The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.
[Logo of Darling International Inc. to be inserted]
46,705,086 Shares of Common Stock 100,000 Shares of Series A Preferred Stock
Investing in our common stock or our Series A Preferred Stock involves a high degree of risk which is described in the "Risk Factors" section beginning on page 8 of this prospectus. We urge you to carefully read the "Risk Factors" section before you make your investment decision.
We have prepared this prospectus to allow the selling stockholders we have identified herein, including their transferees, pledgees, donees and their successors, to offer for resale up to:
o 46,705,086 shares of our common stock held by them; and
o 100,000 shares of our Series A Preferred Stock held by them.
The securities offered by this prospectus could be sold in several ways,
including, in the case of the common stock, in transactions on the American
Stock Exchange, or in the case of the common stock or the Series A Preferred
Stock, at prevailing market prices at the time of sale, or in privately
negotiated transactions at prices agreed upon by the parties or through any
other means described under the heading "Plan of Distribution" beginning on page
53. We cannot assure you that the selling stockholders will sell all or any
portion of the common stock or the Series A Preferred Stock offered under this
prospectus. Our company is not selling any shares of common stock or Series A
Preferred Stock in this offering and therefore we will not receive any proceeds
from any sale of securities offered by this prospectus. We are registering the
shares of common stock and Series A Preferred Stock offered under this
prospectus to satisfy registration rights of the selling stockholders. We have
agreed to pay for all expenses in connection with the registration of the
securities offered by this prospectus.
Our common stock is quoted on the American Stock Exchange under the symbol "DAR." On May 21, 2002, the closing sales price of our common stock on the American Stock Exchange was $0.85 per share. There is no public market for the Series A Preferred Stock, and we do not intend to apply for listing of the Series A Preferred Stock on any securities exchange or for quotation through any automated quotation system.
Our principal executive office is located at 251 O'Connor Ridge Boulevard, Suite 300, Irving, Texas 75038 and our telephone number is 972.717.0300.
No underwriter or any other person has been engaged to facilitate the sale of the securities in this offering.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
TABLE OF CONTENTS
Page
----
Forward-Looking Statements.....................................................1
Prospectus Summary.............................................................1
Summary Historical And Pro Forma Consolidated Financial Data...................5
Risk Factors...................................................................8
Recapitalization..............................................................15
Use Of Proceeds...............................................................16
Market For Common Equity And Related Stockholder Matters......................16
Dividend Policy...............................................................16
Capitalization................................................................17
Selected Historical And Pro Forma Consolidated Financial Data.................18
Management's Discussion And Analysis Of Financial Condition And Results
Of Operations.................................................................20
Our Business..................................................................27
Our Management................................................................33
Report Of The Compensation Committee..........................................40
Compliance With Section 16(a) Of The Exchange Act.............................41
Certain Relationships And Related Transactions................................41
Performance Graph.............................................................42
Security Ownership Of Certain Beneficial Owners And Management................43
Description Of Senior Credit Agreement........................................46
Description Of Capital Stock..................................................48
Selling Stockholders..........................................................51
Plan Of Distribution..........................................................53
Material U.S. Federal Tax Considerations......................................55
Legal Matters.................................................................59
Experts.......................................................................59
Where You Can Find More Information...........................................59
Index To Consolidated Financial Statements...................................F-1
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Factors that could contribute to these differences are discussed in the "Risk Factors" section beginning on page 8 of this prospectus, and elsewhere in this prospectus as well as in our previous filings with the SEC.
In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "continue," or the negative of such terms or other similar expressions. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this prospectus.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur.
We urge you not to unduly rely on forward-looking statements contained or incorporated by reference in this prospectus.
The terms "Darling," "our," "we" and "us" as used in this prospectus, refer to Darling International Inc. and its wholly-owned subsidiaries, except where it is clear that the term refers only to the parent company.
We urge you to rely only on the information contained in this prospectus. We have not, and the selling stockholders have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, we urge you not to rely on it. The selling stockholders are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. We urge you to assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.
We have not undertaken any action to permit a public offering of the securities offered by this prospectus outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the securities offered by this prospectus and the distribution of this prospectus outside of the United States.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This summary is not complete and may not contain all of the information that may be important to you. We urge you to read the entire prospectus carefully, including the "Risk Factors" section and the financial statements and related notes, before making an investment decision.
Darling International Inc.
Founded by the Swift meat packing interests and the Darling family in 1882, we were incorporated in Delaware in 1962 under the name "Darling-Delaware Company, Inc." On December 28, 1993, we changed our name from "Darling-Delaware Company, Inc." to "Darling International Inc."
We are a recycler of food processing by-products. We collect and recycle animal processing by-products and used restaurant cooking oil. In addition, we provide grease trap collection services to restaurants. We process such raw materials at 26 facilities located throughout the United States into finished products such as tallow, meat
and bone meal and yellow grease. We sell these products nationally and internationally, primarily to producers of various industrial and commercial oleo-chemicals, soaps, pet foods and livestock feed, for use as ingredients in their products or for further processing into basic chemical compounds.
Our principal executive office is located at 251 O'Connor Ridge Boulevard, Suite 300, Irving, Texas 75038 and our telephone number is 972.717.0300. We maintain a site on the World Wide Web at the address http://www.darlingii.com. The information on our Web site is not a part of this prospectus.
Preliminary Note
The shares of our common stock and Series A Preferred Stock covered by this prospectus were issued to our lenders as part of a reduction in the principal amount and restructuring of our indebtedness (the "Recapitalization"). The Recapitalization was approved by our stockholders at an annual meeting of stockholders held on May 10, 2002 and was made effective as of that date. For a summary description of the Recapitalization, see "Recapitalization."
The Offering of Common Stock
Securities offered for resale
by the selling stockholders...... Up to 46,705,086 shares of common stock, par
value $0.01 per share, held by them.
Voting Rights.................... Holders of common stock will have one vote
per share.
Use of Proceeds.................. The selling shareholders will receive
all of the net proceeds from the sale of
the securities sold under this prospectus.
We will not receive any of the proceeds from
those sales.
Dividends........................ We do not expect to pay dividends on our
common stock in the foreseeable future. We
anticipate that all future earnings, if
any, generated from operations will be
retained to develop and expand our business.
American Stock Exchange symbol... DAR.
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The Offering of Series A Preferred Stock
Securities offered for resale by Up to 100,000 shares of Series A Preferred
the selling stockholders......... Stock, par value $0.01 per share, held by
them.
Voting Rights................... Holders of the Series A Preferred Stock will
have no voting rights as to general corporate
matters except as provided by Delaware law
or, in limited circumstances, as provided in
the certificate of designation relating to
the Series A Preferred Stock. See
"Description of Capital Stock-- Preferred
Stock-- Series A Preferred Stock-- Voting
Rights."
Use of Proceeds................. The selling stockholders will receive all of
the net proceeds from the sale of the
securities sold under this prospectus. We
will not receive any of the proceeds from
those sales.
Dividends....................... We will pay dividends on the Series A
Preferred Stock out of funds legally
available for the payment of dividends an an
annual fixed rate of 6% on the original issue
price of $100 per share. Dividends on the
Series A Preferred Stock will be cumulative
from the issue date, whether or not declared,
and are to be either paid in cash
semi-annually or, at our election may be
accumulated, in which case the dividends will
be added to the original issue price, and
dividends will thereafter accrue on the
original issue price as so adjusted. However,
our new amended and restated senior credit
agreement prohibits us from paying any cash
dividends while any indebtedness remains
outstanding under such agreement. See
"Description of Senior Credit Agreement."
Liquidation Preference.......... $100 per share liquidation preference, plus
all accumulated dividends and accrued and
unpaid dividends not yet accumulated.
Mandatory Redemption; Change of
Control......................... We must redeem all shares of the Series A
Preferred Stock outstanding upon the earliest
to occur of:
o a change of control of our company,
o a sale of all or substantially all of
our consolidated assets,
o a dissolution or liquidation of our
company, and
o May 10, 2007,
to the extent we have legally available
funds, at a redemption price equal to the
aggregate original issue price of the
shares to be redeemed, plus accumulated
dividends and accrued and unpaid dividends
not yet accumulated to the date of
redemption.
Optional Redemption.............. Subject to the prior payment in full of all
indebtedness outstanding under our senior
credit agreement, we may redeem shares of
Series A Preferred Stock in multiples of
3
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not less than $1 million at any time, upon
30 days notice, at a redemption price equal
to the sum of the original issue price of
the shares to be redeemed, plus accumulated
dividends and accrued and unpaid dividends
not yet accumulated to the date of
redemption. If less than all shares of
Series A Preferred Stock are to be redeemed,
they are required to be redeemed pro-rata
based on the number of shares of Series A
Preferred Stock owned.
Ranking.......................... With respect to dividends and liquidation
preference, the Series A Preferred Stock
will rank senior to our common stock and
senior to other future series of our
preferred stock. We may issue additional
series of preferred stock that rank junior
to the Series A Preferred Stock without a
vote of the holders of the Series A
Preferred Stock. We may only create series
or classes of preferred stock that rank
senior to or on a parity with the Series A
Preferred Stock if the creation of those
senior shares is approved by the holders of
66 2/3% of the then outstanding shares of
the Series A Preferred Stock.
Listing.......................... The Series A Preferred Stock is not listed
for trading on any securities exchange or
market, and we do not currently intend to,
nor are we required to, list the shares of
Series A Preferred Stock on any securities
exchange or market.
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We urge you to refer to the section entitled "Risk Factors" for an explanation of the risks of investing in our common stock or our Series A Preferred Stock.
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following summary historical and pro forma consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and related notes thereto and unaudited consolidated financial statements and related notes thereto included elsewhere in this prospectus. The summary pro forma data does not purport to represent what our results would have been if the Recapitalization had occurred at the dates indicated. The Pro Forma columns included in the Operating Data for the three months ended March 30, 2002 and the fiscal year ended December 29, 2001, derived from elsewhere in this prospectus, reflect the effect of the Recapitalization had it occurred at the beginning of such periods. The Pro Forma Balance Sheet Data as of March 30, 2002 and December 29, 2001, derived from elsewhere in this prospectus, reflect the effect of the Recapitalization as if it had occurred on such dates.
-----------------------------------------------------------------------------------------------------------------
Fiscal Year Ended (a)
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
December 29, December 29, December 30, January 1, January 2, January 3,
2001 2001 2000 2000 1999 1998
Pro Forma Actual Actual Actual Actual Actual
-----------------------------------------------------------------------------------------------------------------
(in thousands, except ratio and share data)
Operating Data:
Net sales $ 255,974 $255,974 $242,795 $258,570 $ 337,031 $444,142
--------- -------- -------- -------- --------- --------
Cost of sales and
operating expenses 196,778 196,778 190,283 210,879 283,822 362,787
Selling, general and
administrative expenses 28,594 28,594 26,736 26,773 33,073 33,247
Depreciation and
amortization 26,634 26,634 31,181 32,912 32,418 29,751
--------- -------- -------- -------- --------- --------
Operating income/(loss) 3,968 3,968 (5,405) (11,994) (12,282) 18,357
Interest expense 1,415 14,162 13,971 15,533 12,747 13,070
Other (income)/expense,
net 2,000 1,651 184 (1,812) 1,117 (1,348)
--------- -------- -------- -------- --------- ---------
Income/(loss) from
continuing operations
before income taxes 553 (11,845) (19,560) (25,715) (26,146) 6,635
Income tax
expense/(benefit) - - - (10,015) (9,347) 2,307
--------- -------- -------- -------- --------- --------
Earnings/(loss) from
continuing operations 553 (11,845) (19,560) (15,700) (16,799) 4,328
Discontinued operations:
Income/(loss) from
discontinued
operations, net of tax - - - - (637) 1,081
Gain (loss) on disposal,
net of tax - - 371 (333) (14,657) -
--------- -------- -------- -------- --------- --------
Net income /(loss) 553 $(11,845) $(19,189) $(16,033) $ (32,093) $ 5,409
Preferred dividends and
accretion (1,465) - - - - -
--------- -------- -------- -------- --------- --------
Net income (loss)
applicable to common
shareholders $ (912) $(11,845) $(19,189) $(16,033) $ (32,093) $ 5,409
========= ======== ========= ======== ========= ========
Basic earnings/(loss) per
common share $ (0.01) $ (0.76) $ (1.23) (1.03) (2.06) 0.35
Diluted earnings/(loss)
per common share $ (0.01) $ (0.76) $ (1.23) (1.03) (2.06) 0.33
Weighted average shares
outstanding 62,273 15,568 15,568 15,560 15,581 15,519
Diluted weighted average
shares outstanding 62,273 15,568 15,568 15,560 15,581 16,461
Other Data:
EBITDA (b) $ 30,602 $ 30,602 $ 25,776 $ 20,918 $ 20,136 $ 48,108
Depreciation 21,378 21,378 25,541 26,998 26,432 24,074
Amortization 5,256 5,256 5,640 5,914 5,986 5,677
Capital expenditures 9,142 9,142 7,684 9,851 14,967 24,520
Ratio of earnings to
fixed charges (c) 1.09 - - - - 1.48
5
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Balance Sheet Data:
Working capital
(deficiency) $ 476 $(116,718) $(106,809) $ (5,223) $ 3,070 $ 5,225
Total assets 160,209 159,079 174,505 197,804 263,166 305,973
Current portion of
long-term debt 5,097 120,053 109,528 7,810 7,717 5,118
Total long-term debt less
current portion 82,051 - - 110,209 140,613 142,181
Stockholders' equity 19,000 (9,654) 2,724 21,913 37,946 69,756
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Three Months Ended
------------------------------------------
March 30, March 30, March 31,
2002 2002 2001
Pro Forma Actual Actual
------------------------------------------------------------------------------------------------------------------
(in thousands, except ratio and share data)
Operating Data:
Net sales $ 61,681 $ 61,681 $ 63,634
Cost of sales and operating expenses 46,395 46,395 48,312
Selling, general and administrative expenses 7,160 7,160 7,005
Depreciation and amortization 4,392 4,392 6,814
-------- -------- --------
Operating income/(loss) 3,734 3,734 1,503
Interest expense (665) (3,885) (3,227)
Other (income)/expense, net 511 734 575
-------- -------- --------
Income (loss) before income taxes 3,580 583 (1,149)
Income taxes 1,083 - -
-------- -------- --------
Net income (loss) 2,497 583 (1,149)
Preferred dividends and accretions (380) - -
--------- -------- --------
Net income (loss) applicable to common shareholders $ 2,117 $ 583 $ (1,149)
======== ======== ========
Basic loss per common share $ 0.03 $ 0.04 $ (0.07)
Diluted loss per common share $ 0.03 $ 0.04 $ (0.07)
Weighted average shares outstanding 62,273 15,568 15,568
Diluted weighted average shares outstanding 62,535 15,830 15,568
Other Data:
EBITDA (b) $ 8,126 $ 8,126 $ 8,317
Depreciation 3,257 3,257 5,339
Amortization 1,135 1,135 1,475
Capital expenditures 3,622 3,622 1,532
Ratio of earnings to fixed charges (c) 3.0 1.14 -
--------
Balance Sheet Data:
Working capital (deficiency) $ 4,545 $ (3,286) $(104,074)
Total assets 154,158 154,456 166,981
Current portion of long-term debt 3,646 5,120 109,018
Total long-term debt less current portion 76,328 112,127 -
Stockholders' equity (deficit) 26,642 (9,071) 1,266
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(a) The fiscal years ended December 29, 2001, December 30, 2000, January 1, 2000 and January 2, 1999 each consisted of 52 weeks. The fiscal year ended January 3, 1998 consisted of 53 weeks.
(b) "EBITDA" represents, for any relevant period, operating profit plus depreciation and amortization and impairment of long-lived assets. EBITDA is presented here not as a measure of operating results, but rather as a measure of the Company's debt service ability and is not intended to be a presentation in accordance with generally accepted accounting principles.
(c) For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income (loss) from continuing operations before income taxes and fixed charges. Fixed charges consist of interest expense, amortization of debt issuance costs and one-third of rental expense deemed to be the equivalent of interest. For the years ended December 29, 2001, December 30, 2000, January 1, 2000 and January 2, 1999 (all actual), and three months ended March 31, 2001 (actual) earnings were insufficient to cover fixed charges by $11.8 million (actual), $19.6 million (actual), $25.7 million (actual), $26.1 million (actual), and $1.1 million (actual) respectively.
Ratio of Earnings to Fixed Charges
(in thousands)
Fiscal Year Ended
-------------------------------------------------------------------------------------
December 29, December 29, December 30, January 1, January 2, January 3,
2001 2001 2000 2000 1999 1998
Pro Forma Actual Actual Actual Actual Actual
----------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations before income taxes $ 553 $(11,845) $(19,560) $(25,715) $(26,146) $6,635
Fixed charges:
Interest expense 1,415 14,162 13,971 15,533 12,747 13,070
Amortization of debt
issuance costs 978 629 1,258 1,590 436 388
Estimated interest within
rental expense 1,400 1,400 1,009 810 565 428
Preference security
dividend requirements 2,254 - - - - -
-------- ---------- ---------- ----------- -------- --------
Earnings (loss) $ 6,600 $ (4,346) $ (3,322) $ (7,782) $(12,398) $20,521
======== ========== ========== ========== ======== =======
Fixed charges:
Interest expense $1,415 $14,162 $13,971 $15,533 $12,747 $13,070
Amortization of debt
issuance costs 978 629 1,258 1,590 436 388
Estimated interest within
rental expense 1,400 1,400 1,009 810 565 428
Preference security
dividend requirements 2,254 - - - - -
-------- -------- --------- ---------- -------- --------
Fixed charges $ 6,047 $16,191 $ 16,238 $ 17,933 $ 13,748 $ 13,886
======== ======= ======== ========== ======== ========
Ratio of earnings to fixed
charges 1.09 - - - - 1.48
Deficiency in earnings to
cover fixed charges - $11,845 $ 19,560 $ 25,715 $ 26,146 -
======= ======== ======== ======== ========
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Three Months Ended
-----------------------------------------
March 30, March 30, March 31,
2002 2002 2001
Pro Forma Actual Actual
---------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes $ 3,580 $ 583 $ (1,149)
Fixed charges:
Interest expense 665 3,885 3,227
Amortization of debt issuance costs 223 - 315
Estimated interest within rental expense 317 317 336
Preference security dividend requirements 585 - -
--------- --------- ---------
Earnings (loss) $ 5,370 $ 4,785 $ 2,729
========= ========= =========
Fixed charges:
Interest expense $ 665 $ 3,885 $ 3,227
Amortization of debt issuance costs 223 - 315
Estimated interest within rental expense 317 317 336
Preference security dividend requirements 585 - -
--------- --------- ---------
Fixed charges $ 1,790 $ 4,202 $ 3,878
========= ========= =========
Ratio of earnings to fixed charges 3.0 1.14 -
Deficiency in earnings to cover fixed charges - - $ 1,149
=========
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RISK FACTORS
We urge you to consider carefully all of the information set forth in this prospectus and incorporated by reference in this prospectus. Please refer to "Where You Can Find More Information." We urge you to particularly evaluate the following risks before deciding to purchase our common stock or our Series A Preferred Stock. Various statements in this prospectus (including some of the following risk factors) constitute forward-looking statements. Please refer to the section entitled "Forward-Looking Statements."
Fluctuations in market prices of finished products--our profitability and cash flow may be reduced by decreases in the market price of our products.
Our finished products are commodities, the prices of which are quoted on established commodity markets. Accordingly, our profitability will be affected by fluctuations in the prevailing market prices of such finished products. A significant decrease in the market price of our products would have a material adverse effect on our profitability and cash flow.
Substantial leverage and debt service--we have substantial debt and have significant interest payment requirements which could adversely affect our ability to operate our business and fulfill our obligations under the Series A Preferred Stock.
We have a significant amount of indebtedness. Our substantial indebtedness could have important consequences to the holders of our common stock and Series A Preferred Stock including the risks that:
o we will be required to use a substantial portion of our cash flow from operations to pay our indebtedness, thereby reducing the availability of our cash flow to fund the implementation of our business strategy, working capital, capital expenditures, product development efforts and other general corporate purposes;
o our interest expense could increase if interest rates in general increase because all of our debt will bear interest based on market rates;
o our level of indebtedness will increase our vulnerability to general adverse economic and industry conditions;
o our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business;
o our level of indebtedness may place us at a competitive disadvantage compared to our competitors that have less debt;
o our level of indebtedness may prevent us from raising the funds necessary to redeem all of the Series A Preferred Stock upon the occurrence of a change of control or sale of all or substantially all of our assets as described under "Description of Capital Stock--Preferred Stock--Series A Preferred Stock;" and
o our failure to comply with the financial and other restrictive covenants in the agreements governing our indebtedness, which, among other things, may limit our ability to borrow additional funds and could result in an event of default, could have a material adverse effect on us.
As of May 21, 2002, we owed $61.0 million in senior secured term loans and $0.4 million in senior secured revolving loans under our senior credit agreement described under "Description of Senior Credit Agreement." As of such date, three letters of credit in the face amounts of $750,000, $2.35 million and $7.2 million, respectively were issued and outstanding under the senior credit facility. We will be able to incur additional indebtedness in the future, including $17.3 million of additional debt available under our revolving credit facility. Additional indebtedness will increase the risks described above. All borrowings under our senior credit agreement, will be secured and senior to the Series A Preferred Stock and common stock.
We cannot assure the holders of the common stock and Series A Preferred Stock that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us and our subsidiaries under the revolving credit facility, in an amount sufficient to enable us to pay our indebtedness, including the Series
A Preferred Stock, or to fund our other liquidity needs. If we cannot service our indebtedness, we will be forced to take actions such as:
o delaying or reducing the implementation of our business strategy, capital expenditures or product development efforts;
o selling assets;
o restructuring or refinancing our indebtedness; or
o seeking additional equity capital.
We cannot assure the holders of the common stock and Series A Preferred Stock that any of these remedies can be effected on commercially reasonable terms or at all. In addition, the terms of existing or future debt agreements, including the our senior credit agreement, may restrict us from adopting any of these alternatives. If we cannot service our indebtedness and these alternatives are not available to us, we could be forced to seek bankruptcy protection.
For risks associated with the restrictive covenants in our debt instruments, see "--Restrictive covenants in our debt instruments."
History of net losses--we have a history of net losses and we may continue to incur net losses, which could adversely affect our ability to service our indebtedness.
We have a history of net losses and have not been profitable in recent years and may not be profitable in the future. We reported a net profit of $0.6 million for the three months ended March 30, 2002. However, for the years ended December 29, 2001, December 30, 2000, January 1, 2000 and January 2, 1999, our net losses were approximately $11.8 millions, $19.2 million, $16.0 million and $32.1 million, respectively. If we incur net losses in the future, our ability to pay principal and interest on our indebtedness could be adversely affected.
In order to prosper, we must materially improve our performance in one or more of the following:
o marketing and selling our products and services at volumes above recent levels;
o expanding our service charges;
o increasing gross margins;
o expanding our existing businesses through acquisitions which meet stringent financial tests;
o maintaining our distribution capability;
o maintaining competitiveness in pricing;
o continuing to manage our operating expenses; and
o reducing our indebtedness.
There can be no assurance that we will achieve these objectives or attain consistent profitability.
Limitation on net operating loss carryforwards--as a result of the Recapitalization, our ability to apply federal income tax net operating loss carryforwards may be limited.
As a result of the Recapitalization, our ability to use federal income tax net operating loss carryforwards to offset future taxable income that may be generated will be limited. In particular, we have undergone a change in ownership under Section 382 of the Code as a result of the Recapitalization. By virtue of such a change in ownership, an annual limitation (generally equal to the pre-change value of our stock multiplied by the adjusted federal tax-exempt rate, which is set monthly by the IRS based on prevailing interest rates and equal to 4.89% for June 2002) will be applied to the use of those net operating loss carryforwards against future taxable income.
Restrictive covenants in our debt instruments--restrictions imposed by our senior credit agreement, and future debt agreements may, limit our ability to make payments on the Series A Preferred Stock, finance future operations or capital needs or engage in other business activities that may be in our interest.
Our senior credit agreement will, and future debt agreements may, restrict our ability to:
o incur additional indebtedness;
o issue additional capital stock or preferred stock;
o pay dividends and make other distributions;
o prepay subordinated debt;
o make restricted payments;
o create liens;
o merge, consolidate or acquire other businesses;
o sell and otherwise dispose of assets; and
o enter into transactions with affiliates.
These terms may impose restrictions on our ability to finance future operations, implement our business strategy, fund our capital needs or engage in other business activities that may be in our interest. In addition, our senior credit agreement will, and future indebtedness may, require us to maintain compliance with specified financial ratios. Although we are currently in compliance with the financial ratios and do not plan on engaging in transactions that may cause us to not be in compliance with the ratios, our ability to comply with these ratios may be affected by events beyond our control, including the risks described in the other risk factors.
A breach of any of these restrictive covenants or our inability to comply with the required financial ratios could result in a default under the senior credit agreement. In the event of a default under the senior credit agreement, the lenders under the senior credit agreement may elect to:
o declare all borrowings outstanding, together with accrued and unpaid interest and other fees, to be immediately due and payable; or
o require us to apply all of our available cash to repay these borrowings.
The lenders will also have the right in these circumstances to terminate any commitments they have to provide further financing, including under the revolving credit facility.
If we are unable to repay these borrowings when due, the lenders under the senior credit agreement also will have the right to proceed against the collateral, which consists of substantially all of our assets and the assets of each of our direct and indirect domestic subsidiaries. If the indebtedness under the senior credit agreement were to be accelerated, it is likely that our assets may be insufficient to repay this indebtedness in full. Any future credit agreement or other agreement relating to our indebtedness to which we or any of our subsidiaries may become a party or under which we are or any one of our subsidiaries is or may become a guarantor may include the covenants described above and other restrictive covenants. See "Description of Senior Credit Agreement."
Ranking of the Series A Preferred Stock and common stock--upon any distribution to our creditors in a bankruptcy, liquidation or reorganization or similar proceeding relating to our company or our property, the holders of our debt will be entitled to be paid in cash before any payment may be made with respect to the Series A Preferred Stock and common stock.
Our obligations with respect to the Series A Preferred Stock are subordinate and junior in right of payment to all our present and future indebtedness, including indebtedness under our senior credit agreement, but will rank senior to our common stock. In the event of our bankruptcy, liquidation or reorganization, our assets will be available to pay obligations on the Series A Preferred Stock and then the common stock only after all holders of our indebtedness and all our other creditors have been paid. As a result, in the event of our liquidation or bankruptcy it is likely that there will be no assets available for distribution to our equity holders and thus no value to our equity.
While any shares of the Series A Preferred Stock are outstanding, without the written consent of 66 2/3% of the outstanding shares of the Series A Preferred Stock, we may not create, authorize, issue or reclassify
o any class of stock ranking prior or equal to the Series A Preferred Stock with respect to dividends or upon liquidation, dissolution, winding up or otherwise; or
o any security that is convertible or exchangeable into such stock.
Dividends--our ability to pay any dividends on the Series A Preferred Stock and common stock may be limited.
We cannot assure the holders of the Series A Preferred Stock that we will be able to pay dividends on the Series A Preferred Stock. In addition, we have not declared or paid cash dividends on our common stock since January 3, 1989. The payment of any dividends by us on our common stock in the future will be at the discretion of our Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements, our general financial condition, the general financial condition of our subsidiaries and general business conditions.
Our ability to pay any cash or noncash dividends on the Series A Preferred Stock and common stock is subject to applicable provisions of state law and to the terms of our senior credit agreement. The terms of our senior credit agreement prohibit us from paying any cash dividends on the Series A Preferred Stock and the common stock so long as any indebtedness or commitments remain outstanding under our senior credit agreement. Moreover, under Delaware law, we are permitted to pay cash or accumulated dividends on our capital stock, including the Series A Preferred Stock and common stock, only out of surplus, or if there is no surplus, out of our net profits for the fiscal year in which a dividend is declared or for the immediately preceding fiscal year. Surplus is defined as the excess of a company's total assets over the sum of its total liabilities plus the par value of its outstanding capital stock. In order to pay dividends, we must have surplus or net profits equal to the full amount of the dividends at the time such dividend is declared. In determining our ability to pay dividends, Delaware law permits our Board of Directors to revalue our assets and liabilities from time to time to their fair market values in order to establish the amount of surplus. We cannot predict what the value of our assets or the amount of our liabilities will be in the future and, accordingly, we cannot assure the holders of the Series A Preferred Stock and the common stock that we will be able to pay dividends on the Series A Preferred Stock and the common stock.
Inability to redeem the Series A Preferred Stock prior to or at maturity--we may not have sufficient funds to make a change of control or sale of assets offer when required by the certificate of designation relating to the Series A Preferred Stock because of prohibitions in our senior credit agreement.
In the event that we experience a change of control or sell all or substantially all of our assets, we cannot assure the holders of the Series A Preferred Stock that we would have sufficient funds to satisfy all of our obligations under the senior credit agreement and the Series A Preferred Stock.
If we experience a change of control or sell all or substantially all of our assets, to the extent we have legally available funds for the payment, we must offer to redeem all shares of Series A Preferred Stock then outstanding in cash. However, we are prohibited by the senior credit agreement from redeeming any shares of our Series A Preferred Stock so long as any indebtedness or commitments remain outstanding under the senior credit agreement. The senior credit agreement also provides that a change of control event constitutes a default under the senior credit agreement. See "Description of Senior Credit Agreement." We may also become a party to, or guarantor under, future credit agreements or other agreements relating to senior indebtedness that contain similar restrictions or provisions.
If we experience a change of control or sell all or substantially all of our assets when we are prohibited from redeeming the Series A Preferred Stock, we could seek the consent of the lenders under the senior credit agreement to redeem the Series A Preferred Stock or could attempt to refinance the borrowings that contain the prohibition. If we do not obtain the consent and do not refinance the borrowings, we would remain prohibited from redeeming the Series A Preferred Stock. This could have adverse consequences to the holders of the Series A Preferred Stock as well as us. If a default occurs with respect to any senior indebtedness, the subordination provisions of the certificate of designation relating to the Series A Preferred Stock would restrict payments to the holders of the Series A Preferred Stock.
There is no prior market for the Series A Preferred Stock and holders of the Series A Preferred Stock cannot be assured that an active trading market will develop for the Series A Preferred Stock. If an active trading market for the Series A Preferred Stock does not develop, the liquidity and value of the Series A Preferred Stock could be harmed.
The shares of Series A Preferred Stock are new securities for which there is currently no trading market. If an active trading market for the Series A Preferred Stock does not develop, the liquidity and value of the Series A Preferred Stock could be harmed. We do not intend to apply for listing of the Series A Preferred Stock on any securities exchange or interdealer quotation system.
Material tax considerations for the Series A Preferred Stock--holders of the Series A Preferred Stock will have to recognize income in advance of their receipt of the cash attributable to this income.
Section 305(c) of the Internal Revenue Code provides that the entire amount of a redemption premium with respect to preferred stock that is subject to mandatory redemption (such as the Series A Preferred Stock) is treated as being distributed to the holders of such preferred stock on an economic accrual basis over the period the stock is outstanding notwithstanding that the cash attributable to the redemption premium will not be received by the holder until a subsequent period. Preferred stock generally is considered to have a redemption premium for this purpose if the price at which it must be redeemed exceeds its issue price by more than a de minimis amount. The Series A Preferred Stock provides for cumulative preferred dividends. Thus, the redemption price will depend on whether dividends on such stock are paid currently. The legislative history of section 305(c) states that if at the time of issuance of cumulative preferred stock there is "no intention" for dividends to be paid currently, the IRS may treat such dividends as a disguised redemption premium. Under that approach, the excess of the redemption price of the Series A Preferred Stock (including any disguised redemption premium) over its issue price is taxable as constructive distributions to the holder (treated as a dividend to the extent of our company's current and accumulated earnings and profits) over the term of the preferred stock using a constant interest rate method similar to that for accruing original issue discount. To date, the IRS has not promulgated such regulations, although the issue remains under consideration. In the current situation, we intend to take the position that we do not have "no intention" to pay dividends currently (although our senior credit agreement prohibits us from paying any cash dividends while any indebtedness remains outstanding under such agreement) and thus that holders of the Series A Preferred Stock should not be required to treat any excess of the final redemption price over the issue price as a series of constructive distributions over the period such stock is outstanding. This issue is not, however, free from doubt. Holders of Series A Preferred Stock are urged to consult their tax advisors with respect to this issue. For a more detailed discussion of the U.S. Federal income tax consequences to the holders of the Series A Preferred Stock of the ownership and disposition of the Series A Preferred Stock, see "Material U.S. Federal Tax Considerations."
Additional Issuance of Shares--we may issue additional common stock or preferred stock, which could dilute your interests.
Our certificate of incorporation, as amended does not limit the issuance of additional common stock or additional series of preferred stock ranking junior to the Series A Preferred Stock. As of May 22, 2002 we have available for issuance 37,726,532 authorized but unissued shares of common stock and 900,000 authorized but unissued shares of preferred stock that may be issued in additional series. We may not, without the approval of 66 2/3% of the then outstanding Series A Preferred Stock, issue any securities senior to or on parity with the Series A Preferred Stock. None of the provisions of the certificate of designation relating to the Series A Preferred Stock affords the holders of the Series A Preferred Stock protection in the event of a highly leveraged or other transactions that might adversely affect their interests.
Volatility of Share Price--the market price of our common stock and Series A Preferred Stock could be volatile.
The market price of our common stock has been subject to volatility and, in the future, the market price of our common stock and Series A Preferred Stock could fluctuate widely in response to numerous factors, many of which are beyond our control. These factors include, among other things, actual or anticipated variations in our operating results, earnings releases by us, changes in financial estimates by securities analysts, sales of substantial amounts of our common stock or Series A Preferred Stock pursuant to this offering, market conditions in the industry and the general state of the securities markets, governmental legislation or regulation, currency and exchange rate fluctuations, as well as general economic and market conditions, such as recessions.
Key Personnel--Our success is dependent on our key personnel.
Our success depends to a significant extent upon a number of key employees, including members of senior management. The loss of the services of one or more of these key employees could have a material adverse effect on our business and prospects. We believe that our future success will depend in part on our ability to attract, motivate and retain skilled technical, managerial, marketing and sales personnel. Competition for such personnel is intense and there can be no assurance that we will be successful in attracting, motivating and retaining key personnel. The failure to hire and retain such personnel could materially adversely affect our business and results of operations.
Competition--the most competitive aspect of our business is the procurement of raw materials.
Our management believes that the most competitive aspect of our business is
the procurement of raw materials rather than the sale of finished products.
During the last ten plus years, pronounced consolidation within the meat packing
industry has resulted in bigger and more efficient slaughtering operations, the
majority of which utilize "captive" processors. Simultaneously, the number of
small meat packers, which have historically been a dependable source of supply
for non-captive processors, such as us, has decreased significantly. Although
the total amount of slaughtering may be flat or only moderately increasing, the
availability, quantity and quality of raw materials available to the independent
processors from these sources have all decreased. Major competitors include:
Baker Commodities in the West; National By-Products in the Midwest; and Griffin
Industries in Texas and the Southeast. Each of these businesses compete in both
the Rendering and Restaurant Service segments. A significant decrease in raw
materials available could materially and adversely affect our business and
results of operations.
The rendering and restaurant services industry is highly fragmented and very competitive. We compete with other rendering and restaurant services businesses and alternative methods of disposal of animal processing by-products and used restaurant cooking oil provided by trash haulers and waste management companies, as well as the alternative of illegal disposal. We charge a collection fee to offset a portion of the cost incurred in collecting raw material. In recent years we have become highly dependent upon these collection fees. To the extent suppliers of raw materials look to alternate methods of disposal, whether as a result of our collection fees being deemed too expensive or otherwise, our raw material supply will decrease and our collection fee revenues will decrease, which could materially and adversely affect our business and results of operations.
Government regulations and approvals--we may incur material costs and liabilities in complying with government regulations.
We are subject to the rules and regulations of various federal, state and local governmental agencies. Material rules and regulations and the applicable agencies are:
o the Food and Drug Administration (FDA), which regulates food and feed safety;
o the United States Department of Agriculture (USDA), which regulates collection and production methods;
o the Environmental Protection Agency (EPA), which regulates air and water discharge requirements, as well as local and state agencies governing air and water discharge;
o state Departments of Agriculture, which regulate animal by-product collection and transportation procedures and animal feed quality; and
o the United States Department of Transportation (USDOT), as well as local and state agencies, which regulate the operation of our commercial vehicles.
Such rules and regulations may influence our operating results at one or more facilities. There can be no assurance that we will not incur material costs and liabilities in connection with such regulations.
Ownership of our company--our lenders have the ability to exercise significant control over all major corporate transactions and may have interests that conflict with the interests of the other holders of the Series A Preferred Stock and common stock.
Our lenders, through their beneficial ownership of our common stock, in the aggregate own 75% of our voting equity. If they act in concert, the lenders have effective control of us by virtue of their ability to elect the majority of our directors, to approve any action requiring the approval of our stockholders, including amendments to our charter documents, and to effect fundamental corporate transactions such as mergers and asset sales. The interests of the Lenders as stockholders may differ from the interests of the other holders of the Series A Preferred Stock and common stock, thus the lenders may take actions that may disadvantage our other stockholders. We have been advised, however, that the lenders do not have and do not expect to have any contracts, arrangements or understandings to vote as a group for the election of directors or on any other issue or to hold or dispose of thier common stock or Series A Preferred Stock.
We are highly dependent on natural gas.
Our operations are highly dependent on the use of natural gas. A material increase in natural gas prices over a sustained period of time could materially adversely affect our business, financial condition and results of operations.
Certain of our 26 operating facilities are highly dependent upon a few suppliers.
Certain of our 26 operating facilities are highly dependent on one or a few suppliers. Should any of these suppliers choose alternate methods of disposal, cease their operations, have their operations interrupted by casualty, or otherwise cease using our collection services, such operating facilities would be materially and adversely affected.
In certain markets we are highly dependent upon the continued and uninterrupted operation of a single operating facility.
In the majority of our markets, in the event of a casualty or condemnation involving a facility located in such market, we would utilize a nearby operating facility to continue to serve our customers in such market. In certain markets, however, we do not have alternate operating facilities. In the event of a casualty or condemnation, we would experience an interruption in our ability to service our customers and to procure raw materials. This would materially and adversely affect our business and results of operations in such markets. In addition, after an operating facility affected by a casualty or condemnation is restored, there could be no assurance that customers who in the interim choose to use alternative disposal services would return to use our services.
Bovine spongiform encephalopathy (BSE) or "mad cow disease."
Effective August, 1997, the FDA promulgated a rule prohibiting the use of mammalian proteins, with some exceptions, in feeds for cattle, sheep and other ruminant animals. The intent of this rule is to prevent the spread of BSE, commonly referred to as "mad cow disease," should the disease ever occur in the United States. Our management believes that we are in compliance with the provisions of the rule.
The European fear of "mad cow disease" could adversely impact acceptance of our finished products in Europe. To date, the "mad cow disease" situation in Europe and new FDA restrictions, coupled with much lower prices for competing commodities, has caused lower prices for some of our key products. If "mad cow disease" were to spread to the United States, this could have a material adverse affect on our business and results of operations.
Events such as those of September 11, 2001 may adversely affect our operations or the markets for our securities.
Following the September 11, 2001 terrorist attacks, there has been substantial volatility in the U.S., Canadian and international financial markets. Continued military or other response by the United States or its allies, future terrorist attacks or the anticipation of any such actions or events may have adverse impacts on the U.S. and world economies and may disrupt financial markets (including payment systems and clearinghouses) for extended periods of time. These armed conflicts or attacks may also directly impact our physical facilities or those of our suppliers or customers and could have an impact on our domestic and international sales, supply chain, production capability and ability to deliver our products to our customers.
Political and economic instability in some regions of the world may also result and could negatively impact our business and financial condition and our expectations as described in forward-looking statements. The foregoing events may adversely affect the trading price of our common shares.
RECAPITALIZATION
The Recapitalization Transactions
On May 13, 2002, we consummated a comprehensive recapitalization plan designed to provide us with sufficient financing to implement our business plan and improve our debt and capital structure. The principal components of the Recapitalization consisted of:
o the issuance to the lenders of 46,705,086 shares of common stock, such that the lenders collectively own 75% our issued and outstanding common stock and 100,000 shares of 6% cumulative redeemable Series A Preferred Stock with a liquidation preference of $100 per share in exchange for the cancellation of an aggregate of approximately $64.6 million of indebtedness owed by us, comprised of (i) $55.4 million principal amount of loans under our previous credit agreement, (ii) $5.3 million of accrued and unpaid interest and commitment fees owing under our previous credit agreement and (iii) the $3,855,000 forbearance fee we owed to the lenders under the forbearance agreement then existing;
o a new amended and restated credit agreement with the lenders that provides for a $61.0 million term loan and a revolving credit facility of $17.3 million for working capital loans and letters of credit. The term loan and the revolving credit facility mature on May 10, 2007. See "Description of the Senior Credit Agreement";
o the reduction of our indebtedness to the lenders from approximately $126.9 million to $61.0 million principal amount plus approximately $1.3 million of accrued interest;
o the reduction in the size of our Board of Directors from six to five members and the nomination for election of the three designees of the lenders and two existing directors to our Board of Directors until our 2003 annual meeting of stockholders;
o our granting certain preemptive rights to the lenders; and
o our filing this registration statement with the Securities and Exchange Commission. (We also granted the lenders certain other registration rights relating to such shares).
USE OF PROCEEDS
The selling stockholders will receive all of the proceeds from the resale of the securities offered hereby. We will not receive any proceeds from the resale of such securities.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted and traded on the American Stock Exchange under the symbol "DAR." The table below presents, for the fiscal quarters indicated, the high and low closing sales prices per share for each such fiscal quarter.
2002 2001 2000 1999
Fiscal Quarter High Low High Low High Low High Low
-------------- ---- --- ---- --- ---- --- ---- ---
First Quarter $0.85 $0.32 $1.250 $0.438 $2.000 $1.625 $3.500 $1.750
Second Quarter 0.840 0.500 1.750 1.125 2.125 1.500
Third Quarter 1.000 0.500 1.375 0.250 2.000 1.063
Fourth Quarter 0.910 0.500 0.875 0.250 3.000 0.875
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There were 90 shareholders of record of the common stock as of May 22, 2002. As of May 21, 2002, the closing price per share of our common stock was $0.85 as quoted on the American Stock Exchange.
DIVIDEND POLICY
We have not declared or paid any dividends on our common stock since January 3, 1989. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, our financing arrangements prohibit us from paying cash dividends on our common stock in the foreseeable future. We currently intend to retain future earnings, if any, for use in the operation of our business, to reduce our indebtedness and to fund future growth. Any future determination to pay cash dividends on our common stock will be at the discretion of our Board of Directors and will be based upon our financial condition, operating results, capital requirements, plans for expansion, restrictions imposed by any financing arrangements and any other factors that the Board of Directors feels are relevant.
CAPITALIZATION
The following table sets forth the capitalization of our company as of March 30, 2002 on an actual basis and on a pro forma basis to give effect to the issuance of 46,705,086 shares of our common stock and 100,000 shares of our Series A Preferred Stock in connection with the recapitalization of our company as described under "Recapitalization."
March 30, 2002
(in thousands)
---------------------------------------------
Actual Pro Forma
----------------------- ---------------------
Cash and cash equivalents....................................... $ 2,999 $ 2,999
======== =======
Current portion of long-term debt.............................. $ 5,120 $ 3,646
Long-term debt ................................................ 112,127 76,328
Series A 6% Cumulative Redeemable Preferred Stock, liquidation
preference $10,000,000; none (actual) and 100,000 (pro
forma) shares issued and outstanding............................ - 7,619
Shareholders' Equity (Deficit):
Preferred Stock, $0.01 par value per share; 1,000,000 shares
authorized, none issued - -
Common stock, $0.01 par value per share; 25,000,000 (actual)
(pro forma) shares authorized; 15,589,362 (actual) and
62,294,448 (pro forma) shares issued and outstanding ...... 156 623
Additional paid-in capital..................................... 35,235 70,481
Treasury stock, at cost; 21,000 shares (172) (172)
Accumulated comprehensive loss (533) (533)
Accumulated deficit............................................ (43,757) (43,757)
-------- --------
Total shareholders' equity (deficit)........................... (9,071) 26,642
-------- ------
Total Capitalization..................................... $108,176 $114,235
======== ========
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SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following selected historical and pro forma consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and related notes thereto and unaudited consolidated financial statements and related notes thereto included elsewhere in this prospectus. The selected pro forma data does not purport to represent what our results would have been if the Recapitalization had occurred at the dates indicated. The Pro Forma columns included in the Operating Data for the three months ended March 30, 2002 and the fiscal year ended December 29, 2001, derived from elsewhere in this prospectus, reflect the effect of the Recapitalization had it occurred at the beginning of such periods. The Pro Forma Balance Sheet Data as of March 30, 2002 and December 29, 2001, derived from elsewhere in this prospectus, reflect the effect of the Recapitalization as if it had occurred on such dates.
Fiscal Year Ended (a)
--------------------------------------------------------------------------------
December 29, December 29, December 30, January 1, January 2, January 3,
2001 2001 2000 2000 1999 1998
Pro Forma Actual Actual Actual Actual Actual
--------------------------------------------------------------------------------------------------------------
(in thousands, except ratio and share data)
Operating Data:
Net sales $255,974 $255,974 $242,795 $258,570 $337,031 $444,142
-------- -------- -------- -------- -------- --------
Cost of sales and
operating expenses 196,778 196,778 190,283 210,879 283,822 362,787
Selling, general and
administrative expenses 28,594 28,594 26,736 26,773 33,073 33,247
Depreciation and
amortization 26,634 26,634 31,181 32,912 32,418 29,751
Operating income/(loss) 3,968 3,968 (5,405) (11,994) (12,282) 18,357
Interest expense 1,415 14,162 13,971 15,533 12,747 13,070
Other (income)/expense, net 2,000 1,651 184 (1,812) 1,117 (1,348)
------- ----- --------- ------ ----- ------
Income/(loss) from
continuing operations
before income taxes 553 (11,845) (19,560) (25,715) (26,146) 6,635
Income tax expense/(benefit) - - - (10,015) (9,347) 2,307
------- ----- --------- ------ ----- ------
Earnings/(loss) from
continuing operations 553 (11,845) (19,560) (15,700) (16,799) 4,328
Discontinued operations:
Income/(loss) from
discontinued
operations, net of tax - - - - (637) 1,081
Gain (loss) on disposal,
net of tax - - 371 (333) (14,657) -
------- ----- --------- ------ ----- ------
Net income /(loss) 553 (11,845) (19,189) (16,033) (32,093) 5,409
Preferred dividends and
accretion (1,465) - - - - -
------- ----- --------- ------ ----- ------
Net income (loss)
applicable to common
shareholders $ (912) (11,845) (19,189) $(16,033) $(32,093) 5,409
======= ======= ======== ======== ======== =====
Basic earnings/(loss) per
common share $ (0.01) (0.76) (1.23) (1.03) (2.06) 0.35
Diluted earnings/(loss)
per common share $ (0.01) (0.76) (1.23) (1.03) (2.06) 0.33
Weighted average shares
outstanding 62,273 15,568 15,568 15,568 15,581 15,519
Diluted weighted average
shares outstanding 62,273 15,568 15,568 15,568 15,581 16,461
Other Data:
EBITDA (b) $ 30,602 $30,602 $25,776 20,918 20,136 48,108
Depreciation 21,378 21,378 25,541 26,998 26,432 24,074
Amortization 5,256 5,256 5,640 5,914 5,986 5,677
Capital expenditures 9,142 9,142 7,684 9,851 14,967 24,520
Ratio of earnings to
fixed charges (c) 1.09 - - - - 1.48
18
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Balance Sheet Data:
Working capital
(deficiency) $ 476 $(116,718) $(106,809) (5,223) 3,070 5,225
Total assets 160,209 159,079 174,505 197,804 263,166 305,973
Current portion of
long-term debt 5,097 120,053 109,528 7,810 7,717 5,118
Total long-term debt less
current portion 82,051 _ - 110,209 140,613 142,181
Stockholders' equity
(deficit) 19,000 (9,654) 2,724 21,913 37,946 69,756
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Three Months Ended
------------------------------------------
March 30, March 30, March 31,
2002 2002 2001
Pro Forma Actual Actual
--------------------------------------------------------------------------------------------------------------
Operating Data:
Net sales $61,681 $61,681 $ 63,634
Cost of sales and operating expenses 46,395 46,395 48,312
Selling, general and administrative expenses 7,160 7,160 7,005
Depreciation and amortization 4,392 4,392 6,814
Operating income/(loss) 3,734 3,734 1,503
Interest expense (665) (3,885) (3,227)
Other (income)/expense, net 511 734 575
------- ------- --------
Income (loss) before income taxes 3,580 583 (1,149)
Income taxes 1,083 - -
------- ------- --------
Net income (loss) 2,497 583 (1,149)
Preferred dividends and accretion (380) - -
------- ------- --------
Net income (loss) applicable to common shareholders $ 2,117 $ 583 $ (1,149)
======= ======= =========
Basic income (loss) per common share $ 0.03 $ 0.04 $ (0.07)
Diluted income (loss) per common share $ 0.03 $ 0.04 $ (0.07)
Weighted average shares outstanding 62,273 15,568 15,568
Diluted weighted average shares outstanding 62,535 15,830 15,568
Other Data:
EBITDA (b) 8,126 8,126 $ 8,317
Depreciation 3,257 3,257 5,339
Amortization 1,135 1,135 1,475
Capital expenditures 3,622 3,622 1,582
Ratio of earnings to fixed charges (c) 3.0 1.14 -
Balance Sheet Data:
Working capital (deficiency) $ 4,545 $(3,286) $(104,074)
Total assets 154,158 154,456 166,981
Current portion of long-term debt 3,646 5,120 109,018
Total long-term debt less current portion 76,328 112,127 -
Stockholders' equity (deficit) 26,642 (9,071) 1,266
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(a) The fiscal years ended December 29, 2001, January 1, 2000 and January 2, 1999 each consisted of 52 weeks. The fiscal year ended January 3, 1998 consisted of 53 weeks.
