agreeing to extend
the existing amendments to the Amended and Restated Receivables Purchase
Agreement during the Waiver Period and agreeing to continue to provide credit
thereunder during the Waiver Period as extended by this Amendment, which limited
duration waiver shall not contain any other terms or provisions that are not
contained in the Waiver Agreement as amended by this Amendment or that are
inconsistent with the terms of the Waiver Agreement as amended by this Amendment
or that are more favorable to the lenders under the Receivables Purchase
Agreement than the terms of the Waiver Agreement as amended by this
Amendment are favorable to the Banks, and which otherwise shall be in form and
substance reasonably satisfactory to the Agent, and such amendment to the
Fairway Limited Duration Waiver shall be effective; and
(d)the
payment of the current legal fees and expenses referred to in Section 9
above.
11.General
Provisions.
(a)Authority of
Borrower. By its acceptance hereof, the Borrower hereby represents
that it has the necessary power and authority to execute, deliver, and perform
the undertakings contained herein, and that this Amendment constitutes the valid
and binding obligation of the Borrower enforceable against it in accordance with
its terms.
(b)Severability. Any
provision of this Amendment held invalid, illegal, or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity, illegality, or unenforceability without affecting the validity,
legality, and enforceability of the remaining provision hereof; and the
invalidity of a particular provision in a particular jurisdiction shall not
invalidate such provision in any other jurisdiction.
(c)Loan Document. The
parties hereto hereby acknowledge and agree that this Amendment shall constitute
a Loan Document for all purposes of the Credit Agreement and the other Loan
Documents.
(d)Survivability. Unless
otherwise expressly stated herein, the provisions of this Amendment shall
survive the termination of the Waiver Period.
(e)Counterparts. This
Amendment may be executed in counterparts and by different parties on separate
counterpart signature pages, each of which constitutes an original and all of
which taken together constitute one and the same instrument. Delivery
of executed counterparts of this Amendment by telecopy shall be effective as an
original. This Amendment may be executed by the parties hereto in
separate counterparts, each of which, when so executed and delivered, shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of
copies hereof, each signed by less than all, but together signed by all, of the
parties hereto. Copies of documents or signature pages bearing
original signatures, and executed documents or signature pages delivered by a
party by telefax, facsimile, or e-mail transmission of an Adobe® file format
document (also known as a PDF file) shall, in each such instance, be deemed to
be, and shall constitute and be treated as, an original signed document or
counterpart, as applicable. Any party delivering an executed
counterpart of this Amendment by telefax, facsimile, or e-mail
transmission of an Adobe® file format document also shall deliver an original executed
counterpart of this Amendment, but the failure to deliver an original
executed counterpart shall not affect the validity, enforceability, and binding
effect of this Amendment.
(f)Governing Law. This
Amendment shall be governed by Colorado law and shall be governed and
interpreted on the same basis as the Credit Agreement.
(g)Successors and
Assigns. This Amendment shall be binding upon and inure to the
benefit of Borrower, Agent, and the Syndication Parties, and their respective
successors and assigns, except that Borrower may not assign or transfer its
rights or obligations hereunder without the prior written consent of all the
Syndication Parties.
(h)Headings. The captions
or headings in this Amendment are for convenience only and in no way define,
limit or describe the scope or intent of any provision of this
Amendment.
(i)No Other
Modifications. The Credit Agreement, except as expressly modified
herein, shall continue in full force and effect and be binding upon the parties
thereto.
[Signature
Pages to Follow]
80386851.3
DALDMS/652641.3
IN
WITNESS WHEREOF, the parties hereto have caused this First Amendment to Limited
Duration Waiver Of Potential Defaults And Events Of Default Under Credit
Agreement to be executed as of the date and year first above
written.
ADMINISTRATIVE
AGENT:CoBank, ACB
By:/s/ James
Matzat
Name:James
Matzat
Title:Vice
President
BORROWER:Pilgrim’s
Pride Corporation
By: /s/ Richard A.
Cogdill
Name:
Richard A. Cogdill
Title:
Vice President, Secretary and Treasurer
SYNDICATION
PARTIES:CoBank, ACB
By:/s/ James
Matzat
Name:James
Matzat
Title:Vice
President
Agriland, FCS
By: /s/ Dwayne
Young
Name:Dwayne
Young
Title:Chief
Executive Officer
Deere Credit, Inc.
By: /s/ John H.
Winger
Name:John
H. Winger
Title:Manager,
AFS Credit Operations
{Signature
Page to First Amendment}
Bank
of the West
By:/s/ Larry L.
Redding
Name:Larry
L. Redding
Title:Vice
President
John
Hancock Life Insurance Company
By:/s/ Dwayne
Bertrand
Name:Dwayne
Bertrand
Title:Managing
Director
The
Variable Annuity Life Insurance Company
AIG
Global Investment Corp., investment advisor
By:
Name:
Title:
The
United States Life Insurance Company in the City of New York
AIG
Global Investment Corp., investment advisor
By:
Name:
Title:
Merit
Life Insurance Co.
AIG
Global Investment Corp., investment advisor
By:
Name:
Title:
{Signature
Page to First Amendment}
American
General Assurance Company
AIG
Global Investment Corp., investment advisor
By:
Name:
Title:
AIG
International Group, Inc.
AIG
Global Investment Corp., investment advisor
By:
Name:
Title:
AIG
Annuity Insurance Company
AIG
Global Investment Corp., investment advisor
By:
Name:
Title:
Transamerica
Life Insurance Company
By:
Name:
Title:
The
CIT Group/Business Credit, Inc.
By:
Name:
Title:
Metropolitan
Life Insurance Company
By:/s/ Barry L.
Bogseth
Name:Barry
L. Bogseth
Title:Director
{Signature
Page to First Amendment}
Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank-Nederland” New York
Branch
By:/s/ Richard J.
Beard
Name:Richard
J. Beard
Title:Executive
Director
By:/s/ Rebecca
Morrow
Name:Rebecca
Morrow
Title:Executive
Director
Farm
Credit Services of America, PCA
By:/s/ Bruce
Dean
Name:Bruce
Dean
Title:Vice
President
The
Prudential Insurance Company of America
By:
Name:
Title:
{Signature
Page to First Amendment}
DALDMS/652641.3
Exhibit
10.49
Pilgrim’s
Pride Corporation
First
Amendment to Limited Duration Waiver Agreement
This
First Amendment to Limited Duration Waiver Agreement (herein, the “Amendment”) is made as
November 25, 2008, by and among Pilgrim’s Pride Corporation, a Delaware
corporation (the “Company”), To-Ricos, Ltd., a
Bermuda company (“To-Ricos”), To-Ricos
Distribution, Ltd., a Bermuda company (“To-Ricos Distribution”; and
together with To-Ricos, the “Foreign Borrowers”; the
Company and the Foreign Borrowers collectively, the “Borrowers” and individually,
a “Borrower”), the Banks party hereto,
and Bank of Montreal, a Canadian chartered bank acting through its Chicago
branch, as administrative agent for the Banks (the “Agent”).
Recitals:
A.The Borrowers, the Banks and the Agent are parties to that certain Limited
Duration Waiver Agreement dated as of October 26, 2008 (the “Waiver Agreement”).
B.Pursuant to the Waiver Agreement the Required Banks agree, among other things,
to waive the Subject Default during the period ending November 26,
2008.
C.The Borrowers has requested that the Required Banks amend the Waiver Agreement
to extend the Scheduled Waiver Expiration Date and to amend certain other
provisions thereof, and the Required Banks are willing to do so subject to the
terms and conditions set forth herein.
Accordingly,
subject to the satisfaction of the conditions precedent set forth below, the
Borrowers and the Required Banks agree as follows:
Now,
Therefore, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1.Incorporation of Recitals; Defined
Terms. The Borrowers acknowledge that the Recitals set forth
above are true and correct in all material respects. The defined
terms in the Recitals set forth above are hereby incorporated into this
Amendment by reference. All other capitalized terms used herein
without definition shall have the same meanings herein as such terms have in the
Waiver Agreement.
2.Amounts Owing. The
Borrowers acknowledge and agree that the principal amount of Loans,
Reimbursement Obligations and L/Cs as of November 25, 2008, is $310,795,372
($0 in Bid Loans, $199,526,529 in Revolving Credit Loans, $0 in Swing Loans, $0
in Bond Reimbursement Obligations, $25,239,727 in the Bond L/C, $0 in
Reimbursement Obligations, and $86,029,116 in issued and currently undrawn
L/Cs), and such amount (together with interest and fees thereon) is justly and
truly owing by the Borrowers without defense, offset or
counterclaim.
3.Amendment of
Section 3 of the Waiver Agreement. Section 3 of the
Waiver Agreement shall be amended to read as follows:
3.Limited Duration
Waiver. Subject to the terms and conditions contained in this
Agreement, the Required Banks waive the Subject Default but only for the period
(the “Waiver Period”)
beginning October 28, 2008, and ending at 12:00 Noon, Chicago time, on
December 1, 2008 (the “Scheduled Waiver Expiration
Date”). The foregoing waiver shall become null and void on the
Scheduled Waiver Expiration Date and from and after the Scheduled Waiver
Expiration Date the Agent and the Banks shall have all rights and remedies
available to them as a result of the occurrence of the Subject Default as though
this waiver had never been granted.
4.Amendment of the Waiver
Agreement. The definition of "Subject Default" in the Waiver
Agreement shall be amended to include the Indenture Payment Event (as defined
below).
5.Acknowledgement of
Liens. The Company hereby acknowledges and agrees that all
indebtedness, obligations and liabilities of the Borrowers, or any of them,
owing to the Agent and the Banks arising out of or in any manner relating to the
Loan Documents, as well as all Hedging Liability and Funds Transfer and Deposit
Account Liability, shall continue to be secured by liens and security interests
on all of the Collateral pursuant to the Loan Documents heretofore or hereafter
executed and delivered by the Company, and nothing herein
contained shall in any manner affect or impair the priority of the liens and
security interests created and provided for thereby as to the indebtedness,
obligations, and liabilities which would be secured thereby prior to giving
effect to this Amendment.
6.Representations and
Warranties. The Borrowers represent and warrant to the Agent
and the Banks that:
(a)each
Borrower has full right and authority to enter into this Amendment and to
perform all of its obligations under the Waiver Agreement as amended
hereby;
(b)this
Amendment and the performance or observance by the Borrowers of any of the
matters and things herein provided for do not (i) contravene or constitute
a default under any provision of law or any judgment, injunction, order or
decree binding upon any Borrower or any provision of the organizational
documents (e.g.,
certificate or articles of incorporation and by-laws) of any Borrower, or
(ii) contravene or constitute a default under any covenant, indenture or
agreement of or affecting any Borrower or any of its Property;
(c)the obligations of each Borrower and the
Guarantor under the Waiver Agreement as amended hereby are legal, valid, enforceable (except
as enforcement may be limited by equitable principles or by bankruptcy,
insolvency, reorganization, moratorium, or similar laws relating to or limiting
creditors’ rights generally) and subsisting and not subject to set-off, defense
(other than payment) or counterclaim;
(d)no
Potential Default or Event of Default has occurred and is continuing, other than
the Subject Default;
(e)the Company’s indebtedness, obligations
and liabilities to the Agent and the Banks under the Loan Documents constitute
“Designated Senior Indebtedness” as defined in the First Supplemental Indenture
dated as of January 24, 2007, between the Company and Wells Fargo Bank, National
Association, as Trustee, relating to the Company’s 8-3/8% Senior Subordinated Notes due 2017;
and
(f)the
Company has decided that during the Waiver Period as extended by this Amendment
it will not pay any interest on its 8-3/8% Senior Subordinated Notes due 2017
or its 7-5/8% Senior Notes due May-1, 2015 (the "Indenture Payment
Event").
7.Release. For value
received, including without limitation, the agreements of the Banks in this
Amendment, each Borrower hereby releases the Agent and each Bank, its current
and former shareholders, directors, officers, agents, employees, attorneys,
consultants, and professional advisors (collectively, the “Released Parties”) of and
from any and all demands, actions, causes of action, suits, controversies, acts
and omissions, liabilities, and other claims of every kind or nature whatsoever,
both in law and in equity, known or unknown, which such Borrower has or ever had
against the Released Parties from the beginning of the world to this date
arising in any way out of the existing financing arrangements between the
Borrowers and the Banks, and each Borrower further acknowledges that, as of the
date hereof, it does not have any counterclaim, set-off, or defense against the
Released Parties, each of which each Borrower hereby expressly
waives.
8.Waiver Agreement Remains
Effective. Except as expressly set forth in this Amendment,
the Waiver Agreement and all of the obligations of the Borrowers thereunder, the
rights and benefits of the Agent and Banks thereunder, and the liens and
security interests created thereby remain in full force and
effect. Without limiting the foregoing, each Borrower agrees to
comply with all of the terms, conditions, and provisions of the Waiver Agreement
except to the extent such compliance is irreconcilably inconsistent with the
express provisions of this Amendment. This Amendment intended by the
Banks as a final expression of their agreement and is intended as a complete and
exclusive statement of the terms and conditions of this agreement.
9.Fees and
Expenses. The Company shall pay on demand all fees and
expenses (including attorneys’ fees) incurred by the Agent and its counsel,
special counsel to the Banks and counsel to each Bank in connection with this
Amendment and the other instruments and documents being executed and delivered
in connection herewith, and all fees and expenses of counsel to the Agent and
special counsel to the Banks with respect to the credit facilities subject to
the Credit Agreement.
10.Conditions
Precedent. The effectiveness of this Amendment is subject to
the satisfaction of the following conditions precedent:
(a)the
Borrowers, the Agent, and the Required Banks shall have executed and delivered
this Amendment, and the Guarantor shall have executed and delivered its
reaffirmation, acknowledgment, and consent in the space provided for that
purpose below, on or before November __, 2008;
(b)the Agent
shall have received a copy of a fully executed amendment to the CoBank Limited
Duration Waiver extending the waiver under the CoBank Limited Duration Waiver of
any default under the CoBank Credit Agreement that is analogous to the
Subject Default for a period ending no earlier that the Scheduled Waiver
Expiration Date as extended by this Amendment, which amendment shall not contain
or add to the CoBank Limited Duration Waiver any other terms or provisions that
are not contained in the Waiver Agreement as amended by this Amendment or that
are inconsistent with the terms of the Waiver Agreement as amended by this
Amendment or that are more favorable to the lenders under the CoBank Credit
Agreement than the terms of the Waiver Agreement as amended by this Amendment
are favorable to the Banks, and which otherwise shall be in form and substance
reasonably satisfactory to the Agent, and such amendment to the CoBank Limited
Duration Waiver shall be effective;
(c)the Agent
shall have received a copy of a fully executed amendment to the Fairway Limited Duration Waiver
extending the waiver thereunder of any default under the Receivables Purchase
Agreement that is analogous to the Subject Default for a period ending no
earlier that the Scheduled Waiver Expiration Date as extended by this Amendment,
agreeing to extend the existing amendments to the Amended and Restated
Receivables Purchase Agreement during the Waiver Period and agreeing to continue
to provide credit thereunder during the Waiver Period as extended by this
Amendment, which limited duration waiver shall not contain any other terms or
provisions that are not contained in the Waiver Agreement as amended by this
Amendment or that are inconsistent with the terms of the Waiver Agreement as
amended by this Amendment or that are more favorable to the lenders under the
Receivables Purchase Agreement than the terms of the Waiver Agreement
as amended by this Amendment are favorable to the Banks, and which otherwise
shall be in form and substance reasonably satisfactory to the Agent, and such
amendment to the Fairway Limited Duration Waiver shall be effective;
and
(d)the
payment of the current legal fees and expenses referred to in Section 8
above.
11.Miscellaneous. By
its acceptance hereof, each Borrower hereby represents that it has the necessary
power and authority to execute, deliver, and perform the undertakings contained
herein, and that this Amendment constitutes the valid and binding obligation of
each Borrower enforceable against it in accordance with its
terms. Any provision of this Amendment held invalid, illegal, or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity, illegality, or unenforceability without
affecting the validity, legality, and enforceability of the remaining provision
hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other
jurisdiction. The parties hereto hereby acknowledge and agree that
this Amendment shall constitute a Loan Document for all purposes of the Credit
Agreement and the other Loan Documents. Unless otherwise expressly
stated herein, the provisions of the Waiver as amended by this Amendment shall
survive the termination of the Waiver Period as extended by this
Amendment. This Amendment may be executed in counterparts and by
different parties on separate counterpart signature pages, each of which
constitutes an original and all of which taken together constitute one and the
same instrument. Delivery of executed counterparts of this Amendment
by telecopy shall be effective as an original. This Amendment shall
be governed by Illinois law and shall be governed and interpreted on the same
basis as the Waiver Agreement.
[Signature
Pages to Follow]
2538687
01 02.doc
1078278/RLC
DALDMS/652628.1
This
First Amendment to Limited Duration Waiver Agreement is entered into as of the
date and year first above written.
|
|
“Borrowers”
|
|
|
Pilgrim’s
Pride Corporation
|
|
|
By
/s/ Richard A.
Cogdill
|
|
|
Its
Chief Financial Officer
|
|
|
To-Ricos,
Ltd.
|
|
|
By
/s/ Richard A.
Cogdill
|
|
|
Its
Executive Vice President, Treasurer and Assistant
Secretary
|
|
|
To-Ricos
Distribution, Ltd.
|
|
|
By
/s/ Richard A.
Cogdill
|
|
|
Its
Executive Vice President, Treasurer and Assistant
Secretary
|
Accepted
and agreed to.
|
|
Bank
of Montreal, as Agent
|
|
|
By
/s/ David J.
Bechstein
|
|
|
Its
Vice President
|
|
|
BMO
Capital Markets Financing, Inc., individually and as Swing
Bank
|
|
|
By
/s/ David J.
Bechstein
|
|
|
Its
Vice President
|
|
|
SunTrust
Bank
|
|
|
By/s/ Janet R.
Naifeh
|
|
|
Its
Senior Vice President
|
|
|
U.S.
Bank National Association
|
|
|
By/s/ Dale L.
Welke
|
|
|
Its
Vice President
|
|
|
Wells
Fargo Bank National Association
|
|
|
By/s/ Roger
Fruendt
|
|
|
Its
Vice President
|
|
|
ING
Capital LLC
|
|
|
By
/s/ Lina A.
Garcia
|
|
|
Its
Vice President
|
|
|
Credit
Suisse, Cayman Islands Branch
|
|
|
By
|
|
|
Its
|
|
|
By
|
|
|
Its
|
|
|
Bank
of America N.A.
|
|
|
By
/s/ Patrick
Honey
|
|
|
Its
Senior Vice President
|
|
|
CALYON
New York Branch
|
|
|
By/s/
illegible
|
|
|
Its
Managing Director
|
|
|
By/s/
illegible
|
|
|
Its
Managing Director
|
|
|
Natixis
New York Branch
|
|
|
By
/s/ Vincent
Lauras
|
|
|
Its
Managing Director
|
|
|
By
/s/ Stephen A.
Jendra
|
|
|
Its
Managing Director
|
|
|
JP
Morgan Chase Bank, N.A.
|
|
|
By/s/ Stephanie
Parker
|
|
|
Its
Executive Director
|
|
|
Deutsche
Bank Trust Company Americas
|
|
|
By
|
|
|
Its
|
|
|
By
|
|
|
Its
|
|
|
First
National Bank of Omaha
|
|
|
By
/s/ Wade
Horton
|
|
|
Its
Vice President
|
Reaffirmation,
Acknowledgement, and Consent of Guarantor
The
undersigned, Pilgrim Interests, Ltd., a Texas limited partnership (the “Guarantor”), has executed
and delivered a Second Amended and Restated Guaranty Agreement dated as of
February 8, 2007 (the “Guaranty”) to the
Banks. As an additional inducement to and in consideration of the
Banks’ acceptance of the First Amendment to Limited Duration Waiver Agreement
dated as of October 26, 2008 (the “Amendment”), the Guarantor
hereby agrees with the Banks as follows:
1.The
Guarantor consents to the execution of the Amendment by the Borrowers and
acknowledges that this consent is not required under the terms of the Guaranty
and that the execution hereof by the Guarantor shall not be construed to require
the Banks to obtain the Guarantor’s consent to any future amendment,
modification or waiver of any term of the Credit Agreement except as otherwise
provided in said Guaranty. The Guarantor hereby agrees that the
Guaranty shall apply to all indebtedness, obligations and liabilities of the
Borrowers to the Banks, the Agent and the L/C Issuers under the Credit
Agreement. The Guarantor further agrees that the Guaranty shall be and remain in
full force and effect.
2.All
terms used herein shall have the same meaning as in the Amendment.
Dated as
of November 25, 2008.
DALDMS/652628.1
|
|
Pilgrim
Interests, Ltd.
|
|
|
By
/s/ Lonnie A.
Pilgrim
|
|
|
Lonnie
A. Pilgrim, as trustee of the Lonnie A. Pilgrim 1998 Revocable Trust
created by agreement dated September 9, 1998, as
amended
|
|
|
Its
General Partner
|
|
|
By
/s/ Lonnie Ken
Pilgrim
|
|
|
Lonnie
Ken Pilgrim
|
|
|
Its
General Partner
|
|
|
Who
Represent and Warrant that they have Authority to Bind the
Partnership
|
|
|
Pilgrim
Interests, Ltd.
|
|
|
By
/s/ Lonnie A.
Pilgrim
|
|
|
Lonnie
A. Pilgrim, as trustee of the Lonnie A. Pilgrim 1998 Revocable Trust
created by agreement dated September 9, 1998, as
amended
|
|
|
Its
General Partner
|
|
|
By
/s/ Lonnie Ken
Pilgrim
|
|
|
Lonnie
Ken Pilgrim
|
|
|
Its
General Partner
|
|
|
Who
Represent and Warrant that they have Authority to Bind the
Partnership
|
Signature
Page
Pilgrim’s
Pride Corporation
Reaffirmation,
Acknowledgement, and Consent of Guarantor attached to
First
Amendment to Limited Duration Waiver Agreement
DALDMS/652628.1
Exhibit
10.50
Pilgrim’s
Pride Corporation
First
Amendment to Limited Duration Waiver Agreement
This
First Amendment to Limited Duration Waiver Agreement (herein, the “Amendment”) is made
as of November 25, 2008, by and among PILGRIM’S PRIDE CORPORATION, a Delaware
corporation (the “Servicer”), PILGRIM’S PRIDE FUNDING
CORPORATION, a Delaware limited liability company (the “Seller” and, together with the
Servicer, the “Seller
Parties”), the PURCHASERS AND PURCHASER AGENTS ON THE SIGNATURE PAGES
HERETO (collectively, the “Purchasers”) and BMO
CAPITAL MARKETS CORP., as administrator (in such capacity, together with its
successors and assigns, the “Administrator” and,
collectively with the Purchasers, the “Waiving
Parties”).
Recitals:
A.The Seller, the Servicer, the Purchasers and the Administrator are parties to
that certain Limited Duration Waiver Agreement dated as of October 26, 2008 (the
“Waiver
Agreement”).
B.Pursuant to the Waiver Agreement, the Waiving Parties agreed, among other
things, to waive the Subject Default during the period ending November 26,
2008.
C.The Seller Parties have requested that the Waiving Parties amend the Waiver
Agreement to extend the Scheduled Waiver Expiration Date and to amend certain
other provisions thereof, and the Waiving Parties are willing to do so subject
to the terms and conditions set forth herein.
Accordingly, subject to the
satisfaction of the conditions precedent set forth below, the Seller Parties and
the Waiving Parties agree as follows:
Now,
Therefore, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1.Incorporation of Recitals; Defined
Terms. The Seller Parties acknowledge that the Recitals set
forth above are true and correct in all material respects. The
defined terms in the Recitals set forth above are hereby incorporated into this
Amendment by reference. All other capitalized terms used herein
without definition shall have the same meanings herein as such terms have in the
Waiver Agreement.
2.Amounts Owing. The
Seller Parties acknowledge and agree that there are amounts outstanding,
including Investment and Discount in respect of the Participation and other
amounts, that are payable by the Originator, the Seller or the Servicer, as
applicable, to the Purchasers and the Administrator (and any other Indemnified
Party and Affected Person under the Transaction Documents, as applicable), and
such amounts (together with interest and fees thereon) are justly and truly
owing by the Seller without defense, offset or
counterclaim.
3.Amendments to the Waiver
Agreement.
(a)Section 3 of the Waiver Agreement
shall be amended to read as follows:
3. Limited Duration
Waiver. Subject to the terms and conditions contained in this
Agreement, the Waiving Parties waive the Subject Default but only for the period
(the “Waiver Period”)
beginning October 28, 2008, and ending at 12:00 noon, Chicago time, on December
1, 2008 (the “Scheduled Waiver
Expiration Date”). The foregoing waiver shall become null and
void on the Scheduled Waiver Expiration Date and from and after the Scheduled
Waiver Expiration Date the Administrator and the Purchasers shall have all
rights and remedies available to them as a result of the occurrence of the
Subject Default as though this waiver had never been granted.
(b)The
definition of “Subject Default” in the Waiver Agreement shall be amended to
include the Indenture Payment Event (as defined below).
4.[Reserved].
5.Acknowledgement of
Liens. The Seller Parties hereby acknowledge and agree that
all indebtedness, obligations and liabilities of the Seller owing to the
Administrator and the Purchasers arising out of or in any manner relating to the
Transaction Documents shall continue to be secured by liens and security
interests on all of the Receivables, Contracts and Related Security and all
other collateral pursuant to the Transaction Documents heretofore or hereafter
executed and delivered by the Seller or the Servicer, and nothing herein
contained shall in any manner affect or impair the priority of the liens and
security interests created and provided for thereby as to the indebtedness,
obligations, and liabilities which would be secured thereby prior to giving
effect to this Amendment.
6.Representations and
Warranties. Each of the Seller Parties represents and warrants
to the Administrator and the Purchasers that:
(a)each
Seller Party has full right and authority to enter into this Amendment and to
perform all of its obligations under the Waiver Agreement as amended
hereby;
(b)this
Amendment and the performance or observance by the Seller Parties of any of the
matters and things herein provided for do not (i) contravene or constitute
a default under any provision of law or any judgment, injunction, order or
decree binding upon any Seller Party or any provision of the organizational
documents (e.g.,
certificate or articles of incorporation and by-laws) of any Seller Party, or
(ii) contravene or constitute a default under any covenant, indenture or
agreement of or affecting any Seller Party or any of its Property;
(c)the obligations of each Seller Party
under the Waiver Agreement as amended hereby are legal, valid, enforceable
(except as enforcement may be limited by equitable principles or by bankruptcy,
insolvency, reorganization, moratorium, or similar laws relating to or limiting
creditors’ rights generally) and subsisting and not subject to set-off, defense
(other than payment) or counterclaim;
(d)no
Unmatured Termination Event or Termination Event (other than the Subject
Default) has occurred and is continuing;
(e)[Reserved];
(f)the
Servicer has decided that during the Waiver Period as extended by this Amendment
it will not make the Indenture Interest Payments (the “Indenture Payment
Event”); and
(g)Each
Seller Party represents and warrants that (i) each of the Lock-Box Accounts and
lock-boxes set forth on Schedule I hereto is subject to a Lock-Box Agreement,
(ii) the Lock-Box Accounts and lock-boxes set forth on Schedule I hereto cover
all of the accounts and lock-boxes into which Obligors are instructed to deposit
Collections and any other amounts related to Receivables and (iii) all Obligors
have been instructed to make payments of all Receivables only to one or more of
the Lock-Box Accounts or lock-boxes set forth on Schedule I hereto.
9.Agreements. The
Seller Parties further acknowledge and agree that, notwithstanding anything to
the contrary in the Receivables Purchase Agreement or the Waiver Agreement as
amended by this Amendment, the Seller shall not request, and the Purchasers
shall not make, any purchases or reinvestments at any time on or after 12:01
a.m. on December 1, 2008, and any such request or any such purchase or
reinvestment shall constitute a breach by the Seller of the Waiver Agreement as
amended by this Amendment.
10.Release. For value
received, including without limitation, the agreements of the Administrator and
the Purchasers in this Amendment, each Seller Party hereby releases the
Administrator, each Purchaser, each Indemnified Party and their respective
current and former shareholders, directors, officers, agents, employees,
attorneys, consultants, and professional advisors (collectively, the “Released Parties”) of and
from any and all demands, actions, causes of action, suits, controversies, acts
and omissions, liabilities, and other claims of every kind or nature whatsoever,
both in law and in equity, known or unknown, which such Seller Party has or ever
had against the Released Parties from the beginning of the world to this date
arising in any way out of the existing financing arrangements between the Seller
Parties, the Administrator and the Purchasers, and each Seller Party further
acknowledges that, as of the date hereof, it does not have any counterclaim,
set-off, or defense against the Released Parties, each of which each Seller
Party hereby expressly waives.
11.Waiver Agreement Remain
Effective. Except as expressly set forth in this Amendment,
the Waiver Agreement and all of the obligations of the Seller Parties
thereunder, the rights and benefits of the Administrator and Purchasers
thereunder, and the liens and security interests created thereby remain in full
force and effect. Without limiting the foregoing, each Seller Party
agrees to comply with all of the terms, conditions, and provisions of the Waiver
Agreement except to the extent such compliance is irreconcilably inconsistent
with the express provisions of this Amendment. This Amendment is
intended by the Administrator and the Purchasers as a final expression of their
agreement and is intended as a complete and exclusive statement of the terms and
conditions of that agreement.
12.Fees and
Expenses. The Seller and the Servicer shall pay on demand all
fees and expenses (including attorneys’ fees) incurred by the Administrator and
its counsel in connection with this Amendment and the other instruments and
documents being executed and delivered in connection herewith, and all fees and
expenses of counsel to the Administrator with respect to the securitization
facility subject to the Receivables Purchase Agreement.
13.Conditions
Precedent. The effectiveness of this Amendment is subject to
the satisfaction of the following conditions precedent:
(a)the
Seller Parties, the Administrator, and the Purchasers shall have executed and
delivered this Amendment on or before November 26, 2008;
(b)the
Administrator shall have received a copy of a fully executed amendment to the
CoBank Limited Duration Waiver extending the waiver under the CoBank Limited
Duration Waiver of any default under the CoBank Credit Agreement that is
analogous to the Subject Default for a period ending no earlier that the
Scheduled Waiver Expiration Date as extended by this Amendment, which amendment
shall not contain or add to the CoBank Limited Duration Waiver any terms or
provisions that are not contained in the Waiver Agreement as amended by this
Amendment materially adverse to the Administrator and the Purchasers or that
are, in any material respect, more favorable to the lenders under the CoBank
Credit Agreement than the terms of the Waiver Agreement as amended by this
Amendment are favorable to the Administrator and the Purchasers, and which
otherwise shall be in form and substance reasonably satisfactory to the
Administrator, and such amendment to the CoBank Limited Duration Waiver shall be
effective;
(c)the
Administrator shall have received a copy of a fully executed amendment to the
Credit Agreement Limited Duration Waiver extending the waiver under the Credit
Agreement Limited Duration Waiver of any default under the Credit Agreement that
is analogous to the Subject Default for a period ending no earlier that the
Scheduled Waiver Expiration Date as extended by this Amendment, which amendment
shall not contain or add to the Credit Agreement Limited Duration Waiver any
terms or provisions that are not contained in the Waiver Agreement as amended by
this Amendment materially adverse to the Administrator and the Purchasers or
that are, in any material respect, more favorable to the lenders under the
Credit Agreement than the terms of the Waiver Agreement as amended by this
Amendment are favorable to the Administrator and the Purchasers, and which
otherwise shall be in form and substance reasonably satisfactory to the
Administrator, and such amendment to the Credit Agreement Limited Duration
Waiver shall be effective; and
(d)the
payment of the current legal fees and expenses referred to in Section 12
above.
14.Miscellaneous. By
its acceptance hereof, each Seller Party hereby represents that it has the
necessary power and authority to execute, deliver, and perform the undertakings
contained herein, and that this Amendment constitutes the valid and binding
obligation of such Seller Party enforceable against it in accordance with its
terms. Any provision of this Amendment held invalid, illegal, or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity, illegality, or unenforceability without
affecting the validity, legality, and enforceability of the remaining provisions
hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other
jurisdiction. The parties hereto hereby acknowledge and agree that
this Amendment shall constitute a Transaction Document for all purposes of the
Receivables Purchase Agreement and the other Transaction
Documents. Unless otherwise expressly stated herein, the provisions
of the Waiver Agreement as amended by this Amendment shall survive the
termination of the Waiver Period as extended by this Amendment. This
Amendment may be executed in counterparts and by different parties on separate
counterpart signature pages, each of which constitutes an original and all of
which taken together constitute one and the same instrument. Delivery
of executed counterparts of this Amendment by telecopy shall be effective as an
original. This Amendment shall be governed by Texas law and shall be
governed and interpreted on the same basis as the Waiver Agreement.
[Signature
Pages to Follow]
This
First Amendment to Limited Duration Waiver Agreement is entered into as of the
date and year first above written.
|
|
Pilgrim’s
Pride Corporation, as Servicer
|
By:/s/ Richard A.
Cogdill
Name:
Richard A. Cogdill
Title:
Chief Financial Officer, Secretary and Treasurer
|
|
Pilgrim’s
Pride Funding Corporation, as
Seller
|
By:/s/ Richard A.
Cogdill
Name:
Richard A. Cogdill
Title:
Chief Financial Officer, Secretary and Treasurer
Accepted
and agreed to:
|
|
BMO
Capital Markets Corp., as
Administrator
|
By: /s/ Brian
Zaban
Name:
Brian Zaban
Title: Managing
Director
|
|
BMO
Capital Markets Corp., as Purchaser
Agent
|
By: /s/ Brian
Zaban
Name:
Brian Zaban
Title: Managing
Director
|
|
Fairway
Finance Company, LLC, as Uncommitted Purchaser and as Related Committed
Purchaser
|
By: /s/ Lori
Gebron
Name:
Lori Gebron
Title: Vice
President
Exhibit
10.51
WAIVER
AGREEMENT
AND
SECOND AMENDMENT TO
CREDIT
AGREEMENT
THIS WAIVER AGREEMENT AND SECOND
AMENDMENT TO CREDIT AGREEMENT (the “Agreement”) is made
and entered into as of this 30th day of November, 2008 (the “Effective Date”), by
and among AVÍCOLA PILGRIM’S PRIDE DE MÉXICO, S. de R.L. de C.V., a sociedad de responsabilidad limitada
de capital variable organized under the laws of the United Mexican States
(the “Borrower”), PILGRIM’S
PRIDE CORPORATION, a Delaware corporation (the “Parent”), THE
SUBSIDIARIES OF THE BORROWER PARTY HERETO, as Guarantors, the several banks and
other financial institutions parties hereto which constitute Majority Lenders,
and ING CAPITAL LLC, as lead arranger and as administrative agent for the
Lenders.
RECITALS
A. Borrower,
Guarantors, Lenders and the Administrative Agent are parties to that certain
Credit Agreement dated as of September 25, 2006 (as amended, modified or
supplemented from time to time, the “Credit Agreement”),
pursuant to which Lenders agreed to make loans to Borrower from time to time
subject to the terms and conditions set forth therein. Capitalized
terms not otherwise defined herein shall have the meanings given such terms in
the Credit Agreement.
B. Borrower
has advised the Administrative Agent and the Lenders that (i) Parent has
determined to file a case (the “Bankruptcy Filing”)
under Title 11 of the United States Code with a U.S. Bankruptcy Court (the
“Bankruptcy
Court”), and if such Bankruptcy Filing occurs, an Event of Default will
occur under Section 7.1(g) of the Credit Agreement (the “Bankruptcy Event”),
and (ii) Parent has defaulted as of the date hereof, or will default during the
Bankruptcy Filing, in the payment of principal or interest, beyond the
applicable period of grace, with respect to Indebtedness of the Parent in an
aggregate principal amount greater than US$20,000,000, and if such payment
default occurs, an Event of Default will occur under Section 7.1(f) of Credit
Agreement (the “Payment Event”; the
Payment Event, and the Bankruptcy Event shall be collectively referred to
hereinafter as the “Credit
Events”).
C. As a
result of the occurrence of the Credit Events, Lenders would have no obligation
to make additional Revolving Loans under the Credit Agreement, and
Administrative Agent would have the full legal right to exercise its rights and
remedies under the Credit Agreement and the Loan Documents. Such
rights and remedies include, but are not limited to, the right to accelerate the
Obligations and the right to exercise its remedies under the Collateral
Documents.
D. Borrower
has requested the Administrative Agent and Majority Lenders, for the Waiver
Period (defined below), to continue to make Loans (if available) and waive any
Events of Default arising from the Credits Events.
E. Administrative
Agent and Majority Lenders are willing, for the Waiver Period (defined below),
to continue to make certain Loans (if available) to Borrower and to waive any
Events of Default arising from the Credit Events, subject to the terms and
conditions of this Agreement.
AGREEMENT
In
consideration of the Recitals and of the mutual promises and covenants contained
herein, Administrative Agent, Majority Lenders and Borrower agree as
follows:
1. Waiver. During
the period commencing on the date of a Bankruptcy Filing and ending on the
earlier of the Waiver Termination Date (defined below) and the date that any
Waiver Default (defined below) occurs (the “Waiver Period”), and
subject to the other terms and conditions of this Agreement, Administrative
Agent and Majority Lenders agree that they hereby waive any Default or Event of
Default arising under the Credit Agreement and the Loan Documents by reason of
the Credit Events and agree that they will waive their rights and remedies that
arise upon the occurrence of a Default or an Event of Default under the Credit
Agreement and the Loan Documents by reason of the Credit Events (the “Waiver”), including,
without limitation, waiving the right to (a) initiate judicial proceedings for
the collection of the Obligations, (b) initiate any judicial enforcement action
for the repossession and sale of the collateral as set forth in the Loan
Documents or (c) apply default interest to the Obligations in accordance with
Section 2.5(e) of the Credit Agreement. Upon the expiration or
termination of the Waiver Period, the Waiver shall automatically terminate and
Administrative Agent and the Lenders shall be entitled to exercise any and all
of their rights and remedies under this Agreement, the Credit Agreement and/or
the Loan Documents without further notice, subject to the terms of the Loan
Documents. Borrower agrees that neither Administrative Agent nor any
Lender shall have any obligation to extend the Waiver Period. “Waiver Termination
Date” shall mean the date that Parent exits any Insolvency
Proceeding.
2. Amendments to Credit
Agreement. To induce Administrative Agent and the Lenders to
enter into this Agreement, and as separately bargained-for consideration, each
of Borrower and the Guarantors agree to the following amendments to the Credit
Agreement:
(a) Amendment to
Definitions.
(i) The
definitions of “Applicable Margin”, “Change of Control”, “Eligible Assignee”,
“Loan Documents,” “Material Adverse Effect,” “Pledge Agreement” and
“Pledgors” contained in Section 1.1 of the Credit Agreement are hereby
amended and restated to read in their entirety as follows:
“Applicable Margin”
shall mean:
(i) prior
to the Parent Exit, the percentage set forth below for the applicable type of
Loan:
|
Applicable
Margin for
LIBOR Loans
|
Applicable
Margin for
Base Rate Loans
|
Applicable
Margin for
Peso Revolving Loans
|
|
6.0%
|
4.0%
|
5.8%
|
(ii) from
and after the Parent Exit, the Applicable Margin for each of the LIBOR Loans and
the Base Rate Loans shall be 0.375% higher than the highest applicable interest
rate margin (in a pricing grid or otherwise) under the Replacement Loan Facility
and the Applicable Margin for Peso Revolving Loans shall be 0.20% less than the
Applicable Margin for LIBOR Loans hereunder.
“Change of Control”
shall mean such time as:
(a) any
merger or consolidation of Borrower with or into any other Person or the merger
of another Person into the Borrower with the effect that immediately after such
transaction the Person or Persons who held Voting Stock in Borrower immediately
prior to such transaction shall hold less than 100% of the total voting power of
the Voting Stock generally entitled to vote in the election of directors,
managers or trustees of the Person surviving such merger or consolidation;
or
(b) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) is consummated with respect to all or substantially all of
the assets of the Borrower to any Person or group of Persons (other than in
compliance with the provisions hereof); or
(c) Parent
or its Subsidiaries shall cease to own, directly or indirectly, all of the
Voting Stock of Borrower; or
(d) any
liquidation or dissolution of Borrower; or
(e) after
the Parent Exit, any “Change of Control” (as such term, or similar term, is
defined in the Replacement Loan Facility) shall occur;
provided
that, notwithstanding anything to the contrary contained herein, no Change of
Control shall be deemed to have occurred as a result of any action permitted by
Sections 6.10 (other than Section 6.10(d) and 6.10(e)) and 6.11, so long as, the
Parent and/or a Subsidiary of the Parent shall own all of the Voting Stock of
the Borrower.
“Eligible Assignee”
shall mean, with respect to any assignments by the Lenders, (a) a Mexican
Financial Institution, or (b) unless such registration with Hacienda no longer
enables them to have a reduced withholding tax: (i) a financial
institution registered with Hacienda for purposes of Section I of Article 195 or
Section II of Article 196 of the Mexican Income Tax Law (or any successor or
replacement thereof), or (ii) a Person so registered with Hacienda that is
primarily engaged in the business of commercial banking and that
is: (A) a Subsidiary of a Lender, (B) a Subsidiary of a
Person of which a Lender is a Subsidiary or (C) a Person of which a Lender
is a Subsidiary. In any event, an Eligible Assignee shall be
headquartered in Mexico or a country that has a treaty with Mexico that limits
withholding in Mexico for financial institutions registered with Hacienda to a
rate no greater than 4.9%.
“Loan Documents” shall
mean the collective reference to this Agreement, the Notes, the Collateral
Documents, any Lender Hedging Agreements, and any other agreements, documents
and instruments executed and delivered in connection with the transactions
contemplated hereby and thereby.
“Material Adverse
Effect” shall mean any of (a) a material
adverse change in, or a material adverse effect upon the condition (financial or
otherwise), business, properties, or results of operations of (i) the
Borrower and its Subsidiaries who are Loan Parties, taken as a whole, or
(ii) Parent and its Subsidiaries, taken as a whole, (b) a material
adverse change in the ability of (i) the Borrower and the Loan Parties, taken as
a whole or (ii) the Loan Parties, taken as a whole, to fulfill any of their
obligations under this Agreement or any of the other Loan Documents or (c) a material
adverse effect upon the legality, validity, binding effect or enforceability of
any Loan Document (other than the Parent Guaranty) or the rights or remedies of
the Administrative Agent or the Lenders thereunder; provided, however, that the
existence of the Credit Events shall not be taken into account in determining
whether there has been or will be, a Material Adverse Effect under clauses (a)
or (b) of this definition.”
“Pledge Agreement”
shall mean, collectively, those certain Pledge Agreements by each of Parent,
Borrower and Pledgors in favor of Administrative Agent, as the same may be
amended, restated or otherwise modified from time to time, over the equity
interests representing the equity capital of all Guarantors (other than
Parent).
“Pledgors” shall mean
each of (i) POPPSA 4, LLC, (ii) POPPSA 3, LLC, (iii) Pilgrim’s Pride, S. de R.L.
de C.V., (iv) Incubadora Hidalgo, S. de R.L. de C.V., (iv) Grupo Pilgrim´s Pride
Funding Holdings, S de R.L. de C.V., (vi) Carnes y Productos Avícolas de México,
S de R.L. de C.V., (vii) Borrower and (viii) any Successor Person to a Pledgor
that becomes bound by a Pledge Agreement pursuant to Section 5.12.
(ii) The
definition of “Permitted Liens”
shall be amended by the addition of a new subsection (p) as
follows:
“(p) any
liens securing the Obligations.”
(iii) The
following definitions are added to Section 1.1 of the Credit Agreement in
their proper alphabetical order to read as follows:
“Bankruptcy Filing”
shall have the meaning set forth in the Second Amendment.
“Credit Events” shall
have the meaning set forth in the Second Amendment.
“Collateral Document”
shall mean, collectively, the Pledge Agreement, Security Agreement, Mortgage,
and any other agreements, documents and instruments which secure the
Obligations.
“DIP Loan Agreement”
shall mean that certain Post-Petition Credit Agreement, dated on or about
December 1, 2008, by and among Parent, various Subsidiaries of Parent, Bank of
Montreal as Agent and various lenders, as such agreement may be amended,
modified, supplemented or restated from time to time.
“Gallina” shall mean
Gallina Pesada S.A. de C.V.
“Mortgage” shall mean,
collectively, the Mortgage Agreements executed by Borrower or any Guarantor in
favor of Administrative Agent, as the same may be amended, restated or otherwise
modified from time to time.
“Parent Exit” shall
mean when Parent is no longer in an Insolvency Proceeding as a result of the
Bankruptcy Filing (including, without limitation, as a result of any dismissal
of or emergence from such proceeding).
“Prepayment Event”
shall mean (a) any Asset Sale described in Sections 6.10(c), 6.10(d)(iii) or
6.10(g), (b) any casualty or other insured damage to, or any taking under power
of eminent domain or by condemnation or similar proceedings of, any property or
asset of the Borrower or any Subsidiary, (c) the incurrence by the Borrower or
any of its Subsidiaries of any Indebtedness not permitted under Section 6.8, or
(d) receipt of cash equity by Borrower or any of its Subsidiaries from any
Peron other than Borrower and its Subsidiaries who are Loan
Parties.