(b) "EBITDA" represents, for any relevant period, operating profit plus depreciation and amortization and impairment of long-lived assets. EBITDA is presented here not as a measure of operating results, but rather as a measure of the Company's debt service ability and is not intended to be a presentation in accordance with generally accepted accounting principles.
(c) For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income (loss) from continuing operations before income taxes and fixed charges. Fixed charges consist of interest expense, amortization of debt issuance costs and one-third of rental expense deemed to be the equivalent of interest. For the years ended December 29, 2001, December 30, 2000, January 1, 2000 and January 2, 1999 (all actual), and three months ended March 31, 2001 (actual) earnings were insufficient to cover fixed charges $11.8 million (actual), $19.6 million (actual), $25.7 million (actual), and $26.1 million (actual) and $1.1 million (actual), respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading "Risk Factors" and elsewhere in this prospectus. The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this prospectus.
General
Darling is a recycler of food processing by-products. We collect and recycle animal processing by-products and used restaurant cooking oil. In addition, we provide grease trap collection services to restaurants. We process such raw materials at 26 facilities located throughout the United States into finished products such as tallow, meat and bone meal and yellow grease. We sell these products nationally and internationally, primarily to producers of various industrial and commercial oleo-chemicals, soaps, pet foods and livestock feed, for use as ingredients in their products or for further processing into basic chemical compounds.
Results of Operations
3 Months Ended March 30, 2002 vs. 3 Months Ended March 31, 2001
General. We recorded net income of $0.6 million for the three months ended March 30, 2002 (first quarter of Fiscal 2002), as compared to a loss of $1.1 million for the three months ended March 31, 2001 (first quarter of Fiscal 2001), an improvement of $1.7 million. Principal factors affecting these comparative results, which are discussed further in the following section, were lower depreciation expense, favorable yields on production, and higher collection fees which improved recovery of collection expenses, partially offset by lower inage and finished product and hide prices.
Net Sales. We collect and processes animal by-products (fat, bones and offal) and used restaurant cooking oil to produce finished products of tallow, meat and bone meal, and yellow grease. In addition, we provide grease trap collection services to restaurants. Sales are significantly affected by finished goods prices, quality of raw material, and volume of raw material. Net sales include the sales of produced finished goods, trap grease services, and finished goods purchased for resale, which constitute less than 10% of total sales for both the first quarter of Fiscal 2002 and the first quarter of Fiscal 2001.
During the first quarter of Fiscal 2002, net sales decreased by $1.9 million (3.1%), to $61.7 million as compared to $63.6 million during the first quarter of Fiscal 2001 primarily due to the following: (1) raw material inage decreased $2.1 million; (2) lower aggregate finished goods prices resulted in a $2.1 million decrease (our average yellow grease prices increased $0.48/cwt to $9.36/cwt (5.4% higher); average tallow prices increased $0.30/cwt to $9.70/cwt (3.2% higher); and average meat and bone meal prices decreased $16.20/ton to $181.60/ton (8.2% lower)); (3) lower hides prices decreased net sales $0.7 million; (4) finished goods purchased for resale decreased $0.6 million; (5) other changes decreased $0.1 million; partially offset by (6) higher yields on production of $2.3 million; and (7) higher collection fees, which improved recovery of collection expenses, by $1.4 million.
Cost of Sales and Operating Expenses. Cost of sales and operating expenses include prices paid to raw material suppliers, the cost of product purchased for resale, and the cost to collect and process raw material. We utilize both fixed and formula pricing methods for the purchase of raw materials. Fixed prices are adjusted where possible as needed for changes in competition and significant changes in finished goods market conditions, while raw materials purchased under formula prices are correlated with specific finished goods prices.
During the first quarter of Fiscal 2002, cost of sales and operating expenses decreased $1.9 million (3.9%) to $46.4 million as compared to $48.3 million during the first quarter of Fiscal 2001 primarily as a result of the following: (1) lower natural gas and fuel oil factory expenses resulted in a decrease of $1.5 million in cost of sales; (2) lower raw material prices resulted in a decrease of $0.6 million in cost of sales; (3) lower finished goods purchased for resale decreased cost of sales $0.6 million; (4) lower raw material inage decreased cost of sales $0.4 million; partially offset by (5) higher collection and factory payroll expenses of $0.8 million; (6) higher collection and factory insurance expenses of $0.3 million; and (7) other increases of $0.1 million.
Selling, General and Administrative Costs. Selling, general and administrative costs were $7.2 million during the first quarter of Fiscal 2002, a $0.2 million increase (2.9%) from $7.0 million for the first quarter of Fiscal 2001, due to increases in payroll expense of $0.4 million, partially offset by decreases in bad debt expense of $0.2 million.
Depreciation and Amortization. Depreciation and amortization charges decreased $2.4 million (54.5%) to $4.4 million during the first quarter of Fiscal 2002 as compared to $6.8 million during the first quarter of Fiscal 2001. The decrease is primarily due to various property and equipment assets becoming fully depreciated during Fiscal 2001.
Interest Expense. Interest expense increased $0.7 million from $3.2 million during the first quarter of Fiscal 2001 to $3.9 million during the first quarter of Fiscal 2002, primarily due to $1.7 million amortization of forbearance fees included in interest expense, net of the effect of lower interest rates.
Other Income (Expense). Other income increased $0.1 million from net other income of $0.6 million during the first quarter of Fiscal 2001 to net other income of $0.7 million during the first quarter of Fiscal 2002. This increase was primarily due to the gain from insurance proceeds received over the net book value of assets destroyed by fire at our Norfolk, Nebraska plant.
Income Taxes. We assess the amount of valuation allowance recorded as a reduction of deferred tax assets by considering our ability to carryback net operating losses, scheduled reversals of future taxable and deductible temporary differences, future taxable income and tax planning strategies. Based on our assessment of these matters at March 30, 2002 and March 31, 2001, we recorded a valuation allowance to reduce the carrying value of our net deferred tax assets to zero in both periods.
Capital Expenditures. We made capital expenditures of $3.6 million primarily for machinery and equipment during the first quarter of Fiscal 2002 compared to capital expenditures of $1.5 million during the first quarter of Fiscal 2001.
52 Week Fiscal Year Ended December 29, 2001 (Fiscal 2001) vs. 52 Week Fiscal Year Ended December 30, 2000 (Fiscal 2000)
General. We reported a sales increase of $13.2 million (5.4%) for Fiscal 2001 and operating income of $4.0 million compared to a $5.4 million operating loss in Fiscal 2000, an improvement of $9.4 million. Principal factors affecting these comparative results, which are discussed further in the following section, were higher collection fees which improved recovery of collection expenses, favorable finished goods prices, and lower depreciation expense, partially offset by higher natural gas and fuel oil expenses. We reported a loss from continuing operations of $11.8 million for Fiscal 2001 compared to a loss from continuing operations of $19.6 million for Fiscal 2000, a reduction of the operating loss of $7.8 million.
Net Sales. During Fiscal 2001, net sales increased by $13.2 million (5.4%)
to $256.0 million as compared to $242.8 million during Fiscal 2000. The increase
in net sales was primarily due to the following: (1) improved recovery of
collection expenses, $9.2 million; (2) favorable finished goods prices resulted
in a $4.6 million increase (our average yellow grease prices increased
52(cent)/cwt to $8.94/cwt (6.2% higher)), average tallow prices increased
63(cent)/cwt to $9.58/cwt (6.6% higher), and average meat and bone meal prices
decreased $4.60/ton to $184.00/ton (2.4% lower); (3) hide increased $2.0
million; (4) improved yields on production increased $0.9 million; (5) other net
increases during Fiscal 2001, $0.3 million; partially offset by (6) finished
product purchased for resale decreased $3.1 million; and (7) raw material inage
decreased $0.7 million.
Cost of Sales and Operating Expenses. During Fiscal 2001, cost of sales and
operating expenses increased $6.5 million (3.4%) to $196.8 million as compared
to $190.3 million during Fiscal 2000. The increase in cost of sales and
operating expenses was primarily due to the following: (1) natural gas and fuel
oil expenses increased $5.4 million; (2) repairs expense increased $2.9 million;
(3) leased vehicle expenses increased $0.8 million; (4) contract hauling
expenses increased $0.5 million; (5) other net increased expenses during Fiscal
2001 of $0.8 million; partially offset by (6) finished product purchased for
resale decreased $3.1 million; and (7) gasoline and lubricant expenses decreased
$0.8 million.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $28.6 million during Fiscal 2001, a $1.9 million (7.1%), $26.7 million during Fiscal 2000, primarily due to higher payroll expense.
Depreciation and Amortization. Depreciation and amortization charges decreased $4.5 million (14.4%), to $26.6 million during Fiscal 2001 as compared to $31.2 million during Fiscal 2000. Included in Fiscal 2001 and Fiscal 2000, depreciation and amortization expense are impairment charges of $0.8 million and $4.0 million, respectively, due to impairment charges recorded in accordance with Statement of Financial Accounting Standards No. 121.
The Fiscal 2001 impairment charge of $0.8 million pertains solely to assets held for sale in our rendering business segment. The impairment charges were necessary to reduce the carrying value of these assets to management's estimate of their net realizable value in light of current economic conditions. Estimated net realizable values were based on information from business and real estate brokers, comparable sales, property tax valuations and internal discussions with our employees working in the geographic areas who were familiar with the specific assets. A summary of the impairment charge follows (in millions):
Land $0.1
Leaseholds and buildings 0.1
Equipment and furniture 0.6
----
Total impairment $0.8
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The Fiscal 2000 impairment charge of $4.0 million consists of (1) $2.1 million related to rendering business segment operating assets, (2) $0.1 million and $0.4 million related to restaurant services business segment equipment and allocable goodwill, respectively, and (3) $1.3 million related to assets held for sale in our rendering business segment. The impairment charges of the assets in operation were made to reduce the carrying value to estimated fair value based on the discounted future cash flows of the assets. The impairment charges of the assets held for sale were necessary to reduce the carrying value of these assets to management's estimate of their net realizable value based on information from a business broker. A summary of the impairment charge follows (in millions):
Restaurant
Rendering Services Total
Leaseholds
and buildings $ 0.6 $ -- $ 0.6
Equipment
and furniture 2.9 0.1 3.0
Goodwill -- 0.4 0.4
--------- --------- ---------
Total impairment $ 3.5 $ 0.5 $ 4.0
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Interest Expense. Interest expense was $14.2 million during Fiscal 2001, compared to $14.0 million during Fiscal 2000, an increase of $0.2 million (1.4%). The effects of amortization of loan forbearance fees included in interest expense of $2.1 million and higher debt levels during Fiscal 2001 were partially offset by declining interest rates on our floating rate debt.
Income Taxes. We recorded a valuation allowance to eliminate the deferred tax benefit attributable to the Fiscal 2001 loss, as we did in Fiscal 2000.
Capital Expenditures. We made capital expenditures of $9.1 million during
Fiscal 2001 as compared to $7.7 million in Fiscal 2000, an increase of $1.4
million (18.2%). Fiscal 2001 capital expenditures were principally for:
operating equipment, $5.8 million; vehicles (primarily trucks or
tractor-trailers), $1.6 million; office equipment, $1.2 million; and other
capital expenditures, $0.5 million.
52 Week Fiscal Year Ended December 30, 2000 (Fiscal 2000) vs. 52 Week Fiscal Year Ended January 1, 2000 (Fiscal 1999)
General. We reported a sales decrease of $15.8 million (6.1%) for Fiscal 2000, and an operating loss of $5.4 million compared to an operating loss of $12.0 million in Fiscal 2000 an operating loss reduction of $6.6 million (55.0%). Principal factors affecting these comparative results, which are discussed further in the following section, were lower finished goods sales prices and lower sales volume, the effects of which were more than offset by lower raw material costs and higher collection fees which improved recovery of collection expenses. We
reported a loss from continuing operations of $19.6 million for Fiscal 2000 compared to a loss from continuing operations of $15.7 million for Fiscal 1999, an increased loss from continuing operations of $3.9 million (24.8%).
Net Sales. During Fiscal 2000, net sales decreased by $15.8 million (6.1%) to $242.8 million as compared to $258.6 million during Fiscal 1999. The decrease is net sales was primarily due to the following: (1) decreases in overall finished goods prices resulted in an $11.1 million decrease in sales during Fiscal 2000 versus Fiscal 1999 (our average yellow grease prices decreased $1.17/cwt to $8.42/cwt (12.2%), average tallow prices decreased $1.48/cwt to $9.58/cwt, and average meat and bone meal prices increased $40.12/ton to $188.60/ton (27.2%); (2) products purchased for resale resulted in an $11.9 million; (3) decreases in the volume of raw materials processed resulted in a $9.7 million decrease in sales; and (4) other items decreased $1.2 million compared to Fiscal 1999; partially offset by (5) increases in collection fees (to offset a portion of the cost incurred in collecting raw material) of $13.0 million; (6) improved yields in production of $4.1 million; and (7) finished hides sales increased $1.0 million.
Cost of Sales and Operating Expenses. During Fiscal 2000, cost of sales and operating expenses decreased $20.6 million (9.8%) to $190.3 million as compared to $210.9 million during Fiscal 1999. The decrease in cost of sales and operating expenses was primarily due to the following: (1) lower raw material prices paid, correlating to decreased prices for fats and oils and meat and bone meal, resulted in decreases of $6.4 million in cost of sales; (2) decreases in products purchased for resale resulted in a $11.9 million decrease; (3) decreases in the volume of raw materials collected and processed resulted in a decrease of approximately $1.8 million in cost of sales; (4) reductions in repairs expense, payroll, and contract hauling operating expenses of $4.8 million; and (5) other changes resulted in a decrease of $2.7 million; partially offset by (6) increases in natural gas, sewer expense and utilities, resulted in an increase of $6.7 million; and (7) costs of hides purchased increased $0.3 million.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $26.7 million during Fiscal 2000, a $0.1 million decrease (0.4%), from $26.8 million during Fiscal 1999. Decreases in professional and legal fees were partially offset by various expense increases.
Depreciation and Amortization. Depreciation and amortization charges decreased $1.7 million (5.2%), to $31.2 million during Fiscal 2000 as compared to $32.9 million during Fiscal 1999. Included in Fiscal 2000 and Fiscal 1999 depreciation and amortization expense are impairment charges of $4.0 million and $1.4 million, respectively, due to impairment recorded in accordance with Statement of Financial Accounting Standards No. 121.
The Fiscal 2000 impairment charge of $4.0 million consists of (1) $2.1 million related to rendering business segment operating assets, (2) $0.1 million and $0.4 million related to restaurant services business segment equipment and allocable goodwill, respectively, and (3) $1.3 million related to assets held for sale in our rendering business segment. The impairment charges of the assets in operation were made to reduce the carrying value to estimated fair value based on the discounted future cash flows of the assets. The impairment charges of the assets held for sale were necessary to reduce the carrying value of these assets to management's estimate of their net realizable value based on information from a business broker. A summary of the impairment charge follows (in millions):
Restaurant
Rendering Services Total
Leaseholds
and buildings $ 0.6 $ -- $ 0.6
Equipment
and furniture 2.9 0.1 3.0
Goodwill -- 0.4 0.4
--------- --------- ---------
Total impairment $ 3.5 $ 0.5 $ 4.0
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The Fiscal 1999 impairment charge of $1.4 million pertains solely to assets held for sale in our rendering business segment. The impairment charges were necessary to reduce the carrying value of these assets to management's estimate of their net realizable value. Estimated net realizable values were based on an offer from a prospective buyer and information from real estate brokers. A summary of the impairment charge follows (in millions):
Leaseholds and buildings $ 1.1
Equipment 0.3
-----
Total impairment $ 1.4
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Interest Expense. Interest expense was $14.0 million during Fiscal 2000, compared to $15.5 million during Fiscal 1999, a decrease of $1.5 million (9.7%). Lower debt during Fiscal 2000 was partially offset by higher interest rates.
Income Taxes. We recorded a valuation allowance to eliminate the deferred tax benefit attributable to the Fiscal 2000 loss. This results in a decrease in income tax benefit of $10.0 million, compared to Fiscal 1999. In Fiscal 1999, we recorded a $10.0 million income tax benefit, which consisted of $9.2 million of federal tax benefit and $0.8 million for various state and foreign tax benefits.
Capital Expenditures. We made capital expenditures of $7.7 million during Fiscal 2000 as compared to $9.9 million in Fiscal 1999, a decrease of $2.2 million (22.2%).
Discontinued Operations. The operations of the Bakery By-Products Recycling segment have been classified as discontinued operations. In Fiscal 2000, we realized a gain related to a reduction in an indemnification reserve, net of tax, of $0.4 million related to the sale of this business segment which was finalized on April 5, 1999, compared to a loss of $0.3 million in Fiscal 1999.
Financing, Liquidity and Capital Resources
Recapitalization. On May 13, 2002, we consummated the Recapitalization and executed a new amended and restated credit agreement with our lenders whereby we exchanged borrowings outstanding under our previous credit agreement, a portion of the accrued interest and commitment fees, and forbearance fees payable for newly issued common stock equal to 75% of our total outstanding common stock on a fully diluted basis (exclusive of stock options issued and outstanding), and 6% cumulative redeemable preferred stock with a face value of $10.0 million. Our new credit agreement includes a term loan in the principal amount of $61.0 million and also provides for a revolving credit facility which will enable us to borrow or issue letters of credit of up to $17.3 million.
Substantially all of our assets are either pledged or mortgaged as collateral for borrowings under the new credit agreement. The new credit agreement contains certain terms and covenants, which, among other matters, restrict the incurrence of additional indebtedness, the payment of cash dividends, the retention of certain proceeds from sales of assets, and the annual amount of capital expenditures, and requires the maintenance of certain minimum financial ratios.
The classification of long-term debt in the accompanying March 30, 2002 consolidated balance sheet is based on the repayment terms of the debt issued under the new credit agreement pursuant to the Recapitalization and also reflects an estimate of the effect of applying the provisions of Statement No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings. Statement No. 15 requires that the existing amount of debt owed by us to the lenders be reduced by the fair value of the equity interest granted and that no gain from restructuring our debt be recognized. Interest expense on the remaining carrying amount of debt reported in our financial statements will be based on a new effective interest rate that equates the present value of the future cash payment specified by the new terms of the term loan with the carrying amount of the debt.
As shown in the Consolidated Balance Sheet at December 29, 2001, we had $120.0 million of debt due under our bank credit facilities classified as a current liability because our previous credit agreement had a maturity date of June 30, 2001. Effective June 29, 2001, we entered into a forbearance agreement with the Lenders. The forbearance agreement, which was amended several times, among other things, provided that the Lenders would not exercise their rights in connection with certain defaults under the credit agreement until April 30, 2002, raised the interest rate under the credit agreement from 1% over prime to 3% over prime, required the payment of a fee of $3.9 million to the Lenders with respect to the forbearance agreement, reduced the commitment during the forbearance period by $2.0 million, from $128.5 million to $126.5 million, and limited financial covenants to certain minimum cash flows, based upon our own projected cash flow for certain periods during the forbearance period.
On March 15, 2002, we entered into the Recapitalization Agreement. Under the terms of the Recapitalization Agreement, the forbearance period was extended to May 31, 2002, and the agreement stipulated that our Recapitalization would occur through a series of transactions as described above.
On March 30, 2002, we had a working capital deficit of $3.3 million and our working capital ratio was 0.92 to 1. On December 29, 2001, we had a working capital deficit of $116.7 million and our working capital ratio was 0.26 to 1 compared to a working capital deficit of $106.8 million and a working capital ratio of 0.30 to 1 on December 30, 2000.
The Recapitalization caused our current liabilities on a pro forma basis as of March 30, 2002 to decrease by approximately $7.8 million resulting in positive working capital of approximately $4.5 million. The decrease in debt resulting from the Recapitalization will reduce our interest expense.
Net cash provided by operating activities was $4.9 million for the first quarter of Fiscal 2002 compared to $1.8 million in the comparable prior fiscal year period, an increase of $3.1 million principally due to changes in the balances of operating assets and liabilities which resulted in additional cash flow in the Fiscal 2002 period. Cash used by investing activities was $2.7 million for the first quarter of Fiscal 2002 compared to $1.4 million in the prior fiscal year period. The increased level of expenditures in Fiscal 2002 was due primarily to increased capital expenditures for machinery and equipment. Net cash used by financing activities was $2.9 million in the first quarter of Fiscal 2002 compared to $1.0 million in the first quarter of Fiscal 2001 principally due to additional reductions of long-term debt in the Fiscal 2002 period.
Net cash provided by operating activities was $5.6 million, $16.2 million and $0.7 million in Fiscal 2001, Fiscal 2000 and Fiscal 1999, respectively. Net cash provided by operating activities in Fiscal 2001 decreased principally due to increased accounts receivable arising from increased sales and reductions in accounts payable and accrued expenses, partially due to lower levels of credit extended by trade vendors and due to a $5.9 million cash payment to our insurance claim administrator under a letter of credit arrangement. The cash payment was funded through a borrowing under the credit agreement.
The current negative economic environment in our markets has the potential to adversely impact our liquidity in a variety of ways, including through reduced sales and potential inventory buildup. Our management has revised our sales forecasts in light of our view of current economic conditions, and believes that cash generated from operating activities at the same level as Fiscal 2001 and funds available under the new amended and restated credit agreement should be sufficient to meet our working capital needs and capital expenditures for at least the next 12 months. There can be no assurance, however, that a continued slowdown in the economy or other factors will not cause us to fail to meet management's revised forecasts, or otherwise result in liquidity concerns.
Quantitative and Qualitative Disclosures About Market Risks
Market risks affecting our company are exposures to changes in prices of the finished products we sell, interest rates on debt, and the price of natural gas used in our plants. Predominately all of our finished products are commodities that are generally sold at prices prevailing at the time of sale. We have used interest rate and, through March 2001, natural gas swaps to manage these risks. Beginning in April 2001, we are using natural gas forward purchase agreements with our suppliers to manage the price risk of natural gas used in our facilities. While we do have international operations, and operate in international markets, we consider our market risks in such activities to be immaterial.
At March 30, 2002 and December 29, 2001, we were party to two interest rate swap agreements. Under the terms of the swap agreements, the interest obligation on $45 million of credit agreement floating-rate debt was exchanged for fixed rate contracts which bear interest, payable quarterly. One swap agreement for $25 million matures June 27, 2002, bears interest at 6.5925% and our receive rate is based on the three-month LIBOR. The second swap agreement for $20 million matures on June 27, 2002, bears interest at 9.17% and our receive rate is based on the Base Rate.
As of March 30, 2002, we have forward purchase agreements in place for purchases of approximately 624,000 mmbtu's of natural gas for the period April through December, 2002, based on an average purchase price of $2.78/mmbtu.
Critical Accounting Policies
We follow certain significant accounting policies when preparing our consolidated financial statements. A complete summary of these policies is included in Note 1 of Notes to Consolidated Financial Statements.
Certain of the policies require our management to make significant and subjective estimates which are sensitive to deviations of actual results from management's assumptions. In particular, management makes estimates regarding the fair value of our reporting units in assessing impairment of goodwill, estimates regarding future undiscounted cash flows from the future use of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable, estimates regarding the net realizable value of long-lived assets held for sale, and estimates regarding self insured risks including insurance, environmental and litigation contingencies.
In assessing impairment of goodwill we use estimates and assumptions in estimating the fair value of our reporting units. In assessing the impairment of long-lived assets where there has been a change in circumstances indicating the carrying value of a long-lived asset may not be recoverable, we have estimated future undiscounted net cash flows from the acquired operations and from use of the asset, respectively, based on actual historical results and expectations about future economic circumstances including future business volume, finished product prices and operating costs. The estimates of fair values of reporting units, future net cash flows from the acquired operations and use of the asset could change if actual prices and costs differ due to industry conditions or other factors affecting the level of business volume or our performance. In assessing impairment of long-lived assets held for sale, we have estimated the net realizable value of such assets based on information from various external sources regarding possible selling prices for such assets. These estimates could change based on changes in market conditions, interest rates and other factors. In estimating liabilities for self insured risks, we consider information from outside consultants and experts, and past historical experience, in projecting future costs expected to be incurred. These estimates could change if future events are different than assumed by management, actual costs to settle the liabilities differ from those estimated and the circumstances associated with the self insured risks change.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) recently issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (Statement 143). Statement 143 establishes requirements for the accounting for removal costs associated with asset retirements and is effective for fiscal years beginning after June 15, 2002, with earlier adoption encouraged. We are currently assessing the impact of Statement 143 on our consolidated financial statements.
OUR BUSINESS
Darling
Founded by the Swift meat packing interests and the Darling family in 1882, we were incorporated in Delaware in 1962 under the name "Darling-Delaware Company, Inc." On December 28, 1993, we changed our name from "Darling-Delaware Company, Inc." to "Darling International Inc."
We are a recycler of food processing by-products. We collect and recycle animal processing by-products and used restaurant cooking oil. In addition, we provide grease trap collection services to restaurants. We process such raw materials at 26 facilities located throughout the United States into finished products such as tallow, meat and bone meal and yellow grease. We sell these products nationally and internationally, primarily to producers of various industrial and commercial oleo-chemicals, soaps, pet foods and livestock feed, for use as ingredients in their products or for further processing into basic chemical compounds.
Commencing 1998, as part of an overall strategy to better commit financial resources, we organized our operations into two segments. These are:
o Rendering, the core business of turning inedible waste from meat and poultry processors into high quality feed ingredients and fats for other industrial applications; and
o Restaurant Services, a group focused on growing the grease collection business while expanding the line of services, which includes grease trap servicing, offered to restaurants and food processors.
Due to unfavorable market conditions resulting from declining prices, in Fiscal 2000, the Esteem Product division, a business dedicated to using newly developed technologies to produce novel products from established supply sources, was combined with our rendering operations. In November 1998, we made a strategic decision to dispose of an additional segment, Bakery By-Products Recycling, a group which produced high quality bakery by-products for the feed industry. The results of the Bakery By-Products Recycling segment have been reported separately as discontinued operations. See Note 15 of Notes to Consolidated Financial Statements on page F-34 for further information regarding discontinued operations. For the financial results of our business segments, see Note 17 of Notes to Consolidated Financial Statements beginning on page F-36.
Our net external sales from continuing operations by operating segment were as follows:
Fiscal Fiscal Fiscal
2001 2000 1999
-------------------------------------------------------
Continuing operations:
Rendering $194,960 76.2% $186,445 76.8% $204,631 79.1%
Restaurant Services 61,014 23.8 56,350 23.2 53,939 20.9
-------- ------ -------- ------ -------- ------
Total $255,974 100.0% $242,795 100.0% $258,570 100.0%
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Processing Operations
We create finished products primarily through the drying, grinding, separating and blending of our various raw materials. The process starts with the collection of animal processing by-products (fat, bones, feathers and offal), and used restaurant cooking oil from meat packers, grocery stores, butcher shops, meat markets, poultry processors and restaurants.
The animal processing by-products are ground and heated to extract water and separate oils from animal tissue as well as to sterilize and make the material suitable as an ingredient for animal feed. Meat and bone meal is separated from the cooked material by pressing the material, then grinding and sifting it through screens. The separated tallow is centrifuged and/or refined for purity. The primary finished products derived from the processing of animal by-products are tallow and meat and bone meal. Other by-products include poultry meal, feather meal and blood meal. Used restaurant cooking oil is processed under a separate procedure that involves heating, settling and sterilizing, as well as refining, resulting in derived yellow grease, feed-grade animal fat, or oleo-chemical feedstocks.
Purchase and Collection of Raw Materials
We operate a fleet of approximately 800 trucks and tractor-trailers to collect raw materials from more than 80,000 restaurants, butcher shops, grocery stores, and independent meat and poultry processors. We replace or upgrade our vehicle fleet to maintain efficient operations.
Raw materials are collected in one of two manners. Certain large suppliers, such as large meat processors and poultry processors are furnished with bulk trailers in which the raw material is loaded. We transport these trailers directly to a processing facility. We provide the remaining suppliers, primarily grocery stores and butcher shops with containers in which to deposit the raw material. The containers are picked up by or emptied into our trucks on a periodic basis. The type and frequency of service is determined by individual supplier requirements, the volume of raw material generated by the supplier, supplier location, and weather, among other factors.
Used restaurant cooking oil is placed in various sizes and types of containers which we supply. In some instances, these containers are loaded directly onto the trucks, while in other instances the oil is pumped through a vacuum hose into the truck. We also provide an alternative collection service to restaurants called CleanStar(R) 2000, which is a self-contained collection system that is housed inside the restaurant, with the used cooking oil pumped directly into collection vehicles via an outside valve. The CleanStar(R) 2000 system and service is provided either on a fee basis to the raw material customer or as a negotiated offset to the cost of raw materials purchased. Approximately 11.1% of our restaurant suppliers utilize the CleanStar(R) 2000 system. The frequency of all forms of collection service is determined by the volume of oil generated by the restaurant.
The raw materials we collect are transported either directly to a processing plant or to a transfer station, where materials from several collection routes are loaded into trailers and transported to a processing plant. Collections of animal processing by-products generally are made during the day, and materials are delivered to plants for processing within 24 hours of collection to eliminate spoilage. Collection of used restaurant cooking oil can be made at any time of the day or night, depending on supplier preference; these materials may be held for longer periods of time before processing. We charge a collection fee to offset a portion of the cost incurred in collecting raw material.
During fiscal year 2001, our largest single supplier accounted for less than 6.8% of the total raw material we processed, and the 10 largest raw materials suppliers accounted for approximately 34.8% of the total raw material we processed.
Raw Materials Pricing
We have two primary pricing arrangements with our raw materials suppliers. Approximately half of our annual volume of raw materials is acquired on a "formula" basis. Under a formula arrangement, the charge or credit for raw materials is tied to published finished product commodity prices after deducting a fixed service charge. We acquire the remaining annual volume of raw material under "non-formula" arrangements whereby suppliers either are paid a fixed price, are not paid, or are charged for the collection service, depending on various economic and competitive factors.
The credit received or amount charged for raw material under both formula and non-formula arrangements is based on various factors, including the type of raw materials, the expected value of the finished product to be produced, the anticipated yields, the volume of material generated by the supplier, and processing and transportation costs. Competition among processors to procure raw materials also affects the price paid for raw materials.
Formula prices are generally adjusted on a weekly or monthly basis while non-formula prices or charges are adjusted as needed to respond to changes in finished product prices.
Finished Products
The finished products that result from the processing of animal by-products are oils (primarily tallow and yellow grease) and proteins (primarily meat and bone meal). Oils are used as ingredients in the production of pet food, animal feed and soaps. Oleo-chemical producers use these oils as feedstocks to produce specialty ingredients used in paint, rubber, paper, concrete, plastics and a variety of other consumer and industrial products. Meals are used primarily as high protein additives in pet food and animal feed.
Predominantly all of our finished products are commodities which are quoted on established commodity markets or are priced relative to such commodities. While our finished products are generally sold at prices prevailing at the time of sale, our ability to deliver large quantities of finished products from multiple locations and
to coordinate sales from a central location enables us to occasionally receive a premium over the then-prevailing market price.
Marketing, Sales and Distribution of Finished Products
We market our finished products worldwide. Marketing activities are primarily conducted through our marketing department which is headquartered in Irving, Texas. We also maintain sales offices in Los Angeles, California, and Newark, New Jersey for sales and distribution of selected products. This sales force is in contact with several hundred customers daily and coordinates the sale and assists in the distribution of most finished products produced at our processing plants. We sell our finished products internationally through commodities brokers and through our agents in various countries.
We sell to numerous foreign markets, including the European Economic Community, Asia, the Pacific Rim, North Africa, Mexico and South America. We have no material foreign operations, but export a portion of our products to customers in various foreign counties. Total export sales were $138.1 million, $128.7 million and $107.4 million for the years ended December 29, 2001, December 30, 2002, and January 1, 2000, respectively. The level of export sales may vary from year to year depending on the relative strength of domestic versus overseas markets. We obtain payment protection for most of our foreign sales by requiring payment before shipment or by requiring bank letters of credit or guarantees of payment from U.S. government agencies. We ordinarily are paid for our products in U.S. dollars and have not experienced any material currency translation losses or any material foreign exchange control difficulties.
We have not experienced any material restrictions on the export of our products, although certain countries, including India and certain Middle East countries restrict the import of proteins and fats and oils made from porcine and bovine material, and the European Community has restrictions on proteins and fats and oils made from specified bovine materials. The Bovine Spongiform Encephalopathy (BSE) or "mad cow disease"situation in Europe and new FDA restrictions, coupled with much lower prices for competing commodities, has caused lower prices for some of our key products.
Finished products produced by us are distributed primarily by truck and rail from our plants shortly following production. While there are some temporary inventory accumulations at various port locations for export shipments, inventories rarely exceed three weeks' production and, therefore, we use limited working capital to carry inventories and reduce our exposure to fluctuations in commodity prices.
Competition
Our management believes that the most competitive aspect of the business is the procurement of raw materials rather than the sale of finished products. During the last ten years, pronounced consolidation within the meat packing industry has resulted in bigger and more efficient slaughtering operations, the majority of which utilize "captive" processors. Simultaneously, the number of small meat packers, which have historically been a dependable source of supply for non-captive processors, has decreased significantly. Although the total amount of slaughtering may be flat or only moderately increasing, the availability, quantity and quality of raw materials available to the independent processors from these sources have all decreased. These factors have been offset, in part, however, by increasing environmental consciousness. The need for restaurants to comply with environmental regulations concerning the proper disposal of used restaurant cooking oil is offering a growth area for this raw material source. Major competitors include: Baker Commodities in the West; National By-Products in the Midwest; and Griffin Industries in Texas and the Southeast. Each of these businesses competes in both the Rendering and Restaurant Service segments.
In marketing our finished products, we face competition from other processors and from producers of other suitable commodities. Tallows and greases are in certain instances substitutes for soybean oil and palm stearine, while meat and bone meal is a substitute for soybean meal. Consequently, the prices of tallow, yellow grease, and meat and bone meal correlate with these substitute commodities. The markets for finished products are impacted mainly by the worldwide supply of fats, oils, proteins and grains. Other factors that influence the prices that we receive for our finished products include the quality of our finished products, consumer health consciousness, worldwide credit conditions and U.S. government foreign aid. From time to time, we enter into arrangements with our suppliers of raw materials pursuant to which such suppliers buy back our finished products.
Seasonality
The amount of raw materials made available to us by our suppliers is relatively stable on a weekly basis except for those weeks which include major holidays, during which the availability of raw materials declines
because major meat and poultry processors are not operating. Weather is also a factor. Extremely warm weather adversely affects our ability to make higher quality products because the raw material deteriorates more rapidly than in cooler weather, while extremely cold weather, in certain instances, can hinder the collection of raw materials.
Employees and Labor Relations
As of December 29, 2001, we employed approximately 1,270 persons full-time in continuing business segments. Approximately 48.3% of the total number of employees are covered by collective bargaining agreements, however, we have no national or multi-plant union contracts. Our management believes that our relations with our employees and their representatives are good. There can be no assurance, however, that new agreements will be reached without union action or will be on terms satisfactory to us.
Facilities
Our corporate headquarters are located at 251 O'Connor Ridge Boulevard, Suite 300, Irving, Texas in an office/operating facility, where we lease approximately 20,000 square feet.
Our 26 operating facilities consist of 19 full service rendering plants, 4 yellow grease/trap grease plants, 1 blending plant, 1 edible plant, and 1 trap grease plant. Except for 4 leased facilities, we own all of these facilities. In addition, we own or lease 22 transfer stations in the United States and 1 transfer station in Canada that serve as collection points for routing raw material to the processing plants set forth below. Some locations service a single business segment while others service both business segments. The following is a listing of our operating facilities by business segment:
Blue Earth, MN Rendering/Yellow Grease Boise, ID Rendering/Yellow Grease Collinsville, OK Rendering/Yellow Grease Dallas, TX Rendering/Yellow Grease Detroit, MI Rendering/Yellow Grease/Trap Fresno, CA Rendering/Yellow Grease Kansas City, KS Rendering/Yellow Grease Los Angeles, CA Rendering/Yellow Grease/Trap Newark, NJ Rendering/Yellow Grease San Francisco, CA * Rendering/Yellow Grease/Trap Sioux City, IA Rendering/Yellow Grease St. Louis, MO Rendering/Yellow Grease Tacoma, WA * Rendering/Yellow Grease/Trap Turlock, CA Rendering/Yellow Grease |
Coldwater, MI Rendering Houston, TX Rendering Linkwood, MD Rendering Omaha, NE Rendering Omaha, NE * Blending Omaha, NE Edible Oils Wahoo, NE Rendering |
Houston, TX Yellow Grease/Trap No. Las Vegas, NV Yellow Grease/Trap Tampa, FL Yellow Grease/Trap --------------------------- |
* Property is leased. Annual rent expense for these leased properties in the aggregate was $0.6 million in fiscal 2001.
Legal Proceedings
Melvindale, Michigan. A group of residents living near our Melvindale, Michigan plant has filed suit, purportedly on behalf of a class of persons similarly situated. The class has been certified for injunctive relief only. The court declined to certify a damage class but has permitted approximately 300 people to join the lawsuit as plaintiffs. The suit is based on legal theories of trespass, nuisance and negligence and/or gross negligence, and is pending in the United States District Court, Eastern District of Michigan. Plaintiffs allege that emissions to the air, particularly odor, from the plant have reduced the value and enjoyment of plaintiffs' property, and plaintiffs seek unspecified compensatory and exemplary damages in an amount in excess of $25,000 per plaintiff and unspecified injunctive relief. We are unable to estimate our potential liability from this lawsuit. In a lawsuit with similar factual allegations, also pending in United States District Court, Eastern District of Michigan, the City of Melvindale has filed suit against us based on legal theories of nuisance, trespass, negligence and violation of Melvindale nuisance ordinances seeking damages and declaratory and injunctive relief. The court has dismissed the trespass counts in both lawsuits, and all of the damage claims in the suit filed by the City of Melvindale have been dismissed. The City of Melvindale now seeks unspecified injunctive relief. We or our predecessors have operated a rendering plant at the Melvindale location since 1927 in a heavily industrialized area down river south of Detroit. We have taken and are taking all reasonable steps to minimize odor emissions from our recycling processes and are defending the lawsuit vigorously.
Long Island City, New York. We are a party to a lawsuit that seeks to require an environmental cleanup at a property in Long Island City, New York where we formerly operated a rendering plant (referred to as the "Site"). DMJ Associates (DMJ), which holds a mortgage on the Site, has filed suit against us, as a former owner of the Site, as well as others including the present tenants and operators of the Site, the owner of an abandoned hazardous waste disposal site adjoining the Site (the "Disposal Facility"), and companies that disposed of wastes at the Disposal Facility (the "Generator Defendants"). DMJ argues that, inter alia, under federal law it is entitled to relief directed to have the defendants remediate the contamination. DMJ seeks both equitable and monetary relief from all defendants for investigation, abatement and remediation of the Site. DMJ has not yet provided information sufficient for us to ascertain the magnitude or amount of DMJ's total claim nor our alleged share thereof. As a result, we are unable to estimate our potential liability from this lawsuit. We do not have information suggesting that we contributed in any material way to any contamination that may exist at the Site. We are actively defending the suit and are awaiting a decision on a motion on summary judgment regarding the standing of the plaintiff.
Sauget, Illinois. We are a party to a lawsuit that seeks to recover costs related to an environmental cleanup in or near Sauget, Illinois. The United States had filed a complaint against Monsanto Chemical Company, Solutia, Inc., Anheuser-Busch, Inc., Union Electric, and 14 other defendants, seeking to recover cleanup costs. Monsanto (which merged with Pharmacia and Upjohn, Inc. in 2000 and is now known as Pharmacia Corporation) and Solutia in turn filed a third party complaint seeking contribution from the United States, several federal agencies, and six more companies, in addition to us. As potentially responsible parties themselves, Pharmacia and Solutia are seeking to recover unspecified proportionate shares from each of the other parties, in addition to us, of an as yet undetermined total cleanup cost. A subsidiary of ours had operated an inorganic fertilizer plant in Sauget, Illinois for a number of years prior to closing it in the 1960's. We are defending this case vigorously, and do not believe, based upon currently available information, that the fertilizer plant contributed in any significant way to the contamination that is leading to the environmental cleanup, or that our share, if any, of the cost of the cleanup will be material. Accordingly, the we are unable to estimate our potential liability from this lawsuit.
Other Litigation. We are also a party to several other lawsuits, claims and loss contingencies incidental to our business, including assertions by certain regulatory agencies related to air, wastewater, and storm water discharges from our processing facilities.
Self Insured Risks. We purchase our workers compensation, auto and general liability insurance on a retrospective basis. We accrue our expected ultimate costs related to claims occurring during each fiscal year and carry this accrual as a reserve until we pay such claims.
We have established loss reserves for insurance, environmental and litigation matters as a result of the matters discussed above. Although the ultimate liability cannot be determined with certainty, our management believes that reserves for contingencies are reasonable and sufficient based upon present governmental regulations and information currently available to management. The accrued expenses and other noncurrent liabilities classifications in our consolidated balance sheets include reserves for insurance, environmental and litigation contingencies of $10.6 million at both March 30, 2002 and December 29, 2001, respectively. There can be no assurance, however, that final costs related to these matters will not exceed current estimates. We believe that any additional liability relative to lawsuits and claims which may not be covered by insurance would not likely have a material adverse effect on our financial position, although it could potentially have a material impact on the results of operations in any one year.
Regulations
We are subject to the rules and regulations of various federal, state and local governmental agencies. Material rules and regulations and the applicable agencies are:
o the Food and Drug Administration (FDA), which regulates food and feed safety;
o the United States Department of Agriculture (USDA), which regulates collection and production methods;
o the Environmental Protection Agency (EPA), which regulates air and water discharge requirements, as well as local and state agencies governing air and water discharge;
o state Departments of Agriculture, which regulate animal by-product collection and transportation procedures and animal feed quality; and
o the United States Department of Transportation (USDOT), as well as local and state agencies, which regulate the operation of our commercial vehicles.
Such rules and regulations may influence our operating results at one or more facilities.
Effective August, 1997, the FDA promulgated a rule prohibiting the use of mammalian proteins, with some exceptions, in feeds for cattle, sheep and other ruminant animals. The intent of this rule is to prevent the spread of BSE, commonly referred to as "mad cow disease," should the disease ever occur in the United States. Our management believes that we are in compliance with the provisions of the rule.
OUR MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, their ages and their positions as of May 13, 2002, are as follows: Our executive officers serve at the discretion of the Board of Directors.
Name Age Position
---- --- --------
Denis J. Taura 62 Chairman of the Board and Chief Executive
Officer
James A. Ransweiler 58 President and Chief Operating Officer
John O. Muse 53 Executive Vice President - Finance and
Administration
Neil Katchen 56 Executive Vice President - Operations
Mitchell Kilanowski 50 Executive Vice President - Marketing and
Research
Gilbert L. Guitierrez 45 Senior Vice President - Business Development
Joseph R. Weaver, Jr. 55 General Counsel and Secretary
Fredric J. Klink (1) (2) 68 Director
O. Thomas Albrecht (1) (2) 55 Director
Charles Macaluso (1) (2) 58 Director
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Richard A. Peterson (1) (2) 60 Director
(1) Member of the audit committee
(2) Member of the compensation committee
Denis J. Taura has served as our Chairman of the Board and Chief Executive Officer since August 1999 and devotes at least 60% of his business time to our company. Mr. Taura is a partner in the management consulting firm Taura Flynn & Associates, LLC. Previously, in October 1991, Mr. Taura founded D. Taura & Associates, a management consulting firm and a predecessor of Taura Flynn and Associates, LLC. Mr. Taura served as chairman of D. Taura & Associates. From January 1995 through October 1996, Mr. Taura was also affiliated with Zolfo Cooper LLC, a management consulting firm. From 1972 to October 1991, Mr. Taura was a partner with KPMG LLP. Mr. Taura serves as a director of Kasper A.L.S. Limited.
James A. Ransweiler has served as the President and Chief Operating Officer of our company since August 1999. Mr. Ransweiler served as the President of Darling Rendering from October 1997 to August 1999. From August 1986 to October 1997, he served as Vice President of our Eastern Region, except for the period from January 1989 to February 1990 when he served as Special Projects Coordinator.
John O. Muse has served as our Executive Vice President - Finance and Administration since February 2000. From October 1997 to February 2000, he served as our Vice President and Chief Financial Officer. From 1994 to October 1997 he served as Vice President and General Manager at Consolidated Nutrition, L.C. Prior to serving at Consolidated Nutrition, Mr. Muse was Vice President of Premiere Technologies, a wholly-owned subsidiary of Archer-Daniels-Midland Company. Since August 1998, Mr. Muse has served on an advisory board for Factory Mutual Insurance Company.
Neil Katchen has served as Executive Vice President - Operations since November 2001. Prior thereto he served as Vice President of our Eastern Region beginning in October 1997 and served as General Manager of our Newark, New Jersey facility from January 1990 to October 1997.
Mitchell Kilanowski has served as our Executive Vice President - Marketing and Research since January 1999. From September 1997 to January 1999 Mr. Kilanowski served as our Vice President-Marketing. From August 1986 to September 1997 he served as Director of Domestic Sales. From March 1975 to August 1986 he served in customer sales and service.
Gilbert L. Gutierrez has served as our Senior Vice President - Business Development since November 2001. Prior thereto he served as General Manager of our Los Angeles, California facility from June 1997 to November 2001. Prior to serving as General Manager, he served as our Vice President - Human Resources.
Joseph R. Weaver, Jr. has served as our General Counsel since March 1997 and as our Secretary since April 1997. From May 1994 to March 1997, he served as Secretary and General Counsel of AAF-McQuay, Inc. From January 1990 to April 1994, Mr. Weaver served as Assistant General Counsel of AAF-McQuay, Inc., then known as Snyder General Corporation.
Fredric J. Klink has been a director of our company since April 1995. Since December 31, 2001, Mr. Klink has been "of counsel" at the law firm of Dechert. Prior thereto he was a partner at the law firm of Dechert for more than five years. Mr. Klink's law practice concentrates on mergers and acquisitions, securities, and international work. He received his LL.B. from Columbia Law School in 1960.
O. Thomas Albrecht has been a director of our company since May 10, 2002. Mr. Albrecht was employed by the McDonald's Corporation from 1977 until his retirement in March 2001. Most recently, from 1995 until March 2001, Mr. Albrecht served as a Senior Vice President and Chief Purchasing Officer of McDonald's Corporation.
Charles Macaluso has been a director of our company since May 10, 2002. Mr.
Macaluso was a founding principal of East Ridge Consulting, Inc., a management
consulting and corporate advisory service firm focusing on operational
assessment, strategic planning and workouts, from 1998 to 2000. From 1996 to
1998, he was a partner at Miller Associates, Inc., a workout, turnaround
partnership focusing on operational assessment, strategic planning and workouts.
Mr. Macaluso is currently a director of Elder-Beerman Stores Corp. (NASDAQ:
EBSC), where he serves on the Executive Committee and the Audit and Finance
Committee, and formerly served on the Compensation Committee. Mr. Macaluso also
serves as a director of the following privately-held companies: NCH NuWorld Ltd.
(Chairman), Crescent Public Telephone, Inc. (Chairman), Prime Succession, Inc.
(Chairman), and Lazy Days RV Centers, Inc.
Richard A. Peterson has been a director of our company since May 10, 2002. Mr. Peterson has been the managing principal of Peterson & Associates, a firm specializing in financial restructuring and strategic advisory services to management and directors of distressed companies, a firm he founded in April 2001. Prior thereto, Mr. Peterson was a senior vice president and regional manager in the managed assets department of Bank One, NA, from April 1999 until his retirement in April 2001. From the Fall of 1998 until April 1999, he was a first vice president and regional manager in the managed assets department of Bank One, N.A.; and he held the same position with Bank One, N.A.'s predecessor First National Bank of Chicago, from 1995 until the Fall of 1998. He was employed by First National Bank of Chicago from October 1981 to 1995 in various capacities in the "workout and turnaround" group for large corporate credits.
Compensation of Directors
Non-employee members of the Board of Directors are paid a $25,000 annual retainer. Each outside director receives $1,500 for each board meeting or $1,000 for each committee meeting personally attended, or $500 if a committee meeting is attended before or after a board meeting, and $750 for each board or committee meeting attended by telephone.
Under the Non-Employee Directors Stock Option Plan, prior to May 17, 2000, each outside director was granted an option to purchase 15,000 shares of our common stock on the tenth business day of July 1995 and was granted an identical option on the tenth business day of July of each year thereafter. Each outside director elected after July 1995 but prior to May 17, 2000, was granted an option to purchase 21,000 shares of our common stock on the day he was first elected by our stockholders as a member of the Board of Directors. Pursuant to an amendment to the Non-Employee Directors Stock Option Plan adopted on May 17, 2000, each outside director elected on or after May 17, 2000 is granted options to buy 4,000 shares of our common stock when he is first elected to the Board of Directors by our stockholders. Thus, on May 10, 2002, each of Messrs. Albrecht, Macaluso and Peterson, upon his election to our Board of Directors was granted options to purchase 4,000 shares of our common stock. On the date of each calendar year thereafter on which our independent auditors sign their annual audit report, options to purchase 4,000 shares of our common stock are granted under the Non-Employee Directors Stock Option Plan to
each of our directors, but such grants occur only if we obtain 90% of our target EBITDA for the year of such director's election. The per share exercise price of each option granted under the Non-Employee Directors Stock Option Plan is equal to the fair market value per share of our common stock on the date of grant of the options relating thereto. Twenty-five percent of the shares subject to each option vest on the date that is six months following the date of grant and 25% of the shares vest on each of the first, second and third anniversaries of the date of grant thereafter. Options to purchase an aggregate of 450,000 shares of our common stock may be granted under the Non-Employee Directors Stock Option Plan.