“Replacement Loan
Facility” shall mean any credit agreement pursuant to which any
Indebtedness of the Parent is issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund the
Indebtedness owing under the DIP Loan Agreement.
“Reporting Date” means, with respect to any,
month the date occurring the number of days after the last day of such month set
forth below opposite such month:
|
Month
|
Number
of days after the last day of the month
|
|
October
|
60
|
|
November
|
30
|
|
December
|
45
|
|
January
|
45
|
|
February
|
30
|
|
March
|
45
|
|
April
|
45
|
|
May
|
30
|
|
June
|
45
|
|
July
|
45
|
|
August
|
30
|
|
September
|
90
|
“Second Amendment”
shall mean that certain Wavier Agreement and Second Amendment to Credit
Agreement dated November 30, 2008 by and among Borrower, Parent, Administrative
Agent and Majority Lenders.
“Security Agreement”
shall mean, collectively, (i) those certain Pledge Agreements Without the
Transfer of Possession executed and delivered by Borrower or any Guarantor
(organized under the laws of Mexico) in favor of Administrative Agent, as the
same may be amended, restated or otherwise modified from time to time and (ii)
the Security Agreement executed and delivered by POPPSA 3, LLC, POPPSA 4, LLC,
and Pilgrim’s Pride, LLC, in favor of Administrative Agent, as the same may be
amended, restated or otherwise modified from time to time.
“Waiver Period” shall
have the meaning set forth in the Second Amendment.
(b) Amendment to
Section 2.3. Section 2.3 of the Credit Agreement is
hereby amended in its entirety to read as follows:
“Section
2.3 Repayment. The
principal of the Revolving Loans of each Lender shall be payable in full on the
Final Maturity Date.”
(c) Amendment to
Section 2.4(b). Section 2.4(b) of the Credit
Agreement is hereby amended in its entirety to read as follows:
“(b) Mandatory
Prepayments.
(i) If
on any date the Borrower or any of the Subsidiary Loan Parties shall receive Net
Cash Proceeds from any Prepayment Event described in clause (a) of the
definition thereof, the Borrower shall make a prepayment of the Revolving Loans
in an aggregate amount equal to 100% of such Net Cash Proceeds received by the
Borrower and the Subsidiary Loan Parties in excess of US$2,500,000 (“$2,500,000
Threshold”) during any fiscal year in accordance with this Section 2.4(b)
within five (5) Business Days of receipt of such Net Cash Proceeds and the
Revolving Loan Commitment shall be permanently reduced by an amount equal to
such Net Cash Proceeds in excess of US$2,500,000; provided that, after the
$2,500,000 Threshold has been reached, there shall be no prepayment or Revolving
Loan Commitment reduction requirement for any Prepayment Event described in this
Section 2.4(b)(i) if the Net Cash Proceeds resulting therefrom are less than
$200,000; provided further that, the Borrower shall not be required to prepay
the Revolving Loans as a result of an Asset Sale permitted under Section
6.10(c), if, with respect to any Net Cash Proceeds received by the Borrower and
the Subsidiary Loan Parties from such Asset Sale, (x) the Borrower or one of the
Subsidiary Loan Parties uses such Net Cash Proceeds to replace the affected
property or asset, (y) the Borrower or a Subsidiary Loan Party enters into a
contract for such replacement within 120 days of the Prepayment Event, and (z)
such repair or replacement is effected within 360 days of the Prepayment
Event.
(ii) If
on any date the Borrower or any of the Subsidiary Loan Parties shall receive Net
Cash Proceeds from any Prepayment Event described in clause (b) of the
definition thereof, the Borrower shall make a prepayment of the Revolving Loans
in an aggregate amount equal to 100% of such Net Cash Proceeds received by
Borrower in excess of US$500,000 during any fiscal year which shall be applied
to prepay the Revolving Loans in accordance with this Section 2.4(b)
within five (5) Business Days; provided that the
Borrower shall not be required to prepay the Revolving Loans as a result of such
Prepayment Event, if, with respect to any Net Cash Proceeds received by the
Borrower and the Subsidiary Loan Parties from such Prepayment Events, (x) the
Borrower or one of the Subsidiary Loan Parties uses such Net Cash Proceeds to
repair or replace the affected property or asset, (y) the Borrower or a
Subsidiary Loan Party enters into a contract for such repair or replacement
within 120 days of the Prepayment Event, and (z) such repair or replacement is
effected within 360 days of the Prepayment Event, and if such repair or
replacement is not so contracted for or effected at the end of such 120 or 360
day period, as applicable, such Net Cash Proceeds shall be applied within five
(5) Business Days of the end of such period to prepay the Revolving Loans in
accordance with this Section 2.4(b) and
the Revolving Loan Commitment shall be permanently reduced by an amount equal to
such Net Cash Proceeds in excess of US$500,000.
(iii) If
on any date the Borrower shall receive Net Cash Proceeds from any Prepayment
Event described in clause (c) or (d) of the definition thereof, the Borrower
shall make a prepayment of the Revolving Loans in an aggregate amount equal to
100% of such Net Cash Proceeds received by Borrower which shall be applied to
prepay the Revolving Loans in accordance with this Section 2.4(b)
within five (5) Business Days and permanently reduce the Revolving Loan
Commitment.
(iv) Amounts
to be applied in connection with prepayments made pursuant to clauses (i)-(iii)
of this Section 2.4(b) shall be applied to prepay the Revolving Loans, on a pro
rata basis.
(v) Pending
the final application of any such Net Cash Proceeds in accordance with this
Section 2.4, the
Borrower and its Subsidiaries may temporarily invest such Net Cash Proceeds in
any manner that is not prohibited by this Agreement.”
(d) Amendment to Sections
2.12(e) and (g). Sections 2.12(e) and (g) of the Credit
Agreement are hereby amended in their entirety to read as follows:
“(e) If
the Borrower is required to pay any amount to any Person pursuant to either
paragraph (b) or (c) in an amount greater than would otherwise be
applicable if such Person is registered with the Hacienda, then such Person
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to change the jurisdiction of its Lending Office or other relevant office so as
to eliminate any such additional payment by the Borrower that may thereafter
accrue, if such change (in the sole judgment of such Person) is not otherwise
disadvantageous to such Person and shall cooperate with the Borrower to recover
any contested amount.
(g) The
Lender shall promptly reimburse to the Borrower an amount in Dollars equal to
the amount, if any, of any Taxes, Other Taxes or Further Taxes deducted or
withheld by the Borrower hereunder and actually used by the Lender to offset its
tax liabilities in the United States of America or any other
jurisdiction. On July 1 of each calendar year, each Lender will
give notice to the Borrower regarding the amount, if any, of the tax credit
obtained by the Lender for the prior calendar year pursuant to the above, and
the Lender will advance the corresponding Dollar amount to the Borrower, if any,
within ten Business Days following the date of such notice. The
Borrower’s indemnification and reimbursement rights and the Lender’s
reimbursement obligations under this Section 2.12 shall survive the termination
of this Agreement until six months after all of the Lenders’ tax returns for the
years during which the Agreement was in existence are originally filed with the
U.S. Internal Revenue Service or the applicable Governmental Authority in any
other jurisdiction.”
(e) Amendment to Section
4.20. During the Waiver Period, Section 4.20 of the Credit
Agreement is hereby amended by deleting each reference to the words “Loan Party”
and substituting in lieu therefor the words “Loan Party (other than the
Parent)”.
(f) Amendment to Section
4.23. Section 4.23 of the Credit Agreement is hereby amended
by deleting the phrase “subject to Section
2.4(b)(viii),”
therefrom.
(g) Amendment to Section
5.2(b). Section 5.2(b) of the Credit Agreement is hereby
amended in its entirety to read as follows:
“(b) as
soon as available but in no event later than the applicable Reporting Date for
each calendar month, a copy of the consolidated balance sheet of Borrower and
its Subsidiaries and of Parent and its Subsidiaries and the consolidated
statements of income and cash flows of the Borrower and its Subsidiaries and of
Parent and its Subsidiaries for the month and for the fiscal year-to-date period
then ended, each in reasonable detail showing in comparative form the figures
for the corresponding date and period in the previous fiscal year, prepared by
the Borrower (but not necessarily in accordance with GAAP) and certified by
their Responsible Officers;”
(h) Amendment
to Section 6.2(b). Section 6.2(b) of the Credit Agreement is hereby
amended in its entirety to read as follows:
“(b) so
long as no Default or Event of Default shall have occurred and be continuing or
would result therefrom, the Borrower may make non-cash dividends to the holders
of its Equity Interests solely in Equity Interests of the Borrower or options,
warrants and other rights to purchase Equity Interests of
Borrower;”
(i) Amendment to Section
6.10. Section 6.10 of the Credit Agreement is hereby
amended in its entirety to read as follows:
“Section
6.10 Limitation on Asset
Sales. Consummate any Asset Sale, except:
(a) sales
or other dispositions of inventory, receivables and other current assets, in the
ordinary course of business;
(b) sales
or other dispositions of Temporary Cash Investments if the Net Cash Proceeds
thereof are delivered to Borrower or its Subsidiaries;
(c) sales,
transfers, assignments or other disposition of any property or equipment that
has become damaged, worn out, obsolete or otherwise unsuitable for use in
connection with the business of the Borrower or its Subsidiaries if the Net Cash
Proceeds thereof are delivered to Borrower or its Subsidiaries;
(d) sales,
transfers or other dispositions: (i) from any Loan Party to a Loan Party that is
party to a Security Agreement; (ii) from any Loan Party to a Loan Party in the
ordinary course of business in accordance with past practice; and (iii) to any
Person in an amount not to exceed $10,000,000 in the aggregate, in any fiscal
year for all such sales, transfers or other dispositions (excluding sales,
transfers or other dispositions permitted under (i) or (ii) above);
(e) an
issuance of Equity Interests by the Borrower or any of the Borrower’s
Subsidiaries to one or more of the Loan Parties;
(f) the
sale, lease or other disposition of any assets or rights to the extent
constituting a Restricted Payment permitted by Section 6.2 or
an Investment that is permitted by Section 6.3
hereof; and
(g) sales,
transfers and other dispositions of assets (other than Equity Interests in a
Subsidiary) that are not permitted by any other clause of this Section; provided that (i) the
consideration received by the Borrower or such Subsidiary is at least equal to
the fair market value of the assets sold or disposed of, (ii) at least 80%
of the consideration received consists of cash or Temporary Cash Investments,
and (iii) the Net
Cash Proceeds of such Asset Sale are applied to the extent required by Section 2.4(b).
After
giving effect to any merger, sales, transfers, or other dispositions permitted
by Section 6.10(d)(i) or (ii) or 6.11(a) or (b), Comercializadora de Carnes
de México, S. de R.L. de C.V., Pilgrim’s Pride, S. de R.L. de C.V., Inmobliaria
Avicola Pilgrim’s Pride, S. de R.L. de C.V., and Incubadora Hidalgo, S. de R.L.
de C.V. must continue to have a book value of “customer” accounts receivable,
inventory and equipment (including autos and trucks) of at least
P$1,467,244,992.05 as determined in
accordance with Mexican GAAP (on an aggregate basis)
(all without giving effect to any depreciation) (the “Initial Minimum Collateral
Amount”); provided that the Initial Minimum Collateral Amount shall be
reduced from time to time as a result of reductions in the amount of the
Revolving Loan Commitment (as so reduced, the “Adjusted Minimum Collateral
Amount”). The Adjusted Minimum Collateral Amount in effect
from time to time shall be an amount equal to (i) the Initial Minimum Collateral
Amount less
(ii) an amount equal to 90% of the difference between
(A) Initial Minimum Collateral Amount and (B) the product of
(x) the Initial Minimum Collateral Amount times (y) the Peso
amount of the then-current reduced Revolving Loan Commitment divided by
P$557,415,000.”
(j) Indenture. Section 6.15
of the Credit Agreement is hereby deleted.
(k) Defaults. Section 7.1(j)
of the Credit Agreement is amended and restated as follows:
“(j) a
Change of Control or Material Adverse Effect shall occur; or”
(l) Amendment to Guarantor
List. Schedule 1.1(b) of the Credit Agreement shall be and
hereby is amended and restated and replaced in its entirety with Schedule 1.1(b)
attached hereto.
3. Covenants of
Borrower. Borrower and Guarantors covenant and agree until
such time as all of the Obligations have been paid in full in cash and all
Commitments have been terminated:
(a) No Commencement of
Proceeding. Borrower and Guarantors (other than Parent) will not (i) file
any petition for an order for relief under the Bankruptcy Code, (ii) make
an assignment for the benefit of creditors, (iii) make any offer or agreement of
settlement, extension or compromise to or with Borrower’s and Guarantors’ (other
than Parent’s) unsecured creditors generally or (iv) suffer the appointment of a
receiver, trustee, custodian or similar fiduciary.
(b) Compliance with Credit
Agreement, Collateral Documents and Loan Documents. Each of
Borrower and Guarantors will continue to comply with all covenants and other
obligations under this Agreement, the Credit Agreement and the Loan Documents,
subject to the applicable cure or grace periods, if any, provided
therein.
(c) Fees. In
consideration of the Administrative Agent and the Lenders agreement hereunder,
Borrower shall pay to Administrative Agent, for the benefit of the Lenders, on a
pro rata basis based upon their Revolving Loan Commitments, a waiver fee in the
amount of 1% of the Revolving Loan Commitment, which shall be deemed fully
earned and non-refundable on the date hereof.
(d) Grant of Additional
Collateral. In consideration of Administrative Agent and
Lenders agreements hereunder, on the date hereof, and at all times thereafter,
(i) Borrower and each of its Subsidiaries agree to grant to Administrative
Agent, for the benefit of Lenders, a Lien on all assets and other personal
property (including, without limitation, accounts receivable, inventory and
equipment) owned by Borrower and each Subsidiary of Borrower (other than
Gallina) pursuant to a Security Agreement, (ii) each Subsidiary of Borrower
whose Equity Interests are not pledged to Administrative Agent pursuant to a
Pledge Agreement shall cause the owner of its Equity Interests to pledge such
Equity Interests (as to Pilgrim’s Pride, LLC, it shall not be required to pledge
its interest in Borrower) to Administrative Agent, for the benefit of Lenders,
in each case, pursuant to documentation, in form and substance satisfactory to
Administrative Agent and the Lenders (collectively, together with the Real
Property Collateral (as defined below) the “Additional
Collateral”, together with the collateral currently existing under the
Pledge Agreements, the “Collateral”) and
(iii) Pilgrim’s Pride, LLC, POPPSA 3, LLC and POPPSA 4, LLC agree to execute a
Guarantor Accession Agreement. Within ten (10) Business Days after
the date hereof, Borrower and each of its Subsidiaries agree to grant to
Administrative Agent, for the benefit of Lenders, a Lien on certain real
property owned by Borrower or its Subsidiaries identified by Administrative
Agent to Borrower on or before December 1, 2008, and, at any time after the date
hereof, subject to the Filing Fee Cap, within a reasonable period of
time after written request from Administrative Agent, Borrower and its
Subsidiaries agree to grant to Administrative Agent, for the benefit of Lenders,
a Lien on any other real property owned by Borrower or its Subsidiaries
(collectively, the “Real Property
Collateral”). Notwithstanding anything in this Section 3(d) to
the contrary, Borrower shall not be required to pay any Perfection Expenses in
connection therewith on or after such time as the aggregate amount of the
Perfection Expenses exceed an amount equal to US$1,000,000 (“Filing Fee
Cap”). For the purposes of this Section 3(d), “Perfection Expenses”
shall mean any filing costs, recording costs, notary costs or taxes incurred in
recording or perfecting a Lien on any Additional Collateral in favor of
Administrative Agent; provided, however, that Perfection Expenses shall not
include attorneys fees. Notwithstanding anything to the contrary
herein or in the Loan Documents, any Perfection Expenses in excess of the Filing
Fee Cap shall be borne by Administrative Agent.
(e) Cash Flow
Forecast. During the Waiver Period, Borrower hereby agrees to
deliver to Administrative Agent on Friday of each week, a rolling 13 week cash
flow forecast (the “Cash Flow Forecast”)
for Borrower and its Subsidiaries, which Cash Flow Forecast shall be in form and
substance satisfactory to Administrative Agent.
(f) Trade Credit with
Parent. During the Wavier
Period, Borrower and Parent hereby covenant to maintain trade credit between
Parent and Borrower consistent with past practices and in the ordinary course of
business to the extent the same is permitted under the DIP Loan
Agreement.
4. Conditions Precedent to
Effectiveness of Agreement. This Agreement shall not be
effective unless and until each of the following conditions shall have
occurred:
(a) Administrative
Agent shall have received evidence reasonably satisfactory to Administrative
Agent that all corporate proceedings of the Borrower necessary to authorize the
transactions contemplated by this Agreement have been taken and all documents,
instruments and other legal matters incident thereto shall be satisfactory to
Administrative Agent;
(b) Borrower
shall have paid the Administrative Agent all of Administrative Agent’s costs and
expenses (including Administrative Agent’s reasonable attorney’s fees) incurred
prior to or in connection with the preparation of this Agreement or related to
Borrower or Parent;
(c) Administrative
Agent shall have received a copy of all written agreements between Parent and
Borrower (or its Subsidiaries) relating to any intercompany financing and/or
purchasing of goods and services by Parent for Borrower or its
Subsidiaries;
(d) Borrower
and its Subsidiaries shall have each executed a Security Agreement in favor of
Administrative Agent;
(e) Borrower
and its Subsidiaries shall have executed a Pledge Agreement pledging the equity
in their Subsidiaries in favor of Administrative Agent; and
(f) Pilgrim’s
Pride, LLC, POPPSA 3, LLC and POPPSA, 4, LLC shall have executed a Guarantor
Accession Agreement.
5. Representations and
Warranties. Borrower hereby represents and warrants to
Administrative Agent, for the benefit of the Lenders, as follows:
(a) Recitals. The
Recitals in this Agreement are true and correct with respect to the Loan Parties
in all material respects.
(b) Incorporation of
Representations. All representations and warranties of
Borrower and the Guarantors in the Credit Agreement are incorporated herein in
full by this reference and are true and correct, in all material respects, as of
the date hereof, except to the extent that such representations and warranties
specifically refer to an earlier date, in which case they shall be true and
correct as of such earlier date.
(c) Power;
Authorization. Each of the Borrower and Guarantors has the
corporate power, and has been duly authorized by all requisite corporate action,
to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement has been duly executed and delivered by
Borrower and Guarantors.
(d) Enforceability. This
Agreement is the legal, valid and binding obligation of Borrower and each
Guarantor, enforceable against Borrower and each Guarantor in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other similar
laws relating to or affecting the enforcement of creditors’ rights generally and
general principles of equity.
(e) No
Violation. Borrower’s and each Guarantors’ execution, delivery
and performance of this Agreement does not and will not (i) violate any law,
rule, regulation or court order to which Borrower or such Guarantor is subject;
(ii) conflict with or result in a breach of Borrower’s or such Guarantors’
organizational documents or any agreement or instrument to which Borrower or any
Guarantor is party or by which it or its properties are bound, or (iii) result
in the creation or imposition of any lien, security interest or encumbrance on
any property of Borrower or such Guarantor, whether now owned or hereafter
acquired, other than liens in favor of Administrative Agent, for the benefit of
the Lenders, or as permitted by the Credit Agreement.
(f) Obligations
Absolute. The obligation of Borrower to repay the Loans and
the other Obligations, together with all interest accrued thereon, is absolute
and unconditional, and there exists no right of set off or recoupment,
counterclaim or defense of any nature whatsoever to payment of the
Obligations.
(g) Full Opportunity for Review;
No Undue Influence. This Agreement was reviewed by each of
Borrower and Guarantors which acknowledges and agrees that each of Borrower and
Guarantors (i) understands fully the terms of this Agreement and the
consequences of the issuance hereof; (ii) has been afforded an opportunity to
have this Agreement reviewed by, and to discuss this Agreement with, such
attorneys and other persons as Borrower may wish; and (iii) has entered into
this Agreement of its own free will and accord and without threat or
duress. This Agreement and all information furnished to
Administrative Agent and the Lenders is made and furnished in good faith, for
value and valuable consideration. This Agreement has not been made or
induced by any fraud, duress or undue influence exercised by Lenders or
Administrative Agent or any other person.
(h) No Other
Defaults. As of the date hereof, no Event of Default (other
than the Credit Events) exists under the Credit Agreement, or any of the Loan
Documents and each of Borrower and the Guarantors is in full compliance with all
covenants and agreements contained therein, as amended hereby.
6. Default. Each
of the following shall constitute a “Waiver Default”
hereunder:
(a) Borrower
shall suffer the appointment of a receiver, trustee, custodian or similar
fiduciary, or shall make an assignment for the benefit of creditors, or any
petition for an order for relief shall be filed by or against Borrower or any
Guarantor (other than the Parent) under any Bankruptcy Law, or Borrower or any
Guarantor (other than the Parent) shall make any offer or agreement of
settlement, extension or compromise to or with such person’s unsecured creditors
generally; or
(b) any
representation or warranty of Borrower or any Guarantor contained in this
Agreement proves to have been false or misleading in any material respect when
made or furnished (or reaffirmed in connection with any Loan); or
(c) Borrower
or any Guarantor shall fail to keep or perform any of the covenants or
agreements contained herein (including, without limitation, the terms and
conditions of Section 3(d)); or
(d) Borrower
or any Guarantor shall fail to keep or perform any of the covenants or
agreements contained in the Credit Agreement, or the Loan Documents (other than
the Credit Events), subject to the applicable cure or grace periods, if any,
provided therein; or
(e) the
existence of any Event of Default (other than the Credit Events) under the
Credit Agreement; or
(f) the
occurrence of an event of default under the DIP Loan Agreement or the
Replacement Loan Facility that has not been cured after the delivery of all
required notices and the expiration of any applicable period of
grace.
7. Conditional Permanent
Waiver; Effect and Construction of Agreement. Upon the Waiver
Termination Date, if a Bankruptcy Filing has occurred but no Waiver Default has
occurred, Administrative Agent and the Lenders hereby permanently waive any
Events of Default that occurred as a result of the Credit Events as long as
Parent’s obligations, for claims before, during and after the Bankruptcy Filing,
under the Parent Guaranty are not discharged in any Bankruptcy
Filing. Except as expressly provided herein, the Credit Agreement and
the Loan Documents are hereby ratified and confirmed and shall be and shall
remain in full force and effect in accordance with their respective terms, and
this Agreement shall not be construed to: (i) impair the validity, perfection or
priority of any lien or security interest securing the Obligations; (ii) waive
or impair any rights, powers or remedies of Administrative Agent or the Lender
under the Credit Agreement or the Loan Documents upon termination of the Waiver
Period; (iii) constitute an agreement by Administrative Agent or the Lenders or
require Administrative Agent or the Lenders to extend the Waiver Period, or
grant additional waiver periods, or extend the term of the Credit Agreement or
the time for payment of any of the Obligations; or (iv) make any Loans or
other extensions of credit to Borrower. In the event of any
inconsistency between the terms of this Agreement and the Credit Agreement or
the Loan Documents, this Agreement shall govern. Borrower and Guarantors
acknowledge that they have consulted with counsel and with such other experts
and advisors as it has deemed necessary in connection with the negotiation,
execution and delivery of this Agreement. This Agreement shall be
construed without regard to any presumption or rule requiring that it be
construed against the party causing this Agreement or any part hereof to be
drafted.
8. Expenses. Borrower
and Guarantors agree to pay all reasonable out-of-pocket costs, fees and
expenses of Administrative Agent, Lenders and Administrative Agent’s and
Lenders’ attorneys incurred in connection with the negotiation, preparation,
administration and enforcement of, and the preservation of any rights under,
this Agreement and/or the Loan Documents, and the transactions and other matters
contemplated hereby and thereby, including, but not limited to, Perfection
Expenses and the out-of-pocket fees, costs and expenses incurred by
Administrative Agent and Lenders in the employment of auditors and/or
consultants to perform work on Lenders’ behalf to audit, appraise, monitor and
otherwise review any and all portions of the assets of Borrower of its
Subsidiaries (subject to the Filing Fee Cap, as applicable).
9. Miscellaneous.
(a) Further
Assurances. Borrower and Guarantors agree to execute such
other and further documents and instruments as Administrative Agent may request
to implement the provisions of this Agreement and to perfect and protect the
liens and security interests created by the Credit Agreement and the Loan
Documents.
(b) Benefit of
Agreement. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto, their respective
successors and assigns. No other person or entity shall be entitled
to claim any right or benefit hereunder, including, without limitation, the
status of a third-party beneficiary of this Agreement.
(c) Integration. This
Agreement, together with the Credit Agreement and the Loan Documents,
constitutes the entire agreement and understanding among the parties relating to
the subject matter hereof, and supersedes all prior proposals, negotiations,
agreements and understandings relating to such subject matter. In
entering into this Agreement, each of Borrower and Guarantor acknowledges that
it is relying on no statement, representation, warranty, covenant or agreement
of any kind made by the Administrative Agent or any Lender or any employee or
agent of the Administrative Agent or any Lender, except for the agreements of
Administrative Agent or any Lender set forth herein.
(d) Severability. The
provisions of this Agreement are intended to be severable. If any
provisions of this Agreement shall be held invalid or unenforceable in whole or
in part in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or enforceability without in any
manner affecting the validity or enforceability of such provision in any other
jurisdiction or the remaining provisions of this Agreement in any
jurisdiction.
(e) Governing
Law. This Agreement shall be governed by and construed in
accordance with the internal substantive laws of the State of New York, without
regard to the choice of law principles of such state.
(f) Counterparts; Telecopied
Signatures. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute one and the same
agreement. Any signature delivered by a party by facsimile
transmission shall be deemed to be an original signature hereto.
(g) Notices. Any
notices with respect to this Agreement shall be given in the manner provided for
in Section 10.06 of the Credit Agreement.
(h) Survival. All
representations, warranties, covenants, agreements, undertakings, waivers and
releases of Borrower and Guarantors contained herein shall survive the
termination of the Waiver Period and payment in full of the
Obligations.
(i) Amendment. No
amendment, modification, rescission, waiver or release of any provision of this
Agreement shall be effective unless the same shall be in writing and signed by
the parties hereto.
(j) No Limitation on
Administrative Agent. Nothing in this Agreement shall be deemed in any
way to limit or restrict any of Administrative Agent’s and Lenders’ rights to
seek in a bankruptcy court or any other court of competent jurisdiction, any
relief Administrative Agent may deem appropriate in the event that a voluntary
or involuntary petition under any Bankruptcy Law is filed by or against
Borrower
10. Ratification of Liens and
Security Interest. Borrower and each Guarantor hereby
acknowledge and agree that the liens and security interests of the Credit
Agreement and the Loan Documents are valid, subsisting, perfected and
enforceable liens and security interests and are superior to all liens and
security interests other than Liens permitted under Section 6.7 of the Credit
Agreement.
11. No
Commitment. Borrower and Guarantors agree that Administrative
Agent and Lenders have made no commitment or other agreement regarding the
Credit Agreement or the Loan Documents, except as expressly set forth in this
Agreement. Borrower and Guarantors warrant and represent that
Borrower and Guarantors will not rely on any commitment, further agreement to
waive or other agreement on the part of Administrative Agent or Lenders unless
such commitment or agreement is in writing and signed by Administrative Agent
and Lenders.
12. RELEASE. FOR
VALUE RECEIVED, INCLUDING WITHOUT LIMITATION, THE AGREEMENTS OF THE AGENT AND
MAJORITY LENDERS IN THIS AGREEMENT, THE BORROWER AND GUARANTORS HEREBY RELEASE
THE ADMINISTRATIVE AGENT AND EACH LENDER, THEIR RESPECTIVE CURRENT AND FORMER
SHAREHOLDERS, DIRECTORS, OFFICERS, AGENTS, EMPLOYEES, ATTORNEYS, CONSULTANTS,
AND PROFESSIONAL ADVISORS (COLLECTIVELY, THE “RELEASED PARTIES”) OF
AND FROM ANY AND ALL DEMANDS, ACTIONS, CAUSES OF ACTION, SUITS, CONTROVERSIES,
ACTS AND OMISSIONS, LIABILITIES, AND OTHER CLAIMS OF EVERY KIND OR NATURE
WHATSOEVER, BOTH IN LAW AND IN EQUITY, KNOWN OR UNKNOWN, WHICH SUCH BORROWER OR
GUARANTOR HAS OR EVER HAD AGAINST THE RELEASED PARTIES FROM THE BEGINNING OF THE
WORLD TO THIS DATE ARISING IN ANY WAY OUT OF THE EXISTING FINANCING ARRANGEMENTS
AMONG THE BORROWER, THE GUARANTORS, THE ADMINISTRATIVE AGENT AND/OR THE LENDERS
IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION
OF LAW OR REGULATIONS OR OTHERWISE, INCLUDING BUT NOT LIMITED TO, ANY
CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST
IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND
REMEDIES UNDER THE LOAN DOCUMENTS, OR THE NEGOTIATION FOR AND EXECUTION OF THIS
AGREEMENT. THE BORROWER AND GUARANTORS FURTHER ACKNOWLEDGE THAT, AS
OF THE DATE HEREOF, THEY, JOINTLY OR SEVERALLY, DO NOT HAVE ANY COUNTERCLAIM,
SET-OFF, OR DEFENSE AGAINST THE RELEASED PARTIES, EACH OF WHICH SUCH BORROWER OR
GUARANTOR HEREBY EXPRESSLY WAIVES.
[Signature
Pages Follow]
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day
and year first above written.
AVÍCOLA
PILGRIM’S PRIDE DE MÉXICO, S. de R.L. de C.V.
a Sociedad de Responsabilidad Limitada
de Capital Variable
By: /s/ Richard A.
Cogdill
Name: Richard A.
Cogdill
Title: Attorney-in-Fact
PILGRIM’S PRIDE CORPORATION, a
Delaware corporation
By: /s/ Richard A.
Cogdill
Name: Richard A.
Cogdill
Title: Attorney-in-Fact
INCUBADORA
HIDALGO, S. de R.L. de C.V.
a Sociedad de Responsabilidad Limitada
de Capital Variable
By: /s/ Richard A.
Cogdill
Name: Richard A.
Cogdill
Title: Attorney-in-Fact
PILGRIM’S
PRIDE, S. de R.L. de C.V.
a Sociedad de Responsabilidad Limitada
de Capital Variable
By: /s/ Richard A.
Cogdill
Name: Richard A.
Cogdill
Title: Attorney-in-Fact
INMOBLIARIA
AVÍCOLA PILGRIM’S PRIDE, S. de R.L. de C.V.
a Sociedad de Responsabilidad Limitada
de Capital Variable
By: /s/ Richard A.
Cogdill
Name: Richard A.
Cogdill
Title: Attorney-in-Fact
SERVICIOS
ADMINISTRATIVOS PILGRIM’S PRIDE, S. de R.L. de C.V.
a Sociedad de Responsabilidad Limitada
de Capital Variable
By:
/s/ Richard A.
Cogdill
Name: Richard A. Cogdill
Title: Attorney-in-Fact
GRUPO
PILGRIM’S PRIDE FUNDING HOLDINGS, S. de R.L. de C.V.
a Sociedad de Responsabilidad Limitada
de Capital Variable
By: /s/ Richard A.
Cogdill
Name: Richard A.
Cogdill
Title: Attorney-in-Fact
COMERCIALIZADORA
DE CARNES DE MÉXICO, S. de R.L. de C.V.
a Sociedad de Responsabilidad Limitada
de Capital Variable
By: /s/ Richard A.
Cogdill
Name: Richard A.
Cogdill
Title: Attorney-in-Fact
GRUPO
PILGRIM’S PRIDE FUNDING, S. de R.L. de C.V.
a Sociedad de Responsabilidad Limitada
de Capital Variable
By: /s/ Richard A.
Cogdill
Name: Richard A.
Cogdill
Title: Attorney-in-Fact
OPERADORA
DE PRODUCTOS AVÍCOLAS, S. de R.L. de C.V.
a Sociedad de Responsabilidad Limitada
de Capital Variable
By: /s/ Richard A.
Cogdill
Name: Richard A.
Cogdill
Title: Attorney-in-Fact
CARNES
Y PRODUCTOS AVICOLAS de MEXICO, S. de R.L. de C.V.
a Sociedad de Responsabilidad Limitada
de Capital Variable
By: /s/ Richard A.
Cogdill
Name: Richard A.
Cogdill
Title: Attorney-in-Fact
POPPSA
3, LLC
By: /s/ Richard A.
Cogdill
Name: Richard
A. Cogdill
Title: CFO, Secretary
and Treasurer
POPPSA
4, LLC
By: /s/ Richard A.
Cogdill
Name: Richard A.
Cogdill
Title: CFO, Secretary
and Treasurer
PILGRIM’S
PRIDE, LLC
By: /s/ Richard A.
Cogdill
Name: Richard
A. Cogdill
Title: CFO,
Secretary and Treasurer
ING CAPITAL LLC,
as
Administrative Agent and Sole Lead Arranger
By: /s/ William B.
Redmond
Name: William B.
Redmond
Title: Managing Director
ING BANK N.V., acting through
its Curaçao Branch
By:
/s/ Maricella
Bonafacio
Name: Maricella
Bonafacio
Title: Head
Transaction Processing
By: /s/ A. C.
Maduro
Name: A.
C. Maduro
Title: Risk
Manager
Exhibit
10.52
Post-Petition
Credit Agreement
Dated as
of December 2, 2008
among
Pilgrim’s
Pride Corporation, as Debtor and Debtor-in-Possession,
the
guarantors from time to time parties hereto,
the
Lenders from time to time parties hereto,
and
Bank
of Montreal,
as
DIP Agent
--
DB1/62267045.3
DA1:\541804\06\BM2406!.DOC\67466.0003
TABLE
OF CONTENTS
Page
|
Section
1.
|
The
Credit Facilities.
|
1
|
|
Section 1.1
|
DIP Commitments
|
1
|
|
Section 1.2
|
Letters of Credit
|
2
|
|
Section 1.3
|
Applicable Interest Rates
|
5
|
|
Section 1.4
|
Minimum Borrowing Amounts
|
5
|
|
Section 1.5
|
Manner of Borrowing DIP Loans
|
5
|
|
Section 1.6
|
Swing Loans
|
6
|
|
Section 1.7
|
Maturity of Loans
|
8
|
|
Section 1.8
|
Prepayments
|
8
|
|
Section 1.9
|
Default Rate
|
10
|
|
Section 1.10
|
Evidence of Indebtedness
|
10
|
|
Section 1.11
|
Commitment Terminations
|
11
|
|
Section 1.12
|
Guaranties
|
11
|
|
Section 1.13
|
Substitution of Lenders
|
11
|
|
Section
2.
|
Fees.
|
12
|
|
Section 2.1
|
Fees
|
12
|
|
Section
3.
|
Place
and Application of Payments.
|
12
|
|
Section 3.1
|
Place and Application of Payments
|
12
|
|
Section 3.2
|
Account Debit
|
13
|
|
Section
4.
|
The
Collateral.
|
13
|
|
Section 4.1
|
Security
|
13
|
|
Section 4.2
|
Perfection of Security Interests
|
14
|
|
Section 4.3
|
Receivables and Inventory Collections
|
15
|
|
Section 4.4
|
Cash Collateral Account
|
15
|
|
Section 4.5
|
Rights of DIP Agent
|
16
|
|
Section 4.6
|
Performance by DIP Agent of Debtors’ Post-Petition
Obligations
|
16
|
|
Section 4.7
|
DIP Agent’s Appointment as Attorney-in-Fact
|
16
|
|
Section
5.
|
Definitions;
Interpretation.
|
18
|
|
Section 5.1
|
Definitions
|
18
|
|
Section 5.2
|
Interpretation
|
39
|
|
Section 5.3
|
Change in Accounting Principles
|
39
|
|
Section 5.4
|
Timing of Payment or Performance
|
39
|
|
Section
6.
|
Representations
and Warranties
|
40
|
|
Section 6.1
|
Organization and Qualification
|
40
|
|
Section 6.2
|
Subsidiaries
|
40
|
|
Section 6.3
|
Authority and Validity of Obligations
|
40
|
|
Section 6.4
|
Use of Proceeds; Margin Stock
|
41
|
|
Section 6.5
|
Financial Reports
|
41
|
|
Section 6.6
|
No Material Adverse Change
|
41
|
|
Section 6.7
|
Full Disclosure
|
41
|
|
Section 6.8
|
Trademarks, Franchises, and Licenses
|
42
|
|
Section 6.9
|
Governmental Authority and Licensing
|
42
|
|
Section 6.10
|
Good Title
|
42
|
|
Section 6.11
|
Litigation and Other Controversies
|
42
|
|
Section 6.12
|
Taxes
|
42
|
|
Section 6.13
|
Approvals
|
43
|
|
Section 6.14.
|
Affiliate Transactions
|
43
|
|
Section 6.15
|
Investment Company
|
43
|
|
Section 6.16
|
ERISA
|
43
|
|
Section 6.17
|
Compliance with Laws
|
43
|
|
Section 6.18
|
Other Agreements
|
44
|
|
Section 6.19
|
No Default
|
44
|
|
Section 6.20
|
Financing Orders
|
44
|
|
Section 6.21
|
Super-Priority Administrative Expense and Liens
|
45
|
|
Section
7.
|
Conditions
Precedent
|
45
|
|
Section
7.1
|
All
Credit Events
|
45
|
|
Section 7.2
|
Initial Credit Event
|
46
|
|
Section
8.
|
Covenants
|
49
|
|
Section 8.1
|
Maintenance of Business
|
49
|
|
Section 8.2
|
Maintenance of Properties
|
49
|
|
Section 8.3
|
Taxes and Assessments
|
49
|
|
Section 8.4
|
Insurance
|
49
|
|
Section 8.5
|
Financial Reports
|
50
|
|
Section 8.6
|
Inspection
|
52
|
|
Section 8.7
|
Borrowings and Guaranties
|
53
|
|
Section 8.8
|
Liens
|
55
|
|
Section 8.9
|
Investments, Acquisitions, Loans and Advances
|
58
|
|
Section 8.10
|
Mergers, Consolidations and Sales
|
60
|
|
Section 8.11
|
Maintenance of Subsidiaries
|
61
|
|
Section 8.12
|
Dividends and Certain Other Restricted Payments
|
61
|
|
Section 8.13
|
ERISA
|
61
|
|
Section 8.14
|
Compliance with Laws
|
61
|
|
Section 8.15
|
Burdensome Contracts With Affiliates
|
62
|
|
Section 8.16
|
No Changes in Fiscal Year
|
63
|
|
Section 8.17
|
Formation of Subsidiaries
|
63
|
|
Section 8.18
|
Change in the Nature of Business
|
63
|
|
Section 8.19
|
Use of Proceeds
|
63
|
|
Section 8.20
|
No Restrictions
|
63
|
|
Section 8.21
|
DIP Agent’s and Lenders’ Financial Consultant
|
65
|
|
Section 8.22
|
Financial Covenants
|
65
|
|
Section 8.23
|
Chapter 11 Claims
|
65
|
|
Section 8.24
|
Executory Contracts, Pre-Petition Debt and Payments Outside the Ordinary
Course of Business
|
66
|
|
Section 8.25
|
Restriction on Hedging
|
66
|
|
Section 8.27
|
Subsidiary Distributions, Etc
|
67
|
|
Section 8.28
|
Borrower’s Financial Consultants Engagements; Sale of Certain
Assets
|
67
|
|
Section 8.29
|
Engagement of Chief Restructuring Officer
|
67
|
|
Section
9.
|
Events
of Default and Remedies
|
67
|
|
Section 9.1
|
Events of Default
|
67
|
|
Section 9.2
|
Consequences of Event of Default
|
71
|
|
Section 9.3
|
Relief from Stay
|
72
|
|
Section
10.
|
Guarantee
|
72
|
|
Section 10.1
|
Guarantee
|
72
|
|
Section 10.2
|
Right of Contribution
|
72
|
|
Section 10.3
|
No Subrogation
|
73
|
|
Section 10.4
|
Amendments, Etc. with Respect to the Post-Petition
Obligations
|
73
|
|
Section 10.5
|
Guarantee Absolute and Unconditional
|
73
|
|
Section 10.6
|
Reinstatement
|
74
|
|
Section 10.7
|
Payments
|
74
|
|
Section 10.8
|
Release of Guaranties
|
74
|
|
Section
11.
|
The
DIP Agent
|
75
|
|
Section 11.1
|
Appointment and Authorization of DIP Agent
|
75
|
|
Section 11.2
|
DIP Agent and its Affiliates
|
75
|
|
Section 11.3
|
Action by DIP Agent
|
75
|
|
Section 11.4
|
Consultation with Experts
|
76
|
|
Section 11.5
|
Liability of DIP Agent; Credit Decision
|
76
|
|
Section 11.6
|
Indemnity
|
76
|
|
Section 11.7
|
Resignation of DIP Agent and Successor DIP Agent
|
77
|
|
Section 11.8
|
L/C Issuer and Swing Line Lender
|
77
|
|
Section 11.9
|
Authorization to Release or Subordinate or Limit Liens and to Release
Guaranties
|
77
|
|
Section 11.10
|
Authorization to Enter into, and Enforcement of, the Collateral
Documents
|
78
|
|
Section
12.
|
Miscellaneous
|
78
|
|
Section 12.1
|
Withholding Taxes
|
78
|
|
Section 12.2
|
No Waiver, Cumulative Remedies
|
79
|
|
Section 12.3
|
Non-Business
Days
|
80
|
|
Section 12.4
|
Documentary Taxes
|
80
|
|
Section 12.5
|
Survival
of Representations
|
80
|
|
Section 12.6
|
Survival
of Indemnities
|
80
|
|
Section 12.7
|
Sharing
of Set-Off
|
80
|
|
Section 12.8
|
Notices
|
80
|
|
Section 12.9
|
Counterparts
|
82
|
|
Section 12.10
|
Successors
and Assigns
|
82
|
|
Section 12.11
|
Participants
|
82
|
|
Section 12.12
|
Assignments
|
82
|
|
Section 12.13
|
Amendments
|
84
|
|
Section 12.14
|
Headings
|
85
|
|
Section 12.15
|
Costs
and Expenses; Indemnification
|
85
|
|
Section 12.16
|
Set-off
|
86
|
|
Section 12.17
|
Entire
Agreement
|
87
|
|
Section 12.18
|
Governing
Law
|
87
|
|
Section 12.19
|
Severability
of Provisions
|
87
|
|
Section 12.20
|
Excess
Interest
|
87
|
|
Section 12.21
|
Construction
|
88
|
|
Section 12.22
|
Lender’s
and L/C Issuer’s Obligations Several
|
88
|
|
Section 12.23
|
Submission
to Jurisdiction; Waiver of Jury Trial
|
88
|
|
Section 12.24
|
USA
Patriot Act
|
88
|
|
Section 12.25
|
No
Modification; No Discharge; Survival of Claims
|
88
|
|
Section 12.26
|
Pre-Petition
BMO Loan Documents
|
89
|
|
Section 12.27
|
Bankruptcy
Code Waivers
|
89
|
|
Section 12.28
|
Validation
of Liens
|
89
|
|
Section 12.29
|
Confidentiality
|
89
|
|
Section 12.30
|
Disclosure
|
90
|
--
Exhibit A—Notice
of Payment Request
Exhibit B—Notice
of Borrowing
Exhibit C—Interim
Financing Order
Exhibit D-1—Revolving
Note
Exhibit D-2—Swing
Note
Exhibit E—Borrowing
Base Certificate
Exhibit F—Compliance
Certificate
Exhibit G—Additional
Guarantor Supplement
Exhibit H—Assignment
and Acceptance
Exhibit I—Cash
Management Order
Exhibit J—Material
Executory Contracts
Schedule 1—Commitments
Schedule 6.2—Subsidiaries
Schedule 6.16—ERISA
Schedule 8.7—Indebtedness
Outstanding on the Petition Date
Schedule 8.8—Liens
Existing on the Petition Date
Schedule 8.9(c)—Investments
Existing on the Petition Date
Schedule 8.9(q)—Insurance
Subsidiaries’ Investment Policies on the Petition Date
Schedule 8.13—ERISA
Plan Termination
Post-Petition
Credit Agreement
This
Post-Petition Credit Agreement is entered into as of December 2, 2008, by
and among Pilgrim’s Pride Corporation, a Delaware corporation (the “Borrower”), as debtor and
debtor-in-possession in a case pending under Chapter 11 of the Bankruptcy
Code, the direct and indirect Domestic Subsidiaries of the Borrower from time to
time party to this Agreement, as Guarantors, each as debtor and
debtor-in-possession (the Borrower and the Guarantors, each a “Debtor” and collectively the
“Debtors”) in a case
pending under Chapter 11 of the Bankruptcy Code (the cases of the Borrower
and the Guarantors, each a “Chapter 11 Case” and,
collectively, the “Chapter 11 Cases”), the
several financial institutions from time to time party to this Agreement, as
Lenders, and Bank of Montreal, a Canadian chartered bank acting through its
Chicago branch, as DIP Agent as provided herein. All capitalized
terms used herein without definition shall have the same meanings herein as such
terms are defined in Section 5.1 hereof.