If while unexercised options remain outstanding under the Non-Employee Directors Stock Option Plan, any of the following events occur, all options granted under the Non-Employee Directors Stock Option Plan become exercisable in full, whether or not they are otherwise exercisable:
o any entity other than us makes a tender or exchange offer for shares of our common stock pursuant to which purchases are made,
o our stockholders approve a definitive agreement to merge or consolidate our company with or into another corporation or to sell all or substantially all of our assets or adopt a plan of liquidation,
o the beneficial ownership of securities representing more than 15% of the combined voting power of our company is acquired by any person, or
o during any period of two consecutive years, the individuals who at the start of such period were members of the Board of Directors cease to constitute at least a majority thereof, unless the election of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the start of such period.
In the case of a merger where we are the surviving entity and in which there is a reclassification of the shares of our common stock, each option shall become exercisable for the kind and amount of shares of stock or other securities receivable upon such reclassification or merger. Upon consummation of the Recapitalization, all options granted under the Non-Employee Directors Stock Option Plan became exercisable in full, whether or not they were otherwise exercisable.
No options were granted under the Non-Employee Directors Stock Option Plan during fiscal 2001 because we did not achieve 90% of our targeted EBITDA for the fiscal year ended December 30, 2000.
Executive Compensation
The following table sets forth certain information with respect to annual and long-term compensation for services in all capacities for fiscal years 2001, 2000 and 1999 paid to our five most highly compensated executive officers who were serving as such at December 29, 2001.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
------------------- ------------
Number of
Securities
Name and Underlying All Other
Principal Position Year Salary Bonus Options Compensation
------------------ ---- ------ ----- ------- ------------
Denis J. Taura 2001 $ 700,000(1) -- -- --
Chairman and Chief Executive 2000 520,000(2) -- 1,080,000(5) $ 13,200(3)
Officer 1999 -- -- 15,000(6) 328,007(4)
James A. Ransweiler 2001 307,500 $30,000 90,000(7) --
President and Chief Operating 2000 300,000 -- --
Officer 1999 258,000 -- --
John O. Muse 2001 216,924 20,000 45,000(7) --
Executive Vice President - Finance 2000 197,693 -- -- --
and Administration 1999 185,000 -- -- --
35
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Neil Katchen 2001 200,000 20,000 73,800(7) --
Executive Vice President - 2000 195,000 -- -- --
Operations 1999 178,460 -- -- --
Mitchell Kilanowski 2001 164,000 10,000 45,000(7) --
Executive Vice 2000 160,000 -- -- --
President -Marketing and Research 1999 160,000 3,333 5,000(8) --
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(1) Of this amount, $180,000 represents additional salary paid to Mr. Taura as compensation for extensive additional time spent on company matters during fiscal 2001. Mr. Taura's current salary for fiscal 2002 is $520,000. Upon the consummation of the Recapitalization Agreement effective as of May 10, 2002, Mr. Taura was retained as a consultant to our company and the remaining portion of Mr. Taura's salary for 2002 will be paid to Taura Flynn & Associates, LLC, of which Mr. Taura is a principal, for services to be provided to our company by Mr. Taura as Chief Executive Officer pursuant to a consulting agreement. Mr. Taura's entry into the consulting agreement was a condition precedent to the consummation of the Recapitalization Agreement.
(2) Of this amount, $130,000 represents compensation paid to Taura Flynn & Associates, LLC, of which Mr. Taura is a principal, for services provided to our company by Mr. Taura as Chief Executive Officer pursuant to a loan-out agreement. Effective March 15, 2000, Mr. Taura became an employee of our company. Mr. Taura does not participate in any of our employee benefit plans.
(3) $13,200 represents payments of management consulting fees and expenses to Taura Flynn & Associates, LLC, of which Mr. Taura is a principal, for services provided to us.
(4) Amount represents payments of management consulting fees and expenses to Taura Flynn & Associates, LLC, of which Mr. Taura is a principal. Of this amount, $148,007 represented fees and expenses during 1999 related to management consulting services provided to us prior to Mr. Taura serving as Chief Executive Officer and $180,000 was paid pursuant to a loan-out agreement in connection with Mr. Taura serving as Chief Executive Officer.
(5) Amount represents (i) options to purchase 540,000 shares of our common stock granted March 15, 2000 and ratified by shareholders on May 17, 2000; and (ii) options granted on December 13, 2000 to purchase an additional 540,000 shares of Common Stock.
(6) Pursuant to the Directors Plan on the tenth business day of July each year, 15,000 options were granted to Mr. Taura as a non-employee director prior to him serving as Chief Executive Officer.
(7) On May 16, 2001, our stockholders authorized the Board of Directors to grant under the 1994 Plan on or after June 4, 2001 options to purchase 735,355 shares of our common stock at 100% of fair market value on such date to key employees who surrendered an equal number of options on December 1, 2000. On June 5, 2001, options to purchase 703,385 shares of our common stock were issued to such key employees at $0.50 per share.
(8) Mr. Kilanowski surrendered such options on December 1, 2001. See footnote 7 above.
On October 29, 2001, Omar A. Dreiling, who had been our Vice President - Western Region, resigned and the responsibility for our rendering operations was reorganized. Mr. Katchen has been appointed Executive Vice President with responsibility for all of our rendering plants. Effective January 1, 2002, the salaries of Messrs. Ransweiler, Muse and Katchen were increased to $335,000, $240,000 and $220,000, respectively.
Option Grants
On June 5, 2001, options under the 1994 Plan to purchase 90,000, 45,000, 73,800, and 45,000 shares of our common stock at $0.50 per share were issued to Messrs. Ransweiler, Muse, Katchen and Kilanowski, respectively, each of whom surrendered an equal number of options on December 1, 2000. See "--Stock Option Plans--1994 Plan" below. No other options were granted by us to any of the executive officers named in the summary compensation table above during the fiscal year ended December 29, 2001.
Option Exercises and Year-End Options Values
The following table sets forth certain information with respect to options exercised during the fiscal year ended December 29, 2001 by each of the executive officers named in the summary compensation table above and the value of unexercised options held by such executive officers at December 29, 2001:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Options Exercised in Fiscal 2001 Number of Securities Underlying Value of Unexercised In-
Underlying Unexercised at the-Money Options at
Shares December 29, 2001 December 29, 2001
Acquired on Exercisable (E) Exercisable (E)
Exercise Value Realized Unexercisable (U) Unexercisable(U)(1)
---------------------------------------------------------------------------------------------
Denis J. Taura -- -- 1,202,250(E) $81,000 (E)
3,750(U) 0 (U)
James A. Ransweiler -- -- 182,832(E) 2,700 (E)
72,000(U) 10,800 (U)
John O. Muse -- -- 9,000(E) 1,350 (E)
36,000(U) 5,400 (U)
Neil Katchen -- -- 14,760(E) 2,214 (E)
59,040(U) 8,856 (U)
Mitchell Kilanowski -- -- 9,000(E) 1,350 (E)
36,000(U) 5,400 (U)
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(1) Based on the difference between the closing price of our common stock on December 29, 2001 ($0.650 per share) and the exercise price of the option.
Severance Agreements
We entered into severance agreements with Messrs. Taura, Ransweiler, Muse, Dreiling, Katchen and Kilanowski which provide, subject to certain conditions, for severance compensation equal to one year's compensation to the officer (except that in Mr. Taura's case, severance compensation is equal to two years' base compensation) in the event of a termination of the officer's employment unless such termination is voluntary or based upon cause as defined in the agreement. Mr. Dreiling's employment has terminated and he is receiving an aggregate of $195,000 in severance payments, to be paid in monthly installments commencing November 2001. The Recapitalization constituted a change of control under the terms of Mr. Taura's severance agreement. Pursuant to an amendment to the severance agreement that was entered into as a condition precedent to closing of the Recapitalization, such payments will be payable in twenty-four equal monthly installments, commencing on May 13, 2002; provided, that if any time after that date (i) Mr. Taura ceases to be a member of our Board of Directors, or (ii) a change of control occurs, all remaining payments under the severance agreement will become immediately due and payable.
Stock Option Plans
1993 Plan. The Board of Directors has suspended the 1993 Plan and no further options are to be issued under such plan. Officers and other key employees of Darling were eligible to receive options under the 1993 Plan. In December 1993, we granted options covering 1,483,500 shares of our common stock to seven members of our management pursuant to the 1993 Plan. The exercise price of these options is $2.857 per share. These options vested 20% on the date of grant and vest 20% on each anniversary date thereof. All options under the 1993 Plan have fully vested. The options granted pursuant to the 1993 Plan are intended to be incentive stock options to the maximum extent permissible under the Internal Revenue Code of 1986, as amended and nonqualified stock options to the extent not incentive stock options. 184,066 of the shares covered by these options were transferred to the 1994 Plan prior to the three-for-one stock split, pursuant to shareholder approval at the annual meeting of stockholders held May 20, 1997.
1994 Plan. Our compensation committee may grant options under the 1994 Plan to officers and other key employees of Darling. The purpose of the 1994 Plan is to attract, retain and motivate officers and key employees, and to encourage them to have a financial interest in our company. In 1994, 500,000 options, each to buy one share of our common stock, were authorized for the 1994 Plan and pursuant to stockholder approval at the annual meeting of stockholder held May 20, 1997, 184,066 options forfeited or canceled under the 1993 Plan were authorized as additional options available for grant under the 1994 Plan. Therefore, after the effect of the three-for-one stock split, a total of 2,052,198 options were authorized to be granted under the 1994 Plan. Pursuant to stockholder approval at the annual meeting of stockholders held May 27, 1998, 500,000 additional options were authorized for the 1994 Plan bringing the total authorized to be granted under the 1994 Plan to 2,552,198 options. Pursuant to stockholder
approval at the annual meeting of stockholders held May 17, 2000, the number of authorized shares under the 1994 Plan were reduced from 2,552,198 to 20% on 2,012,198 shares. Options granted pursuant to the 1994 Plan typically vest the date of grant and 20% on each anniversary date thereof. Pursuant to the acceleration provisions of the 1994 Plan relating to change of control, upon consummation of the Recapitalization, all options granted under the 1994 Plan became exercisable in full, whether or not they were otherwise exercisable, except that the options granted on June 5, 2001, as described below, did not accelerate upon consummation of the Recapitalization.
Under the 1994 Plan, stock options are awarded based on an individual's level of responsibility within his or her area, such individual's executive development potential and competitive market norms. Options granted under the 1994 Plan are granted at 100% of the fair market value of the stock on the date of grant. During fiscal 2001, 703,385 options were granted under the 1994 Plan.
On May 16, 2001, our stockholders authorized the Board of Directors to grant under the 1994 Plan on or after June 4, 2001 options to purchase 735,355 shares of our common stock at 100% of fair market value on such date to key employees who surrendered an equal number of options on December 1, 2000. On June 5, 2001, options to purchase 703,385 shares of our common stock were issued to such key employees at $0.50 per share.
Non-Employee Directors Stock Option Plan. For a description of the Non-Employee Directors Stock Option Plan, see the disclosure set forth above under "--Compensation of Directors."
Annual Incentive Plan
Our annual incentive plan is administered by our compensation committee and provides incentive cash bonuses to corporate and regional executives. In 2001, the annual incentive plan was tied to plan components comprised of actual levels achieved for EBITDA, collection/service charge revenue, operating expenses, safety goals, raw material procurement and individual initiatives. Incentive earned under each component is calculated independently of the other components and is expressed in terms of a percentage of base salary.
Pension Plan Table
The following table illustrates the approximate annual pension that the executive officers named in the summary compensation table above (other than Mr. Taura) would receive under the Salaried Employee's Retirement Plan if the plan remains in effect and such executive officers retired at age 65. However, because of changes in the tax laws or future adjustments to benefit plan provisions, actual pension benefits could differ significantly from the amounts set forth in the table.
Estimated Annual Pension
------------------------------------------------
(Years of Service)
Average Annual Salary
During the Last 5 Years 15 20 25 30 35
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$150,000 $40,500 $54,000 $67,500 $71,250 $75,000
175,000 47,250 63,000 78,750 83,125 87,500
200,000 54,000 72,000 90,000 95,000 100,000
235,840 63,677 84,902 106,128 112,024 117,920
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The above amounts do not reflect the compensation limitations for plans qualified under the Internal Revenue Code, effective January 1, 1994. Effective January 1, 2000, annual compensation in excess of $170,000 ($235,840 for 1993) is not taken into account when calculating benefits under the Retirement Plan. Such limitation will not, however, operate to reduce plan benefits accrued as of December 31, 1993.
If the executive officers named in the summary compensation table above (other than Mr. Taura) remain employees of our company until they reach age 65, the years of credited service for Messrs. Ransweiler, Muse, Katchen and Kilanowski will be as follows: Ransweiler, 24 years; Muse, 16 years; Katchen, 40 years; and Kilanowski, 40 years.
The Retirement Plan is a non-contributory defined benefit plan. Office and supervisory employees, not covered under another plan, automatically become participants in the plan on the earlier of January 1 or July 1 following completion of 1,000 hours of service in a consecutive twelve-month period. Upon meeting the eligibility requirement, employees are recognized as a participant from the date of commencement of their service with our company. Eligible employees become fully vested in their benefits after completing five years of service. Benefits
under the plan are calculated on "average monthly pay" based upon the highest 60 consecutive months of the latest 120 months (and subject to the limitations discussed above) and the years of service completed.
The basic pension benefit is equal to 45% of the employee's average monthly pay, reduced proportionally for years of service less than 25 years. The multiple is increased 0.5% per year for years of service in excess of 25 years to a maximum of 15 additional years.
REPORT OF THE COMPENSATION COMMITTEE
The following report of the compensation committee and the performance graph that appears immediately after such report shall not be deemed to be soliciting material or to be filed with the Securities and Exchange Commission under the Securities Act of 1933 or the Securities Exchange Act of 1934 or incorporated by reference in any document so filed.
Our executive compensation program is designed to attract, motivate, reward and retain the executive officers needed to achieve our business objectives, to increase our profitability and to provide value to our stockholders. The program has been structured and implemented to provide competitive compensation opportunities and various incentive awards based on company and individual performance. Our executive compensation program is composed of three principal components: base salary, short term incentive awards and long term incentive awards.
Base Salaries
The base salaries of the executive officers of our company are set forth in the summary compensation table located above. The base salary of Mr. Taura was established and reviewed by the compensation committee. Executive positions are grouped by grades which are part of our company's overall salary structure. The base salaries of senior executives, except those established by employment agreements, are reviewed to determine if adjustment is necessary based on competitive practices and economic conditions. Salaries are adjusted within grade ranges based on individual performance and changes in job content and responsibilities.
Short Term Incentive Awards
The short-term program, or Annual Incentive Plan, consists of an opportunity for the award of an annual incentive cash bonus in addition to the payment of base salary. In 2001, our Annual Incentive Plan for corporate and division executives was tied to plan components comprised of actual levels achieved for EBITDA, collection/service charge revenue, operating expenses, safety goals, raw material procurement and individual initiatives. Incentive earned under each component is calculated independently of the other components and is expressed in terms of a percentage of base salary.
In fiscal 2001, our company met the predetermined threshold established for the payment of cash incentive awards to all employees participating in the Annual Incentive Plan. Under the Annual Incentive Plan, senior executives are entitled to receive annual bonuses of up to 60% of their base salaries.
Long Term Incentive Awards
In connection with a financial restructuring of our company consummated in December 1993, long term incentive awards in the form of stock options were granted to certain of our executive officers under the 1993 Plan. In Fiscal 1997, the Board of Directors suspended the 1993 Plan and no further options are to be issued under such plan.
Under the 1994 Plan, stock options are awarded based on an individual's level of responsibility within his or her area, such individual's executive development potential and competitive market norms. Options granted under the 1994 Plan are granted at 100% of the fair market value of the stock on the date of grant.
March 14, 2002
Fredric J. Klink Dennis B. Longmire * Bruce Waterfall *
* Mr. Longmire and Mr. Waterfall did not stand for re-election to our Board of Directors at our 2002 annual meeting of stockholders held on May 10, 2002. Effective May 10, 2002, our compensation committee consists of Messrs. Klink (Chairman), Albrecht, Macaluso and Peterson.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended requires our directors and executive officers and any persons who own more than ten percent of our common stock to file with the Securities and Exchange Commission various reports as to ownership of such common stock. Such persons are required by Securities and Exchange Commission regulation to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on our review of the copies of such reports furnished to us, the aforesaid Section 16(a) filing requirements were met on a timely basis during 2001.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Taura has served as our Chairman of the Board and Chief Executive Officer since August 1999. Mr. Taura is a partner in the management consulting firm Taura Flynn & Associates, LLC. Prior to Mr. Taura becoming our employee, he served as our Chairman of the Board and Chief Executive Officer pursuant to an agreement between Taura, Flynn & Associates and us. Pursuant to such agreement, we paid Taura, Flynn and Associates $130,000 during Fiscal 2000. Upon consummation of the Recapitalization Agreement effective as of May 10, 2002, Mr. Taura was retained as a consultant to serve as our Chairman and Chief Executive Officer pursuant to an agreement between Taura, Flynn & Associates and us. Instead of paying Mr. Taura as a salaried employee during the remainder of 2002, we are paying Taura, Flynn & Associates an equivalent amount for his services.
Fredric J. Klink, one of our directors, was a partner in the law firm of Dechert until December 31, 2001 when he became "of counsel" at Dechert. We pay Dechert fees for the performance of various legal services.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the change in the cumulative total stockholder return on our company's common stock with the cumulative total return of the Nasdaq Stock Market - U.S. Index, the Dow Jones Industrial Pollution Control/Waste Management Index, and the CSFB-Nelson Agribusiness Index for the period from December 28, 1996 to December 29, 2001, assuming the investment of $100 on December 28, 1996 and the reinvestment of dividends.
The stock price performance shown on the graph only reflects the change in our company's stock price relative to the noted indices and is not necessarily indicative of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
DARLING COMMON STOCK
NASDAQ STOCK MARKET- U.S.
DOW JONES INDUSTRIAL POLLUTION CONTROL/WASTE MANAGEMENT INDEX
CSFB-NELSON AGRIBUSINESS INDEX
[GRAPH OMITTED]
----------------------------------- --------------- ------------- ------------- ------------ -------------- ------------
Dec. 28, Jan. 3, Jan. 2, Jan. 1, Dec. 30, Dec. 29,
1996 1998 1999 2000 2000 2001
----------------------------------- --------------- ------------- ------------- ------------ -------------- ------------
Darling International Inc. 100 88 32 22 1 2
----------------------------------- --------------- ------------- ------------- ------------ -------------- ------------
Dow Jones Industrial Pollution
Control/Waste Management Index 100 109 114 63 89 102
----------------------------------- --------------- ------------- ------------- ------------ -------------- ------------
CSFB - Agribusiness Index 100 124 128 108 131 158
----------------------------------- --------------- ------------- ------------- ------------ -------------- ------------
NASDAQ Stock Market - US 100 123 173 321 193 152
----------------------------------- --------------- ------------- ------------- ------------ -------------- ------------
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Our common stock first became eligible for trading on the Nasdaq Stock Market on September 8, 1994. On September 12, 1997, our common stock began trading on the American Stock Exchange and ceased trading on the Nasdaq Stock Market.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table and notes set forth certain information with respect to the beneficial ownership of shares of our common stock, as of May 13, 2002, by each person or group within the meaning of Rule 13d-3 under the Exchange Act who is known to our management to be the beneficial owner of more than five percent of our outstanding common stock and is based upon information provided to us by such persons.
Amount and
Nature of
Beneficial Percent
Name and Address of Beneficial Owner Ownership (1) of Class
------------------------------------ ------------- --------
Phoenix Partners.......................................... 260,940 *
Betje Partners............................................ 91,152 *
Phaeton B.V.I............................................. 182,349 *
Morgens Waterfall Income Partners......................... 233,187 *
Morgens, Waterfall, Vintiadis & Company, Inc.............. 273,501 (2) *
Restart Partners L.P...................................... 884,193 1.4%
Restart Partners II, L.P.................................. 1,746,980 2.8%
Restart Partners III, L.P................................. 1,445,937 2.3%
Restart Partners IV, L.P.................................. 900,369 1.5%
Restart Partners V, L.P................................... 150,000 *
MWV Employee Retirement Plan Group Trust.................. 96,619 *
Endowment Restart, L.L.C.................................. 1,266,775 2.0%
Edwin H. Morgens.......................................... 7,161,882 (3) 11.5%
Bruce Waterfall .......................................... 7,261,882 (4) 11.6%
(collectively, the "Morgens, Waterfall Group")
Morgens, Waterfall Group (5).............................. 7,358,501 (6) 11.8%
Credit Lyonnais New York Branch (7)....................... 4,359,141 7.0%
Daple, S.A./PPM America Special Investments CBO II, L.P./
PPM America Special Investments Fund, L.P. (8)........ 17,902,607 28.8%
Bank One N.A. (9)......................................... 6,434,923 10.3%
Credit Agricole Indosuez (10)............................. 2,075,782 3.3%
Wells Fargo Bank (Texas) National Association (11)........ 363 *
Ark CLO 2000-1, Limited (12).............................. 1,037,891 1.7%
Cerberus Partners, L.P. (13).............................. 8,355,849 13.4%
Avenue Special Situations Fund II L.P. (14)............... 6,538,530 10.5%
(collectively, the "Lenders")
The Lenders (15) 46,705,086 75.0%
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* Less than 1%
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(1) Except as otherwise indicated in footnotes 2, 3, 4 and 6, the entities named in this table have sole voting and investment power with respect to all shares of capital stock shown as beneficially owned by them.
(2) Morgens Waterfall Vintiadis & Company, Inc. does not directly own any of the common stock or options described in footnote 6 but may be deemed to indirectly beneficially own 273,501 shares of our common stock, assuming exercise of the options, by virtue of contracts with Phaeton B.V.I. and Betje Partners pursuant to which Morgens Waterfall Vintiadis & Company, Inc. provides investment advisory services.
(3) Edwin H. Morgens does not have direct beneficial ownership of the common stock or options described in footnote 5. Mr. Morgens may be deemed to indirectly beneficially own 7,161,882 shares of our common stock, assuming exercise of the options described in the second to last sentence of footnote 6, by virtue of his positions as managing member of each of MW Management, L.L.C., MW Capital, L.L.C. and Endowment Prime, L.L.C., as general partners of Phoenix Partners and Morgens Waterfall Income Partners and managing member of Endowment Restart, L.L.C., respectively; as Chairman of the Board of Directors and Secretary of Morgens Waterfall Vintiadis & Company, Inc.; as Chairman of the Board of Directors and Secretary of Prime, Inc., as general partner of each of Prime Group, L.P., Prime Group II, L.P., Prime Group III, L.P., Prime Group IV, L.P. and Prime Group V, L.P., as general partners of Restart Partners L.P., Restart Partners II, L.P., Restart Partners III, L.P., Restart Partners IV, L.P. and Restart Partners V, L.P., respectively.
(4) Bruce Waterfall has direct beneficial ownership of options for 100,000 shares, all of which are presently exercisable. He may be deemed to indirectly beneficially own 7,161,882 shares of our common stock, assuming exercise of the options described in the last sentence of footnote 6, by virtue of his positions as managing member of each of MW Management, L.L.C., MW Capital, L.L.C. and Endowment Prime, L.L.C., as general partners of Phoenix Partners and Morgens Waterfall Income Partners and managing member of Endowment Restart, L.L.C., respectively; as President, Assistant Secretary and a Director of Morgens Waterfall Vintiadis & Company, Inc.; as President and a Director of Prime, Inc. as general partner of each of Prime Group, L.P., Prime Group II, L.P., Prime Group III, L.P., Prime Group IV, L.P. and Prime Group V, L.P., as general partners of Restart Partners L.P., Restart Partners II, L.P., Restart Partners III, L.P., Restart Partners IV, L.P. and Restart Partners V, L.P., respectively.
(5) The address for each member of the Morgens, Waterfall Group is 10 East 50th Street, New York, New York 10281.
(6) Includes options, which are immediately exercisable, in the following amounts for each entity: Phoenix Partners (6,498 options); Betje Partners (2,322 options); Phaeton B.V.I. (4,620 options); Morgens Waterfall Income Partners (7,014 options); Restart Partners L.P. (26,603 options); Restart Partners II, L.P. (52,562 options); Restart Partners III, L.P. (43,500 options); Restart Partners IV, L.P. (27,087 options); MWV Employee Retirement Plan Group Trust (1,680 options); Endowment Restart, L.L.C. (38,114 options), Edwin H. Morgens may be deemed to have indirect beneficial ownership of 208,320 options. Bruce Waterfall has direct beneficial ownership of 100,000 options, all of which are presently exercisable, and may be deemed to have indirect beneficial ownership of an additional 208,320 options.
(7) The address for Credit Lyonnais New York Branch is 1301 Avenue of the Americas, New York, NY 10019.
(8) PPM America Special Investments Fund, L.P. ("SIF I") and PPM America Special Investments CBO II, L.P. ("CBO II") are each investment funds. Daple, S.A. ("Daple") is a special purpose entity formed for the purpose of investing on a pro rata basis with each of SIF I and CBO II. PPM America Fund Management GP, Inc. ("SIF I GP") serves as the managing general partner of SIF I. PPM America CBO II Management Company ("CBO II GP") serves as the general partner of CBO II. PPM MGP (Bermuda), Ltd. ("PPM Bermuda") serves as the general partner of CBO II GP. PPM America, Inc. ("PPM America") serves as investment manager/adviser to each of SIF I and CBO II. PPM America also serves as the investment adviser to Daple and PPM Bermuda serves as the special investment manager to Daple. The address for SIF I, SIF I GP, CBO II, and CBO II GP is 225 West Wacker Drive, Suite 975, Chicago, Illinois 60606, the address for PPM America is 225 West Wacker Drive, Suite 1200, Chicago, Illinois 60606, and the address for PPM Bermuda is Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. Each of SIF I, SIF I GP, CBO II, CBO II GP, and PPM America is organized under the laws of the State of Delaware. PPM Bermuda is organized under the laws of Bermuda. Daple is a company incorporated with limited liability under the laws of Luxembourg.
For purposes of determining beneficial ownership of shares of common stock
pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended, (i) SIF I is the legal and beneficial owner of 10,522,770
shares of common stock (the "SIF I Securities") and none of the SIF I
Securities are owned directly or indirectly by SIF I GP or PPM America,
(ii) CBO II is the legal and beneficial owner of 6,659,897 shares of common
stock (the "CBO II Securities") and none of the CBO II Securities are owned
directly or indirectly by CBO II GP, PPM Bermuda or PPM America, and (iii)
PPM America and PPM Bermuda are the beneficial owners of 719,940 shares of
common stock registered in the name of Daple (the "Daple Securities") due
to the fact that Daple has delegated all of its power to vote and to
acquire and dispose of the Daple Securities to PPM America and PPM Bermuda.
SIF I, SIF I GP and PPM America share voting and investment power with
respect to the SIF I Securities, CBO II, CBO II GP, PPM Bermuda and PPM
America share voting and investment power with respect to the CBO II
Securities, and PPM America and PPM Bermuda share voting and investment
power with respect to the Daple Securities. SIF I GP and PPM America
disclaim beneficial ownership of the SIF I Securities and CBO II GP, PPM
Bermuda and PPM America disclaim beneficial ownership of the CBO II
Securities.
(9) The address for Bank One N.A. is 1 Bank One Plaza, Chicago, IL 60670.
(10) The address for Credit Agricole Indosuez is 666 Third Avenue, New York, NY 10017.
(11) The address for Wells Fargo Bank (Texas) National Association is 1000 Louisiana, 4th Floor, Houston, TX 77002.
(12) Patriarch Partners, LLC, as Collateral Manager of Ark CLO 2000-1, Limited, has the power to direct the voting and disposition of the common stock and Series A Preferred Stock of Darling owned by Ark CLO 2000-1, Limited, and Lynn Tilton and Dennis Dolan, as the Managers of Patriarch Partners, LLC, also have the power to direct the voting and disposition of such shares. The address for Ark CLO 2000-1, Limited is Ark CLO 2000-1, Limited c/o JPMorgan Chase Bank, 600 Travis Street, 50th Floor, Houston, TX 77002.
(13) Based on information in a Schedule 13D filed by Stephen Feinberg on May 22, 2002, Mr. Feinberg possesses the sole power to vote and direct the disposition of all 8,355,849 shares of common stock of Darling held by Cerberus Partners, L.P. and thus may be deemed to beneficially own such shares. The address for Cerberus Partners, L.P. is 450 Park Avenue, 28th Floor, New York, NY 10022.
(14) The address for Avenue Special Situations Fund II L.P. is 535 Madison Avenue, 15th Floor, New York, NY 10022.
(15) Pursuant to the Recapitalization, the Lenders, acquired in the aggregate 75% of our common stock. We have been advised, however, that the Lenders do not have and do not expect to have any contracts, arrangements or understandings to vote as a group for the election of directors or on any other issue or to hold or dispose of their common stock or Series A Preferred Stock.
Security Ownership of Management
The following table and notes set forth certain information with respect to the beneficial ownership of shares of our common stock, as of May 13, 2002, by each director, each executive officer and by all executive officers and directors as a group:
Former Common Stock Percent of
Common Class A Unexercised Beneficially Common
Name of Individual Stock Owned Options (1) Plan Options (2) Owned (3) Stock Owned
------------------ ----------- ----------- ---------------- ------------ -----------
Denis J. Taura (4) 30,000 30,000 1,176,000 1,236,000 2.0%
Fredric J. Klink 90,000 0 100,000 190,000 *
O. Thomas Albrecht 0 0 0 0 *
Charles Macaluso 0 0 0 0 *
Richard A. Peterson 0 0 0 0 *
James A. Ransweiler 5,000 0 200,832 205,832 *
Joseph R. Weaver, Jr. 0 0 14,040 14,040 *
John O. Muse 7,500 0 18,000 25,500 *
Neil Katchen 5,000 0 29,520 34,520 *
Mitch Kilanowski 3,500 0 18,000 21,500 *
Gilbert L. Gutierrez 1,300 0 9,120 10,420 *
All executive officers and directors
as a group (11 persons) 142,300 30,000 1,565,512 1,737,812 2.7%
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* Represents less than one percent of our common stock outstanding.
(1) These Class A options were canceled and the numbers represent options to
purchase shares of our common stock.
(2) Represents options that are or will be vested and exercisable within 60
days of May 13, 2002.
(3) Except as otherwise indicated in the columns "Former Class A Options" and
footnote 1 and "Unexercised Plan Options" and footnote 2 and in footnote 4,
the persons named in this table have sole voting and investment power with
respect to all shares of capital stock shown as beneficially owned by them.
(4) "Common Stock Beneficially Owned" includes 540,000 options granted to Mr.
Taura on March 15, 2000 and an additional 540,000 options granted to Mr.
Taura on December 13, 2000.
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DESCRIPTION OF SENIOR CREDIT AGREEMENT
The Senior Credit Agreement
On May 13, 2002, the new amended and restated credit agreement was consummated and provides for a total of $17.3 million of borrowing capacity under a revolving credit facility and $61.0 million of borrowings through a term loan plus allows us to continue to have our existing letters of credit outstanding until its expiration date. In connection with the Recapitalization, $55.4 million principal amount of loans under our previous credit facility (together with $5.3 million of accrued and unpaid interest and commitment fees payable under our previous credit facility and the $3,855,000 forbearance fee payable under a forbearance agreement) were cancelled. In consideration for such cancellation we issued to the lenders 46,705,086 shares of our common stock and 100,000 shares of Series A Preferred Stock. See "Recapitalization" for a summary description of the terms of the Recapitalization.
Terms of the Revolving Credit Facility
Our senior credit agreement includes a revolving credit facility for loans and letters of credit in the amount of $17.3 million, of which $0.4 million of loans and three letters of credit in the face amounts of $750,000, $2.35 million and $7.2 million, respectively, are issued and outstanding.
Maturity. Borrowings under the revolving credit facility, together will all accrued and unpaid interest on borrowings under the revolving credit facility, will mature on May 10, 2007. The revolving credit facility may not be cancelled or terminated by us unless the term loan has been or will be contemporaneously repaid in full.
Ranking. The revolving credit facility will share a first priority lien with the term loan on substantially all of our assets (subject only to certain permitted liens); provided, however, that all obligations and indebtedness under the revolving credit facility will be repaid prior to those under the term loan in the application of any payments received after the occurrence and during the continuance of an event of default under our senior credit agreement.
Interest; Fees. Interest will accrue on borrowings under the revolving credit facility at our election at either (i) 30, 60, or 90 day LIBOR plus 5.0% per annum, payable on the last day of each such LIBOR interest period, or (ii) Credit Lyonnais New York Branch's Prime Rate plus two percent 2.0% per annum, floating with an unused commitment fee of 0.50% per annum and a facility fee of 1.50% per annum, with such prime rate interest, unused commitment fees and facility fees being payable quarterly on the last day of the third full calendar month occurring after May 10, 2002 and the last day of each third month thereafter and on the maturity date. As of May 13, 2002, the interest rate payable on borrowings under the revolving credit facility was 6.75% per annum (Credit Lyonnais New York Branch's prime rate plus 2%).
Letter of credit fees payable to the lenders are 3% per annum on the face amount of each letter of credit outstanding, payable on quarterly payment dates in arrears plus a 0.125% per annum "fronting fee" paid to Credit Lyonnais New York Branch as Agent (for its own account) as issuer of such letter of credit.
Conversion. Borrowings under the revolving credit facility will not be convertible into our capital stock.
Terms of the Term Loan
Our senior credit agreement includes a term loan in the principal amount of $61.0 million.
Maturity; Payment of Principal and Other Amounts. The term loan, together will all accrued and unpaid interest on the term loan, will mature on May 10, 2007.
The principal balance of the term loan is required to be repaid in installments due quarterly on the last day of each third full calendar month occurring after May 10, 2002: (i) $300,000 will be due on each of the first eight quarterly payment dates, and (ii) $1,200,000 will be due on each quarterly payment date thereafter, with a final payment in the amount of the entire remaining principal balance and all accrued and unpaid interest thereon being due and payable on the maturity date. In addition, to the regularly scheduled principal and interest payments, we will make additional payments on the term loan to the extent of (i) 25% for 2002, (ii) 35% for 2003, and (iii) 50% for each year thereafter of excess cash flow (defined generally as EBITDA, less scheduled principal and interest payments on the revolving credit facility and the Term Loan and permitted capital leases, plus or minus as applicable, any changes in adjusted working capital, less cash taxes paid, less any required payments made under
non-compete agreements, less permitted capital expenditures up to $10,800,000 for 2002 (increasing by 5% per year thereafter)), which shall be calculated and due annually, such payments to be applied in inverse order of maturity.
Ranking.
The term loan shares a first priority lien with the revolving credit facility on substantially all of our assets (with the exception that all obligations and indebtedness under the revolving credit facility will be repaid prior to those under the term loan in the application of any payments received after the occurrence and during the continuance of an event of default under our senior credit agreement).
Interest. The term loan bears interest at our election at either (i) 30, 60, or 90 day LIBOR plus 5.0% per annum, payable on the last day of each such LIBOR interest period, or (ii) the Credit Lyonnais New York Branch's prime rate plus 2.0% per annum, floating, payable quarterly and on the maturity date. As of May 13, 2002, the interest rate payable on the term loan was 6.75% per annum.
Conversion. Borrowings under the term loan are not be convertible into our capital stock.
DESCRIPTION OF CAPITAL STOCK
General
Our authorized capital stock consists of 100 million shares of common stock, par value $0.01 per share, and one million shares of preferred stock, par value $0.01 per share, on a pro forma basis after giving effect to the recapitalization of our company described under the section "Recapitalization."
The following description of our capital stock is a summary of the material terms of such capital stock. The description does not purport to be complete and is subject to and qualified in its entirety by reference to our restated certificate of incorporation, as amended, and amended and restated bylaws, as amended, and to applicable Delaware law.
Common Stock
As of May 13, 2002, there were 62,273,448 shares of our common stock issued and outstanding and 100,000 shares of Series A Preferred Stock issued and outstanding. 3,727,538 shares of common stock have been reserved for issuance under our stock option plans.
The holders of our common stock are entitled to dividends as our Board of Directors may declare from funds legally available therefor, subject to the preferential rights of the holders of our preferred stock, including our Series A Preferred Stock. The holders of our common stock are entitled to one vote per share on any matter to be voted upon by shareholders. In connection with the Recapitalization, the lenders under our senior credit agreement, the holders of 46,705,086 shares of our common stock, were granted preemptive rights to subscribe for shares of our common stock issued in the future. No other holder of our common stock has any preemptive right to subscribe for any shares of capital stock issued in the future.
Upon any voluntary or involuntary liquidation, dissolution, or winding up of our affairs, the holders of our common stock are entitled to share ratably in all assets remaining after payment of creditors and subject to prior distribution rights of our preferred stock, if any. All of the outstanding shares of our common stock are fully paid and non-assessable.
Preferred Stock
Our restated certificate of incorporation, as amended, provides that our Board of Directors may by resolution issue preferred stock in one or more classes or series and fix the designations, powers, preferences and rights of the shares of each class or series, including dividend rates, conversion rights, voting rights, terms of redemption and liquidation preference and the number of shares constituting each class or series.
Series A Preferred Stock
In connection with the Recapitalization, our Board of Directors authorized the issuance of 100,000 shares of Series A Preferred Stock to the Lenders. The Series A Preferred Stock ranks senior (with respect to liquidation payments) to our common stock and any preferred stock we issue in the future unless otherwise approved by the holders of 66 2/3 of the outstanding shares of the Series A Preferred Stock.
The complete text of the proposed Certificate of Designation establishing the rights and preferences of the Series A Preferred Stock is attached as Annex A to the Definitive Proxy Statement we filed with the SEC on April 29, 2002. We urge you to read the Certificate of Designation in its entirety.
Dividends. Dividends on the Series A Preferred Stock accumulates at a rate of 6% per annum on the original issue price of $100 per share. Dividends on the Series A Preferred Stock are cumulative from the issue date, whether or not declared, and accrue semi-annually and may be either paid in cash or accumulated, at our election. If accumulated, the dividends will be added to the original issue price, and dividends will thereafter accrue on the original issue price as so adjusted. Our senior credit agreement, however, prohibits us from paying dividends in cash so long as any indebtedness or commitments remain outstanding under the revolving credit facility or the term loan.
Liquidation Preference. Upon any liquidation, dissolution or winding up of our company, each holder of Series A Preferred Stock will be entitled to be paid, before any distribution or payment is made to the holders of our common stock, the sum of the original issue price of $100 per share plus accumulated dividends and accrued and unpaid dividends not yet accumulated. We are prohibited from issuing any other preferred stock with a liquidation preference equal to or greater than the Series A Preferred Stock.
Conversion Rights. The Series A Preferred Stock will not be convertible.
Mandatory Redemption. The Series A Preferred Stock will be mandatorily redeemable upon the earliest to occur of:
o a change of control of our company,
o a sale of all or substantially all of our consolidated assets,
o a dissolution or liquidation of our company, and
o May 10, 2007
to the extent we have legally available funds, at a redemption price equal to the aggregate original issue price of the shares to be redeemed, plus accumulated dividends and accrued and unpaid dividends not yet accumulated to the date of redemption.
This represents a significant future liability. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our senior credit agreement in an amount sufficient to enable us to redeem the Series A Preferred Stock when required to do so.
For purposes of the mandatory redemption provisions of the Series A Preferred Stock, a change of control shall be deemed to occur when:
o any "person" (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended), other than the Lenders and their respective affiliates, individually or as a group, becomes a "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of our outstanding capital stock,
o the first day on which a majority of the members of our Board of Directors are not "continuing directors" (defined as any member who (i) was a member of the Board of Directors on the date of issuance of the Series A Preferred Stock, (ii) was nominated for election by the Lenders in accordance with the Recapitalization Agreement, or (iii) was nominated or elected by a majority of the continuing directors who were members at the time of such nomination or election), or
o our company consolidates with, or merges with or into, any person or entity or any person or entity consolidates with, or merges with or into, our company, pursuant to a transaction in which any of our outstanding voting capital stock is converted into or exchanged for cash, securities or other property.
Optional Redemption. Subject to the prior payment in full of all indebtedness outstanding under our senior credit agreement, we may redeem shares of Series A Preferred Stock in multiples of not less than $1 million at any time, upon 30 days notice, at a redemption price equal to the aggregate liquidation preference of the shares to be redeemed, plus accumulated dividends and accrued and unpaid dividends not yet accumulated to the date of redemption. If less than all shares of Series A Preferred Stock are to be redeemed, they are required to be redeemed pro-rata based on the number of shares of Series A Preferred Stock owned.
Voting Rights. Except as required by the Delaware General Corporation Law, the Series A Preferred Stock will be non-voting.
Section 203 of the Delaware General Corporation Law; Certain Anti-Takeover, Limited Liability and Indemnification Provisions
Section 203 of the Delaware General Corporation Law
The following is a description of certain provisions of the Delaware General Corporation Law, and our restated certificate of incorporation, as amended, and amended and restated bylaws, as amended. This summary does not purport to be complete and is qualified in its entirety by reference to the Delaware General Corporation Law, and our restated certificate of incorporation, as amended, and amended and restated bylaws, as amended.
We are subject to the provisions of Section 203 of the Delaware General Corporation Law. Section 203 of the Delaware General Corporation Law prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested shareholder" for a period of three years after the date of the transaction in which the person became an "interested shareholder," unless the business combination is approved in a prescribed manner.
A "business combination" includes certain mergers, asset sales, and other transactions resulting in a financial benefit to the "interested shareholder." Subject to certain exceptions, an "interested shareholder" is a person who, together with affiliates and associates, owns, or within the past three years did own, 15% of the corporation's voting stock.
Certain provisions of our restated certificate of incorporation, as amended, and amended and restated bylaws, as amended could have anti-takeover effects. Our restated certificate of incorporation, as amended, provides that our Board of Directors may issue preferred stock without shareholder approval. The issuance of preferred stock could make it more difficult for a third-party to acquire us without the approval of our board.
Indemnification
We have included in our restated certificate of incorporation, as amended and amended and restated bylaws, as amended provisions to (i) eliminate the personal liability of our directors for monetary damages resulting from breaches of their fiduciary duty to the extent permitted by the Delaware General Corporation Law and (ii) indemnify our directors and officers to the fullest extent permitted by Section 145 of the Delaware General Corporation Law.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is EquiServe Trust Company, N.A. The Transfer Agent's address is Blue Hills Office Park, 150 Royall Street, Canton, MA 02021 and its telephone number is 781.575.3400.
SELLING STOCKHOLDERS
The common stock and Series A Preferred Stock offered hereby are being registered to permit public secondary trading of such securities, and each of the selling stockholders may offer the securities for resale from time to time. See "Plan of Distribution." The number of shares of common stock and/or Series A Preferred Stock that may actually be sold by each selling stockholder will be determined by such selling stockholder. Because each of the selling stockholders may sell all, some or none of the shares of common stock and Series A Preferred Stock covered by this prospectus which each holds, and because the offering contemplated by this prospectus is not being underwritten, no estimate can be given as to the number of shares of common stock or Series A Preferred Stock that will be held by the selling stockholders upon termination of the offering. Shares of common stock and Series A Preferred Stock may be sold from time to time by the selling stockholders or by pledgees, donees, transferees or other successors in interest. The selling stockholders may also loan or pledge the shares registered hereunder to broker-dealers and the broker-dealers may sell the shares so loaned or upon a default may effect the sales of the pledged shares pursuant to this prospectus.
The following table sets forth information known to us as of May 13, 2002, with respect to the beneficial ownership of each Credit Lyonnais New York Branch, PPM America Special Investments Fund, L.P., Daple, S.A., PPM America Special Investments CBO II, L.P., Bank One N.A., Credit Agricole Indosuez, Wells Fargo Bank (Texas) National Association, Ark CLO 2000-1, Limited, Cerberus Partners, L.P., and Avenue Special Situations Fund II L.P. of our common stock and Series A Preferred Stock before and after completion of the sale of the securities to be sold by each under this prospectus. The information is based upon the assumption that the selling stockholder does not sell any securities shown in the table as beneficially owned other than the securities to be sold under this prospectus and that the selling stockholder sells all such securities offered under this prospectus. We have determined beneficial ownership in accordance with the rules of the SEC.
Except in connection with the Recapitalization and in their capacity as our lenders under our previous and our new senior credit facility, none of the selling stockholders has held any position or office, or has had any other material relationship with us or any of our affiliates within the past three years, other than as a result of the ownership of our securities.
Information concerning the selling stockholders may change from time to time. This prospectus will be supplemented from time to time as appropriate to update the information set forth below and to identify any additional selling stockholders who may offer shares of common stock or Series A Preferred Stock hereunder.
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Common Stock Series A Preferred Stock
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Name of Selling Stockholder Shares Shares Shares Shares
Owned Offered Owned Offered
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Credit Lyonnais New York Branch 4,359,141 4,359,141 9,333 9,333
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PPM America Special Investments Fund, L.P. 10,522,770 10,522,770 22,531 22,531
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Daple, S.A. 719,940 719,940 1,541 1,541
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PPM America Special 6,659,897 6,659,897 14,259 14,259
Investments CBO II, L.P.
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Bank One N.A. 6,434,923 6,434,923 13,778 13,778
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Credit Agricole Indosuez 2,075,782 2,075,782 4,444 4,444
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Wells Fargo Bank (Texas) National Association 363 363 1 1
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Ark CLO 2000-1, Limited 1,037,891 1,037,891 2,222 2,222
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Cerberus Partners, L.P. 8,355,849 8,355,849 17,891 17,891
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Avenue Special Situations Fund II L.P. 6,538,530 6,538,530 14,000 14,000
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We have agreed to bear certain expenses (other than broker discounts and commissions, if any) in connection with the registration of the securities.
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the securities offered hereby. We are registering for resale by the selling stockholders and certain transferees a total of up to 46,705,086 shares of our common stock and 100,000 shares of our Series A Preferred Stock, all of which are issued and outstanding.
The selling stockholders may pledge or grant a security interest in some or all of the shares of common stock or Series A Preferred Stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock or Series A Preferred Stock from time to time pursuant to this prospectus. The selling stockholders also may transfer and donate the shares of common stock or Series A Preferred Stock in certain circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
The common stock and Series A Preferred Stock offered hereby may be sold from time to time by the selling stockholders or, to the extent permitted, by pledgees, donees, transferees or other successors in interest. All or a portion of the common stock and Series A Preferred Stock offered by the selling stockholders may be disposed of from time to time in one or more transactions through any one or more of the following means:
o by the purchasers directly;
o in ordinary brokerage transactions and transactions in which the broker solicits purchasers;
o through underwriters or dealers who may receive compensation in the form of underwriting discounts, concessions, or commissions from the selling stockholders or such successors in interest and/or from the purchasers of the common stock and Series A Preferred Stock for whom they may act as agent;
o by the writing of options on the common stock and Series A Preferred Stock;
o by the pledge of the common stock and Series A Preferred Stock as security for any loan or obligation, including pledges to brokers or dealers who may, from time to time, themselves effect distributions of the common stock and Series A Preferred Stock or interests therein;
o through purchases by a broker or dealer as principal and resale by such broker or dealer for its own account;
o through a block trade in which the broker or dealer so engaged will attempt to sell the common stock and Series A Preferred Stock as agent but may position and resell a portion of the block as principal to facilitate the transaction; and
o by an exchange distribution in accordance with the rules of such exchange or transactions in the over the counter market.
Such sales may be made at prices and at terms then prevailing or at prices related to the then current market price or at negotiated prices and terms.
In addition, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling shareholders may also engage in the short sale of the common stock and/or Series A Preferred Stock and may deliver the common stock and/or Series A Preferred Stock to cover short positions or otherwise settle short sale transactions.
In effecting sales by the selling stockholders, brokers or dealers engaged by the selling stockholders may arrange for other brokers or dealers to participate. Brokers or dealers participating in such transactions may receive commissions or discounts from the selling stockholders (and, if they act as agent for the purchaser of such securities, from such purchaser). In addition, underwriters or agents may receive compensation in the form of discounts, concessions or commissions, from the selling stockholders or from the purchasers of the securities sold by the selling stockholders for whom they may act as agents. Underwriters may sell shares of common stock or Series A Preferred Stock to or through dealers, who may receive compensation in the form of discounts, concessions or commissions from the underwriters or commissions from the purchasers as the purchaser's agents. The selling stockholders, underwriters, brokers, dealers, and agents that participate in the sale of the securities covered by this prospectus may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. To the extent the selling stockholders may be deemed to be underwriters, the selling stockholders may be
subject to certain statutory liabilities of the Securities Act, including, but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act. In addition and without limiting the foregoing, the selling stockholders will be subject to applicable provisions of the Exchange Act, and the rules and regulations thereunder, including, without limitation, Regulation M, which provisions may limit the timing of purchases and sales of the shares of common stock and Series A Preferred Stock by the selling stockholders.
At the time a particular offer and sale of securities under this prospectus is made, to the extent required under the Securities Act, we will file a supplemental prospectus, disclosing:
o the name of any such broker-dealers;
o the number of shares of common stock and Series A Preferred Stock involved;
o the price at which such shares of common stock and Series A Preferred Stock are to be sold;
o the commissions paid or discounts or concessions allowed to such broker-dealers, where applicable;
o that such broker-dealers did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, as supplemented; and
o other facts material to the transaction.
The Registration Rights Agreement provides that we will pay substantially all of the expenses incident to the registration, offering and sale of the shares of common stock and Series A Preferred Stock by the selling stockholders, other than underwriting discounts and commissions. The Registration Rights Agreement also provides that we will indemnify the selling stockholders against certain liabilities, including liabilities under the Securities Act.
Any shares of common stock and Series A Preferred Stock covered by this prospectus that qualify for sale pursuant to Rule 144 of the Securities Act may be sold under that rule rather than pursuant to this prospectus. We cannot be sure that any of the selling stockholders will sell any or all of the shares of common stock and Series A Preferred Stock offered by them under this prospectus.
MATERIAL U.S. FEDERAL TAX CONSIDERATIONS
The following discussion summarizes certain material United States federal income tax considerations generally applicable to holders acquiring the common stock and the Series A Preferred Stock as capital assets, but does not purport to be a complete analysis of all potential tax consequences. This discussion is based on the Internal Revenue Code of 1986, as amended, Treasury Regulations issued thereunder, and judicial and administrative authorities now in effect, all of which are subject to change. Any such changes may be applied retroactively in a manner that could adversely affect a holder of the common stock or Series A Preferred Stock.
The tax treatment of a holder of common stock or Series A Preferred Stock may vary depending on his or her particular situation or status. Certain holders (including S corporations, insurance companies, tax-exempt organizations, financial institutions, regulated investment companies, broker-dealers, taxpayers subject to alternative minimum tax or persons holding the common stock or Series A Preferred Stock as part of a "straddle," "hedge" or "conversion transaction") may be subject to special rules not discussed below. The following discussion does not consider all aspects of United States federal income tax that may be relevant to the purchase, ownership, and disposition of the common stock or Series A Preferred Stock by such holder in light of his or her personal circumstances. In addition, the description does not consider the effect of any applicable foreign, state, local, or estate or gift taxes.
Because individual circumstances may differ, each prospective purchaser of our common stock or Series A Preferred Stock is urged to consult his or her own tax advisor with respect to his or her own particular tax situation and as to any federal, foreign, state, local or other tax considerations (including any possible changes in the tax law) affecting the purchase, holding and disposition of our common stock or Series A Preferred Stock.
Disposition of the Securities
Unless a nonrecognition provision applies, the sale, exchange, redemption or other disposition of common stock or Series A Preferred Stock will be treated as the disposition of a capital asset and taxable for U.S. federal income tax purposes. In such event, in general, a holder of common stock of Series A Preferred Stock will recognize capital gain or loss equal to the difference between (i) the amount of cash plus the fair market value of property received and (ii) the holder's tax basis in the common stock or Series A Preferred Stock. If the common stock or Series A Preferred Stock has been held for more than one year, such gain or loss will be long-term capital gain or loss. The deductibility of capital losses may, however, be limited. See "Series A Preferred Stock--Tax Aspects of Redemption Features" below for a discussion of circumstances under which a redemption may be treated as a dividend distribution rather than as the disposition of a capital asset.
Dividend Treatment
Dividends on the common stock or Series A Preferred Stock, whether paid in cash or in other property, will be taxable to the holder as ordinary income to the extent that the cash amount, or fair market value of the other property on the date of distribution, does not exceed Darling's current and accumulated earnings and profits (as determined for federal income tax purposes). The amount of our company's earnings and profits at any particular time depends on our future actions and financial performance. To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits, the distribution will be treated as a return of capital, thus reducing (but not below zero) the holder's adjusted tax basis in such outstanding common stock or Series A Preferred Stock. The amount of any such excess distribution that is greater than the holder's adjusted tax basis in the common stock or Series A Preferred Stock will be taxed as capital gain and will be long-term capital gain if the holder's holding period for such common stock or Series A Preferred Stock exceeds one year.
Dividends Received Deduction
To the extent that dividends are treated as ordinary income, dividends received by corporate holders generally will be eligible for the dividends-received deduction under section 243 of the Internal Revenue Code. There are, however, many exceptions and restrictions relating to the availability of such dividends-received deduction, such as restrictions relating to (i) the holding period of the stock on which the dividends are sought to be deducted, (ii) debt-financed portfolio stock, (iii) dividends treated as "extraordinary dividends" for purposes of section 1059 of the Internal Revenue Code, discussed in "Extraordinary Dividends" below, and (iv) the alternative minimum tax. Corporate stockholders should consult their own tax advisor regarding the extent, if any, to which such exceptions and restrictions may apply to their particular factual situations.
Extraordinary Dividends
An "extraordinary dividend," as defined in section 1059 of the Internal Revenue Code, includes any dividend that (i) equals or exceeds five percent of the holder's adjusted tax basis in the Series A Preferred Stock (ten percent of the holder's basis in the common stock), treating all dividends having ex-dividend dates within an 85-day period as one dividend, or (ii) exceeds twenty percent of the holder's adjusted tax basis in the common stock or Series A Preferred Stock, treating all dividends having ex-dividend dates within a 365-day period as one dividend. In determining whether a dividend paid on the common stock or Series A Preferred Stock is an extraordinary dividend, a holder may elect to use the fair market value of such stock rather than its adjusted basis for purposes of determining the percent limitations if the holder is able to establish to the satisfaction of the Secretary of the Treasury the fair market value of the common stock or Series A Preferred Stock as of the day before the ex-dividend date.
If a corporate holder receives an "extraordinary dividend" from Darling with respect to common stock or Series A Preferred Stock that it has not held for more than two years on the dividend announcement date, the basis of the common stock or Series A Preferred Stock will be reduced (but not below zero) by the non-taxed portion of the dividend. If, because of the limitation on reducing basis below zero, any amount of the non-taxed portion of an extraordinary dividend has not been applied to reduce basis, such amount will be treated as gain from the sale or exchange of the common stock or Series A Preferred Stock in the year in which the extraordinary dividend is received. Generally, the non-taxed portion of an extraordinary dividend is the amount excluded from income as a dividends-received deduction.
Certain "qualified preferred dividends" are generally not considered extraordinary dividends. A qualified preferred dividend is any fixed dividend payable with respect to preferred stock that (i) provides for fixed preferred dividends payable not less frequently than annually and (ii) is not in arrears as to dividends when acquired and (ii) the actual rate of return does not exceed 15%. If the actual rate of return, as determined under section 1059(e)(3) of the Internal Revenue Code, on such preferred stock does not exceed fifteen percent and the holder has held the preferred stock for more than five years, then any qualified preferred dividend as to such stock will not be an extraordinary dividend. However, if the actual rate of return is less than fifteen percent, and the holder sells the qualified preferred stock before holding it for more than five years, then some of the dividend will be treated as an extraordinary dividend, but only to the extent to which the qualified preferred dividends paid exceed the qualified preferred dividends that would have been paid during such period on the basis of the stated rate of return.
The Internal Revenue Code specifies that in certain cases extraordinary dividend treatment will be required without regard to holding periods or to whether a dividend qualifies as a qualified preferred dividend. The Internal Revenue Code requires that an extraordinary dividend will include any amount treated as a dividend in the case of a redemption of the common stock or Series A Preferred Stock that is (i) non-pro rata as to all holders, (ii) part of a partial liquidation of our company, or (iii) that would not have been treated (in whole or in part) as a dividend if (a) any stock options had not been counted toward stock ownership pursuant to the attribution rules of Internal Revenue Code section 318 or (b) section 304(a) (dealing with the sale of stock by a controlling person among brother-sister corporations) had not been applied. See "Series A Preferred Stock--Tax Aspects of Redemption Features" below for additional discussion of the application of section 1059 in the redemption context.
Series A Preferred Stock--Tax Aspects of Redemption Features
The Series A Preferred Stock is subject to mandatory redemption on the fifth anniversary of the closing date of the Recapitalization. In addition, the Series A Preferred Stock is redeemable by us at any time upon 30 days notice at a redemption price equal to the aggregate liquidation preference of the shares to be redeemed, plus accrued and unpaid dividends, if any, to the date of redemption. See "Description of Capital Stock" above. Pursuant to section 305(c) of the Internal Revenue Code, holders of Series A Preferred Stock may be required to treat a portion of the difference between the Series A Preferred Stock's issue price and its redemption price as constructive distributions of property includable in income on a periodic basis. For purposes of determining whether such constructive distribution treatment applies, the mandatory redemption and the optional redemption are tested separately. Constructive distribution treatment is required if either (or both) of these tests is satisfied.
Section 305(c) of the Internal Revenue Code provides that the entire amount of a redemption premium with respect to preferred stock that is subject to mandatory redemption is treated as being distributed to the holders of such preferred stock on an economic accrual basis over the period the stock is outstanding. Preferred stock generally is considered to have a redemption premium for this purpose if the redemption price exceeds its issue price by more than a de minimis amount. For this purpose, such excess will be treated as zero if it is less than 1/4 of 1% of the redemption price multiplied by the number of complete years from the date of issuance of the stock until the
stock must be redeemed. The Series A Preferred Stock provides for cumulative preferred dividends. Thus, the redemption price will depend on whether dividends on such stock are paid currently. If all of the cumulative dividends are paid currently, the redemption price will equal the issue price. The legislative history of Internal Revenue Code Section 305(c) states that if at the time of issuance of cumulative preferred stock there is "no intention" for dividends to be paid currently, the IRS may treat such dividends as a disguised redemption premium. Under that approach, the excess of the redemption price of the Series A Preferred Stock (including any disguised redemption premium) over its issue price is taxable as constructive distributions to the holder (treated as a dividend to the extent of our company's current and accumulated earnings and profits and otherwise subject to the treatment described above for distributions) over the term of the preferred stock using a constant interest rate method similar to that for accruing original issue discount. To date, the IRS has not promulgated such regulations, although the issue remains under consideration. In the current situation, our company intends to take the position that we do not have "no intention" of paying dividends currently (although the agreement governing our senior credit agreement prohibits us from paying any cash dividends while any indebtedness remains outstanding under such agreement) and thus that holders of the Series A Preferred Stock should not be required to treat any excess of the final redemption price over the issue price as a series of constructive distributions over the period such stock is outstanding. This issue is not, however, free from doubt. Holders of Series A Preferred Stock are urged to consult their tax advisors with respect to this issue.
Constructive distributions on the Series A Preferred Stock will arise on account of the optional redemption feature only if, based on all of the facts and circumstances as of the date the Series A Preferred Stock is issued, redemption pursuant to the optional redemption is more likely than not to occur. Even if the redemption were more likely than not to occur, constructive distribution treatment would not result if the redemption premium were solely in the nature of a penalty for premature redemption. For this purpose, a penalty for premature redemption is a premium over which neither our company nor the holder has legal or practical control, such as changes in prevailing dividend rates. Regulations promulgated pursuant to Internal Revenue Code section 305(c) provide a safe harbor pursuant to which constructive distribution treatment will not result from an issuer call right if (i) the issuer and the holder are unrelated, (ii) there are no arrangements that effectively require the issuer to redeem the stock and (iii) exercise of the option to redeem would not reduce the yield of the stock. We do not believe that the optional redemption would be treated as more likely than not to be exercised under these rules.
A redemption of shares of Series A Preferred Stock may be treated as a dividend, rather than as the disposition of a capital asset, to the extent of our current or accumulated earnings and profits (as determined for federal income tax purposes), unless the redemption (i) results in a "complete termination" of the holder's stock interest in our company under section 302(b)(3) of the Internal Revenue Code, (ii) results in a "substantially disproportionate" redemption of stock with respect to the holder under section 302(b)(2) of the Internal Revenue Code, or (iii) is "not essentially equivalent to a dividend" with respect to the holder under section 302(b)(1) of the Internal Revenue Code. In determining whether the redemption is treated as a dividend, the holder must take into account not only stock he or she actually owns, but also stock he or she constructively owns within the meaning of section 318.
A distribution to a holder will be "not essentially equivalent to a dividend" if it results in a "meaningful reduction" in the holder's stock interest in our company. For these purposes, a redemption of the Series A Preferred Stock that results in a reduction in the proportionate interest in our company (taking into account any ownership of the common stock and any Darling stock that is constructively owned) of a holder whose relative stock interest is minimal (an interest of less than one percent should satisfy this requirement) and who exercises no control over corporate affairs should be regarded as a meaningful reduction in the holder's stock interest in Darling. See "Disposition of Securities" above for a discussion of the tax consequences of having a redemption treated as the sale or exchange of a capital asset and see "Dividend Treatment" above for the consequences of having a redemption treated as a dividend distribution.
Under section 1059 of the Internal Revenue Code, as discussed in "Dividend Treatment--Extraordinary Dividends" above, an extraordinary dividend includes any redemption of stock that is treated as a dividend that is non-pro rata as to all holders of our stock, including holders of the common stock, irrespective of the holding period. Consequently, to the extent the redemption of Series A Preferred Stock constitutes a dividend, it will constitute an extraordinary dividend to a corporate holder. If the redemption is treated as a dividend because options are being counted as stock ownership pursuant to Internal Revenue Code section 318, such holders are also required to recognize gain under section 1059 of the Internal Revenue Code with respect to any redemption treated as a dividend (in whole or in part) when the non-taxed portion of the dividend exceeds the basis of the shares surrendered.
Foreign Shareholders
Dividends received by a nonresident alien, foreign trust or estate, foreign corporation, or foreign partnership in respect of the Securities generally will be subject to withholding of United States federal income tax at the rate of 30% (or lower treaty rate). If, however, the dividend is effectively connected with the foreign shareholder's conduct of a trade or business within the United States or, where a tax treaty applies, is attributable to a foreign shareholder's permanent establishment maintained in the United States, the dividend will be subject to federal income tax on a net income basis at applicable graduated individual or corporate rates and will be exempt from the 30% withholding tax. In addition, dividends that are effectively connected to a United States trade or business or attributable to a United States permanent establishment may be subject to an additional "branch profits tax" at a 30% rate (or lower treaty rate).
Under currently applicable Treasury regulations, dividends paid to an address outside the United States may be presumed to be paid to a resident of such country, unless the payor has knowledge to the contrary, for purposes of the withholding tax rates (including treaty rates) discussed above.
For purposes of obtaining a reduced rate of withholding under an income tax treaty, a foreign shareholder will be required to provide certain information concerning his or her country of residence and entitlement to tax treaty benefits. If an exemption from withholding is claimed, the foreign shareholder must provide appropriate certification (for example, IRS Form W-8ECI for foreign individuals) to our company. If a foreign shareholder is eligible for a reduced rate of United States federal withholding tax, the foreign shareholder may obtain a refund of any excess withheld amounts by timely filing an appropriate claim for refund.
Generally, a foreign shareholder will not be subject to United States
federal income tax on any gain recognized upon capital asset disposition of the
common stock or Series A Preferred Stock. However, a foreign shareholder will be
subject to federal income tax on the gain if (i) the gain is effectively
connected with the foreign shareholder's United States trade or business or, if
a tax treaty applies, attributable to the foreign shareholder's United States
permanent establishment, (2) if the foreign shareholder is an individual who is
a former citizen of the United States who lost such citizenship within the
preceding ten-year period, or former long-term resident of the United States who
relinquished United States residency on or after February 6, 1995, and the loss
of citizenship or permanent residency had as one of its principal purposes the
avoidance of United States tax; or (iii) the foreign shareholder is a
non-resident alien individual who has been present in the United States for 183
days or more during the taxable year of the disposition and either (a) has a
"tax home" in the United States for United States federal income tax purposes or
(b) the gain is attributable to an office or other fixed place of business
maintained by the foreign shareholder in the United States.
Because of the complexity of the Internal Revenue Code provisions dealing with the taxation of foreign shareholders and the possibility that treaty provisions may affect the application of such Internal Revenue Code provisions, foreign shareholders are urged to consult their own tax advisors with respect to the particular tax consequences to them of an investment in our company.
Backup Withholding
We generally will be required to withhold federal income tax at a rate
of 30% (in 2002 and 2003) from dividends paid and redemption proceeds to the
holders or common stock or Series A Preferred Stock if (i) the holder fails to
furnish us with the holder's correct taxpayer identification number or social
security number and to make such certifications as we may require, (ii) the IRS
notifies the holder or us that the holder has failed to report properly certain
interest and dividend income to IRS and to respond to notices to that effect, or
(3) when required to do so, the shareholder fails to certify that he is not
subject to backup withholding. Any amounts withheld may be credited against the
shareholder's federal income tax liability.
The foregoing discussion of certain federal income tax considerations does not consider the facts and circumstances of any particular prospective purchaser situation or status. Accordingly, each purchaser of our common stock or Series A Preferred Stock should consult his or her own tax advisor with respect to the tax consequences to him or her, including those under state, local, foreign, and other tax laws.
LEGAL MATTERS
The validity of our common stock and Series A Preferred Stock offered hereby will be passed upon by Dechert, New York, New York.
EXPERTS
The consolidated financial statements and schedules as of December 29, 2001 and December 30, 2000 and for the years ended December 29, 2001, December 30, 2000 and January 1, 2000 included in this prospectus and in the registration statement of which this prospectus is a part have been so included in reliance upon the report of KPMG LLP, independent accountants, appearing elsewhere herein and upon the authority of said firm as experts in accounting and auditing. The audit report covering the December 29, 2001 consolidated financial statements contains an explanatory paragraph that states there is substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with the Exchange Act, we file periodic reports, proxy statements and information statements and other information with the Securities and Exchange Commission.
We have filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a registration statement on Form S-1 under the Securities Act with
respect to our common stock and Series A Preferred Stock offered hereby. This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules to the registration statement. For
further information with respect to our company and our common stock and Series
A Preferred Stock offered hereby, reference is made to the registration
statement and the exhibits and schedules filed as a part of the registration
statement. Statements contained in this prospectus concerning the contents of
any contract or any other document are not necessarily complete; reference is
made in each instance to the copy of such contract or any other document filed
as an exhibit to the registration statement. Each such statement is qualified in
all respects by such reference to such exhibit. The registration statement,
including exhibits and schedules thereto, as well as all other reports, proxy
statements, information statements and other information we file with the
Securities and Exchange Commission, may be inspected without charge at the
Securities and Exchange Commission's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from the Public Reference
Section of the Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, after payment of fees prescribed by the Securities and
Exchange Commission. The Securities and Exchange Commission also maintains a Web
site which provides online access to reports, proxy and information statements
and other information regarding registrants that file electronically with the
Securities and Exchange Commission at the address http://www.sec.gov.
We will furnish without charge to each person to whom a copy of this prospectus is delivered, upon written or oral request, a copy of any and all of these filings (except exhibits, unless they are specifically incorporated by reference into this prospectus). Please direct any requests for copies to:
Darling International Inc. 251 O'Connor Ridge Boulevard, Suite 300 Irving, TX 75038 Attention: Joseph R. Weaver, Jr.
Telephone: 917.717.0300
Fax: 917.281.4475
E-mail: corporatesecretary@darlingii.com
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 30, 2002 and December 29, 2001
(in thousands, except shares and per share data)
March 30, December 29,
2001 2001
--------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,999 $ 3,668
Accounts receivable 18,957 23,719
Inventories 7,874 7,698
Prepaid expenses 5,316 4,394
Deferred income taxes 2,203 2,203
Other 184 3,668
---------- ---------
Total current assets 37,533 41,891
Property, plant and equipment, less accumulated
depreciation of $158,389 at March 30, 2002 and
$155,555 at December 29, 2001 75,064 74,744
Collection routes and contracts, less accumulated
amortization of $21,587 at March 30, 2002 and
$22,139 at December 29, 2001 26,231 27,366
Goodwill, less accumulated amortization of $1,077
at March 30, 2002 and December 29, 2001 4,429 4,429
Assets held for sale 3,002 3,002
Other noncurrent assets 8,197 7,647
---------- ---------
$ 154,456 $ 159,079
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 5,120 $120,053
Accounts payable, principally trade 7,864 11,104
Accrued expenses 22,310 24,069
Accrued interest 5,525 3,383
---------- ---------
Total current liabilities 40,819 158,609
Long-term debt, less current portion 112,127 -
Other non-current liabilities 8,591 8,134
Deferred income taxes 1,990 1,990
---------- ---------
Total liabilities 163,527 168,733
---------- ---------
Stockholders' equity (deficit):
Preferred stock, $0.01 par value; 1,000,000 shares
authorized, none issued - -
Common stock, $0.01 par value; 25,000,000 shares authorized;
15,589,362 shares issued and outstanding 156 156
Additional paid-in capital 35,235 35,235
Treasury stock, at cost; 21,000 shares at March 30, 2002 and
December 29, 2001 (172) (172)
Accumulated comprehensive loss (533) (533)
Accumulated deficit (43,757) (44,340)
---------- ----------
Total stockholders' equity (deficit) (9,071) (9,654)
---------- ----------
Contingencies (note 3)
$ 154,456 $ 159,079
=========== =========
The accompanying notes are an integral part of these consolidated financial statements.
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DARLING INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended March 30, 2002 and
March 31, 2001 (in thousands,
except per share data)
(unaudited)
Three Months Ended
------------------
March 30, March 31,
2002 2002
---------- ---------
Net sales $ 61,681 $ 63,634
Costs and expenses:
Cost of sales and operating expenses 46,395 48,312
Selling, general and administrative expenses 7,160 7,005
Depreciation and amortization 4,392 6,814
---------- ---------
Total costs and expenses 57,947 62,131
---------- ---------
Operating income 3,734 1,503
---------- ---------
Other income (expense):
Interest expense (3,885) (3,227)
Other, net 734 575
---------- ---------
Total other income (expense) (3,151)
----------
Income (loss) before income taxes 583 (1,149)
Income taxes - -
---------- ---------
Net income (loss) $ 583 $ (1,149)
========== =========
Basic and diluted income (loss) per share $ 0.04 $ (0.07)
========== =========
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The accompanying notes are an integral part of these consolidated financial statements.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months ended March 30, 2002 and March 31, 2001
(in thousands)
(unaudited)
Three Months Ended
March 30, March 31,
2002 2001
----------- ---------
Cash flows from operating activities:
Net income (loss) $ 583 $ (1,149)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 4,392 6,814
Gain on disposal of property, plant, equipment and other assets (901) (74)
Changes in operating assets and liabilities:
Accounts receivable 4,762 (469)
Inventories and prepaid expenses (1,098) (605)
Accounts payable and accrued expenses (4,999) (2,724)
Accrued interest 2,142 (357)
Other 25 343
----------- -----------
Net cash provided by operating activities 4,906 1,779
----------- -----------
Cash flows from investing activities:
Capital expenditures (3,622) (1,532)
Proceeds from disposal of property, plant, equipment and other assets 946 112
----------- -----------
Net cash used by investing activities (2,676) (1,420)
----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt 47,291 53,042
Payments on long-term debt (50,097) (53,552)
Contract payments (93) (505)
----------- -----------
Net cash used by financing activities (2,899) (1,015)
----------- -----------
Net decrease in cash and cash equivalents (669) (656)
Cash and cash equivalents at beginning of period 3,668 3,509
----------- -----------
Cash and cash equivalents at end of period $ 2,999 $ 2,853
=========== ===========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest $ 1,743 $ 3,584
----------- -----------
Income taxes, net of refunds $ - $ -
----------- -----------
The accompanying notes are an integral part of these consolidated financial statements.
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DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements March 30, 2002
(unaudited)
(1) General
The accompanying consolidated financial statements for the three month periods ended March 30, 2002 and March 31, 2001 have been prepared by Darling International Inc. (Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The information furnished herein reflects all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary to present a fair statement of the financial position and operating results of the Company as of and for the respective periods. However, these operating results are not necessarily indicative of the results expected for a full fiscal year. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. However, management of the Company believes that the disclosures herein are adequate to make the information presented not misleading. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company's Form 10-K/A for the fiscal year ended December 29, 2001.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
(b) Fiscal Periods
The Company has a 52/53 week fiscal year ending on the Saturday nearest December 31. Fiscal periods for the consolidated financial statements included herein are as of March 30, 2002, and include the 13 weeks ended March 30, 2002, and 13 weeks ended March 31, 2001.
(c) Earnings (Loss) Per Share
Basic and diluted loss per common share are computed by dividing net earnings (loss) by the weighted average number of common stock shares outstanding during the period.
The weighted average common shares used for basic earnings (loss)
per common share was 15,568,362 for both the three months ended
March 30, 2002 and March 31, 2001. The weighted average common
shares used for diluted earnings (loss) per common share was
15,830,189 and 15,568,362 for the three months ended March 30,
2002 and March 31, 2001, respectively. Options to purchase
2,343,938 and 2,334,380 shares were excluded from diluted earning
(loss) per common share for the three months ended March 30, 2002
and March 31, 2001, as their effect was antidilutive.
(d) New Accounting Standards
The Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("Statement 142") and Statement 144, Accounting for the Impairment or Disposal of Long-Lived Assets, on December 30, 2001 (the first day of Fiscal 2002).
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued) March 30, 2002
(unaudited)
Statement 142 eliminates the amortization for goodwill and other intangible assets with indefinite lives. Intangible assets with lives restricted by contractual, legal, or other means will continue to be amortized over their useful lives. Goodwill and other intangible assets not subject to amortization are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Statement 142 requires a two-step process for testing impairment. First, the fair value of each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. If impairment is indicated, then the fair value of the reporting unit's goodwill is determined by allocating the unit's fair value to its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill is measured as the excess of its carrying value over its fair value. The Company is evaluating the impact of adopting Statement 142, including whether any transitional goodwill impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle.
Intangible assets subject to amortization under Statement 142 consist of collection routes and contracts and non-compete agreements. Amortization expense is calculated using the straight-line method over the estimated useful life of the asset ranging from 3 to 15 years.
The gross carrying amount of collection routes and contracts and non-compete agreements subject to amortization include (in thousands):
March 30, December 29,
2002 2001
----------------------------
Collection Routes and Contracts:
Routes $ 42,307 $ 42,307
Non-compete agreements 5,232 6,797
Royalty and consulting agreements 279 401
--------- ---------
47,818 49,505
Accumulated Amortization:
Routes (18,341) (17,498)
Non-compete agreements (3,127) (4,423)
Royalty and consulting agreements (119) (218)
---------- ----------
(21,587) (22,139)
---------- ----------
Collection routes and contracts,
less accumulated amortization $ 26,231 $ 27,366
========== ==========
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Amortization expense for the three months ended March 30, 2002 and March 31, 2001 was approximately $1,135,000 and $1,386,000, respectively. Amortization expense for the next five fiscal years is estimated to be $4,178,000, $4,061,000, $3,937,000, $3,937,000 and $3,937,000.
The Company has identified its reporting units for purposes of assessing goodwill impairment to be the individual plant locations.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued) March 30, 2002
(unaudited)
The effect of the adoption of Statement 142 on net income (loss) and earnings (loss) per share is as follows (in thousands, except per share date):
Three Months Ended
-------------------------
March 30, March 31,
2002 2001
-------------------------
Reported net income (loss) $ 583 $(1,149)
Add back: goodwill amortization - 90
------ --------
Adjusted net income (loss) $ 583 $(1,059)
====== ========
Basic earnings (loss) per share:
Reported net income (loss) $ 0.04 $ (0.07)
Add back: goodwill amortization - -
------ --------
Adjusted net income (loss) $ 0.04 $ (0.07)
====== ========
|
Statement 144 supercedes Statement 121, Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. Statement 144 retains the fundamental provisions of Statement 121 but eliminates the requirement to allocate goodwill to long lived assets to be tested for impairment. Statement 144 also requires discontinued operations to be carried at the lower of cost or fair value less costs to sell and broadens the presentation of discontinued operations to include a component of an entity rather than a segment of a business. The adoption of Statement 144 did not have a material impact on the consolidated financial statements.
(3) Contingencies
LITIGATION
Melvindale
A group of residents living near the Company's Melvindale, Michigan plant has filed suit, purportedly on behalf of a class of persons similarly situated. The class has been certified for injunctive relief only. The court declined to certify a damage class but has permitted approximately 300 people to join the lawsuit as plaintiffs. The suit is based on legal theories of trespass, nuisance and negligence and/or gross negligence, and is pending in the United States District Court, Eastern District of Michigan. Plaintiffs allege that emissions to the air, particularly odor, from the plant have reduced the value and enjoyment of Plaintiffs' property, and Plaintiffs seek unspecified compensatory and exemplary damages in an amount in excess of $25,000 per Plaintiff and unspecified injunctive relief. The Company is unable to estimate its potential liability from this lawsuit. In a lawsuit with similar factual allegations, also pending in United States District Court, Eastern District of Michigan, the City of Melvindale has filed suit against the Company based on legal theories of nuisance, trespass, negligence and violation of Melvindale nuisance ordinances seeking damages and declaratory and injunctive relief. The court has dismissed the trespass counts in both lawsuits, and all of the damage claims in the suit filed by the City of Melvindale have been dismissed. The City of Melvindale now seeks unspecified injunctive relief. The Company or its predecessors have operated a rendering plant at the Melvindale location since 1927 in a heavily industrialized area down river south of Detroit. The Company has taken and is taking all reasonable steps to minimize odor emissions from its recycling processes and is defending the lawsuit vigorously.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued) March 30, 2002
(unaudited)
Long Island City, NY
The Company is a party to a lawsuit that seeks to require an environmental cleanup at a property in Long Island City, New York where the Company formerly operated a rendering plant (referred to as the "Site"). DMJ Associates (DMJ), which holds a mortgage on the Site, has filed suit against the Company, as a former owner of the Site, as well as others including the present tenants and operators of the Site, the owner of an abandoned hazardous waste disposal site adjoining the Site (the "Disposal Facility"), and companies that disposed of wastes at the Disposal Facility (the "Generator Defendants"). DMJ argues that, inter alia, under federal law it is entitled to relief directed to have the defendants remediate the contamination. DMJ seeks both equitable and monetary relief from all defendants for investigation, abatement and remediation of the Site. DMJ has not yet provided information sufficient for the Company to ascertain the magnitude or amount of DMJ's total claim nor the Company's alleged share thereof. As a result, the Company is unable to estimate its potential liability from this lawsuit. The Company does not have information suggesting that it contributed in any material way to any contamination that may exist at the Site. The Company is actively defending the suit and is awaiting a decision on a motion on summary judgment regarding the standing of the plaintiff.
Sauget, Illinois
The Company is a party to a lawsuit that seeks to recover costs related to an environmental cleanup in or near Sauget, Illinois. The United States had filed a complaint against Monsanto Chemical Company, Solutia, Inc., Anheuser-Busch, Inc., Union Electric, and 14 other defendants, seeking to recover cleanup costs. Monsanto (which merged with Pharmacia and Upjohn, Inc. in 2000 and is now known as Pharmacia Corporation) and Solutia in turn filed a third party complaint seeking contribution from the United States, several federal agencies, and six more companies, in addition to the Company. As potentially responsible parties themselves, Pharmacia and Solutia are seeking to recover unspecified proportionate shares from each of the other parties, in addition to the Company, of an as yet undetermined total cleanup cost. A subsidiary of the Company had operated an inorganic fertilizer plant in Sauget, Illinois for a number of years prior to closing it in the 1960's. The Company is defending this case vigorously, and does not believe, based upon currently available information, that the fertilizer plant contributed in any significant way to the contamination that is leading to the environmental cleanup, or that its share, if any, of the cost of the cleanup will be material. Accordingly, the Company is unable to estimate its potential liability from this lawsuit.
Other Litigation
The Company is also a party to several other lawsuits, claims and loss contingencies incidental to its business, including assertions by certain regulatory agencies related to air, wastewater, and storm water discharges from the Company's processing facilities.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued) March 30, 2002
(unaudited)
Self Insured Risks
The Company purchases its workers compensation, auto and general liability insurance on a retrospective basis. The Company accrues its expected ultimate costs related to claims occurring during each fiscal year and carries this accrual as a reserve until such claims are paid by the Company.
The Company has established loss reserves for insurance, environmental and litigation matters as a result of the matters discussed above. Although the ultimate liability cannot be determined with certainty, management of the Company believes that reserves for contingencies are reasonable and sufficient based upon present governmental regulations and information currently available to management. The accrued expenses and other noncurrent liabilities classifications in the Company's consolidated balance sheets include reserves for insurance, environmental and litigation contingencies of $10.6 million at March 30, 2002 and December 29, 2001. There can be no assurance, however, that final costs related to these matters will not exceed current estimates. The Company believes that any additional liability relative to such lawsuits and claims which may not be covered by insurance would not likely have a material adverse effect on the Company's financial position, although it could potentially have a material impact on the results of operations in any one year.
(4) Business Segments
The Company operates on a worldwide basis within two industry segments: Rendering and Restaurant Services. The measure of segment profit (loss) includes all revenues, operating expenses (excluding certain amortization of intangibles), and selling, general and administrative expenses incurred at all operating locations and excludes general corporate expenses.
Included in corporate activities are general corporate expenses and the amortization of intangibles related to "Fresh Start Reporting." Assets of corporate activities include cash, unallocated prepaid expenses, deferred tax assets, prepaid pension, and miscellaneous other assets.
Rendering
Rendering consists of the collection and processing of animal by-products from butcher shops, grocery stores and independent meat and poultry processors, converting these by-products into similar products such as useable oils and proteins utilized by the agricultural and oleochemical industries.
Restaurant Services
Restaurant Services consists of the collection of used cooking oils from restaurants and recycling them into similar products such as high-energy animal feed ingredients and industrial oils. Restaurant Services also provides grease trap servicing.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
March 30, 2002
(unaudited)
Business Segment Net Sales (in thousands):
Three Months Ended
-----------------------------
March 30, March 31,
2002 2001
-----------------------------
Rendering:
Trade $ 45,595 $ 49,762
Intersegment 7,879 6,188
---------- ---------
53,474 55,950
---------- ---------
Restaurant Services:
Trade 16,086 13,872
Intersegment 1,976 1,799
---------- ---------
18,062 15,671
--------- ---------
Eliminations (9,855) (7,987)
---------- ----------
Total $ 61,681 $ 63,634
========== ==========
Business Segment Profit (Loss) (in thousands):
Three Months Ended
-----------------------------
March 30, March 31,
2002 2001
-----------------------------
Rendering $ 4,149 $ 2,500
Restaurant Services 3,839 935
Corporate activities (3,520) (1,357)
Interest expense (3,885) (3,227)
---------- ----------
Net earnings (loss) before income taxes $ 583 $ (1,149)
========== ==========
Certain assets are not attributable to a single operating segment
but instead relate to multiple operating segments operating out of
individual locations. These assets are utilized by both the
Rendering and Restaurant Services business segments and are
identified in the category Combined Rendering/Restaurant Services.
Depreciation of Combined Rendering/Restaurant Services assets is
allocated based upon an estimate of the percentage of
corresponding activity attributed to each segment. Additionally,
although intangible assets are allocated to operating segments,
the amortization related to the adoption of "Fresh Start
Reporting" is not considered in the measure of operating segment
profit (loss) and is included in Corporate Activities.
Business Segment Assets (in thousands):
Three Months Ended
-----------------------------
March 30, March 31,
2002 2001
-----------------------------
Rendering $ 55,493 $ 56,847
Restaurant Services 16,158 14,779
Combined Rendering/Restaurant Services 58,756 64,155
Corporate Activities 24,049 23,298
--------- --------
Total $ 154,456 $ 159,079
========= ========
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DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued) March 30, 2002
(unaudited)
(5) Income Taxes
The Company assesses the amount of valuation allowance recorded as a reduction of deferred tax assets by considering its ability to carryback net operating losses, scheduled reversals of future taxable and deductible temporary differences, future taxable income and tax planning strategies. Based on the Company's assessment of these matters at March 30, 2002 and March 31, 2001, the Company recorded a valuation allowance to reduce its net deferred tax assets to zero.
(6) Recapitalization
On May 13, 2002, the Company consummated a recapitalization and executed a new amended and restated Credit Agreement with its lenders whereby the Company exchanged borrowings outstanding under its previous Credit Agreement, a portion of the accrued interest and commitment fees, and forbearance fees payable for newly issued common stock equal to 75% of the Company's total outstanding common stock on a fully diluted basis (exclusive of stock options issued and outstanding), and 6% cumulative redeemable preferred stock with a face value of $10.0 million. The Company's new Credit Agreement includes a term loan in the principal amount of $61.0 million and also provides for a revolving credit facility which will enable the Company to borrow or issue letters of credit of up to $17.3 million.
Substantially all assets of the Company are either pledged or mortgaged as collateral for borrowings under the new Credit Agreement. The new Credit Agreement contains certain terms and covenants, which, among other matters, restrict the incurrence of additional indebtedness, the payment of cash dividends, the retention of certain proceeds from sales of assets, and the annual amount of capital expenditures, and requires the maintenance of certain minimum financial ratios.
The classification of long-term debt in the accompanying March 30, 2002 consolidated balance sheet is based on the repayment terms of the debt issued under the new Credit Agreement pursuant to the recapitalization and also reflects an estimate of the effect of applying the provisions of Statement 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings. Statement 15 requires that the existing amount of debt owed by the Company to the lenders be reduced by the fair value of the equity interest granted and that no gain from restructuring the Company's debt be recognized. Interest expense on the remaining carrying amount of debt reported in our financial statements will be based on a new effective interest rate that equates the present value of the future cash payment specified by the new terms of the term loan with the carrying amount of the debt.
Management believes the cash flow from operating activities at the same level as Fiscal 2001 and funds available under the new Credit Agreement will be sufficient to meet working capital and capital expenditure needs for at least the next 12 months.
(7) Derivative Instruments
The Company makes limited use of derivative instruments to manage cash flow risks related to interest and natural gas expense. The Company does not use derivative instruments for trading purposes.
At March 30, 2002 and December 29, 2001, the Company was party to two interest rate swap agreements whereby the interest obligation on $45 million of floating-rate debt has been exchanged for fixed rate contracts which bear interest, payable quarterly. One swap agreement for $25 million matures June 27, 2002, bears interest at 6.5925% and the Company's receive rate is based on the three-month LIBOR. A second swap agreement for $20 million matures June 27, 2002, bears interest at 9.17% and the Company's receive rate is based on the Base Rate. The Company recorded $0.5 million of additional interest expense in the three months ended March 31, 2001 related to the change in fair value of these agreements. The portion of the interest rate swap agreements extending beyond June 30, 2001, the expiration date of the previous Credit Agreement, is not considered a hedge. Changes in the fair value of these agreements subsequent to June 30, 2001, have been included in other income (expense). The Company recorded a liability of $0.5 million and $1.0 million at March 30, 2002 and December 29, 2001, respectively, (the fair value of the interest rate swap agreements at such dates), which is included in accrued expenses.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued) March 30, 2002
(unaudited)
Through March 2001, the Company was party to natural gas swap agreements representing approximately 300,000 mmbtu's of natural gas per month for January, February and March, 2001, with a NYMEX purchase price of approximately $4.682/mmbtu. All of the Company's positions in these swap agreements were settled during the three months ended March 31, 2001, and the Company recorded gains of $2.6 million as a reduction of operating expenses and $0.5 million as other income for the effective and ineffective portions of these hedge transactions during this period. The Company no longer uses natural gas swap agreements to manage its cash flow risk arising from the purchase of natural gas used in its plants.
As of March 30, 2002, the Company had forward purchase agreements in place for purchases of approximately 624,000 mmbtu's of natural gas for the period April through December, 2002, based on an average purchase price of $2.78/mmbtu. These agreements have no net settlement provisions and the Company intends to take physical delivery, which it has done under similar forward purchase agreements from March through December, 2001. Accordingly, the agreements are not subject to the requirements of Statement 133 because they qualify as normal purchases as defined in the standard.
(8) Comprehensive Income
The Company follows the provisions of Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (Statement 130). Statement 130 establishes standards for reporting and presentation of comprehensive income and its components. In accordance with Statement 130, the Company has presented the components of comprehensive income in its consolidated statement of stockholders' equity.
(9) Revenue Recognition
The Company recognizes revenue on sales when products are shipped and the customer takes ownership and assumes risk of loss. Collection fees are recognized in the month the service is provided.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Darling International Inc.:
We have audited the consolidated financial statements of Darling International Inc. and subsidiaries as listed in the accompanying index. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Darling International Inc. and subsidiaries as of December 29, 2001 and December 30, 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 29, 2001, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for derivative instruments and hedging activities in 2001.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has debt of $120,027,000 classified as a current liability at December 29, 2001 because it matured in June 2001 and is now subject to a recapitalization agreement pursuant to which the lenders have agreed to a forbearance period expiring April 30, 2002, during which time the Company will endeavor to consummate a new credit agreement. These circumstances raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
KPMG LLP
Dallas, Texas
February 28, 2002
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 29, 2001 and December 30, 2000
(in thousands, except share and per share data)
December 29, December 30,
ASSETS (Notes 2 and 9) 2001 2000
---------------------- ------------- -------------
Current assets:
Cash and cash equivalents $ 3,668 $ 3,509
Accounts receivable, less allowance for bad debts of $467
at December 29, 2001 and $680 at December 30, 2000 23,719 21,837
Inventories (Note 3) 7,698 8,300
Prepaid expenses 4,394 3,046
Deferred income taxes (Note 11) 2,203 3,081
Assets held for sale (Note 5) - 3,161
Other (Note 1) 209 2,923
--------- ---------
Total current assets 41,891 45,857
Property, plant and equipment, net (Note 4) 74,744 88,242
Collection routes and contracts, less accumulated amortization of
$22,139 at Dec. 29, 2001 and $18,828 at Dec. 30, 2000 27,366 32,140
Goodwill, less accumulated amortization of $1,077 at
December 29, 2001 and $883 at December 30, 2000 4,429 4,632
Deferred loan costs - 629
Assets held for sale (Note 5) 3,002 -
Other assets (Note 6) 7,647 3,005
--------- ---------
$159,079 $174,505
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt (Note 9) $120,053 $109,528
Accounts payable, principally trade 11,104 14,341
Accrued expenses (Note 7) 24,069 23,160
Accrued interest 3,383 3,038
Deferred income (Note 1) - 2,599
--------- ---------
Total current liabilities 158,609 152,666
Other noncurrent liabilities (Note 10) 8,134 16,247
Deferred income taxes (Note 11) 1,990 2,868
--------- ---------
Total liabilities 168,733 171,781
--------- ---------
Stockholders' equity (deficit) (Note 12):
Preferred stock, $0.01 par value; 1,000,000 shares
authorized, none issued - -
Common stock, $.01 par value; 25,000,000 shares authorized,
15,589,362 shares issued and outstanding
at December 29, 2001 and December 30, 2000 156 156
Additional paid-in capital 35,235 35,235
Treasury stock, at cost; 21,000 shares at December 29, 2001
and December 30, 2000 (172) (172)
Accumulated comprehensive loss (533) -
Accumulated deficit (44,340) (32,495)
--------- ---------
Total stockholders' equity (deficit) (9,654) 2,724
--------- ---------
Commitments and contingencies (Notes 8 and 16)
$159,079 $174,505
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
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DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three years ended December 29, 2001
(in thousands, except per share data)
December 29,
2001 December 30, January 1,
2000 2000
---------------- ---------------- ---------------
Net sales $255,974 $242,795 $258,570
-------- -------- ---------
Costs and expenses:
Cost of sales and operating expenses 196,778 190,283 210,879
Selling, general and administrative expenses 28,594 26,736 26,773
Depreciation and amortization 26,634 31,181 32,912
--------- ---------- ----------
Total costs and expenses 252,006 248,200 270,564
--------- ---------- ----------
Operating income/(loss) 3,968 (5,405) (11,994)
--------- ---------- ----------
Other income/(expense):
Interest expense (14,162) (13,971) (15,533)
Other, net (1,651) (184) 1,812
--------- ---------- ----------
Total other income/(expense) (15,813) (14,155) (13,721)
--------- ---------- ----------
Loss from continuing operations
before income taxes (11,845) (19,560) (25,715)
Income tax benefit (Note 11) - - (10,015)
--------- ---------- ----------
Loss from continuing operations (11,845) (19,560) (15,700)
Gain/(loss) on disposal of discontinued
operations, net of tax (Note 15) - 371 (333)
--------- ---------- ----------
Net loss $(11,845) $(19,189) $ (16,033)
========= ========== ==========
Basic and diluted earnings (loss) per share:
Continuing operations $ (0.76) $ (1.25) $ (1.01)
Gain/(loss) on disposal of discontinued
operations - 0.02 (0.02)
--------- ---------- ----------
Total $ (0.76) $ (1.23) $ (1.03)
========= ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
|
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Three years ended December 29, 2001
(In thousands, except share data)
Common stock
-----------------------
Retained Total
Additional Accumulated earnings/ stockholders'
Number $.01 par Paid-in Treasury comprehensive (accumulated equity
of shares value capital stock loss deficit) (deficit)
------------------------------------------------------------------------------------------------------------------------------------
Balances at January 2, 1999 15,568,362 $ 156 $ 35,235 $ (172) $ - $ (2,727) $ 37,946
Net loss - - - - - (16,033) (16,033)
---------- ------ --------- ------- ---------- ----------- ---------
Balances at January 1, 2000 15,568,362 156 35,235 (172) - (13,306) 21,913
Net loss - - - - - (19,189) (19,189)
---------- ------ --------- ------ ---------- ----------- ---------
Balances at December 30, 2000 15,568,362 $ 156 $ 35,235 (172) - $ (32,495) $ 2,724
Net loss - - - - - (11,845) (11,845)
Minimum pension liability - - - - (533) - (533)
Derivative transition
adjustment (Note 1) - - - - 2,220 - 2,220
Net change arising from current period
hedging transactions (Note 1) - - - - 376 - 376
Reclassifications into earnings (Note 1) - - - - (2,596) - (2,596)
---------
Total comprehensive loss (12,378)
---------- ------ --------- ------- ---------- ----------- ---------
Balances at December 29, 2001 15,568,362 $ 156 $ 35,235 $ (172) $ (533) $ (44,340) $ (9,654)
========== ====== ========= ======= ========== ========== =========
The accompanying notes are an integral part of these consolidated financial statements.
|
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three years ended December 29, 2001
(in thousands)
December 29, December 30, January 1,
2001 2000 2000
---------------- ---------------- ----------------
Cash flows from operating activities:
Loss from continuing operations $ (11,845) $ (19,560) $ (15,700)
Adjustments to reconcile loss from continuing operations to
net cash provided by continuing operating activities:
Depreciation and amortization 26,634 31,181 32,912
Deferred income tax benefit - - (9,911)
Loss/(gain) on sale of assets (80) 144 (2,060)
Changes in operating assets and liabilities:
Accounts receivable (1,882) (4,850) (372)
Inventories and prepaid expenses (746) 2,246 2,092
Accounts payable and accrued expenses (4,898) 3,070 (4,328)
Accrued interest 345 2,928 (546)
Other (1,916) 1,084 (1,403)
---------- ---------- ----------
Net cash provided by continuing operating activities 5,612 16,243 684
Net cash provided by discontinued operations - - 119
---------- ---------- ----------
Net cash provided by operating activities 5,612 16,243 803
---------- ---------- ----------
Cash flows from investing activities:
Recurring capital expenditures (9,142) (7,684) (9,851)
Gross proceeds from sale of property, plant and equipment,
assets held for disposition and other assets 145 4,412 32,150
Payments related to routes and other intangibles (279) (636) (152)
Net cash used in discontinued operations - - (330)
---------- ---------- ----------
Net cash provided by/(used in) investing activities (9,276) (3,908) 21,817
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 208,387 171,351 179,927
Payments on long-term debt (197,862) (179,842) (210,237)
Contract payments (3,368) (2,163) (2,377)
Deferred recapitalization costs (3,334) - -
Deferred loan costs - - (300)
Net cash used in discontinued operations - - (150)
---------- ---------- ----------
Net cash provided by/(used in) financing activities 3,823 (10,654) (33,137)
---------- ---------- ----------
Net change in cash and cash equivalents
from discontinued operations - - 28
---------- ---------- ----------
Net increase/(decrease) in cash and cash equivalents 159 1,681 (10,489)
Cash and cash equivalents at beginning of year 3,509 1,828 12,317
---------- ---------- ----------
Cash and cash equivalents at end of year $ 3,668 $ 3,509 $ 1,828
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 13,817 $ 9,161 $ 14,550
---------- ---------- ----------
Income taxes, net of refunds $ (141) $ (1,777) $ (625)
---------- ---------- ----------
The accompanying notes are an integral part of these consolidated financial statements.
|
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) GENERAL
(a) NATURE OF OPERATIONS
Darling International Inc. (the "Company") is a recycler of food processing by-products in the United States, operating a fleet of vehicles, through which it collects animal by-products and used restaurant cooking oil from butcher shops, grocery stores, independent meat and poultry processors and restaurants nationwide. The Company processes raw materials through facilities located throughout the United States into finished products, such as tallow, meat and bone meal, and yellow grease. The Company sells its finished products domestically and internationally to producers of soap, cosmetics, rubber, pet food and livestock feed for use as ingredients in such products.
On October 22, 1993, the Company entered into a settlement agreement approved by the U.S. District Court providing for a restructure of the Company's debt and equity and resolution of a class action lawsuit (the "Settlement"). The terms of the settlement were tantamount to a prepackaged bankruptcy despite the settlement not occurring under Chapter 11 of the Bankruptcy Code. On December 29, 1993, the Settlement was consummated and became binding on all original note holders. The Company has accounted for the Settlement using "Fresh Start Reporting" as of January 1, 1994, in accordance with Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the United States Bankruptcy Code" issued by the American Institute of Certified Public Accountants. Using a valuation of the Company performed by an independent appraiser, the Company determined the total reorganization value of all its assets to be approximately $236,294,000 as of January 1, 1994 and the Company's accumulated deficit was eliminated as of January 1, 1994.
(b) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Basis of Presentation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. As disclosed in Note 15, the operations of IPC, as defined below, are classified as discontinued operations.
(2) Fiscal Year
The Company has a 52/53 week fiscal year ending on the Saturday nearest December 31. Fiscal years for the consolidated financial statements included herein are for the 52 weeks ended December 29, 2001, the 52 weeks ended December 30, 2000, and the 52 weeks ended January 1, 2000.
(3) Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method.
(4) Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is computed by the straight-line method over the estimated useful lives of assets: 1) Buildings and improvements, 24 to 30 years; 2) Machinery and equipment, 3 to 8 years; and 3) Vehicles, 4 to 6 years.