Preliminary
Statement
On
December 1, 2008 (the “Petition Date”) the Debtors
filed voluntary petitions with the United States Bankruptcy Court for the
Northern District of Texas, Fort Worth Division, initiating the Chapter 11
Cases and have continued in possession of their assets and the management of
their businesses pursuant to Sections 1107 and 1108 of the Bankruptcy
Code;
The
Borrower owns, directly or indirectly, all of the issued and outstanding capital
stock or other equity interests of each of the Guarantors;
The
Borrower and the Guarantors have requested that the Lenders enter into certain
financing arrangements with the Borrower pursuant to which the Lenders may make
loans and provide other financial accommodations to the Borrower;
Whereas,
the Lenders are willing to make such loans and advances and provide such
financial accommodations on the terms and conditions set forth
herein.
Now,
Therefore, in consideration of the mutual agreements contained herein, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
Section
1. The
Credit Facilities.
Section
1.1 DIP
Commitments. Subject to the terms and conditions hereof, each
Lender, by its acceptance hereof, severally agrees to make a loan or loans
(individually a “DIP
Loan” and collectively for all the Lenders the “DIP Loans”) in U.S. Dollars
to the Borrower from time to time on a revolving basis up to the amount of such
Lender’s DIP Commitment, subject to any reductions thereof pursuant to the terms
hereof, before the Termination Date. The sum of the aggregate
principal amount of DIP Loans, Swing Loans, and L/C Obligations at any time
outstanding shall not exceed the lesser of (i) the DIP Commitments in
effect at such time and (ii) the Borrowing Base as determined based on the
most recent Borrowing Base Certificate. Each Borrowing of DIP Loans
shall be made ratably by the Lenders in proportion to their respective DIP
Percentages. DIP Loans may be repaid and the principal amount thereof
reborrowed before the Termination Date, subject to the terms and conditions
hereof.
Section
1.2 Letters of
Credit. (a) General
Terms. Subject to the terms and conditions hereof, as part of
the DIP Credit, the L/C Issuer shall issue standby and commercial letters
of credit (each a “Letter of
Credit”) for the account of Borrower or for the account of the Guarantors
in an aggregate undrawn face amount up to the L/C Sublimit and for purposes that
are permitted under Section 8.19 hereof. Each Letter of Credit
shall be issued by the L/C Issuer, but each Lender shall be obligated to
reimburse the L/C Issuer for such Lender’s DIP Percentage of the amount of
each drawing thereunder and, accordingly, each Letter of Credit shall constitute
usage of the DIP Commitment of each Lender pro rata in an amount equal to its
DIP Percentage of the L/C Obligations then outstanding.
(b)Applications. At
any time before the Termination Date, the L/C Issuer shall, at the request
of the Borrower, issue one or more Letters of Credit in U.S. Dollars, in a form
satisfactory to the L/C Issuer upon the receipt of an application duly
executed by the Borrower for the relevant Letter of Credit in the form then
customarily prescribed by the L/C Issuer for the Letter of Credit requested
(each an “Application”). Each
Letter of Credit shall have an expiration date that is 30 days from the date of
its issuance and shall be automatically extended for an additional 30 days
unless the L/C Issuer gives the beneficiary thereof at least 30 days prior
written notice that the expiration date will not so extend beyond its then
scheduled expiration date, provided that in no event may the expiration date of
any Letter of Credit extend beyond the Maturity Date. Any Letters of
Credit that expire after the Termination Date must be fully cash collateralized
on the Termination Date by cash held in a Cash Collateral Account and otherwise
under the exclusive control of the DIP Agent in an amount equal to 105% of the
maximum amount available to be drawn thereunder, or be supported by a letter of
credit issued by a bank acceptable to the Required Lenders and that is
satisfactory in form and substance to the Required Lenders. The
L/C Issuer may give notice of non-renewal to the beneficiary of any Letter
of Credit issued hereunder at any time in its sole
discretion. Notwithstanding anything contained in any Application to
the contrary: (i) the Borrower shall pay fees in connection with
each Letter of Credit as set forth in Section 2.1(b) hereof,
(ii) except as otherwise provided in this Section and in
Section 1.8 hereof, unless an Event of Default exists, the L/C Issuer
will not call for the funding by the Borrower of any amount under a Letter of
Credit before being presented with a drawing thereunder, and (iii) if the
L/C Issuer is not timely reimbursed by the Borrower for the amount of any
drawing under a Letter of Credit on the date such drawing is paid, the
Borrower’s obligation to reimburse the L/C Issuer for the amount of such
drawing shall bear interest (which the Borrower hereby promises to pay) from and
after the date such drawing is paid at the Default Rate. Unless the
DIP Agent or the Required Lenders instruct the L/C Issuer otherwise, the
L/C Issuer will give each beneficiary of a Letter of Credit notice of
non-renewal before the time necessary to prevent the automatic extension thereof
if before such required notice date: (i) the expiration date of
such Letter of Credit if so extended would be after the Termination Date,
(ii) the DIP Commitments have been terminated, or (iii) a Default or
an Event of Default exists and either the DIP Agent or the Required Lenders
(with notice to the DIP Agent) have given the L/C Issuer instructions not
to so permit the extension of the expiration date of such Letter of
Credit. The L/C Issuer shall also issue amendments to the
Letter(s) of Credit increasing the amount thereof at the request of the
Borrower, subject to the conditions of Section 7 hereof and the other terms
of this Section 1.2. The Borrower shall provide to the DIP Agent
cash collateral in an amount equal to 105% of the maximum amount available to be
drawn under all Letters of Credit outstanding hereunder as part of a plan of
reorganization of the Borrower.
(c) The Reimbursement
Obligations. Subject to Section 1.2(b) hereof, the
obligation of the Borrower to reimburse the L/C Issuer for all drawings
under a Letter of Credit (a “Reimbursement Obligation”)
shall be governed by the Application related to such Letter of Credit, except
that reimbursement shall be made by no later than 2:00 p.m. (Chicago time) on
the date when each drawing is to be paid if the Borrower has been informed of
such drawing by the L/C Issuer on or before 10:00 a.m. (Chicago time)
on the date when such drawing is to be paid or, if notice of such drawing is
given to the Borrower after 10:00 a.m. (Chicago time) on the date when such
drawing is to be paid, by no later than 2:00 p.m. (Chicago time) on the
following Business Day, in immediately available funds at the DIP Agent’s
principal office in Chicago, Illinois, or such other office as the DIP Agent may
designate in writing to the Borrower (who shall thereafter cause to be
distributed to the L/C Issuer such amount(s) in like funds). If
the Borrower does not make any such reimbursement payment on the date due and
the Participating Lenders fund their participations therein in the manner set
forth in Section 1.2(e) below, then all payments thereafter received by the
DIP Agent in discharge of any of the relevant Reimbursement Obligations shall be
distributed in accordance with Section 1.2(e) below.
(d) Obligations
Absolute. The Borrower’s obligation to reimburse L/C
Obligations as provided in subsection (c) of this Section shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and the relevant Application under
any and all circumstances whatsoever and irrespective of (i) any lack of
validity or enforceability of any Letter of Credit or this Agreement, or any
term or provision therein, (ii) any draft or other document presented under a
Letter of Credit proving to be forged, fraudulent or invalid in any respect or
any statement therein being untrue or inaccurate in any respect, or (iii) any
other event or circumstance whatsoever, whether or not similar to any of the
foregoing, that might, but for the provisions of this Section, constitute a
legal or equitable discharge of, or provide a right of setoff against, the
Borrower’s obligations hereunder. None of the DIP Agent, the Lenders,
or the L/C Issuer shall have any liability or responsibility by reason of
or in connection with the issuance or transfer of any Letter of Credit or any
payment or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of the
L/C Issuer; provided that the foregoing shall not be construed to excuse
the L/C Issuer from liability to the Borrower to the extent of any direct
damages (as opposed to consequential damages, claims in respect of which are
hereby waived by the Borrower to the extent permitted by applicable law)
suffered by the Borrower that are caused by the L/C Issuer’s failure to
exercise care when determining whether drafts and other documents presented
under a Letter of Credit comply with the terms thereof. The parties
hereto expressly agree that, in the absence of bad faith, gross negligence or
willful misconduct on the part of the L/C Issuer (as finally determined by
a court of competent jurisdiction), the L/C Issuer shall be deemed to have
exercised care in each such determination. In furtherance of the
foregoing and without limiting the generality thereof, the parties agree that,
with respect to documents presented which appear on their face to be in
substantial compliance with the terms of a Letter of Credit, the L/C Issuer
may, in its sole discretion, either accept and make payment upon such documents
without responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.
(e) The Participating
Interests. Each Lender (other than the Lender acting as
L/C Issuer in issuing the relevant Letter of Credit), by its acceptance
hereof, severally agrees to purchase from the L/C Issuer, and the
L/C Issuer hereby agrees to sell to each such Lender (a “Participating Lender”), an
undivided percentage participating interest (a “Participating Interest”), to
the extent of its DIP Percentage, in each Letter of Credit issued by, and each
Reimbursement Obligation owed to, the L/C Issuer and any Cash Collateral
therefor. Upon any failure by the Borrower to pay any
Reimbursement Obligation at the time required on the date the related
drawing is to be paid, as set forth in Section 1.2(c) above, or if the
L/C Issuer is required at any time to return to the Borrower or to a
trustee, receiver, liquidator, custodian or other Person any portion of any
payment of any Reimbursement Obligation, each Participating Lender shall, not
later than the Business Day it receives a certificate in the form of
Exhibit A hereto from the L/C Issuer (with a copy to the DIP Agent) to
such effect, if such certificate is received before 1:00 p.m. (Chicago
time), or not later than 1:00 p.m. (Chicago time) the following Business
Day, if such certificate is received after such time, pay to the DIP Agent for
the account of the L/C Issuer an amount equal to such Participating
Lender’s DIP Percentage of such unpaid or recaptured Reimbursement
Obligation together with interest on such amount accrued from the date the
related payment was made by the L/C Issuer to the date of such payment by
such Participating Lender at a rate per annum equal to: (i) from
the date the related payment was made by the L/C Issuer to the date two
(2) Business Days after payment by such Participating Lender is due
hereunder, the Federal Funds Rate for each such day and (ii) from the date
two (2) Business Days after the date such payment is due from such
Participating Lender to the date such payment is made by such Participating
Lender, the Base Rate in effect for each such day. Each such
Participating Lender shall thereafter be entitled to receive its DIP Percentage
of each payment received in respect of the relevant Reimbursement Obligation and
of interest paid thereon and any Cash Collateral therefor, with the
L/C Issuer retaining its DIP Percentage thereof as a Lender
hereunder. The several obligations of the Participating Lenders to
the L/C Issuer under this Section 1.2 shall be absolute, irrevocable,
and unconditional under any and all circumstances whatsoever and shall not be
subject to any set-off, counterclaim or defense to payment which any
Participating Lender may have or have had against the Borrower, the
L/C Issuer, the DIP Agent, any Lender or any other Person
whatsoever. Without limiting the generality of the foregoing, such
obligations shall not be affected by any Default or Event of Default or by any
reduction or termination of any DIP Commitment of any Lender, and each payment
by a Participating Lender under this Section 1.2 shall be made without any
offset, abatement, withholding or reduction whatsoever.
(f) Indemnification. The
Participating Lenders shall, to the extent of their respective DIP Percentages,
indemnify the L/C Issuer (to the extent not reimbursed by the Borrower)
against any cost, expense (including reasonable counsel fees and disbursements),
claim, demand, action, loss or liability (except such as result from such
L/C Issuer’s gross negligence or willful misconduct) that the
L/C Issuer may suffer or incur in connection with any Letter of Credit
issued by it. The obligations of the Participating Lenders under this
Section 1.2(f) and all other parts of this Section 1.2 shall survive
termination of this Agreement and of all Applications, Letters of Credit, and
all drafts and other documents presented in connection with drawings
thereunder.
(g) Manner of Requesting a Letter of
Credit. The Borrower shall provide at least five
(5) Business Days’ advance written notice to the DIP Agent of each request
for the issuance of a Letter of Credit, such notice in each case to be
accompanied by an Application for such Letter of Credit properly completed and
executed by the Borrower and, in the case of an extension (other than an
automatic extension) or amendment or an increase in the amount of a Letter of
Credit, a written request therefor, in a form acceptable to the DIP Agent and
the L/C Issuer, in each case, together with the fronting fee called for by
this Agreement. The DIP Agent shall promptly notify the
L/C Issuer of the DIP Agent’s receipt of each such notice (and the
L/C Issuer shall be entitled to assume that the conditions precedent to any
such issuance, extension, amendment or increase have been satisfied unless
notified to the contrary by the DIP Agent or the Required Lenders) and the
L/C Issuer shall promptly notify the DIP Agent and the Lenders of the
issuance of the Letter of Credit so requested.
(h) Replacement of the
L/C Issuer. The L/C Issuer may be replaced at any
time by written agreement among the Borrower, the DIP Agent, the replaced
L/C Issuer and the successor L/C Issuer. The DIP Agent
shall notify the Lenders of any such replacement of the
L/C Issuer. At the time any such replacement shall become
effective, the Borrower shall pay all unpaid fees accrued for the account of the
replaced L/C Issuer. From and after the effective date of any
such replacement (i) the successor L/C Issuer shall have all the
rights and obligations of the L/C Issuer under this Agreement with respect
to Letters of Credit to be issued thereafter and (ii) references herein to
the term “L/C Issuer” shall be
deemed to refer to such successor or to any previous L/C Issuer, or to such
successor and all previous L/C Issuers, as the context shall
require. After the replacement of a L/C Issuer hereunder, the
replaced L/C Issuer shall remain a party hereto and shall continue to have
all the rights and obligations of a L/C Issuer under this Agreement with
respect to Letters of Credit issued by it prior to such replacement, but shall
not be required to issue additional Letters of Credit.
Section
1.3 Applicable Interest
Rates. (a) DIP Loans. Each
DIP Loan made or maintained by a Lender shall bear interest (computed on the
basis of a year of 365 or 366 days, as the case may be, and the actual days
elapsed) on the unpaid principal amount thereof from the date such Loan is
advanced until maturity (whether by acceleration or otherwise) at a rate per
annum equal to the sum of eight percent (8.0%) plus the Base Rate from time to
time in effect, payable by the Borrower monthly in arrears on the last day of each calendar
month in each year (commencing on the first such date occurring after the date
hereof) and at
maturity (whether by acceleration or otherwise).
(b) Rate
Determinations. The DIP Agent shall determine each interest
rate applicable to the Loans and the Reimbursement Obligations hereunder, and
its determination thereof shall be conclusive and binding except in the case of
manifest error.
Section
1.4 Minimum Borrowing
Amounts. Each Borrowing advanced shall be in an amount not
less than $1,000,000 or any greater amount which is an integral multiple of
$100,000.
Section
1.5 Manner of Borrowing DIP
Loans. (a) Notice to the DIP Agent. The
Borrower shall give notice to the DIP Agent by no later than 12:00 noon
(Chicago time) on the date the Borrower requests the Lenders to advance a
Borrowing of DIP Loans. The Borrower shall give all such notices to
the DIP Agent by telephone, telecopy, or other telecommunication device
acceptable to the DIP Agent (which notice shall be irrevocable once given and,
if by telephone, shall be promptly confirmed in writing), substantially in the
form attached hereto as Exhibit B (Notice of Borrowing) or in such other
form acceptable to the DIP Agent. All such notices shall specify the
date of the requested advance (which shall be a Business Day) and the amount of
the requested Borrowing to be advanced. The Borrower agrees that the
DIP Agent may rely on any such telephonic, telecopy or other telecommunication
notice given by any person the DIP Agent in good faith believes is an Authorized
Representative without the necessity of independent investigation, and in the
event any such notice by telephone conflicts with any written confirmation such
telephonic notice shall govern if the DIP Agent has acted in reliance
thereon.
(b) Notice to the
Lenders. The DIP Agent shall give prompt telephonic, telecopy
or other telecommunication notice to each Lender of any notice from the Borrower
received pursuant to Section 1.5(a) above.
(c) Borrower’s Failure to
Notify. In the event the Borrower fails to give notice
pursuant to Section 1.5(a) above of a Borrowing equal to the amount of a
Reimbursement Obligation and has not notified the DIP Agent by 12:00 noon
(Chicago time) on the day such Reimbursement Obligation becomes due that it
intends to repay such Reimbursement Obligation through funds not borrowed under
this Agreement, the Borrower shall be deemed to have requested a Borrowing of
DIP Loans under the DIP Credit on such day in the amount of the Reimbursement
Obligation then due, which Borrowing shall be applied to pay the Reimbursement
Obligation then due.
(d) Disbursement of
Loans. Not later than 1:00 p.m. (Chicago time) on the
date of any requested advance of a new Borrowing, subject to Section 7
hereof, each Lender shall make available its DIP Loan comprising part of such
Borrowing in funds immediately available at the principal office of the DIP
Agent in Chicago, Illinois (or at such other location as the DIP Agent shall
designate). The DIP Agent shall make the proceeds of each new
Borrowing available to the Borrower at the DIP Agent’s principal office in
Chicago, Illinois (or at such other location as the DIP Agent shall designate),
by depositing or wire transferring such proceeds to the credit of the Borrower’s
Designated Disbursement Account or as the Borrower and the DIP Agent may
otherwise agree.
(e) DIP Agent Reliance on Lender
Funding. Unless the DIP Agent shall have been notified by a
Lender prior to 1:00 p.m. (Chicago time) on the date on which such Lender
is scheduled to make payment to the DIP Agent of the proceeds of a DIP Loan
(which notice shall be effective upon receipt) that such Lender does not intend
to make such payment, the DIP Agent may assume that such Lender has made such
payment when due and the DIP Agent may in reliance upon such assumption (but
shall not be required to) make available to the Borrower the proceeds of the DIP
Loan to be made by such Lender and, if any Lender has not in fact made such
payment to the DIP Agent, such Lender shall, on demand, pay to the DIP Agent the
amount made available to the Borrower attributable to such Lender together with
interest thereon in respect of each day during the period commencing on the date
such amount was made available to the Borrower and ending on (but excluding) the
date such Lender pays such amount to the DIP Agent at a rate per annum equal
to: (i) from the date the related advance was made by the DIP
Agent to the date two (2) Business Days after payment by such Lender is due
hereunder, the Federal Funds Rate for each such day and (ii) from the date
two (2) Business Days after the date such payment is due from such Lender
to the date such payment is made by such Lender, the Base Rate in effect for
each such day. If such amount is not received from such Lender by the
DIP Agent immediately upon demand, the Borrower will, on demand, repay to the
DIP Agent the proceeds of the Loan attributable to such Lender with interest
thereon at a rate per annum equal to the interest rate applicable to the
relevant DIP Loan.
Section
1.6 Swing
Loans. (a) Generally. Subject
to the terms and conditions hereof, as part of the DIP Credit, the Swing Line
Lender will make loans in U.S. Dollars to the Borrower under the Swing Line
(individually a “Swing
Loan” and collectively the “Swing Loans”) which shall not
in the aggregate at any time outstanding exceed the Swing Line
Sublimit. Swing Loans may be availed of from time to time and
borrowings thereunder may be repaid and used again during the period ending on
the Termination Date. Each Swing Loan shall be in a minimum amount of
$500,000 or such greater amount which is an integral multiple of
$100,000.
(b) Interest on Swing
Loans. Each Swing Loan shall bear interest until maturity
(whether by acceleration or otherwise) at a rate per annum equal to the sum of
the Base Rate plus eight percent (8%) (computed on the basis of a year of 365 or
366 days, as the case may be, for the actual number of days
elapsed). Interest on each Swing Loan shall be due and payable by the
Borrower monthly in arrears on the last day of each calendar
month in each year (commencing on the first such date occurring after the date
hereof) and at maturity (whether by acceleration or otherwise).
(c) Requests for Swing
Loans. The Borrower shall give the DIP Agent prior notice
(which may be written or oral) no later than 3:00 p.m. (Chicago time) on
the date upon which the Borrower requests that any Swing Loan be made, of the
amount and date of such Swing Loan. Subject to the terms and
conditions hereof, the proceeds of each Swing Loan extended to the Borrower
shall be deposited or otherwise wire transferred to the Borrower’s Designated
Disbursement Account or as the Borrower, the DIP Agent, and the Swing Line
Lender may otherwise agree. Anything contained in the foregoing to
the contrary notwithstanding, the undertaking of the Swing Line Lender to make
Swing Loans shall be subject to all of the terms and conditions of this
Agreement (provided that the Swing Line Lender shall be entitled to assume that
the conditions precedent to an advance of any Swing Loan have been satisfied
unless notified to the contrary by the DIP Agent or the Required
Lenders).
(d) Refunding
Loans. In its sole and absolute discretion, the Swing Line
Lender may at any time, on behalf of the Borrower (which hereby irrevocably
authorizes the Swing Line Lender to act on its behalf for such purpose) and with
notice to the Borrower and the DIP Agent, request each Lender to make a DIP Loan
in an amount equal to such Lender’s DIP Percentage of the amount of the Swing
Loans outstanding on the date such notice is given. Regardless of the
existence of any Event of Default, each Lender shall make the proceeds of its
requested DIP Loan available to the DIP Agent for the account of the Swing Line
Lender), in immediately available funds, at the DIP Agent’s office in Chicago,
Illinois (or such other location designated by the DIP Agent), before 12 Noon
(Chicago time) on the Business Day following the day such notice is
given. The DIP Agent shall promptly remit the proceeds of such
Borrowing to the Swing Line Lender to repay the outstanding Swing
Loans.
(e) Participations. If
any Lender refuses or otherwise fails to make a DIP Loan when requested by the
Swing Line Lender pursuant to Section 1.6(d) above for any reason, such
Lender will, by the time and in the manner such DIP Loan was to have been funded
to the Swing Line Lender, purchase from the Swing Line Lender an undivided
participating interest in the outstanding Swing Loans in an amount equal to its
DIP Percentage of the aggregate principal amount of Swing Loans that were to
have been repaid with such DIP Loans. Each Lender that so purchases a
participation in a Swing Loan shall thereafter be entitled to receive its DIP
Percentage of each payment of principal received on the Swing Loan and of
interest received thereon accruing from the date such Lender funded to the Swing
Line Lender its participation in such Loan. The several obligations
of the Lenders under this Section shall be absolute, irrevocable, and
unconditional under any and all circumstances whatsoever and shall not be
subject to any set-off, counterclaim or defense to payment which any Lender may
have or have had against the Borrower, any other Lender, or any other Person
whatsoever. Without limiting the generality of the foregoing, such
obligations shall not be affected by any Default or Event of Default or by any
reduction or termination of the DIP Commitments of any Lender, and each payment
made by a Lender under this Section shall be made without any offset,
abatement, withholding, or reduction whatsoever.
Section
1.7 Maturity of
Loans. (a) DIP Loans. Each
DIP Loan, both for principal and interest not sooner paid, shall mature and be
due and payable by the Borrower on the Termination Date.
(b) Swing Loans. Each
Swing Loan, both for principal and interest not sooner paid, shall mature and be
due and payable by the Borrower on the Termination Date.
Section
1.8 Prepayments. (a) Optional. The
Borrower may prepay in whole or in part
(but, if in part, then in an amount not less than $1,000,000 and in any event in
an amount such that the amount of such Borrowing that remains outstanding after
such prepayment is not less than $1,000,000) any Borrowing of Loans upon notice
delivered by the Borrower to the DIP Agent no later than 10:00 a.m.
(Chicago time) on the date of prepayment (or, in any case, such shorter period
of time then agreed to by the DIP Agent), such prepayment to be made by the
payment of the principal amount to be prepaid.
(b) Mandatory. (i) If
any Dispositions or Events of Loss with respect to any Property that includes
any Pre-Petition BMO Primary Collateral, Pre-Petition CoBank Primary Collateral
or Collateral (in
an amount in excess of $1,000,000 in the aggregate) occur prior to the
Termination Date and outside the ordinary course of business (no such
Disposition to occur without Bankruptcy Court approval and with the Lenders
reserving all rights, if any, to object to any such Disposition), 100% of the
Net Proceeds thereof in excess of $1,000,000 (or any greater amount that is a
whole multiple of $250,000) in the aggregate (the “Prepayment Amount”) shall be
applied as follows:
(A) First,
to the costs, fees and expenses of the DIP Agent and the Lenders (including
without limitation the reasonable fees and expenses of their counsel and other
professionals, including those previously employed or retained by the DIP Agent
and the Lenders);
(B) Second,
to interest and fees then due and then to the prepayment of all outstanding
Loans and unreimbursed Reimbursement Obligations hereunder until all such Loans
and Reimbursement Obligations shall be fully paid (but without any reduction in
the DIP Commitments resulting from such prepayments);
(C) Third,
to be held by the DIP Agent in the Cash Collateral Account (including to prefund
outstanding Letters of Credit in an amount equal to 105% of the amount of all
such Letters of Credit) until released or applied pursuant to Section 4.4
hereof (but without any reduction in the DIP Commitments resulting from such
prepayments); and
(D) Fourth,
as the Financing Order shall provide if then in effect and otherwise as shall be
determined by the Bankruptcy Court.
Any such
proceeds of sale designated to pay such taxes and costs of sale which are not
required to be disbursed at the closing of such sale shall be held in escrow by
the DIP Agent and shall be subject to the Lien of the DIP Agent, the Lenders,
the Pre-Petition BMO Agent, the Pre-Petition BMO Lenders, the Pre-Petition
CoBank Agent and the Pre-Petition CoBank Lenders until applied to pay
such taxes and costs of sale and the amount of all obligations secured by
Permitted Liens that are senior to the DIP Agent’s in the Collateral and the
Replacement Liens.
(ii) Prior
to the Termination Date, all Available Unrestricted Cash (including without
limitation all Available Unrestricted Cash consisting of proceeds of the
inventory and proceeds of the accounts receivable of the Borrower and the
Guarantors and all Cash Collateral generated in the ordinary course of the
Borrower’s and the Guarantors’ businesses) determined as of 12:00 noon, Chicago
time, on any Business Day (other than amounts subject to Section 1.8(b)(i)
hereof) in excess of $15,000,000 shall be deposited in the Collection Accounts
referred to in Section 4.3 hereof
and applied daily as follows:
(A)First,
to the costs, fees and expenses of the DIP Agent and the Lenders (including
without limitation the reasonable fees and expenses of their counsel and other
professionals, including those previously employed or retained by the DIP Agent
and the Lenders) that are then due and payable;
(B)Second,
to interest and fees then due and payable and then to the prepayment of all
outstanding Loans and unreimbursed Reimbursement Obligations hereunder until all
such Loans and Reimbursement Obligations shall be fully paid (but without any
reduction in the DIP Commitments resulting from such prepayments);
and
(C)Third,
to be held by the DIP Agent in the Cash Collateral Account (including to prefund
outstanding Letters of Credit in an amount equal to 105% of the amount of all
such Letters of Credit) until released or applied pursuant to Section 4.4
hereof.
(iii) The
Borrower shall, on each date the DIP Commitments are reduced pursuant to
Section 1.11 hereof, prepay the DIP Loans, Swing Loans, and, if necessary,
prefund the L/C Obligations by the amount, if any, necessary to reduce the sum
of the aggregate principal amount of DIP Loans, Swing Loans, and L/C Obligations
then outstanding to the amount to which the DIP Commitments have been so
reduced.
(iv) If
at any time the sum of the unpaid principal balance of the DIP Loans, Swing
Loans, and the L/C Obligations then outstanding shall be in excess of the
lesser of the DIP Commitments then in effect and the Borrowing Base as
determined on the basis of the most recent Borrowing Base Certificate, the
Borrower shall immediately and without notice or demand pay over the amount of
the excess to the DIP Agent for the account of the Lenders as and for a
mandatory prepayment on such Post-Petition Obligations, with each such
prepayment first to be applied to the DIP Loans and Swing Loans until paid in
full with any remaining balance to be held by the DIP Agent in the Cash
Collateral Account as security for the Post-Petition Obligations owing with
respect to outstanding Letters of Credit.
(v) Each
prepayment of Loans under this Section 1.8(b) shall be made by the payment
of the principal amount to be prepaid. Each prefunding of L/C
Obligations shall be made in accordance with Section 4.4
hereof.
(b) Any
amount of DIP Loans and Swing Loans paid or prepaid before the Termination Date
may, subject to the terms and conditions of this Agreement, be borrowed, repaid
and borrowed again.
Section
1.9 Default
Rate. Notwithstanding anything to the contrary contained
herein, while any Event of Default exists and is continuing or after
acceleration, the Borrower shall pay interest (after as well as before entry of
judgment thereon to the extent permitted by law) on the principal amount of all
Loans and Reimbursement Obligations, and letter of credit fees at a rate per
annum (the “Default
Rate”), equal to:
(a) for
any Loan, the sum of 10.0% plus the Base Rate from time to time in
effect;
(b) for
any Reimbursement Obligation, the sum of 2.0% plus the amounts due under
Section 1.2 with respect to such Reimbursement Obligation; and
(c) for
any Letter of Credit, the sum of 2.0% plus the letter of credit fee due under
Section 2.1 with respect to such Letter of Credit.
Interest
at the Default Rate shall be paid on demand of the DIP Agent at the request or
with the consent of the Required Lenders. Any applicable stay shall
be deemed to be lifted to the extent necessary to permit the DIP Agent and the
Lenders to exercise their rights under this Section.
Section
1.10 Evidence of
Indebtedness. (a) Each Lender shall maintain in
accordance with its usual practice an account or accounts evidencing the
indebtedness of the Borrower to such Lender resulting from each Loan made by
such Lender from time to time, including the amounts of principal and interest
payable and paid to such Lender from time to time hereunder.
(b) The
DIP Agent shall also maintain accounts in which it will record (i) the
amount of each Loan made hereunder, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) the amount of any sum received by the DIP Agent
hereunder from the Borrower and each Lender’s share thereof.
(c) The
entries maintained in the accounts maintained pursuant to paragraphs (a)
and (b) above shall be prima facie evidence, absent manifest error, of the
existence and amounts of the Post-Petition Obligations therein recorded;
provided, however, that the failure of the DIP Agent or any Lender to maintain
such accounts or any error therein shall not in any manner affect the obligation
of the Borrower to repay the Post-Petition Obligations in accordance with their
terms.
(d) Any
Lender may request that its Loans be evidenced by a promissory note or notes in
the forms of Exhibit D-1 (in the case of its DIP Loans and referred to
herein as a “Revolving
Note”), or D-2 (in the case of its Swing Loans and referred to herein as
a “Swing Note”), as
applicable (the Revolving Notes and Swing Note being hereinafter referred to
collectively as the “Notes” and individually as a
“Note”). In
such event, the Borrower shall prepare, execute and deliver to such Lender a
Note payable to such Lender or its registered assigns in the amount of the
relevant DIP Commitment, or Swing Line Sublimit, as
applicable. Thereafter, the Loans evidenced by such Note or Notes and
interest thereon shall at all times (including after any assignment pursuant to
Section 12.12) be represented by one or more Notes payable to the order of
the payee named therein or any assignee pursuant to Section 12.12, except
to the extent that any such Lender or assignee subsequently returns any such
Note for cancellation and requests that such Loans once again be evidenced as
described in subsections (a) and (b) above.
Section
1.11 Commitment
Terminations. (a) Optional DIP Credit
Terminations. The Borrower shall have the right at any time
and from time to time, upon five (5) Business Days’ prior written notice to
the DIP Agent (or such shorter period of time agreed to by the DIP Agent), to
terminate the DIP Commitments without premium or penalty and in whole or in
part, any partial termination to be (i) in an amount not less than
$5,000,000 and
(ii) allocated ratably among the Lenders in proportion to their respective
DIP Percentages, provided that the DIP Commitments may not be reduced to an
amount less than the sum of the aggregate principal amount of DIP Loans, Swing
Loans, and L/C Obligations then outstanding (after giving effect to any
concurrent prepayments). Any termination of the DIP Commitments below
the L/C Sublimit or the Swing Line Sublimit then in effect shall reduce the
L/C Sublimit and Swing Line Sublimit, as applicable, by a like
amount. The DIP Agent shall give prompt notice to each Lender of any
such termination of the DIP Commitments.
(b) Any
termination of the DIP Commitments pursuant to this Section 1.11 may not be
reinstated.
Section
1.12 Guaranties. The
payment and performance of the Post-Petition Obligations, shall at all times be
guaranteed by each direct and indirect Domestic Subsidiary of the Borrower that
is a Debtor in a Chapter 11 Case pursuant to Section 10 hereof or pursuant
to one or more guaranty agreements in form and substance acceptable to the DIP
Agent, as the same may be amended, modified or supplemented from time to time
(individually a “Guaranty” and, collectively,
the “Guaranties,” and
each such Subsidiary executing and delivering this Agreement as a Guarantor
(including any Subsidiary hereafter executing and delivering an Additional
Guarantor Supplement substantially in the form of Exhibit G hereto) or a
separate Guaranty, a “Guarantor” and, collectively,
the “Guarantors”).
Section
1.13 Substitution of
Lenders. Notwithstanding anything to the contrary contained in
Section 12.13, in the event that the Borrower requests that this Agreement
be modified or amended in a manner which would require the unanimous consent of
all of the Lenders and such modification or amendment is agreed to by the
Super-majority Lenders, then with the consent of the Borrower and the
Super-majority Lenders, the Borrower, the DIP Agent and the Super-majority
Lenders shall be permitted to amend this Agreement without the consent of the
Lender or Lenders which did not agree to the modification or amendment requested
by the Borrower (such Lender or Lenders, collectively the “Minority Lenders”) to provide
for (w) the termination of the DIP Commitment of each of the Minority Lenders,
(x) the addition to this Agreement of one or more other financial institutions
(each of which shall be an Eligible Assignee), or an increase in the DIP
Commitment of one or more of the Super-majority Lenders, so that the DIP
Commitments after giving effect to such amendment shall be in the same amount as
the DIP Commitments immediately before giving effect to such amendment, (y) if
any Loans are outstanding at the time of such amendment, the making of such
additional Loans by such new financial institutions or Super-majority Lender or
Lenders, as the case may be, as may be necessary to repay in full the
outstanding Loans of, and all other amounts owed under the Loan Documents to,
the Minority Lenders immediately before giving effect to such amendment and (z)
such other modifications to this Agreement as may be appropriate.
Section
2. Fees.
Section
2.1 Fees. (a) DIP Commitment
Fee. The Borrower shall pay to the DIP Agent for the ratable
account of the Lenders in accordance with their DIP Percentages a commitment fee
at the rate per annum equal to one-half of one percent (0.50%) (computed on the
basis of a year of 360 days and the actual number of days elapsed) on the
average daily Unused DIP Commitments. Such commitment fee shall be
payable monthly in arrears on the last day of each calendar
month in each year (commencing on the first such date occurring after the date
hereof) and on the Termination Date, unless the DIP Commitments are terminated
in whole on an earlier date, in which event the commitment fee for the period to
the date of such termination in whole shall be paid on the date of such
termination.
(b) Letter of Credit
Fees. On the date of issuance, renewal or extension, or
increase in the amount, of any Letter of Credit pursuant to Section 1.2
hereof, the Borrower shall pay to the L/C Issuer for its own account a
fronting fee equal to 0.25% of the face amount of (or of the increase in the
face amount of) such Letter of Credit. Monthly in arrears, on the
last day of each calendar month, commencing on the first such date occurring
after the date hereof, the Borrower shall pay to the DIP Agent, for the ratable
benefit of the Lenders in accordance with their DIP Percentages, a letter of
credit fee at a rate per annum equal to 3.00% (computed on the basis of a year
of 360 days and the actual number of days elapsed) in effect during each
day of such month applied to the daily average face amount of Letters of Credit
outstanding during such month. In addition, the Borrower shall pay to
the L/C Issuer for its own account the L/C Issuer’s standard issuance,
drawing, negotiation, amendment, assignment, and other administrative fees for
each Letter of Credit as established by the L/C Issuer from time to
time.
(c) Closing Fee. The
Borrower shall pay to the DIP Agent for the ratable account of the Lenders a
non-refundable closing fee in an amount equal to 2.5% (inclusive of any portion
of such closing fee paid in connection with the execution and delivery by the
Lenders of their commitment letters relating to the DIP Credit Facility) of the
aggregate amount of the DIP Commitments on the Closing Date. Such fee
shall be payable in full no later than the Closing Date.
(d) DIP Agent
Fees. The Borrower shall pay to the DIP Agent, for its own use
and benefit, a non-refundable fee in the amount of $125,000 payable in full upon
the entry of the Interim Financing Order.
(e) Audit Fees. The
Borrower shall pay to the DIP Agent for its own use and benefit reasonable
out-of-pocket costs and expenses for audits of the Collateral performed by the
DIP Agent or its agents or representatives in such amounts as the DIP Agent may
from time to time request (the DIP Agent acknowledging and agreeing that such
charges shall be computed in the same manner as it at the time customarily uses
for the assessment of charges for similar collateral audits).
Section
3. Place
and Application of Payments.
Section
3.1 Place and Application of
Payments. All payments of principal of and interest on the
Loans and the Reimbursement Obligations, and of all other Post-Petition
Obligations payable by the Borrower under this Agreement and the other Loan
Documents, shall be made by the Borrower to the DIP Agent by no later than
1:00 p.m. (Chicago time) on the due date thereof at the office of the DIP
Agent in Chicago, Illinois (or such other location as the DIP Agent may
designate in writing to the Borrower), for the benefit of the Lender(s) or
L/C Issuer entitled thereto. Any payments received after such
time shall be deemed to have been received by the DIP Agent on the next Business
Day. All such payments shall be made in U.S. Dollars, in immediately
available funds at the place of payment, in each case without set-off or
counterclaim. The DIP Agent will promptly thereafter cause to be
distributed like funds relating to the payment of principal or interest on Loans
and on Reimbursement Obligations in which the Lenders have purchased
Participating Interests ratably to the Lenders and like funds relating to the
payment of any other amount payable to any Lender to such Lender, in each case
to be applied in accordance with the terms of this Agreement. If the
DIP Agent causes amounts to be distributed to the Lenders in reliance upon the
assumption that the Borrower will make a scheduled payment and such scheduled
payment is not so made, each Lender shall, on demand, repay to the DIP Agent the
amount distributed to such Lender together with interest thereon in respect of
each day during the period commencing on the date such amount was distributed to
such Lender and ending on (but excluding) the date such Lender repays such
amount to the DIP Agent, at a rate per annum equal to: (i) from
the date the distribution was made to the date two (2) Business Days after
payment by such Lender is due hereunder, the Federal Funds Rate for each such
day and (ii) from the date two (2) Business Days after the date such
payment is due from such Lender to the date such payment is made by such Lender,
the Base Rate in effect for each such day.
On or
after the occurrence of the Termination Date, all payments and collections from
Collateral (including Dispositions) shall be applied: first, to pay the
Administrative Expense Carve-Out, second to the costs, fees and expenses of the
DIP Agent and the Lenders; third, to interest and fees and then to repay the
Loans and other Post-Petition Obligations outstanding under this Agreement;
fourth, to provide cash collateral for Letters of Credit outstanding under this
Agreement in an amount equal to 105% of the maximum amount available to be drawn
under all such Letters of Credit; fifth, to reduce the Pre-Petition BMO
Obligations under the Pre-Petition BMO Credit Agreement and the Pre-Petition
CoBank Obligations under the Pre-Petition CoBank Credit Agreement according to
the priorities of their respective Replacement Liens therein and otherwise on
the basis set forth in the Pre-Petition BMO Credit Agreement and the
Pre-Petition CoBank Credit Agreement; and then, to the Borrower (or relevant
Debtor) or as otherwise required by applicable law pursuant to an order of the
Bankruptcy Court.
Section
3.2 Account Debit. The
Borrower hereby irrevocably authorizes the DIP Agent to charge any of the
Borrower’s deposit accounts maintained with the DIP Agent for the amounts from
time to time necessary to pay any then due Post-Petition Obligations; provided that the Borrower
acknowledges and agrees that the DIP Agent shall not be under an obligation to
do so and the DIP Agent shall not incur any liability to the Borrower or any
other Person for the DIP Agent’s failure to do so.
Section
4. The
Collateral.
Section
4.1 Security. As
collateral security for the prompt and complete payment and performance when due
(whether at stated maturity, by acceleration or otherwise) of the Post-Petition
Obligations and to induce the Lenders to make the DIP Credit available to the
Borrower in accordance with the terms hereof, the Borrower and each of the
Guarantors hereby assigns, creates, grants, conveys, mortgages, pledges,
hypothecates and transfers to the DIP Agent for the ratable benefit of the
Lenders, first priority Liens (subject to the Administrative Expense Carve-Out
and Permitted Liens permitted by, and with the priority established by, the
Interim Financing Order), in accordance with Sections 364(c) and (d) of the
Bankruptcy Code in all right, title and interest of the Borrower and each of the
Guarantors in and to (a) any and all Property, assets and things of value
of every kind or type, tangible, intangible, real, personal and fixed, whether
now owned or hereafter acquired and wherever located, including, without
limitation, real property (including without limitation all leasehold interests,
mineral leases, and mineral and water rights), the Cash Collateral Account and
all other deposit accounts, accounts, chattel paper (including electronic
chattel paper), instruments, documents (including electronic documents of
title), all of the Debtors’ rights and claims relating to all deposits and
reserves held by utilities and trade creditors, inventory, farm
products, rights against contract growers, equipment, rolling stock (including
titled and non-titled vehicles), general intangibles (including, without
limitation, payment intangibles, intellectual property, interests in
partnerships and joint ventures (to the extent not prohibited, in which case the
DIP Agent for the benefit of the Lenders shall have a Lien on the proceeds of
such interests)), tax refunds, letter of credit rights, supporting obligations,
commercial tort claims, and investment property (other than any equity interests
of Avicola that is part of the Avicola Pre-Petition Collateral, but including in
the Collateral any proceeds of any sale or other Disposition of such equity
interests to which any Debtor may be entitled after the payment in full of the
Avicola Pre-Petition Obligations), all pursuant to Section 364(c) and (d)
of the Bankruptcy Code and, to the extent not otherwise included, (a) all
proceeds of each of the foregoing, (b) all accessions to, substitutions and
replacements (including any Property repaired, rebuilt or replaced with casualty
insurance proceeds and condemnation awards) for, and insurance and condemnation
proceeds, rents, profits and products of each of the foregoing, (c) the
Pre-Petition BMO Collateral and the Pre-Petition CoBank Collateral, and
(d) all Property of the Borrower and each of the Guarantors held by the DIP
Agent or any Lender, including without limitation, the funds from time to time
on deposit in the Collection Accounts referred to in Section 4.3 hereof,
any funds held in escrow by the DIP Agent pursuant to the last sentence of
Section 1.8(b)(i) hereof and all other Property of every description, now
or hereafter in the possession or custody of or in transit to the DIP Agent or
any Lender for any purpose, including safekeeping, collection or pledge, for the
account of the Borrower or any Guarantor or as to which the Borrower or any
Guarantor may have any right or power (all of the foregoing, the “Collateral”), provided that
the Collateral shall not include any of (i) the stock of first-tier Foreign
Subsidiaries of the Borrower in excess of 65% of the total combined voting power
of such Foreign Subsidiaries, or any stock in any Subsidiary of any first-tier
Foreign Subsidiaries of the Borrower, (ii) Property of any Debtor with
respect to which the consent of a third party is required for the pledge
thereof, except to the extent permitted by the Uniform Commercial Code, or
(iii) the Avicola Pre-Petition Collateral.
Section
4.2 Perfection of Security
Interests. (a) At the request of the DIP Agent or the
Required Lenders and at the Borrower’s expense, the Borrower and each of the
Guarantors shall (i) execute and deliver to the DIP Agent documentation
satisfactory to the DIP Agent or the Required Lenders evidencing the Liens
granted hereby, providing for the perfection of such Liens and evidencing that
the automatic stay provisions of Section 362 of the Bankruptcy Code have
been modified to permit the execution, delivery and filing of such
documentation, and (ii) perform or take any and all steps at any time
necessary to perfect, maintain, protect and enforce the DIP Agent’s Lien on the
Collateral; provided, however, that no such documentation shall be required as a
condition to the validity, priority or perfection of any of the Liens created
pursuant to this Agreement which security interests and liens shall be deemed
valid and properly perfected upon approval by the Bankruptcy Court of the
Financing Order; provided further that no such documentation shall be filed in
any jurisdiction with a mortgage, stamp, intangibles or similar
tax.
(b) Until
all Post-Petition Obligations and Adequate Protection Obligations have been
satisfied and paid in full in cash by the Debtors and the DIP Commitments shall
have terminated, the DIP Agent’s security interest in the Collateral as security
for such obligations shall continue in full force and effect.
(c) Notwithstanding
the provisions of Section 4.2(a) hereof, or failure on the part of the
Borrower, any Guarantor, the DIP Agent or any Lender to perfect, maintain,
protect or enforce the DIP Agent’s Lien on the Collateral, the Financing Order
shall automatically, and without further action by any Person, perfect the DIP
Agent’s Lien against the Collateral.
Section
4.3 Receivables and Inventory
Collections. The Borrower and the Guarantors agree to
continue, or if appropriate, forthwith make, such arrangements as shall be
necessary or appropriate to assure that all proceeds of the inventory and
accounts receivable of the Borrower and the Guarantors and any other Cash
Collateral generated after the Closing Date but prior to the Termination Date
not required for the payment of normal operating expenses of the Borrower and
the Guarantors consistent, in amount and type of expenditure, with the Budget
are deposited (in the same form as received) in an account maintained with the
DIP Agent or accounts under the control of the DIP Agent (including local petty
cash accounts and local payroll accounts approved by the DIP Agent (the “Petty Cash and Payroll
Accounts”)), which provide for collections therein to be transmitted,
upon the DIP Agent’s request, to an account maintained with or otherwise under
the exclusive dominion and control of the DIP Agent, all such accounts
maintained with or under the control of the DIP Agent to constitute special
restricted accounts (each a “Collection Account” and
collectively the “Collection
Accounts”). The Borrower acknowledges on behalf of
itself and the Guarantors that the DIP Agent has (and is hereby granted to the
extent that it does not already have) a Lien for the ratable benefit of the
Lenders on each of the Collection Accounts and all funds contained therein to
secure the Post-Petition Obligations and Adequate Protection Obligations,
subject to the provisions of the Financing Order and the Bankruptcy
Code. Cash held in the Collection Accounts shall constitute Cash
Collateral subject to the Financing Order (if in effect) and otherwise as the
Bankruptcy Court shall determine. Any applicable stay shall be deemed
to be lifted to the extent necessary to permit the DIP Agent and the Lenders to
exercise their rights under this Section 4.3.
Section
4.4 Cash Collateral
Account. (a) All Cash Collateral and other amounts
referred to in Section 1.8(b)(ii) shall be deposited by the Debtors in one
or more accounts subject to the DIP Agent’s first priority perfected Lien and,
if at any time required by the DIP Agent, under its exclusive dominion and
control (collectively, the “Cash Collateral
Account”). Such funds shall be held in the Cash Collateral
Account until such time as the amounts held therein are applied by the relevant
Debtor to pay normal operating expenses consistent with the Budget and the
Interim Financing Order and any Final Financing Order or as the DIP Agent shall
otherwise require, except that the Net Proceeds of Dispositions shall be applied
as set forth in Section 1.8(b)(i) hereof. So long as no Event of
Default shall have occurred and be continuing, amounts held in the Cash
Collateral Account shall be made available to the relevant Debtor to pay normal
operating expenses consistent, in amount and type of expenditure, with the
Budget. During the existence of an Event of Default all amounts held
in the Cash Collateral Account shall be applied as required by the second
paragraph of Section 3.1.
(b) If
the prepayment of the amount available for drawing under any or all outstanding
Letters of Credit is required by this Agreement (including under
Sections 1.8(b), 1.2(b) or 9.2), the Borrower shall forthwith pay the
amount required to be so prepaid, to be held by the DIP Agent in a separate Cash
Collateral Account as security for, and for application by the DIP Agent (to the
extent available) to, the reimbursement of any payment under any Letter of
Credit then or thereafter made by the L/C Issuer until all Reimbursement
Obligations have been paid in full and no Letters of Credit remain outstanding,
and thereafter to be applied as provided in
Section 4.4(a). Notwithstanding the foregoing, so long as no
Default or Event of Default shall have occurred and be continuing, amounts held
in the Cash Collateral Account pursuant to this Section 4.4(b) shall be
made available to the relevant Debtor to pay normal operating expenses
consistent, in amount and type of expenditure, with the
Budget. During the existence of a Default or Event of Default all
amounts held in such Cash Collateral Account shall be applied as required by the
second paragraph of Section 3.1.
Section
4.5 Rights of DIP
Agent. The DIP Agent may, or upon the direction of the
Required Lenders, shall, in each case at any time on or after the Termination
Date, after three (3) Business Days’ prior written notice to the Borrower of its
intention to do so, notify Account Debtors, parties to contracts with the
Borrower or any Guarantor, obligors on instruments of the Borrower or any
Guarantor and obligors in respect of chattel paper of the Borrower or any
Guarantor that the right, title and interest of the Borrower and the Guarantors
in and under such accounts, such contracts, such instruments and such chattel
paper have been assigned to the DIP Agent and that payments shall be made
directly to the DIP Agent. Upon the request of the DIP Agent or the
Required Lenders on or after the Termination Date, the Borrower and the
Guarantors will so notify such Account Debtors, such parties to contracts,
obligors on such instruments and obligors in respect of such chattel
paper. Upon the occurrence and during the continuation of a Default
or an Event of Default, the DIP Agent may in its own name or in the name of
others communicate with such parties to such accounts, such contracts, such
instruments and such chattel paper to verify with such Persons to the DIP
Agent’s satisfaction the existence, amount and terms of any such accounts,
contracts, instruments or chattel paper.
Section
4.6 Performance by DIP Agent of Debtors’
Post-Petition Obligations. If the Borrower or any Guarantor
fails to perform or comply with any of its agreements contained in this
Agreement, the other Loan Documents or the Financing Order and the DIP Agent, as
provided for by the terms of this Agreement, shall itself perform or comply, or
otherwise cause performance or compliance, with such agreement, the reasonable
expenses of the DIP Agent incurred in connection with such performance or
compliance, together with interest thereon at the rate per annum determined by
adding 10% to the Base Rate as from time to time in effect, shall be payable by
the Debtors to the DIP Agent on demand and shall constitute Post-Petition
Obligations secured by the Collateral. Moreover, neither the DIP
Agent nor any Lender shall in any way be responsible for the payment of any
costs incurred in connection with preserving or disposing of Collateral pursuant
to Section 506(c) of the Bankruptcy Code, and the Collateral may not be
charged for the incurrence of any such cost.
Section
4.7 DIP Agent’s Appointment as
Attorney-in-Fact. (a) The Borrower and each of the
Guarantors hereby irrevocably constitutes and appoints the DIP Agent and any
officer of DIP Agent, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the Borrower and each of the Guarantors and in the name of the Borrower
or such Guarantor or in the DIP Agent’s own name, from time to time in the DIP
Agent’s discretion, for the purpose of collecting the Post-Petition Obligations
when due in accordance with the provisions of this Agreement, to take any and
all appropriate action and to execute and deliver any and all documents and
instruments which may be necessary and desirable to accomplish such purpose,
and, without limiting the generality of the foregoing, hereby gives the DIP
Agent the power and right, on behalf of the Borrower and the Guarantors, without
notice to or assent from them, to do the following:
(i) to
ask, demand, collect, receive and give acquittances and receipts for any and all
monies due and to become due under any Collateral and, in the name of the
Borrower or any Guarantor or the DIP Agent’s own name or otherwise, to take
possession of and endorse and collect any checks, drafts, notes, acceptances or
other instruments for the payment of monies due under any Collateral and to file
any claim or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the DIP Agent for the purpose of
collecting any and all monies due under any Collateral whenever payable and to
file any claims or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the DIP Agent for the purpose of
collecting any and all such monies due under any Collateral whenever
payable;
(ii) to
pay or discharge taxes, liens, security interests or other encumbrances levied
or placed on or threatened against the Collateral, to effect any repairs or
procure any insurance called for by the terms of this Agreement and to pay all
or any part of the premiums therefor and the costs thereof, in each case which
are not stayed pursuant to the Chapter 11 Cases or which are not being contested
in accordance with this Agreement; and
(iii) (A) to
direct any party liable for any payment under any of the Collateral to make
payment of any and all monies due, and to become due, and to become due
thereunder, directly to the DIP Agent or as the DIP Agent shall direct;
(B) to receive payment of and receipt for any and all monies, claims and
other amounts due and to become due at any time in respect of or arising out of
any Collateral; (C) to sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against the
Borrower or any Guarantor, assignments, verifications and notices in connection
with accounts and other documents constituting or relating to the Collateral;
(D) to commence and prosecute any suits, actions or proceedings at law or
equity in any court of competent jurisdiction to collect the Collateral or any
part thereof and to enforce any other right in respect of any Collateral;
(E) to defend any suit, action or proceeding brought against the Borrower
or any Guarantor with respect to any Collateral; (F) to settle, compromise
or adjust any suit, action or proceeding described above and, in connection
therewith, to give such discharges or releases as the DIP Agent or the Required
Lenders may deem appropriate; (G) to license or, to the extent permitted by
an applicable license, sublicense, whether general, special or otherwise, and
whether on an exclusive or non-exclusive basis, any trademark, throughout the
world for such term or terms, on such conditions, and in such manner, as the DIP
Agent or the Required Lenders shall in its or their sole discretion determine is
appropriate to liquidate the Collateral; and (H) generally to sell,
transfer, pledge, make any agreement with respect to or otherwise deal with any
of the Collateral as fully and completely as though the DIP Agent were the
absolute owner thereof for all purposes, and to do, at the option of the DIP
Agent and at the Borrower’s expense, at any time, or from time to time, all acts
and things which the DIP Agent reasonably deems necessary to protect, preserve
or realize upon the Collateral and the DIP Agent’s lien therein, in order to
effect the intent of this Agreement, all as fully and effectively as the
Borrower and the Guarantors might do.
(b) The
DIP Agent agrees that it will forbear from exercising the power of attorney or
any rights granted to it pursuant to this Section until after the
Termination Date or upon the occurrence and during the continuation of a Default
or Event of Default. The Borrower and the Guarantors hereby ratify,
to the extent permitted by law, all that said attorneys shall lawfully do or
cause to be done by virtue hereof. The power of attorney granted
pursuant to this Section is a power coupled with an interest and shall be
irrevocable until the Post-Petition Obligations and the Adequate Protection
Obligations are paid in full in cash and the DIP Commitments have
terminated.
(c) The
powers conferred on the DIP Agent hereunder are solely to protect the DIP
Agent’s and the Lenders’ interests in the Collateral and shall not impose any
duty upon any of them to exercise any such powers. The DIP Agent
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrower and the Guarantors for
any act or failure to act, except for its or their own gross negligence or
willful misconduct.
(d) The
Borrower and each Guarantor also authorize the DIP Agent, at any time and from
time to time on and after the Termination Date or upon the occurrence and during
the continuation of a Default or Event of Default, (i) to communicate, in
the name of the Borrower or such Guarantor or in the DIP Agent’s own name (at
the DIP Agent’s option), with any party to any contract with regard to the
assignment of the right, title and interest of the Borrower or such Guarantor in
and under the contracts hereunder and other matters relating thereto and
(ii) to execute any endorsements, assignments or other instruments or
conveyance or transfer with respect to the Collateral.
Section
5. Definitions;
Interpretation.
Section
5.1 Definitions. The
following terms when used herein shall have the following meanings:
“Account Debtor” means any
Person obligated to make payment on any Receivable.
“Act” shall have the meaning
set forth in Section 12.24 hereof.
“Administrative Questionnaire”
means an Administrative Questionnaire in a form supplied by the DIP
Agent.
“Adequate Protection
Obligations” means all present and future obligations of the Debtors
under any order or orders of the Bankruptcy Court to pay interest, fees, costs,
expenses and charges on or with respect to the Pre-Petition BMO Obligations and
the Pre-Petition CoBank Obligations under Sections 361 and 506(b) of the
Bankruptcy Code, to compensate the Pre-Petition BMO Lenders and the Pre-Petition
BMO Agent for the post-petition use for and to the extent of the post-petition
use of Pre-Petition BMO Collateral and proceeds thereof and for any
post-petition diminution in value of Pre-Petition BMO Collateral, to compensate
the Pre-Petition CoBank Lenders and the Pre-Petition CoBank Agent for the
post-petition use for and to the extent of the post-petition use of Pre-Petition
CoBank Collateral and proceeds thereof and for any post-petition diminution in
value of Pre-Petition CoBank Collateral and to provide the Replacement Liens as
contemplated by this Agreement and the Financing Orders.
“Administrative Expense
Carve-Out” means (a) $5,000,000 for the payment of costs of winding
up the Chapter 11 Cases and professional fees and disbursements of the Debtors’
professionals and the professionals of any official committee appointed in the
Chapter 11 Cases incurred after the Termination Date (to the extent allowed by
the Bankruptcy Court) plus (b) professional fees and disbursements incurred
or accrued and pending applications for professional fees and disbursements of
the Debtors’ professionals and the professionals of any official committee
appointed in the Chapter 11 Cases (to the extent allowed at any time by the
Bankruptcy Court, whether or not included in the Budget) prior to the
Termination Date and U.S. Trustee fees pursuant to 28 U.S.C. Section 1930
(collectively, the “Carve-Out
Amount”), provided that no part of the Administrative Expense Carve-Out
shall be used to object to or contest any post-petition lien or Post-Petition
Obligations or to challenge (as opposed to investigate) any pre-petition lien of
the Pre-Petition BMO Agent or the Pre-Petition BMO Lenders or to otherwise seek
affirmative relief against the DIP Agent, the Lenders, the Pre-Petition BMO
Agent or the Pre-Petition BMO Lenders.
“Affiliate” means any Person
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, another Person. A Person shall be deemed to
control another Person for purposes of this definition if such Person possesses,
directly or indirectly, the power to direct, or cause the direction of, the
management and policies of the other Person, whether through the ownership of
voting securities, common directors, trustees or officers, by contract or
otherwise; provided
that, (a) in any event for purposes of this definition, any Person
that owns, directly or indirectly, 10% or more of the voting power of the Voting
Stock of a corporation or 10% or more of the voting power of the partnership or
other ownership interest of any other Person (other than as a limited partner of
such other Person) will be deemed to control such corporation or other Person,
and (b) in no event shall the Pre-Petition BMO Agent, any Pre-Petition BMO
Lender, the Pre-Petition CoBank Agent or any Pre-Petition CoBank Lender be an
Affiliate solely as a result of any interest in any capital stock of the
Borrower it may have or acquire as a result of any action taken against Pilgrim
Interests, including without limitation any action to enforce the Pre-Petition
BMO Guaranty.
“Agreed Upon Values” means
(a) $1.50 per head for breeder hens and cockerels, (b) $1.00 per head
for breeder pullets, (c) $0.70 per head for commercial hens, (d) $1.25
per dozen hatching eggs; and (e) $0.40 per head for commercial pullets, provided
that such values shall be adjusted by the Required Lenders on a quarterly basis
to reflect market conditions.
“Agreement” means this
Post-Petition Credit Agreement, as the same may be amended, modified, restated
or supplemented from time to time pursuant to the terms hereof.
“Application” shall have the
meaning set forth in Section 1.2(b) hereof.
“Approved Fund” means any
Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a
Lender or (c) an entity or an Affiliate of an entity that administers or manages
a Lender.
“Assignment and Acceptance”
means an assignment and acceptance entered into by a Lender and an Eligible
Assignee (with the consent of any party whose consent is required by
Section 12.12 hereof), and accepted by the DIP Agent, in substantially the
form of Exhibit H or any other form approved by the DIP Agent.
“Authorized Representative”
means those persons shown on the list of officers provided by the Borrower
pursuant to Section 7.2 hereof or on any update of any such list provided
by the Borrower to the DIP Agent, or any further or different officers of the
Borrower so named by any Authorized Representative of the Borrower in a written
notice to the DIP Agent.
“Available Unrestricted Cash”
means cash in any form, including without limitation amounts on deposit in
deposit accounts, securities accounts, commodity accounts, that is collected
funds and is not subject to any escrow, security deposit or other arrangement
that is otherwise permitted by this Agreement.
“Avicola” means Avicola
Pilgrim’s Pride de Mexico, S. de. R.L. de C.V.
“Avicola Agent” means ING
Capital LLC as agent under the Avicola Pre-Petition Credit
Agreement.
“Avicola Pre-Petition
Collateral” means all collateral security for the Avicola Pre-Petition
Obligations in existence as of the Petition Date or agreed to be granted
thereafter (but only to the extent such future collateral consists of Property
of Avicola and its Subsidiaries) and all proceeds thereof.
“Avicola Pre-Petition
Obligations” means all the indebtedness, obligations and liabilities,
fixed or contingent, of the Borrower, Avicola and Avicola’s Subsidiaries to the
lenders or the Avicola Agent arising or in connection with the Avicola
Pre-Petition Credit Agreement or evidenced by the promissory notes issued by
Avicola thereunder.
“Avicola Pre-Petition Credit
Agreement” means the Credit Agreement, dated as of September 25,
2006 (as amended, restated, amended and restated, or otherwise modified from
time to time), among Avicola, the Borrower and certain subsidiaries of Avicola,
as guarantors, the lenders from time to time party thereto and Avicola
Agent.
“Bankruptcy Code” means The
Bankruptcy Reform Act of 1978, as heretofore and hereafter amended, and codified
as 11 U.S.C. Section 101 et seq.
“Bankruptcy Court” means the
United States Bankruptcy Court for the Northern District of Texas, Fort Worth
Division, or any other court having jurisdiction over the Chapter 11 Cases
from time to time.
“Base Rate” means for any day
the greatest of: (i) the rate of interest announced or otherwise
established by the DIP Agent from time to time as its prime commercial rate, or
its equivalent, for U.S. Dollar loans to borrowers located in the United States
as in effect on such day, with any change in the Base Rate resulting from a
change in said prime commercial rate to be effective as of the date of the
relevant change in said prime commercial rate (it being acknowledged and agreed
that such rate may not be the DIP Agent’s best or lowest rate), and
(ii) the sum of (x) the rate determined by the DIP Agent to be the
average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the
rates per annum quoted to the DIP Agent at approximately 10:00 a.m.
(Chicago time) (or as soon thereafter as is practicable) on such day (or, if
such day is not a Business Day, on the immediately preceding Business Day) by
two or more Federal funds brokers selected by the DIP Agent for sale to the DIP
Agent at face value of Federal funds in the secondary market in an amount equal
or comparable to the principal amount for which such rate is being determined,
plus (y) 1/2 of 1%, and (iii) the LIBOR Quoted Rate for such day plus
1.00%.
“Borrower” shall have the
meaning set forth in the preamble hereof.
“Borrowing” means the total
of Loans of a single type advanced by the Lenders on a single
date. Borrowings of Loans are made and maintained ratably from each
of the Lenders according to their DIP Percentages. A Borrowing is
“advanced” on the day Lenders advance
funds comprising such Borrowing to the Borrower. Borrowings of Swing
Loans are made by the Swing Line Lender in accordance with the procedures set
forth in Section 1.6 hereof.
“Borrowing Base” means, as of
any time it is to be determined on the basis of the information contained in the
most recent Borrowing Base Certificate, the sum of:
(a)80% of
the then outstanding unpaid amount of Eligible Receivables; plus
(b)65% of
the value (computed at the lower of market or cost using the first-in/first-out
method of inventory valuation determined in accordance with GAAP, consistently
applied) of Eligible Inventory consisting of feed grains, feed and ingredients
located at the Borrower’s or a Guarantor’s feed mills or is prepaid in full and
is in transit from the seller thereof to the Borrower or Guarantor;
plus
(c)65% of
the lower of cost or fair wholesale market value (computed on a
first-in/first-out method of inventory valuation in accordance with GAAP,
consistently applied) of Eligible Inventory consisting of dressed broiler
chickens and commercial eggs; plus
(d)65% of
the Value of Eligible Inventory consisting of live broiler chickens;
plus
(e)65% of
the standard cost value of Eligible Inventory consisting of prepared food
products; plus
(f)100%
of the Agreed Upon Values of Eligible Inventory consisting of breeder hens,
breeder pullets, commercial hens, commercial pullets and hatching eggs;
plus
(g)40% of
the actual costs of Eligible Inventory consisting of packaging materials,
vaccines, general supplies, and maintenance supplies; minus
(h)the
aggregate principal amount of all loans, letters of credit (including the bond
letter of credit) and unreimbursed drawings under letters of credit outstanding
under the Pre-Petition BMO Credit Facilities; minus
(i)the
outstanding amount of Secured Grower Payables that are more than 15 days past
due; minus
(j)a
good-faith estimate of the Carve-Out Amount acceptable to the Required Lenders;
minus
(l)a good
faith estimate of all claims under 11 U.S.C. § 503(b)(9);
provided that (i) the
Borrowing Base as determined on any date shall not exceed 222% of the amount
included therein under clause (a) above as of such date, (ii) the DIP Agent
shall have the right, and at the request of the Required Lenders shall, upon
five (5) Business
Days’ notice to the Borrower to reduce the advance rates against Eligible
Receivables and Eligible Inventory in its reasonable credit discretion based on
results from any field audit or appraisal of the Collateral, and (iii) the
Borrowing Base shall be computed only as against and on so much of such
Collateral as is included on the Borrowing Base Certificates furnished from time
to time by the Borrower pursuant to this Agreement and, if required by the DIP
Agent pursuant to any of the terms hereof or any Collateral Document, as
verified by such other evidence reasonably required to be furnished to the DIP
Agent pursuant hereto or pursuant to any such Collateral Document.
“Borrowing Base Certificate”
means the certificate in the form of Exhibit E hereto, or in such other
form acceptable to the DIP Agent, to be delivered to the DIP Agent and the
Lenders pursuant to Sections 7.2 and 8.5 hereof.
“Budget” means the budget
projecting the Debtors’ budgeted cash receipts and disbursements (including
Costs of Reorganization) on a weekly basis for 13 weeks. The initial
Budget is the budget attached to the Interim Financing Order, as such budget may
from time to time be updated or otherwise modified as provided in this
Agreement. Any use of the phrases “consistent with”, “to the extent
provided for”, “included in”, “pursuant to”, “shown in”, “covered by”, “set
forth in”, “contemplated in” or any similar reference when used with respect to
the Budget shall mean and refer to the Budget and any permitted variances
thereto or therein.
“Budget Report” shall have the
meaning set forth in Section 8.5(m) hereof.
“Business Day” means any day
(other than a Saturday or Sunday) on which banks are not authorized or required
to close in Chicago, Illinois.
“Capital Expenditures” means,
for any period as applied to the Restricted Group, the aggregate of, without
duplication, all expenditures of the Restricted Group during such period that,
in conformity with GAAP, are or should be included in “purchase of property and
equipment” or similar items reflected in the statement of cash flows of the
Restricted Group; provided that the term
“Capital Expenditures” shall not include such expenditures which constitute (a)
purchases using casualty or condemnation proceeds not included in Net Proceeds
for events arising after the Petition Date, (b) purchases using Net Proceeds
reinvested by the Debtors as permitted by this Agreement in assets useful to
their businesses, (c) interest attributable to such expenditures that is
capitalized during such period, and (d) expenditures that are accounted for as
capital expenditures of the Restricted Group and that actually are paid for by a
third party and for which none of the members of the Restricted Group has
provided or is required to provide or incur, directly or indirectly, any
consideration or obligation to such third party or any other Person (whether
before, during or after such period).
“Capital Lease” means any
lease of Property which in accordance with GAAP is required to be capitalized on
the balance sheet of the lessee.
“Capitalized Lease
Obligation” means, for any Person, the amount of the liability shown on
the balance sheet of such Person in respect of a Capital Lease determined in
accordance with GAAP.
“Carve-Out Amount” shall have
the meaning set forth in the definition of the term “Administrative Expense
Carve-Out.”
“Cash Collateral” means the
cash collateral (within the meaning of Section 363 of the Bankruptcy Code)
subject to the Liens securing the Post-Petition Obligations or any portion
thereof.
“Cash Collateral Account”
shall have the meaning set forth in Section 4.4 hereof.
“CERCLA” means the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.
§§ 9601 et seq., and any future amendments.
“Change of Control” means any
of (a) the acquisition by any “person” or “group” (as such terms are used
in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) at any time of beneficial ownership of more than 25% of the voting
power of the Voting Stock or other equity interests of the Borrower on a
fully-diluted basis, other than acquisitions of such interests by
(x) Lonnie A. “Bo” Pilgrim, his spouse, his issue, his estate and any
trust, partnership or other entity primarily for the benefit of him, his spouse
and/or issue, including any direct or indirect trustee, managing partner or such
other Person serving a similar function or Pilgrim Interests, (y) the
Pre-Petition BMO Lenders, the Pre-Petition BMO Agent, the Pre-Petition CoBank
Lenders and the Pre-Petition CoBank Agent, (b) the failure of individuals
who are members of the board of directors (or similar governing body) of the
Borrower on the Closing Date (together with any new or replacement directors
whose initial nomination for election was approved by a majority of the
directors who were either directors on the Closing Date or previously so
approved) to constitute a majority of the board of directors (or similar
governing body) of the Borrower, or (c) any “Change of Control” (or words
of like import), as defined in any agreement or indenture relating to any issue
of Indebtedness for Borrowed Money in an outstanding principal amount in excess
of $1,000,000 of the Borrower or any Subsidiary that is incurred after the
Petition Date shall occur.
“Chapter 11 Case” shall
have the meaning set forth in the preamble hereof.
“Closing Date” means the date
of this Agreement or such later Business Day upon which each condition described
in Section 7.2 shall be satisfied or waived in a manner acceptable to the
DIP Agent in its discretion, but in any event no later than December 10,
2008, or any later date that may be agreed to by the Required
Lenders.
“Code” means the Internal
Revenue Code of 1986, as amended, and any successor statute
thereto.
“Collateral” shall have the
meaning set forth in Section 4.1 hereof.
“Collection Account” shall
have the meaning set forth in Section 4.3 hereof.
“Collateral Documents” means
any and all mortgages, deeds of trust, security agreements, pledge agreements,
assignments, financing statements and other documents as shall from time to time
secure or relate to the Post-Petition Obligations or any part
thereof.
“Controlled Group” means all
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower, are treated as a single employer under Section 414 of the
Code.
“Costs of Reorganization”
shall mean all legal, professional and advisory fees paid by the Debtors
(whether or not incurred by the Debtors) in connection with the Chapter 11 Cases
as set forth in the Budget and approved in the Financing Order or as may be
otherwise approved from time to time by the Bankruptcy Court, subject to the
Lenders’ and the DIP Agent’s right to object thereto.
“Credit Event” means the
advancing of any Loan, or the issuance of, or extension (other than an automatic
extension) of the expiration date or increase in the amount of, any Letter of
Credit.
“Debtor” shall have the
meaning set forth in the preamble hereof.
“Default” means any event or
condition the occurrence of which would, with the passage of time or the giving
of notice, or both, constitute an Event of Default.
“Default Rate” shall have the
meaning set forth in Section 1.9 hereof.
“Designated Disbursement
Account” means the account of the Borrower maintained with the DIP Agent
or its Affiliate and designated in writing to the DIP Agent as the Borrower’s
Designated Disbursement Account (or such other account as the Borrower and the
DIP Agent may otherwise agree).
“Designated Officer” means
the Borrower’s directors, chief executive officer, president, chief financial
officer, chief restructuring officer and all officers responsible for
supervising compliance with the United States securities laws.
“DIP Agent” means Bank of
Montreal, in is capacity as DIP Agent hereunder, and any successor in such
capacity pursuant to Section 11.7 hereof.
“DIP Approval” means approval
by the Required Lenders or, in urgent circumstances in which there is
insufficient time for the DIP Agent to consult the Lenders, the DIP
Agent. The DIP Agent shall thereafter promptly notify the Lenders of
any approvals given by it.
“DIP Commitment” means, as to
any Lender, the obligation of such Lender to make DIP Loans and to participate
in Swing Loans and Letters of Credit issued for the account of the Borrower
hereunder in an aggregate principal or face amount at any one time outstanding
not to exceed the amount set forth opposite such Lender’s name on
Schedule 1 attached hereto and made a part hereof, as the same may be
reduced or modified at any time or from time to time pursuant to the terms
hereof. The Borrower and the Lenders acknowledge and agree that the
DIP Commitments of the Lenders aggregate $450,000,000 on the date
hereof.
“DIP Credit Facility” or “DIP Credit” or “Facility” means the
debtor-in-possession facility extended to the Borrower by the Lenders
hereunder.
“DIP Loan” shall have the
meaning set forth in Section 1.1 hereof.
“DIP Percentage” means,
for each Lender, the percentage of the DIP Commitments represented by such
Lender’s DIP Commitment or, if the DIP Commitments have been terminated, the
percentage held by such Lender (including through participation interests in
Reimbursement Obligations) of the aggregate principal amount of all DIP Loans
and L/C Obligations then outstanding.
“Disposition” means the sale,
lease, conveyance or other disposition of Property, other than sales or other
dispositions expressly permitted under Sections 8.10(a), (b), (e), (f), (g)
or (h) hereof.
“Domestic Subsidiary” means a
Subsidiary that is not a Foreign Subsidiary.
“Eligible Assignee” means
(a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund,
and (d) any other Person (other than a natural person) approved by
(i) the DIP Agent, and (ii) in the case of any assignment of a DIP
Commitment, the L/C Issuer (each such approval not to be unreasonably
withheld or delayed); provided that notwithstanding
the foregoing, “Eligible Assignee” shall not include the Borrower or any
Guarantor or any of the Borrower’s or such Guarantor’s Affiliates or
Subsidiaries.
“Eligible Inventory” means
any inventory of the Borrower or any Guarantor which:
(a)consists
solely of feed grains, feed, ingredients, live and dressed broiler chickens,
commercial eggs, breeder hens, breeder pullets, hatching eggs, commercial hens,
commercial pullets, prepared food products, packaging materials, vaccines,
general supplies, and maintenance supplies, but excluding in any event feed
ingredients that are subject to any Liens granted to the sellers of such feed
ingredients to secure the unpaid purchase price thereof;
(b)is an
asset of such Person to which it has good and marketable title, is freely
assignable, and is subject to a perfected, first priority lien in favor of the
DIP Agent free and clear of any other liens (other than Permitted Liens or Liens
arising by operation of law in each case which are subordinate to the Liens in
favor of the DIP Agent);
(c)is
located in the United States of America at a permitted collateral location as
set forth in the security agreement and, in the case of any location not owned
by such Person, if requested by the DIP Agent, which is at all times subject to
a lien waiver agreement from such landlord or other third party to the extent
required by, and in form and substance reasonably satisfactory to, the DIP
Agent;
(d)is not
so identified to a contract to sell that it constitutes a
Receivable;
(e)is not
obsolete, and is readily usable or salable by the Borrower or Guarantor in the
ordinary course of business;
(f)is not
covered by a warehouse receipt or similar document unless, if requested by the
DIP Agent, such warehouse receipt or similar document has been delivered to the
DIP Agent or an agent or bailee of the DIP Agent;
(g)is not
proprietary inventory of any customer of the Borrower or a Guarantor;
and
(h)is
deemed by the Required Lenders in their sole judgment to be acceptable for
inclusion in the Borrowing Base.
“Eligible Receivables” means
any Receivable of the Borrower or any Guarantor which:
(a)arises
out of the sale of finished goods inventory delivered to and accepted by, or out
of the rendition of services fully performed and accepted by, the Account Debtor
on such Receivable, such Receivable does not represent a pre-billed Receivable
or a progress billing, and such Receivable is net of any deposits made by or for
the account of the relevant Account Debtor;
(b)is
payable in U.S. Dollars and the Account Debtor on such Receivable is located
within the United States of America or, if such right has arisen out of the sale
of such goods shipped to, or out of the rendition of services to, an Account
Debtor located in any other country, such right is either (i) secured by a
valid and irrevocable transferable letter of credit issued by a lender
reasonably acceptable to the DIP Agent for the full amount thereof or
(ii) secured by an insurance policy on terms, and issued by EXIM Bank or
another insurer, satisfactory to the DIP Agent (which in any event shall insure
not less than ninety percent (90%) of the face amount of such Receivable and
shall be subject to such deductions as are acceptable to the DIP Agent), and in
each case which has been assigned or transferred to the DIP Agent in a manner
acceptable to the DIP Agent;
(c)is the
valid, binding and legally enforceable obligation of the Account Debtor
obligated thereon and such Account Debtor is not (i) a Subsidiary or an
affiliate of the Borrower, (ii) a shareholder, director, officer or
employee of the Borrower or any Guarantor, (iii) the United States of
America, or any state or political subdivision thereof, or any department,
agency or instrumentality of any of the foregoing, unless the Assignment of
Claims Act or any similar state or local statute, as the case may be, is
complied with to the satisfaction of the DIP Agent, (iv) a debtor under any
proceeding under the United States Bankruptcy Code, as amended, or any other
comparable bankruptcy or insolvency law, or (v) an assignor for the benefit
of creditors;
(d)is not
evidenced by an instrument or chattel paper unless the same has been endorsed
and delivered to the DIP Agent;
(e)is an
asset of such Person to which it has good and marketable title, is freely
assignable, and is subject to a perfected, first priority Lien in favor of the
DIP Agent free and clear of any other Liens (other than Permitted Liens or Liens
arising by operation of law in each case that are subordinate to the Liens in
favor of the DIP Agent);
(f)is not
subject to any offset, counterclaim or other defense with respect thereto (but
solely to the extent of such offset, counterclaim or other
defense);
(g)no
surety bond was required or given in connection with said Receivable or the
contract or purchase order out of which the same arose;
(h)it is
evidenced by an invoice to the Account Debtor dated not more than
5 Business Days subsequent to the shipment date of the relevant inventory
or completion of performance of the relevant services and is issued on ordinary
trade terms;
(i)is not
unpaid more than 45 days after the original invoice date;
(j)is not
owed by an Account Debtor who is obligated on Receivables more than 10% of the
aggregate unpaid balance of which have been past due for longer than the
relevant period specified in subsection (i) above unless the DIP Agent has
approved the continued eligibility thereof;
(k)would
not cause the total Receivables owing from any one Account Debtor and its
Affiliates to exceed 15% of all Eligible Receivables;
(l)does
not arise from a sale on a bill-and-hold, guaranteed sale, sale-or-return,
sale-on-approval, consignment or any other repurchase or return basis;
and
(m)is
deemed by the Required Lenders in their sole judgment to be acceptable for
inclusion in the Borrowing Base.
“Environmental Claim” means
any investigation, notice, violation, demand, allegation, action, suit,
injunction, judgment, order, consent decree, penalty, fine, lien,
proceeding or claim (whether administrative, judicial or private in nature)
arising (a) pursuant to, or in connection with an actual or alleged
violation of, any Environmental Law, (b) in connection with any Hazardous
Material, (c) from any abatement, removal, remedial, corrective or
response action in connection with a Hazardous Material, Environmental Law or
order of a governmental authority or (d) from any actual or alleged damage,
injury, threat or harm to health and safety of humans, natural resources or the
environment.
“Environmental Law” means any
applicable current or future Legal Requirement pertaining to (a) the
protection of health and safety of humans and the indoor or outdoor environment,
(b) the conservation, management or use of natural resources and wildlife,
(c) the protection or use of surface water or groundwater, (d) the
management, manufacture, possession, presence, use, generation, transportation,
treatment, storage, disposal, Release, threatened Release, abatement, removal,
remediation or handling of, or exposure to, any Hazardous Material or
(e) pollution (including any Release to air, land, surface water or
groundwater), and any amendment, rule, regulation, order or directive issued
thereunder.
“ERISA” means the Employee
Retirement Income Security Act of 1974, as amended, or any successor statute
thereto.
“Essential Creditor” means
(a) essential trade creditors who agree to provide goods and services to
the Debtors on terms consistent with a Normalized Trade Creditor, and
(b) the holders of tax claims and employee-related claims to the extent
provided for in the Budget or, if not provided for in the Budget, subject to DIP
Approval.
“Essential Trade Creditor”
means any Essential Creditor who is a trade creditor.
“Eurodollar Reserve
Percentage” means, for any Borrowing of Loans, the daily average for the
applicable interest period of the maximum rate, expressed as a decimal, at which
reserves (including, without limitation, any supplemental, marginal, and
emergency reserves) are imposed during such Interest Period by the Board of
Governors of the Federal Reserve System (or any successor) on “eurocurrency
liabilities,” as
defined in such Board’s Regulation D (or in respect of any other category
of liabilities that includes deposits by reference to which the interest rate on
the Loans is determined or any category of extensions of credit or other assets
that include loans by non-United States offices of any Lender to United States
residents), subject to any amendments of such reserve requirement by such Board
or its successor, taking into account any transitional adjustments
thereto. For purposes of this definition, the Loans shall be deemed to
be “eurocurrency liabilities” as defined in Regulation D without benefit or
credit for any prorations, exemptions or offsets under
Regulation D.
“Event of Default” means any
event or condition identified as such in Section 9.1 hereof.
“Event of Loss” means, with
respect to any Property, any of the following: (a) any loss,
destruction or damage of such Property or (b) any condemnation, seizure, or
taking, by exercise of the power of eminent domain or otherwise, of such
Property, or confiscation of such Property or the requisition of the use of such
Property.
“Excess Interest” is defined
in Section 12.20 hereof.
“Fairway Receivables Securitization
Program” means the accounts receivable securitization program provided to
the Borrower under the Receivables Purchase Agreement.
“Federal Funds Rate” means
the fluctuating interest rate per annum described in part (x) of
clause (ii) of the definition of Base Rate.
“Final Financing Order” shall
mean a final order of the Bankruptcy Court authorizing and approving the DIP
Credit Facility, in substantially the form of the Interim Financing Order and
otherwise acceptable to the DIP Agent and the Required Lenders as to form and
substance.
“Financing Order” shall mean
the Interim Financing Order prior to entry of the Final Financing Order and
shall mean the Final Financing Order at all times thereafter.
“Foreign Subsidiary” means
each Subsidiary which (a) is organized under the laws of a jurisdiction
other than the United States of America or any state thereof or the District of
Columbia, (b) conducts substantially all of its business outside of the
United States of America, and (c) has substantially all of its assets
outside of the United States of America. For this purpose the term
“United States of
America” shall exclude the Territories and Possessions of the United
States. For the avoidance of doubt, in no event shall Puerto Rico be
considered part of the “United
States of America”.
“Fund” means any Person
(other than a natural person) that is (or will be) engaged in making,
purchasing, holding or otherwise investing in commercial loans and similar
extensions of credit in the ordinary course of its business.
“GAAP” means generally
accepted accounting principles set forth from time to time in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of comparable
stature and authority within the U.S. accounting profession), which are
applicable to the circumstances as of the date of determination.
“Gold Kist Insurance” means
GK Insurance Company.
“Guarantor” and “Guarantors” shall have the
meaning set forth in Section 1.12 hereof.
“Guaranty” and “Guaranties” shall have the
meaning set forth in Section 1.12 hereof.
“Hazardous Material” means
any substance, chemical, compound, product, solid, gas, liquid, waste,
byproduct, pollutant, contaminant or material which is hazardous or toxic, and
includes, without limitation, (a) asbestos, polychlorinated biphenyls and
petroleum (including crude oil or any fraction thereof) and (b) any
material classified or regulated as “hazardous” or “toxic” or words of like
import pursuant to an Environmental Law.
“Hazardous Material Activity”
means any activity, event or occurrence involving a Hazardous Material,
including, without limitation, the manufacture, possession, presence, use,
generation, transportation, treatment, storage, disposal, Release, threatened
Release, abatement, removal, remediation, handling of or corrective or response
action to any Hazardous Material.
“Incur” shall have the
meaning set forth in Section 8.23 hereof.
“Indebtedness for Borrowed
Money” means for any Person (without duplication) (a) all
indebtedness created, assumed or incurred in any manner by such Person
representing money borrowed (including by the issuance of debt securities),
(b) all indebtedness for the deferred purchase price of property or
services (other than trade accounts payable arising in the ordinary course of
business), (c) all indebtedness secured by any Lien upon Property of such
Person, whether or not such Person has assumed or become liable for the payment
of such indebtedness, (d) all Capitalized Lease Obligations of such Person,
and (e) all obligations of such Person on or with respect to letters of
credit and bankers’ acceptances whether or not representing obligations for
borrowed money.
“Information” shall have the
meaning set forth in Section 12.29 hereof.
“Insurance Subsidiaries”
means Gold Kist Insurance and Mayflower.
“Intercompany Bonds” means
(a) industrial revenue bonds and similar financing arrangements in an aggregate
principal amount of approximately $57,500,000 assigned to the Borrower in
connection with and as part of the acquisition by the Borrower of the stock of
certain Subsidiaries of ConAgra Foods, Inc., a Delaware corporation, and (b) any
industrial revenue bonds, notes, debentures or similar instruments issued by a
governmental entity on behalf of the Borrower or a Subsidiary and concurrently
with or following its issuance purchased by the Borrower or a
Subsidiary.
“Interim Financing Order”
shall mean an order entered by the Bankruptcy Court on an interim basis after
notice given in a hearing conducted in accordance with Bankruptcy
Rule 4001(c) and in substantially the form attached hereto as
Exhibit C.
“Interim Financing Order
Amount” means the amount of the DIP Commitments approved by the
Bankruptcy Court in the Interim Financing Order that will be available to the
Borrower during the period from the Closing Date through the date the Final
Financing Order is entered.
“Joint Venture” means any
corporation, partnership or other entity or arrangement in which the Borrower or
any Subsidiary owns or controls any, but not more than 70%, of the Voting
Stock.
“L/C Issuer” means Bank
of Montreal, in its capacity as the issuer of Letters of Credit hereunder, and
its successors in such capacity as provided in Section 1.2(h)
hereof.
“L/C Obligations” means the
aggregate undrawn face amounts of all outstanding Letters of Credit and all
unpaid Reimbursement Obligations.
“L/C Sublimit” means
$20,000,000, as reduced pursuant to the terms hereof.
“Legal Requirement” means any
applicable treaty, convention, statute, law, regulation, ordinance, license,
permit, governmental approval, injunction, judgment, order, consent decree or
other requirement of any governmental authority, whether federal, state, or
local.
“Lenders” means and includes
Bank of Montreal and the other financial institutions from time to time party to
this Agreement, including each assignee Lender pursuant to Section 12.12
hereof and, unless the context otherwise requires, the Swing Line
Lender.
“Letter of Credit” shall have
the meaning set forth in Section 1.2(a) hereof.
“LIBOR01 Page” means the
display designated as “Reuters Screen LIBOR01 Page” (or such other page as may
replace the LIBOR01 Page on that service or such other service as may be
nominated by the British Bankers’ Association as the information vendor for the
purpose of displaying British Bankers’ Association Interest Settlement Rates for
U.S. Dollar deposits).
“LIBOR Quoted Rate” means,
for any date, the rate per annum determined by a fraction, the numerator of
which is the rate per annum (rounded upwards, if necessary, to the next higher
one hundred-thousandth of a percentage point) for deposits in U.S. Dollars for
an interest period equal to one month, which appears on the LIBOR01 Page as of
11:00 a.m. (London, England time) on such date and the denominator of which
is 1 minus the Eurodollar Reserve Percentage.
“Lien” means any mortgage,
lien, security interest, pledge, charge or encumbrance of any kind in respect of
any Property, including the interests of a vendor or lessor under any
conditional sale, Capital Lease or other title retention
arrangement.
“Lien Finding” means an order
of the Bankruptcy Court in form and substance satisfactory to the DIP Agent
finding that the Pre-Petition BMO Lenders are fully secured by the Pre-Petition
BMO Collateral by means of a valid, first priority (subject to Liens permitted
under the Pre-Petition BMO Credit Agreement), senior, fully perfected and
non-avoidable security interest and lien on the Pre-Petition BMO Primary
Collateral.
“Loan” means any DIP Loan or
Swing Loan.
“Loan Documents” means this
Agreement, the Notes (if any), the Applications, the Collateral Documents, the
Guaranties, and each other instrument or document to be delivered hereunder or
thereunder or otherwise in connection therewith.
“Material Adverse Effect”
means (a) a material adverse change in the condition or prospects (financial or
otherwise), of the Borrower and its Subsidiaries taken as a whole after the
Petition Date, (b) a material impairment of the ability of the Borrower or
of the Debtors, taken as a whole, to perform their respective obligations under
any Loan Document or (c) a material adverse effect upon (i) the
legality, validity, binding effect or enforceability against the Borrower or of
the Debtors, taken as a whole, of any Loan Document or the rights and remedies
of the DIP Agent and the Lenders thereunder or (ii) the perfection or
priority of any Lien granted under this Agreement or any Financing
Order.
“Material Non-debtor Subsidiaries”
means, as of any date, any one or more Non-debtor Subsidiaries of the
Borrower having assets that in the aggregate constitute more than 5%
of the total assets of the Borrower and its Subsidiaries at such time, but in
any event shall include the Insurance Subsidiaries and Avicola and its
Subsidiaries.
“Material Plan” shall have
the meaning set forth in Section 9.1(i) hereof.
“Maturity Date” means
December 1, 2009, provided that the Maturity Date may be extended for an
additional 6 months at the request of the Borrower received no later than 45
days prior to the Maturity Date with the prior written consent of all of the
Lenders. In the event any Lender does not respond in writing prior to
the Maturity Date to any request for an extension of the Maturity Date such
Lender shall be deemed to have refused to agree to the requested
extension.
“Maximum Rate” shall have the
meaning set forth in Section 12.20 hereof.
“Mayflower” means Mayflower
Insurance Company, Ltd.
“Minority Lenders” shall have
the meaning set forth in Section 1.13 hereof.