Maintenance and repairs are charged to expense as incurred and expenditures for major renewals and improvements are capitalized.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(5) Collection Routes and Contracts
Collection routes consist of groups of suppliers of raw materials in similar geographic areas from which the Company derives collection fees, and a dependable source of raw materials for processing into finished products. Restrictive covenants represent non-compete agreements with former competitors whose businesses were acquired. Amortization is computed by the straight-line method over the following periods: 1) Collection routes, 8 to 15 years; and 2) Restrictive covenants, 3 to 10 years.
(6) Goodwill
Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited, not exceeding 30 years. Annually, the Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved.
(7) Environmental Expenditures
Environmental expenditures incurred to mitigate or prevent environmental contamination that has yet to occur and that otherwise may result from future operations are capitalized. Expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenues are expensed or charged against established environmental reserves. Reserves are established when environmental assessments and/or clean-up requirements are probable and the costs are reasonably estimable.
(8) Income Taxes
The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(9) Earnings Per Common Share
Basic earnings per common share are computed by dividing net earnings attributable to outstanding common stock by the weighted average number of common shares outstanding during the year. Diluted earnings per common share are computed by dividing net earnings attributable to outstanding common stock by the weighted average number of common shares outstanding during the year increased by dilutive common equivalent shares (stock options) determined using the treasury stock method, based on the average market price exceeding the exercise price of the stock options.
The weighted average common shares used for basic earnings per common share was 15,568,362, 15,568,362 and 15,568,362 for 2001, 2000 and 1999, respectively. The numbers of shares for 2000 and 1999 have been reduced for 21,000 treasury shares from numbers previously reported, which did not effect previously reported earnings per share.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
For 2001, 2000 and 1999 the effect of all outstanding stock options was excluded from diluted earnings per common share because the effect was anti-dilutive.
(10) Stock Option Plans
The Company accounts for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(11) Statements of Cash Flows
The Company considers all short-term highly liquid instruments, with an original maturity of three months or less, to be cash equivalents.
(12) Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(13) Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed Of
The Company applies the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
In Fiscal 2001, Fiscal 2000, and Fiscal 1999, the Company recorded impairment charges of $840,000, $4,016,000, and $1,387,000, respectively, to reduce the value of goodwill and certain land, buildings and equipment to estimated fair value. The impairment charges are included in depreciation and amortization expense in the accompanying Fiscal 2001, Fiscal 2000 and Fiscal 1999 Consolidated Statements of Operations.
The Fiscal 2001 impairment charge of $840,000 pertains solely to assets held for sale (see Note 5) in the Company's rendering business segment. The impairment charges were necessary to reduce the carrying value of these assets to management's estimate of
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
their net realizable value in light of current economic conditions. Estimated net realizable values were based on information from business and real estate brokers, comparable sales, property tax valuations and internal discussions with Company employees working in the geographic areas who were familiar with the specific assets. A summary of the impairment charge follows (in thousands):
Land $106
Leaseholds and buildings 134
Equipment and furniture 600
----
Total impairment $840
====
The Fiscal 2000 impairment charge of $4,016,000
|
consists of (1) $2,138,000 related to rendering business segment operating assets, (2) $162,000 and $375,000 related to restaurant services business segment equipment and allocable goodwill, respectively, and (3) $1,341,000 related to assets held for sale in the Company's rendering business segment. The impairment charges of the assets in operation were made to reduce the carrying value to estimated fair value based on the discounted future cash flows of the assets. The impairment charges of the assets held for sale were necessary to reduce the carrying value of these assets to management's estimate of their net realizable value based on information from a business broker. A summary of the impairment charge follows (in thousands):
Restaurant
Rendering Services Total
--------- ---------- -----
Leaseholds
and buildings $ 642 $ - $ 642
Equipment
and furniture 2,837 162 2,999
Goodwill - 375 375
-------- ------- --------
Total impairment $ 3,479 $ 537 $ 4,016
======== ======= ========
|
The Fiscal 1999 impairment charge of $1,387,000
pertains solely to assets held for sale in the
Company's rendering business segment. The impairment
charges were necessary to reduce the carrying value
of these assets to management's estimate of their net
realizable value. Estimated net realizable values
were based on an offer from a prospective buyer and
information from real estate brokers. A summary of
the impairment charge follows (in thousands):
Leaseholds and buildings $1,139
Equipment 248
------
Total impairment $1,387
======
(14) Financial Instruments
|
The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value due to the short maturity of these instruments.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The carrying amount for the Company's outstanding borrowings under the Credit Agreement and Term Loan described in Note 9, approximates the fair value due to the floating interest rates on the borrowings.
The fair values of the interest rate swap agreements were liabilities of $1,020,000 and $874,400 at December 29, 2001, and December 30, 2000, respectively. Current market pricing models were used to estimate fair value of interest rate swap agreements. See Note 9.
(15) Derivative Instruments
The Company makes limited use of derivative instruments to manage cash flow risks related to interest and natural gas expense. Interest rate swaps are entered into with the intent of managing overall borrowing costs. The Company does not use derivative instruments for trading purposes.
Effective December 31, 2000 (the first day of Fiscal 2001), the Company adopted the provisions of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement 133). Statement 133, as amended, standardizes the accounting for derivatives instruments, including certain derivative instruments embedded in other contracts. Under the standard, entities are required to report all derivative instruments in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, on the reason for holding the instrument. If certain conditions are met, entities may elect to designate a derivative instrument as a hedge of exposures to changes in fair value, cash flows, or foreign currencies. The Company held no fair value hedge or foreign currency hedge derivative instruments at December 30, 2000 or December 29, 2001. If the hedged exposure is a cash flow exposure, the effective portion of the gain or loss on the derivative instrument is reported initially as a component of other comprehensive income (outside of earnings) and is subsequently reclassified into earnings when the forecasted transaction affects earnings. Any amounts excluded from the assessment of hedge effectiveness as well as the ineffective portion of the gain or loss are reported in earnings immediately. If the derivative instrument is not designated as a hedge, the gain or loss is recognized in earnings in the period of change. Upon adoption, the provisions of Statement 133 must be applied prospectively.
Upon adoption of Statement 133 on December 31, 2000, the Company was party to interest rate and natural gas swaps to manage the risk of changes in cash flows related to interest expense on floating-rate borrowings under its Credit Agreement and the purchase of natural gas used in its plants.
At December 30, 2000, the Company was party to three interest rate swap agreements whereby the interest obligation on $70 million of floating-rate debt has been exchanged for fixed rate contracts which bear interest, payable quarterly. One swap agreement for $25 million matures June 27, 2002, bears interest at 6.5925% and the Company's receive rate is based on the three-month LIBOR. A second swap agreement for $25 million matured June 27, 2001, bore interest at 9.83% and the Company's receive rate was based on the Base Rate. The third swap agreement for $20 million matures June 27, 2002, with a one-time option for the bank to cancel at June 27, 2001, which the bank declined to exercise, bears interest at 9.17% and the Company's receive rate is based on the Base Rate. Due to the uncertainty related to the Company's ability to renew its Credit Agreement (see Notes 2 and 9), the portion of the interest rate swap agreements extending beyond June 30, 2001, the expiration date of the Credit Agreement, was not considered a hedge. The Company recorded a liability of $0.5 million at December 30, 2000, with the related charge recorded in other expense. The Company continues to
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
follow this policy in Fiscal 2001. At December 29, 2001, the fair value of this liability is $1.0 million. The Company accounted for the portion of the interest rate swaps through June 30, 2001 as cash flow hedges. The fair value of this portion of the swaps was a liability of $0.4 million at December 30, 2000.
At December 30, 2000 and through March 2001, the Company was party to natural gas swap agreements representing approximately 300,000 mmbtu's of natural gas per month for January, February and March, 2001, with a NYMEX purchase price of approximately $4.682/mmbtu. At December 30, 2000, the fair value of the Company's positions in these swap agreements was an asset of $2.6 million. All of the Company's positions in these swap agreements were settled during the three months ended March 31, 2001, and the Company no longer uses natural gas swap agreements to manage its cash flow risk arising from the purchase of natural gas used in its plants.
As of December 29, 2001, the Company has forward purchase agreements in place for purchases of approximately 1,500,000 mmbtu's of natural gas for the period January through December, 2002, based on an average purchase price of $3.47/mmbtu. These agreements have no net settlement provisions and the Company intends to take physical delivery, which it has done under similar forward purchase agreements from March through December, 2001. Accordingly, the agreements are not subject to the requirements of Statement 133 because they qualify as normal purchases as defined in the standard.
The Company has designated the interest rate and natural gas swap agreements as cash flow hedges and such agreements qualify for hedge accounting under Statement 133, except as described above for certain portions of two of the interest rate swaps. A summary of the transition adjustment recorded to other comprehensive income, the net change arising from hedging transactions, and the amounts recognized in earnings during the twelve-month period ended December 29, 2001 follows (in thousands):
Transition adjustment on December 31, 2000
to accumulated other comprehensive income $ 2,220
Net change arising from current period
hedging transactions 376
Reclassifications into earnings (2,576)
----------
Accumulated other comprehensive
loss at December 29, 2001 $ -
==========
A summary of the gains and losses recognized in
earnings during the year ended December 29, 2001
follows (in thousands):
Loss to interest expense related to
interest rate swap agreements $ (487)
Gain to operating expenses related to
natural gas swap agreements (effective portion) 2,568
Gain to other income related to
natural gas swap agreements (ineffective portion) 515
----------
Total reclassifications into earnings for the
year ended December 29, 2001 $ 2,596
==========
|
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Gains and losses reported in accumulated other comprehensive income are reclassified into earnings upon the occurrence of the hedged transactions (accrual of interest expense and purchase of natural gas).
The entire amount reported in accumulated other comprehensive income as of December 31, 2000 (transition), was reclassified into earnings by the second quarter of Fiscal 2001.
There was no income tax expense or benefit recorded related to the derivative transactions described above.
For Fiscal 2000 and 1999, interest rate swaps were accounted for under the accrual method, whereby the difference between the Company's pay and receive rate was recognized as an increase or decrease to interest expense. The natural gas fixed for float swap agreements to which the Company was party during Fiscal 2000 are traded on the NYMEX. Realized gains or losses from the settlement of these financial hedging instruments were recognized as an adjustment of the cost of purchased natural gas in the month of delivery during Fiscal 2000. The gains or losses realized as a result of these Fiscal 2000 hedging activities were substantially offset in the cash market when the hedged natural gas was delivered to the Company's facilities.
(16) Comprehensive Income
The Company follows the provisions of Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (Statement 130). Statement 130 establishes standards for reporting and presentation of comprehensive income and its components. In accordance with Statement 130, the Company has presented the components of comprehensive income in its consolidated statement of stockholders' equity.
(17) Revenue Recognition
The Company recognizes revenue on sales when products are shipped and the customer takes ownership and assumes risk of loss. Collection fees are recognized in the month the service is provided.
(18) Reclassifications
Certain immaterial reclassifications of amounts previously reported have been made to the Fiscal 2000 and Fiscal 1999 consolidated financial statements to conform the presentation for each year.
(2) LIQUIDITY AND GOING CONCERN RISK
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the Consolidated Balance Sheet at December 29, 2001, the Company has $120.0 million of debt due under its bank credit facilities classified as a current liability because the underlying Credit Agreement had a maturity date of June 30, 2001. Effective June 29, 2001, the Company entered into a series of forbearance agreements and amendments with the parties to its existing Credit Agreement. The forbearance agreements and amendments, among other things, provide that the lenders will not exercise their remedies under the Credit Agreement for certain defaults until the expiration of the forbearance period on April 30, 2002 (subject to a proposed amendment to the forbearance agreement that would extend the forbearance agreement to May 31, 2002) and will continue to make revolving loans to the Company, raise the interest rate under the Credit Agreement from 1% over prime to 3% over prime, require the payment of a fee of $3.9 million to the lenders with respect to the forbearance agreements, reduce the commitment during the forbearance period by $2.0 million, from $128.5 million to $126.5 million, and limit financial covenants to
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
certain minimum cash flows, based upon the Company's own projected cash flow for certain periods during the forbearance period.
On March 15, 2002, the Company entered into a Recapitalization Agreement. Under the terms of the Recapitalization Agreement, the forbearance period is extended to April 30, 2002 (subject to a proposed amendment to the forbearance agreement that would extend the forbearance agreement to May 31, 2002), if the recapitalization transaction is contemplated, the Company will exchange the borrowings outstanding under its existing Credit Agreement, a portion of the accrued interest and commitment fees, and forbearance fees payable for newly issued common stock equal to 75% of the Company's total outstanding common shares on a fully-diluted basis (exclusive of stock options issued and outstanding) and 6% cumulative redeemable preferred stock with a face value of $10.0 million. If the recapitalization is consummated, a new amended and restated credit agreement which is anticipated to result in borrowings under a term loan of $68.3 million, and a revolving credit agreement which will enable the Company to borrow up to $10.1 million. The consummation of the Recapitalization is subject to a number of conditions and termination rights.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments related to recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Because the Company did not make the principal payments under the credit facility when it matured on June 30, 2001, the Company is in default under its existing credit agreement. In connection with the Recapitalization Agreement, the Lenders agreed to extend the forbearance period and not exercise their remedies until April 30, 2002. We have agreed in principle with the Lenders on an amendment to the forbearance agreement that would extend the forbearance period to May 31, 2002 but this amendment has not been signed yet. If the Company is unable to consummate a new financing arrangement, then, in the absence of another business transaction or debt agreement, the Company cannot make the principal payment due under the existing Credit Agreement and, accordingly, after the expiration of the forbearance period, the lenders could exercise their rights to realize upon the collateral securing the debt (which comprises substantially all the Company's assets). As a result of this material uncertainty, there is doubt about the Company's ability to continue as a going concern. The absence of a new financing arrangement creates a material uncertainty regarding the ability of the Company to continue as a going concern. Management is not able to predict what the outcome or consequences of these matters might be.
(3) INVENTORIES
A summary of inventories follows (in thousands):
December 29, December 30,
2001 2000
------------ ------------
Finished product $ 6,117 $ 7,117
Supplies and other 1,581 1,183
-------- --------
$ 7,698 $ 8,300
======== ========
|
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(4) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows (in thousands):
December 29, December 30,
2001 2000
------------ ------------
Land $ 9,454 $ 9,871
Buildings and improvements 25,906 27,272
Machinery and equipment 139,248 139,678
Vehicles 49,084 48,041
Construction in process 6,607 4,324
---------- ---------
230,299 229,186
Accumulated depreciation 155,555 140,944
---------- ---------
$ 74,744 $ 88,242
========== =========
(5) ASSETS HELD FOR SALE
|
Assets held for sale consist of the following (in thousands):
December 29, December 30,
2001 2000
----------- ------------
Esteem (Norfolk, NE) $ 1,200 $ 1,400
Peptide (Norfolk, NE) 500 862
Petaluma, CA 497 -
Billings, MT 421 372
West Point, NE 118 -
Lynchburg, VA 100 -
Shelbyville, VA 62 -
Zanesville, VA 54 -
Goldsboro, NC 50 -
Milwaukee, WI - 527
---------- ---------
$ 3,002 $ 3,161
========== =========
|
The Esteem and Peptide assets are principally idle machinery and equipment. Assets at other locations are either closed rendering facilities or closed transfer stations (locations where raw materials collected from suppliers are aggregated and transferred to processing plants) and consist primarily of land. None of the above assets was operated during Fiscal 2001 and Fiscal 2000. The effect of suspending depreciation of these assets was approximately $0.2 million in both Fiscal 2001 and 2000.
As discussed in Note 1, the Company recorded impairment charges related to certain of the assets held for sale in Fiscal 2001, Fiscal 2000 and Fiscal 1999. Included in the Fiscal 2001 and 2000 impairment charges are the following amounts to reduce the carrying value of assets held for sale to estimated net realizable value (in thousands):
December 29, December 30,
2001 2000
----------- ------------
Esteem $ 210 $ 1,083
Peptide 439 258
Other assets 191 -
---------- ---------
Total $ 840 $ 1,341
========== =========
|
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
During Fiscal 2001, management changed its assessment of the period of time in which the assets held for sale could likely be sold. Accordingly, the balance of assets held for sales is classified as a noncurrent asset at December 29, 2001. Management expects to dispose of the assets held for sale during Fiscal 2003.
(6) OTHER ASSETS
Other assets consist of the following (in thousands):
December 29, December 30,
2001 2000
-----------------------------------
Prepaid pension cost (Note 13) $ 2,359 $ 2,054
Deposits and other 1,526 951
Deferred recapitalization costs 3,762 -
------- -------
$ 7,647 $ 3,005
======= =======
(7) ACCRUED EXPENSES
|
Accrued expenses consist of the following (in thousands):
December 29, December 30,
2001 2000
----------------------------
Compensation and benefits $ 6,750 $ 4,093
Utilities and sewage 3,944 3,981
Accrued plant expenses 2,590 2,048
Accrued forbearance fees 2,570 -
Insurance (Note 16) 2,604 6,004
Accrued freight cost 1,208 1,053
Accrued interest rate swap liability 1,020 436
Accrued taxes 888 1,359
Reserve for environmental and litigation
matters (Note 16) 599 1,149
Non-compete agreements 363 1,620
Other accrued expense 1,533 1,417
-------- --------
$ 24,069 $ 23,160
======= =======
|
(8) LEASES
The Company leases five plants and storage locations, four office locations and a portion of its transportation equipment under operating leases. Leases are noncancellable and expire at various times through the year 2028. Minimum rental commitments under noncancellable leases as of December 29, 2001, are as follows (in thousands):
Period Ending Fiscal Operating Leases
-------------------- ----------------
2002 $ 3,627
2003 2,725
2004 2,086
2005 1,335
2006 515
Thereafter 8,504
-------
Total $ 18,792
======
|
Rent expense for the years ended December 29, 2001, December 30, 2000, and January 1, 2000 was $4.2 million, $3.2 million and $2.6 million, respectively.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(9) DEBT
Debt consists of the following (in thousands):
December 29, December 30,
2001 2000
-----------------------------------
Credit Agreement:
Revolving Credit Facility $120,027 $109,498
Term Loan - -
Other notes 26 30
-------- --------
120,053 109,528
Less current maturities 120,053 109,528
-------- --------
$ - $ -
======== ========
|
See the discussion regarding Liquidity and Going Concern Risk in Note
2. CREDIT AGREEMENT
Effective June 5, 1997, the Company entered into a Credit Agreement (the "Credit Agreement") which originally provided for borrowings in the form of a $50,000,000 Term Loan and $175,000,000 Revolving Credit Facility. On October 3, 1998, the Company entered into an amendment of the Credit Agreement whereby BankBoston, N.A., as agent, and the other participant banks in the Credit Agreement (the "Banks") agreed to forbear from exercising rights and remedies arising as a result of several existing events of default of certain financial covenants (the "Defaults") under the Credit Agreement, as amended, until November 9, 1998.
On November 6, 1998, the Company entered into an extension of the amended Credit Agreement whereby the Banks agreed to forbear from exercising rights and remedies arising as a result of the Defaults until December 14, 1998. The forbearance period was subsequently extended to January 22, 1999. On January 22, 1999, the Company and the banks amended and restated the Credit Agreement.
The Credit Agreement, as amended, provided for borrowings in the form of a $36,702,000 Term Loan and $135,000,000 Revolving Credit Facility. At December 30, 2000, the Term Loan had been paid in full and the availability under the revolver was $128.5 million. Substantially all assets of the Company are either pledged or mortgaged as collateral for borrowings under the Credit Agreement. The Credit Agreement contains certain terms and covenants, which, among other matters, restrict the incurrence of additional indebtedness, the payment of cash dividends, the retention of certain proceeds from sales of assets, and the annual amount of capital expenditures, and requires the maintenance of certain minimum financial ratios.
As shown in the Consolidated Balance Sheet at December 29, 2001, the Company has $120.0 million of debt due under its bank credit facilities classified as a current liability because the underlying Credit Agreement had an expiration date of June 30, 2001. Effective June 29, 2001, the Company entered into a series of forbearance agreements and amendments with the parties to its existing Credit Agreement. The forbearance agreements and amendments, among other things, provide that the lenders will not exercise their remedies under the Credit Agreement for certain defaults until April 30, 2002 (subject to a proposed amendment to the forbearance agreement that would extend the forbearance agreement to May 31, 2002) and will continue to make revolving loans to the Company, raise the interest rate under the Credit Agreement from 1% over prime to 3% over prime, require the payment of a fee of $3.9 million to the lenders with respect to the forbearance agreements, reduce the commitment during the forbearance period by $2.0 million, from $128.5 million to $126.5 million, and limit financial covenants to certain minimum cash flows, based upon the Company's own projected cash flow for certain periods during the forbearance period.
On March 15, 2002, the Company entered into a Recapitalization Agreement. Under the terms of the Recapitalization Agreement, the forbearance period is extended to April 30, 2002 (subject to a proposed
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
amendment to the forbearance agreement that would extend the forbearance agreement to May 31, 2002), and if the recapitalization transaction is consummated, the Company will exchange the borrowings outstanding under its existing Credit Agreement, accrued interest, and forbearance fees payable for newly issued common stock equal to 75% of the Company's total outstanding common shares on a fully-diluted basis (exclusive of stock options issued and outstanding) and 6% cumulative redeemable preferred stock with a face value of $10.0 million. The Company and its lenders will use their best efforts to consummate a new Credit Agreement which is anticipated to result in borrowings under a senior term loan of $68.3 million and a revolving credit agreement which will enable the Company to borrow up to $10.1 million.
(10) OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of the following (in thousands):
December 29, December 30,
2001 2000
----------------------------------
Reserve for insurance, environmental,
litigation and tax matters (Note 16) $ 7,184 $13,214
Liabilities associated with consulting and
noncompete agreements 758 2,868
Other 192 165
-------- --------
$ 8,134 $16,247
======= ======
|
During Fiscal 2001, the Company made cash payments under letter of credit arrangements to its insurance claims administrator and to one party to a noncompete agreement of $5.9 million and $1.8 million, respectively.
The Company sponsors a defined benefit health care plan that provides postretirement medical and life insurance benefits to certain employees. The Company accounts for this plan in accordance with Statement of Financial Accounting Standards No. 106 and the effect on the Company's financial position and results of operations is immaterial.
(11) INCOME TAXES
Income tax expense (benefit) attributable to income (loss) from continuing operations before income taxes consists of the following (in thousands):
December 29, December 30, January 1,
2001 2000 2000
----------------------------------------------------
Current:
Federal $ - $ - $ -
State - - -
Foreign - - -
Deferred:
Federal - - (9,183)
State - - (796)
Foreign - - (36)
--------- --------- --------
$ - $ - $(10,015)
========= ========= =======
|
Income tax benefit for the years ended December 29, 2001, December 30, 2000, and January 1, 2000, differed from the amount computed by applying the statutory U.S. federal income tax rate (35%) to loss from continuing operations before income taxes as a result of the following (in thousands):
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 29, December 30, January 1,
2001 2000 2000
---------------------------------------------------
Computed "expected" tax benefit $ (4,146) $ (6,846) $ (9,000)
State income taxes, net of federal effect - - (517)
Change in valuation allowance 4,289 7,554 (311)
Other, net (143) (708) (187)
--------- -------- ---------
$ - $ - $(10,015)
========== =========== =======
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 29, 2001 and December 30, 2000 are presented below (in thousands):
December 29, December 30,
2001 2000
-----------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 34,208 $ 35,668
Capital loss carryforwards - -
Loss contingency reserves 4,229 5,457
Other 1,753 1,314
--------- ---------
Total gross deferred tax assets 40,190 42,439
Less valuation allowance (25,994) (21,705)
-------- --------
Net deferred tax assets 14,196 20,734
-------- --------
Deferred tax liabilities:
Collection routes and contracts (5,250) (6,926)
Property, plant and equipment (8,016) (13,023)
Other (717) (572)
--------- ---------
Total gross deferred tax liabilities (13,983) (20,521)
------- -------
$ 213 $ 213
========= =========
|
The portion of the deferred tax assets and liabilities expected to be recognized in Fiscal 2001 has been recorded at December 29, 2001, in the accompanying consolidated balance sheet as a net current deferred income tax asset of $2,203,000. The remaining non-current deferred tax assets and liabilities have been recorded as a net deferred income tax liability of $1,990,000 at December 29, 2001 in the accompanying consolidated balance sheet.
The valuation allowance for deferred tax assets as of December 29, 2001 and December 30, 2000 was $25,994,000 and $21,705,000, respectively. The net changes in the total valuation allowance was an increase of $4,289,000 for the year ended December 29, 2001 and an increase of $7,554,000 for the year ended December 30, 2000 . The Company believes that the remaining net deferred tax assets at December 29, 2001 will be realized primarily through future reversals of existing taxable temporary differences.
At December 29, 2001, the Company had net operating loss carryforwards for federal income tax purposes of approximately $90,020,000 which are available to offset future federal taxable income through 2019. The availability of the net operating loss carryforwards to reduce future taxable income is subject to various limitations. As a result of the change in ownership, the Company believes utilization of its pre-1994 net operating loss carryforwards ($72,280,000) is limited to $3,400,000 per year for the remaining life of the net operating losses.
(12) STOCKHOLDERS' EQUITY
At December 29, 1993, the Company granted options to purchase 384,615 shares of the Company's common stock to the former owners of the Redeemable Preferred Stock. The options have a term of ten years from the date of grant and may be exercised at a price of $3.45 per share (approximated market value at the date of grant).
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The 1993 Flexible Stock Option Plan and the 1994 Employee Flexible Stock Option Plan provide for the granting of stock options to key officers and salaried employees of the Company and its subsidiaries. Options to purchase common stock were granted at a price approximating fair market value at the date of grant. Options granted under the plans expire ten years from the date of grant. Vesting occurs on each anniversary of the grant date as defined in the specific option agreement. The plans also provide for the acceleration by one year of vesting of all non-vested shares upon the termination of the employee's employment in certain circumstances or upon a change in management control.
The Non-Employee Directors Stock Option Plan provides for the granting of options to non-employee directors of the Company. As of December 29, 2001, options to purchase 703,385 shares of common stock had been granted pursuant to this plan. The options have a term of ten years from the date of grant and may be exercised at a price of $1.75 - $9.042 per share (market value at the date of grant). The options vest 25% six months after the grant date and 25% on each anniversary date thereafter.
The per share weighted average fair value of stock options granted during 2001, 2000 and 1999 was $0.46, $1.65 and $5.57, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted assumptions:
2001 2000 1999
--------------------------------------------------------
Expected dividend yield 0.0% 0.0% 0.0%
Risk-free interest rate 5.14% 5.28% 6.38%
Expected life 10 years 10 years 10 years
Expected annual volatility 42.31-100.94% 42.31-98.64% 62.41-66.59%
|
The Company applies APB Opinion No. 25 in accounting for its Plans and, accordingly, no compensation cost has been recognized for its stock options in the financial statements as stock options were granted at market value on the grant date. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's earnings (loss) from continuing operations would have been reduced to the pro forma amounts indicated below (in thousands, except per share):
2001 2000 1999
-----------------------------------------
Net loss
As reported $(11,845) $(19,189) $(16,033)
Pro forma $(12,132) $(20,415) $(16,534)
Basic loss per common share
As reported $(0.76) $(1.23) $(1.03)
Pro forma $(0.78) $(1.31) $(1.06)
|
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
A summary of transactions for all stock options granted follows:
Number of Option exercise Weighted-avg.
shares price per share exercise price per
share
--------------------------------------------------------
Options outstanding at January 2, 1999 3,078,322 $2.86-10.88 $6.05
Granted 111,000 1.75-2.63 2.12
Canceled (952,687) 2.63-10.29 6.43
----------
Options outstanding at January 1, 2000 2,236,635 1.75-10.88 5.69
=========
Granted 1,129,050 0.50-1.75 1.11
Canceled (1,031,305) 2.625-10.875 7.74
----------
Options outstanding at December 30, 2000 2,334,380 0.50-9.50 2.43
=========
Granted 703,385 0.50 0.50
Canceled (11,900) 4.125-9.50 6.38
Options outstanding at December 29, 2001 3,025,865 0.50-9.042 2.08
=========
Options exercisable at December 29, 2001 2,407,867 0.50-9.042 $2.46
=========
|
At December 29, 2001, the range of exercise prices and weighted-average remaining contractual life of outstanding options was $0.50-9.042 and 7.5 years, respectively.
At December 29, 2001 and December 30, 2000, the number of options exercisable was 2,407,867 and 2,253,590, respectively, and the weighted-average exercise price of those options was $2.46 and $2.43, respectively.
(13) EMPLOYEE BENEFIT PLANS
The Company has retirement and pension plans covering substantially all of its employees. Most retirement benefits are provided by the Company under separate final-pay noncontributory pension plans for all salaried and hourly employees (excluding those covered by union-sponsored plans) who meet service and age requirements. Benefits are based principally on length of service and earnings patterns during the five years preceding retirement.
The Company's funding policy for those plans is to contribute annually not less than the minimum amount required nor more than the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.
The following table sets forth the plans' funded status and amounts recognized in the Company's consolidated balance sheets based on the measurement date (October 1, 2001 and 2000) (in thousands):
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
December 29, December 30,
2001 2000
--------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $45,404 $45,991
Service cost 1,305 1,478
Interest cost 3,425 3,363
Amendments 301 -
Actuarial (gain)/loss 1,541 (2,973)
Benefits paid (2,515) (2,455)
------- -------
Benefit obligation at end of year 49,461 45,404
------ ------
Change in plan assets:
Fair value of plan assets at beginning of year 48,881 46,683
Actual return on plan assets (4,727) 4,052
Employer contribution 710 601
Benefits paid (2,515) (2,455)
------- -------
Fair value of plan assets at end of year 42,349 48,881
------ ------
Funded status (7,112) 3,477
Unrecognized actuarial (gain)/loss 8,543 (2,148)
Unrecognized prior service cost 928 725
-------- --------
Net amount recognized $ 2,359 $ 2,054
======= =======
Amounts recognized in the consolidated balance sheets consist of:
Prepaid benefit cost $2,359 $2,054
Accrued benefit liability (713) -
Intangible asset 180 -
Accumulated other comprehensive income 533 -
------ --------
Net amount recognized $2,359 $2,054
===== =====
|
During December 2001, the Company's pension plans received common stock resulting from the demutualization of an insurance company with an aggregate fair value of $4.0 million which has been considered in the determination of the amount of minimum liability reported at December 29, 2001. Since the common stock was received after the October 1, 2001 measurement date, it is not included in the fair value of plan assets at end of year in the table above. The common stock received will be considered an asset of the plans for purposes of determining Fiscal 2002 net pension cost.
Net pension cost includes the following components (in thousands):
December 29, December 30, January 1,
2001 2000 2000
----------------------------------------------------
Service cost $1,305 $1,478 $1,781
Interest cost 3,425 3,363 3,110
Expected return on plan assets (4,424) (4,217) (3,894)
Net amortization and deferral 98 98 73
------- ------- ------
Net pension cost $ 404 $ 722 $1,070
====== ====== ======
|
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Assumptions used in accounting for the employee benefit pension plans
were:
December 29, December 30, January 1,
2001 2000 2000
------------------------------------------------------
Weighted average discount rate 7.50% 7.75% 7.50%
Rate of increase in future compensation levels 5.16% 5.08% 5.17%
Expected long-term rate of return on assets 9.25% 9.25% 9.25%
|
The Company participates in several multi-employer pension plans which provide defined benefits to certain employees covered by labor contracts. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts. Information with respect to the Company's proportionate share of the excess, if any, of the actuarially computed value of vested benefits over these pension plans' net assets is not available. The cost of such plans amounted to $1,491,000, $1,384,000 and $1,306,000 for the years ended December 29, 2001, December 30, 2000, and January 1, 2000, respectively.
(14) CONCENTRATION OF CREDIT RISK
Concentration of credit risk is limited due to the Company's diversified customer base and the fact that the Company sells commodities. No single customer accounted for more than 10% of the Company's net sales in 2001, 2000 and 1999.
(15) DISCONTINUED OPERATIONS
In 1998, the Company made a decision to discontinue the operations of the Bakery By-Products Recycling business segment in order to concentrate its financial and human resources on its other businesses. The disposal of this business was accounted for as a discontinued operation. Gain (loss) on disposal relates to an adjustment of the indemnification liability in Fiscal 1999 and write-off of the liability in Fiscal 2000 upon termination of the indemnification period.
(16) CONTINGENCIES
LITIGATION
Melvindale
A group of residents living near the Company's Melvindale, Michigan plant has filed suit, purportedly on behalf of a class of persons similarly situated. The class has been certified for injunctive relief only. The court declined to certify a damage class but has permitted approximately 300 people to join the lawsuit as plaintiffs. The suit is based on legal theories of trespass, nuisance and negligence and/or gross negligence, and is pending in the United States District Court, Eastern District of Michigan. Plaintiffs allege that emissions to the air, particularly odor, from the plant have reduced the value and enjoyment of Plaintiffs' property, and Plaintiffs seek unspecified compensatory and exemplary damages in an amount in excess of $25,000 per plaintiff and unspecified injunctive relief. The Company is unable to estimate its potential liability from this lawsuit. In a lawsuit with similar factual allegations, also pending in United States District Court, Eastern District of Michigan, the City of Melvindale has filed suit against the Company based on legal theories of nuisance, trespass, negligence and violation of Melvindale nuisance ordinances seeking damages and declaratory and injunctive relief. The court has dismissed the trespass counts in both lawsuits, and all of the damage claims in the suit filed by the City of Melvindale have been dismissed. The City of Melvindale now seeks unspecified injunctive relief. The Company or its predecessors have operated a rendering plant at the Melvindale location since 1927 in a heavily industrialized area down river south of Detroit. The Company has taken and is taking all reasonable steps to minimize odor emissions from its recycling processes and is defending the lawsuit vigorously.
Long Island City, NY
The Company is a party to a lawsuit that seeks to require an environmental cleanup at a property in Long Island City, New York where the Company formerly operated a rendering plant (referred to as the "Site"). DMJ Associates (DMJ), which holds a mortgage on the Site, has filed suit against the Company, as a former owner of the Site, as well as others including the present tenants and operators of the Site, the owner of an abandoned hazardous waste disposal site adjoining the Site (the "Disposal Facility"), and companies that disposed of wastes at the Disposal Facility (the "Generator Defendants"). DMJ argues that, inter alia, under federal law it is entitled to relief directed to have the defendants remediate the contamination. DMJ seeks both equitable and monetary relief from all defendants for investigation, abatement and remediation of the Site. DMJ has not yet provided information sufficient for the Company to ascertain the magnitude or amount of DMJ's total claim nor the Company's alleged share thereof. As a result, the Company is unable to estimate its potential liability from this lawsuit. The Company does not have information suggesting that it contributed in any material way to any contamination that may exist at the Site. The Company is actively defending the suit and is awaiting a decision on a motion on summary judgment regarding the standing of the plaintiff.
Sauget, Illinois
The Company is a party to a lawsuit that seeks to recover costs related to an environmental cleanup in or near Sauget, Illinois. The United States had filed a complaint against Monsanto Chemical Company, Solutia, Inc., Anheuser-Busch, Inc., Union Electric, and 14 other defendants, seeking to recover cleanup costs. Monsanto (which merged with Pharmacia and Upjohn, Inc in 2000 and is now known as Pharmacia Corporation) and Solutia in turn filed a third party complaint seeking contribution from the United States, several federal agencies, and six more companies, in addition to the Company. As potentially responsible parties themselves, Pharmacia and Solutia are seeking to recover unspecified proportionate shares from each of the other parties, in addition to the Company, of an as yet undetermined total cleanup cost. A subsidiary of the Company had operated an inorganic fertilizer plant in Sauget, Illinois for a number of years prior to closing it in the 1960's. The Company is defending this case vigorously, and does not believe, based upon currently available information, that the fertilizer plant contributed in any significant way to the contamination that is leading to the environmental cleanup, or that its share, if any, of the cost of the cleanup will be material. Accordingly, the Company is unable to estimate its potential liability from this lawsuit.
Other Litigation
The Company is also a party to several other lawsuits, claims and loss contingencies incidental to its business, including assertions by certain regulatory agencies related to air, wastewater, and stormwater discharges from the Company's processing facilities.
Self Insured Risks
The Company purchases its workers compensation, auto and general liability insurance on a retrospective basis. The Company accrues its expected ultimate costs related to claims occurring during each fiscal year and carries this accrual as a reserve until such claims are paid by the Company.
The Company has established loss reserves for insurance, environmental and litigation matters as a result of the matters discussed above. Although the ultimate liability cannot be determined with certainty, management of the Company believes that reserves for contingencies are reasonable and sufficient based upon present governmental regulations and information currently available to management. The accrued expenses and other noncurrent liabilities classifications in the Company's consolidated balance sheets include reserves for insurance, environmental and litigation contingencies of $10.6 million and $20.4 million at December 29, 2001 and December 30, 2000, respectively. There can be no assurance, however, that final costs related to these matters will not exceed current estimates. The Company believes that any additional liability relative to lawsuits and claims which may not be covered by insurance would not likely have a material adverse effect on the
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Company's financial position, although it could potentially have a material impact on the results of operations in any one year.
(17) BUSINESS SEGMENTS
The Company operates on a worldwide basis within two industry segments:
Rendering and Restaurant Services. The measure of segment profit (loss)
includes all revenues, operating expenses (excluding certain amortization
of intangibles), and selling, general and administrative expenses
incurred at all operating locations and excludes general corporate
expenses.
Rendering consists of the collection and processing of animal by-products from butcher shops, grocery stores and independent meat and poultry processors, converting these wastes into similar products such as useable oils and proteins utilized by the agricultural and oleochemical industries.
Restaurant Services consists of the collection of used cooking oils from restaurants and recycling them into similar products such as high-energy animal feed ingredients and industrial oils. Restaurant Services also provides grease trap servicing.
Included in corporate activities are general corporate expenses and the amortization of intangibles related to "Fresh Start Reporting." Assets of corporate activities include cash, unallocated prepaid expenses, deferred tax assets, prepaid pension, and miscellaneous other assets.
December 29, December 30, January 1,
2001 2000 2000
----------------------------------------------------
Rendering:
Trade $194,960 $186,445 $204,631
Intersegment 31,182 26,011 27,970
-------- -------- --------
226,142 212,456 232,601
------- ------- -------
Restaurant Services:
Trade 61,014 56,350 53,939
Intersegment 6,854 7,781 7,204
--------- --------- ---------
67,868 64,131 61,143
-------- -------- --------
Eliminations (38,036) (33,792) (35,174)
-------- -------- -------
Total $255,974 $242,795 $258,570
======= ======= =======
|
December 29, December 30, January 1,
2001 2000 2000
-----------------------------------------------------
Rendering $14,000 $ 8,170 $ 3,249
Restaurant Services 7,436 3,487 922
Corporate Activities (19,119) (17,246) (15,882)
Interest expense (14,162) (13,971) (14,004)
-------- ------- -------
Loss from continuing operations
before income taxes $(11,845) $(19,560) $(25,715)
======= ======= =======
|
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Certain assets are not attributable to a single operating segment but instead relate to multiple operating segments operating out of individual locations. These assets are utilized by both the Rendering and Restaurant Services business segments and are identified in the category Combined Rend./Rest. Svcs. Depreciation of Combined Rend./Rest. Svcs. assets is allocated based upon an estimate of the percentage of corresponding activity attributed to each segment. Additionally, although intangible assets are allocated to operating segments, the amortization related to the adoption of "Fresh Start Reporting" is not considered in the measure of operating segment profit (loss) and is included in Corporate Activities.
December 29, December 30,
2001 2000
-----------------------------------
Rendering $ 56,847 $ 64,199
Restaurant Services 14,779 17,290
Combined Rend./Rest. Svcs. 64,155 72,722
Corporate Activities 23,298 20,294
-------- --------
Total $159,079 $174,505
======= =======
|
December 29, December 30,
2001 2000
-----------------------------------
Depreciation and amortization:
Rendering $17,823 $21,531
Restaurant Services 6,333 6,323
Corporate Activities 2,478 3,327
------- -------
Total $26,634 $31,181
====== ======
Additions:
Rendering $ 3,327 $ 2,168
Restaurant Services 1,544 2,897
Combined Rend./Rest. Svcs. 1,292 2,159
Corporate Activities 2,979 460
------- --------
Total $ 9,142 $ 7,684
======= =======
|
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The Company has no material foreign operations, but exports a portion of its products to customers in various foreign countries.
December 29, December 30, January 1,
2001 2000 2000
----------------------------------------------------
United States $117,849 $114,102 $151,165
Korea 3,538 6,041 13,029
Spain 388 963 1,798
Mexico 23,390 25,090 19,320
Japan 1,075 1,916 2,162
N. Europe 1,444 707 2,095
Pacific Rim 9,838 889 9,008
Taiwan 552 1,775 2,415
Canada 993 864 580
Latin/South America 9,192 13,408 13,413
Other/Brokered 87,715 77,040 43,585
-------- -------- --------
Total $255,974 $242,795 $258,570
======= ======= =======
|
Other/Brokered trade revenues represent product for which the ultimate destination is not monitored.
(18) QUARTERLY FINANCIAL DATA (UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE AMOUNTS):
Year Ended December 29, 2001
------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
Net sales $63,634 $58,614 $65,045 $68,681
Operating income (loss) 1,503 (1,342) 942 2,865
Loss from continuing operations (1,149) (5,721) (3,519) (1,456)
Net loss (1,149) (5,721) (3,519) (1,456)
Basic loss per share (0.07) (0.37) (0.23) (0.09)
Diluted loss per share (0.07) (0.37) (0.23) (0.09)
|
Year Ended December 30, 2000
------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
Net sales $62,818 $61,557 $57,629 $60,791
Operating income (loss) 194 (1,200) (1,550) (2,849)
Loss from continuing operations (3,026) (4,766) (5,169) (6,599)
Discontinued operations -
Gain on disposal - 121 - 250
Net loss (3,026) (4,645) (5,169) (6,349)
Basic loss per share (0.19) (0.30) (0.33) (0.41)
Diluted loss per share (0.19) (0.30) (0.33) (0.41)
|
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(19) RECENTLY ISSUED ACCOUNTING STANDARDS
Recently, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, Business Combinations (Statement 141), Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (Statement 142), Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (Statement 143), and Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (Statement 144).
Statement 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method. Statement 141 also specifies the criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. The Company does not believe Statement 141 will have a significant impact on its consolidated financial statements. Statement 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized, but instead be tested for impairment at least annually. Statement 142 also requires that intangible assets with estimated useful lives be amortized over their respective useful lives to their estimated residual values, and reviewed for impairment. Statement 142 is effective for fiscal years beginning after December 15, 2001. Amortization expense related to goodwill that will not be amortized under Statement 142 was $242,000, $142,000 and $228,000 for Fiscal 2001, 2000 and 1999, respectively. Because of the extensive effort needed to comply with adopting Statement 142, it is not practicable to reasonably estimate the impact of adopting this standard at the date of this report, including whether we will be required to recognize any transitional impairment losses as the cumulative effect of a change in accounting principle.
Statement 143 establishes requirements for the accounting for removal costs associated with asset retirements and is effective for fiscal years beginning after June 15, 2002, with earlier adoption encouraged. The Company is currently assessing the impact of Statement 143 on its consolidated financial statements. Statement 144 supercedes Statement 121, Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. Statement 144 retains the fundamental provisions of Statement 121 but eliminates the requirement to allocate goodwill to long lived assets to be tested for impairment. Statement 144 also requires discontinued operations to be carried at the lower of cost or fair value less costs to sell and broadens the presentation of discontinued operations to include a component of an entity rather than a segment of a business. Statement 144 is effective for fiscal years beginning after December 15, 2001 and interim periods within those years with early adoption encouraged. The Company does not expect the adoption of Statement 144 to have a material impact on its consolidated financial statements.
SCHEDULE II
Valuation and Qualifying Accounts
(In thousands)
Additions Charged to:
Balance at --------------------- Balance at
Beginning Costs and End of
Description of Period Expenses Other Deductions Period
-------------------------------------------- ------------- -------------- -------------- --------------- ----------
Accumulated amortization of
collection routes and contracts:
Year ended December 29, 2001 $ 18,828 $ 5,014 $ - $ 1,703 $ 22,139
======= ======== ===== ========= =========
Year ended December 30, 2000 $ 15,819 $ 5,498 $ - $ 2,489 $ 18,828
======= ======== ===== ========= =========
Year ended January 1, 2000 $ 12,101 $ 5,686 $ 4 $ 1,972 $ 15,819
======= ======== ===== ========= =========
Accumulated amortization of
goodwill:
Year ended December 29, 2001 $ 883 $ 242 $ - $ 48 $ 1,077
========= ========== ===== ========== ========
Year ended December 30, 2000 $ 741 $ 142 $ - $ - $ 883
========= ========== ===== ========= ========
Year ended January 1, 2000 $ 513 $ 228 $ - $ - $ 741
========= ========== ===== ========= ========
|
Note: Deductions consist of the write-off of fully amortized collection routes and contracts and goodwill.
Reserve for bad debts:
Year ended December 29, 2001 $ 680 $ 582 $ - $ 795 $ 467
========= ========== ===== ======== ========
Year ended December 30, 2000 $ 2,408 $ 641 $ - $ 2,369 $ 680
======== ========== ===== ======== ========
Year ended January 1, 2000 $ 1,169 $ 1,604 $ - $ 365 $ 2,408
======== ========= ===== ======== ========
Deferred tax valuation allowance:
Year ended December 29, 2001 $ 21,705 $ 4,289 $ - $ - $ 25,994
======= ========= ===== ======== ========
Year ended December 30, 2000 $ 14,151 $ 7,554 $ - $ - $ 21,705
======= ========= ===== ======== ========
Year ended January 1, 2000 $ 14,462 $ - $ - $ 311 $ 14,151
======= ========= ===== ======== ========
|
Note: Deductions consist of write-offs of uncollectable accounts receivable.
DARLING INTERNATIONAL INC.
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial information was prepared to give effect to the transactions outlined under the heading "Recapitalization."
The unaudited pro forma consolidated balance sheet data as of March 30, 2002 and December 29, 2001 gives effect to the Recapitalization as if it had occurred on such dates. The unaudited consolidated statement of operations data for the three months ended March 30, 2002 and the year ended December 29, 2001 gives effect to the Recapitalization at the beginning of such periods.
The unaudited pro forma consolidated financial statements are not necessarily indicative of what our results would have been if the Recapitalization had actually occurred as of the dates indicated or of what our future operating results will be.