“Net Proceeds” shall mean the
gross sale price less actual taxes payable and the reasonable out-of-pocket
costs of such sale (including without limitation broker’s fees and closing
costs) and the amount of all obligations secured by Permitted Liens that are
senior to the DIP Agent’s Liens in the Collateral and the Replacement Liens,
provided that Net Proceeds shall not include any casualty or condemnation
proceeds to the extent the Borrower or the relevant Guarantor has elected to use
such proceeds to repair, rebuild, or replace the assets subject to such casualty
or condemnation, no Event of Default exists and is continuing and, solely to the
extent of proceeds in excess of $10,000,000 or such higher amount as the
Required Lenders may approve with respect to any single casualty or condemnation
event, the Required Lenders have approved such repair, rebuilding or
replacement. Any Property so repaired, rebuilt or replaced shall
constitute part of the Collateral and shall be subject to the Replacement
Liens.
“Non-debtor Subsidiary” means
a Subsidiary of the Borrower that is not a debtor or debtor-in-possession in a
proceeding under the Bankruptcy Code.
“Normalized Trade Creditor”
shall mean an Essential Trade Creditor that has agreed with the relevant Debtor
to continue to extend credit and supply goods and/or services to the relevant
Debtor on terms consistent with those in effect on September 15, 2008, or
subject to DIP Approval and consistent with the assumptions used in the
projections of the Borrower that support feasibility of the
Borrower.
“Note” and “Notes” shall have the
meaning set forth in Section 1.10 hereof.
“Participating Interest”
shall have the meaning set forth in Section 1.2(e) hereof.
“Participating Lender” shall
have the meaning set forth in Section 1.2(e) hereof.
“PBGC” means the Pension
Benefit Guaranty Corporation or any Person succeeding to any or all of its
functions under ERISA.
“Permitted Liens” shall mean
Liens permitted by Section 8.8 hereof.
“Person” means an individual,
partnership, corporation, limited liability company, association, trust,
unincorporated organization or any other entity or organization, including a
government or agency or political subdivision thereof.
“Petty Cash and Payroll
Accounts” is defined in Section 4.3 hereof.
“Petition Date” shall have
the meaning set forth in the Preliminary Statement hereto.
“Pilgrim Interests” means
Pilgrim Interests, Ltd., a Texas limited partnership.
“Plan” means any employee
pension benefit plan covered by Title IV of ERISA or subject to the minimum
funding standards under Section 412 of the Code that either (a) is
maintained by a member of the Controlled Group for employees of a member of the
Controlled Group or (b) is maintained pursuant to a collective bargaining
agreement or any other arrangement under which more than one employer makes
contributions and to which a member of the Controlled Group is then making or
accruing an obligation to make contributions or has within the preceding five
plan years made contributions.
“Post-Petition Obligations”
shall mean any and all present and future indebtedness, obligations and
liabilities, fixed or contingent, of the Borrower and the Guarantors to the
Lenders or the DIP Agent arising on and after the date hereof under or in
connection with this Agreement, the Financing Orders or the other Loan Documents
or evidenced by the Notes or in connection with the Letters of Credit, including
without limitation the payment of the principal of and interest on the Loans and
the Reimbursement Obligations.
“Premises” means the real
property owned or leased by the Borrower or any Subsidiary.
“Pre-Petition BMO Agent”
shall mean Bank of Montreal, Chicago Branch, in its capacity as administrative
agent under the Pre-Petition BMO Credit Agreement.
“Pre-Petition BMO
Applications” means the various letter of credit applications and
reimbursement agreements executed and delivered by the Borrower to various
Pre-Petition BMO Lenders acting as issuers of letters of credit under the
Pre-Petition BMO Credit Agreement, as the same may be supplemented, amended,
restated or otherwise modified from time to time and any agreement entered into
in substitution therefor or replacement thereof.
“Pre-Petition BMO Collateral”
means all collateral security for the Pre-Petition BMO Obligations which was in
existence as of the Petition Date and all proceeds thereof.
“Pre-Petition BMO Credit
Agreement” shall mean that certain Fourth Amended and Restated Credit
Agreement dated as of February 8, 2007, by and between the Borrower, the
Pre-Petition Foreign Borrowers, the several lenders and letter of credit issuers
from time to time parties thereto, and Bank of Montreal, Chicago Branch, as
administrative agent, as the same has from time to time been modified or
amended.
“Pre-Petition BMO Credit
Facilities” means the credit facilities provided under the Pre-Petition
BMO Credit Agreement.
“Pre-Petition BMO Guaranty”
means the Second Amended and Restated Guaranty Agreement dated as of
February 8, 2007, from Pilgrim Interests to the Pre-Petition BMO Agent and
the Pre-Petition BMO Lenders, as the same may be supplemented, amended, restated
or otherwise modified from time to time and any agreement entered into in
substitution therefor or replacement thereof.
“Pre-Petition BMO Lenders”
means the several lenders and letter of credit issuers from time to time parties
to the Pre-Petition BMO Credit Agreement.
“Pre-Petition BMO Loan
Documents” shall mean the Pre-Petition BMO Credit Agreement, the
Pre-Petition BMO Security Documents, the Pre-Petition BMO Guaranty, the
Pre-Petition BMO Reimbursement Agreement, the Pre-Petition BMO Applications, and
any other security agreement, pledge agreement, deed of trust, mortgage,
collateral assignment, financing statement or other instrument or agreement
executed and delivered in connection therewith.
“Pre-Petition BMO Loans”
shall mean the loans provided for by the Pre-Petition BMO Credit
Agreement.
“Pre-Petition BMO
Obligations” shall mean all the indebtedness, obligations and
liabilities, fixed or contingent, of the Borrower and its Subsidiaries to the
Pre-Petition BMO Lenders or the Pre-Petition BMO Agent arising under or in
connection with the Pre-Petition BMO Credit Agreement or evidenced by the
promissory notes issued by the Borrower thereunder or in connection with the
letters of credit issued by the Pre-Petition BMO Lenders thereunder, including
without limitation the payment of the principal of and interest on the
Pre-Petition BMO Loans made thereunder and the Pre-Petition BMO Reimbursement
Obligations and all amounts relating to interest rate protection agreements
relating to any of the foregoing.
“Pre-Petition BMO Primary
Collateral” means all collateral security for the Pre-Petition BMO
Obligations provided under the Pre-Petition BMO Working Capital Security
Agreement which was in existence as of the Petition Date and all proceeds
thereof.
“Pre-Petition BMO Reimbursement
Agreement” means the Reimbursement Agreement dated as of June 15,
1999, between the Borrower and Harris N.A., successor by merger to Harris Trust
and Savings Bank, as the same may be supplemented, amended, restated or
otherwise modified from time to time and any agreement entered into in
substitution therefor or replacement thereof.
“Pre-Petition BMO Reimbursement
Obligations” shall mean the obligation of the Borrower to reimburse the
issuers of letters of credit under the Pre-Petition BMO Credit Agreement, the
Pre-Petition BMO Applications and the Pre-Petition BMO Reimbursement Agreement
for amounts drawn under such letters of credit.
“Pre-Petition BMO Security
Documents” shall mean the Pre-Petition BMO Working Capital Security
Agreement, and all other security documents delivered to the Pre-Petition BMO
Agent granting a Lien on Property of any Person to secure the obligations and
liabilities of any Debtor or any Pre-Petition Foreign Borrower under the
Pre-Petition BMO Loan Documents.
“Pre-Petition BMO Working Capital
Security Agreement” means the Third Amended and Restated Security
Agreement Re: Inventory and Farm Products dated as of October 13, 2008,
from the Borrower to the Pre-Petition BMO Agent, as the same may be
supplemented, amended, restated or otherwise modified from time to time and any
agreement entered into in substitution therefor or replacement
thereof.
“Pre-Petition CoBank Agent”
is defined in the definition of the term “Pre-Petition CoBank Credit
Agreement.”
“Pre-Petition CoBank
Collateral” means all collateral security for the Pre-Petition CoBank
Obligations which was in existence as of the Petition Date and all proceeds
thereof.
“Pre-Petition CoBank Credit
Agreement” means the Amended and Restated Credit Agreement dated as of
September 21, 2006, among the Borrower, CoBank, ACB, as administrative,
documentation and collateral agent for the benefit of the present and future
syndication parties (in its capacity as administrative agent, the “Pre-Petition CoBank Agent”),
lead arranger and book manager thereunder and as a syndication party, Farm
Credit Services of America, FLCA, as co-arranger and as a syndication party, and
the other syndication parties party thereto, as amended, supplemented, restated
and otherwise modified from time to time (as so amended, supplemented, restated
and otherwise modified from time to time).
“Pre-Petition CoBank Credit
Facilities” means the credit facilities provided under the Pre-Petition
CoBank Credit Agreement.
“Pre-Petition CoBank Lenders”
means the several lenders from time to time parties to the Pre-Petition CoBank
Credit Agreement.
“Pre-Petition CoBank Loan
Documents” shall mean the Pre-Petition CoBank Credit Agreement, the
Pre-Petition CoBank Security Documents and any other security agreement, pledge
agreement, deed of trust, mortgage, collateral assignment, financing statement
or other instrument or agreement executed and delivered in connection
therewith.
“Pre-Petition CoBank
Mortgages” shall mean any and all mortgages, deeds of trust, deeds to
secured debt and other instruments or documents granting or creating a Lien on
real property (or any interest therein) at any time delivered to the
Pre-Petition CoBank Agent or any Pre-Petition CoBank Lenders to provide
collateral security for any indebtedness, obligations and liabilities of the
Borrower under the Pre-Petition CoBank Loan Documents.
“Pre-Petition CoBank
Obligations” shall mean all the indebtedness, obligations and
liabilities, fixed or contingent, of the Borrower and its Subsidiaries to the
Pre-Petition CoBank Lenders or the Pre-Petition CoBank Agent arising under or in
connection with the Pre-Petition CoBank Credit Agreement or evidenced by the
promissory notes issued by the Borrower thereunder, including without limitation
the payment of the principal of and interest on the loans and other extensions
of credit made thereunder and all amounts relating to interest rate protection
agreements relating to any of the foregoing.
“Pre-Petition CoBank Primary
Collateral” means all collateral security for the Pre-Petition CoBank
Obligations provided under the Pre-Petition CoBank Mortgages and the
Pre-Petition CoBank Security Agreement which was in existence as of the Petition
Date and all proceeds thereof.
“Pre-Petition CoBank Security
Agreement” shall mean the Amended and Restated Security and Pledge
Agreement dated as of September 21, 2006, from the Borrower to the
Pre-Petition CoBank Agent, as the same may be supplemented, amended, restated or
otherwise modified from time to time and any agreement entered into in
substitution therefor or replacement thereof.
“Pre-Petition CoBank Security
Documents” shall mean the Pre-Petition CoBank Security Agreement, the
Pre-Petition CoBank Mortgages and all other security documents delivered to the
Pre-Petition CoBank Agent granting a Lien on Property of any Person to secure
the obligations and liabilities of any Debtor under the Pre-Petition CoBank Loan
Documents.
“Pre-Petition Foreign
Borrower” means each of To-Ricos, Ltd., a Bermuda company, and To-Ricos
Distribution, Ltd., a Bermuda company.
“Property” means, as to any
Person, all types of real, personal, tangible, intangible or mixed property
owned by such Person whether or not included in the most recent balance sheet of
such Person and its subsidiaries under GAAP.
“RCRA” means the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976
and Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et
seq., and any future amendments.
“Receivables” means all
rights to the payment of a monetary obligation, now or hereafter owing to the
Borrower or any Guarantor, evidenced by accounts, instruments, chattel paper,
payment intangibles or general intangibles.
“Receivables Purchase
Agreement” means the Amended and Restated Receivables Purchase Agreement
dated as of September 26, 2008, among Pilgrim’s Pride Funding Corporation,
as Seller, the Borrower, as Servicer, the various purchasers and purchaser
agents from time to time parties thereto and BMO Capital Markets Corp., as
Administrator, as supplemented, amended, restated and otherwise modified from
time to time.
“Register” shall have the
meaning set forth in Section 12.12(b) hereof.
“Reimbursement Obligation”
shall have the meaning set forth in Section 1.2(c) hereof.
“Release” means any spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, migration, dumping, or disposing into the indoor or outdoor
environment, including, without limitation, the abandonment or discarding of
barrels, drums, containers, tanks or other receptacles containing or previously
containing any Hazardous Material.
“Replacement Liens” means
(a) with respect to the Pre-Petition BMO Credit Facilities, the replacement
Liens granted to the Pre-Petition BMO Agent on all Collateral for and to the
extent of the post-petition use of Pre-Petition BMO Collateral and proceeds
thereof and for any post-petition diminution in value of Pre-Petition BMO
Collateral, and (b) with respect to the Pre-Petition CoBank Credit
Facilities, the replacement Liens granted to the Pre-Petition CoBank Agent on
all Collateral for and to the extent of the post-petition use of Pre-Petition
CoBank Collateral and proceeds thereof and for any post-petition diminution in
value of Pre-Petition CoBank Collateral
“Reporting Date” means, with
respect to any month, the date occurring the number of days after the last day
of such month set forth below opposite such month:
|
Month
|
Number
of days after the last day of the month
|
|
October
|
60
|
|
November
|
30
|
|
December
|
45
|
|
January
|
45
|
|
February
|
30
|
|
March
|
45
|
|
April
|
45
|
|
May
|
30
|
|
June
|
45
|
|
July
|
45
|
|
August
|
30
|
|
September
|
90
|
“Required Lenders” means, as
of the date of determination thereof, Lenders holding more than 50% of the DIP
Commitments then in effect or, if the DIP Commitments have been terminated or
expired, Lenders whose outstanding Loans and interests in Letters of Credit
constitute more than 50% of the sum of the total outstanding Loans and interests
in Letters of Credit.
“Restricted Group” means the
Borrower and its Subsidiaires other than Avicola and its
Subsidiaries.
“Restricted Payment” shall
have the meaning set forth in Section 8.12 hereof.
“Revolving Note” shall have
the meaning set forth in Section 1.10(d) hereof.
“Secured Grower Payables”
shall mean all amounts owed from time to time by the Borrower or any Guarantor
to any Person on account of the purchase price of agricultural products or
services (including poultry and livestock) if the DIP Agent reasonably
determines that such Person is entitled to the benefits of any grower’s or
producer’s lien, statutory trust or similar security arrangements to secure the
payment of any amounts owed to such Person.
“Subsidiary” means, as to any
particular parent corporation or organization, any other corporation or
organization, more than 50% of the voting power of the outstanding Voting Stock
of which is at the time directly or indirectly owned by such parent corporation
or organization or by any one or more other entities which are themselves
Subsidiaries of such parent corporation or organization. Unless
otherwise expressly noted herein, the term “Subsidiary” means a direct or indirect
Subsidiary of the Borrower.
“Super-majority Lenders”
means, as of the date of determination thereof, Lenders holding more than
66-2/3% of the DIP Commitments then in effect or, if the DIP Commitments have
been terminated or expired, Lenders whose outstanding Loans and interests in
Letters of Credit constitute more than 66-2/3% of the sum of the total
outstanding Loans and interests in Letters of Credit.
“Superpriority Claim” shall
mean a claim against the Borrower or any of the Guarantors which is an
administrative expense claim with the priority authorized under
Section 364(c)(1) of the Bankruptcy Code, with priority over any or all
administrative expenses of the kind specified in Sections 503(b) or 507 of
the Bankruptcy Code and over any or all other costs and expenses of the kind
specified in, or ordered pursuant to, Sections 105, 326, 330, 331, 506(c)
or 726 of the Bankruptcy Code, whether arising or incurred in any of the Chapter
11 Cases or in any superseding case or cases under Chapter 7 of the Bankruptcy
Code.
“Swing Line” means the
credit facility for making one or more Swing Loans described in Section 1.6
hereof.
“Swing Line Lender” means
Bank of Montreal, acting in its capacity as the Lender of Swing Loans hereunder,
or any successor Lender acting in such capacity appointed pursuant to
Section 12.12 hereof.
“Swing Line Sublimit” means
$25,000,000, as reduced pursuant to the terms hereof.
“Swing Loan” and “Swing Loans” shall have the
meaning set forth in Section 1.6 hereof.
“Swing Note” shall have the
meaning set forth in Section 1.10 hereof.
“Termination Date” means the
earliest to occur of the following: (a) the Maturity Date; (b) the
date that a plan of reorganization of any Debtor confirmed by an order of the
Bankruptcy Court entered pursuant to Sections 1129 and 1141 of the
Bankruptcy Code becomes effective pursuant to its terms, other than a plan of
reorganization that contemplates the sale of the stock or assets of a Guarantor
to which the Required Lenders have given their prior written consent or any
other plan of reorganization of a Guarantor to which the Required Lenders have
given their prior written consent; or (c) the date on which the Lenders
terminate the DIP Commitments after the occurrence of an Event of Default and
giving of three days written notice by the DIP Agent to the Borrower of such
Event of Default and of the Lenders’ intention to terminate the DIP Commitments
as a result thereof.
“Unfunded Vested Liabilities”
means, for any Plan at any time, the amount (if any) by which the present value
of all vested nonforfeitable accrued benefits under such Plan exceeds the fair
market value of all Plan assets allocable to such benefits, all determined as of
the then most recent valuation date for such Plan, but only to the extent that
such excess represents a potential liability of a member of the Controlled Group
to the PBGC or the Plan under Title IV of ERISA.
“Unused DIP Commitments”
means, at any time, the difference between the DIP Commitments then in effect
and the aggregate outstanding principal amount of Loans and L/C
Obligations.
“U.S. Dollars” and “$” each means the lawful
currency of the United States of America.
“Value” means, with respect
to Eligible Inventory consisting of live broiler chickens, a price per pound
equal to 75% of (i) the price quoted on the Los Angeles Majority Market on the
date of calculation minus (ii) $0.085, rounded up to the nearest 1/4
cent.
“Voting Stock” of any Person
means capital stock or other equity interests of any class or classes (however
designated) having ordinary power for the election of directors or other similar
governing body of such Person, other than stock or other equity interests having
such power only by reason of the happening of a contingency.
“Welfare Plan” means a “welfare plan” as defined in
Section 3(1) of ERISA.
Section
5.2 Interpretation. The
foregoing definitions are equally applicable to both the singular and plural
forms of the terms defined. The words “include”, “includes” and
“including” shall be deemed to be followed by the phrase “without
limitation”. Unless the context requires otherwise (a) any definition
of or reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, restated, amended and restated, supplemented or otherwise
modified (subject to any restrictions on such amendments, supplements or
modifications set forth herein), (b) any reference herein to any Person shall be
construed to include such Person’s permitted successors and permitted assigns,
and (c) the words “asset” and “property” shall mean and be construed to refer to
Property. The words “hereof,” “herein,” and “hereunder” and words of
like import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement. All references
to time of day herein are references to Chicago, Illinois time unless otherwise
specifically provided. Where the character or amount of any asset or
liability or item of income or expense is required to be determined, any
consolidation or other accounting computation is required to be made or any
accounting term is required to be interpreted, in each case for the purposes of
this Agreement, it shall be done in accordance with GAAP except where such
principles are inconsistent with the specific provisions of this
Agreement.
Section
5.3 Change in Accounting
Principles. If, after the date of this Agreement, there shall
occur any change in GAAP or the application thereof from those used in the
preparation of the financial statements referred to in Section 6.5 hereof
and such change shall result in a change in the method of calculation of any
financial covenant, standard or term found in this Agreement or the application
thereof, either the Borrower or the Required Lenders may by notice to the
Lenders and the Borrower, respectively, require that the Lenders and the
Borrower negotiate in good faith to amend such covenants, standards, and terms
so as equitably to reflect such change in accounting principles or the
application thereof, with the desired result being that the criteria for
evaluating the financial condition of the Borrower and its Subsidiaries shall be
the same as if such change had not been made. No delay by the
Borrower or the Required Lenders in requiring such negotiation shall limit their
right to so require such a negotiation at any time after such a change in
accounting principles or the application thereof. Until any such
covenant, standard, or term is amended in accordance with this Section 5.3,
financial covenants shall be computed and determined in accordance with GAAP in
effect prior to such change in accounting principles or the application
thereof. Without limiting the generality of the foregoing, the
Borrower shall neither be deemed to be in compliance with any financial covenant
hereunder nor out of compliance with any financial covenant hereunder if such
state of compliance or noncompliance, as the case may be, would not exist but
for the occurrence of a change in accounting principles or the application
thereof after the date hereof.
Section
5.4 Timing of Payment or
Performance. When the payment of any obligation or the
performance of any covenant, duty or obligation is stated to be due or
performance required on a day which is not a Business Day, the date of such
payment or performance shall extend to the immediately succeeding Business Day
and such extension of time shall be reflected in computing interest or fees, as
the case may be.
Section
6. Representations
and Warranties.
The
Borrower represents and warrants to the DIP Agent, the Lenders, and the
L/C Issuer as follows:
Section
6.1 Organization and
Qualification. The Borrower is duly organized, validly
existing, and in good standing as a corporation under the laws of the
State of Delaware, has full and adequate power to own its Property and conduct
its business as now conducted, and is duly licensed or qualified and in good
standing in each jurisdiction in which the nature of the business conducted by
it or the nature of the Property owned or leased by it requires such licensing
or qualifying, except where the failure to do so would not have a Material
Adverse Effect.
Section
6.2 Subsidiaries. Each
Subsidiary is duly organized, validly existing, and in good standing under the
laws of the jurisdiction in which it is organized, has full and adequate power
to own its Property and conduct its business as now conducted, and is duly
licensed or qualified and in good standing in each jurisdiction in which the
nature of the business conducted by it or the nature of the Property owned or
leased by it requires such licensing or qualifying, except where the failure to
do so would not have a Material Adverse Effect. Schedule 6.2
hereto (as supplemented in accordance with this Agreement) identifies each
Subsidiary, the jurisdiction of its organization, the percentage of issued and
outstanding shares of each class of its capital stock or other equity interests
owned by the Borrower and the other Subsidiaries and, if such percentage owned
by the Borrower and the Subsidiaries is not 100% (excluding directors’
qualifying shares as required by law), a description of each class of its
authorized capital stock and other equity interests and the number of shares of
each class issued and outstanding. Except as disclosed in
Schedule 6.2 (as supplemented in accordance with this Agreement), all of
the outstanding shares of capital stock and other equity interests of each
Subsidiary are validly issued and outstanding and fully paid and nonassessable
and all such shares and other equity interests indicated on Schedule 6.2
(as supplemented in accordance with this Agreement) as owned by the Borrower or
another Subsidiary are owned, beneficially and of record, by the Borrower or
such Subsidiary free and clear of all Liens other than the Liens granted in
favor of the DIP Agent pursuant to this Agreement and the Financing
Orders. There are no outstanding commitments or other obligations of
any Subsidiary to issue, and no options, warrants or other rights of any Person
to acquire, any shares of any class of capital stock or other equity interests
of any Subsidiary other than pursuant to buy/sell or similar arrangements set
forth in the partnership agreements or limited liability company operating
agreements, as applicable, of certain non-wholly-owned
Subsidiaries. Promptly upon the occurrence of any change in any
information contained in Schedule 6.2 the Borrower shall submit to the DIP
Agent a proposed revised form of Schedule 6.2, and upon acceptance by the
DIP Agent of such proposed revised form it shall be Schedule 6.2 of this
Agreement.
Section
6.3 Authority and Validity of
Obligations. The Borrower has full right and authority to
enter into this Agreement and the other Loan Documents executed by it, to make
the borrowings herein provided for, to grant to the DIP Agent the Liens
described in the Collateral Documents executed by the Borrower, and to perform
all of its obligations hereunder and under the other Loan Documents executed by
it. Each Guarantor has full right and authority to enter into the
Loan Documents executed by it, to guarantee the Post-Petition Obligations, to
grant to the DIP Agent the Liens described in this Agreement and the Financing
Orders, and to perform all of its obligations under the Loan Documents executed
by it. The Loan Documents delivered by the Debtors have been duly
authorized, executed, and delivered by such Persons and constitute valid and
binding obligations of the Debtors enforceable against them in accordance with
their terms; and this Agreement and the other Loan Documents do not, nor does
the performance or observance by any Debtor of any of the matters and things
herein or therein provided for, (a) contravene or constitute a default
under any provision of law or any judgment, injunction, order or decree binding
upon such Debtor or any provision of the organizational documents (e.g.,
charter, certificate or articles of incorporation and by-laws, certificate or
articles of association and operating agreement, partnership agreement, or other
similar organizational documents) of such Debtor, (b) contravene or
constitute a default under any covenant, indenture or agreement of or affecting
the Borrower or any Subsidiary or any of their Property, in each case where such
contravention or default, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect (it being understood that any
covenant, indenture or agreement subject to the automatic stay could not be
expected to have a Material Adverse Effect), or (c) result in the creation
or imposition of any Lien on any Property of the Borrower or any Subsidiary
other than the Liens granted in favor of the DIP Agent pursuant to the
Collateral Documents.
Section
6.4 Use of Proceeds; Margin
Stock. The Borrower shall use the credit extended under this
Agreement solely for the purposes set forth in, or otherwise permitted by,
Section 8.19 hereof. Neither the Borrower nor any Subsidiary is
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System), and no part of the proceeds of any
Loan or any other extension of credit made hereunder will be used to purchase or
carry any such margin stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock. Margin stock
constitutes less than 25% of the assets of the Borrower and its Subsidiaries
which are subject to any limitation on sale, pledge or other restriction
hereunder.
Section
6.5 Financial
Reports. The consolidated balance sheet of the Borrower and
its Subsidiaries as at September 30, 2007, and the related consolidated
statements of income, retained earnings and cash flows of the Borrower and its
Subsidiaries for the fiscal year then ended, and accompanying notes thereto,
which financial statements are accompanied by the audit report of Ernst &
Young LLP, independent public accountants, and the unaudited interim
consolidated balance sheet of the Borrower and its Subsidiaries as at
June 30, 2008, and the related consolidated statements of income, retained
earnings and cash flows of the Borrower and its Subsidiaries for the
9 months then ended, heretofore furnished to the DIP Agent and the Lenders,
fairly present the consolidated financial condition of the Borrower and its
Subsidiaries as at said dates and the consolidated results of their operations
and cash flows for the periods then ended in conformity with
GAAP. Neither the Borrower nor any Subsidiary has contingent
liabilities required to be disclosed in accordance with GAAP which are material
to it other than as indicated on such financial statements or, with respect to
future periods, on the financial statements furnished pursuant to
Section 8.5 hereof.
Section
6.6 No Material Adverse
Change. Since the Petition Date there has been no change in
the condition (financial or otherwise) or business prospects of the Borrower and
its Subsidiaries taken as a whole except those occurring in the ordinary course
of business, none of which individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect.
Section
6.7 Full
Disclosure. The written statements and information furnished
to the DIP Agent and the Lenders in connection with the negotiation of this
Agreement and the other Loan Documents and the commitments by the Lenders to
provide all or part of the financing contemplated hereby taken as a whole did
not as of the date furnished contain any untrue statements of a material fact or
omit a material fact necessary to make the material statements contained herein
or therein not materially misleading. The projections or other
forward looking information furnished to the DIP Agent and the Lenders were, at
the time of submission, based on reasonable estimates and assumptions stated
therein, and reflected the reasonable estimate of Borrower of the results of
operations and other information projected therein. Nothing in this
Section shall be deemed to constitute an assurance by Borrower or its
Subsidiaries that it will meet the results contained in such
projections.
Section
6.8 Trademarks, Franchises, and
Licenses. The Borrower and its Subsidiaries own, possess, or
have the right to use all necessary patents, licenses, franchises, trademarks,
trade names, trade styles, copyrights, trade secrets, know how, and confidential
commercial and proprietary information to conduct their businesses as now
conducted, without known conflict with any patent, license, franchise,
trademark, trade name, trade style, copyright or other proprietary right of any
other Person which conflict could reasonably be expected to have a material
adverse effect on the ability of the Borrower and its Subsidiaries to conduct
their businesses as now conducted.
Section
6.9 Governmental Authority and
Licensing. The Borrower and its Subsidiaries have received all
licenses, permits, and approvals of all federal, state, and local governmental
authorities, if any, necessary to conduct their businesses, in each case where
the failure to obtain or maintain the same could reasonably be expected to have
a Material Adverse Effect. No investigation or proceeding which could
reasonably be expected to result in revocation or denial of any material
license, permit or approval is pending or, to the knowledge of the Borrower,
threatened, that could reasonably be expected to have a material adverse effect
on the ability of the Borrower and its Subsidiaries to conduct their businesses
as now conducted.
Section
6.10 Good Title. The
Borrower and its Subsidiaries have good and defensible title (or valid leasehold
interests) to their material assets as reflected on the most recent consolidated
balance sheet of the Borrower and its Subsidiaries furnished to the DIP Agent
and the Lenders (except for sales of assets in the ordinary course of business
or otherwise permitted hereunder), subject to no Liens other than such thereof
as are permitted by Section 8.8 hereof.
Section
6.11 Litigation and Other
Controversies. There is no litigation or governmental or
arbitration proceeding or labor controversy pending, nor to the knowledge of the
Borrower threatened, against the Borrower or any Subsidiary or any of their
Property which, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.
Section
6.12 Taxes. All federal
and other material tax returns required to be filed by the Borrower or any
Subsidiary in any jurisdiction have, in fact, been filed, and all taxes,
assessments, fees, and other governmental charges upon the Borrower or any
Subsidiary or upon any of their Property, income or franchises after the
Petition Date, which are shown to be due and payable in such returns, have been
paid, except (i) in the case of the Debtors, taxes, assessments, fees and
other governmental charges for periods prior to the Petition Date and
(ii) such taxes, assessments, fees and governmental charges, if any, as are
being contested in good faith and by appropriate proceedings which prevent
enforcement of the matter under contest and as to which adequate reserves
established in accordance with GAAP have been provided. The Borrower
does not know of any proposed additional tax assessment against it or its
Subsidiaries for which adequate provisions in accordance with GAAP have not been
made on their accounts. Adequate provisions in accordance with GAAP
for taxes on the books of the Borrower and each Subsidiary have been made for
all open years, and for its current fiscal period.
Section
6.13 Approvals. No
authorization, consent, license or exemption from, or filing or registration
with, any court or governmental department, agency or instrumentality, nor any
approval or consent of any other Person, is or will be necessary to the valid
execution, delivery or performance by the Borrower or any Subsidiary of any Loan
Document, except for such approvals which have been obtained prior to the date
of this Agreement and remain in full force and effect and the entry by the
Bankruptcy Court of the relevant Financing Order.
Section 6.14.Affiliate
Transactions. Neither the Borrower nor any Subsidiary is a
party to any transaction, including without limitation, the purchase, sale,
lease or exchange of any Property, or the rendering of any service, with any
Affiliate of the Borrower or such Subsidiary except (a) pursuant to the
reasonable requirements of the Borrower’s or such Subsidiary’s business and, in
the case of any Affiliate that is not a Debtor, upon fair and reasonable terms
not materially less favorable to the Borrower or such Subsidiary than would be
obtained in a comparable arm’s-length transaction with a Person not an Affiliate
of the Borrower or such Subsidiary, (b) on-going transactions with
Affiliates of the type disclosed in the Borrower’s proxy statement for its
fiscal year ended September 30, 2006, (c) the sale of all
or substantially all of the Borrower’s or a Subsidiary’s Receivables pursuant to
the Fairway Receivables Securitization Program and prior to the Petition Date,
(d) any transaction entered into between any of the Subsidiaries,
(e) certain guaranties entered into prior to the Petition Date,
(f) the payment of guaranty fees to Pilgrim Interests prior to the Petition
Date, and (g) after the Petition Date, as permitted by Section
8.15.
Section
6.15 Investment
Company. Neither the Borrower nor any Subsidiary is an
“investment company” or a company “controlled” by an “investment company” within
the meaning of the Investment Company Act of 1940, as amended.
Section
6.16 ERISA. Except as
disclosed on Schedule 6.16, the Borrower and each other member of its
Controlled Group has fulfilled its obligations under the minimum funding
standards of ERISA and the Code to the extent applicable to it and has not
incurred any material liability to the PBGC or a Plan under Title IV of
ERISA other than a liability to the PBGC for premiums under Section 4007 of
ERISA. Except as set forth on Schedule 6.16, neither the
Borrower nor any Subsidiary has any material contingent liabilities with respect
to any post-retirement benefits under a Welfare Plan, other than liability for
continuation coverage described in article 6 of Title I of
ERISA.
Section
6.17 Compliance with
Laws. (a) The Borrower and its Subsidiaries are in
compliance with the requirements of all federal, state and local laws, rules and
regulations applicable to or pertaining to their Property or business operations
(including, without limitation, the Occupational Safety and Health Act of 1970,
ERISA and the Code, the Americans with Disabilities Act of 1990, and laws and
regulations establishing quality criteria and standards for air, water, land and
toxic or hazardous wastes and substances), where any such non-compliance,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. Neither the Borrower nor any Subsidiary has
received notice to the effect that its operations are not in compliance with any
of the requirements of applicable federal, state or local environmental, health,
and safety statutes and regulations or is the subject of any governmental
investigation evaluating whether any remedial action is needed to respond to a
release of any toxic or hazardous waste or substance into the environment, where
any such non-compliance or remedial action, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
(b) Without
limiting the representations and warranties set forth in Section 6.17(a)
above, except for such matters, individually or in the aggregate, which could
not reasonably be expected to result in a Material Adverse Effect, the Borrower
represents and warrants that: (i) the Borrower and its
Subsidiaries, and each of the Premises, comply in all material respects with all
applicable Environmental Laws; (ii) the Borrower and its Subsidiaries have
obtained all governmental approvals required for their operations and each of
the Premises by any applicable Environmental Law; (iii) the Borrower and
its Subsidiaries have not, and the Borrower has no knowledge of any other Person
who has, caused any Release, threatened Release or disposal of any Hazardous
Material at, on or about any of the Premises in any material quantity and, to
the knowledge of the Borrower, none of the Premises are adversely affected by
any Release, threatened Release or disposal of a Hazardous Material originating
or emanating from any other property; (iv) none of the Premises contain
and have contained any: (1) underground storage tank,
(2) material amounts of asbestos containing building material,
(3) landfills or dumps, (4) hazardous waste management facility as
defined pursuant to RCRA or any comparable state law, or (5) site on or
nominated for the National Priority List promulgated pursuant to CERCLA or any
state remedial priority list promulgated or published pursuant to any comparable
state law; (v) the Borrower and its Subsidiaries have not used a material
quantity of any Hazardous Material and have conducted no Hazardous Material
Activity at any of the Premises; (vi) the Borrower and its Subsidiaries
have no material liability for response or corrective action, natural resource
damage or other harm pursuant to CERCLA, RCRA or any comparable state law;
(vii) the Borrower and its Subsidiaries are not subject to, have no notice
or knowledge of and are not required to give any notice of any Environmental
Claim involving the Borrower or any Subsidiary or any of the Premises, and to
the actual knowledge of Borrower there are no conditions or occurrences at any
of the Premises which could reasonably be anticipated to form the basis for an
Environmental Claim against the Borrower or any Subsidiary or such Premises;
(viii) none of the Premises are subject to any, and the Borrower has no
knowledge of any imminent restriction on the ownership, occupancy, use or
transferability of the Premises in connection with any (1) Environmental
Law or (2) Release, threatened Release or disposal of a Hazardous Material;
and (ix) to the actual knowledge of Borrower there are no conditions or
circumstances at any of the Premises which pose an unreasonable risk to the
environment or the health or safety of Persons.
Section
6.18 Other
Agreements. Neither the Borrower nor any Subsidiary is in
default under the terms of any covenant, indenture or agreement of or affecting
such Person or any of its Property (other than defaults occasioned by the filing
of the Chapter 11 Cases), which default could reasonably be expected to have a
Material Adverse Effect.
Section
6.19 No Default. No
Default or Event of Default has occurred and is continuing.
Section
6.20 Financing
Orders. The applicable Financing Order has been duly entered,
is valid, subsisting and continuing and has not been vacated, modified, or
reversed on appeal by any court and is not subject to any pending stay, in the
case of a modification in a manner which materially and adversely affects the
rights of the Lenders or the DIP Agent and which modification is not acceptable
to the Required Lenders.
Section
6.21 Super-Priority Administrative
Expense and Liens. From and after the entry of the Interim
Financing Order, (a) the Post-Petition Obligations shall constitute
Superpriority Claims, and (b) pursuant to Sections 364(c)(2) and 364(d)(1)
of the Bankruptcy Code, the Post-Petition Obligations shall be secured by a
first priority Lien on the Collateral, subject only to the Permitted Liens (with
respect to clause (b) herein) and the fees and expenses subject to the
Administrative Expense Carve-Out (with respect to both clause (a) and clause (b)
herein).
Section
7. Conditions
Precedent.
Section
7.1 All Credit
Events. At the time of each Credit Event
hereunder:
(a) each
of the representations and warranties set forth herein and in the other Loan
Documents shall be and remain true and correct in all material respects as of
said time, except to the extent the same expressly relate to an earlier date in
which case they shall remain true and correct in all material respects as of
such earlier date;
(b) no
Default or Event of Default shall have occurred and be continuing or would occur
as a result of such Credit Event;
(c) in
the case of a Borrowing, the DIP Agent shall have received the notice required
by Section 1.5 hereof, in the case of the issuance of any Letter of Credit,
the L/C Issuer shall have received a duly completed Application for such
Letter of Credit together with any fees called for by Section 2.1 hereof,
and, in the case of an extension or increase in the amount of a Letter of
Credit, a written request therefor in a form acceptable to the L/C Issuer
together with fees called for by Section 2.1 hereof;
(d) at
the time of and immediately after giving effect to such Borrowing or the
issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, the aggregate principal amount of all Loans and L/C Obligations then
outstanding shall not exceed the lesser of (i) the DIP Commitments then in
effect and (ii) the Borrowing Base as then determined;
(e) the
applicable Financing Order shall be in full force and effect and the Debtors
shall be in compliance with the terms thereof and the applicable Financing Order
shall be entered, not subject to a motion to reconsider and not subject to any
stay;
(f)prior
to making any Loans or issuing any Letters of Credit in an aggregate amount in
excess of the Interim Financing Order Amount, (i) the Lenders shall have
received no later than the date that is two weeks prior to the date of the
hearing on the Final Financing Order such information as the Lenders may request
to determine the appropriate terms of the Final Financing Order and any
adjustments to the financial covenants contained in Section 8.22 of this
Agreement, (ii) this Agreement shall have been amended to include financial
covenants that are acceptable in form and substance to the Required Lenders and
(iii) the Final Financing Order, after notice given and a hearing conducted in
accordance with Bankruptcy Rule 4001(c) shall have been entered by the
Bankruptcy Court; and
(g)such
Credit Event shall not violate any order, judgment or decree of any court or
other authority or any provision of law or regulation applicable to the DIP
Agent, the L/C Issuer, or any Lender (including, without limitation,
Regulation U of the Board of Governors of the Federal Reserve System) as
then in effect (it being understood that the inability of any Lender to make its
pro rata share of any Credit Event shall not excuse any other Lender from its
obligations to fund and/or participate in its pro rata share of such Credit
Event).
Each
request for a Borrowing hereunder and each request for the issuance of, increase
in the amount of, or extension of the expiration date of, a Letter of Credit
shall be deemed to be a representation and warranty by the Borrower on the date
of such Credit Event as to the facts specified in subsections (a) through
(e), both inclusive, of this Section; provided, however, that the Lenders may
continue to make advances under the DIP Credit, in the sole discretion of the
Lenders with DIP Commitments, notwithstanding the failure of the Borrower to
satisfy one or more of the conditions set forth above and any such advances so
made shall not be deemed a waiver of any Default or Event of Default or other
condition set forth above that may then exist.
Section
7.2 Initial Credit
Event. Before or concurrently with the initial Credit
Event:
(a) the
DIP Agent shall have received this Agreement duly executed by the Borrower, the
Guarantors and the Lenders;
(b) if
requested by any Lender, the DIP Agent shall have received for such Lender such
Lender’s duly executed Notes of the Borrower dated the date hereof and otherwise
in compliance with the provisions of Section 1.10 hereof;
(c) the
DIP Agent shall have received (i) original stock certificates or other
similar instruments or securities representing all of the issued and outstanding
shares of capital stock or other equity interests in each Subsidiary of the
Debtors (65% of such capital stock in the case of any Foreign Subsidiary as
provided in Section 4.1 hereof) as of the Closing Date, and
(ii) patent, trademark, and copyright collateral agreements to the extent
requested by the DIP Agent or the Lenders, which are reasonably satisfactory in
form and substance to the DIP Agent and the Lenders;
(d) the
DIP Agent and the Lenders shall have received evidence of insurance coverage
(which shall be satisfactory to the DIP Agent and the Lenders), showing the DIP
Agent as mortgagee’s and lender’s loss payee thereunder with respect to its
interests as to casualty and business interruption insurance and reflecting all
affirmative coverage requested by the DIP Agent and the Lenders for the
protection of their interests;
(e) the
DIP Agent shall have received copies of the Borrower’s and each Guarantor’s
articles of incorporation and bylaws (or comparable organizational documents)
and any amendments thereto, certified in each instance by its Secretary or
Assistant Secretary;
(f) the
DIP Agent shall have received copies of resolutions of the Borrower’s and each
Guarantor’s Board of Directors (or similar governing body) authorizing the
execution, delivery and performance of this Agreement and the other Loan
Documents to which it is a party and the consummation of the transactions
contemplated hereby and thereby, together with specimen signatures of the
persons authorized to execute such documents on the Borrower’s and each
Guarantor’s behalf, all certified in each instance by its Secretary or Assistant
Secretary;
(g) the
DIP Agent shall have received copies of the certificates of good standing for
the Borrower and each Guarantor (dated no earlier than 30 days prior to the
date hereof) from the office of the secretary of the state of its incorporation
or organization and, to the extent available on the Closing Date, of each state
in which it is qualified to do business as a foreign corporation or
organization;
(h) the
DIP Agent shall have received a list of the Borrower’s Authorized
Representatives;
(i) the
DIP Agent shall have received the initial fees called for by Section 2.1
hereof;
(j) the
capital and organizational structure of the Borrower and its Subsidiaries shall
be satisfactory to the DIP Agent, the Lenders, and the
L/C Issuer;
(k) each
Lender and the L/C Issuer shall have received such evaluations and
certifications as it may reasonably require (including a Borrowing Base
Certificate containing calculations of the Borrowing Base after giving effect to
the repurchase and termination of the Fairway Receivables Securitization
Program) in order to satisfy itself as to the value of the Collateral, the
financial condition of the Borrower and its Subsidiaries, and the lack of
material contingent liabilities of the Borrower and its
Subsidiaries;
(l) (i)
execution and delivery by the Borrower and the Pilgrim’s Pride Funding
Corporation of a receivables purchase and reassignment agreement with
BMO Capital Markets Corp. which shall provide for the payment of all
non-contingent amounts owing under the Fairway Receivables Securitization
Program, and (ii) repurchase and termination of the outstanding Fairway
Receivables Securitization Program, evidenced by such receivables purchase and
reassignment agreement, which shall be in form and substance reasonably
acceptable to the DIP Agent and BMO Capital Markets Corp., with the
proceeds of the initial advance under the DIP Credit being advanced by the
Borrower to or for the account of the Pilgrim’s Pride Funding Corporation, with
all Transferred Receivables (as such term is defined in the Receivables Purchase
Agreement), and related receivable assets being simultaneously re-conveyed by
the “Purchasers” party to the Receivables Purchase Agreement to Pilgrim’s Pride
Funding Corporation and by Pilgrim’s Pride Funding Corporation to the
originating sellers so long as such party is a Debtor (all such receivables and
related assets to constitute Collateral hereunder) as contemplated by such
receivables purchase and reassignment agreement;
(m) the
Interim Financing Order in the form of Exhibit C hereto after notice given
and a hearing conducted in accordance with Bankruptcy Rule 4001(c) shall have
been entered by the Bankruptcy Court and shall not have been amended, reversed,
stayed, vacated, reversed or modified (in the case of an amendment or
modification in a manner which materially and adversely affects the rights of
the Lenders or the DIP Agent and which amendment or modification is not
acceptable to the Required Lenders);
(n) a
cash management order in the form of Exhibit I hereto, including procedures
requiring all proceeds of Collateral and all revenues, income and cash flow of
the Borrower and the Guarantors to be deposited in a Collection Account or such
other arrangement as is acceptable to the DIP Agent such that the DIP Agent
attains exclusive dominion and control of such accounts and proceeds of
collection deposited therein, shall have been entered by the Bankruptcy Court
and shall not have been amended, stayed, vacated, reversed or modified (in the
case of an amendment or modification in a manner which materially and adversely
affects the rights of the Lenders or the DIP Agent and which amendment or
modification is not acceptable to the Required Lenders);
(o) receipt
by the DIP Agent and the Lenders of the Budget, in form and substance
satisfactory to the DIP Agent and the Lenders, including itemization on a weekly
basis of all material expenditures proposed to be made during the first 13
weeks;
(p) no
trustee, or other disinterested Person with expanded powers pursuant to
Section 1104(c) of the Bankruptcy Code, shall have been appointed or
designated with respect to any Debtor or its respective business, assets or
Properties, including, without limitation the Collateral, no order shall be
entered appointing such a trustee or other disinterested Person and no motion by
or supported by the Debtors shall be pending seeking such relief;
(q) simultaneously
with the initial Credit Event, the Borrower shall reimburse the Pre-Petition BMO
Agent and the Pre-Petition BMO Lenders for all fees and expenses incurred by
them, including the reasonable fees and expenses of Chapman and Cutler LLP,
Chapman and Cutler LLP’s local counsel, Morgan, Lewis & Bockius LLP and FTI
Consulting, Inc., in connection with the Pre-Petition BMO Credit Agreement and
the transactions contemplated hereby for which the Borrower has received an
invoice;
(r) simultaneously
with the initial Credit Event, the Borrower shall pay the reasonable
out-of-pocket costs and expenses (including the reasonable fees and expenses of
Chapman and Cutler LLP, Chapman and Cutler LLP’s local counsel, Morgan, Lewis
& Bockius LLP and FTI Consulting, Inc.) incurred by the Lenders and the DIP
Agent in connection with this Agreement and the transaction contemplated hereby
for which the Borrower has received an invoice;
(s) the
DIP Agent’s Liens in the Collateral shall be perfected first priority
Liens and the Collateral shall be free and clear of all other Liens
except Permitted Liens;
(t) the
DIP Agent shall have received the favorable written opinion of counsel to the
Debtors in form and substance reasonably satisfactory to the DIP Agent and the
Lenders;
(u) the
DIP Agent shall have received a fully executed Internal Revenue Service Form
W-9 for the
Borrower;
(v) the
Borrower shall have engaged William Snyder, or another chief restructuring
officer acceptable to the Required Lenders, and the scope of the chief
restructuring officer’s engagement and the authority granted to such chief
restructuring officer must be reasonably satisfactory to the Required Lenders
(it being understood that the scope of the engagement of and authority granted
to William Snyder is acceptable); and
(w) the
DIP Agent and the Lenders shall have received such other agreements,
instruments, documents, certificates, and opinions as the DIP Agent and Lenders
may reasonably request and which are reasonably satisfactory in form and
substance to the Lenders.