The unaudited pro forma consolidated financial statements should be read in conjunction with our unaudited consolidated financial statements as of and for the three months ended March 30, 2002, our audited consolidated financial statements as of and for the year ended December 29, 2001, and the information set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in this registration statement.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of March 30, 2002
(in thousands, except shares and per share data)
Pro Forma
Historical Adjustments Pro Forma
Assets
Current Assets:
Cash and cash equivalents $ 2,999 $ -- $ 2,999
Accounts receivable 18,957 -- 18,957
Inventories 7,874 -- 7,874
Prepaid expenses 5,316 -- 5,316
Deferred income taxes 2,203 -- 2,203
Other current assets 184 -- 184
----------------- --------- ------------
Total current assets 37,533 -- 37,533
Property, Plant and Equipment
less accumulated depreciation and amortization 75,064 -- 75,064
Collection Routes and Contracts, less accumulated 26,231 -- 26,231
amortization
Goodwill, less accumulated amortization 4,429 -- 4,429
Assets held for sale 3,002 -- 3,002
Other Noncurrent Assets 8,197 2,273 (a) 3,421
(7,049)(b)
Debt Issuance Costs -- 4,478 (b) 4,478
----------------- ----------------- -----------
Total Assets $ 154,456 $ (298) $ 154,158
================= ================= ===========
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Current portion of long-term debt $ 5,120 $ (5,097)(c) $ 3,646
3,623 (c)
Accounts payable, principally trade 7,864 -- 7,864
Accrued expenses 22,310 2,273 (a) 20,728
(3,855)(c)
Accrued interest 5,525 (4,775)(c) 750
----------------- ----------------- -----------
Total current liabilities 40,819 (7,831) 32,988
Long-term debt, less current portion 112,127 (112,127)(c) 76,328
76,328 (c)
Other noncurrent liabilities 8,591 -- 8,951
Deferred income taxes 1,990 -- 1,990
----------------- ----------------- ------------
Total liabilities 163,527 (43,630) 119,897
Series A 6% Cumulative Redeemable Preferred Stock,
Liquidation Preference $10,000,000; none
(historical) -- 8,072 (c) 7,619
and 100,000 (pro forma) shares issued and
outstanding (453)(b)
Stockholders' Equity (Deficit):
Preferred stock, $0.01 par value; 1,000,000 shares
authorized, none issued -- -- --
Common stock, $0.01 par value; 25,000,000
(historical) and 100,000,000 (pro forma) shares
authorized; 15,589,362 (historical) and 62,294,448
(pro forma) shares issued and outstanding 156 467 (c) 623
Additional paid-in capital 35,235 37,364 (c) 70,481
(2,118)(b)
Treasury stock, at cost, 21,000 shares (172) -- (172)
Accumulated comprehensive loss (533) -- (533)
Accumulated deficit (43,757) -- (43,757)
----------------- ----------------- ------------
Total stockholders' equity (deficit) (9,071) 35,713 26,642
------------------ ----------------- ------------
Total Liabilities and Stockholders' Equity (Deficit) $ 154,456 $ (298) $ 154,158
================== ================= ============
F-42
|
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of December 29, 2001
(in thousands, except shares and per share data)
Pro Forma
Historical Adjustments Pro Forma
Assets
Current Assets:
Cash and cash equivalents $ 3,668 $ -- $ 3,668
Accounts receivable 23,719 -- 23,719
Inventories 7,698 -- 7,698
Prepaid expenses 4,394 -- 4,394
Deferred income taxes 2,203 -- 2,203
Other current assets 209 -- 209
----------------- --------------- ------------
Total current assets 41,891 -- 41,891
Property, Plant and Equipment
less accumulated depreciation and amortization 74,744 -- 74,744
Collection Routes and Contracts, less accumulated
amortization 27,366 -- 27,366
Goodwill, less accumulated amortization 4,429 -- 4,429
Assets held for sale 3,002 3,002
Other Noncurrent Assets 7,647 3,715 (a) 3,885
(7,049) (b)
(428) (c)
Debt Issuance Costs -- 4,892 (b) 4,892
----------------- --------------- ------------
Total Assets $ 159,079 $ 1,130 $ 160,209
================= =============== ============
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Current portion of long-term debt $ 120,053 $ (120,027)(c) $ 5,097
5,071 (c)
Accounts payable, principally trade 11,104 -- 11,104
Accrued expenses 24,069 3,715 (a) 25,214
(2,570)(c)
Accrued interest 3,383 (3,383)(c) --
----------------- --------------- ------------
Total current liabilities 158,609 (117,194) 41,415
Long-term debt, less current portion -- 82,051 (c) 82,051
Other noncurrent liabilities 8,134 -- 8,134
Deferred income taxes 1,990 -- 1,990
----------------- --------------- ------------
Total liabilities 168,733 (35,143) 133,590
Series A 6% Cumulative Redeemable Preferred Stock,
Liquidation Preference $10,000,000; none
(historical) -- 8,072 (c) 7,619
and 100,000 (pro forma) shares issued and
outstanding (453)(b)
Stockholders' Equity (Deficit):
Preferred stock, $0.01 par value; 1,000,000 shares
authorized, none issued -- -- --
Common stock, $0.01 par value; 25,000,000
(historical) and 100,000,000 (pro forma) shares
authorized; 15,589,362 (historical) and 62,294,448
(pro forma) shares issued and outstanding 156 467 (c) 623
Additional paid-in capital 35,235 29,891 (c) 63,422
(1,704)(b)
Treasury stock, at cost, 21,000 shares (172) -- (172)
Accumulated comprehensive loss (533) -- (533)
Accumulated deficit (44,340) -- (44,340)
------------------ --------------- ------------
Total stockholders' equity (deficit) (9,654) 28,654 19,000
------------------ --------------- ------------
Total Liabilities and Stockholders' Equity (Deficit) $ 159,079 $ 1,130 $ 160,209
================== =============== ============
F-43
|
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 30, 2002
(in thousands, except per share data)
Pro Forma
Historical Adjustments Pro Forma
Net sales $ 61,681 $ -- $ 61,681
----------------- -------------- ---------------
Costs and Expenses:
Cost of sales and operating expenses 46,395 -- 46,395
Selling, general and administrative 7,160 -- 7,160
Depreciation and amortization 4,392 -- 4,392
----------------- ---------------
Total costs and expenses 57,947 -- 57,947
----------------- ---------------
Operating Income 3,734 -- 3,734
----------------- ---------------
Other Income (Expense):
Interest expense (3,885) 3,220 (d) (665)
Other, net 734 (223)(e) 511
----------------- -------------- ---------------
Total costs and expense (3,151) 2,997 (154)
------------------ -------------- ----------------
Income Before Income Taxes 583 2,997 3,580
Income Taxes -- 1,083 (f) 1,083
------------------ ------------------ ---------------
Net Income 583 1,914 2,497
Preferred Dividends and Accretion -- (380)(g) (380)
------------------ ------------------ ----------------
Net Income Applicable to Common Shareholders $ 583 $ 1,534 $ 2,117
================= ================== ===============
Basic and Diluted Income Per Share: $ 0.04 $ 0.03
================== ===============
|
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 29, 2001
(in thousands, except per share data)
Pro Forma
Historical Adjustments Pro Forma
Net sales $ 255,974 $ -- $ 255,974
----------------- ----------------- ---------------
Costs and Expenses:
Cost of sales and operating expenses 196,778 -- 196,778
Selling, general and administrative 28,594 -- 28,594
Depreciation and amortization 26,634 -- 26,634
----------------- ----------------- ---------------
Total costs and expenses 252,006 -- 252,006
----------------- ----------------- ---------------
Operating Income 3,968 -- 3,968
----------------- ----------------- ---------------
Other Income (Expense):
Interest expense (14,162) 12,747 (d) (1,415)
Other, net (1,651) (349) (e) (2,000)
------------------ ------------------ ----------------
Total costs and expense (15,813) 12,398 (3,415)
------------------ ------------------ ----------------
Income (Loss) Before Income Taxes (11,845) 12,398 553
Income Taxes -- -- --
------------------ ------------------ ---------------
Net Income (Loss) (11,845) 12,398 553
Preferred Dividends and Accretion -- (1,465) (g) (1,465)
------------------ ------------------ ----------------
Net Loss Applicable to Common Shareholders $ (11,845) $ 10,933 $ (912)
================= ================== ================
Basic and Diluted Loss Per Share: $ (0.76) $ (0.01)
================== ================
F-44
|
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
(a) Represents estimated additional issuance costs of $2.3 and $3.7 million to be incurred after March 30, 2002 and December 29, 2001, respectively, related to the term loan, the revolving credit facility, the issuance of shares of Series A Preferred Stock and the issuance of shares of common stock.
(b) Represents the reclassification of total estimated capitalized issuance costs of $7.0 million related to the term loan, the revolving credit facility, the issuance of shares of Series A Preferred Stock and the issuance of shares of common stock on a pro rata basis as follows: $4.5 million and $4.9 million to debt issuance cost as of March 30, 2002 and December 29, 2001, respectively, $2.1 million and $1.7 million to additional paid in capital as of March 30, 2002 and December 29, 2001, respectively and $0.5 million to cumulative redeemable preferred stock.
(c) For accounting purposes, the Recapitalization is treated as the exchange of:
i. Revolving debt (approximately $117.2 million and $120.0 million at March 30, 2002 and December 31, 2001, respectively),
ii. Accrued and unpaid interest thereon (approximately $4.8 million and $3.4 million at March 30, 2002 and December 31, 2001, respectively), and
iii. Forbearance fees (approximately $3.9 million and $2.2 million (consisting of a $2.6 million liability less a $0.4 million deferred cost included in other noncurrent assets) at March 30, 2002 and December 31, 2001, respectively), all under the previous credit facility,
For:
i. Term loan (face value of $68.25 million and $69.0 million and a carrying value of $80.0 million and $87.1 million at March 30, 2002 and December 31, 2001, respectively) due to troubled debt restructuring accounting,
ii. Issuance of approximately 46.7 million shares of common stock (constituting 75% of the total issued and outstanding common shares as of both March 30, 2002 and December 29, 2001) with a market value of $0.81 per share and $0.65 per share at March 30, 2002 and December 29, 2001, respectively, and iii. Issuance of $10.0 million of Series A Preferred Stock with a dividend rate of 6% per annum and an estimated fair value of $8.1 million at both March 30, 2002 and December 31, 2001.
Statement of Financial Accounting Standards No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings," requires that the existing amount of debt owed by our company to the Lenders be reduced by the fair value of the equity interest granted and that no gain from restructuring our company's debt be recognized unless the remaining carrying amount of the debt exceeds the total future cash payments specified by the terms of the debt remaining unsettled after the restructuring. Accordingly, the remaining amount of debt owed by us to the Lenders has been adjusted to $80.0 million and $87.1 million at March 30, 2002 and December 31, 2001, respectively, which exceeds the contractual amount of the term loan by $11.8 million and $18.1 million at March 30, 2002 and December 31, 2001, respectively. Interest expense on the remaining carrying amount of debt reported in our financial statements will be based on a new effective interest rate that equates the present value of the future cash payments specified by the new terms of the term loan with the carrying amount of the debt.
DARLING INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Unaudited Pro Forma Consolidated Financial Statements (continued)
(d) Represents the reduction in interest expense associated with the exchange of the revolving debt for the term loan, the revolving credit facility, the issuance of shares of Series A Preferred Stock and the issuance of shares of common stock. Interest expense for financial reporting purposes subsequent to the Recapitalization will be determined as described in note (c) above and will be substantially less than the amount based on the contractual amount of outstanding debt ($68.2 million and $69.0 million at May 30, 2002 and December 31, 2001, respectively) and the current interest rate (6.75% at both March 30, 2002 and December 31, 2001 based on our choice of the lesser of the prime rate plus 2% and LIBOR plus 5%). Interest expense reported over the term of the debt will be the amount by which the total cash payments for retirement of the debt and interest ($89.3 million and $90.3 million for the three months ended March 30, 2002 and year ended December 31, 2001, respectively, based on a current interest rate of 6.75%) exceed the adjusted carrying amount of our debt ($80.0 million and $87.1 million at March 30, 2002 and December 31, 2001, respectively). The effective interest rate on the term loan subsequent to the Recapitalization reflected in the accompanying pro forma statement of operations is 0.7% and 0.2% for the three months ended March 30, 2002 and year ended December 31, 2001, respectively. A 1/8 per cent variance in the interest rate utilized would have an effect of $0.1 million for both the three months ended March 30, 2002 and for the year ended December 29, 2001.
(e) Represents the increase in debt issuance cost amortization associated with the exchange of the revolving debt for the term loan, the revolving credit facility, the issuance of shares of Series A Preferred Stock and the issuance of shares of common stock.
(f) Represents estimated income tax expense.
(g) Represents dividends on and accretion of the Series A Preferred Stock.
(h) Pro forma basic and diluted loss per share is based on 62.3 million weighted average shares outstanding and includes the issuance of 46.7 million shares of new common stock in the exchange for the revolving commitments under the existing credit facility.
[Logo to be inserted]
46,705,086 shares of Common Stock
P R O S P E C T U S
[____________], 2002
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by our company in connection with the distribution of the securities being registered are as follows:
Amount (1)
-----------------
Securities and Exchange Commission Registration Fee... $
[American Stock Exchange Listing Fee].................
Accounting Fees and Expenses..........................
Legal Fees and Expenses...............................
Transfer Agent and Registrar Fees and Expenses........
Printing and Engraving Expenses.......................
Miscellaneous Fees and Expenses....................... -----------------
Total............................................. $
=================
-------------
|
(1) All amounts are estimates except the SEC filing fee [and the American Stock Exchange listing fee].
Item 14. Indemnification of Directors and Officers
As permitted under Section 102(b)(7) of the Delaware General Corporation
Law, our restated certificate of incorporation, as amended provides that our
directors (including any advisory director) shall not be liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to us
or to our stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, relating to prohibited
dividends or distributions or the repurchase or redemption of stock, or (iv) for
any transaction from which the director derives an improper personal benefit.
In addition, as permitted by Section 145 of the Delaware General Corporation Law our restated certificate of incorporation, as amended, and our amended and restated bylaws, as amended, provide that we shall indemnify any person, including officers and directors, who was or is, or is threatened to be made, a party to any threatened, pending or completed action, suit or proceedings, whether civil, criminal, administrative or investigative (other than an action by or in the right of our company), by reason of the fact that such person is or was a director, officer, employee or agent of our company or is or was serving at the request of our company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to our best interests and, for criminal proceedings, had no reasonable cause to believe that his conduct was unlawful.
Furthermore, as permitted by Section 145, expenses (including attorneys fees) incurred by an officer or director defending or settling any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by us in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by us. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as our board of directors deems appropriate.
And as provided in Section 145, the indemnification and advancement of expenses provided by, or granted pursuant to, the above-described provisions shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office.
We have obtained a policy of directors' and officers' liability insurance that insures our directors and officers against the cost of defense, settlement or payment of a judgment under certain circumstances.
II-1
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Item 15. Recent Sales of Unregistered Securities
Within the past three years, Darling has issued and sold unregistered securities in the transactions described below:
As part of the Recapitalization, on May 13, 2002, we issued an aggregate of 46,705,086 shares of our common stock and 100,000 shares of our Series A Preferred Stock to our lenders in exchange for the lenders canceling an aggregate of $64.6 million of indebtedness owed by us, comprised of (i) $55.4 million principal amount of loans under our previous credit agreement, (ii) $5.3 million of accrued and unpaid interest and commitment fees owing under our previous credit agreement and (iii) the $3,855,000 forbearance fee we owed to the lenders under a forbearance agreement then existing. These securities were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.
Of such 46,705,086 shares of common stock, 4,359,141 were issued to Credit Lyonnais New York Branch; 10,522,770 were issued to PPM America Special Investments Fund, L.P.; 719,940 were issued to Daple, S.A.; 6,659,897 were issued to PPM America Special Investments CBO II, L.P.; 6,434,923 were issued to Bank One N.A.; 2,075,782 were issued to Credit Agricole Indosuez; 363 were issued to Wells Fargo Bank (Texas) National Association; 1,037,891 were issued to Ark CLO 2000-1 Limited; 8,355,849 were issued to Cerberus Partners, L.P.; and 6,538,530 were issued to Avenue Special Situations Fund II, L.P.
Of such 100,000 shares of Series A Preferred Stock, 9,333 were issued to Credit Lyonnais New York Branch; 22,531 were issued to PPM America Special Investments Fund, L.P.; 1,541 were issued to Daple, S.A.; 14,259 were issued to PPM America Special Investments CBO II, L.P.; 13,778 were issued to Bank One N.A.; 4,444 were issued to Credit Agricole Indosuez; 1 was issued to Wells Fargo Bank (Texas) National Association; 2,222 were issued to Ark CLO 2000-1, Limited; 17,891 were issued to Cerberus Partners, L.P.; and 14,000 were issued to Avenue Special Situations Fund II, L.P.
II-2
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit No. Document
----------- --------
3.1 Restated Certificate of Incorporation of the Company, as
amended (filed herewith). Amended and Restated Bylaws of the
Company, as amended (filed as Exhibit 3.2 to the Company's
3.2 Quarterly Report on Form 10-Q filed August 12, 1997 and
incorporated herein by reference). Specimen Common Stock
Certificate (filed as Exhibit 4.1 to the Company's
Registration Statement on
4.1 Form S-1 filed May 27, 1994 and incorporated herein by
reference).
4.2 Certificate of Designation, Preference and Rights of Series A
Preferred Stock (filed herewith).
5.1 Opinion of Dechert as to the legality of the shares of common
stock and Series A Preferred Stock being registered (to be
filed by amendment).
10.1 Recapitalization Agreement, dated as of March 15, 2002, among
Darling International Inc., each of the banks or other
lending institutions which is a signatory thereto or any
successor or assignee hereof, and Credit Lyonnais New York
Branch, individually as a bank and as agent (filed as Annex C
to the Company's Definitive Proxy Statement filed on April
29, 2002 and incorporated herein by reference).
10.2 First Amendment to Recapitalization Agreement, dated as of
April 1, 2002, among Darling International Inc., each of the
banks party to the Recapitalization Agreement, and Credit
Lyonnais New York Branch, individually as a bank and as agent
(filed as Annex D to the Company's Definitive Proxy Statement
filed on April 29, 2002 and incorporated herein by
reference).
10.3 Second Amendment to Recapitalization Agreement, dated as of
April 29, 2002, among Darling International Inc., each of the
banks party to the Recapitalization Agreement, and Credit
Lyonnais New York Branch, individually as a bank and as agent
(filed herewith).
10.4 Amended and Restated Credit Agreement, dated as of May 10,
2002, among Darling International Inc., Credit Lyonnais New
York Branch, individually as a bank and as agent, and the
other banks and secured parties named therein (filed
herewith).
10.5 Registration Rights Agreement, dated as of December 29, 1993,
between Darling International Inc. and the signatory holders
identified therein (filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-1 filed May 27, 1994 and
incorporated herein by reference).
10.6 Registration Rights Agreement, dated as of May 10, 2002,
between Darling International Inc. and the holders identified
therein (filed herewith).
10.7 Form of Indemnification Agreement (filed as Exhibit 10.7 to
the Company's Registration Statement on Form S-1 filed May
27, 1994 and incorporated herein by reference).
10.8 Form of Executive Severance Agreement (filed as Exhibit 10.6
to the Company's Registration Statement on Form S-1 filed May
27, 1994 and incorporated herein by reference).
10.9 Lease, dated November 30, 1993, between the Company and the
Port of Tacoma (filed as Exhibit 10.8 to the Company's
Registration Statement on Form S-1 filed May 27, 1994 and
incorporated herein by reference).
10.10 Leases, dated July 1, 1996, between the Company and the City
and County of San Francisco (filed pursuant to temporary
hardship exemption under cover of Form SE).
10.11 1993 Flexible Stock Option Plan (filed as Exhibit 10.2 to the
Company's Registration Statement on
|
II-3
Exhibit No. Document
----------- --------
Form S-1 filed May 27, 1994 and incorporated herein by
reference).
10.12 1994 Employee Flexible Stock Option Plan (filed as Exhibit 2
to the Company's Revised Definitive Proxy Statement filed on
April 20, 2001 and incorporated herein by reference).
10.13 Non-Employee Directors Stock Option Plan (to be filed by
amendment).
10.14 International Swap Dealers Association, Inc. (ISDA) Master
Agreement and Schedule between Credit Lyonnais and Darling
International Inc. dated as of June 6, 1997, related to
interest rate swap transaction (filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q filed August 12, 1997
and incorporated herein by reference).
10.15 International Swap Dealers Association, Inc. (ISDA) Master
Agreement and Schedule between Wells Fargo Bank, N.A. and
Darling International Inc. dated as of June 6, 1997, related
to interest rate swap transaction (filed as Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q filed August 12,
1997 and incorporated herein by reference).
10.16 Confirmation dated September 20, 1999 which supplements,
forms part of, and is subject to, the ISDA Master Agreement
dated as of June 6, 1997 between Credit Lyonnais and Darling
|
International Inc (filed as Exhibit 10.17B to the Company's Annual Report on Form 10-K filed March 31, 2000 and incorporated herein by reference).
10.17 Master Lease Agreement between Navistar Leasing Company and
Darling International Inc. dated as of August 4, 1999 (filed
as Exhibit 10.18 to the Company's Annual Report on Form 10-K
filed March 31, 2000 and incorporated herein by reference).
21.1 Subsidiaries of the Registrant (filed herewith).
23.1 Consent of Dechert (included in Exhibit 5).
23.2 Consent of KPMG (filed herewith).
24.1 Power of Attorney (included on signature page).
-----------------------
(b) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
Three Years Ended December 29, 2001 (Page F-40)
|
Schedules other than those listed above have been omitted since they are not required or are not applicable or the required information is shown in the financial statements or related notes. Columns omitted from schedules filed have been omitted since the information is not applicable.
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
II-4
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and
(iii)To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Irving, Texas, on the 22nd day of May, 2002
DARLING INTERNATIONAL INC.
By:/s/ Denis J. Taura ---------------------------- Denis J. Taura Chairman of the Board and Chief Executive Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Denis J. Taura and John O. Muse, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and sign any registration statement (or amendment thereto) for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462 promulgated under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Denis J. Taura Chairman of the Board and May 22, 2002
-------------------------
Denis J. Taura Chief Executive Officer
/s/ James A. Ransweiler President and Chief Operating Officer May 22, 2002
-------------------------
James A. Ransweiler (Principal Executive Officer)
/s/ John O. Muse Executive Vice President - Finance May 22, 2002
-------------------------
John O. Muse and Administration (Principal
Financing and Accounting Officer)
/s/ Fredric J. Klink Director May 22, 2002
-------------------------
Fredric J. Klink
/s/ O. Thomas Albrecht Director May 22, 2002
-------------------------
O. Thomas Albrecht
/s/ Charles Macaluso Director May 22, 2002
-------------------------
Charles Macaluso
/s/ Richard A. Peterson Director May 22, 2002
-------------------------
Richard A. Peterson
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II-6
EXHIBIT INDEX
Exhibit No. Document
----------- --------
3.1 Restated Certificate of Incorporation of the Company, as
amended (filed herewith).
3.2 Amended and Restated Bylaws of the Company, as amended (filed
as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q
filed August 12, 1997 and incorporated herein by reference).
4.1 Specimen Common Stock Certificate (filed as Exhibit 4.1 to
the Company's Registration Statement on Form S-1 filed May
27, 1994 and incorporated herein by reference).
4.2 Certificate of Designation, Preference and Rights of Series A
Preferred Stock (filed herewith).
5.1 Opinion of Dechert as to the legality of the shares of common
stock and Series A Preferred Stock being registered (to be
filed by amendment).
10.1 Recapitalization Agreement, dated as of March 15, 2002, among
Darling International Inc., each of the banks or other
lending institutions which is a signatory thereto or any
successor or assignee thereof, and Credit Lyonnais New York
Branch, individually as a bank and as agent (filed as Annex C
to the Company's Definitive Proxy Statement filed on April
29, 2002 and incorporated herein by reference).
10.2 First Amendment to Recapitalization Agreement, dated as of
April 1, 2002, among Darling International Inc., each of the
banks party to the Recapitalization Agreement, and Credit
Lyonnais New York Branch, individually as a bank and as agent
(filed as Annex D to the Company's Definitive Proxy Statement
filed on April 29, 2002 and incorporated herein by
reference).
10.3 Second Amendment to Recapitalization Agreement, dated as of
April 29, 2002, among Darling International Inc., each of the
banks party to the Recapitalization Agreement, and Credit
Lyonnais New York Branch, individually as a bank and as agent
(filed herewith).
10.4 Amended and Restated Credit Agreement, dated as of May 10,
2002, among Darling International Inc., Credit Lyonnais New
York Branch, individually as a bank and as agent, and the
other banks and secured parties named therein (filed
herewith).
10.5 Registration Rights Agreement, dated as of December 29, 1993,
between Darling International Inc. and the signatory holders
identified therein (filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-1 filed May 27, 1994 and
incorporated herein by reference).
10.6 Registration Rights Agreement, dated as of May 10, 2002,
between Darling International Inc. and the holders identified
therein (filed herewith).
10.7 Form of Indemnification Agreement (filed as Exhibit 10.7 to
the Company's Registration Statement on Form S-1 filed May
27, 1994 and incorporated herein by reference).
10.8 Form of Executive Severance Agreement (filed as Exhibit 10.6
to the Company's Registration Statement on Form S-1 filed May
27, 1994 and incorporated herein by reference).
10.9 Lease, dated November 30, 1993, between the Company and the
Port of Tacoma (filed as Exhibit 10.8 to the Company's
Registration Statement on Form S-1 filed May 27, 1994 and
incorporated herein by reference).
10.10 Leases, dated July 1, 1996, between the Company and the City
and County of San Francisco (filed pursuant to temporary
hardship exemption under cover of Form SE).
10.11 1993 Flexible Stock Option Plan (filed as Exhibit 10.2 to the
Company's Registration Statement on Form S-1 filed May 27,
1994 and incorporated herein by reference).
|
Exhibit No. Document
----------- --------
10.12 1994 Employee Flexible Stock Option Plan (filed as Exhibit 2
to the Company's Revised Definitive Proxy Statement filed on
April 20, 2001 and incorporated herein by reference).
10.13 Non-Employee Directors Stock Option Plan (to be filed by
amendment).
10.14 International Swap Dealers Association, Inc. (ISDA) Master
Agreement and Schedule between Credit Lyonnais and Darling
International Inc. dated as of June 6, 1997, related to
interest rate swap transaction (filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q filed August 12, 1997
and incorporated herein by reference).
10.15 International Swap Dealers Association, Inc. (ISDA) Master
Agreement and Schedule between Wells Fargo Bank, N.A. and
Darling International Inc. dated as of June 6, 1997, related
to interest rate swap transaction (filed as Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q filed August 12,
1997 and incorporated herein by reference).
10.16 Confirmation dated September 20, 1999 which supplements,
forms part of, and is subject to, the ISDA Master Agreement
dated as of June 6, 1997 between Credit Lyonnais and Darling
|
International Inc (filed as Exhibit 10.17B to the Company's Annual Report on Form 10-K filed March 31, 2000 and incorporated herein by reference).
10.17 Master Lease Agreement between Navistar Leasing Company and
Darling International Inc. dated as of August 4, 1999 (filed
as Exhibit 10.18 to the Company's Annual Report on Form 10-K
filed March 31, 2000 and incorporated herein by reference).
21.1 Subsidiaries of the Registrant (filed herewith).
23.1 Consent of Dechert (included in Exhibit 5).
23.2 Consent of KPMG (filed herewith).
24.1 Power of Attorney (included on signature page).
|
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
DARLING INTERNATIONAL INC.
Darling International Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is Darling International Inc. Darling International Inc. was originally incorporated as Darling & Company of Delaware, Inc. and the original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on December 13, 1962.
2. Pursuant to Sections 242 and 245 of the Delaware General Corporation Law, this Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of this Corporation.
3. The text of the Restated Certificate of Incorporation as heretofore amended or supplemented is hereby restated and further amended to read in its entirety as follows:
The name of the Corporation is Darling International Inc.
The address of the Corporation's registered office in the State of Delaware is Corporate Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name registered agent at such address is The Corporation Trust Company.
The nature of the business or purpose to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law.
The aggregate number of shares of capital stock that the Corporation will have authority to issue is ten million (10,000,000) shares of common stock, having a par value of $0.01 per share (the "Common Stock").
Each share of Common Stock shall be entitled to one vote upon all matters presented to stockholders and shall have identical rights and privileges in every other respect. Election of directors may occur by written consent of the stockholders without a meeting in accordance with the Corporation's Bylaws.
The Corporation is to have perpetual existence.
The Board of Directors may exercise all such powers and do all such lawful acts and things on behalf of the Corporation as are not by statute, the Bylaws or this Restated Certificate of Incorporation directed or required to be exercised and done by the stockholders.
The business and affairs of the Corporation shall be managed by or be under the direction of the Board of Directors which shall consist of not less than five nor more than eleven directors, the exact number of which shall be determined in accordance with the Bylaws of the Corporation.
The power, to alter, amend or repeal the Corporation's Bylaws, and to adopt new Bylaws, is hereby vested in the Board of Directors; subject, however, to repeal or change by the stockholders of the Corporation consistent with the provisions of this Restated Certificate of Incorporation, as may be amended from time to time.
Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Board of Directors, the chief executive officer, the president or the holders of at least ten percent (10%) of the Corporation's outstanding shares of capital stock.
No director (including any advisory director) of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit.
1. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceedings, whether civil, criminal, administrative, or investigative by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding to the fullest extent permitted by the Delaware General Corporation Law as amended from time to time.
2. Expenses (including attorneys' fees) incurred by an officer or director in defending or settling any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article Eleven. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate.
3. The indemnification and advancement of expenses provided by, or granted pursuant to, the other sections of this Article Eleven shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.
4. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article Eleven.
5. For purposes of this Article Eleven, references to "the Corporation" shall include, in addition to the Corporation or any resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article Eleven with respect to the Corporation as he would have with respect to such constituent corporation if its separate existence had continued.
6. For purposes of this Article Eleven, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article Eleven.
7. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article Eleven shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
IN WITNESS WHEREOF, said Darling International Inc. has caused this Restated Certificate of Incorporation to be signed by its President and attested by its Assistant Secretary, this 6th day of June, 1995.
BY: /s/ Kenneth A. Ghazey
----------------------------
Kenneth A. Ghazey
President
ATTEST: /s/ Thomas W. Hughes
----------------------------
Thomas W. Hughes
Assistant Secretary
|
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
DARLING INTERNATIONAL INC.
DARLING INTERNATIONAL INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation, resolutions were duly adopted setting forth a proposed amendment (the "Amendment") to the Restated Certificate of Incorporation of the Corporation, declaring the Amendment to be advisable and calling a special meeting of the stockholders of the Corporation to consider such amendment. The resolution setting forth the Amendment is as follows:
RESOLVED, that the Restated Certificate of Incorporation of this corporation be amended deleting the current text of Article Four and substituting the following text:
"The aggregate number of shares of capital stock that the Corporation will have authority to issue is twenty six million (26,000,000) consisting of twenty five million (25,000,000) shares of common stock, having a par value of $0.01 per share (the "Common Stock"), and one million (1,000,000) shares of preferred stock, having a par value of $0.01 per share (the "Preferred Stock").
Each share of Common Stock shall be entitled to one vote upon all matters presented to stockholders and shall have identical rights and privileges in every other respect. Election of directors may occur by written consent of the stockholders without a meeting in accordance with the Corporation's Bylaws.
Authority is hereby expressly granted to the Board of Directors of the Corporation from time to time to issue the preferred stock as preferred stock of any series and, in connection with the creation of each such series, to fix by resolution or resolutions providing for the issue of shares thereof, the number of shares of such series, and the designations, relative rights, preferences, and limitations of such series, to the full extent now or hereafter permitted by the laws of the state of Delaware."
SECOND: That thereafter, pursuant to resolution of the Board of Directors, a special meeting of the stockholders of the Corporation was duly called and held, upon notice in accordance
with Section 222 of the General Corporation Law of the state of Delaware (the "GCL"), at which meeting the Amendment was approved by the stockholders of the Corporation in accordance with the GCL.
THIRD: That the Amendment was duty adopted in accordance with the provisions of section 242 of the GCL.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by Dennis B. Longmire, its Chief Executive Officer, this 30th day of October, 1997.
By: /s/ Dennis B. Longmire
-------------------------------
Name: Dennis B. Longmire
Title: Chief Executive Officer
|
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
DARLING INTERNATIONAL INC.
Darling International Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation, resolutions were duly adopted setting forth a proposed amendment to the Restated Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and directing that the proposed amendment be considered at the next annual meeting of the stockholders. The resolution setting forth the amendment is as follows:
RESOLVED, that the Restated Certificate of Incorporation of the Corporation be amended by changing the first paragraph of Article Four thereof so that, as amended, said Article shall be read in relevant part as follows:
"The aggregate number of shares of stock that the Corporation shall have authority to issue is one hundred one million (101,000,000) shares consisting of one hundred million (100,000,000) shares of common stock having a par value of $0.01 per share (the "Common Stock"), and one million (1,000,000) shares of preferred stock, having a par value of $0.01 per share (the "Preferred Stock")."
RESOLVED, that the Restated Certificate of Incorporation of the Corporation be amended by adding a new Article Twelve thereto, such Article Twelve to read in its entirety as follows:
"ARTICLE TWELVE
1. If and whenever the Corporation issues any additional shares of Common Stock ("Additional Common Shares"), except as provided in Section 4 or Section 5 of this Article Twelve, each Bank (as defined below) will have the right, but not the obligation, to purchase such Additional Common Shares up to an amount sufficient to permit such Bank to maintain its percentage equity interest in the Corporation (based on the Common Share Ratio (as defined below) of such Bank) at the level existing immediately prior to the issuance of the Additional Common Shares. If the Corporation desires to issue Additional Common Shares, it will first give notice thereof to each Bank stating the number of Additional Common Shares proposed to be issued and the total consideration to be received by the Corporation upon issuance of the Additional Common Shares. Within 30 days after the receipt of such notice, each Bank may elect to exercise the rights under this Article Twelve by giving written notice to that effect to the Corporation. Failure to give such notice within that 30-day period or failure to pay at the required time the purchase price for any Additional Common Shares as to which a right to purchase shall have been exercised will constitute a waiver of the rights granted by this Article Twelve as to the particular issuance of Additional Common Shares specified in the Corporation's notice.
As used in this Article Twelve, "Bank" means any bank or other lending institution that is an initial signatory to the Recapitalization Agreement, dated as of March 15, 2002, by and among the Corporation, the Banks and the agent for the Banks (as amended, supplemented or otherwise modified from time to time, the "Recapitalization Agreement") or any successor or assignee thereof as of the Consummation Date (as defined in the Recapitalization Agreement).
As used in this Article Twelve, "Common Share Ratio" means, at any time of determination with respect to each Bank whose percentage or ratio is to be calculated, a ratio or percentage consisting of a numerator equal to all shares of Common Stock held by such Bank and a denominator equal to all issued and outstanding shares of Common Stock of the Corporation.
2. The per share purchase price to be paid by each Bank upon exercise of the rights granted under this Article Twelve will be equal to the per share consideration (net of underwriting discounts or commissions if such Bank is not a participant in the offering) at which the Additional Common Shares are offered or proposed to be offered by the Corporation
to another party. The total consideration for which Additional Common Shares are offered or proposed to be offered will be determined as follows: (i) in case of the proposed issuance of Additional Common Shares for cash, the consideration to be received by the Corporation will be the amount of cash (net of underwriting discounts or commissions if such Bank is not a participant in the offering) for which the Additional Common Shares are proposed to be issued and (ii) in case of the proposed issuance of Additional Common Shares in whole or in part for consideration other than cash, the value of the consideration to be received by the Corporation other than cash (net of underwriting discounts or commissions if such Bank is not a participant in the offering) will be the Fair Market Value of that consideration as determined by the Board of Directors of the Corporation. As used herein, "Fair Market Value" means, as to any securities or property, the price at which a willing seller would sell and a willing buyer would buy such property having full knowledge of the facts, in an arm's-length transaction without time constraints, and without being under any compulsion to buy or sell.
3. If and whenever the Corporation issues any securities convertible into or exchangeable or exercisable for Additional Common Shares or rights or options to subscribe for or to purchase Additional Common Shares, except as provided in Section 5, each Bank will have the right, but not the obligation, to purchase convertible securities, rights or options of like kind up to an amount which when converted, exchanged or exercised would be sufficient to permit such Bank to maintain its percentage equity interest in the Corporation (based on the Common Share Ratio of such Bank) at the level existing immediately prior to the issuance of the convertible securities, rights or options. If the Corporation desires to issue convertible securities, rights or options, it will first give notice thereof to each Bank describing the convertible securities, rights or options proposed to be issued (including the number of Additional Common Shares issuable upon conversion, exchange or exercise of such convertible securities, rights or options) and stating the total consideration to be received by the Corporation upon such issuance and upon conversion, exchange or exercise. Within 30 days after the receipt of such notice, each Bank may elect to exercise the rights under this Section 3 by giving written notice to that effect to the Corporation. Failure to give such notice within that 30-day period or failure to pay at the required time the purchase price for any convertible securities, rights or options as to which a right to purchase shall have been exercised will constitute a waiver of the rights granted by this Section 3 as to the particular issuance of convertible securities, rights or options specified in the Corporation's notice to such Bank.
4. The purchase price to be paid by each Bank upon exercise of its rights under Section 3 of this Article Twelve will be in proportion to the consideration proposed to be received by the Corporation (net of underwriting discounts or commissions if such Bank is not a participant in the offering) upon the original issuance to another party of convertible securities, rights or options. The amount of consideration to be received by the Corporation upon the original issuance of such convertible securities, rights or options will be determined in the manner provided in Section 2 of this Article Twelve. With respect to securities convertible into or exchangeable or exercisable for Additional Common Shares or rights or options to subscribe for or purchase Additional Common Shares, the rights of each Bank (to the extent exercised) will apply only to the issuance of such convertible securities, rights, or options, and Banks will have no rights under this Article Twelve with respect to the Corporation's issuance of Additional Common Shares upon conversion, exchange or exercise of such convertible securities, rights or options. If a Bank does not exercise its right to acquire such convertible securities, rights or options hereunder, it shall have the rights set forth in Section 1 of this Article Twelve upon conversion, exchange or exercise of such convertible securities, rights or options.
5. The provisions of this Article Twelve will not apply to
(i) shares of Common Stock issued as a stock dividend to holders
of Common Stock or upon any subdivision or combination of shares
of Common Stock, (ii) options outstanding under the Option Plans
(as defined in the Recapitalization Agreement) to purchase an
aggregate of 2,155,065 shares of Common Stock, (iii) the options
to purchase an aggregate of 540,000 shares of Common Stock
granted under the Taura Non-Plan Option Agreement (as defined in
the Recapitalization Agreement), (iv) the options to purchase
333,000 shares of Common Stock relating to options from the 1993
restructuring which were originally referred to as Class A
options and were later converted to Common Stock options, (v)
options, awards, grants and other stock rights hereafter granted
to employees, officers, or directors or consultants of the
Corporation or any of its subsidiaries and approved by the Board
of Directors or (vi) shares of Common Stock issued pursuant to
the options and other rights described in the foregoing clauses
(ii), (iii), (iv) and (v).
6. Unless otherwise agreed by the Corporation and the Banks, the purchase price to be paid by the Banks upon exercise of their rights under this Article Twelve will be paid upon terms which are the same as those being offered by third party purchasers, unless those terms provide for payment in a manner which could not be duplicated by a Bank, such as
the transfer of specific property to the Corporation, in which event payment by the Bank will be in cash in an amount equal to the fair market value of such specific property.
7. The rights contained in this Article Twelve shall be
assignable to any transferee of the Common Shares (as defined in
the Recapitalization Agreement), except (i) transferees who
acquire such shares as purchasers in a sale made under a
registration statement that has been filed and gone effective
pursuant to the Registration Rights Agreement (as defined in the
Recapitalization Agreement), (ii) transferees who acquire their
shares in a transfer made under Rule 144 of the Securities Act of
1933 or any successor rules and (iii) subsequent transferees of
shares sold or transferred to a transferee described in clauses
(i) or (ii).
8. The provisions of this Article Twelve and the rights and obligations under this Article Twelve shall terminate (i) upon the written consent of the Corporation and all Banks; (ii) on the tenth anniversary of the Consummation Date; or (iii) as to a particular Bank, if after a sale of Common Shares by the Bank, the Bank and any person or entity that, directly or indirectly, controls, is controlled by or is under common control with such Bank (each a "Bank Affiliate") and/or a fund or account managed by a Bank or a Bank Affiliate cease to hold collectively Common Shares equal to at least 2% of the shares of Common Stock outstanding at the Consummation Date."
SECOND: That thereafter, pursuant to resolution of the Board of Directors, an annual meeting of the stockholders of the Corporation was duly called and legally held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware.
THIRD: That said amendment was duly adopted in accordance with the provisions of Sections 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be executed by John O. Muse, its Executive Vice President, this 10th day of May, 2002.
DARLING INTERNATIONAL INC.
By: /s/ John O. Muse
--------------------------------
Name: John O. Muse
Title: Executive Vice President
|
Exhibit 4.2
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES A PREFERRED STOCK
OF
DARLING INTERNATIONAL INC.
DARLING INTERNATIONAL INC., a Delaware corporation (the "Corporation"), pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, does hereby make this Certificate of Designation under the corporate seal of the Corporation and does hereby state and certify that pursuant to the authority expressly vested in the Board of Directors of the Corporation (the "Board of Directors") by its Restated Certificate of Incorporation (the "Certificate of Incorporation"), the Board of Directors has duly adopted the following resolutions:
RESOLVED, that, pursuant to Article Four of the Certificate of Incorporation (which authorizes 1,000,000 shares of Preferred Stock, par value $0.01 per share, the Board of Directors hereby creates a series of preferred stock consisting of 100,000 shares to be designated as Series A Preferred Stock (the "Series A Preferred Stock," and each such share, a "Series A Share" and all such shares, the "Series A Shares"), and fixes the designations and preferences and relative, participating, optional and other rights and qualifications, limitations and restrictions of such Series A Preferred Stock.
Series A Preferred Stock
RESOLVED, that the holders of the Series A Preferred Stock, except as otherwise provided by law, shall have and possess the following rights and preferences subject to the following qualifications, limitations and restrictions. Except as otherwise provided in this Certificate of Designation or as otherwise required by applicable law, all Series A Shares shall be identical in all respects and shall entitle the holders thereof to the same rights and privileges, subject to the same qualifications, limitations and restrictions.
1. Designation, Number of Shares. This series of Preferred Stock shall be designated as the "Series A Preferred Stock," and the number of shares which shall constitute such series shall be 100,000. The par value of the Series A Preferred Stock shall be $0.01 per share.
2. Dividends.
(a) Dividend Preference. The Series A Preferred Stock shall rank prior to the Junior Securities with respect to dividends. The holders of shares of the Series A Preferred Stock shall be entitled to receive dividends as provided herein, when, as and if declared by the Board of Directors, as legally available. The rate of dividends per share shall be expressed as a percentage of the Stated Value and shall be six percent (6.00%) per annum. Such
dividends shall accrue and be cumulative from the date of issuance of the Series A Preferred Stock, whether or not declared, and shall be payable when, as and if declared by the Board of Directors in cash or accumulated, as the Board of Directors may elect, on May 1 and November 1 in each year, except that if any such date is not a Business Day then such dividends shall be payable on the next succeeding Business Day (as applicable, each a "Dividend Payment Date"). No dividends on the Series A Preferred Stock shall be payable unless and until so declared by the Board of Directors. Such dividends shall accrue and accumulate whether or not there shall be (at the time such dividend becomes payable or at any other time) profits, surplus or other funds of the Corporation legally available for the payment of dividends. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Series A Preferred Stock which are in arrears. All dividends accrued on each Series A Share outstanding as of a Dividend Payment Date which shall not be then paid shall be added to the Stated Value of such Series A Share and shall remain a part thereof until paid, and dividends shall thereafter accrue at the dividend rate set forth above and be paid on such Series A Share on the basis of the Stated Value, as so adjusted.
(b) Dividend Calculation. Dividends shall accrue semi-annually and be calculated on the basis of the time elapsed from and including the date of issuance of such shares to and including the Dividend Payment Date or on any final distribution date relating to redemption or to a dissolution, liquidation or winding up of the Corporation. Dividends payable on the shares of Series A Preferred Stock for any period of less than a full calendar year shall be prorated for the partial year on the basis of a 360-day year of 12 30-day months.
(c) Dividend Payment. Dividends payable on each Dividend Payment Date shall be paid to record holders of the shares of Series A Preferred Stock as they appear on the books of the Corporation at the close of business on the tenth Business Day immediately preceding the respective Dividend Payment Date or on such other record date as may be fixed by the Board of Directors of the Corporation in advance of a Dividend Payment Date, provided that no such record date shall be less than 10 nor more than 60 calendar days preceding such Dividend Payment Date. Dividends in arrears may be declared and paid at any time to holders of record on a date not more than 60 days preceding the payment date as may be fixed by the Board of Directors. Dividends paid on shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time payable shall be allocated pro rata on a share by share basis among all shares of Series A Preferred Stock outstanding.
(d) Priority of Dividends. So long as any shares of Series A Preferred Stock are outstanding, no dividend or other distribution, whether in liquidation or otherwise (other than those payable solely in Common Stock of the Corporation), shall be declared or paid, or set apart for payment on or in respect of, any Junior Securities.
3. Liquidation Preference.
(a) Priority. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets of the Corporation legally
available for distribution to its stockholders, shall be distributed in the following order of priority:
(i) The holders of Series A Shares shall be entitled to receive, prior and in preference to any distribution in such liquidation, dissolution or winding up of any of the assets of the Corporation (in connection with the bankruptcy or insolvency of the Corporation or otherwise) to the holders of shares of Common Stock or other Junior Securities by reason of their ownership thereof, an amount per share equal to the Stated Value plus all accrued but unpaid dividends to the date of payment for each outstanding Series A Share then held by them. If, upon occurrence of any such distribution, the assets of the Corporation thus distributed among the holders of Series A Shares shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets of the Corporation legally available for distribution shall be distributed on a pro rata basis among the holders of Series A Shares (in proportion to the number of Series A Shares held by each such holder).
(ii) After payment in full to the holders of Series A Preferred Stock described in Section 3(a)(i) hereof have been made, then, to the extent available and subject to the rights of holders of other Junior Securities, the remaining assets of the Corporation shall be distributed among the holders of shares of Common Stock pro rata based on the number of shares of Common Stock held by each.
(b) Change of Control, etc. Neither (i) a Change of Control nor
(ii) a reduction of the capital stock of the Corporation, shall be deemed to be
a liquidation, dissolution or winding up within the meaning of this Section 3 or
Section 4.
4. Liquidation. Upon any liquidation, dissolution or winding up of the Corporation, before any distribution or payment is made upon any Junior Securities, the holders of Series A Shares shall be entitled to be paid an amount equal to the aggregate Stated Value of all such Series A Shares outstanding, plus all accrued but unpaid dividends to the date of payment, and the holders of Series A Shares as such shall not be entitled to any further payment. If upon any such liquidation, dissolution or winding up of the Corporation, the Corporation's assets to be distributed among the holders of the Series A Preferred Stock are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid, then the entire assets to be distributed to the holders of Series A Preferred Stock shall be distributed ratably among such holders based upon the aggregate Stated Value of the Series A Shares held by each such holder. The Corporation shall mail written notice of such liquidation, dissolution or winding up, stating the circumstances for the distribution, the payment date, location and the distribution amounts not less than 30 days prior to the payment date stated therein, to each record holder of Series A Preferred Stock.
5. Redemptions.
(a) Mandatory Redemption. On the earliest of (x) the fifth anniversary of the date of issuance of the Series A Preferred Stock, (y) the date of consummation of a sale of all or substantially all of the consolidated assets of the Corporation and its subsidiaries and (z)
the date of occurrence of a Change in Control (the "Mandatory Redemption Date"), the Corporation shall redeem all issued and outstanding Series A Shares, at a price per Series A Share equal to the Stated Value plus all accrued but unpaid dividends to the Redemption Date.
(b) Optional Redemptions. Subject to the terms hereof, the Corporation may at its option at any time, redeem all or any portion of the shares of Series A Preferred Stock in multiples of not less than $1,000,000 then outstanding at a price per Series A Share equal to the Stated Value plus all accrued but unpaid dividends to the Redemption Date. All partial optional redemptions of Series A Preferred Stock pursuant to this Section 5(b) shall be made pro rata among the holders of such Series A Shares on the basis of the number of Series A Shares held by each such holder in the order and priority specified in Section 5(c). Redemptions made pursuant to this Section 5(b) shall not relieve the Corporation of its obligations to redeem the then outstanding Series A Shares on the Mandatory Redemption Date.
(c) Redemption Price. For each Series A Share which is to be redeemed, the Corporation shall be obligated on the Redemption Date to pay to the holder thereof (upon surrender by such holder at the Corporation's principal office of the certificate representing such Series A Share) an amount in immediately available funds equal to the Stated Value plus all accrued but unpaid dividends to the Redemption Date. If the Corporation's funds which are legally available for redemption of Series A Shares on any Redemption Date are insufficient to redeem the total number of Series A Shares to be redeemed on such date, those funds which are legally available shall be used to redeem the maximum possible number of Series A Shares to be redeemed (if any) ratably among the holders of the Series A Shares to be redeemed based upon the aggregate Stated Value of such Series A Shares held by each such holder and other Series A Shares not so redeemed shall remain issued and outstanding until redeemed in accordance with the terms thereof. At any time thereafter when additional funds of the Corporation are legally available for the redemption of Series A Shares, such funds shall immediately be used to redeem the balance of the Series A Shares which the Corporation has become obligated to redeem on any Redemption Date but which it has not redeemed in the order and priority set forth above.
(d) Notice of Redemption. The Corporation shall mail first class,
postage pre-paid, written notice of each redemption of Series A Preferred Stock
to each record holder of Series A Shares to be redeemed at least 30 days prior
to the date on which such redemption is to be made. Upon mailing any notice of
redemption which relates to a redemption at the Corporation's option pursuant to
Section 5(b), the Corporation shall become obligated to redeem the total number
of Series A Shares specified in such notice at the time of redemption specified
therein. In case fewer than the total number of Series A Shares represented by
any certificate are redeemed, a new certificate representing the number of
unredeemed Series A Shares (including, if applicable, fractional shares) shall
be issued to the holder thereof without cost to such holder within 10 Business
Days after surrender of the certificate representing the redeemed Series A
Shares.
(e) Determination of the Number of Each Holder's Series A Shares to be Redeemed. Except as otherwise provided herein, the number of Series A Shares to be redeemed from each holder thereof in redemptions hereunder shall be the number of Series A Shares determined by multiplying the total number of Series A Shares to be redeemed by a fraction, the numerator of which shall be the total number of Series A Shares then held by such holder and the denominator of which shall be the total number of Series A Shares then outstanding.
(f) Dividends After Redemption Date. No Series A Share is entitled to any dividends accruing after the date on which the Stated Value of such Series A Share plus all accrued but unpaid dividends thereon is paid in full in immediately available funds. On such date all rights of the holder of such Series A Share shall cease, and such Series A Share shall not be deemed to be outstanding.
(g) Redeemed or Otherwise Acquired Series A Shares. Shares of Series A Preferred Stock which have been issued and reacquired in any manner, including shares purchased, redeemed or exchanged, shall have the status of authorized and unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution of the Board of Directors or as part of any other series of Preferred Stock, all subject to the conditions or restrictions on issuance set forth in any resolution adopted by the Board of Directors providing for the issuance of any series of Preferred Stock; provided, however, that no such issued and reacquired shares of Series A Preferred Stock shall be, and the Corporation covenants that no such issued and reacquired shares of Series A Preferred Stock shall be, reissued or sold as Series A Preferred Stock.
(h) Priority. The Corporation shall make all redemption payments to which the holders of the Series A Preferred Stock shall become entitled to under this Section 5 prior to making any permitted dividend or other distribution on, or any purchase, redemption or other acquisition or retirement for value of any Junior Securities or making available a sinking fund for the purchase or redemption of any Junior Securities.
6. Voting Rights. Except as otherwise provided herein and as otherwise required by law, the Series A Preferred Stock shall have no voting rights. With respect to any issue required to be voted on and approved by holders of Series A Preferred Stock, the holders of Series A Preferred Stock shall vote as a single class.
7. Covenants. Notwithstanding anything to the contrary contained in this Certificate of Designation, the Corporation shall not take any of the following actions without the prior written consent of the holders of 66 2/3% of the then outstanding shares of Series A Preferred Stock, voting together as a single class: (i) creating or issuing any class or series of equity security of the Corporation that is senior or pari passu in priority to the Series A Preferred Stock with respect to dividends, redemption, liquidation, winding up or dissolution of the Corporation; (ii) modifying any Junior Securities so as to become senior or pari passu in priority to the Series A Preferred Stock with respect to dividends, redemption, liquidation, winding up or dissolution of the Corporation; (iii) declaring, paying or making any dividends or other
distributions on any Junior Securities (other than dividends declared in
connection with any stock splits, stock dividends, share combinations, share
exchanges or other recapitalizations in which such dividends are made in the
form of Junior Securities); (iv) directly or indirectly redeeming, retiring,
repurchasing or otherwise acquiring any shares of Series A Preferred Stock
(except to the extent allowed or required by Section 5(a) or Section 5(b)
hereof) or any Junior Securities (or authorizing or allowing any subsidiary of
the Company to do so); (v) increasing the number of shares constituting the
Series A Preferred Stock from the number of shares established by this
Certificate of Designation or taking any action that adversely alters or changes
the rights, preferences, or privileges of the Series A Preferred Stock; and (vi)
creating or issuing any class or series of equity security of the Corporation
(a) that is subject to mandatory redemption, in whole or in part, by the
Corporation while any shares of Series A Preferred Stock are outstanding
(whether or not such redemption is contingent on the occurrence of any event or
circumstance) or (b) the terms of which provide for protective covenants or
provisions more restrictive or onerous upon the Corporation than the covenants
and provisions fixed herein in favor of the Series A Preferred Stock.
8. Registration of Transfer. The Corporation shall keep at its principal office a register for the registration of Series A Preferred Stock. Upon the surrender of any certificate representing Series A Preferred Stock at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of Series A Shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of Series A Shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Series A Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such Series A Preferred Stock represented by the surrendered certificate.
9. Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing Series A Shares, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation, or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of Series A Shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on the Series A Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate.
10. Definitions. In addition to the terms defined elsewhere herein, as used in this Certificate of Designation, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires:
"Affiliate" means, as to any Person, any other Person (a) that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such Person, (b) that directly or indirectly beneficially owns or holds five percent (5%) or more of any class of voting stock of such Person, or (c) five percent (5%) or more of the voting stock of which is directly or indirectly beneficially owned or held by the Person in question. The term "control" means the possession, directly or indirectly, of the power to direct or cause direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
"Business Day" means any day, excluding Saturday, Sunday and any day which shall be in the City of New York a legal holiday or a day on which banking institutions are required or authorized by law or other governmental actions to close.
"Change in Control" means the occurrence of: (i) any "person" (as such term is used in Section 13(d) of the Exchange Act), other than the Initial Holders and their respective Affiliates, individually or as a group, becoming a "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of the Corporation's outstanding capital stock; (ii) the first day on which a majority of the members of the Board of Directors of the Corporation are not Continuing Directors; or (iii) the Corporation's consolidation with, or merger with or into, any Person or any Person's consolidation with, or merger with or into, the Corporation, pursuant to a transaction in which any of the outstanding voting capital stock of the Corporation is converted into or exchanged for cash, securities or other property.
"Common Stock" means the Corporation's Common Stock, $0.01 par value per share.
"Continuing Directors" means those members of the Board of Directors who either (i) were members of the Board of Directors on the date of issuance of the Series A Preferred Stock, (ii) were nominated for election in accordance with the Recapitalization Agreement, or (iii) were nominated or elected by a majority of the Continuing Directors who were members of the Board of Directors at the time of such nomination or election.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Initial Holders" means the banks and other lending institutions who are the initial signatories to the Recapitalization Agreement or any successor or assignee thereof as of the Consummation Date (as defined in the Recapitalization Agreement).
"Junior Securities" means (i) the Common Stock and (ii) each other class or series of equity securities issued by the Corporation after the date hereof, the terms of which specifically provide that such class or series shall rank junior to the Series A Preferred Stock as to dividend distributions or distributions upon the liquidation, winding up or dissolution of the Corporation.
"Original Series A Issue Price" means $100.00 per share of Series A Preferred Stock.
"Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof or any other entity of any kind.
"Recapitalization Agreement" means the Recapitalization Agreement, dated as of March 15, 2002, by and among the Corporation, Credit Lyonnais New York Branch, as an Initial Holder and as agent to the Initial Holders, and the Initial Holders, as amended, supplemented or otherwise modified from time to time.
"Redemption Date" as to any Series A Share means (x) in reference to a mandatory redemption pursuant to Section 5(a) hereof, the Mandatory Redemption Date and (y) in reference to a redemption at the Corporation's option pursuant to Section 5(b) hereof, the date specified in the notice of any redemption at the Corporation's option as provided in Section 5(d) provided, however, that no such date shall be a Redemption Date unless the applicable redemption price specified in Section 5(c) is actually paid, and if not so paid, the Redemption Date shall be the date on which such redemption price specified in Section 5(c) is fully paid.
"Stated Value" means, as to each Series A Share, the Original Series A
Issue Price, plus adjustments for accumulated dividends as provided in Section
2(a), and appropriately adjusted for any stock splits, reverse stock splits,
combinations, recapitalizations and similar transactions with respect to the
Series A Preferred Stock.
11. Amendment and Waiver
No amendment, supplement, modification or waiver shall be binding or effective with respect to any provision of this Certificate of Designation without the prior written consent of the holders of 66 2/3% of the shares of Series A Preferred Stock then outstanding. Notwithstanding anything to the contrary contained herein, no amendment, supplement, modification or waiver of any provision of this Certificate of Designation that adversely affects any holder of Series A Preferred Stock and is prejudicial to such holder relative to all other holders of Series A Preferred Stock shall be effective against such holder without such holder's consent.
12. Notices.
Except as otherwise expressly provided herein, all communications and notices provided for hereunder shall be in writing (including facsimile or electronic transmission or similar writing) and shall be given (i) to the Corporation, at its principal executive offices and (ii) to any stockholder, at such holder's address as it appears in the stock records of the Corporation (or at such other address or facsimile number as such stockholder may hereafter specify for the purposes of notice to such stockholder). Each such notice or other communication shall be effective (i) if given by facsimile, when such facsimile is transmitted to the facsimile number specified in accordance with this Section 12 and confirmation is received, (ii) if given by mail, three (3) Business Days following such posting, if postage prepaid, and if sent via U.S. certified
or registered mail, (iii) if given by overnight courier, one (1) Business Day after deposit thereof with a national overnight courier service, or (iv) if given by any other means, when received at the address specified in accordance with this Section 12.
13. Successors and Transferees.
The provisions applicable to shares of Series A Preferred Stock shall bind and inure to the benefit of and be enforceable by the Corporation, the successors to the Corporation, and by any record holder, as reflected on the Company's books and records, of shares of Series A Preferred Stock.
IN WITNESS WHEREOF, Darling International Inc. has caused this Certificate of Designation, Preferences and Rights of Series A Preferred Stock to be duly executed by its President and attested to by its Secretary and has caused its corporate seal to be affixed hereto, this 10th day of May, 2002.
DARLING INTERNATIONAL INC.
By: /s/ John O. Muse
------------------------
John O. Muse
Executive Vice President
|
(Corporate Seal)
ATTEST:
/s/ Joseph R. Weaver, Jr. ------------------------- Joseph R. Weaver, Jr. Secretary |
Exhibit 10.3
SECOND AMENDMENT TO RECAPITALIZATION AGREEMENT
THIS SECOND AMENDMENT TO RECAPITALIZATION AGREEMENT ("Second Amendment") is entered into effective as of April 29, 2002, among DARLING INTERNATIONAL INC., a Delaware corporation, as Borrower ("Borrower"), CREDIT LYONNAIS NEW YORK BRANCH, as Agent ("Agent"), and the other Banks party to the hereinafter defined Recapitalization Agreement (the "Banks").
Reference is made to the Recapitalization Agreement dated effective as of March 15, 2002, by and among Borrower, Agent and the Banks as amended by that certain First Amendment to Recapitalization Agreement dated as of April 1, 2002 (the "Recapitalization Agreement").
RECITALS
A. Borrower, Agent and the Banks are party to the Recapitalization Agreement which, among other things, modified that certain Amended and Restated Credit Agreement dated effective as of January 22, 1999 (as the same may have been heretofore amended, supplemented, or modified, the "Original Agreement") and provides for the amendment and restatement of the Original Agreement in accordance with the terms and provisions of the New Credit Agreement (as defined in the Recapitalization Agreement), subject to the other terms and conditions contained in the Recapitalization Agreement.
B. Borrower has requested that Agent and the Banks modify and amend certain terms and provisions of the Recapitalization Agreement, and Agent and the Banks are agreeable to so modify and amend the Recapitalization Agreement subject to the terms and conditions set forth herein.
Accordingly, for adequate and sufficient consideration, the parties hereto agree as follows:
Paragraph 1. Definitions. Unless otherwise defined in this Second Amendment, capitalized terms used herein shall have the meaning set forth in the Recapitalization Agreement.
Paragraph 2 Second Amendment. The Recapitalization Agreement is hereby amended by:
(a) replacing each reference to the date "April 30, 2002" in Section 9.1 of the Recapitalization Agreement and in subparagraphs 2(a) and 2(f) of Exhibit B to the Recapitalization Agreement with the date "May 31, 2002".
(b) adding the following to the end of the table set forth in subparagraph 2(e) of Exhibit B to the Recapitalization Agreement:
"May 31, 2002 $9,200,000"
(c) supplementing Exhibit B-1 to Exhibit B of the Recapitalization Agreement by adding Annex B-1 attached hereto to such Exhibit B-1.
(d) replacing Exhibits F-2 and F-3 to the Recapitalization Agreement, in their respective entireties, with Exhibits F-2 and F-3 attached hereto.
(e) deleting subsection 7.1(d) of Exhibit L of the Recapitalization Agreement, in its entirety, and renumbering subsection 7.1(e) of such Exhibit L as subsection 7.1(d).
(f) replacing section 9.13 of Exhibit L to the Recapitalization Agreement, in its entirety, with the following:
"Section 9.13 Payment of Adjusted Existing Accrued Interest. Borrower shall pay to the Agent, for the ratable benefit of the Term Banks, in immediately
available funds, an amount equal to the Adjusted Existing Accrued Interest on the thirtieth (30th) day after the Closing Date."
(g) adding the following proviso to the end of the second sentence in
Section 9.5 of Exhibit L to the Recapitalization Agreement:
"; provided, however, that any such insurance policy may be cancelable for non-payment of applicable premiums upon not less than ten (10) days prior written notice to the Agent."
(h) adding the following sentence to the end of Section 9.7 of the Recapitalization Agreement:
"Upon any assignment by a Bank of its rights under this Agreement in accordance with this Section 9.7 prior to the Consummation Date, all references in this Agreement to the Banks, their respective percentages of the Exchange Debt, and their commitments under the New Credit Agreement (including, without limitation, on Schedule 2.2B and the signature pages to Exhibits E and L to this Agreement) shall be and be deemed to be modified and supplemented to reflect such assignment."
Paragraph 3. Effective Date. This Second Amendment shall be effective on the date (the "Effective Date") Agent shall have received (i) counterparts of this Second Amendment, executed by Borrower, Agent and the Holders, and (ii) an updated financial budget and projection by week for the months of May and June of 2002, substantially similar in format to the Cash Budget (as defined in the Forbearance Agreement) and otherwise in form and substance satisfactory to the Holders.
Paragraph 4. Acknowledgment and Ratification. As a material inducement to Agent and the Banks to execute and deliver this Second Amendment, Borrower (a) consents to the agreements in this Second Amendment and (b) agrees and acknowledges that the execution, delivery, and performance of this Second Amendment shall in no way release, diminish, impair, reduce, or otherwise affect the respective obligations of Borrower under the Recapitalization Agreement, which shall remain in full force and effect, and all rights thereunder are hereby ratified and confirmed.
Paragraph 5. Representations. As a material inducement to Agent and the Banks to execute and deliver this Second Amendment, Borrower represents and warrants to Agent and the Banks that as of the Effective Date of this Second Amendment and as of the date of execution of this Second Amendment, (a) all representations and warranties in the Recapitalization Agreement are true and correct in all material respects as though made on the date hereof, except to the extent that any of them speak to a different specific date, and (b) no default or event or condition exists which, with the passage of time or the giving of notice, or both, would constitute a default under the Recapitalization Agreement.
Paragraph 6. Expenses. Borrower shall pay all costs, fees, and expenses paid or incurred by Agent incident to this Second Amendment, including, without limitation, the fees and expenses of Agent's counsel in connection with the negotiation, preparation, delivery, and execution of this Second Amendment and any related documents.
Paragraph 7. Miscellaneous. Unless stated otherwise (a) the singular number includes the plural and vice versa and words of any gender include each other gender, in each case, as appropriate, (b) headings and captions may not be construed in interpreting provisions, (c) this Second Amendment shall be governed by Delaware law, (d) if any part of this Second Amendment is for any reason found to be unenforceable, all other portions of it nevertheless remain enforceable, and (e) this Second Amendment may be executed in any number of counterparts with the same effect as if all signatories had signed the same document, and all of those counterparts must be construed together to constitute the same document.
Paragraph 8. ENTIRE AGREEMENT. THIS SECOND AMENDMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES ABOUT THE SUBJECT MATTER OF THIS SECOND AMENDMENT AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Paragraph 9. Parties. This Second Amendment binds and inures to the benefit of Borrower, Agent, Banks, and their respective successors and assigns.
The parties hereto have executed this Second Amendment in multiple counterparts to be effective as of the Effective Date.
Remainder of Page Intentionally Blank.
Signature Pages to Follow
DARLING INTERNATIONAL INC.
By: /s/ Brad Phillips
--------------------------
Name: Brad Phillips
Title: Treasurer
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251 O'Connor Ridge Blvd., Suite 300 Irving, Texas 75038 Fax No.: 972-717-1588 Telephone No.: 972-717-0300 Attention: Treasurer
AGENT:
CREDIT LYONNAIS NEW YORK BRANCH
individually as a Bank and as the Agent
By: /s/ James B. Hallock
--------------------------
Name: James B. Hallock
Title: Vice President
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Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, New York 10019 Telephone No.: 212-261-3259 Facsimile No.: 212-261-7861 Attention: Mr. James Hallock
Credit Lyonnais Dallas Branch 2200 Ross Avenue, Suite 4400 West Dallas, Texas 75201 Telephone No.: 214-220-2304 Facsimile No.: 214-220-2323 Attention: David Cagle
By: Patriarch Partners, LLC,
its Collateral Manager
By: /s/ Lynn Tilton
--------------------------
Name: Lynn Tilton
Title: Manager
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Ark CLO 2000-1, Limited c/o Patriarch Partners, LLC 40 Wall Street, 25th Floor New York, New York 10005 Telephone No.: (212) 825-0550 Facsimile No.: (212) 825-2038 Attention: Dennis Dolan/Lynn Tilton And Woodside Capital Management, LLC 36 Woodland Street 2nd Floor Hartford, CT 06105 Telephone No.: (860) 547-1761 Facsimile No.: (860) 547-1870 Attention: Anthony Varone
BANK ONE N.A.
By: /s/ Phillip D. Martin
--------------------------
Name: Phillip D. Martin
Title: Senior Vice President
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Bank One N.A.
Mail Code IL1-0631
1 Bank One Plaza
Chicago, IL 60670
CERBERUS PARTNERS, L.P.
By: Cerberus Associates, L.L.C.,
its general partner
By: /s/ Kevin Genda
--------------------------
Name: Kevin Genda
Title: Attorney in Fact
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450 Park Avenue, 28th Floor New York, New York 10022 Attn: Kevin Genda
AVENUE SPECIAL SITUATIONS FUND II L.P.
By: Avenue Capital Management II, LLC
Its General Partner
By: GLS Partners II, LLC,
Managing Member
Of General Partner
By: /s/ Marc Lasry
--------------------------
Name: Marc Lasry
Title: Managing Member
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Avenue Special Situations Fund II 535 Madison Avenue, 15th Floor New York, New York 10022
CREDIT AGRICOLE INDOSUEZ
By: /s/ Kathleen M. Sweeney
--------------------------
Name: Kathleen M. Sweeney
Title: Vice President
By: /s/ Leo von Reissig
--------------------------
Name: Leo von Reissig
Title: Vice President
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Credit Agricole Indosuez, New York Branch 666 Third Avenue New York, NY 10017-4011 Telephone No.: 646-658-2058 Facsimile No.: 646-658-2051 Attention: Kathleen Sweeney
PPM AMERICA SPECIAL INVESTMENTS FUND, LP
By: PPM America, Inc., as its
attorney-in-fact
By: /s/ Ronnie Kaplan
--------------------------
Name: Ronnie Kaplan
Title: Vice President
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PPM America, Inc. 225 West Wacker Drive, 9th Floor Chicago, IL 60606 Tel No.: 312-634-2572 Fax No.: 312-634-0053 Attention: Brian Schinderle Senior Managing Director
WELLS FARGO BANK (TEXAS) NATIONAL
ASSOCIATION
By: /s/ Nipul V. Patel
--------------------------
Name: Nipul V. Patel
Title: Vice President
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Wells Fargo Bank (Texas) National Association 1000 Louisiana Avenue, Suite 4300 Houston, TX 77002
Exhibit 10.4
AMENDED AND RESTATED CREDIT AGREEMENT
among
DARLING INTERNATIONAL INC.,
as the Borrower,
CREDIT LYONNAIS NEW YORK BRANCH,
as Agent,
and
the other lenders named herein
May 10, 2002
TABLE OF CONTENTS
ARTICLE 1 Definitions..................................................1
Section 1.1 Definitions.........................................1
Section 1.2 Other Definitional Provisions......................12
Section 1.3 Accounting Terms and Determinations................12
Section 1.4 Time of Day........................................13
ARTICLE 2 Revolving Credit Facility...................................13
Section 2.1 Revolving Commitments..............................13
Section 2.2 Notes..............................................13
Section 2.3 Repayment of Revolving Loans.......................13
Section 2.4 Use of Proceeds....................................13
Section 2.5 Fees...............................................13
(a) Revolving Commitment Fees..........................13
(b) Other Fees.........................................14
Section 2.6 Reduction or Termination of Revolving Commitments..14
(a) Mandatory Prepayment Reduction.....................14
(b) Voluntary Reductions...............................14
(c) Effect of Reduction................................14
Section 2.7 Letters of Credit..................................14
(a) Commitment to Issue................................14
(b) Letter of Credit Request Procedure.................14
(c) Letter of Credit Fees..............................15
(d) Funding of Drawings................................15
(e) Reimbursements.....................................15
(f) Reimbursement Obligations Absolute.................15
(g) Issuer Responsibility..............................16
Section 2.8 Swingline Loans....................................16
(a) Swingline Commitment...............................16
(b) Swingline Note.....................................17
(c) Repayment of Swingline Loans; Funding of
Participation....................................17
(d) Use of Proceeds....................................17
(e) Reduction or Termination of Swingline Commitment...17
ARTICLE 3 Term Loan...................................................17
Section 3.1 Notes..............................................17
Section 3.2 Repayment of Term Loans............................17
ARTICLE 4 Interest and Fees...........................................18
Section 4.1 Interest Rate......................................18
Section 4.2 Payment Dates......................................18
Section 4.3 Default Interest...................................18
Section 4.4 Conversion of Libor Accounts.......................19
Section 4.5 Computations.......................................19
ARTICLE 5 Administrative Matters......................................19
Section 5.1 Borrowing Procedure................................19
Section 5.2 Minimum Amounts....................................19
Section 5.3 Certain Notices....................................20
Section 5.4 Prepayments........................................20
(a) Voluntary Prepayments..............................20
(b) Mandatory Prepayments..............................21
(i) Asset Dispositions and Income Tax
Refunds..............................21
(ii) Excess Cash Flow......................22
(iii) OverAdvance...........................22
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(iv) Control of Cash and Application to
Obligations..........................22
(v) Breakfunding Costs.....................23
Section 5.5 Method of Payment..................................23
Section 5.6 Pro Rata Treatment; Distribution of Proceeds of
Collateral and Collection on the Guaranty........24
Section 5.7 Sharing of Payments................................25
Section 5.8 Non-Receipt of Funds by the Agent..................26
Section 5.9 Withholding Taxes..................................26
Section 5.10 Withholding Tax Exemption..........................26
Section 5.11 Participation Obligations Absolute; Failure to
Fund Participation...............................27
ARTICLE 6 Yield Protection and Illegality.............................27
Section 6.1 Additional Costs...................................27
Section 6.2 Illegality.........................................28
Section 6.3 Compensation.......................................28
Section 6.4 Capital Adequacy...................................28
Section 6.5 Replacement of a Bank..............................29
ARTICLE 7 Conditions Precedent........................................29
Section 7.1 Effectiveness of Agreement.........................29
(a) Closing Documents..................................29
(b) Attorneys' Fees and Expenses.......................30
(c) No Material Adverse Effect.........................30
(d) Other Conditions...................................30
Section 7.2 Loans and Letters of Credit........................31
ARTICLE 8 Representations and Warranties..............................31
Section 8.1 Corporate Existence................................31
Section 8.2 Financial Statements...............................31
Section 8.3 Corporate Action; No Breach........................31
Section 8.4 Operation of Business..............................32
Section 8.5 Litigation and Judgments...........................32
Section 8.6 Rights in Properties; Liens; Nonproductive Assets..32
Section 8.7 Enforceability.....................................32
Section 8.8 Approvals..........................................32
Section 8.9 Debt...............................................32
Section 8.10 Taxes..............................................32
Section 8.11 Margin Securities..................................33
Section 8.12 ERISA..............................................33
Section 8.13 Disclosure.........................................33
Section 8.14 Subsidiaries.......................................33
Section 8.15 Agreements.........................................33
Section 8.16 Compliance with Laws...............................34
Section 8.17 Investment Company Act.............................34
Section 8.18 Public Utility Holding Company Act.................34
Section 8.19 Environmental Matters..............................34
Section 8.20 Solvency...........................................35
ARTICLE 9 Positive Covenants..........................................35
Section 9.1 Reporting Requirements.............................35
Section 9.2 Maintenance of Existence; Conduct of Business......37
Section 9.3 Maintenance of Properties..........................37
Section 9.4 Taxes and Claims...................................37
Section 9.5 Insurance; Casualty and Condemnation Proceeds......38
Section 9.6 Inspection Rights..................................38
Section 9.7 Keeping Books and Records..........................38
Section 9.8 Compliance with Laws; Environmental Laws...........38
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Section 9.9 Compliance with Agreements.........................39
Section 9.10. Further Assurances; Post Closing Items; Exceptions
to Perfection and other Collateral Matters.......39
(a) Further Assurance..................................39
(b) Reserved...........................................40
(c) Deposit Accounts...................................40
(d) Creation, Perfection and Protection of Liens on
Real Property....................................40
(e) Insignificant Subsidiaries.........................41
Section 9.11 ERISA..............................................42
Section 9.12 Packers and Stockyards Act Compliance..............42
Section 9.13 Payments of Adjusted Existing Accrued Interest.....42
ARTICLE 10 Negative Covenants.................................42
Section 10.1 Debt...............................................42
Section 10.2 Limitation on Liens and Restrictions on
Subsidiaries.....................................43
Section 10.3 Mergers, Etc.......................................44
Section 10.4 Restricted Junior Payments.........................44
Section 10.5 Investments........................................44
Section 10.6 Limitation on Issuance of Capital Stock............45
Section 10.7 Transactions With Affiliates.......................45
Section 10.8 Disposition of Assets..............................46
Section 10.9 Sale and Leaseback.................................47
Section 10.10 Lines of Business..................................47
Section 10.11 Hedging............................................47
ARTICLE 11 Financial Covenants................................48
Section 11.1 Adjusted EBITDA....................................48
Section 11.2 Debt Coverage......................................48
Section 11.3 Capital Expenditure Limits.........................49
ARTICLE 12 Default............................................49
Section 12.1 Events of Default..................................49
Section 12.2 Remedies...........................................51
Section 12.3 Cash Collateral....................................52
Section 12.4 Performance by the Agent;..........................52
Section 12.5 Set-off............................................52
Section 12.6 Continuing Event of Default........................53
ARTICLE 13 The Agent..........................................53
Section 13.1 Appointment, Powers and Immunities.................53
Section 13.2 Rights of the Agent as a Bank......................53
Section 13.3 Defaults...........................................54
Section 13.4 Indemnification....................................54
Section 13.5 Independent Credit Decisions.......................54
Section 13.6 Several Commitments................................55
Section 13.7 Successor Agent....................................55
Section 13.8 Agent Fee..........................................55
Section 13.9 Deposit Accounts held at Agent.....................55
Section 13.10 Approved Bank Affiliates Rights....................55
ARTICLE 14 Miscellaneous......................................55
Section 14.1 Expenses...........................................55
Section 14.2 Indemnification....................................56
Section 14.3 Limitation of Liability............................56
Section 14.4 No Duty............................................57
Section 14.5 No Fiduciary Relationship..........................57
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Section 14.6 Equitable Relief...................................57
Section 14.7 No Waiver; Cumulative Remedies.....................57
Section 14.8 Successors and Assigns.............................57
Section 14.9 Survival...........................................59
Section 14.10 Entire Agreement; Amended and Restatement;
Release..........................................59
Section 14.11 Amendments.........................................60
Section 14.12 Maximum Interest Rate..............................60
Section 14.13 Notices............................................61
Section 14.14 Governing Law......................................61
Section 14.15 Counterparts.......................................61
Section 14.16 Severability.......................................61
Section 14.17 Headings...........................................61
Section 14.18 Non-Application of Chapter 346 of Texas Finance
Code.............................................61
Section 14.19 Construction.......................................62
Section 14.20 Independence of Covenants..........................62
Section 14.21 Waiver of Jury Trial...............................62
Section 14.22 Confidentiality....................................62
Section 14.23 Waiver of Existing Defaults........................62
Section 14.24 Conflict with Loan Documents.......................62
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INDEX TO EXHIBITS
Exhibit Description of Exhibit
"A" Revolving Note
"B" Swingline Note
"C" Term Note
"D" Guaranty
"E" Borrower/Subsidiary Security Agreement
"F" Assignment and Acceptance
"G" Compliance Certificate
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INDEX TO SCHEDULES
Schedule Description of Schedule 1.1(a) Excluded Real Property 8.5 Litigation 8.6 Title Exceptions 8.10 Pending Investigations by Taxing Authorities 8.14 List of Subsidiaries 8.19 Environmental Matters 9.10(a) Vehicle Titles; Abandon Foreign Registrations 10.1 Existing Debt 10.2 Existing Liens 10.5 Existing Investments 10.8 Nonproductive Assets 14.8 Ineligible Assignees |
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT ("Agreement"), dated as of May 10, 2002 is among DARLING INTERNATIONAL INC., a corporation duly organized and validly existing under the laws of the State of Delaware (the "Borrower"), each of the banks or other lenders which is or which may from time to time become a signatory hereto or any successor or assignee thereof (individually, a "Bank" and, collectively, the "Banks"), and CREDIT LYONNAIS NEW YORK BRANCH, individually as a Bank and as agent for itself, the other Banks and the other Secured Parties (in its capacity as agent, together with its successors in such capacity, the "Agent").
R E C I T A L S:
A. The Borrower, the Agent and the Banks are parties to that certain Amended and Restated Credit Agreement dated as of January 22, 1999 (as the same has been amended and otherwise modified, the "Original Agreement").
B. Events of Default occurred under the Original Agreement as described in
that certain Agreement dated as of June 29, 2001, among the Borrower, the Banks
and the Agent (as modified and amended, the "Forbearance Agreement"). Pursuant
to the terms and conditions of that certain Recapitalization Agreement dated as
of March 15, 2002, among the Borrower, the Banks and the Agent (as modified or
amended, the "Recapitalization Agreement"), the Borrower and the Obligated
Parties have requested, among other things, that the Banks (i) waive the
Existing Defaults (as defined in the Forbearance Agreement), (ii) exchange a
portion of the obligations and indebtedness owed by the Borrower to the Banks
under the Original Agreement for certain capital stock of the Borrower, and
(iii) amend and restate the Original Agreement with respect to the remaining
obligations and indebtedness of the Borrower to the Banks under the Original
Agreement and add certain new commitments from certain of the Banks and/or other
lenders to provide additional revolving credit to the Borrower.
C. The Banks are willing to so waive the Existing Defaults and amend and restate the Original Agreement upon the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions. As used in this Agreement, the following terms have the following meanings:
"Acceleration Event" has the meaning specified in subsection 5.4(b)(iv).
"Account" means either a Base Rate Account or a Libor Account.
"Additional Costs" has the meaning specified in Section 6.1.
"Adjusted EBITDA" has the meaning specified in Section 11.1.
"Adjusted Existing Accrued Interest" shall mean an amount calculated as accrued and unpaid interest from (i) February 1, 2002 until and including April 23, 2002 on $69,000,000 in principal of Loans made under the Original Agreement, and (ii) from April 24, 2002 until the Closing Date on $61,762,643 in principal of Loans made under the Original Agreement, in each case calculated as if such Loans were Base Rate Accounts under this Agreement.
"Adjusted Working Capital" means, for any day a determination thereof is to be made, the difference of (a) the Borrower's current assets less all cash and cash equivalents, minus (b) the Borrower's current liabilities plus, to the extent
not otherwise included as current liabilities, the outstanding principal amount of Revolving Loans and all Letter of Credit Liabilities, determined on a consolidated basis in conformity with GAAP.
"Affiliate" means, as to any Person, any other Person (a) that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such Person, (b) that directly or indirectly beneficially owns or holds five percent (5%) or more of any class of voting stock of such Person, or (c) five percent (5%) or more of the voting stock of which is directly or indirectly beneficially owned or held by the Person in question. The term "control" means the possession, directly or indirectly, of the power to direct or cause direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
"Agent" has the meaning set forth in the introductory paragraph of this Agreement.
"Agreement" means this Amended and Restated Credit Agreement as the same may be amended, supplemented or otherwise modified from time to time.
"Applicable Lending Office" means for each Bank and each type of Account, the lending office of such Bank (or of an Affiliate of such Bank) designated for such Account below its name on the signature pages hereof or such other office of such Bank (or of an Affiliate of such Bank) as such Bank may from time to time specify to the Borrower and the Agent as the office by which its Loans subject to Accounts of such type are to be made and maintained.
"Approved Bank Affiliates" means, with respect to each Bank listed below and only for so long as such Bank remains a "Bank" hereunder, the Person or Persons identified below opposite the name of such Bank:
Bank Affiliate
1. Wells Fargo Bank (Texas), National Wells Fargo Bank, National Association
Association Regulas West, LLC
2. Bank One, N.A. NBD Bank
Banc One Leasing Corporation
3. Credit Lyonnais New York Branch Credit Lyonnais, London Branch
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"Assignee" has the meaning set forth in subsection 14.8(b).
"Assigning Bank" has the meaning set forth in subsection 14.8(b).
"Assignment and Acceptance" means an assignment and acceptance entered into
by a Bank and its Assignee and, if required, accepted by the Agent pursuant to
Section 14.8(b), in substantially the form of Exhibit F.
"Available Cash" has the meaning set forth in subsection 5.4(b)(iv).
"Bank" has the meaning set forth in the introductory paragraph of this Agreement.
"Bankruptcy Code" has the meaning set forth in subsection 12.1(e).
"Base Rate" means, at any time, the rate of interest per annum then most recently established by the Agent as its base rate, which rate may not be the lowest rate of interest charged by the Agent to its borrowers. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect without notice to the Borrower at the time of such change in the Base Rate.
"Base Rate Account" means a portion of a Loan that bears interest at a rate based upon the Base Rate.
"Borrower" has the meaning set forth in the introductory paragraph of this Agreement.
"Borrower Security Agreement" means the amended and restated security agreement between the Borrower and the Agent, for the benefit of the Secured Parties, in substantially the form of Exhibit E, as the same may be amended or otherwise modified.
"Business Day" means (a) any day excluding Saturday, Sunday, and any day which either is a legal holiday under the laws of the States of New York or Texas or is a day on which banking institutions located in either such State are closed, and (b) with respect to all payments, Conversions, and notices in connection with Loans subject to Libor Accounts, any day which is a Business Day described in clause (a) above and which is also a day on which dealings in Dollar deposits are carried out in the London interbank market.
"Capital Expenditures" means, for any period and any Person, all expenditures of such Person which are classified as capital expenditures on the consolidated statement of cash flows of such Person in accordance with GAAP, including, without limitation, all such expenditures so classified as "recurring capital expenditures" and all such expenditures associated with Capital Lease Obligations.
"Capital Lease Obligations" means, as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property, which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP. For purposes of this Agreement, the amount of such Capital Lease Obligations shall be the capitalized amount thereof, determined in accordance with GAAP.
"Class" when used in reference to any Bank, refers to whether such Bank has a Revolving Commitment, a Term Commitment or a Swingline Commitment.
"Classified Subsidiary" has the meaning set forth in the definition of Insignificant Subsidiary.
"Closing Date" means May 10, 2002.
"Code" means the Internal Revenue Code of 1986, as amended, and the regulations promulgated and rulings issued thereunder.
"Collateral" means the property in which Liens have been granted to the Agent for the benefit of the Secured Parties pursuant to the Loan Documents (as the same may have been amended, supplemented or otherwise modified from time to time) executed in connection with the Original Agreement, the Borrower Security Agreement, the Subsidiary Security Agreement, any Mortgage, or any other agreement, document, or instrument executed by the Borrower or a Subsidiary in accordance with Section 9.10, whether such Liens are now existing or hereafter arise.
"Commercially Reasonable Efforts" means, with respect to the obligation to obtain from a third party any of the documentation required by Section 9.10, that the Borrower or applicable Obligated Party shall have expended, in good faith and within the time period required by Section 9.10, all reasonable efforts to obtain the applicable document, or an acceptable substitute, from such third party.
"Commitments" means, as to each Bank, such Bank's Revolving Commitment, Term Commitment, and, if such Bank is the Agent, the Swingline Commitment.
"Compliance Certificate" means a certificate in substantially the form of Exhibit G properly completed and executed by the chief financial officer or treasurer of the Borrower.
"Concentration Account" means a deposit account established at the Agent by the Borrower and controlled by the Agent for the benefit of the Secured Parties in which all funds received through the Lockbox Accounts shall be deposited.
"Contingent Primary Obligations" means, at any time, all identifiable and quantifiable contingent and unliquidated obligations, indebtedness, and liabilities of the Borrower to any Secured Party arising from, pursuant to, or in connection with the Loan Documents, the SWAP Documents and the Deposit and Cash Management Services, whether
direct, indirect, related, unrelated, joint, several, or joint and several, including without limitation, the Reimbursement Obligations and the potential liability of the Borrower under any SWAP Documents.
"Contract Rate" has the meaning specified in subsection 14.12(a).
"Convert", "Conversion", and "Converted" shall refer to a conversion pursuant to Section 4.4 or Article 6 of a Libor Account into a Base Rate Account or a Base Rate Account into a Libor Account.
"Credit Lyonnais Accounts" has the meaning set forth in Section 13.9.
"Debt" means as to any Person at any time (without duplication): (a) all obligations of such Person for borrowed money (it being understood that any such obligations for borrowed money of the Borrower arising under this Agreement and the other Loan Documents shall not be modified by the application of Standard No. 15 of the Financial Accounting Standards Board or any other accounting rule or convention affecting how such obligations are to be accounted for on the balance sheet of the Borrower); (b) all obligations of such Person evidenced by bonds, notes, debentures, or other similar instruments (other than the Preferred Stock); (c) all obligations of such Person to pay the deferred purchase price of property or services (excluding trade accounts payable of such Person arising in the ordinary course of business that are not past due by more than ninety (90) days); (d) all Capital Lease Obligations of such Person; (e) all Debt or other obligations of others Guaranteed by such Person; (f) all obligations secured by a Lien existing on property owned by such Person, whether or not the obligations secured thereby have been assumed by such Person or are non-recourse to the credit of such Person; (g) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers' acceptances, surety or other bonds, and similar instruments; (h) all liabilities of such Person in respect of unfunded vested benefits under any Plan; and (i) all obligations of such Person arising in connection with noncompete, consulting, and similar agreements which are classified as liabilities on a balance sheet in accordance with GAAP. In determining the Dollar amount of Debt of a Person for any purpose of this Agreement, the Dollar amount of any Debt of the type described in clause (f) which has not been assumed by such Person and which is non-recourse to the credit of such Person, shall be equal to the lesser of the amount of the Debt so secured or the fair market value of the applicable property.
"Default" means an Event of Default or the occurrence of an event or condition which with notice or lapse of time or both would become an Event of Default. The compliance with the financial covenants set forth in Sections 11.1 and 11.2 is tested as of the end of a Fiscal Quarter (the "Test Date") for a trailing period of time specified therein (the "Test Period"). As of any date after one Test Date but prior to the next Test Date, the financial performance of the Borrower and the Subsidiaries for the period from the beginning of the then current Test Period to any date prior to such next Test Date shall not be an event or condition which with notice or lapse of time or both would become an Event of Default for purposes of this definition of Default; provided the foregoing provisions shall not prevent: (i) the characterization of a change in the financial performance of the Borrower and the Subsidiaries as a "material adverse change" for purposes of Section 8.2, if in fact such change is material and adverse within the meaning of Section 8.2; (ii) the characterization of a change in the financial performance of the Borrower and the Subsidiaries as having a "Material Adverse Effect" for any purpose of this Agreement, if in fact such change has or would have a "Material Adverse Effect"; or (iii) the occurrence of an Event of Default for failure to comply with such financial covenants on and at any time after such next Test Date as calculated for the related Test Period.
"Default Rate" means a rate per annum equal to the Base Rate plus four percent (4.0%).
"Deposit and Cash Management Services" means the deposit and/or cash management products and services provided by a Secured Party in connection with the maintenance of the Lockbox Accounts, the Concentration Account or any of the other deposit or other accounts described on Schedule 3.2 to the Borrower Security Agreement and the Subsidiary Security Agreement.
"Deposit and Cash Management Services Obligations" means all the obligations of the Borrower to a Bank or an Approved Bank Affiliate (a) to pay the fees charged for the Deposit and Cash Management Services and (b) to reimburse such Bank or Approved Bank Affiliate for any credit extended on uncollected funds in an amount not to exceed such uncollected funds or the amount of any item (including checks and automated clearing house credits) credited to an account but which is subsequently returned unpaid or returned for any other reason.
"Designated Information" has the meaning specified in Section 14.22.
"Designated Leased Property" has the meaning specified in subsection 9.10(d)(iii).
"Dollars" and "$" mean lawful money of the United States of America.
"EBITDA" means, for any period and any Person, the total of the following each calculated without duplication for such Person on a consolidated basis for such period: (a) Net Income; plus (b) any provision for (or less any benefit from) income or franchise taxes included in determining Net Income; plus (c) Net Interest Expense deducted in determining Net Income; plus (d) amortization and depreciation expense deducted in determining Net Income.
"Eligible Assignee" has the meaning specified in Section 14.8(b).
"Environmental Laws" means any and all federal, state, and local laws, regulations, and requirements pertaining to health, safety, or the environment, as such laws, regulations, and requirements may be amended or supplemented from time to time.
"Environmental Liabilities" means, as to any Person, all liabilities, obligations, responsibilities, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs, and expenses, (including, without limitation, all fees, disbursements, and expenses of counsel, expert and consulting fees, and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest incurred as a result of any claim or demand, by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, including, without limitation, any Environmental Law, permit, order, or agreement with any Governmental Authority or other Person, arising from environmental, health, or safety conditions or the Release or threatened Release of a Hazardous Material into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and published interpretations thereunder.
"ERISA Affiliate" means any corporation or trade or business, which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower or is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower.
"Event of Default" has the meaning specified in Section 12.1.
"Excess Cash Flow" has the meaning specified in subsection 5.4(b)(ii).
"Existing Defaults" has the meaning specified in the Recitals to this Agreement.
"Existing Letters of Credit" means the letters of credit issued by the Agent under the Original Agreement, which remain outstanding on the Closing Date.
"Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if such rate is not so published on such next succeeding Business Day, the Federal Funds Rate for any day shall be the average rate charged to the Agent on such day on such transactions as determined by the Agent.
"Fee Owned Designated Property" means each parcel of real property owned by Borrower or a Significant Subsidiary in fee other than those parcels described on Schedule 1.1 (a).
"Fiscal Quarters" means the four (4) periods falling in each Fiscal Year, each such period being thirteen (13) or fourteen (14) weeks in duration, as applicable, with the first such period in any Fiscal Year beginning on the first day of such Fiscal Year and the last such period in any Fiscal Year ending on the last Saturday closest to December 31.
"Fiscal Year" means the fifty-two (52) or fifty-three (53) week period, as the case may be, beginning on the date, which is one day after the date of the end of the similar preceding period and ending on the Saturday closest to December 31.
"Forbearance Agreement" has the meaning specified in the Recitals to this Agreement.
"GAAP" means generally accepted accounting principles, applied on a consistent basis, as set forth in Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board and/or their respective successors and which are applicable in the circumstances as of the date in question. Accounting principles are applied on a "consistent basis" when the accounting principles applied in a current period are comparable in all material respects to those accounting principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state or political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory, or administrative functions of or pertaining to government.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreement to keep-well, to purchase assets, goods, securities, or services,
to take-or-pay, or to maintain financial statement conditions or otherwise) or
(b) entered into for the purpose of assuring in any other manner the obligee of
such Debt or other obligation of the payment thereof or to protect the obligee
against loss in respect thereof (in whole or in part); provided that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Guaranty" means the guaranty of a Significant Subsidiary in favor the Secured Parties, in substantially the form of Exhibit D, as the same may be amended or otherwise modified from time to time.
"Hazardous Material" means any substance, product, waste, pollutant, material, chemical, contaminant, constituent, or other material, which is regulated by, or forms the basis of liability under, any Environmental Law.
"Hedging Agreement" means any present or future, whether master or single, agreement, document, or instrument providing for -- or constituting an agreement to enter into -- an interest-rate, basis, credit default, or commodity swap; forward-rate arrangement; commodity option; equity or equity-index swap or option; bond or interest-rate option; forward-foreign-exchange arrangement; rate-cap, -collar, or -floor arrangement; currency- or cross-currency-swap arrangement; swaption; currency-option; or any similar arrangement.
"Insignificant Subsidiary" means Insurance Company of Colorado, Inc., and any other Subsidiary (other than any Subsidiary that has executed and delivered a Guaranty) whose (a) net worth (calculated in accordance with GAAP) at the time of determination does not exceed Seven Hundred Fifty Thousand Dollars ($750,000), or (b) total assets (determined in accordance with GAAP) does not exceed an amount equal to five percent (5%) of the total assets of the Borrower and the Subsidiaries determined on a consolidated basis in accordance with GAAP (a subsidiary that meets either of the foregoing requirements in this definition is referred to as a "Classified Subsidiary"); provided, however, no Classified Subsidiary shall be deemed an Insignificant Subsidiary if at the time of determination (a) the aggregate net worth (calculated in accordance with GAAP) of all Subsidiaries that are then Classified Subsidiaries exceeds Seven Hundred Fifty Thousand Dollars ($750,000). or (b) the aggregate total assets (determined in accordance with GAAP) of all Subsidiaries that are then Classified Subsidiaries exceeds an amount equal to five percent (5%) of the total assets of the Borrower and the Subsidiaries determined on a consolidated basis in accordance with GAAP.
"Interest Period" is determined under Section 4.1.
"Landlord Consent" has the meaning specified in subsection 9.10(d)(iii).
"Leased Equipment" means any equipment of the Borrower or a Significant Subsidiary in which an Approved Bank Affiliate has either a first priority perfected security interest or ownership interest under the terms of an operating or capital lease entered into with the Borrower or a Significant Subsidiary.
"Lending Party" has the meaning specified in Section 14.22.
"Letter of Credit Liabilities" means, at any time, the aggregate maximum amount available to be drawn under all outstanding Letters of Credit, including, without limitation, the Existing Letters of Credit (in each case, determined without regard to whether any conditions to drawing could then be met) and all unreimbursed drawings under Letters of Credit, including, without limitation, the Existing Letters of Credit.
"Letters of Credit" has the meaning specified in subsection 2.7(a).
"Libor Account" means a portion of a Loan that bears interest at a rate based upon the Libor Rate.
"Libor Rate" means, for any Libor Account and for the relevant Interest
Period, the annual interest rate (rounded upward, if necessary, to the nearest
1/16 of 1%) equal to the quotient obtained by dividing (a) the rate displayed on
page 3750 on the Teleratesystem Incorporated Service (or such other page as may
replace such page on such service) at approximately 11:00 a.m. London time two
(2) Business Days before the first day of that Interest Period in an amount
comparable to that Libor Account and having a maturity approximately equal to
that Interest Period, by (b) one minus the Reserve Requirement (expressed as a
decimal) applicable to the relevant Interest Period.
"Lien" means any lien, mortgage, security interest, tax lien, financing statement, pledge, charge, hypothecation, assignment, preference, priority, or other encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or title retention agreement), whether arising by contract, operation of law, or otherwise.
"Loans" means Revolving Loans, Swingline Loans, and/or Term Loans.
"Loan Documents" means this Agreement, the Notes, the Borrower Security Agreement, each Guaranty, the Subsidiary Security Agreement, the Mortgages, and all other promissory notes, security agreements, deeds of trust, mortgages, assignments, guaranties, letters of credit, and other instruments, agreements, and other documentation executed and delivered pursuant to or in connection with this Agreement or the Original Agreement, as such instruments, agreements, and other documentation may be amended or otherwise modified but excluding any operating or capital lease and any other documentation evidencing or governing a Secondary Obligation.
"Lockbox Accounts" shall mean the lockbox accounts established from time to time pursuant to the Lockbox Agreements in which all funds received pursuant to the Lockbox Agreements shall be deposited.
"Lockbox Agreements" shall mean any lockbox or other agreement entered into by the Borrower or a Significant Subsidiary with the Agent or any Bank pursuant to which a lockbox and deposit account shall be established for the Borrower or a Significant Subsidiary into which payments on the Borrower's or such Significant Subsidiary's accounts or other Collateral shall be sent and deposited, each in form and substance satisfactory to the Agent, as the same may be amended or otherwise modified.
"Material Adverse Effect" means (a) a material adverse effect on the business, condition (financial or otherwise), operations, prospects, or properties of the Borrower and the Subsidiaries taken as a whole, or (b) a material adverse effect on the validity, perfection, priority, or ability of the Agent to enforce the Agent's Lien on the Collateral or of the ability of the Agent or any Bank to enforce a material provision of the Loan Documents. In determining whether any individual event could reasonably be expected to result in a Material Adverse Effect, notwithstanding that such event does not itself have such effect, a Material Adverse Effect shall be deemed to have occurred if the cumulative effect of such event and all other then existing events could reasonably be expected to result in a Material Adverse Effect.
"Maximum Rate" means, at any time and with respect to any Bank, the maximum rate of nonusurious interest under applicable law that such Bank may charge the Borrower. The Maximum Rate shall be calculated in a manner that takes into account any and all fees, payments, and other charges contracted for, charged, or received in connection with the
Loan Documents that constitute interest under applicable law. Each change in any interest rate provided for herein based upon the Maximum Rate resulting from a change in the Maximum Rate shall take effect without notice to the Borrower at the time of such change in the Maximum Rate. For purposes of determining the Maximum Rate under Texas law, the applicable rate ceiling shall be the "weekly ceiling" described in, and computed in accordance with, Article 5069, Vernon's Texas Civil Statutes.
"Mortgage Amendment" has the meaning specified in subsection 9.10(d)(i).
"Mortgages" means each mortgage, deed of trust, leasehold mortgage, leasehold deed of trust or other agreement executed by the Borrower or any Obligated Party which creates a Lien on such Person's interests in real property in favor of the Agent for the benefit of the Secured Parties as required pursuant to the terms of Section 9.10, each of which shall be in form and substance reasonably satisfactory to the Agent.
"Multiemployer Plan" means a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA.
"Net Cash Proceeds" has the meaning specified in subsection 5.4(b)(i).
"Net Income" means, for any period and any Person, such Person's consolidated net income (or loss) determined in conformity with GAAP (it being understood that such net income in conformity with GAAP is prior to any adjustment for dividends and accretion relating to the Preferred Stock), but excluding: (a) the income of any other Person (other than its subsidiaries) in which such Person or any of it subsidiaries has an ownership interest, unless received by such Person or its subsidiary in a cash distribution; (b) any after-tax gains or losses attributable to asset dispositions; and (c) to the extent not included in clauses (a) and (b) above, any after-tax extraordinary or non-cash, gains or credits or extraordinary, or non-cash losses or charges.
"Net Interest Expense" means, for any period and any Person, the remainder of the following for such Person calculated on a consolidated basis for such period in accordance with GAAP: (a) interest expense, minus (b) interest income.
"Net Out Flows" has the meaning specified in Section 10.8.
"Notes" means the Revolving Notes, the Swingline Note, and the Term Notes.
"Notice of Default" has the meaning specified in Section 13.3.
"Obligated Party" means the Significant Subsidiaries or any other Person (exclusive of the Borrower) who is or becomes party to any agreement that guarantees or secures payment and performance of the Obligations or any part thereof.
"Obligations" means the Primary Obligations and the Secondary Obligations.
Offsetting Purchase" has the meaning specified in subsection 10.8(f)(ii).
"Original Agreement" has the meaning specified in the Recitals to this Agreement.
"Outstanding Revolving Credit" means, at any time of determination, the sum of (a) the aggregate amount of Revolving Loans then outstanding, plus (b) the aggregate amount of Letter of Credit Liabilities (or when calculated with respect to a Revolving Bank, including the Agent as a Revolving Bank, such Revolving Bank's participation or other interest in such Letter of Credit Liabilities), plus (c) the aggregate amount of Swingline Loans (or when calculated with respect to a Revolving Bank, including the Agent as a Revolving Bank, such Revolving Bank's participation or other interest in such Swingline Loans) then outstanding.
"Payor" has the meaning specified in Section 5.8.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to all or any of its functions under ERISA.
"Perfection Event" has the meaning specified in subsection 9.10(a)(ii).
"Person" means any individual, corporation, business trust, association, company, partnership, joint venture, Governmental Authority, or other entity.
"Plan" means any employee benefit plan established or maintained by the Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA.