Section
8. Covenants.
The
Borrower agrees that, so long as any credit is available to or in use by the
Borrower hereunder, except to the extent compliance in any case or cases is
waived in writing pursuant to the terms of Section 12.13
hereof:
Section
8.1 Maintenance of
Business. The Borrower shall, and shall cause each Subsidiary
to, preserve and maintain its existence. The Borrower shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits, franchises, approvals, patents, trademarks, trade names,
trade styles, copyrights, and other proprietary rights necessary to the proper
conduct of its business where the failure to do so could reasonably be expected
to have a Material Adverse Effect.
Section
8.2 Maintenance of
Properties. The Borrower shall, and shall cause each
Subsidiary to, maintain, preserve, and keep its material property, plant, and
equipment in good repair, working order and condition (ordinary wear and tear
and casualty or condemnation excepted), and shall from time to time make all
needful and proper repairs, renewals, replacements, additions, and betterments
thereto so that at all times the efficiency thereof shall be fully preserved and
maintained, except to the extent that, (i) in the reasonable business
judgment of such Person, any such Property is no longer necessary for the proper
conduct of the business of such Person or (ii) such repair, renewal,
replacement, addition or betterment is not permitted by the Budget.
Section
8.3 Taxes and
Assessments. The Borrower shall duly pay and discharge, and
shall cause each Subsidiary to duly pay and discharge, all federal and other
material taxes, assessments, fees, and other governmental charges upon or
against it or its Property, in the case of the Debtors, for periods after the
Petition Date, in each case before the same become delinquent and before
penalties accrue thereon, unless and to the extent that (i) the same are
being contested in good faith and by appropriate proceedings which prevent
enforcement of the matter under contest and adequate reserves are provided
therefor, or (ii) in the case of the Debtors, such taxes, assessments, fees
or other governmental charges relate to periods prior to the Petition
Date.
Section
8.4 Insurance. The
Borrower shall insure and keep insured, and shall cause each Subsidiary to
insure and keep insured, with good and responsible insurance companies, all
insurable Property owned by it which is of a character usually insured by
Persons similarly situated and operating like Properties against loss or damage
from such hazards and risks, and in such amounts, as are insured by Persons
similarly situated and operating like Properties; and the Borrower shall insure,
and shall cause each Subsidiary to insure, such other hazards and risks
(including, without limitation, business interruption, employers’ and public
liability risks) with good and responsible insurance companies as and to the
extent usually insured by Persons similarly situated and conducting similar
businesses; provided, that the Borrower and its Subsidiaries may self-insure for
workmen’s compensation, group health risks and their live chicken inventory in
accordance with their past practices. The Borrower shall, upon the
request of the DIP Agent, furnish to the DIP Agent and the Lenders a certificate
setting forth in summary form the nature and extent of the insurance maintained
pursuant to this Section.
Section
8.5 Financial
Reports. The Borrower shall, and shall cause each Subsidiary
to, maintain a standard system of accounting allowing the preparation of the
financial statements in accordance with GAAP and shall furnish to the DIP Agent,
each Lender, the L/C Issuer and each of their duly authorized
representatives such information respecting the business and financial condition
of the Borrower and each Subsidiary (including without limitation projections,
budgets, business plans and cash flows) as the DIP Agent or such Lender may
reasonably request; and without any request, shall furnish to the DIP
Agent:
(a) on
Thursday of each week and promptly after the completion of any Disposition
outside the ordinary course of business that results in Net Proceeds in excess
of $1,000,000 in the aggregate, a Borrowing Base Certificate showing the
computation of the Borrowing Base in reasonable detail as of the close of
business on the last day of the preceding week or after giving effect to such
Disposition, as the case may be, together with an accounts receivable and
accounts payable aging, prepared by the Borrower and certified to by its chief
financial officer, chief restructuring officer, controller, vice president and
assistant to the treasurer and chief financial officer or another officer of the
Borrower reasonably acceptable to the DIP Agent;
(b) as
soon as available, and in any event no later than 20 days after the last
day of each calendar month, a copy of the monthly operating report filed with
the Bankruptcy Court;
(c)as
soon as available, and in any event no later than the applicable Reporting Date
for each calendar month, a copy of the consolidated balance sheet of the
Borrower and its Subsidiaries as of the last day of such month and the
consolidated statements of income and cash flows of the Borrower and its
Subsidiaries for the month and for the fiscal year-to-date period then ended,
each in reasonable detail showing in comparative form the figures for the
corresponding date and period in the previous fiscal year, prepared by the
Borrower (but not necessarily in accordance with GAAP) and certified to by its
chief financial officer, chief restructuring officer or another officer of the
Borrower acceptable to the DIP Agent;
(d)as
soon as available, and in any event no later than 45 days after the last
day of each fiscal quarter of each fiscal year of the Borrower, a copy of the
consolidated balance sheet of the Borrower and its Subsidiaries as of the last
day of such fiscal quarter and the consolidated statements of income, retained
earnings, and cash flows of the Borrower and its Subsidiaries for the fiscal
quarter and for the fiscal year-to-date period then ended, each in reasonable
detail showing in comparative form the figures for the corresponding date and
period in the previous fiscal year, prepared by the Borrower in accordance with
GAAP (subject to the absence of footnote disclosures and year-end audit
adjustments) and certified to by its chief financial officer, chief
restructuring officer or another officer of the Borrower reasonably acceptable
to the DIP Agent;
(e)as
soon as available, and in any event no later than 90 days after the last
day of each fiscal year of the Borrower, a copy of the consolidated balance
sheet of the Borrower and its Subsidiaries as of the last day of the fiscal year
then ended and the consolidated statements of income, retained earnings, and
cash flows of the Borrower and its Subsidiaries for the fiscal year then ended,
and accompanying notes thereto, each in reasonable detail showing in comparative
form the figures for the previous fiscal year, accompanied by an opinion of
Ernst & Young LLP or another firm of independent public accountants of
recognized national standing, selected by the Borrower and reasonably
satisfactory to the DIP Agent and the Required Lenders, to the effect that the
consolidated financial statements have been prepared in accordance with GAAP and
present fairly in accordance with GAAP the consolidated financial condition of
the Borrower and its Subsidiaries as of the close of such fiscal year and the
results of their operations and cash flows for the fiscal year then ended and
that an examination of such accounts in connection with such financial
statements has been made in accordance with generally accepted auditing
standards and, accordingly, such examination included such tests of the
accounting records and such other auditing procedures as were considered
necessary in the circumstances;
(f)promptly
after receipt thereof, any additional final written report or, final management
letters contained in writing concerning significant aspects of the Borrower’s or
any Subsidiary’s operations and financial affairs given to it by its independent
public accountants;
(g)promptly
after the sending or filing thereof, copies of each financial statement, report,
notice or proxy statement sent by the Borrower or any Subsidiary to its
stockholders or other equity holders generally, and copies of each regular,
periodic or special report, registration statement or prospectus (including all
Form 10-K, Form 10-Q and Form 8-K reports) filed by the Borrower or any
Subsidiary with any securities exchange or the Securities and Exchange
Commission or any successor agency; provided, that information
required to be delivered pursuant to this Section 8.5(f) shall be deemed to
have been delivered if such information shall be available on the website of the
Securities and Exchange Commission at http://www.sec.gov or on the website of
the Borrower.
(h)promptly
after receipt thereof, a copy of each material audit made by any regulatory
agency of the books and records of the Borrower or any Subsidiary or of final
notice of any material noncompliance with any applicable law, regulation or
guideline relating to the Borrower or any Subsidiary, or its business (in each
case subject to any confidentiality restrictions imposed on the Borrower or such
Subsidiary);
(i)notice
of any Change of Control;
(j)promptly
after knowledge thereof shall have come to the attention of any Designated
Officer of the Borrower, written notice of (i) any threatened (in writing)
or pending litigation or governmental or arbitration proceeding or labor
controversy against the Borrower or any Subsidiary or any of their Property
which could reasonably be expected to have a Material Adverse Effect,
(ii) the occurrence of any Default or Event of Default hereunder, or
(iii) the existence of any material contingent liability not disclosed on
the Borrower’s most recent financial statements;
(k)with
each of the financial statements delivered pursuant to subsections (c), (d)
and (e) above, a written certificate in the form attached hereto as
Exhibit F signed by the chief financial officer, chief restructuring
officer of the Borrower or another officer of the Borrower acceptable to the DIP
Agent to the effect that, to such officer’s knowledge and belief, no Default or
Event of Default has occurred during the period covered by such statements or,
if any such Default or Event of Default has occurred during such period, setting
forth a description of such Default or Event of Default and specifying the
action, if any, taken by the Borrower or any Subsidiary to remedy the
same. Such certificate shall also set forth the calculations
supporting such statements in respect of Section 8.22 hereof;
(l)on
Friday of each week, commencing December 12, 2008, a projected updated
budget for the 13-week period commencing with such week in the same form as the
Budget then in effect and otherwise in form and substance reasonably
satisfactory to the DIP Agent and the Required Lenders and certified by the
chief restructuring officer of the Borrower;
(m)on
Friday of each week, commencing December 12, 2008, a report (the “Budget Report”) in such form
(i) showing the actual receipts and disbursements of the Borrower and its
Subsidiaries during the immediately preceding week, and (ii) comparing the
actual receipts and disbursements for the Borrower and its Subsidiaries to the
receipts and disbursements shown in the Budget both for the week covered by such
Budget Report and on a cumulative basis for the period from the Petition Date
through the last day of the immediately preceding week in each of the categories
set forth in the Budget, each Budget Report to be in form and substance
reasonably satisfactory to the DIP Agent and the Required Lenders and certified
by the chief restructuring officer of the Borrower;
(n)promptly
upon receiving the same, copies of all written offers which the Borrower or any
Guarantor should reasonably expect to be of interest to the Lenders and
agreements regarding the sale or recapitalization of the Borrower or any
Subsidiary;
(o)promptly
after the same is available, copies of all pleadings, motions, applications,
judicial information, financial information and other documents filed by or on
behalf of the Borrower or any of the Guarantors with the Bankruptcy Court in the
Chapter 11 Cases, or distributed by or on behalf of the Borrower or any of
the Guarantors to any official committee appointed in the Chapter 11 Cases;
and
(p)as
soon as available, and in any event no later than the applicable Reporting Date
for each calendar month, a copy of divisional operating reports in a form to be
mutually agreed upon by the Borrower and the DIP Agent and certified to by its
chief financial officer, chief restructuring officer or another officer of the
Borrower acceptable to the DIP Agent.
Section
8.6 Inspection. The
Borrower shall, and shall cause each Subsidiary to, permit the DIP Agent, each
Lender, the L/C Issuer, their counsel and financial advisors, and each of
their duly authorized representatives and agents to visit and inspect any of its
Property, corporate books, and financial records, to examine and make copies of
its books of accounts and other financial records, and to discuss its affairs,
finances, and accounts with, and to be advised as to the same by, its officers,
employees and independent public accountants (and by this provision the Borrower
hereby authorizes such accountants to discuss with the DIP Agent, such Lenders,
the L/C Issuer and their counsel and financial advisors, the finances and
affairs of the Borrower and its Subsidiaries, provided that the Borrower and its
advisors shall have the opportunity to be present at any such meeting) at such
times and intervals as the DIP Agent or any such Lender or L/C Issuer may
designate provided that the Borrower shall be afforded reasonable notice of and
opportunity to attend any discussions with its accountants.
Section
8.7 Borrowings and
Guaranties. The Borrower shall not, nor shall it permit any
Subsidiary to, issue, incur, assume, create or have outstanding any Indebtedness
for Borrowed Money, or be or become liable as endorser, guarantor, surety or
otherwise for any debt, obligation or undertaking of any other Person, or
otherwise agree to provide funds for payment of the obligations of another, or
supply funds thereto or invest therein or otherwise contract to assure a
creditor of another against loss, or apply for or become liable to the issuer of
a letter of credit which supports an obligation of another, or subordinate any
claim or demand it may have to the claim or demand of any other Person
(collectively, “indebtedness”); provided,
however, that the foregoing shall not restrict nor operate to
prevent:
(a) the
Post-Petition Obligations of the Borrower and its
Subsidiaries owing to the DIP Agent and the Lenders (and their
Affiliates);
(b) purchase
money indebtedness and Capitalized Lease Obligations of the Borrower and its
Subsidiaries in an amount not to exceed $45,000,000 in the aggregate at any one
time outstanding incurred to finance the replacement of tangible personal
property (other than inventory and farm products) that has become obsolete or
worn out;
(c) endorsement
of items for deposit or collection in the ordinary course of
business;
(d)the
Pre-Petition BMO Obligations;
(e)the
Pre-Petition CoBank Obligations;
(f)the
Avicola Pre-Petition Obligations;
(g)indebtedness
evidenced by the Borrower’s 8-3/8% Senior Subordinated Notes due 2017
outstanding on the Petition Date;
(h)indebtedness
evidenced by the Borrower’s 7-5/8% Senior Notes due May 1, 2015 outstanding
on the Petition Date;
(i)indebtedness
evidenced by the Borrower’s 9-1/4% Senior Subordinated Notes due
November 15, 2013, outstanding on the Petition Date;
(j)indebtedness
with respect to letters of credit (other than letters of credit issued under the
Pre-Petition BMO Loan Documents) outstanding on the Petition Date and listed on
Schedule 8.7, and any amendment, modification, extension, renewal or
replacement thereof;
(k)indebtedness
of Non-debtor Subsidiaries to the Borrower arising from intercompany advances
permitted by Sections 8.9(d), (f) and (g);
(l)indebtedness
in respect of Intercompany Bonds outstanding on the Petition Date;
(m)indebtedness
under the Fairway Receivables Securitization Program, provided such indebtedness
shall be paid in full (except for any contingent indemnification claims, costs,
fees, and expenses (including, without limitation, costs, fees and expenses of
counsel) that survive the termination of the Fairway Receivables Securitization
Program) out of the proceeds of the initial Borrowing made under this
Agreement;
(n)secured
indebtedness outstanding on the Petition Date and unsecured Indebtedness for
Borrowed Money in a principal amount of $1,000,000 or more outstanding on the
Petition Date and in each case listed on Schedule 8.7 to this
Agreement;
(o)other
unsecured indebtedness outstanding on the Petition Date;
(p)indebtedness
in respect of hedging agreements permitted pursuant to
Section 8.25;
(q)indebtedness
in respect of sale/leaseback transactions permitted pursuant to
Section 8.10;
(r)indebtedness
which may be deemed to exist in connection with customary agreements providing
for indemnification, purchase price adjustments, earnouts and similar
obligations in connection with dispositions permitted pursuant to
Section 8.10;
(s)indebtedness
(i) among the Debtors and (ii) of the Borrower or any Guarantor to any
Non-debtor Subsidiary subject to compliance with
Section 8.9(d);
(t)indebtedness
consisting of the financing of insurance premiums, so long as the aggregate
amount payable pursuant to such indebtedness does not materially exceed the
amount of the premium for such insurance;
(u)indebtedness
arising from the honoring by a bank or other financial institution of a check,
draft or similar instrument drawn against insufficient funds in the ordinary
course of business, provided, that such Indebtedness is extinguished within five
Business Days of its incurrence;
(v)cash
management obligations and indebtedness in respect of netting services,
overdraft protection and similar arrangements in connection with cash management
and deposit accounts;
(w)Indebtedness
for Borrowed Money of the type set forth in subsection (c) of the
definition of Indebtedness for Borrowed Money solely to the extent such Lien is
permitted by Section 8.8 and the indebtedness secured by such Lien is not
any other type of indebtedness;
(x)indebtedness
representing deferred compensation to directors, officers, members, of
management, employees or consultant of the Borrower and its Subsidiaries in the
ordinary case of business;
(y)contingent
obligations in respect of indemnities or similar agreements to hold others
harmless arising in the ordinary course of business;
(z)contingent
obligations arising under operating leases and similar contracts in the ordinary
course of business that do not constitute Indebtedness for Borrowed Money;
and
(aa)indebtedness
consisting of take or pay obligations contained in supply agreements incurred in
the ordinary course of business and consistent with past practices.
Section
8.8 Liens. The
Borrower shall not, nor shall it permit any Subsidiary to, create, incur or
permit to exist any Lien of any kind on any Property owned by any such Person;
provided, however, that the foregoing shall not apply to nor operate to
prevent:
(a) Liens
arising by statute in connection with worker’s compensation, unemployment
insurance, old age benefits, social security obligations, taxes, assessments,
statutory obligations or other similar charges (other than Liens arising under
ERISA), good faith cash deposits in connection with tenders, contracts or leases
to which the Borrower or any Subsidiary is a party or other bonds or cash
deposits required to be made in the ordinary course of business, provided in
each case that (i) the obligation is not for borrowed money and the
obligation secured is not overdue or, if overdue, is being contested in good
faith by appropriate proceedings which prevent enforcement of the matter under
contest and adequate reserves have been established therefor or (ii) in the
case of the Debtors, such taxes, assessments, statutory obligations or other
similar charges related to periods prior to the Petition Date so long as
enforcement of such Liens is stayed;
(b) mechanics’,
workmen’s, materialmen’s, landlords’, carriers’ or other similar Liens arising
in the ordinary course of business with respect to obligations which are not
overdue or which are being contested in good faith by appropriate proceedings
which prevent enforcement of the matter under contest;
(c) (i)
judgment liens and judicial attachment liens not constituting an Event of
Default under Section 9.1(h) hereof and (ii) the pledge of assets for the
purpose of securing an appeal, stay or discharge in the course of any legal
proceeding, provided that the aggregate amount of such judgment liens,
attachments and liabilities of the Borrower and its Subsidiaries secured by a
pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $10,000,000 at any one time
outstanding;
(d) Liens
on tangible personal property (other than inventory and farm products) of the
Borrower or any Subsidiary created solely for the purpose of securing
indebtedness permitted by Section 8.7(b) hereof, representing or incurred
to finance the purchase price of such Property, provided that no such Lien shall
extend to or cover other Property of the Borrower or such Subsidiary other than
the respective Property so acquired and the proceeds and products thereof and
accessions thereto, and the principal amount of indebtedness secured by any such
Lien shall at no time exceed the purchase price of such Property (and related
costs and expenses), as reduced by repayments of principal thereon and payments
of such related costs and expenses;
(e) any
interest or title of a lessor under any operating lease;
(f) easements,
rights-of-way, restrictions, minor defects, irregularities, and other similar
encumbrances against real property incurred in the ordinary course of business
which do not materially detract from the value of the Property subject thereto
or materially interfere with the ordinary conduct of the business of the
Borrower or any Subsidiary;
(g) Liens
in the Pre-Petition BMO Collateral in favor of the Pre-Petition BMO Agent for
the benefit of the Pre-Petition BMO Lenders to secure the Pre-Petition BMO
Obligations, provided that such Liens are subject and subordinated to the Liens
in the Collateral granted in favor of the DIP Agent for the benefit of the DIP
Agent and the Lenders pursuant to this Agreement and the Financing
Orders;
(h) Liens
in the Pre-Petition CoBank Collateral in favor of the Pre-Petition CoBank Agent
for the benefit of the Pre-Petition CoBank Lenders to secure the Pre-Petition
CoBank Obligations, provided that such Liens are subject and subordinated to the
Liens in the Collateral granted in favor of the DIP Agent for the benefit of the
DIP Agent and the Lenders pursuant to this Agreement and the Financing
Orders;
(i) Liens
in the Collateral granted in favor of the DIP Agent for the benefit of the DIP
Agent and the Lenders pursuant to the Loan Documents and the Financing
Orders;
(j) Replacement
Liens in the Collateral in favor of the Pre-Petition BMO Agent for the benefit
of the Pre-Petition BMO Lenders to secure the Borrower’s Adequate Protection
Obligations relating to the Pre-Petition BMO Collateral, provided that such
Liens are subject and subordinated to (i) the Liens in the Collateral
granted in favor of the DIP Agent for the benefit of the DIP Agent and the
Lenders pursuant to this Agreement and the Financing Orders, (ii) the
Administrative Expense Carve-Out, and (iii) the Replacement Liens in the
Pre-Petition CoBank Primary Collateral in favor of the Pre-Petition CoBank Agent
for the benefit of the Pre-Petition CoBank Lenders; and provided further that
such Replacement Lien in Property that was unencumbered prior to the Petition
Date (other than inventory, accounts receivable, rights against growers, and the
products and proceeds of the foregoing, in which the Replacement Lien granted to
the Pre-Petition BMO Agent shall be senior and prior to the Replacement Lien
therein granted to the Pre-Petition CoBank Agent) shall rank pari passu with the
Replacement Lien in such Property granted to the Pre-Petition CoBank Agent and
the Pre-Petition CoBank Lenders;
(k) Replacement
Liens in the Collateral in favor of the Pre-Petition CoBank Agent for the
benefit of the Pre-Petition CoBank Lenders to secure the Borrower’s Adequate
Protection Obligations relating to the Pre-Petition CoBank Collateral, provided
that such Liens are subject and subordinated to (i) the Liens in the
Collateral granted in favor of the DIP Agent for the benefit of the DIP Agent
and the Lenders pursuant to this Agreement and the Financing Orders,
(ii) the Administrative Expense Carve-Out, and (iii) the Replacement
Liens in the Pre-Petition BMO Primary Collateral in favor of the Pre-Petition
BMO Agent for the benefit of the Pre-Petition BMO Lenders; and provided further
that such Replacement Lien in Property that was unencumbered prior to the
Petition Date (other than inventory, accounts receivable, rights against
growers, and the products and proceeds of the foregoing, in which the
Replacement Lien granted to the Pre-Petition BMO Agent shall be senior and prior
to the Replacement Lien therein granted to the Pre-Petition CoBank Agent) shall
rank pari passu with the Replacement Lien in such Property granted to the
Pre-Petition BMO Agent and the Pre-Petition BMO Lenders;
(l) Liens
in the Avicola Pre-Petition Collateral granted to the Avicola Pre-Petition Agent
to secure the Avicola Pre-Petition Obligations;
(m) deposits
existing on the Petition Date in respect of letters of credit issued and
outstanding on the Petition Date and permitted by Section 8.7 hereof to
secure either the relevant Debtor’s obligations to the issuer of such letters of
credit or the obligations supported by such letters of credit (and any
amendment, modification, extension, renewal or replacement
thereof);
(n) deposits
securing utilities and trade creditors in the ordinary course of
business;
(o) Liens
in feed ingredients granted to the sellers of such feed ingredients to secure
the unpaid purchase price thereof;
(p) Liens
on the equity interests of any farm credit institution required to be purchased
from time to time by Borrower in favor of the issuer thereof;
(q) Liens
existing as of the Petition Date and set forth as
Schedule 8.8;
(r) (i)
leases, subleases, licenses and sublicenses granted to other Persons not
interfering in any material respect with the ordinary course of the business of
the Borrower or its Subsidiaries and (ii) the rights reserved or vested in any
Person by the terms of any lease, license, franchise, grant or permit held by
the Borrower or any of its Subsidiaries or by a statutory provision, to
terminate any such lease, license, franchise, grant or permit, or to require
annual or periodic payments as a condition to the continuance
thereof;
(s) Liens
arising out of consignment or similar arrangements for the sale of goods entered
into by the Borrower or any of its Subsidiaries in the ordinary course of
business;
(t) bankers’
Liens, rights of setoff and other similar Liens on cash and investments
permitted by Section 8.9 on deposit in one or more accounts maintained by
the Borrower or any Subsidiary, in each case granted in the ordinary course of
business in favor of the bank or banks with which such accounts are maintained,
securing amounts owing to such bank with respect to cash management and
operating account arrangements, including those involving pooled accounts and
netting arrangements in respect of such deposit accounts, and not securing any
obligations relating to any extension of credit;
(u) the
filing of UCC financing statements solely as a precautionary measure in
connection with operating leases or consignment of goods;
(v) Liens
arising pursuant to sale and leaseback transactions permitted pursuant to
Section 8.10 to so long as such Liens do not attach to any assets of the
Borrower or any of its Subsidiaries other than those which are the subject of
such and sale leaseback transactions;
(w)Liens
(i) consisting of an agreement to dispose of any Property in a disposition
permitted under Section 8.10 and (ii) earnest money deposits of cash
or cash equivalents by Borrower or any of its Subsidiaries in connection with
any letter of intent or purchase agreement permitted hereunder;
(x)Liens
in respect of hedge obligations permitted pursuant to Section 8.25 hereof,
provided that the
Required Lenders shall have given their prior written consent thereto on a case
by case basis; and
(y)Liens
encumbering reasonable customary initial deposits and margin deposits attaching
to commodity trading accounts or other brokerage accounts incurred in the
ordinary course of business and not for speculative purposes, provided that the Required
Lenders shall have given their prior written consent thereto on a case by case
basis.
Section
8.9 Investments, Acquisitions, Loans and
Advances. The Borrower shall not, nor shall it permit any
Subsidiary to, directly or indirectly, make, retain or have outstanding any
investments (whether through purchase of stock or obligations or otherwise) in,
or loans or advances to (other than for travel advances and other similar cash
advances made to employees in the ordinary course of business), any other
Person, or acquire all or any substantial part of the assets or business of any
other Person or division thereof; provided, however, that the foregoing shall
not apply to nor operate to prevent:
(a) investments
in direct obligations of the United States of America or of any agency or
instrumentality thereof whose obligations constitute full faith and credit
obligations of the United States of America, provided that any such obligations
shall mature within one year of the date of issuance thereof;
(b) investments
in money market funds that invest solely, and which are restricted by their
respective charters to invest solely, in investments of the type described in
subsection (a) above;
(c) the
Borrower’s investments existing on the Petition Date and listed on
Schedule 8.9(c);
(d) intercompany
advances made from time to time by the Borrower to Non-debtor Subsidiaries other
than the Insurance Subsidiaries, including Avicola and its Subsidiaries, for
operating expenses and not for the repayment of Indebtedness for Borrowed Money
and consistent with past practices as it relates to Avicola and its Subsidiaries
purchasing feed ingredients from the Borrower, in an amount such that the
aggregate of all such amounts receivable by the Borrower from such Non-debtor
Subsidiaries, net of the aggregate of all such amounts payable by the Borrower
to such Non-debtor Subsidiaries, shall not exceed such net amount calculated as
of the Petition Date by more than $25,000,000 in the aggregate at any time, with
disclosure to the Lenders of the nature and extent of such funding, provided that (i) neither the
Borrower nor any of the other Debtors may guaranty any portion of such funding,
(ii) such funding shall be made pursuant to the Budget or another budget to be
agreed upon by the Required Lenders, (iii) such Subsidiaries shall not
accumulate cash or inventory above the levels necessary in the ordinary course
of business, (iv) such advances shall be evidenced by a revolving promissory
note of such Subsidiary payable to the order of the Borrower, which promissory
note shall be part of the Collateral and shall be delivered to the DIP Agent
endorsed in blank or otherwise in a manner acceptable to the DIP Agent, and (v)
such Non-debtor Subsidiary shall agree to repay such revolving promissory note
with any available cash not needed to fund its operations in the ordinary course
of business;
(e) intercompany
investments made from time to time by the Borrower to a Guarantor or by a
Guarantor to the Borrower or another Guarantor in the ordinary course of
business for operating expenses and not for the repayment of Indebtedness for
Borrowed Money;
(f) payment
of interest to Gold Kist Insurance in an aggregate amount not to exceed
$2,400,000 during any year and other amounts payable to Gold Kist Insurance to
enable it to pay claims made by the Borrower in excess of the amount of all
other funds available to Gold Kist Insurance for such purpose and consistent
with the Budget or otherwise approved by the Required Lenders and the DIP Agent,
provided that Gold Kist Insurance continues to pay claims made by the Borrower
in a manner consistent with past practices;
(g) payment
of insurance premiums to Mayflower in an aggregate amount not to exceed
$27,000,000 in any year or such other amount as may be approved by the Required
Lenders and the DIP Agent, provided that Mayflower continues to pay claims made
by the Borrower in a manner consistent with past practices;
(h) investments
consisting of hedging arrangements permitted pursuant to
Section 8.25;
(l) capital
plan and investments in equity interests of any farm credit institution required
in accordance with the by-laws or capital plan of such farm credit institution
and existing on the Petition Date;
(m) investments,
if any, arising from the sale of receivables pursuant to the Fairway Receivables
Securitization Program; provided such investments
shall be terminated and such receivables repurchased using the proceeds of the
initial Borrowing under this Agreement;
(n) advances
to officers, employees and contract growers of the Borrower and its Subsidiaries
in the ordinary course of business and consistent with past
practices;
(o) advances
to the Borrower or any Guarantor by any Non-debtor Subsidiary;
(p) investments
permitted pursuant to Section 8.10;
(q) investments
by the Insurance Subsidiaries that are permitted by their investment policies
attached hereto as Schedule 8.9(q);
(r) with
respect to Avicola and its Subsidiaries, investments that are the Mexican
equivalents of the investments described in subsections (a) and (b) above;
and
(s) any
investments received (i) in compromise of (A) obligations of any Person that
were incurred in the ordinary course of business, including pursuant to any plan
of reorganization or similar arrangement upon the bankruptcy or insolvency of
any such Person or (B) litigation, arbitration or other disputes; or (ii) as a
result of a foreclosure by the Borrower or any of its Subsidiaries with respect
to any secured investment or other transfer of title with respect to any secured
investment in default.
In
determining the amount of investments, acquisitions, loans, and advances
permitted under this Section, investments and acquisitions shall always be taken
at the original cost thereof (regardless of any subsequent appreciation or
depreciation therein), and loans and advances shall be taken at the principal
amount thereof then remaining unpaid.
Section
8.10 Mergers, Consolidations and
Sales. The Borrower shall not, nor shall it permit any
Subsidiary to, be a party to any merger or consolidation, or sell, transfer,
lease or otherwise dispose of all or any part of its Property, including any
disposition of Property as part of a sale and leaseback transaction, or in any
event sell or discount (with or without recourse) any of its notes or accounts
receivable; provided,
however, that this Section shall not apply to nor operate to
prevent:
(a)the
sale or lease of inventory in the ordinary course of business;
(b)the
sale, transfer, lease or other disposition of Property of the Borrower and the
Guarantors to one another in the ordinary course of its business;
(c)the
sale, transfer or other disposition of any tangible personal property that, in
the reasonable business judgment of the Borrower or any of its Subsidiaries, has
become obsolete or worn out, and which is disposed of in the ordinary course of
business;
(d)the
sale, transfer, lease or other disposition of Property of the Borrower or any
Subsidiary (including any disposition of Property as part of a sale and
leaseback transaction) aggregating for the Borrower and its Subsidiaries not
more than $1,000,000 during the term of this Agreement;
(e)the
sale, transfer, lease or other disposition of Property of the Non-debtor
Subsidiaries to any other Non-debtor Subsidiary;
(f)any
merger, consolidation, or sale, transfer, lease or other disposition of Property
of Avicola and its Subsidiaries permitted under the Avicola Pre-Petition Credit
Agreement as in effect on the Petition Date, but only for so long as the Avicola
Pre-Petition Credit Agreement is in effect and any
Avicola Pre-petition Obligations remain outstanding;
(g)the
merger or consolidation of any Non-debtor Subsidiary with any other Non-debtor
Subsidiary; and
(h)the
sale of machinery and equipment by the Debtors to Non-debtor Subsidiaries for
fair value and on terms no less favorable to the relevant Debtor than such
Debtor could have obtained from an unaffiliated third party in an arm’s length
transaction.
Section
8.11 Maintenance of
Subsidiaries. The Borrower shall not assign, sell or transfer,
nor shall it permit any Subsidiary to issue, assign, sell or transfer, any
shares of capital stock or other equity interests of a Subsidiary; provided, however, that the
foregoing shall not operate to prevent (a) Liens on the capital stock or
other equity interests of Subsidiaries granted to the DIP Agent pursuant to this
Agreement, the Financing Orders and the Collateral Documents, (b) the
issuance, sale, and transfer to any Person of any shares of capital stock of a
Subsidiary solely for the purpose of qualifying, and to the extent legally
necessary to qualify, such Person as a director of such Subsidiary,
(c) dispositions permitted pursuant to Section 8.10, or (d) Liens
granted on the equity interests of Avicola and its Subsidiaries and on the
Property of Avicola and it is Subsidiaries to secure the Avicola Pre-Petition
Obligations.
Section
8.12 Dividends and Certain Other
Restricted Payments. The Borrower shall not, nor shall it
permit any Subsidiary to, (a) declare or pay any dividends on or make any
other distributions in respect of any class or series of its capital stock or
other equity interests (other than dividends or distributions payable solely in
its capital stock or other equity interests), or (b) directly or indirectly
purchase, redeem, or otherwise acquire or retire any of its capital stock or
other equity interests or any warrants, options, or similar instruments to
acquire the same (collectively referred to herein as “Restricted Payments”); provided, however, that the
foregoing shall not operate to prevent the making of dividends or distributions
by any Subsidiary to (i) the Borrower, (ii) any Subsidiary, and
(iii) any other shareholder ratably in accordance with their pro-rata
share; and provided
further, that the foregoing shall not operate to prevent the making of
dividends or distributions by Avicola and its Subsidiaries that are otherwise
permitted under the Avicola Pre-Petition Credit Agreement as in effect on the
Petition Date for so long as the Avicola Pre-Petition Credit Agreement is in
effect and any Avicola Pre-petition Obligations are outstanding.
Section
8.13 ERISA. The
Borrower shall, and shall cause each Subsidiary to, promptly pay and discharge
all obligations and liabilities arising under ERISA of a character which if
unpaid or unperformed could reasonably be expected to result in the imposition
of a Lien against any of its Property. The Borrower shall, and shall
cause each Subsidiary to, promptly notify the DIP Agent and each Lender
of: (a) the occurrence of any reportable event (as defined in
ERISA) with respect to a Plan, (b) receipt of any written notice from the
PBGC of its intention to seek termination of any Plan or appointment of a
trustee therefor, (c) its intention to terminate or withdraw from any Plan,
and (d) the occurrence of any event with respect to any Plan which would
result in the incurrence by the Borrower or any Subsidiary of any material
liability, fine or penalty, or any material increase in the contingent liability
of the Borrower or any Subsidiary with respect to any post-retirement Welfare
Plan benefit.
Section
8.14 Compliance with
Laws. (a) The Borrower shall, and shall cause each
Subsidiary to, comply in all respects with the requirements of all federal,
state, and local laws, rules, regulations, ordinances and orders applicable to
or pertaining to its Property or business operations, where any such
non-compliance, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect or result in a Lien upon any of its Property,
other than Permitted Liens and Liens arising in connection with matters being
diligently contested in good faith by appropriate proceedings that prevent the
enforcement thereof or which are otherwise stayed and for which adequate
reserves have been established in accordance with GAAP.
(b) Without
limiting the agreements set forth in Section 8.14(a) above, the Borrower
shall, and shall cause each Subsidiary to, at all times, do the following to the
extent the failure to do so, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect: (i) comply in all
material respects with, and maintain each of the Premises in compliance in all
material respects with, all applicable Environmental Laws; (ii) require
that each tenant and subtenant, if any, of any of the Premises or any part
thereof comply in all material respects with all applicable Environmental Laws;
(iii) obtain and maintain in full force and effect all material
governmental approvals required by any applicable Environmental Law for
operations at each of the Premises; (iv) cure any material violation by it
or at any of the Premises of applicable Environmental Laws; (v) not allow
the presence or operation at any of the Premises of any (1) landfill or
dump or (2) hazardous waste management facility or solid waste disposal
facility as defined pursuant to RCRA or any comparable state law; (vi) not
manufacture, use, generate, transport, treat, store, release, dispose or handle
any Hazardous Material at any of the Premises except in the ordinary course of
its business and in de minimis amounts; (vii) within ten (10) Business Days
notify the DIP Agent in writing of and provide any reasonably requested
documents upon learning of any of the following in connection with the Borrower
or any Subsidiary or any of the Premises: (1) any material liability for
response or corrective action, natural resource damage or other harm pursuant to
CERCLA, RCRA or any comparable state law; (2) any material Environmental
Claim; (3) any material violation of an Environmental Law or material
Release, threatened Release or disposal of a Hazardous Material; (4) any
restriction on the ownership, occupancy, use or transferability arising pursuant
to any (x) Release, threatened Release or disposal of a Hazardous Material
or (y) Environmental Law; or (5) any environmental, natural resource,
health or safety condition, which could reasonably be expected to have a
Material Adverse Effect; (viii) conduct at its expense any investigation,
study, sampling, testing, abatement, cleanup, removal, remediation or other
response action necessary to remove, remediate, clean up or abate any material
Release, threatened Release or disposal of a Hazardous Material as required by
any applicable Environmental Law, (ix) abide by and observe any
restrictions on the use of the Premises imposed by any governmental authority as
set forth in a deed or other instrument affecting the Borrower’s or any
Subsidiary’s interest therein; (x) promptly provide or otherwise make
available to the DIP Agent any reasonably requested environmental record
concerning the Premises which the Borrower or any Subsidiary possesses or can
reasonably obtain; and (xi) perform, satisfy, and implement any operation
or maintenance actions required by any governmental authority or Environmental
Law, or included in any no further action letter or covenant not to sue issued
by any governmental authority under any Environmental Law.
Section
8.15 Burdensome Contracts With
Affiliates. The Borrower shall not, nor shall it permit any
Subsidiary to, enter into any contract, agreement or business arrangement with
any of its Affiliates except:
(a) pursuant
to the reasonable requirements of the Borrower’s or such Subsidiary’s business
and, in the case of any Affiliate that is not a Debtor, upon fair and reasonable
terms not materially less favorable to the Borrower or such Subsidiary than
would be obtained in a comparable arm’s-length transaction with a Person not an
Affiliate of the Borrower or such Subsidiary;
(b) investments
permitted by Section 8.9;
(c) reasonable
and customary director, officer and employee compensation (including bonuses and
severance) and other benefits (including retirement, health, stock option and
other benefit plans) and reimbursement and indemnification arrangements in the
ordinary course of business and in good faith; and
(d) loans
and transactions between or among the Borrower and one or more of its
Subsidiaries expressly permitted by Sections 8.7 or 8.9 of this
Agreement.
Section
8.16 No Changes in Fiscal
Year. The Borrower shall not, nor shall it permit any
Subsidiary to, change its fiscal year from its present basis.
Section
8.17 Formation of
Subsidiaries. The Borrower shall not, nor shall it permit any
Subsidiary to, form or acquire any Subsidiary.
Section
8.18 Change in the Nature of
Business. Other than as contemplated in the Budget, the
Borrower shall not, nor shall it permit any Subsidiary to, cease operations in
any of its businesses or taking any material action for the purpose of effecting
the foregoing without the prior written consent of the Required
Lenders.
Section
8.19 Use of
Proceeds. The Borrower shall use the credit extended under
this Agreement solely for (a) Loans and Letters of Credit for payment of
normal operating expenses consistent with the Budget, subject to variances
permitted hereunder, (b) Loans to fund drawings under the Letters of
Credit, (c) Loans for the payment of professional fees of the DIP Agent,
the Pre-Petition BMO Agent and the Pre-Petition BMO Lenders related to the DIP
Credit and the Pre-Petition BMO Credits, (d) Loans for the payment of
interest, fees and expenses on the DIP Credit, (e) Loans for payment of the
Administrative Expense Carve-Out, (f) funding the purchase of outstanding
transferred receivables and related assets relating to the termination of the
Fairway Receivables Securitization Program, and payment of all amounts owing
under the Fairway Receivables Securitization Program (including, without
limitation, all fees, expenses and expenses of counsel), (g) Loans for the
payment of interest, fees, and expenses with respect to the Pre-Petition BMO
Credits as adequate protection to the Pre-Petition BMO Lenders and the
Pre-Petition BMO Agent, (h) Loans for the payment of interest, fees, and
expenses with respect to the Pre-Petition CoBank Credit Facilities as adequate
protection to the Pre-Petition CoBank Lenders and the Pre-Petition CoBank Agent,
and (i) Loans for the payment of professional fees of the Pre-Petition
CoBank Agent and the Pre-Petition CoBank Lenders related to the Pre-Petition
CoBank Credit Facilities.
Section
8.20 No
Restrictions. Except as provided herein, the Borrower shall
not, nor shall it permit any Subsidiary to, directly or indirectly create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of the Borrower or any
Subsidiary to: (a) pay dividends or make any other distribution
on any Subsidiary’s capital stock or other equity interests owned by the
Borrower or any other Subsidiary, (b) pay any indebtedness owed to the
Borrower or any other Subsidiary, (c) make loans or advances to the
Borrower or any other Subsidiary, (d) transfer any of its Property to the
Borrower or any other Subsidiary, or (e) to guarantee the Post-Petition
Obligations and/or grant Liens on its assets to the DIP Agent as required by the
Financing Orders and the Loan Documents. The provisions of this
Section 8.20 will not apply to encumbrances and restrictions existing under
or by reason of:
(i) any
agreement governing any indebtedness permitted by Section 8.7(b)
restricting the voluntary transfer of the Property subject to a Lien permitted
by Section 8.8(d) that secures such indebtedness;
(ii) mandatory
provisions of applicable law to the extent not stayed, pre-empted, over-riden,
superseded or otherwise modified by the Bankruptcy Code, the Financing Orders
and any other orders that may be entered by the Bankruptcy Court in the Chapter
11 Cases;
(iii) customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of the Borrower or a Subsidiary;
(iv) customary
provisions restricting assignment of any agreement entered into by the Borrower
or a Subsidiary in the ordinary course of business, but only to the extent such
restrictions are enforceable under mandatory provisions of applicable law and to
the extent not stayed, pre-empted, over-riden, superseded or otherwise modified
by the Bankruptcy Code, the Financing Orders and any other orders that may be
entered by the Bankruptcy Court in the Chapter 11 Cases;
(v) any
holder of a Lien permitted by Sections 8.8(c)(ii), (d), (e), (l), (m), (n),
(o), (p), (r), (u), (v), (w), (x) and (y) restricting the voluntary transfer of
the Property subject thereto;
(vi) customary
restrictions and conditions contained in any agreement relating to the sale of
any Property permitted under Section 8.10 pending the consummation of such
sale or in leases, subleases, license or sub-licenses relating to the assets
covered thereby in each case restricting the voluntary transfer of the property
subject thereto;
(vii) customary
provisions in partnership agreements, limited liability company organizational
governance documents, asset sale and stock sale agreements and other similar
agreements entered into in the ordinary course of business that restrict the
transfer of ownership interests in such partnership, limited liability company
or similar Person, but only to the extent such restrictions are enforceable
under mandatory provisions of applicable law and to the extent not stayed,
pre-empted, over-riden, superseded or otherwise modified by the Bankruptcy Code,
the Financing Orders and any other orders that may be entered by the Bankruptcy
Court in the Chapter 11 Cases;
(viii) restrictions
on cash or other deposits or net worth imposed by suppliers or landlords under
contracts entered into in the ordinary course of business to the extent such
restrictions are enforceable under mandatory provisions of applicable law and to
the extent not stayed, pre-empted, over-riden, superseded or otherwise modified
by the Bankruptcy Code, the Financing Orders and any other orders that may be
entered by the Bankruptcy Court in the Chapter 11 Cases;
(ix) customary
provisions in joint venture agreements and similar agreements applicable to
joint ventures relating solely to such joint venture, but only to the extent
such restrictions are enforceable under mandatory provisions of applicable law
and to the extent not stayed, pre-empted, over-riden, superseded or otherwise
modified by the Bankruptcy Code, the Financing Orders and any other orders that
may be entered by the Bankruptcy Court in the Chapter 11 Cases;
(x) restrictions
contained in the Avicola Pre-Petition Credit Agreement of the type described in
subsections (a), (b), (c) and (d) of this Section 8.20 that apply only
to Avicola and its Subsidiaries and their respective Property, but only for so
long as the Avicola Pre-Petition Credit Agreement is in effect or any Avicola
Pre-Petition Obligations remain outstanding;
(xi) customary
restrictions imposed on Pilgrim’s Pride Funding Corporation in connection with
the Receivables Purchase Agreement;
(xii) contractual
encumbrances or restrictions in effect on the Petition Date on the Non-debtor
Subsidiaries’ ability to pay dividends and other payments to the Borrower or any
of its Subsidiaries, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings that are not
more restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in those agreements in effect on the
Petition Date.
Section
8.21 DIP Agent’s and Lenders’ Financial
Consultant. The DIP Agent (or its counsel) and the Lenders (or
their special counsel) shall have the right to engage jointly on behalf of the
Lenders a financial advisor, selected by the DIP Agent and acceptable to the
Required Lenders, to review, evaluate and advise the DIP Agent and the Lenders
as to the reports, analyses and cash flow forecasts and other materials prepared
by the Borrower’s financial consultants relating to the financial condition,
operating performance, and business prospects of the Borrower and its
Subsidiaries and to perform such other information gathering or evaluation acts
as may be reasonably requested by the DIP Agent or the Required Lenders, and the
reasonable costs and expenses of such financial advisor shall be borne by the
Borrower and constitute part of the Post-Petition Obligations outstanding under
this Agreement. The Borrower shall take reasonable steps to make
available to such financial advisor and its representatives such information
respecting the financial condition, operating performance, and business
prospects of the Borrower and its Subsidiaries as may be reasonably requested
and shall make the Borrower’s financial consultants, officers, employees, and
independent public accountants available with reasonable prior notice to discuss
such information with such financial advisor and its representatives.
Section
8.22 Financial
Covenants. (a) Capital
Expenditures. The Borrower shall not, nor shall it permit any
other member of the Restricted Group to, incur Capital Expenditures in an amount
in excess of $150,000,000 in the aggregate for the entire Restricted Group
during the period commencing on the Petition Date and ending on the Maturity
Date, of which no more than $107,000,000 may be funded with the proceeds of
Loans and Letters of Credit obtained under this Agreement.
Section
8.23 Chapter 11
Claims. The Borrower shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly create, incur, assume or suffer to
exist (in each case, to “Incur”) or permit any
unsecured claim in the Chapter 11 Cases or any superseding case or cases under
Chapter 7 of the Bankruptcy Code (including, without limitation, any
deficiency claim remaining after the satisfaction of a Lien that secures a
claim) to be pari passu with or senior to the claims of the DIP Agent, the L/C
Issuer and the Lenders against the Borrower and the Guarantors on the
Post-Petition Obligations, or apply to the Bankruptcy Court for authority so to
do, except for the Administrative Expense Carve-Out.
Section
8.24 Executory Contracts, Pre-Petition
Debt and Payments Outside the Ordinary Course of Business. The
Borrower shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly (a) purchase any assets outside the ordinary course of business,
(b) in the case of the Debtors, assume any material executory contracts
(other than the executory contracts listed on Exhibit J) under
Section 365 of the Bankruptcy Code without the prior approval of the DIP
Agent and the Required Lenders, (c) in the case of the Debtors, pay any
pre-petition debt, other than (i) the Pre-Petition BMO Obligations and the
Pre-Petition CoBank Obligations, in each case as permitted by this Agreement and
the Financing Order, (ii) pre-petition obligations owed to Normalized Trade
Creditors to the extent set forth in the Budget, and (iii) pre-petition
obligations to other Essential Creditors that are not trade creditors, to the
extent set forth in the Budget, (d) make any payments other than in respect
of the Post-Petition Obligations, the Pre-Petition BMO Obligations, the
Pre-Petition CoBank Obligations or the Administrative Expense Carve-Out as
otherwise permitted hereunder and by the Financing Order outside the ordinary
course of their respective businesses, and (e) make any guaranty fee
payments to Pilgrim Interests, or any other Person (including without limitation
any holder of any equity or other interest in Pilgrim Interests).
Section
8.25 Restriction on
Hedging. The Borrower shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly enter into any interest rate,
foreign currency or commodity hedging agreements or arrangements other than
commodity hedging arrangements entered into at the request or direction of a
customer or with the prior written approval of the Required Lenders in each case
with financial institutions in connection with bona fide hedging activities in
the ordinary course of business and not for speculative purposes.
Section
8.26 The
Budget. (a) The Borrower shall not permit the total
aggregate disbursements made during any period of four consecutive weeks
(including any portion of such period occurring before the Petition Date) for
items included in the Budget other than interest on the Post-Petition
Obligations, professional fees and deposits with utilities to exceed the amounts
set forth in the Budget for such items for such period by more than 10% of such
amounts.
(b) The
Budget may be modified by the Borrower at any time with the written approval of
the DIP Agent and the Required Lenders.
(c) The
Budget shall be redetermined to the Required Lenders’ reasonable satisfaction
promptly after the consummation of any Disposition outside the ordinary course
of business that results in Net Proceeds in excess of $1,000,000.
(d) No
later than the last Business Day of every fourth week after the Closing Date
(commencing December 19, 2008), the Borrower shall provide to the Lenders a
proposed updated budget for the succeeding 13 weeks as well as all of the weeks
covered by the Budget that is then in effect, which proposed updated budget must
be in form and substance satisfactory to the DIP Agent and the Required
Lenders. If such proposed updated budget is approved by the DIP Agent
and the Required Lenders it shall be the Budget for all purposes of this
Agreement.
Section
8.27 Subsidiary Distributions,
Etc. To the extent permitted by applicable law and regulation
and, so long as the Avicola Pre-Petition Credit Agreement is in effect or any
Avicola Pre-Petition Obligations remain outstanding, the Avicola Pre-Petition
Credit Agreement, the Debtors shall take such action from time to time as may be
required to cause Net Proceeds from the disposition of Subsidiaries or their
assets to the extent available for distribution, and amounts available for
distribution by any Joint Venture that has received proceeds of any Loan made
hereunder, to be distributed and paid over to the Borrower.
Section
8.28 Borrower’s Financial Consultants
Engagements; Sale of Certain Assets. The Borrower shall at all
times continue to engage one or more financial consulting, brokerage firms, or
employees selected by it and reasonably acceptable to the DIP Agent and the
Required Lenders, to explore and evaluate the prompt sale of the assets agreed
in a separate letter agreement by the parties hereto, in the case of financial
consultants or brokers, under one or more written engagement letters in form and
substance reasonably acceptable to the DIP Agent and the Required
Lenders. No later than the 60th day after the Petition Date the
Borrower shall agree to a process for the sale of assets agreed in a separate
letter agreement by the parties hereto acceptable to the Required Lenders with a
time-line and process acceptable to the Required Lenders.
Section
8.29 Engagement of Chief Restructuring
Officer. The Borrower shall engage at all times a chief
restructuring officer reasonably acceptable to the Required Lenders (it being
understood that William Snyder is acceptable). In the event a chief
restructuring officer ceases for any reason to act in that capacity the Borrower
shall engage a successor chief restructuring officer reasonably acceptable to
the Required Lenders within 10 Business Days (or such greater number of Business
Days as shall be acceptable to the Required Lenders) of such
event. The chief restructuring officer shall continue to be engaged
by the Borrower so long as any Post-Petition Obligations remain outstanding or
any DIP Commitments remain in effect. The scope of the chief
restructuring officer’s engagement and the authority granted to such chief
restructuring officer (including in each case any successor chief restructuring
officer) must be reasonably satisfactory to the Required Lenders (it being
understood that the scope of engagement of and authority, in each case, of the
type provided to William Snyder is acceptable).
Section
9. Events
of Default and Remedies.
Section
9.1 Events of
Default. Any one or more of the following shall constitute an
“Event of Default”
hereunder:
(a) default
in the payment when due of all or any part of the principal of any Loan (whether
at the stated maturity thereof or at any other time provided for in this
Agreement) or of any Reimbursement Obligation, or default for a period of two
(2) days in the payment when due of any interest, fee or other Obligation
payable hereunder or under any other Loan Document;
(b) default
in the observance or performance of any covenant set forth in Sections 8.1,
8.5 (excluding subsections (l) and (m) thereof), 8.7, 8.8, 8.9, 8.10, 8.11,
8.12, 8.19, 8.22, 8.23, 8.24 or 8.26 hereof or of any
provision in any Loan Document dealing with the use, disposition or remittance
of the proceeds of Collateral or requiring the maintenance of insurance
thereon;
(c) default
in the observance or performance of any covenant set forth in
Sections 8.5(l) and (m) hereof which is not remedied within 1 Business
Day after the occurrence thereof;
(d) default
in the observance or performance of any other provision hereof or of any other
Loan Document which is not remedied within 30 days after the earlier of
(i) the date on which such failure shall first become known to any
Designated Officer of the Borrower or (ii) written notice thereof is given
to the Borrower by the DIP Agent;
(e) any
representation or warranty made herein or in any other Loan Document or in any
certificate furnished to the DIP Agent or the Lenders pursuant hereto or thereto
proves untrue in any material respect as of the date of the issuance or making
or deemed making thereof;
(f) any
of the Loan Documents shall for any reason not be or shall cease to be in full
force and effect or is declared to be null and void, or any of the Collateral
Documents shall for any reason fail to create a valid and perfected first
priority Lien in favor of the DIP Agent in any Collateral purported to be
created thereby except as expressly permitted by the terms thereof, or any
Debtor takes any action for the purpose of terminating, repudiating or
rescinding any Loan Document executed by it or any of its obligations
thereunder;
(g) default
shall occur under any Indebtedness for Borrowed Money issued, assumed or
guaranteed (in the case of the Debtors, after the Petition Date) by the Borrower
or any Subsidiary aggregating in excess of $10,000,000, or under any indenture,
agreement or other instrument under which the same may be issued, and such
default shall continue for a period of time sufficient to permit the
acceleration of the maturity of any such Indebtedness for Borrowed Money
(whether or not such maturity is in fact accelerated) or any such Indebtedness
for Borrowed Money shall not be paid when due (whether by demand, lapse of time,
acceleration or otherwise) after giving effect to any applicable notice and
grace periods;
(h) any
judgment or judgments, writ or writs or warrant or warrants of attachment, or
any similar process or processes, shall be entered or filed against the Borrower
or any Subsidiary, or against any of its Property, in an aggregate amount in
excess of $10,000,000 (except to the extent covered by insurance pursuant to
which the insurer has not specifically disclaimed liability therefor in
writing), and which remains undischarged, unvacated, unbonded or unstayed for a
period of 30 days from the date of its entry;
(i) the
Borrower or any Subsidiary, or any member of its Controlled Group, shall fail to
pay when due an amount or amounts aggregating in excess of $10,000,000 which it
shall have become liable to pay to the PBGC or to a Plan under Title IV of
ERISA; or notice of intent to terminate a Plan or Plans having aggregate
Unfunded Vested Liabilities in excess of $10,000,000 (collectively, a “Material Plan”) shall be
filed under Title IV of ERISA by the Borrower or any Subsidiary, or any
other member of its Controlled Group, any plan administrator or any combination
of the foregoing; or the PBGC shall institute proceedings under Title IV of
ERISA to terminate or to cause a trustee to be appointed to administer any
Material Plan or a proceeding shall be instituted by a fiduciary of any Material
Plan against the Borrower or any Subsidiary, or any member of its Controlled
Group, to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding
shall not have been dismissed or stayed within 30 days thereafter; or a
condition shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated;
(j) any
Change of Control shall occur;
(k)any
Material Non-debtor Subsidiary shall (i) have entered involuntarily against
it an order for relief under the Bankruptcy Code, as amended, (ii) not pay,
or admit in writing its inability to pay, its debts generally as they become
due, (iii) make an assignment for the benefit of creditors, (iv) apply
for, seek, consent to or acquiesce in, the appointment of a receiver, custodian,
trustee, examiner, liquidator or similar official for it or any substantial part
of its Property, (v) institute any proceeding seeking to have entered
against it an order for relief under the Bankruptcy Code, as amended, to
adjudicate it insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief of
debtors or fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, (vi) take any
corporate (or analogous) action in furtherance of any matter described in
parts (i) through (v) above, or (vii) fail to contest in good faith
any appointment or proceeding described in Section 9.1(l) hereof;
or
(l)a
custodian, receiver, trustee, examiner, liquidator or similar official shall be
appointed for any Material Non-debtor Subsidiary, or any substantial part of any
of its Property, or a proceeding described in Section 9.1(k)(v) shall be
instituted against any Material Non-debtor Subsidiary, and such appointment
continues undischarged or such proceeding continues undismissed or unstayed for
a period of 60 days; or
(m)The
failure of the Borrower or any Guarantor to comply with any of the terms of the
Financing Order; or
(n)The
granting of a Lien on or other interest in any Property of the Borrower or any
Guarantor, or Superpriority Claim, by any court which is superior to or ranks in
parity with the Lien of the DIP Agent granted in this Agreement and the
Financing Order except for the Administrative Expense Carve-Out or as otherwise
permitted hereunder or under the Financing Order; or
(o)Any
Lien purported to be created by this Agreement, the Interim Financing Order or
the Final Financing Order in any of the Collateral shall, for any reason other
than the acts of the DIP Agent, the Lenders, the Pre-Petition BMO Agent or the
Pre-Petition BMO Lenders, cease to be a valid and perfected Lien against any of
the Collateral purported to be covered thereby pursuant to Sections 364(c)
and (d) of the Bankruptcy Code or any action is commenced by any Debtor which
contests the validity, perfection or enforceability of any pre-petition Liens of
the Pre-Petition BMO Agent under any of the Pre-Petition BMO Loan Documents or
any Lien created by this Agreement, the Interim Financing Order or the Final
Financing Order; or
(p)The
Borrower shall fail to timely provide any adequate protection payments to the
Pre-Petition BMO Lenders as set forth in any Financing Order; or
(q)Any
material provision of any Loan Document shall, for any reason, cease to be valid
and binding on the Borrower or any of the Guarantors, or the Borrower or any of
the Guarantors shall so assert in any pleading filed in any court;
or
(r)Any of
the Chapter 11 Cases shall be dismissed or converted to a case under
Chapter 7 of the Bankruptcy Code; or
(s)A
trustee under Chapter 11 of the Bankruptcy Code shall be appointed in any
of the Chapter 11 Cases; or
(t)An
order of the Bankruptcy Court shall be entered in any of the Chapter 11
Cases appointing an examiner or other person with enlarged powers relating to
the operation of the business (powers beyond those set forth in
Section 1106(a)(3) and (4) of the Bankruptcy Code) under
Section 1106(b) of the Bankruptcy Code; or
(u)The
Financing Order shall be amended, reversed, stayed, vacated or modified, in the
case of an amendment or modification in a manner which materially and adversely
affects the rights of the Lenders or the DIP Agent and which amendment or
modification is not acceptable to the Required Lenders; or
(v)An
application shall be filed by any Debtor for the approval of any other
Superpriority Claim in any of the Chapter 11 Cases which is pari passu with or
senior to the claims of the DIP Agent and the Lenders with respect to the
Post-Petition Obligations (except for the Administrative Expense Carve-Out) or
there shall arise any such pari passu or Superpriority Claim; or
(w)The
Bankruptcy Court shall enter an order or orders granting relief from the
automatic stay under Section 362 of the Bankruptcy Code to a third party
with respect to any assets of the Borrower or any Guarantor having an aggregate
net book value (determined in accordance with GAAP) in excess of $20,000,000 in
the aggregate; or
(x)The
Bankruptcy Court shall not enter an order making a Lien Finding acceptable to
the DIP Agent within 150 days (or such later date as may be agreed to by the DIP
Agent) following the date of the appointment of a creditors’ committee;
or
(y)Any
material adverse change shall occur in the condition or prospects, financial or
otherwise, of the Borrower and its Subsidiaries, taken as a whole, after the
Petition Date; or
(z)The
Final Financing Order shall not be entered within 45 days after the Petition
Date or such later date as to which the Required Lenders may agree;
or
(aa)If
any of the Debtors seeks an order in the Debtors’ Chapter 11 Cases or supports
any applications therefore which authorize (without (a) all Post-Petition
Obligations outstanding to the Lenders under the DIP Credit and the Adequate
Protection Obligations fully being indefeasibly satisfied in full in cash or (b)
the DIP Agent, the Pre-Petition BMO Agent and the Pre-Petition CoBank Agent
providing their prior written consent): (i) under Bankruptcy Code § 363, the use
of cash collateral in which the DIP Agent, the Pre-Petition BMO Agent or the
Prep-Petition CoBank Agent have an interest, or the sale, use, or lease, other
than in the ordinary course of business, of other Property of the Debtors in
which the DIP Agent, the Pre-Petition BMO Agent or the Pre-Petition CoBank Agent
have an interest; (ii) the obtaining of credit or the incurring of indebtedness
pursuant to Bankruptcy Code §§ 364(c) or (d), or any other grant of rights
against the Debtors and/or their estates, secured by a lien, mortgage or
security interest in the Collateral held by the DIP Agent, the Pre-Petition BMO
Agent or the Pre-Petition CoBank Agent or entitled to priority administrative
status which is junior, equal or superior to that granted to the DIP Agent, the
Lenders, the Pre-Petition BMO Agent, the Pre-Petition BMO Lenders, the
Pre-Petition CoBank Agent or the Pre-Petition CoBank Lenders (with
respect to the Replacement Liens) herein; (iii) to the extent permitted by law,
the return of goods by the Debtors pursuant to Bankruptcy Code § 546(c); or (iv)
an order dismissing the Chapter 11 Cases.
Section
9.2 Consequences of Event of
Default. Upon the occurrence of the Maturity Date and upon the
occurrence and during the continuation of any Event of Default beyond the
applicable cure period (if any) and after three Business Days’ prior written
(including e-mail, facsimile, U.S. mail and personal delivery) notice by the DIP
Agent to the Borrower, any official committee and the U.S. Trustee of such Event
of Default (other than with respect to the actions described in subsections (a)
and (c) below, as to which such notice is not required), the DIP Agent, upon
request of the Required Lenders shall take any or all of the following actions,
in each case without further order of or application to the Bankruptcy
Court:
(a) declare
the principal of and accrued interest on the outstanding Post-Petition
Obligations to be immediately due and payable;
(b) set
off any amounts in any account (including any accounts maintained by any Debtor
with the DIP Agent);
(c) terminate
the DIP Commitments and any other obligations of the Lenders to extend any
further credit hereunder;
(d) demand
that any Cash Collateral be applied to reduce or collateralize the Post-Petition
Obligations as set forth in the second paragraph of Section 3.1 hereof;
and
(e) demand
payment of interest on the Post-Petition Obligations at the Default Rate, in
which event interest at such Default Rate shall accrue and be payable as therein
set forth without further order of or application to the Bankruptcy
Court.
The
automatic stay shall be deemed lifted as to the Collateral and the DIP Agent,
upon request of the Required Lenders shall, (without regard to whatever other
action the DIP Agent or the Lenders may be taking), foreclose and realize upon
and exercise any other rights or remedies permitted by the applicable documents,
at law or otherwise, with respect to the Collateral.
Section
9.3 Relief from
Stay. Nothing contained in this Agreement shall impair or
otherwise affect the Lenders’ right to seek relief from the automatic stay as to
their Collateral for cause at any time, which right the Lenders hereby fully
reserve.
Section
10. Guarantee.
Section
10.1 Guarantee. (a) Each
of the Guarantors hereby, jointly and severally, unconditionally and
irrevocably, guarantees to the DIP Agent, for the ratable benefit of the Lenders
and their respective successors, indorsees, transferees and assigns, the prompt
and complete payment and performance by the Borrower when due (whether at the
stated maturity, by acceleration or otherwise) of the Post-Petition
Obligations.
(b) Anything
herein or in any other Loan Document to the contrary notwithstanding, the
maximum liability of each Guarantor hereunder and under the other Loan Documents
shall in no event exceed the amount which can be guaranteed by such Guarantor
under applicable federal and state laws relating to the insolvency of debtors
(after giving effect to the right of contribution established in
Section 10.2).
(c) Each
Guarantor agrees that the Post-Petition Obligations may at any time and from
time to time exceed the amount of the liability of such Guarantor hereunder
without impairing the guarantee contained in this Section 10 or affecting
the rights and remedies of the DIP Agent or any Lender hereunder.
(d) The
guarantee contained in this Section 10 shall remain in full force and
effect until all the Post-Petition Obligations and the obligations of each
Guarantor under the guarantee contained in this Section 10 shall have been
satisfied by payment in full, no Letter of Credit shall be outstanding (other
than Letters of Credit that have been cash collateralized at 105%) and the DIP
Commitments shall be terminated, notwithstanding that from time to time during
the term of this Agreement the Borrower may be free from any Post-Petition
Obligations.
(e) No
payment made by the Borrower, any of the Guarantors, any other guarantor or any
other Person or received or collected by the DIP Agent or any Lender from the
Borrower, any of the Guarantors, any other guarantor or any other Person by
virtue of any action or proceeding or any set-off or appropriation or
application at any time or from time to time in reduction of or in payment of
the Post-Petition Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of any Guarantor hereunder which shall,
notwithstanding any such payment (other than any payment made by such Guarantor
in respect of the Post-Petition Obligations or any payment received or collected
from such Guarantor in respect of the Post-Petition Obligations), remain liable
for the Post-Petition Obligations up to the maximum liability of such Guarantor
hereunder until the Post-Petition Obligations are paid in full, no Letter of
Credit shall be outstanding and the DIP Commitments are terminated.
Section
10.2 Right of
Contribution. Each Guarantor hereby agrees that to the extent
that a Guarantor shall have paid more than its proportionate share of any
payment made hereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder which has not paid
its proportionate share of such payment. Each Guarantor’s right of
contribution shall be subject to the terms and conditions of
Section 10.3. The provisions of this Section 10.2 shall in
no respect limit the obligations and liabilities of any Guarantor to the DIP
Agent and the Lenders, and each Guarantor shall remain liable to the DIP Agent
and the Lenders for the full amount guaranteed by such Guarantor
hereunder.
Section
10.3 No
Subrogation. Notwithstanding any payment made by any Guarantor
hereunder or any set-off or application of funds of any Guarantor by the DIP
Agent or any Lender, no Guarantor shall be entitled to be subrogated to any of
the rights of the DIP Agent or any Lender against the Borrower or any other
Guarantor or any collateral security or guarantee or right of offset held by the
DIP Agent or any Lender for the payment of the Post-Petition Obligations, nor
shall any Guarantor seek or be entitled to seek any contribution or
reimbursement from the Borrower or any other Guarantor in respect of payments
made by such Guarantor hereunder, until all amounts owing to the DIP Agent and
the Lenders by the Borrower on account of the Post-Petition Obligations are paid
in full, no Letter of Credit shall be outstanding and the DIP Commitments are
terminated. If any amount shall be paid to any Guarantor on account
of such subrogation rights at any time when all of the Post-Petition Obligations
shall not have been paid in full, such amount shall be held by such Guarantor in
trust for the DIP Agent and the Lenders, segregated from other funds of such
Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over
to the DIP Agent in the exact form received by such Guarantor (duly indorsed by
such Guarantor to the DIP Agent, if required), to be applied against the
Post-Petition Obligations, whether matured or unmatured, in such order as this
Agreement shall prescribe.
Section
10.4 Amendments, Etc. with Respect to the
Post-Petition Obligations. Each Guarantor shall remain
obligated hereunder notwithstanding that, without any reservation of rights
against any Guarantor and without notice to or further assent by any Guarantor,
any demand for payment of any of the Post-Petition Obligations made by the DIP
Agent or any Lender may be rescinded by the DIP Agent or such Lender and any of
the Post-Petition Obligations continued, and the Post-Petition Obligations, or
the liability of any other Person upon or for any part thereof, or any
collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered or released by
the DIP Agent or any Lender, and this Agreement and the other Loan Documents and
any other documents executed and delivered in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as the DIP
Agent (or the Required Lenders or all Lenders, as the case may be) may deem
advisable from time to time, and any collateral security, guarantee or right of
offset at any time held by the DIP Agent or any Lender for the payment of the
Post-Petition Obligations may be sold, exchanged, waived, surrendered or
released. Neither the DIP Agent nor any Lender shall as a condition
to any Guarantor’s liability hereunder have any obligation to protect, secure,
perfect or insure any Lien at any time held by it as security for the
Post-Petition Obligations or for the guarantee contained in this Section 10
or any property subject thereto.
Section
10.5 Guarantee Absolute and
Unconditional. Each Guarantor waives any and all notice of the
creation, renewal, extension or accrual of any of the Post-Petition Obligations
and notice of or proof of reliance by the DIP Agent or any Lender upon the
guarantee contained in this Section 10 or acceptance of the guarantee
contained in this Section 10; the Post-Petition Obligations, and any of
them, shall conclusively be deemed to have been created, contracted or incurred,
or renewed, extended, amended or waived, in reliance upon the guarantee
contained in this Section 10; and all dealings between the Borrower and any
of the Guarantors, on the one hand, and the DIP Agent and the Lenders, on the
other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon the guarantee contained in this
Section 10. Each Guarantor waives diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon the
Borrower or any of the Guarantors with respect to the Post-Petition
Obligations. Each Guarantor understands and agrees that the guarantee
contained in this Section 10 shall be construed as a continuing, absolute
and unconditional guarantee of payment without regard to (a) the validity
or enforceability of this Agreement or any other Loan Document, any of the
Post-Petition Obligations or any other collateral security therefor or guarantee
or right of offset with respect thereto at any time or from time to time held by
the DIP Agent or any Lender, (b) any defense, set-off or counterclaim
(other than a defense of payment or performance) which may at any time be
available to or be asserted by the Borrower or any other Person against the DIP
Agent or any Lender, or (c) any other circumstance whatsoever (with or without
notice to or knowledge of the Borrower or such Guarantor) which constitutes, or
might be construed to constitute, an equitable or legal discharge of the
Borrower for the Post-Petition Obligations, or of such Guarantor under the
guarantee contained in this Section 10, in bankruptcy or in any other
instance (other than a defense of payment or performance). When
making any demand hereunder or otherwise pursuing its rights and remedies
hereunder against any Guarantor, the DIP Agent or any Lender may, but shall be
under no obligation to, make a similar demand on or otherwise pursue such rights
and remedies as it may have against the Borrower, any other Guarantor or any
other Person or against any collateral security or guarantee for the
Post-Petition Obligations or any right of offset with respect thereto, and any
failure by the DIP Agent or any Lender to make any such demand, to pursue such
other rights or remedies or to collect any payments from the Borrower, any other
Guarantor or any other Person or to realize upon any such collateral security or
guarantee or to exercise any such right of offset, or any release of the
Borrower, any other Guarantor or any other Person or any such collateral
security, guarantee or right of offset, shall not relieve any Guarantor of any
obligation or liability hereunder, and shall not impair or affect the rights and
remedies, whether express, implied or available as a matter of law, of the DIP
Agent or any Lender against any Guarantor. For the purposes hereof
“demand” shall include the commencement and continuance of any legal
proceedings.
Section
10.6 Reinstatement. The
guarantee contained in this Section 10 shall continue to be effective, or
be reinstated, as the case may be, if at any time payment, or any part thereof,
of any of the Post-Petition Obligations is rescinded or must otherwise be
restored or returned by the DIP Agent or any Lender upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Borrower or any
Guarantor, or upon or as a result of the appointment of a receiver, intervenor
or conservator of, or trustee or similar officer for, the Borrower or any
Guarantor or any substantial part of its Property, or otherwise, all as though
such payments had not been made.
Section
10.7 Payments. Each
Guarantor hereby guarantees that payments hereunder will be paid to the DIP
Agent without set-off or counterclaim in Dollars at the office of the DIP Agent
specified in this Agreement.
Section
10.8 Release of
Guaranties. Each Lender and L/C Issuer hereby agrees that in
the event all of the stock (or other equity interests) of a Guarantor is sold,
transferred, or otherwise disposed of in accordance with the terms and
conditions of this Agreement (including a sale, transfer, or disposition
permitted by the terms of Section 8.10 hereof, if any, or which has
otherwise been consented to in accordance with Section 12.13 hereof) to a
party other than the Borrower or a Subsidiary, the DIP Agent will release the
Guaranty of such Guarantor concurrently with such sale, transfer or other
disposition.
Section
11. The
DIP Agent.
Section
11.1 Appointment and Authorization of DIP
Agent. Each Lender and the L/C Issuer hereby appoints
Bank of Montreal as the DIP Agent under the Loan Documents and hereby authorizes
the DIP Agent to take such action as DIP Agent on its behalf and to exercise
such powers under the Loan Documents as are delegated to the DIP Agent by the
terms thereof, together with such powers as are reasonably incidental
thereto. The Lenders and L/C Issuer expressly agree that the DIP
Agent is not acting as a fiduciary of the Lenders or the L/C Issuer in
respect of the Loan Documents, the Borrower or otherwise, and nothing herein or
in any of the other Loan Documents shall result in any duties or obligations on
the DIP Agent or any of the Lenders or L/C Issuer except as expressly set
forth herein.
Section
11.2 DIP Agent and its
Affiliates. The DIP Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any other Lender and
may exercise or refrain from exercising such rights and power as though it were
not the DIP Agent (except any action provided by the Loan Documents to be taken
by the DIP Agent), and the DIP Agent and its affiliates may accept deposits
from, lend money to, and generally engage in any kind of business with the
Borrower or any Affiliate of the Borrower as if it were not the DIP Agent under
the Loan Documents. The term “Lender” as used herein and in
all other Loan Documents, unless the context otherwise clearly requires,
includes the DIP Agent in its individual capacity as a Lender (if
applicable).
Section
11.3 Action by DIP
Agent. If the DIP Agent receives from the Borrower a written
notice of an Event of Default pursuant to Section 8.5 hereof, the DIP Agent
shall promptly give each of the Lenders and L/C Issuer written notice
thereof. The obligations of the DIP Agent under the Loan Documents
are only those expressly set forth therein. Without limiting the
generality of the foregoing, the DIP Agent shall not be required to take any
action hereunder with respect to any Default or Event of Default, except as
expressly provided in Section 9.2. Upon the occurrence of an
Event of Default, the DIP Agent shall take such action to enforce its Lien on
the Collateral and to preserve and protect the Collateral as may be directed by
the Required Lenders. Unless and until the Required Lenders give such
direction, the DIP Agent may (but shall not be obligated to) take or refrain
from taking such actions as it deems appropriate and in the best interest of all
the Lenders and L/C Issuer. In no event, however, shall the DIP
Agent be required to take any action in violation of applicable law or of any
provision of any Loan Document, and the DIP Agent shall in all cases be fully
justified in failing or refusing to act hereunder or under any other Loan
Document unless it first receives any further assurances of its indemnification
from the Lenders that it may require, including prepayment of any related
expenses and any other protection it requires against any and all costs,
expense, and liability which may be incurred by it by reason of taking or
continuing to take any such action. The DIP Agent shall be entitled
to assume that no Default or Event of Default exists unless notified in writing
to the contrary by a Lender, the L/C Issuer, or the Borrower. In
all cases in which the Loan Documents do not require the DIP Agent to take
specific action, the DIP Agent shall be fully justified in using its discretion
in failing to take or in taking any action thereunder. Any
instructions of the Required Lenders, or of any other group of Lenders called
for under the specific provisions of the Loan Documents, shall be binding upon
all the Lenders and the holders of the Post-Petition Obligations.
Section
11.4 Consultation with
Experts. The DIP Agent may consult with legal counsel,
independent public accountants, and other experts selected by it and shall not
be liable for any action taken or omitted to be taken by it in good faith in
accordance with the advice of such counsel, accountants or experts.
Section
11.5 Liability of DIP Agent; Credit
Decision. Neither the DIP Agent nor any of its directors,
officers, agents, employees, attorneys or financial advisors shall be liable for
any action taken or not taken by it in connection with the Loan
Documents: (i) with the consent or at the request of the
Required Lenders or (ii) in the absence of its own gross negligence or
willful misconduct. Neither the DIP Agent nor any of its directors,
officers, agents, employees, attorneys or financial advisors shall be
responsible for or have any duty to ascertain, inquire into or
verify: (i) any statement, warranty or representation made in
connection with this Agreement, any other Loan Document or any Credit Event;
(ii) the performance or observance of any of the covenants or agreements of
the Borrower or any Subsidiary contained herein or in any other Loan Document;
(iii) the satisfaction of any condition specified in Section 7 hereof,
except receipt of items required to be delivered to the DIP Agent; or
(iv) the validity, effectiveness, genuineness, enforceability, perfection,
value, worth or collectibility hereof or of any other Loan Document or of any
other documents or writing furnished in connection with any Loan Document or of
any Collateral; and the DIP Agent makes no representation of any kind or
character with respect to any such matter mentioned in this
sentence. The DIP Agent may execute any of its duties under any of
the Loan Documents by or through employees, agents, and attorneys-in-fact and
shall not be answerable to the Lenders, the L/C Issuer, the Borrower, or
any other Person for the default or misconduct of any such agents or
attorneys-in-fact selected with reasonable care. The DIP Agent shall
not incur any liability by acting in reliance upon any notice, consent,
certificate, other document or statement (whether written or oral) believed by
it to be genuine or to be sent by the proper party or parties. In
particular and without limiting any of the foregoing, the DIP Agent shall have
no responsibility for confirming the accuracy of any compliance certificate or
other document or instrument received by it under the Loan
Documents. The DIP Agent may treat the payee of any Obligation as the
holder thereof until written notice of transfer shall have been filed with the
DIP Agent signed by such payee in form satisfactory to the DIP
Agent. Each Lender and L/C Issuer acknowledges that it has
independently and without reliance on the DIP Agent or any other Lender or
L/C Issuer, and based upon such information, investigations and inquiries
as it deems appropriate, made its own credit analysis and decision to extend
credit to the Borrower in the manner set forth in the Loan
Documents. It shall be the responsibility of each Lender and
L/C Issuer to keep itself informed as to the creditworthiness of the
Borrower and its Subsidiaries, and the DIP Agent shall have no liability to any
Lender or L/C Issuer with respect thereto.
Section
11.6 Indemnity. The
Lenders shall ratably, in accordance with their respective DIP Percentages,
indemnify and hold the DIP Agent, and its directors, officers, employees,
agents, representatives, attorneys and financial advisors harmless from and
against any liabilities, losses, costs or expenses suffered or incurred by it
under any Loan Document or in connection with the transactions contemplated
thereby, regardless of when asserted or arising, except to the extent they are
promptly reimbursed for the same by the Borrower and except to the extent that
any event giving rise to a claim was caused by the gross negligence or willful
misconduct of the party seeking to be indemnified. The obligations of
the Lenders under this Section shall survive termination of this
Agreement. The DIP Agent shall be entitled to offset amounts received
for the account of a Lender under this Agreement against unpaid amounts due from
such Lender to the DIP Agent hereunder (whether as fundings of participations,
indemnities or otherwise), but shall not be entitled to offset against amounts
owed to the DIP Agent by any Lender arising outside of this Agreement and the
other Loan Documents.
Section
11.7 Resignation of DIP Agent and
Successor DIP Agent. The DIP Agent may resign at any time by
giving written notice thereof to the Lenders, the L/C Issuer, and the
Borrower. Upon any such resignation of the DIP Agent, the Required
Lenders shall have the right to appoint a successor DIP Agent. If no
successor DIP Agent shall have been so appointed by the Required Lenders, and
shall have accepted such appointment, within 30 days after the retiring DIP
Agent’s giving of notice of resignation then the retiring DIP Agent may, on
behalf of the Lenders, appoint a successor DIP Agent, which may be any Lender
hereunder or any commercial bank, or an Affiliate of a commercial bank, having
an office in the United States of America and having a combined capital and
surplus of at least $200,000,000. Upon the acceptance of its
appointment as the DIP Agent hereunder, such successor DIP Agent shall thereupon
succeed to and become vested with all the rights and duties of the retiring DIP
Agent under the Loan Documents, and the retiring DIP Agent shall be discharged
from its duties and obligations thereunder. After any retiring DIP
Agent’s resignation hereunder as DIP Agent, the provisions of this
Section 11 and all protective provisions of the other Loan Documents shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was DIP Agent, but no successor DIP Agent shall in any event be liable or
responsible for any actions of its predecessor. If the DIP Agent
resigns and no successor is appointed, the rights and obligations of such DIP
Agent shall be automatically assumed by the Required Lenders and (i) the
Borrower shall be directed to make all payments due each Lender and
L/C Issuer hereunder directly to such Lender or L/C Issuer and
(ii) the DIP Agent’s rights in the Collateral shall be assigned without
representation, recourse or warranty to the Lenders and L/C Issuer as their
interests may appear.
Section
11.8 L/C Issuer and Swing Line
Lender. The L/C Issuer shall act on behalf of the Lenders
with respect to any Letters of Credit issued by it and the documents associated
therewith, and the Swing Line Lender shall act on behalf of the Lenders with
respect to the Swing Loans made hereunder. The L/C Issuer and
the Swing Line Lender shall each have all of the benefits and immunities
(i) provided to the DIP Agent in this Section 11 with respect to any
acts taken or omissions suffered by the L/C Issuer in connection with
Letters of Credit issued by it or proposed to be issued by it and the
Applications pertaining to such Letters of Credit or by the Swing Line Lender in
connection with Swing Loans made or to be made hereunder as fully as if the term
“DIP Agent,” as used in
this Section 11, included the L/C Issuer and the Swing Line Lender
with respect to such acts or omissions and (ii) as additionally provided in
this Agreement with respect to such L/C Issuer or Swing Line Lender, as
applicable.
Section
11.9 Authorization to Release or
Subordinate or Limit Liens and to Release Guaranties. The DIP
Agent is hereby irrevocably authorized by each of the Lenders and the
L/C Issuer to (a) release any Lien covering any Collateral that is
sold, transferred, or otherwise disposed of in accordance with the terms and
conditions of this Agreement and the relevant Collateral Documents (including a
sale, transfer, or disposition permitted by the terms of Section 8.10
hereof or which has otherwise been consented to in accordance with
Section 12.13 hereof), (b) release or subordinate any Lien on
Collateral consisting of goods financed with purchase money indebtedness or
under a Capital Lease to the extent such purchase money indebtedness or
Capitalized Lease Obligation, and the Lien securing the same, are permitted by
Sections 8.7(b) and 8.8(d), (m), (n) and (o) hereof, (c) reduce or
limit the amount of the indebtedness secured by any particular item of
Collateral to an amount not less than the estimated value thereof to the extent
necessary to reduce mortgage registry, filing and similar tax, (d) release
Liens on the Collateral following termination or expiration of the DIP
Commitments and payment in full in cash of the Post-Petition Obligations and the
cancellation, expiration or cash-collateralization as provided herein of all
Letters of Credit outstanding hereunder, and (e) release a Guarantor of its
obligations under a Guaranty if all of the stock (or other equity interests) of
such Guarantor is sold, transferred, or otherwise disposed of in accordance with
the terms and conditions of this Agreement (including a sale, transfer, or
disposition permitted by the terms of Section 8.10 hereof, if any, or which
has otherwise been consented to in accordance with Section 12.13 hereof) to
a party other than the Borrower or a Subsidiary.
Section
11.10 Authorization to Enter into, and
Enforcement of, the Collateral Documents. The DIP Agent is
hereby irrevocably authorized by each of the Lenders and the L/C Issuer to
execute and deliver the Collateral Documents on behalf of each of the Lenders
and their Affiliates and the L/C Issuer and to take such action and
exercise such powers under the Collateral Documents as the DIP Agent considers
appropriate, provided the DIP Agent shall not amend the Collateral Documents
unless such amendment is agreed to in writing by the Required
Lenders. Each Lender and L/C Issuer acknowledges and agrees that
it will be bound by the terms and conditions of the Collateral Documents upon
the execution and delivery thereof by the DIP Agent. Except as
otherwise specifically provided for herein, no Lender (or its Affiliates) or
L/C Issuer, other than the DIP Agent, shall have the right to institute any
suit, action or proceeding in equity or at law for the foreclosure or other
realization upon any Collateral or for the execution of any trust or power in
respect of the Collateral or for the appointment of a receiver or for the
enforcement of any other remedy under the Collateral Documents; it being
understood and intended that no one or more of the Lenders (or their Affiliates)
or L/C Issuer shall have any right in any manner whatsoever to affect,
disturb or prejudice the Lien of the DIP Agent (or any security trustee
therefor) under the Collateral Documents by its or their action or to enforce
any right thereunder, and that all proceedings at law or in equity shall be
instituted, had, and maintained by the DIP Agent (or its security trustee) in
the manner provided for in the relevant Collateral Documents for the benefit of
the Lenders, the L/C Issuer, and their Affiliates.
Section
12. Miscellaneous.
Section
12.1 Withholding
Taxes. (a) Payments Free of
Withholding. Except as otherwise required by law and subject to
Section 12.1(b) hereof, each payment by the Borrower and the Guarantors
under this Agreement or the other Loan Documents shall be made without
withholding for or on account of any present or future taxes (other than overall
net income taxes on the recipient) imposed by or within the jurisdiction in
which the Borrower or such Guarantor is domiciled, any jurisdiction from which
the Borrower or such Guarantor makes any payment, or (in each case) any
political subdivision or taxing authority thereof or therein. If any
such withholding is so required, the Borrower or such Guarantor shall make the
withholding, pay the amount withheld to the appropriate governmental authority
before penalties attach thereto or interest accrues thereon, and forthwith pay
such additional amount as may be necessary to ensure that the net amount
actually received by each Lender, the L/C Issuer, and the DIP Agent free
and clear of such taxes (including such taxes on such additional amount) is
equal to the amount which that Lender, L/C Issuer, or the DIP Agent (as the
case may be) would have received had such withholding not been
made. If the DIP Agent, the L/C Issuer, or any Lender pays any
amount in respect of any such taxes, penalties or interest, the Borrower or such
Guarantor shall reimburse the DIP Agent, the L/C Issuer or such Lender for
that payment on demand in the currency in which such payment was
made. If the Borrower or such Guarantor pays any such taxes,
penalties or interest, it shall deliver official tax receipts evidencing that
payment or certified copies thereof to the Lender, the L/C Issuer or DIP
Agent on whose account such withholding was made (with a copy to the DIP Agent
if not the recipient of the original) on or before the thirtieth day after
payment.
(b) U.S. Withholding Tax
Exemptions. Each Lender or L/C Issuer that is not a
United States person (as such term is defined in Section 7701(a)(30) of the
Code) shall submit to the Borrower and the DIP Agent on or before the date the
initial Credit Event is made hereunder or, if later, the date such financial
institution becomes a Lender or L/C Issuer hereunder, two duly completed
and signed copies of (i) either Form W-8 BEN (relating to such Lender
or L/C Issuer and entitling it to a complete exemption from withholding
under the Code on all amounts to be received by such Lender or L/C Issuer,
including fees, pursuant to the Loan Documents and the Post-Petition
Obligations) or Form W-8 ECI (relating to all amounts to be received by
such Lender or L/C Issuer, including fees, pursuant to the Loan Documents
and the Post-Petition Obligations) of the United States Internal Revenue Service
or (ii) solely if such Lender is claiming exemption from United States
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of “portfolio interest,” a Form W-8 BEN, or any successor form
prescribed by the Internal Revenue Service, and a certificate representing that
such Lender is not a bank for purposes of Section 881(c) of the Code, is
not a 10 percent shareholder (within the meaning of Section 871(h)(3)(B) of
the Code) of the Borrower and is not a controlled foreign corporation related to
the Borrower (within the meaning of Section 864(d)(4) of the
Code). Thereafter and from time to time, each Lender and
L/C Issuer shall submit to the Borrower and the DIP Agent such additional
duly completed and signed copies of one or the other of such Forms (or such
successor forms as shall be adopted from time to time by the relevant
United States taxing authorities) and such other certificates as may be
(i) requested by the Borrower in a written notice, directly or through the
DIP Agent, to such Lender or L/C Issuer and (ii) required under
then-current United States law or regulations to avoid or reduce United States
withholding taxes on payments in respect of all amounts to be received by such
Lender or L/C Issuer, including fees, pursuant to the Loan Documents or the
Post-Petition Obligations. Upon the request of the Borrower or the
DIP Agent, each Lender and L/C Issuer that is a United States person (as
such term is defined in Section 7701(a)(30) of the Code) shall submit to
the Borrower and the DIP Agent a certificate to the effect that it is such a
United States person.
(c) Inability of Lender to Submit
Forms. If any Lender or L/C Issuer determines, as a
result of any change in applicable law, regulation or treaty, or in any official
application or interpretation thereof, that it is unable to submit to the
Borrower or the DIP Agent any form or certificate that such Lender or
L/C Issuer is obligated to submit pursuant to subsection (b) of this
Section 12.1 or that such Lender or L/C Issuer is required to withdraw
or cancel any such form or certificate previously submitted or any such form or
certificate otherwise becomes ineffective or inaccurate, such Lender or
L/C Issuer shall promptly notify the Borrower and DIP Agent of such fact
and the Lender or L/C Issuer shall to that extent not be obligated to
provide any such form or certificate and will be entitled to withdraw or cancel
any affected form or certificate, as applicable.
Section
12.2 No Waiver, Cumulative
Remedies. No delay or failure on the part of the DIP Agent,
the L/C Issuer, or any Lender, or on the part of the holder or holders of
any of the Post-Petition Obligations, in the exercise of any power or right
under any Loan Document shall operate as a waiver thereof or as an acquiescence
in any default, nor shall any single or partial exercise of any power or right
preclude any other or further exercise thereof or the exercise of any other
power or right. The rights and remedies hereunder of the DIP Agent,
the L/C Issuer, the Lenders, and of the holder or holders of any of the
Post-Petition Obligations are cumulative to, and not exclusive of, any rights or
remedies which any of them would otherwise have.
Section
12.3 Non-Business
Days. If any payment hereunder becomes due and payable on a
day which is not a Business Day, the due date of such payment shall be extended
to the next succeeding Business Day on which date such payment shall be due and
payable. In the case of any payment of principal falling due on a day
which is not a Business Day, interest on such principal amount shall continue to
accrue during such extension at the rate per annum then in effect, which accrued
amount shall be due and payable on the next scheduled date for the payment of
interest.
Section
12.4 Documentary
Taxes. The Borrower agrees to pay on demand any documentary,
stamp or similar taxes payable in respect of this Agreement or any other Loan
Document, including interest and penalties, in the event any such taxes are
assessed, irrespective of when such assessment is made and whether or not any
credit is then in use or available hereunder.
Section
12.5 Survival of
Representations. All representations and warranties made
herein or in any other Loan Document or in certificates given pursuant hereto or
thereto shall survive the execution and delivery of this Agreement and the other
Loan Documents, and shall continue in full force and effect with respect to the
date as of which they were made as long as any credit is in use or available
hereunder.
Section
12.6 Survival of
Indemnities. All indemnities and other provisions relative to
reimbursement to the Lenders and L/C Issuer of amounts sufficient to
protect the yield of the Lenders and L/C Issuer with respect to the Loans
and Letters of Credit, including, but not limited to, Section 12.15 hereof,
shall survive the termination of this Agreement and the other Loan Documents and
the payment of the Post-Petition Obligations.
Section
12.7 Sharing of
Set-Off. Each Lender agrees with each other Lender a party
hereto that if such Lender shall receive and retain any payment, whether by
set-off or application of deposit balances or otherwise, on any of the Loans or
Reimbursement Obligations in excess of its ratable share of payments on all such
Post-Petition Obligations then outstanding to the Lenders, then such Lender
shall purchase for cash at face value, but without recourse, ratably from each
of the other Lenders such amount of the Loans or Reimbursement Obligations, or
participations therein, held by each such other Lenders (or interest therein) as
shall be necessary to cause such Lender to share such excess payment ratably
with all the other Lenders; provided, however, that if any such purchase is made
by any Lender, and if such excess payment or part thereof is thereafter
recovered from such purchasing Lender, the related purchases from the other
Lenders shall be rescinded ratably and the purchase price restored as to the
portion of such excess payment so recovered, but without
interest. For purposes of this Section, amounts owed to or recovered
by the L/C Issuer in connection with Reimbursement Obligations in which
Lenders have been required to fund their participation shall be treated as
amounts owed to or recovered by the L/C Issuer as a Lender
hereunder.
Section
12.8 Notices. Except as
otherwise specified herein, all notices hereunder and under the other Loan
Documents shall be in writing (including, without limitation, notice by
telecopy) and shall be given to the relevant party at its address or telecopier
number set forth below, or such other address or telecopier number as such party
may hereafter specify by notice to the DIP Agent and the Borrower given by
courier, by United States certified or registered mail, by telecopy or by other
telecommunication device capable of creating a written record of such notice and
its receipt. Each Guarantor agrees that any notice to be given to it
pursuant to this Agreement shall be effective as to such Guarantor if given to
the Borrower. Notices under the Loan Documents to any Lender shall be
addressed to its address or telecopier number set forth on its Administrative
Questionnaire; and notices under the Loan Documents to the Borrower, any
Guarantor, the DIP Agent or L/C Issuer shall be addressed to its respective
address or telecopier number set forth below:
|
to
the Borrower or any Guarantor:
Pilgrim’s
Pride Corporation
4845
US Highway 271 N
Pittsburg,
Texas 75686
Attention:Chief
Financial Officer
Telephone:903-434-1505
Telecopy:972-290-8950
|
to
the DIP Agent and L/C Issuer :
Bank
of Montreal
115
South LaSalle Street
Chicago,
Illinois 60603
Attention:Barry
Stratton
Telephone:(312)
461-7910
Telecopy:(312)
461-7958
|
|
with
copy to (which shall not constitute notice):
|
|
|
Weil,
Gotshal & Manges LLP
200
Crescent Court, Suite 300
Dallas,
Texas 75201-6950
Attention:Angela
L. Fontana
Telephone:214-746-7895
Telecopy:214-746-7777
|
|
|
with
copy to (which shall not constitute notice):
|
|
|
Baker
& McKenzie LLP
2300
Trammell Crow Center
2001
Ross Avenue
Dallas,
Texas 75201
Attention:Crews
Lott
Telephone:(214)
978-3042
Telecopy:(214)
978-3099
|
Each such
notice, request or other communication shall be effective (i) if given by
telecopier, when such telecopy is transmitted to the telecopier number specified
in this Section or in the relevant Administrative Questionnaire and a
confirmation of such telecopy has been received by the sender, (ii) if
given by mail, 5 days after such communication is deposited in the mail,
certified or registered with return receipt requested, addressed as aforesaid or
(iii) if given by any other means, when delivered at the addresses
specified in this Section or in the relevant Administrative Questionnaire;
provided that any notice given pursuant to Section 1 hereof shall be
effective only upon receipt.
Section
12.9 Counterparts. This
Agreement may be executed in any number of counterparts, and by the different
parties hereto on separate counterpart signature pages, and all such
counterparts taken together shall be deemed to constitute one and the same
instrument. Delivery of executed counterparts of this Agreement by
telecopy or other electronic transmission shall be effective as an
original.
Section
12.10 Successors and
Assigns. This Agreement shall be binding upon the Borrower,
Guarantors, the DIP Agent and the Lenders and their respective successors and
assigns, and shall inure to the benefit of the Borrower, Guarantors, DIP Agent,
the L/C Issuer, and each of the Lenders, and the benefit of their
respective successors and assigns, including any subsequent holder of any of the
Post-Petition Obligations. The Borrower and the Guarantors may not
assign any of their rights or obligations under any Loan Document without the
written consent of all of the Lenders and, with respect to any Letter of Credit
or the Application therefor, the L/C Issuer.
Section
12.11 Participants. Each
Lender shall have the right at its own cost to grant participations (to be
evidenced by one or more agreements or certificates of participation) in the
Loans made and Reimbursement Obligations and/or DIP Commitments held by such
Lender at any time and from time to time to one or more other Persons; provided
that no such participation shall relieve any Lender of any of its obligations
under this Agreement, and, provided, further that no such participant shall have
any rights under this Agreement except as provided in this Section, and the DIP
Agent shall have no obligation or responsibility to such
participant. Any agreement pursuant to which such
participation is granted shall provide that the granting Lender shall
retain the sole right and responsibility to enforce the obligations of the
Borrower under this Agreement and the other Loan Documents including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of the Loan Documents, except that such agreement may provide that
such Lender will not agree to any modification, amendment or waiver of the Loan
Documents that would reduce the amount of or postpone any fixed date for payment
of any Obligation in which such participant has an interest. Any
party to which such a participation has been granted shall have the benefits of
Section 1.11 and Section 10.3 hereof.
Section
12.12 Assignments. (a) Any
Lender may at any time assign to one or more Eligible Assignees all or a portion
of such Lender’s rights and obligations under this Agreement (including all or a
portion of its DIP Commitment and the Loans at the time owing to it); provided
that any such assignment shall be subject to the following
conditions:
(i) Minimum
Amounts. (A) In the case of an assignment of the entire
remaining amount of the assigning Lender’s DIP Commitment and the Loans and
participation interest in L/C Obligations at the time owing to it or in the case
of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no
minimum amount need be assigned; and (B) in any case not described in
subsection (a)(i)(A) of this Section, the aggregate amount of the DIP Commitment
(which for this purpose includes Loans and participation interest in L/C
Obligations outstanding thereunder) or, if the applicable DIP Commitment is not
then in effect, the principal outstanding balance of the Loans and participation
interest in L/C Obligations of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance with respect
to such assignment is delivered to the DIP Agent or, if “Effective Date” is specified
in the Assignment and Acceptance, as of the Effective Date) shall not be less
than $5,000,000, in the case of any assignment, unless the DIP Agent otherwise
consents (such consent not to be unreasonably withheld or delayed);
(ii) Proportionate
Amounts. Each partial assignment shall be made as an
assignment of a proportionate part of all the assigning Lender’s rights and
obligations under this Agreement with respect to the Loan or the DIP Commitment
assigned.
(iii) Required
Consents. No consent shall be required for any assignment
except to the extent required by Section 12.12(a)(i)(B) and, in
addition:
(a) the
consent of the DIP Agent (such consent not to be unreasonably withheld or
delayed) shall be required for assignments to a Person that is not a Lender, an
Affiliate of a Lender or an Approved Fund with respect to a Lender;
(b) the
consent of the L/C Issuer (such consent not to be unreasonably withheld or
delayed) shall be required for any assignment that increases the obligation of
the assignee to participate in exposure under one or more Letters of Credit
(whether or not then outstanding); and
(c) the
consent of the Swing Line Lender (such consent not to be unreasonably withheld
or delayed) shall be required for any assignment that increases the obligation
of the assignee to participate in exposure under one or more Swing Loans
(whether or not then outstanding).
(iv) Assignment and
Acceptance. The
parties to each assignment shall execute and deliver to the DIP Agent an
Assignment and Acceptance, together with a processing and recordation fee of
$3,500, and the assignee, if it is not a Lender, shall deliver to the DIP Agent
an Administrative Questionnaire.
(v) No Assignment to Borrower or
Affiliates. No such assignment shall be made to the Borrower or any of
its Affiliates or Subsidiaries.
(vi) No Assignment to Natural
Persons. No such assignment shall be made to a natural
person.
Subject
to acceptance and recording thereof by the DIP Agent pursuant to
Section 12.12(b) hereof, from and after the effective date specified in
each Assignment and Acceptance, the assignee thereunder shall be a party to this
Agreement and, to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations of a Lender under this Agreement,
and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Acceptance, be released from its obligations
under this Agreement (and, in the case of an Assignment and Acceptance covering
all of the assigning Lender’s rights and obligations under this Agreement, such
Lender shall cease to be a party hereto) but shall continue to be entitled to
the benefits of Sections 12.6 and 12.15 with respect to facts and
circumstances occurring prior to the effective date of such
assignment. Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this
Section shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
Section 12.11 hereof.
(b) Register. The DIP
Agent, acting solely for this purpose as an agent of the Borrower, shall
maintain at one of its offices in Chicago, Illinois, a copy of each Assignment
and Acceptance delivered to it and a register for the recordation of the names
and addresses of the Lenders, and the DIP Commitments of, and principal amounts
of the Loans owing to, each Lender pursuant to the terms hereof from time to
time (the “Register”). The
entries in the Register shall be conclusive, and the Borrower, the DIP Agent,
and the Lenders may treat each Person whose name is recorded in the Register
pursuant to the terms hereof as a Lender hereunder for all purposes of this
Agreement, notwithstanding notice to the contrary. The Register shall
be available for inspection by the Borrower and any Lender, at any reasonable
time and from time to time upon reasonable prior notice.
(c) Any
Lender may at any time pledge or grant a security interest in all or any portion
of its rights under this Agreement to secure obligations of such Lender,
including any such pledge or grant to a Federal Reserve Bank, and this
Section shall not apply to any such pledge or grant of a security interest;
provided that no such pledge or grant of a security interest shall release a
Lender from any of its obligations hereunder or substitute any such pledgee or
secured party for such Lender as a party hereto; provided further, however, the
right of any such pledgee or grantee (other than any Federal Reserve Bank) to
further transfer all or any portion of the rights pledged or granted to it,
whether by means of foreclosure or otherwise, shall be at all times subject to
the terms of this Agreement.
(d)Notwithstanding
anything to the contrary herein, if at any time the Swing Line Lender assigns
all of its DIP Commitments and DIP Loans pursuant to subsection (a) above, the
Swing Line Lender may terminate the Swing Line. In the event of such
termination of the Swing Line, the Borrower shall be entitled to appoint another
Lender to act as the successor Swing Line Lender hereunder (with such Lender’s
consent); provided,
however, that the failure of the Borrower to appoint a successor shall
not affect the resignation of the Swing Line Lender. If the Swing
Line Lender terminates the Swing Line, it shall retain all of the rights of the
Swing Line Lender provided hereunder with respect to Swing Loans made by it and
outstanding as of the effective date of such termination, including the right to
require Lenders to make DIP Loans or fund participations in outstanding Swing
Loans pursuant to Section 1.6 hereof.
Section
12.13 Amendments. Any
provision of this Agreement or the other Loan Documents may be amended or waived
if, but only if, such amendment or waiver is in writing and is signed by (a) the
Borrower, (b) the Required Lenders, and (c) if the rights or duties of the
DIP Agent, the L/C Issuer, or the Swing Line Lender are affected thereby,
the DIP Agent, the L/C Issuer, or the Swing Line Lender, as applicable;
provided that:
(i) no
amendment or waiver pursuant to this Section 12.13 shall (A) increase
any DIP Commitment of any Lender without the consent of such Lender or
(B) reduce the amount of or postpone the date for any scheduled payment of
any principal of or interest on any Loan or of any Reimbursement Obligation or
of any fee payable hereunder without the consent of the Lender to which such
payment is owing or which has committed to make such Loan or Letter of Credit
(or participate therein) hereunder;
(ii) no
amendment or waiver pursuant to this Section 12.13 shall, unless signed by
each Lender, extend the Termination Date, change the definition of Required
Lenders, change the provisions of this Section 12.13, release all or
substantially all (in value) of the Guaranties or all or substantially all of
the Collateral (except as otherwise provided for in the Loan Documents), or
affect the number of Lenders required to take any action hereunder or under any
other Loan Document; and
(iii) no
amendment to Section 10 hereof shall be made without the consent of the
Guarantor(s) affected thereby.
Section
12.14 Headings.
Section headings used in this Agreement are for reference only and shall
not affect the construction of this Agreement.
Section
12.15 Costs and Expenses;
Indemnification. (a) The Borrower agrees to pay all
reasonable costs and expenses of the DIP Agent, the Lenders, the Pre-Petition
BMO Agent and the Pre-Petition BMO Lenders in connection with the preparation,
negotiation, syndication, and administration of the Loan Documents, including,
without limitation, the reasonable fees and disbursements of counsel to the DIP
Agent, the Lenders, the Pre-Petition BMO Agent and the Pre-Petition BMO Lenders
in connection with the preparation and execution of the Loan Documents, and any
amendment, waiver or consent related thereto, whether or not the transactions
contemplated herein are consummated, together with any reasonable fees and
charges suffered or incurred by the DIP Agent, the Lenders, the Pre-Petition BMO
Agent and the Pre-Petition BMO Lenders in connection with reasonable diligence,
computer, duplication, consultation, travel, appraisal, periodic environmental
audits, fixed asset appraisals, collateral filing fees and lien
searches. The Borrower agrees to pay to the DIP Agent, the
Pre-Petition BMO Agent, the L/C Issuer, each Lender, each Pre-Petition BMO
Lender and any other holder of any Post-Petition Obligations outstanding
hereunder, all costs and expenses reasonably incurred or paid by the DIP Agent,
the Pre-Petition BMO Agent, the L/C Issuer, such Lender, such Pre-Petition
BMO Lender or any such holder, including reasonable attorneys’ fees and
disbursements and court costs, in connection with any Default or Event of
Default hereunder or in connection with the enforcement of any of the Loan
Documents (including all such costs and expenses incurred in connection with any
proceeding under the Bankruptcy Code involving the Borrower or any Guarantor as
a debtor thereunder). The Borrower shall pay all such reasonable
costs, fees and expenses when invoiced and at the Termination Date, to the
extent not previously invoiced.
The
Borrower and each Guarantor further agrees to indemnify the DIP Agent, the
L/C Issuer, each Lender, and any security trustee therefor, and their
respective directors, officers, employees, agents, representative, financial
advisors, and consultants (each such Person being called an “Indemnitee”) against all
losses, claims, damages, penalties, judgments, liabilities and expenses
(including, without limitation, all reasonable out-of-pocket fees and
disbursements of counsel for any such Indemnitee and all reasonable
out-of-pocket expenses of litigation or preparation therefor, whether or not the
Indemnitee is a party thereto, or any settlement arrangement arising from or
relating to any such litigation) which any of them may pay or incur arising out
of or relating to any Loan Document or any of the transactions contemplated
thereby or the direct or indirect application or proposed application of the
proceeds of any Loan or Letter of Credit or the relationship between
(x) the DIP Agent, the L/C Issuer and/or the Lenders, (y) the DIP
Agent, the L/C Issuer and/or the Lenders and the Borrower, or (z) the DIP
Agent, the L/C Issuer and/or the Lenders and any of the Guarantors, in each
case, except to the extent as finally determined in a final decision of a court
of competent jurisdiction to result from the willful misconduct or gross
negligence of the party seeking indemnification. The Borrower and
each Guarantor, upon demand by the DIP Agent, the L/C Issuer or a Lender at
any time, shall reimburse the DIP Agent, the L/C Issuer or such Lender for
any reasonable out-of-pocket legal or other expenses (including, without
limitation, all fees and disbursements of counsel for any such Indemnitee)
incurred in connection with investigating or defending against any of the
foregoing (including any settlement costs relating to the foregoing) except to
the extent as finally determined in a final decision of a court of competent
jurisdiction to result from the willful misconduct or gross negligence of the
party seeking indemnification. Except as a result of willful
misconduct or gross negligence of any such Indemnitee, to the extent permitted
by applicable law, neither the Borrower nor any Guarantor shall assert, and each
such Person hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement or the other Loan Documents or any agreement or instrument
contemplated hereby or thereby, the transactions contemplated hereby or thereby,
any Loan or Letter of Credit or the use of the proceeds thereof. The
obligations of the Borrower and each Guarantor under this Section shall
survive the termination of this Agreement.
(b) The
Borrower and each Guarantor unconditionally agrees to forever indemnify, defend
and hold harmless, and covenants not to sue for any claim for contribution
against, each Indemnitee for any damages, costs, loss or expense, including
without limitation, response, remedial or removal costs and all fees and
disbursements of counsel for any such Indemnitee, arising out of any of the
following: (i) any presence, Release, threatened Release or disposal
of any hazardous or toxic substance or petroleum by the Borrower or any
Subsidiary or otherwise occurring on or with respect to its Property (whether
owned or leased), (ii) the operation or violation of any Environmental Law,
whether federal, state, or local, and any regulations promulgated thereunder, by
the Borrower or any Subsidiary or otherwise occurring on or with respect to its
Property (whether owned or leased), (iii) any claim for personal injury or
property damage in connection with the Borrower or any Subsidiary or otherwise
occurring on or with respect to its Property (whether owned or leased), and (iv)
the inaccuracy or breach of any environmental representation, warranty or
covenant by the Borrower or any Subsidiary made herein or in any other Loan
Document evidencing or securing any Post-Petition Obligations or setting forth
terms and conditions applicable thereto or otherwise relating thereto, except
for damages arising from the willful misconduct or gross negligence of the
relevant Indemnitee. This indemnification shall survive the payment
and satisfaction of all Post-Petition Obligations and the termination of this
Agreement, and shall remain in force beyond the expiration of any applicable
statute of limitations and payment or satisfaction in full of any single claim
under this indemnification. This indemnification shall be binding
upon the successors and assigns of the Borrower and shall inure to the benefit
of each Indemnitee and its successors and assigns.
Section
12.16 Set-off. In
addition to any rights now or hereafter granted under the Loan Documents or
applicable law and not by way of limitation of any such rights, during the
existence of any Event of Default, each Lender, the L/C Issuer, each
subsequent holder of any Obligation, and each of their respective affiliates, is
hereby authorized by the Borrower and each Guarantor at any time or from time to
time, without notice to the Borrower, any Guarantor or to any other Person, any
such notice being hereby expressly waived, to set-off and to appropriate and to
apply any and all deposits (general or special, including, but not limited to,
indebtedness evidenced by certificates of deposit, whether matured or unmatured,
and in whatever currency denominated, but not including trust accounts) and any
other indebtedness at any time held or owing by that Lender, L/C Issuer,
subsequent holder, or affiliate, to or for the credit or the account of the
Borrower or such Guarantor, whether or not matured, against and on account of
the Post-Petition Obligations of the Borrower or such Guarantor to that Lender,
L/C Issuer, or subsequent holder under the Loan Documents, including, but
not limited to, all claims of any nature or description arising out of or
connected with the Loan Documents, irrespective of whether or not (a) that
Lender, L/C Issuer, or subsequent holder shall have made any demand
hereunder or (b) the principal of or the interest on the Loans and other
amounts due hereunder shall have become due and payable pursuant to
Section 9 and although said obligations and liabilities, or any of them,
may be contingent or unmatured.
Section
12.17 Entire
Agreement. The Loan Documents constitute the entire
understanding of the parties thereto with respect to the subject matter thereof
and any prior agreements, whether written or oral, with respect thereto are
superseded hereby.
Section
12.18 Governing
Law. This Agreement and the other Loan Documents (except as
otherwise specified therein), and the rights and duties of the parties hereto,
shall be construed and determined in accordance with the internal laws of the
State of Illinois except as otherwise governed by the Bankruptcy
Code.
Section
12.19 Severability of
Provisions. Any provision of any Loan Document which is
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction. All rights, remedies and powers provided
in this Agreement and the other Loan Documents may be exercised only to the
extent that the exercise thereof does not violate any applicable mandatory
provisions of law, and all the provisions of this Agreement and other Loan
Documents are intended to be subject to all applicable mandatory provisions of
law which may be controlling and to be limited to the extent necessary so that
they will not render this Agreement or the other Loan Documents invalid or
unenforceable.
Section
12.20 Excess
Interest. Notwithstanding any provision to the contrary
contained herein or in any other Loan Document, no such provision shall require
the payment or permit the collection of any amount of interest in excess of the
maximum amount of interest permitted by applicable law to be charged for the use
or detention, or the forbearance in the collection, of all or any portion of the
Loans or other obligations outstanding under this Agreement or any other Loan
Document (“Excess
Interest”). If any Excess Interest is provided for, or is
adjudicated to be provided for, herein or in any other Loan Document, then in
such event (a) the provisions of this Section shall govern and
control, (b) neither the Borrower nor any Guarantor or endorser shall be
obligated to pay any Excess Interest, (c) any Excess Interest that the DIP
Agent or any Lender may have received hereunder shall, at the option of the DIP
Agent, be (i) applied as a credit against the then outstanding principal
amount of Post-Petition Obligations hereunder and accrued and unpaid interest
thereon (not to exceed the maximum amount permitted by applicable law),
(ii) refunded to the Borrower, or (iii) any combination of the
foregoing, (d) the interest rate payable hereunder or under any other Loan
Document shall be automatically subject to reduction to the maximum lawful
contract rate allowed under applicable usury laws (the “Maximum Rate”), and this
Agreement and the other Loan Documents shall be deemed to have been, and shall
be, reformed and modified to reflect such reduction in the relevant interest
rate, and (e) neither the Borrower nor any Guarantor or endorser shall have
any action against the DIP Agent or any Lender for any damages whatsoever
arising out of the payment or collection of any Excess
Interest. Notwithstanding the foregoing, if for any period of time
interest on any of Borrower’s Post-Petition Obligations is calculated at the
Maximum Rate rather than the applicable rate under this Agreement, and
thereafter such applicable rate becomes less than the Maximum Rate, the rate of
interest payable on the Borrower’s Post-Petition Obligations shall remain at the
Maximum Rate until the Lenders have received the amount of interest which such
Lenders would have received during such period on the Borrower’s Post-Petition
Obligations had the rate of interest not been limited to the Maximum Rate during
such period.
Section
12.21 Construction. The
parties acknowledge and agree that the Loan Documents shall not be construed
more favorably in favor of any party hereto based upon which party drafted the
same, it being acknowledged that all parties hereto contributed substantially to
the negotiation of the Loan Documents. The provisions of this
Agreement relating to Subsidiaries shall only apply during such times as the
Borrower has one or more Subsidiaries. Nothing contained herein shall
be deemed or construed to permit any act or omission which is prohibited by the
terms of any Collateral Document, the covenants and agreements contained herein
being in addition to and not in substitution for the covenants and agreements
contained in the Collateral Documents. In the event any provision of any
Collateral Document conflicts with the terms of this Agreement the terms of this
Agreement shall control.
Section
12.22 Lender’s and L/C Issuer’s
Obligations Several. The obligations of the Lenders and
L/C Issuer hereunder are several and not joint. Nothing
contained in this Agreement and no action taken by the Lenders or
L/C Issuer pursuant hereto shall be deemed to constitute the Lenders and
L/C Issuer a partnership, association, joint venture or other
entity.
Section
12.23 Submission to Jurisdiction; Waiver
of Jury Trial. Except as required by the Bankruptcy Code, the
Borrower and the Guarantors hereby submit to the nonexclusive jurisdiction of
the United States District Court for the Northern District of Illinois and of
any Illinois State court sitting in the City of Chicago for purposes of all
legal proceedings arising out of or relating to this Agreement, the other Loan
Documents or the transactions contemplated hereby or thereby. The
Borrower and the Guarantors irrevocably waive, to the fullest extent permitted
by law, any objection which they may now or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient
forum. The Borrower, the Guarantors, the DIP Agent, the
L/C Issuer and the Lenders hereby irrevocably waive any and all right to
trial by jury in any legal proceeding arising out of or relating to any Loan
Document or the transactions contemplated thereby.
Section
12.24 USA Patriot
Act. Each Lender and L/C Issuer that is subject to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into
law October 26, 2001)) (the “Act”) hereby notifies the
Borrower that pursuant to the requirements of the Act, it is required to obtain,
verify, and record information that identifies the Borrower, which information
includes the name and address of the Borrower and other information that will
allow such Lender or L/C Issuer to identify the Borrower in accordance with
the Act.
Section
12.25 No Modification; No Discharge;
Survival of Claims. This Agreement, the credit extended
hereunder and the Loan Documents shall not be modified, altered or affected in
any manner by any plan of reorganization or any order of confirmation for any
Debtor of any other financing or extensions or incurring of indebtedness by any
Debtor pursuant to Section 364(c) of the Bankruptcy
Code. Without limiting the generality of the foregoing, each of the
Borrower and the Guarantors agrees that (i) its obligations hereunder shall
not be discharged by the entry of an order confirming a plan of reorganization
(and each of the Borrower and the Guarantors, pursuant to
Section 1141(d)(4) of the Bankruptcy Code, hereby waives any such
discharge) and (ii) the Superpriority Claim granted to the DIP Agent and
the Lenders pursuant to the Financing Order and described in Section 6.21
hereof and the Lien granted to the DIP Agent pursuant to this Agreement and the
Financing Order and described in Section 4.1 hereof shall not be affected
in any manner by the entry of an order confirming a plan of
reorganization.
Section
12.26 Pre-Petition BMO Loan
Documents. Subject to the provisions of the Bankruptcy Code,
the Pre-Petition BMO Loan Documents shall remain in full force and effect, and
the execution of this Agreement by the DIP Agent and the Lenders, and the
execution of the other Loan Documents by those of the Debtors party thereto, and
the delivery to and acceptance thereof by the DIP Agent and the Lenders, do not
and shall not constitute a waiver of any provision of the Pre-Petition BMO Loan
Documents.
Section
12.27 Bankruptcy Code
Waivers. In consideration of the credit extended hereunder, to
the extent not irreconcilably inconsistent with the provisions hereof or the
Financing Order, the Borrower and each Guarantor hereby agrees not to assert and
affirmatively waives any claim it otherwise might have under
Sections 506(c) and 553(b) of the Bankruptcy Code.
Section
12.28 Validation of
Liens. As provided in the Financing Order, the Borrower and
each Guarantor approves and confirms the Pre-Petition BMO Collateral, and
acknowledges and agrees that the Pre-Petition BMO Agent and the Pre-Petition BMO
Lenders each hold valid and enforceable, nonavoidable, perfected and senior
Liens in and to the collateral more particularly set forth in the Pre-Petition
BMO Security Documents and as summarized in the Interim Financing
Order.
Section
12.29 Confidentiality. Each
of the DIP Agent, the Lenders, and the L/C Issuer severally agrees to
maintain the confidentiality of the Information (as defined below), except that
Information may be disclosed (a) to its and its Affiliates’ directors,
officers, employees and agents, including accountants, legal counsel and other
advisors to the extent any such Person has a need to know such Information (it
being understood that the Persons to whom such disclosure is made will first be
informed of the confidential nature of such Information and instructed to keep
such Information confidential in accordance with the terms hereof), provided,
that in any event, it shall be responsible for any breach of this undertaking by
any of its and its Affiliates’ directors, officers, employees and agents,
including accountants, legal counsel and other advisors, (b) to any other
party hereto, (c) upon the order of any court or administrative agency, (d)
upon the request or demand of any regulatory agency or authority (or as
otherwise required by law or regulation), (e) which has been publicly disclosed
other than as a result of a disclosure by the undersigned or its representatives
or affiliates in breach of this undertaking, (f) in connection with any
litigation to which the DIP Agent, the L/C Issuer or any Lender or their
respective Affiliates may be a party to the extent reasonably required, (g) to
the extent reasonably required in connection with the exercise of any remedy
under the Loan Documents, (h) to any actual or proposed participant or assignee
of all or part of its rights under the Loan Documents, subject to an agreement
containing provisions substantially the same as those of this Section, and
(i) with the prior written consent of the Borrower. For purposes
of this Section, “Information” means all
information received from the Borrower or any of the Subsidiaries or from any
other Person on behalf of the Borrower or any Subsidiary relating to the
Borrower or any Subsidiary or any of their respective businesses, other than
(i) information that was already known to or in possession of the receiving
party or any of its representatives or Affiliates prior to its disclosure to the
receiving party by the Borrower, any of its Subsidiaries or their respective
representatives or advisors whether in connection with this Agreement or any
other agreement, (ii) information that is obtained by the receiving party
or any of its representatives or Affiliates from a third party who is not known
by the receiving party to be prohibited from disclosing the information to the
receiving party by a contractual, legal or fiduciary obligation to the Borrower
or any of its Subsidiaries; (iii) information that is or becomes publicly
available (other than as a result of disclosure by the receiving party or any of
its representatives or Affiliates in violation of this Section); or
(iv) information that is independently developed, discovered or arrived at
by the receiving party or any of its representatives or Affiliates without any
reference to the Information. The obligations of each party contained
in this Section 12.29 shall continue for a period of 3 years after such
party ceases to be a party to this Agreement.
Section
12.30 Disclosure. Each
of the DIP Agent, the L/C Issuer and each Lender may discuss the Borrower’s
business and financial condition of the Borrower and its Subsidiaries with the
Debtors and with any official committee of creditors, any unofficial
representative of unsecured creditors (provided that as to any confidential
matter or Information covered by a confidentiality agreement between the
Borrower and a Lender (including Section 12.29 of this Agreement) such
unofficial representative shall have entered into a confidentiality agreement
that is reasonably acceptable in form and substance to the Borrower and the
Guarantors), the Lenders, the Pre-Petition BMO Lenders, the Pre-Petition BMO
Agent, the Pre-Petition CoBank Lenders, the Pre-Petition CoBank Agent, and
prospective participants in the Pre-Petition BMO Credits or the Pre-Petition
CoBank Credits, provided that any such participant or potential participant has
executed a confidentiality agreement containing provisions substantially the
same as those of Section 12.29 and otherwise reasonably acceptable to the
Debtors and the DIP Agent, the Pre-Petition BMO Agent and the Pre-Petition
CoBank Agent, as appropriate.
[Signature
Pages to Follow]
This
Post-Petition Credit Agreement is entered into between us for the uses and
purposes hereinabove set forth as of the date first above written.
|
|
“Borrower”
|
|
|
Pilgrim’s
Pride Corporation, as debtor and
debtor-in-possession
|
|
|
By
/s/ Richard A.
Cogdill
|
|
|
Its
Chief Financial Officer, Secretary and
Treasurer
|
|
|
“Guarantors”
|
|
|
PFS
Distribution Company, as debtor and
debtor-in-possession
|
|
|
By
/s/ Richard A.
Cogdill
|
|
|
Its
Chief Financial Officer, Secretary and
Treasurer
|
|
|
PPC
Transportation Company, as debtor and
debtor-in-possession
|
|
|
By
/s/ Richard A.
Cogdill
|
|
|
Its
Chief Financial Officer, Secretary and
Treasurer
|
|
|
Pilgrim’s
Pride Corporation of West Virginia, Inc., as debtor and
debtor-in-possession
|
|
|
By
/s/ Richard A.
Cogdill
|
|
|
Its
Chief Financial Officer, Secretary and
Treasurer
|
|
|
PPC
Marketing, Ltd., as debtor and
debtor-in-possession
|
|
|
By
/s/ Richard A.
Cogdill
|
|
|
Its
Chief Financial Officer, Secretary and
Treasurer
|
|
|
“DIP
Agent, Swing Line Lender and L/C Issuer
”
|
|
|
Bank
of Montreal, as a Lender, Swing Line Lender, L/C Issuer and as DIP
Agent
|
|
|
By
/s/ Barry
Stratton
|
|
|
Its
Senior Vice President
|
|
|
“Lenders”
|
|
|
Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A. “Rabobank
Nederland” New York Branch
|
|
|
By
/s/ Richard J.
Beard
|
|
|
Its
Executive Director
|
|
|
By
/s/ Brett
Delfino
|
|
|
Its
Executive Director
|
|
|
U.S.
Bank National Association
|
|
|
By/s/ Dale L.
Welke
|
|
|
Its
Vice President
|
|
|
Wells
Fargo Bank National Association
|
|
|
By/s/ Roger
Fruendt
|
|
|
Its
Vice President
|
|
|
ING
Capital LLC
|
|
|
By/s/ Dan
Lamprecht
|
|
|
Its
Managing Director
|
|
|
CALYON
New York Branch
|
|
|
By/s/ Alan
Sidrane
|
|
|
Its
Managing Director
|
|
|
By/s/ John-Charles van
Essche
|
|
|
Its
Managing Director
|
|
|
Natixis
New York Branch
|
|
|
By
/s/ Vincent
Lauras
|
|
|
Its
Managing Director
|
|
|
By
/s/ Stephen A.
Jendras
|
|
|
Its
Managing Director
|
|
|
SunTrust
Bank
|
|
|
By/s/ Janet R.
Naifeh
|
|
|
Its
Senior Vice President
|
|
|
First
National Bank of Omaha
|
|
|
By
|
/s/ Wade
Horton
|
|
|
Its
Vice President
|
EXHIBIT
12
PILGRIM'S
PRIDE CORPORATION
COMPUTATION
OF RATIO OF EARNINGS TO FIXED CHARGES
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
|
(In
thousands)
|
||||||||||||||||||||
|
Earnings:
|
||||||||||||||||||||
|
Income
from continuing operations before income taxes
|
$ | (1,187,093 | ) | $ | 98,835 | $ | (26,626 | ) | $ | 427,362 | $ | 332,899 | ||||||||
|
Add:
Total fixed charges (see below)
|
158,414 | 146,919 | 65,584 | 63,415 | 63,458 | |||||||||||||||
|
Less:
Interest capitalized
|
(5,288 | ) | (5,736 | ) | (4,298 | ) | (2,821 | ) | (1,714 | ) | ||||||||||
|
Total
earnings
|
$ | (1,033,967 | ) | $ | 240,018 | $ | 34,660 | $ | 487,956 | $ | 394,643 | |||||||||
|
Fixed
charges:
|
||||||||||||||||||||
|
Interest
(a)
|
$ | 139,508 | $ | 128,919 | $ | 53,311 | $ | 51,106 | $ | 52,440 | ||||||||||
|
Portion
of non-cancellable lease expense representative of the interest factor
(b)
|
18,906 | 18,000 | 12,273 | 12,309 | 11,018 | |||||||||||||||
|
Total
fixed charges
|
$ | 158,414 | $ | 146,919 | $ | 65,584 | $ | 63,415 | $ | 63,458 | ||||||||||
|
Ratio
of earnings to fixed charges
|
(d)
|
1.63 |
(c)
|
7.69 | 6.22 | |||||||||||||||
|
(a)
|
Interest
includes amortization of capitalized financing fees.
|
|||||||||||||||||||
|
(b)
|
One-third
of non-cancellable lease expense is assumed to be representative of the
interest factor.
|
|||||||||||||||||||
|
(c)
|
Earnings
were insufficient to cover fixed charges by $30.9 million.
|
|||||||||||||||||||
|
(d)
|
Earnings
were insufficient to cover fixed charges by $1,192.4
million.
|
|||||||||||||||||||
EXHIBIT
21
PILGRIM'S
PRIDE CORPORATION
SUBSIDIARIES
OF REGISTRANT
|
Jurisdiction
of Incorporation or Organization
|
|
US
Subsidiaries
|
||
|
PFS
Distribution Company
|
Delaware
|
|
|
Pilgrim’s
Pride Funding Corporation
|
Delaware
|
|
|
Pilgrim’s
Pride, LLC
|
Delaware
|
|
|
Pilgrim’s
Turkey Company, LLC
|
Delaware
|
|
|
POPPSA
3, LLC
|
Delaware
|
|
|
POPPSA
4, LLC
|
Delaware
|
|
|
PPC
of Delaware Business Trust
|
Delaware
|
|
|
PPC
of Delaware, Inc.
|
Delaware
|
|
|
PPC
of Delaware LLC
|
Delaware
|
|
|
PPC
Transportation Company
|
Delaware
|
|
|
GC
Properties, GP
|
Georgia
|
|
|
Luker
Inc.
|
Georgia
|
|
|
Pilgrim’s
Pride Corporation Foundation, Inc.
|
Georgia
|
|
|
Pilgrim’s
Pride Corporation Political Action Committee, Inc.
|
Georgia
|
|
|
PPC
of Alabama, Inc.
|
Georgia
|
|
|
Pilgrim’s
Pride Affordable Housing Corporation
|
Nevada
|
|
|
Pilgrim’s
Pride of Nevada, Inc.
|
Nevada
|
|
|
Merit
Provisions LLC
|
Texas
|
|
|
PPC
Marketing, Ltd.
|
Texas
|
|
|
GK
Insurance Company
|
Vermont
|
|
|
Valley
Rail Service, Inc.
|
Virginia
|
|
|
Pilgrim’s
Pride Corporation of West Virginia, Inc.
|
West
Virginia
|
|
|
Foreign
Subsidiaries
|
||
|
Mayflower
Insurance
|
Bermuda
|
|
|
To-Ricos
Distribution, Ltd.
|
Bermuda
|
|
|
To-Ricos,
Ltd.
|
Bermuda
|
|
|
Avícola
Pilgrim’s Pride de Mexico, S. de R.L. de C.V.
|
Mexico
|
|
|
Carnes
y Productos Avícolas de Mexico S. de R.L. de C.V.
(Inactive)
|
Mexico
|
|
|
Comercializadora
de Carnes de Mexico S. de R.L. de C.V.
|
Mexico
|
|
|
Compañía
Incubadora Hidalgo S. de R.L. de C.V.
|
Mexico
|
|
|
Gallina
Pesada S.A. de C.V.
|
Mexico
|
|
|
Grupo
Pilgrim’s Pride Funding Holdings S. de R.L. de C.V.
|
Mexico
|
|
|
Grupo
Pilgrim’s Pride Funding S. de R.L. de C.V.
|
Mexico
|
|
|
Inmobiliaria
Avicola Pilgrim’s Pride, S. de R.L.
|
Mexico
|
|
|
Operadora
de Productos Avicolas S. de R.L. de C.V. (Inactive)
|
Mexico
|
|
|
Pilgrim’s
Pride S. de R.L. de C.V.
|
Mexico
|
|
|
Servicios
Administrativos Pilgrim’s Pride S. de R.L. de C.V.
|
Mexico
|
|
EXHIBIT
23
CONSENT
OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We
consent to the incorporation by reference in the Registration Statements (Form
S-8 No. 3-12043, Form S-8 No. 333-74984, Form S-8 No. 333-111929, Form S-3 No.
333-117472, Form S-3 No. 333-127198, Form S-3 No. 333-130113 and Form S-4 No.
333-111975) of Pilgrim's Pride Corporation and in the related Prospectuses of
our reports dated December 10, 2008, with respect to the consolidated financial
statements and schedule of Pilgrim's Pride Corporation and the effectiveness of
internal control over financial reporting of Pilgrim's Pride Corporation,
included in this Annual Report (Form 10-K) for the year ended September 27,
2008.
Dallas,
Texas
December
10, 2008
EXHIBIT
31.1
CERTIFICATION
BY CO-PRINCIPAL EXECUTIVE OFFICER
PURSUANT
TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 302
OF
THE SARBANES-OXLEY ACT OF 2002
I, Lonnie
“Bo” Pilgrim, Senior Chairman of Pilgrim's Pride Corporation, certify
that:
|
1.
|
I
have reviewed this annual report on Form 10-K for the year ended September
27, 2008, of Pilgrim's Pride Corporation;
|
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statement made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
|
3.
|
Based
on my knowledge, the financial statements and other financial
information included in this 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-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
a.)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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.)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
c.)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based upon such evaluation; and
|
|
|
d.)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
quarter (the registrant’s fourth quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting;
and
|
|
|
5.
|
The
registrant’s other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
|
b.)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
|
|
Date: December
11, 2008
|
/s/ Lonnie “Bo” Pilgrim
|
|
Lonnie
“Bo” Pilgrim
|
|
|
Co-Principal
Executive Officer
|
EXHIBIT
31.2
CERTIFICATION
BY CO-PRINCIPAL EXECUTIVE OFFICER
PURSUANT
TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 302
OF
THE SARBANES-OXLEY ACT OF 2002
I, J.
Clinton Rivers., Chief Executive Officer of Pilgrim’s Pride Corporation, certify
that:
|
1.
|
I
have reviewed this annual report on Form 10-K for the year ended September
27, 2008, of Pilgrim's Pride Corporation;
|
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statement made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
|
3.
|
Based
on my knowledge, the financial statements and other financial
information included in this 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-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
a.)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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.)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
c.)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based upon such evaluation; and
|
|
|
d.)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
quarter (the registrant’s fourth quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting;
and
|
|
|
5.
|
The
registrant’s other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
|
b.)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
|
|
Date: December
11, 2008
|
/s/ J. Clinton Rivers
|
|
J.
Clinton Rivers
|
|
|
Co-Principal
Executive Officer
|
EXHIBIT
31.3
CERTIFICATION
BY CHIEF FINANCIAL OFFICER
PURSUANT
TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 302
OF
THE SARBANES-OXLEY ACT OF 2002
I,
Richard A. Cogdill, Chief Financial Officer of Pilgrim's Pride Corporation,
certify that:
|
1.
|
I
have reviewed this annual report on Form 10-K for the year ended September
27, 2008, of Pilgrim’s Pride Corporation;
|
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statement made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
|
3.
|
Based
on my knowledge, the financial statements and other financial
information included in this 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-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
|
a.)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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.)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
c.)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based upon such evaluation; and
|
|
|
d.)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
quarter (the registrant’s fourth quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting;
and
|
|
|
5.
|
The
registrant’s other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
|
b.)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
|
|
Date: December
11, 2008
|
/s/ Richard A. Cogdill
|
|
Richard
A. Cogdill
|
|
|
Principal
Financial and Accounting
Officer
|
EXHIBIT
32.1
CERTIFICATION
OF CO-PRINCIPAL EXECUTIVE OFFICER
PURSUANT
TO 18 U.S.C. § 1350 ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
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), the undersigned
officer 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 27, 2008 (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
11, 2008
|
/s/ Lonnie “Bo” Pilgrim
|
|
Lonnie
“Bo” Pilgrim
|
|
|
Co-Principal
Executive Officer
|
|
EXHIBIT
32.2
CERTIFICATION
OF CO-PRINCIPAL EXECUTIVE OFFICER
PURSUANT
TO 18 U.S.C. § 1350 ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
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), the undersigned
officer 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 27, 2008 (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
11, 2008
|
/s/ J. Clinton Rivers
|
|
J.
Clinton Rivers
|
|
|
Co-Principal
Executive Officer
|
|
EXHIBIT
32.3
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
PURSUANT
TO 18 U.S.C. § 1350 ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
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), the undersigned
officer 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 27, 2008 (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
11, 2008
|
/s/ Richard A. Cogdill
|
|
Richard
A. Cogdill
|
|
|
Chief
Financial and Accounting Officer
|
|