"Preferred Stock" means the Series A Preferred Stock of the Borrower issued to the Banks pursuant to the terms of the Recapitalization Agreement.
"Primary Obligations" means all obligations, indebtedness, and liabilities of the Borrower to the Agent, the Banks, the Approved Bank Affiliates or any of them arising from, pursuant to, or in connection with the Loan Documents and the SWAP Documents and all the Deposit and Cash Management Services Obligations, in each case whether now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several, or joint and several, including without limitation, the obligations of the Borrower to repay the Loans, the Reimbursement Obligations, interest on the Loans and the Reimbursement Obligations, and all fees, costs and expenses (including, without limitation, reasonable attorney's fees) provided for in the Loan Documents, SWAP Documents or in connection with the documentation governing the Deposit and Cash Management Services.
"Principal Office" means the principal office of the Agent, located at 1301 Avenue of the Americas, New York, New York 10019.
"Prohibited Transaction" means any transaction set forth in Section 406 or
Section 407 of ERISA or Section 4975(c)(1) of the Code for which there does not
exist a statutory or administrative exemption.
"Quarterly Payment Date" means the last day of the third (3rd) full
calendar month occurring after the Closing Date and the last day of each third
(3rd) calendar month occurring thereafter.
"Raw Material Supplier" has the meaning specified in subsection 10.1(g).
"Recapitalization Agreement" has the meaning specified in the Recitals to this Agreement.
"Register" has the meaning specified in subsection 14.8(c).
"Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time.
"Regulatory Change" means, with respect to any Bank, any change after the date of this Agreement in United States federal, state, or foreign laws or regulations (including, without limitation, Regulation D) or the adoption or making after such date of any interpretations, directives, or requests applying to a class of banks including such Bank of or under any United States federal or state, or any foreign, laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof.
"Reimbursement Obligation" means the obligation of the Borrower to reimburse the Agent for any demand for payment or drawing under a Letter of Credit, including, without limitation, any Existing Letter of Credit.
"Release" means, as to any Person, any release, spill, emission, leaking, pumping, injection, deposit, disposal, disbursement, leaching, or migration of Hazardous Materials into the indoor or outdoor environment or into or out of property owned by such Person, including, without limitation, the movement of Hazardous Materials through or in the air, soil, surface water, ground water, or property in violation of Environmental Laws.
"Remedial Action" means all actions required to (a) cleanup, remove, treat,
or otherwise address Hazardous Materials in the indoor or outdoor environment,
(b) prevent the Release or threat of Release or minimize the further Release
of Hazardous Materials so that they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, or (c) perform pre-remedial studies and investigations and post-remedial monitoring and care.
"Replacement Candidate" has the meaning specified in Section 6.5.
"Reportable Event" means any of the events set forth in Section 4043 of
ERISA.
"Required Banks" means the Required Revolving Banks and the Required Term Banks.
"Required Payment" has the meaning specified in Section 5.8.
"Required Revolving Banks" means at least three (3) Revolving Banks having in the aggregate either a direct or, in the case of Swingline Loans and Letter of Credit Liabilities, participation interest in the following, calculated without duplication: (a) more than fifty percent (50%) of the Revolving Commitments or (b) if the Revolving Commitments have terminated, more than fifty percent (50%) of the sum of (i) the outstanding principal amount of the Revolving Loans and the Swingline Loans and (ii) the participations in outstanding Letter of Credit Liabilities, including, without limitation, Letter of Credit Liabilities related to the Existing Letters of Credit; provided, however, that if there are less than three (3) Revolving Banks at the time of determination, "Required Revolving Banks" shall mean all of the Revolving Banks; and provided, further, that all Banks which are either Affiliates of each other or are investment funds or similar entities managed by a Bank or an Affiliate of a Bank shall be deemed to constitute a single "Bank" for the purpose of determining the number of Banks hereunder.
"Required Term Banks" means at least three (3) Term Banks having in the aggregate more than fifty percent (50%) of the outstanding principal amount of the Term Loan.; provided, however, that if there are less than three (3) Term Banks at the time of determination, "Required Term Banks" shall mean all of the Term Banks; and provided, further, that all Banks which are either Affiliates of each other or are investment funds or similar entities managed by a Bank or an Affiliate of a Bank shall be deemed to constitute a single "Bank" for the purpose of determining the number of Banks hereunder.
"Reserve Requirement" means, for any Libor Account and for the relevant Interest Period, the total reserve requirements (including all basic, supplemental, emergency, special, marginal, and other reserves required by applicable law) applicable to eurocurrency fundings or liabilities as of the first day of that Interest Period.
"Revolving Bank" means any Bank which has a Revolving Commitment (or if the Revolving Commitments have terminated, any Bank which is owed any portion of the Outstanding Revolving Credit).
"Revolving Commitment" means, as to each Bank, the obligation, if any of such Bank to make advances of funds and purchase participation interests in (or with respect to the Agent as a Bank, hold other interests in) Letters of Credit and Swingline Loans in an aggregate principal amount at any one time outstanding up to but not exceeding the amount set forth opposite the name of such Bank on the signature pages hereto under the heading "Revolving Commitment," as the same may be reduced or terminated pursuant to Section 2.6, Section 12.2, or Section 14.8 or, if applicable, in such Bank's most recent Assignment and Acceptance executed after the Closing Date. As of the Closing Date, the aggregate amount of the Revolving Commitments of all Revolving Banks equals Seventeen Million Three Hundred Thirty Seven Thousand Three Hundred and Fifty Seven Dollars ($17,337,357).
"Revolving Commitment Percentage" means, as to any Revolving Bank, the percentage equivalent of a fraction (a) the numerator of which is the amount of the Revolving Commitment of such Revolving Bank and (b) the denominator of which is the aggregate amount of the Revolving Commitments of all Revolving Banks.
"Revolving Loans" means, as to any Revolving Bank, the advances made by such Revolving Bank pursuant to Section 2.1.
"Revolving Notes" means the promissory notes provided for by Section 2.2 and all amendments or other modifications thereof.
"Route Purchaser" has the meaning specified in subsection 10.8(f).
"Route Sale" has the meaning specified in subsection 10.8(f).
"S&P" means Standard and Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc., or any successor thereof, which is a nationally recognized statistical rating organization.
"Secondary Obligations" means all obligations, indebtedness, and liabilities of the Borrower to any Secured Party arising from, pursuant to, or in connection with any operating or capital lease (including without limitation, that certain Master Lease dated February 17, 1998 between the Borrower and NBD Bank, as amended or otherwise modified), whether such obligations, indebtedness and liabilities are now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several, or joint and several and all fees, costs and expenses (including, without limitation, reasonable attorneys' fees) provided for in connection therewith.
"Secured Parties" means the Agent, the Banks and the Approved Bank Affiliates.
"Significant Subsidiary" means any Subsidiary that is organized under the laws of a state located in the United States of America and is not an Insignificant Subsidiary.
"Subsidiary" means any corporation (or other entity) of which at least a majority of the outstanding shares of stock (or other ownership interests) having by the terms thereof ordinary voting power to elect a majority of the board of directors (or similar governing body) of such corporation (or other entity) (irrespective of whether or not at the time stock (or other ownership interests) of any other class or classes of such corporation (or other entity) shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by the Borrower or one or more of the Subsidiaries or by the Borrower and one or more of the Subsidiaries.
"Subsidiary Security Agreement" means the amended and restated security agreement between the Significant Subsidiaries and the Agent, for the benefit of the Secured Parties, in substantially the form of Exhibit E, as the same may be amended or otherwise modified.
"SWAP Documents" means all documents and agreements evidencing any Hedging Agreement between Borrower or any Significant Subsidiary and any Bank or its Affiliates and which is otherwise permitted under the terms of this Agreement, including, without limitation, the following International SWAP Dealers Association, Inc., Master Agreements entered into with the Borrower, all schedules thereto and all confirmations delivered thereunder, as the same may be amended or otherwise modified:
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Secured Party | Date
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1. Wells Fargo Bank, National Association | June 6, 1997
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2. Credit Lyonnais New York Branch | June 6, 1997
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"Swingline Commitment" means the obligation of the Agent to make advances pursuant to subsection 2.8(a) in an aggregate principal amount at any one time outstanding up to but not exceeding Three Million Five Hundred Thousand and No/100 Dollars ($3,500,000), as such amount may be reduced pursuant to subsection 2.8(e) or Section 12.2.
"Swingline Loans" means the advances made by the Agent pursuant to subsection 2.8(a).
"Swingline Maturity" has the meaning specified in subsection 2.8(c).
"Swingline Note" means the promissory note provided for by subsection 2.8(b) and all amendments and other modifications thereto.
"Term Bank" means any Bank, which has made or has committed to make a Term Loan.
"Term Commitment" means, as to each Bank, the obligation, if any, of such Bank to convert a portion of its outstanding advances under the Original Agreement to its Term Loan in accordance with the terms and provisions of this Agreement.
"Term Loan" means, as to any Bank, advances made by such Bank to the Borrower under the Original Agreement, which are being renewed, modified and extended as term loans hereunder on the Closing Date, equal to such Bank's Term Loan Percentage of $61,012,643. The principal amount of each Bank's Term Loan outstanding as of the Closing Date is set forth opposite the name of such Bank on the signature pages hereto under the heading "Term Loan". As of the Closing Date, the aggregate outstanding principal amount of the Term Loans of all Banks equals Sixty One Million Twelve Thousand Six Hundred Forty Three Dollars ($61,012,643).
"Term Loan Percentage" means, as to any Term Bank, the percentage equivalent of a fraction of (a) the numerator of which is the amount of the outstanding Term Loan of such Term Bank, and (b) the denominator of which is the aggregate amount of the outstanding Term Loans of all Term Banks.
"Term Notes" means the promissory notes provided for by Section 3.1 and all amendments and other modifications thereto.
"Termination Date" means May 10, 2007, or such earlier date on which the Commitments terminate as provided in this Agreement.
"UCC" means the Uniform Commercial Code as in effect in the State of Texas; provided that, when applicable as determined in accordance with the Borrower Security Agreement, "UCC" shall have the meaning provided for in the proviso to the definition of UCC set forth in the Borrower Security Agreement.
Section 1.2 Other Definitional Provisions. All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. The words "hereof", "herein", and "hereunder" and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all Article and Section references pertain to this Agreement. Terms used herein that are defined in the UCC, unless otherwise defined herein, shall have the meanings specified in the UCC.
Section 1.3 Accounting Terms and Determinations. Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Agent and the Banks hereunder shall be prepared, in accordance with GAAP, on a basis consistent with those used in the preparation of the financial statements referred to in Section 8.2. All calculations made for the purposes of determining compliance with the provisions of this Agreement shall be made by application of GAAP, on a basis consistent with those used in the preparation of the financial statements referred to in Section 8.2. To enable the ready and consistent determination of compliance by the Borrower with its obligations under this Agreement, the Borrower will not change the manner in which either the last day of its Fiscal Year or the last days of the first three Fiscal Quarters of its Fiscal Years is calculated. In the event any changes in accounting principles required by GAAP or recommended by the Borrower's certified public accountants and implemented by the Borrower occur and such changes result in a change in the method of the calculation of financial covenants, standards, or terms under this Agreement, then the Borrower, the Agent, and the Banks agree to enter into negotiations in order to amend such provisions of this Agreement so as to equitably reflect such changes with the desired result that the criteria for evaluating such covenants, standards, or terms shall be the same after such changes as if such changes had not been made. Until such time as such an amendment shall have been executed and delivered by the Agent, the Borrower, and the Banks, all financial covenants, standards, and terms in this Agreement shall continue to be calculated or construed as if such changes had not occurred.
Section 1.4 Time of Day. Unless otherwise indicated, all references in this Agreement to times of day shall be references to New York, New York time.
ARTICLE 2
Revolving Credit Facility
Section 2.1 Revolving Commitments. Subject to the terms and conditions of this Agreement, each Revolving Bank severally agrees to make one or more advances to the Borrower from time to time from and including the first Business Day to occur after the Closing Date to but excluding the Termination Date in an aggregate principal amount at any time outstanding up to but not exceeding the amount of such Revolving Bank's Revolving Commitment as then in effect; provided, however, (a) the Outstanding Revolving Credit applicable to a Revolving Bank (including the Agent as a Revolving Bank) shall not at any time exceed such Revolving Bank's Revolving Commitment, and (b) the Outstanding Revolving Credit shall not at any time exceed the aggregate Revolving Commitments. Subject to the foregoing limitations, and the other terms and provisions of this Agreement, the Borrower may borrow, prepay, and reborrow hereunder the amount of the Revolving Commitments.
Section 2.2 Notes. The Revolving Loans made by a Revolving Bank shall be evidenced by a single promissory note of the Borrower in substantially the form of Exhibit A, payable to the order of such Revolving Bank in a principal amount equal to its Revolving Commitment as in effect on the Closing Date or, if applicable, on the date of the most recent Assignment and Acceptance executed by such Revolving Bank after the Closing Date, and otherwise duly completed.
Section 2.3 Repayment of Revolving Loans. Without limiting the effect of
Section 2.6, the Borrower shall pay to the Agent for the account of the
Revolving Banks the outstanding principal amount of all of the Revolving Loans
on the Termination Date.
Section 2.4 Use of Proceeds. The proceeds of Revolving Loans shall be used by the Borrower (a) for working capital in the ordinary course of business, including, without limitation, the satisfaction of Reimbursement Obligations in accordance with subsection 2.7(e), and to repay Swingline Loans and (b) for other general corporate purposes, including, without limitation, financing Capital Expenditures.
Section 2.5 Fees.
(a) Revolving Commitment Fees. The Borrower agrees to pay to the Agent
for the account of each Revolving Bank (i) a commitment fee on the daily
average unused amount of such Revolving Bank's Revolving Commitment for the
period from and including the Closing Date to the Termination Date, at a
rate equal to one-half of one percent (0.50%) per annum, and (ii) a
facility fee equal to one and one-half percent (1.50%) per annum of the
daily average amount of such Revolving Bank's Revolving Commitment. For the
purpose of calculating the commitment fee hereunder, the Revolving
Commitments shall be deemed utilized by all outstanding Revolving Loans and
all Letter of Credit Liabilities but shall not, for purposes of this
Section 2.5 only, be deemed utilized by any Swingline Loans. Accrued
commitment fees and facility fees under this Section 2.5 shall be payable
in arrears on each Quarterly Payment Date and on the Termination Date.
(b) Other Fees. The Borrower shall pay to the Agent and such Affiliates of the Agent as it may designate, the fees and other amounts described in the letter agreement (as it may be renewed, extended or modified) dated as of March 14, 2002, between Borrower and the Agent. Such fees are solely for the account of the Agent and its Affiliates except that the Agent may unilaterally agree in writing with any Bank in respect of the sharing of such fees.
Section 2.6 Reduction or Termination of Revolving Commitments.
(a) Mandatory Prepayment Reduction. The aggregate amount of the Revolving Commitments shall be automatically reduced by the amount of any prepayment made on the Revolving Loans with Net Cash Proceeds under the terms of subsection 5.4(b)(i).
(b) Voluntary Reductions. The Borrower shall have the right to terminate or reduce in part the unused portion of the Revolving Commitments at any time and from time to time, provided that: (i) the Borrower shall give notice of each such termination or reduction as provided in Section 5.3; (ii) each partial reduction shall be in an aggregate amount at least equal to Five Hundred Thousand Dollars ($500,000); (iii) the Revolving Commitments may not be reduced to an amount less than the sum of the Swingline Commitment plus the Letter of Credit Liabilities then outstanding; and (iv) the Revolving Commitments may not be reduced to an amount less than $10,000,000, unless the Term Loans have been (or contemporaneously therewith will be) repaid in full.
(c) Effect of Reduction. The Revolving Commitments may not be reinstated after they have been terminated or reduced.
Section 2.7 Letters of Credit.
(a) Commitment to Issue. The Borrower may utilize the Revolving Commitments by requesting that the Agent issue, and the Agent, subject to the terms and conditions of this Agreement, shall issue standby or documentary letters of credit for the Borrower's or one of the Subsidiaries' account (such letters of credit, including, without limitation, the Existing Letters of Credit, being hereinafter referred to collectively as the "Letters of Credit"); provided, however, (i) the Outstanding Revolving Credit shall not at any time exceed the aggregate Revolving Commitments, and (ii) the Outstanding Revolving Credit applicable to a Revolving Bank shall not at any time exceed such Revolving Bank's Revolving Commitment. Upon the date of issue of a Letter of Credit, the Agent shall be deemed, without further action by any party hereto, to have sold to each other Revolving Bank, and each other Revolving Bank shall be deemed, without further action by any party hereto, to have purchased from the Agent a participation to the extent of such Revolving Bank's Revolving Commitment Percentage in such Letter of Credit and the related Letter of Credit Liabilities. On and after the Closing Date, the Existing Letters of Credit shall be and be deemed to be "Letters of Credit" issued hereunder and each Revolving Bank shall be deemed to have purchased a participation in an amount equal to such Revolving Bank's Revolving Commitment Percentage of the Existing Letters of Credit.
(b) Letter of Credit Request Procedure. The Borrower shall give the Agent at least five (5) Business Days irrevocable prior notice (effective upon receipt) specifying the date of each Letter of Credit to be issued and the nature of the transactions to be supported thereby. Upon receipt of such notice the Agent shall promptly notify each other Revolving Bank of the contents thereof and of such Revolving Bank's Commitment Percentage of the amount of the proposed Letter of Credit. The Agent shall provide any Revolving Bank a copy of each Letter of Credit issued hereunder upon such Revolving Bank's request. Each Letter of Credit shall have an expiration date that does not extend beyond a date which is thirty (30) days prior to the Termination Date, shall be payable in Dollars, must support a transaction entered into in the ordinary course of the Borrower's or a Subsidiary's business, must be satisfactory in form and substance to the Agent, and shall be issued pursuant to such documentation as the Agent may require, including, without limitation, the Agent's standard form letter of credit request and reimbursement agreement; provided that, in the event of any conflict between the terms of such agreement and the other Loan Documents, the terms of the other Loan Documents shall control. Subject to the other terms and conditions herein, each standby Letter of Credit shall have an expiration date that does not extend beyond one (1) year, provided that any standby Letter of Credit may contain provisions whereby its expiration date is automatically extended for additional periods of one (1) year on any current or thereafter established expiration date unless the Agent provides notice to the beneficiary of the Letter of Credit that it will not be so extended. Each such standby Letter of Credit must permit the Agent to give such notice of nonextension at any time up to the date, which is no greater than ninety (90) days prior to the applicable expiration date.
(c) Letter of Credit Fees. The Borrower will pay to the Agent for the account of each Revolving Bank an irrevocable letter of credit fee on such Bank's Revolving Commitment Percentage of the maximum amount available for drawings under each Letter of Credit from time to time, such letter of credit fee (i) to be paid in arrears on each Quarterly Payment Date until and including the next Quarterly Payment Date to occur after the date of expiration or termination thereof, and (ii) to be calculated for the period such Letter of Credit is outstanding at a rate equal to three percent (3.00%) per annum. After receiving any payment of any letter of credit fees under this clause (c), the Agent will promptly pay to each Bank the letter of credit fees then due such Bank. With respect to each Letter of Credit, the Borrower will also pay to the Agent for its account only the fees and expenses described in subsection 14.1(b), to the extent applicable, and, on each Quarterly Payment Date after the Closing Date, a fronting fee calculated at the rate of one eighth of one percent (0.125%) per annum on the maximum amount available to be drawn under such Letter of Credit.
(d) Funding of Drawings. Upon receipt from the beneficiary of any Letter of Credit of any demand for payment or other drawing under such Letter of Credit, the Agent shall promptly notify the Borrower and each Revolving Bank as to the amount to be paid as a result of such demand or drawing and the respective payment date. Not later than 11:00 a.m. on the applicable payment date (or 11:00 a.m. on the next Business Day after notice of such drawing is given, if later), each Revolving Bank will make available to the Agent, at the Principal Office, in
Immediately available funds, an amount equal to such Revolving Bank's Revolving Commitment Percentage of the amount to be paid as a result of such demand or drawing even if the conditions to a Loan under Article 7 have not been satisfied.
(e) Reimbursements. The Borrower shall be irrevocably and
unconditionally obligated to immediately reimburse the Agent for any
amounts paid by the Agent upon any demand for payment or drawing under any
Letter of Credit (regardless of whether such Letter of Credit is issued for
the account of the Borrower or one of the Subsidiaries), without
presentment, demand, protest, or other formalities of any kind. All
payments on the Reimbursement Obligations shall be made to the Agent at the
Principal Office for the account of the Agent in Dollars and in immediately
available funds, without set-off, deduction, or counterclaim not later than
3:00 pm. on the date of the corresponding payment under the Letter of
Credit by the Agent. Subject to the other terms and conditions of this
Agreement, such reimbursement may be made by the Borrower requesting a
Revolving Loan in accordance with Section 5.1, the proceeds of which shall
be credited against the Borrower's Reimbursement Obligations. The Agent
will pay to each Revolving Bank such Revolving Bank's Revolving Commitment
Percentage of all amounts received from the Borrower for application in
payment, in whole or in part, to the Reimbursement Obligation in respect of
any Letter of Credit, but only to the extent such Revolving Bank has made
payment to the Agent in respect of such Letter of Credit pursuant to clause
(d) of this Section 2.7.
(f) Reimbursement Obligations Absolute. The Reimbursement Obligations
of the Borrower under this Agreement shall be absolute, unconditional, and
irrevocable, and shall be performed strictly in accordance with the terms
of the Loan Documents under all circumstances whatsoever and the Borrower
hereby waives any defense to the payment of the Reimbursement Obligations
based on any circumstance whatsoever, including, without limitation, in
either case, the following circumstances: (i) any lack of validity or
enforceability of any Letter of Credit or any other Loan Document; (ii) any
amendment or waiver of or any consent to departure from any Loan Document;
(iii) the existence of any claim, set-off, counterclaim, defense, or other
rights which the Borrower, any Obligated Party, or any other Person may
have at any time against any beneficiary of any Letter of Credit, the
Agent, any Bank, or any other Person, whether in connection with any Loan
Document or any unrelated transaction; (iv) any statement, draft, or other
documentation presented under any Letter of Credit proving to be forged,
fraudulent, invalid, or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect whatsoever; (v) payment
by the Agent under any Letter of Credit against presentation of a draft or
other document that does not comply with the terms of such Letter of
Credit; or (vi) any other circumstance whatsoever, whether or not similar
to any of the foregoing; provided that Reimbursement Obligations with
respect to a Letter of Credit may be subject to avoidance by the Borrower
to the extent of actual damages suffered by the Borrower if the Borrower
proves in a final nonappealable judgment that it was so damaged and that
such damage arose directly from the Agent's willful misconduct or gross
negligence in determining whether the documentation presented under the
letter of credit in question complied with the terms thereof, and the Agent
agrees to reimburse the Revolving Banks which have funded their
participation interest in any such Letter of Credit, pursuant to subsection
2.7(d), their respective Revolving Commitment Percentage of any amount of
such Reimbursement Obligations so avoided.
(g) Issuer Responsibility. The Borrower assumes all risks of the acts or omissions of any beneficiary of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Agent, any Bank, nor any of their respective officers or directors shall have any responsibility or liability to the Borrower or any other Person for: (a) the failure of any draft to bear any reference or adequate reference to any Letter of Credit, or the failure of any documents to accompany any draft at negotiation, or the failure of any Person to surrender or to take up any Letter of Credit or to send documents apart from drafts as required by the terms of any Letter of Credit, or the failure of any Person to note the amount of any instrument on any Letter of Credit, each of which requirements, if contained in any Letter of Credit itself, it is agreed may be waived by the Agent; (b) errors, omissions, interruptions, or delays in transmission or delivery of any messages; (c) the validity, sufficiency, or genuineness of any draft or other document, or any endorsement(s) thereon, even if any such draft, document or endorsement should in fact prove to be in any and all respects invalid, insufficient, fraudulent, or forged or any statement therein is untrue or inaccurate in any respect; (d) the payment by the Agent to the beneficiary of any Letter of Credit against presentation of any draft or other document that does not comply with the terms of the Letter of Credit; or (e) any other circumstance whatsoever in making or failing to make any payment under a Letter of Credit. The Borrower shall have a claim against the Agent, and the Agent shall be liable to the Borrower, to the extent of any direct, but not indirect, consequential or punitive, damages suffered by the Borrower which the Borrower proves in a final nonappealable judgment were caused by (i) the Agent's willful misconduct or gross negligence in determining
whether documents presented under any Letter of Credit complied with the terms thereof or (ii) the Agent's willful failure to pay under any Letter of Credit after presentation to it of documentation strictly complying with the terms and conditions of such Letter of Credit. The Agent may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary.
Section 2.8 Swingline Loans.
(a) Swingline Commitment. Subject to the terms and conditions of this Agreement, the Agent agrees to make one or more advances to the Borrower from time to time, from and including the Closing Date to but excluding the Termination Date, in an aggregate principal amount at any time outstanding up to but not exceeding the Swingline Commitment; provided, however, (i) the Outstanding Revolving Credit shall never exceed the aggregate Revolving Commitments and (ii) the Outstanding Revolving Credit applicable to a Revolving Bank (including the Agent as a Revolving Bank) shall never exceed such Revolving Bank's Revolving Commitment. Subject to the foregoing limitations, and the other terms and provisions of this Agreement, the Borrower may borrow, prepay, and reborrow hereunder the amount of the Swingline Commitment as Base Rate Accounts thereunder. On the date a Swingline Loan is made by the Agent under this subsection 2.8(a), the Agent shall be deemed without further action by any party hereto, to have sold to each Revolving Bank, and each Revolving Bank shall be deemed, without further action by any party hereto, to have purchased from the Agent a participation to the extent of such Revolving Bank's Revolving Commitment Percentage in the Swingline Loan so made, such participation to be funded in accordance with clause (c) of this Section 2.8.
(b) Swingline Note. The Swingline Loans made by the Agent shall be evidenced by a single promissory note of the Borrower in substantially the form of Exhibit B, payable to the order of the Agent in a principal amount equal to the Swingline Commitment as in effect on the Closing Date and otherwise duly completed.
(c) Repayment of Swingline Loans; Funding of Participation. The Borrower shall pay to the Agent for its own account the outstanding principal amount of each Swingline Loan on the earlier of (i) the Termination Date or (ii) the date which is thirty (30) days after the Swingline Loan is made (the earlier of such date with respect to a Swingline Loan herein the "Swingline Maturity"). Subject to the other terms and conditions of this Agreement, the Borrower may repay a Swingline Loan on its Swingline Maturity or at any time prior thereto by requesting a Revolving Loan in accordance with Section 5.1 with the proceeds thereof payable to the Agent for its own account. The Agent, at any time in its sole and absolute discretion and whether or not a Swingline Maturity shall have occurred, may require that each Revolving Bank fund its participation in the then outstanding principal amount of all Swingline Loans by giving each Revolving Bank notice thereof. Additionally, if the Borrower shall not have repaid a Swingline Loan by 1:00 p.m. on the corresponding Swingline Maturity, the Agent will notify each Revolving Bank of the aggregate principal amount of the Swingline Loan, which has not been repaid. Upon the giving of any notice by the Agent under either of the preceding two sentences, each Revolving Bank shall make available to the Agent, at the Principal Office, in immediately available funds, an amount equal to its Revolving Commitment Percentage of the aggregate principal amount of the Swingline Loan or Swingline Loans subject to such notice by not later than 3:00 p.m. on the date such notice is received if such notice is received by 1:00 p.m. or by 11:00 a.m. on the next Business Day, if such notice is received after 1:00 p.m., whether or not the conditions to a Loan under Article 7 are satisfied.
(d) Use of Proceeds. The proceeds of Swingline Loans shall be used by
the Borrower for the same purposes as Revolving Loans as described in
Section 2.4.
(e) Reduction or Termination of Swingline Commitment. The Borrower
shall have the right to terminate or reduce in part the unused portion of
the Swingline Commitment at any time and from time to time, provided that:
(i) the Borrower shall give notice of each such termination or reduction as
provided in Section 5.3; and (ii) each partial reduction shall be in an
aggregate amount at least equal to One Hundred Thousand Dollars ($100,000).
The Swingline Commitment may not be reinstated after it has been terminated
or reduced.
ARTICLE 3
Term Loan
Section 3.1 Notes. The Term Loan made by a Term Bank shall be evidenced by a single promissory note of the Borrower in substantially the form of Exhibit C, payable to the order of such Term Bank in a principal amount equal to its Term Loan as outstanding on the Closing Date or, if applicable, on the date of the most recent Assignment and Acceptance executed by such Term Bank after the Closing Date, and otherwise duly completed.
Section 3.2 Repayment of Term Loans. The Borrower shall pay to the Agent for the account of the Term Banks the outstanding principal amount of all the Term Loans in quarterly installments due and payable on each Quarterly Payment Date set forth below:
-----------------------------------------|---------------------------------- | Quarterly Payment Date | Principal Amount -----------------------------------------|---------------------------------- | $300,000 On each of the first eight Quarterly | Payment Dates to occur after the | Closing Date | -----------------------------------------|----------------------------------
|
On each Quarterly Payment Date | $1,200,000
thereafter to and including the |
Quarterly Payment Date occurring |
|
immediately prior to the Termination | Date | -----------------------------------------|----------------------------------
The Borrower shall pay to the Agent for the account of the Term Banks all remaining principal outstanding under the Term Loans on the Termination Date.
ARTICLE 4
Interest and Fees
Section 4.1 Interest Rate. The Borrower shall pay to the Agent, for the account of each Bank, interest on the unpaid principal amount of each Loan made by such Bank for the period commencing on the Closing Date or if later, the date of such Loan but excluding the date such Loan is due, at a fluctuating rate per annum equal to (a) during the period that such Loan or portions thereof are subject to Base Rate Accounts, the sum of the Base Rate plus two percent (2.00%) and (b) during the period that such Loans or portions thereof are subject to Libor Accounts (i.e., during the Interest Period applicable thereto) and with respect to each such Libor Account, the sum of the Libor Rate applicable to such Libor Account plus five percent (5.00%) or (c) with respect to all Loans, during any period of time when an Event of Default exists and the Agent has notified the Borrower that the Default Rate is in effect (which the Agent shall do (i) with respect to the Revolving Loans, at the direction of the Required Revolving Banks and (ii) with respect to the Term Loans, at the direction of the Required Term Banks), the Default Rate. When Borrower requests any Libor Account, Borrower may elect the applicable interest period (each an "Interest Period"), which may be, at Borrower's option, one, two or three months for such Libor Account, subject to the following conditions: (a) the initial Interest Period for a Libor Account commences on the applicable borrowing date or Conversion date, and each subsequent Interest Period applicable to any borrowing commences on the day when the next preceding applicable Interest Period expires; (b) if any Interest Period for a Libor Account begins on a day for which no numerically corresponding Business Day in the calendar month at the end of the Interest Period exists, then the Interest Period ends on the last Business Day of that calendar month; (c) if Borrower is required to pay any of a Libor Account before the end of its Interest Period in order to comply with the payment provisions of the Loan Documents, Borrower shall also pay any related costs and expenses required under Section 6.3; and (d) no more than five (5) Interest Periods may be in effect at one time.
Section 4.2 Payment Dates. Accrued interest on the Loans shall be due and payable as follows: (a) in the case of all Loans (including those subject to Base Rate Accounts and Libor Accounts), on each Quarterly Payment Date;
(b) in addition to accrued interest paid in accordance with the foregoing clause
(a) and with respect to Loans subject to Libor Accounts, on the last day of the
Interest Period with respect thereto; and (c) on the Termination Date.
Section 4.3 Default Interest. Notwithstanding the foregoing, the Borrower will pay to the Agent for the account of the party entitled thereto interest at the Default Rate (to the fullest extent permitted by law) on any amount payable by the Borrower under any Loan Document to or for the account of the Agent or any Bank that is not paid in full when due (whether at stated maturity, by acceleration, or otherwise), for the period from and including the due date thereof to but excluding the date the same is paid in full. Interest payable at the Default Rate with respect to past due amounts shall be payable from time to time on demand.
Section 4.4 Conversion of Accounts. Subject to the dollar limits of Section 5.2 and provided that the Borrower may not convert to or select a new Interest Period for a Libor Account at any time when a Default exists, Borrower may (a) convert a Libor Account on the last day of the applicable Interest Period to a Base Rate Account, (b) convert a Base Rate Account (other than Base Rate Accounts consisting of Swingline Loans) at any time to a Libor Account, and (c) elect a new Interest Period for a Libor Account on the last day of the applicable Interest Period. Any such election may be made by telephonic request to Agent no later than 10:00 a.m. on the third Business Day before the conversion date or the last day of the Interest Period, as the case may be (for conversion to a Libor Account or election of a new Interest Period), and no later than 10:00 a.m. on the last day of the Interest Period (for conversion to a Base Rate Account). Borrower shall provide written notice of any such conversion, in reasonable detail, to Agent no later than two (2) days after the date of the conversion or election. Absent Borrower's telephonic request for conversion or election of a new Interest Period or if a Default exists, then, a Libor Account shall be deemed converted to a Base Rate Account effective when the applicable Interest Period expires.
Section 4.5 Computations. Interest and fees payable by the Borrower hereunder and under the other Loan Documents shall be computed as follows: (a) with respect to Libor Accounts on the basis of a year of 360 days and the actual number of days elapsed (including the first day but excluding the last day) occurring in the period for which payable unless such calculation would result in a usurious rate under applicable law, in which case interest shall be calculated on the basis of a year of 365 or 366 days, as the case may be and (b) with respect to Base Rate Accounts, interest calculated at the Default Rate and all fees payable hereunder, on the basis of a year of 365 or 366 days, as the case may be and the actual number of days elapsed (including the first day but excluding the last day) occurring in the period for which payable.
ARTICLE 5
Administrative Matters
Section 5.1 Borrowing Procedure. The Borrower shall give the Agent, and the Agent will give the Revolving Banks, notice of each borrowing under the Revolving Commitments in accordance with Section 5.3 specifying the proposed borrowing date (consistent with the requirements for prior notice as set forth in Section 5.3), the amount thereof, whether such proposed Loan will be a Libor Account or a Base Rate Account, and if a Libor Account, the Interest Period therefor. Not later than 1:00 p.m. on the date specified for each borrowing under the Revolving Commitments each Revolving Bank will make available the amount of the Loan to be made by it on such date to the Agent, at the Principal Office, in immediately available funds, for the account of the Borrower. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower by (a) depositing the same, in immediately available funds, in an account of the Borrower (designated by the Borrower) maintained with the Agent at the Principal Office or (b) wire transferring such funds to a Person or Persons designated by the Borrower in writing. Not later than 3:00 p.m. on the date specified for each borrowing under the Swingline Commitment, the Agent will make available the amount of the Swingline Loan to be made by it on such date to the Borrower by (i) depositing the same, in immediately available funds, in an account of the Borrower (designated by the Borrower) maintained with the Agent at the Principal Office or (ii) wire transferring such funds to a Person or Persons designated by the Borrower in writing.
Section 5.2 Minimum Amounts. Except for prepayments pursuant to Article 6 and mandatory prepayments required by Section 5.4, each borrowing under a Revolving Loan or a Swingline Loan and each prepayment of principal of a Loan shall be in an amount at least equal to the amount set forth below for the applicable Loan or any larger amounts in the increments set forth below:
| |
$100,000 | $50,000 | $100,000
================================================================================
|
Section 5.3 Certain Notices. Notices by the Borrower to the Agent of terminations or reductions of Commitments and of borrowings and prepayments of Loans shall be irrevocable and shall be effective only if received by the Agent not later than 1:00 p.m. (a) on the Business Day of the borrowing of a Swingline Loan, (b) on the Business Day of any repayment of Swingline Loans or Revolving Loans, or (c) on the Business Day prior to the date of the relevant termination, reduction, borrowing, or other prepayment specified below:
====================================================================================================================
|
Notice | Number of Business Days Prior
--------------------------------------------------------------------------------|-----------------------------------
|
Termination or reduction of Commitments | 3
--------------------------------------------------------------------------------|-----------------------------------
|
Borrowing of Revolving Loans (other than Swingline Loans) subject to Base | 1
Rate Accounts and prepayment of Term Loans |
--------------------------------------------------------------------------------|-----------------------------------
|
Borrowing, prepayment or repayment of Loans subject to Libor Accounts | 3
====================================================================================================================
|
Any notices of the type described in this Section 5.3 which are received by the Agent after 1:00 p.m. on a Business Day shall be deemed to be received and shall be effective on the next Business Day. Each such notice of termination or reduction shall specify the applicable Commitments to be affected and the amount of the Commitments to be terminated or reduced. Each such notice of borrowing, or prepayment shall (a) specify the Loans to be borrowed or prepaid; (b) the amount (subject to Section 5.2) to be borrowed or prepaid; and (c) the date of borrowing or prepayment (which shall be a Business Day). The Agent shall notify the Banks of the contents of each such notice on the date of its receipt of the same or, if received on or after 1:00 p.m. on a Business Day, on the next Business Day. No notice of prepayment is necessary for prepayments required under subsection 5.4(b) and Article 6.
Section 5.4 Prepayments.
(a) Voluntary Prepayments. Subject to Section 5.2 and the provisions
of this Section 5.4, the Borrower may, at any time and from time to time
without premium or penalty upon prior notice to the Agent as specified in
Section 5.3, prepay or repay any Loan in full or in part. Any optional
prepayment of the Term Loan shall be accompanied with accrued interest on
the amount prepaid to the date of prepayment and any partial prepayments
thereof shall be applied to the principal installments due under the Term
Loan in the inverse order of maturity. Loans subject to a Libor Account may
be voluntarily prepaid or repaid only on the last day of the Interest
Period applicable thereto unless (i) the Borrower pays to the Agent for the
account of the applicable Banks any amounts due under Section 6.3 as a
result of such prepayment or repayment or (ii) after giving effect to such
prepayment or repayment the aggregate principal amount of the Libor
Accounts applicable to the Loan being prepaid or repaid having Interest
Periods that end after such payment date shall be equal to or less than the
principal amount of such Loan after such prepayment or repayment.
(b) Mandatory Prepayments.
(i) Asset Dispositions and Income Tax Refunds.
(A) Required Prepayment. The Borrower shall make a prepayment of the Loans in the amount of the Net Cash Proceeds received from the following:
(1) any disposition of assets pursuant to the permissions set forth in subsections 10.8(e), (f), (g), or (h); or
(2) any disposition of an asset pursuant to the permissions set forth in subsection 10.8(b) if the Net Cash Proceeds from such disposition equal or exceed Fifty Thousand Dollars ($50,000); or
(3) any income tax refund received by Borrower (other than any such refund reflected as being due to Borrower on any return and which is elected to be applied to the following year's estimated tax liability payments of the Borrower and it Subsidiaries, if any).
The Net Cash Proceeds from any asset disposition of the type described in the foregoing clauses (1) or (2) shall be delivered by the Borrower to the Agent, within two (2) Business Days after the receipt thereof. The Net Cash Proceeds from any income tax refund shall be delivered by the Borrower to the Agent, within two (2) Business Days after the receipt thereof.
(B) Application of Net Cash Proceeds. Any Net Cash Proceeds so delivered under this subsection 5.4(b)(i) to the Agent shall be applied as follows: (1) first, to the installments of the Term Loans in inverse order of maturity thereof until the Term Loans have been paid in full; (2) second, to the Swingline Loans until paid in full; (3) third, to the Revolving Loans until paid in full, (4) fourth, to unpaid accrued interest on the Primary Obligations; (5) fifth, to any due and unpaid Primary Obligation; and (6) sixth, as collateral (and held by the Agent as such) in an interest bearing account over which the Agent shall have the sole right of withdrawal) for the Obligations. The amount of such proceeds so held as collateral shall (x) not exceed an amount equal to One Hundred Five percent (105%) of the sum of the maximum anticipated amount of such Contingent Primary Obligations plus the maximum anticipated amount of all Secondary Obligations and (y) shall be applied to the Obligations as proceeds of Collateral as set forth in subsection 5.6(b). No holder of any Secondary Obligation shall have any right to such collateral until (x) all Primary Obligations are paid in full and (y) all Contingent Primary Obligations are terminated, cash secured by an amount not to exceed One Hundred Five Percent (105%) of the amount thereof or otherwise satisfied. If no Event of Default exists and any proceeds remain after the applications described above, the remaining amount of such proceeds shall be delivered to the Borrower.
(C) Definition of Net Cash Proceeds; Application of Estimated Taxes. The phrase "Net Cash Proceeds" means (1), with respect to a tax refund, the cash amount thereof net of the direct and reasonable costs of obtaining such refund incurred in good faith (including any accountant's or attorney's fees and other professional fees attributable thereto irrespective of when incurred or paid, other than any such professional fees incurred in connection with the preparation of tax returns in the ordinary course of business) and (2), with respect to asset dispositions, the cash proceeds received therefrom by the Borrower or any Subsidiary (including, without limitation, payments under notes or other debt securities received in connection with any disposition of assets and any proceeds received from any escrow or holdback, in each case, as and when actually received) net of, without duplication, (x) the direct and reasonable costs of such disposition incurred in good faith (including in such costs any estimated federal capital gains taxes; title insurance premiums; survey costs; costs of environmental reports and assessments; purchase price adjustments; filing fees; any transfer or documentary taxes; brokerage fees; attorney's fees; and other professional fees attributable thereto) and (y) amounts applied to repayment of Debt (other than the Obligations) secured by a Lien prior to the Lien of the Agent on the asset or property disposed. The cash proceeds received from an asset disposition subject to this subsection 5.4(b)(i) in an amount equal to the estimated amount of any federal capital gains taxes attributable thereto shall be applied as a prepayment of the outstanding Revolving Loans without reducing the Revolving Commitment.
(ii) Excess Cash Flow.
(A) Required Prepayment. On or before the date which is one hundred fifteen (115) days after each Fiscal Year of the Borrower (or the date when Borrower delivers the annual financial statements for such Fiscal Year pursuant to Section 9.1(a) if sooner), commencing with Fiscal Year 2002, the Borrower shall make a prepayment of the Term Loans in an amount equal to the following percentages of the Borrower's Excess Cash Flow calculated for the most recently ended Fiscal Year: (1) twenty-five percent (25%) for Fiscal Year 2002, (2) thirty-five percent (35%) for Fiscal Year 2003, and (3) fifty percent (50.0%) for each Fiscal Year thereafter.
(B) Application. The amount of any prepayment required by this subsection 5.4(b)(ii) shall be applied to the installments of the Term Loans, in the inverse order of maturity, until the Term Loans have been paid in full.
(C) Definition of Excess Cash Flow. The phrase "Excess Cash
Flow" means, for any period, the sum of the following calculated
for the Borrower and the Subsidiaries on a consolidated basis:
(1) the Borrower's EBITDA for such period; minus (2) cash taxes,
if any, actually paid during such period; (3) minus the increase
in Adjusted Working Capital for such period; or plus the decrease
in Adjusted Working Capital for such period, as applicable; minus
(4) Capital Expenditures incurred up to a maximum amount of
$10,800,000 for Fiscal Year 2002 (increasing by five percent
(5.0%) per year for each Fiscal Year thereafter) and which are
otherwise permitted under this Agreement; minus (5) all scheduled
principal and interest payments on the Loans, scheduled payments
on Capital Lease Obligations to the extent permitted under this
Agreement, and all payments under non-compete and consulting
contracts, to the extent such agreements are reflected on the
consolidated balance sheet of the Borrower and are otherwise
permitted under the terms of this Agreement.
(iii) OverAdvance. If on any date the Outstanding Revolving Credit exceeds the aggregate amount of the Revolving Commitments, the Borrower shall pay the Agent for the account of the applicable Revolving Banks on such date the amount of the excess, with such amount so paid to be applied to reduce the Swingline Loans and once the Swingline Loans are paid in full, the Revolving Loans. If the Outstanding Revolving Credit exceeds the aggregate amount of the Revolving Commitments after giving effect to such application, the remaining amount of the payments so received shall be held as collateral by the Agent to secure the outstanding Letter of Credit Liabilities and other Obligations.
(iv) Control of Cash and Application to Obligations. The Borrower and the Significant Subsidiaries have instructed all customers and other Persons making payment on accounts and other Collateral to make all payments thereon to a post office box or boxes established in accordance with the Lockbox Agreements or by wire transfer to the Concentration Account or one of the Lockbox Accounts. The collected funds on deposit in the Borrower's and each Significant Subsidiary's Lockbox Accounts shall be paid to the Agent on a daily basis by automated clearing house debit for credit to the Concentration Account or by wire transfer. The funds deposited in the Concentration Account (over which the Borrower shall have no control) or wire transferred to Agent from the Lockbox Accounts (the "Available Cash") shall be applied by the Agent for the benefit of the Secured Parties as follows:
(A) if no Acceleration Event exists, as follows: (1) first, as a payment of the outstanding principal amount of the Swingline Loans until paid in full; (2) second, to the outstanding principal amount of the Revolving Loans until paid in full; (3) third, to any accrued and unpaid interest then due on the Loans until paid in full; (4) fourth, to the installments due on the Term Loans (in the inverse order of maturity if more than one such installment is then due) until such installments are paid in full; (5) fifth, to the repayment of any other Obligations which are due and outstanding, and if after the foregoing applications, Available Cash remains available to be disbursed and (x) if no Event of Default exists, the Agent shall deposit such remaining amount to an account of the Borrower or transfer such funds as the Borrower shall
direct; or (y) if an Event of Default exists and no Acceleration Event exists, such remaining amount shall be held by the Agent in an interest bearing account over which the Agent shall have the sole right of withdrawal as collateral for the Obligations until the Obligations have been cash secured by an amount not less than One Hundred Five Percent (105%) of the amount thereof and then any portion of the remaining amount still available shall be deposited in an account of the Borrower or transferred as the Borrower shall direct.
(B) if an Acceleration Event exists, the Available Cash shall be applied by the Agent for the benefit of the Secured Parties to the Obligations in accordance with subsection 5.6(b).
The term "Acceleration Event" means the acceleration of the maturity of the Loans or the occurrence of an Event of Default of the type described in subsections 12.1(e) or (f).
(v) Breakfunding Costs. Any prepayment required by this subsection 5.4(b) shall be accompanied by any amount due under Section 6.3.
Section 5.5 Method of Payment. Except as otherwise expressly provided herein, all payments of principal, interest, and other amounts to be made by the Borrower or any Obligated Party under the Loan Documents shall be made to the Agent at the Principal Office for the account of each applicable Bank's Applicable Lending Office in Dollars and in immediately available funds, without set-off, deduction, or counterclaim, not later than 1:00 p.m. on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). The Borrower and each Obligated Party shall, at the time of making each such payment, specify to the Agent the sums payable under the Loan Documents to which such payment is to be applied (and in the event that the Borrower fails to so specify and such payment can not otherwise be identified as a payment required under subsection 5.4(b), or if an Event of Default has occurred and is continuing, the Agent may apply such payment and any proceeds of any Collateral to the Obligations in such order and manner as it may elect in its sole discretion, subject to Section 5.6); provided that any voluntary prepayment of the Term Loans under Section 5.4(a) made within ten (10) Business Days prior to a scheduled payment date under the Term Loans shall be deemed a "payment" rather than a "prepayment" to the extent necessary to discharge the next due installment. Each payment received by the Agent under any Loan Document for the account of a Secured Party shall be paid to such Secured Party by 3:00 p.m. on the date the payment is deemed made to the Agent in immediately available funds, for the account of such Secured Party's Applicable Lending Office, if any. Whenever any payment under any Loan Document shall be stated to be due on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of the payment of interest and commitment fee, as the case may be, except for any payment on a Libor Account, in which case if the next succeeding Business Day is in the next calendar month, then such payment shall be made on the next preceding Business Day.
Section 5.6 Pro Rata Treatment; Distribution of Proceeds of Collateral and Collection on the Guaranty.
(a) Pro Rata Treatment. Except to the extent otherwise provided herein: (i) each Loan (other than the Swingline Loan) shall be made by the Banks, each payment of fees under Section 2.5, and letter of credit fees under subsection 2.7(c) shall be made for the account of the Revolving Banks, and each termination or reduction of the Revolving Commitments shall be applied to the Revolving Commitments of the Revolving Banks, pro rata according to their respective Revolving Commitment Percentages; (ii) each payment and prepayment of principal of or interest on Loans or Reimbursement Obligations by the Borrower (including payments made under subsection 5.4(b)) shall be made to the Agent for the account of the Agent or the Banks holding such Loans or Reimbursement Obligations (or participation interests therein) pro rata in accordance with the respective unpaid principal amounts of such Loans or participation interests held by the Agent or such Banks (provided that only the Agent shall be entitled to principal and interest on the Swingline Loan unless the other Banks have funded their participations therein in accordance with subsection 2.8(c)); and (iii) the Revolving Banks (other than the Agent) shall purchase from the Agent participations in the Letters of Credit (including, without limitation, the Existing Letters of Credit) and Swingline Loans to the extent of their respective Revolving Commitment Percentages.
(b) Proceeds of Collateral and Collections under the Guaranty. When an Acceleration Event exists, all Available Cash, all other proceeds received by Agent from the Agent's sale or other liquidation of the Collateral, and all proceeds from collections under the Guaranty as a result of the enforcement of the terms thereof by the Agent shall first be applied as payment of the accrued and unpaid fees of the Agent hereunder and then to all other unpaid or unreimbursed Obligations (including reasonable attorneys' fees and expenses) owing to the Agent in its capacity as Agent only and then any remaining amount of such proceeds shall be distributed:
(i) first, to the Secured Parties, pro rata in accordance with
the respective unpaid amounts of the Primary Obligations (including in
such Primary Obligations for purposes of this calculation, all of the
Contingent Primary Obligations and any Primary Obligations arising
under Swap Documents to the extent permitted under this Agreement),
other than any such Primary Obligations owed on the Term Loans or to
any Bank or Approved Bank Affiliate arising under any Swap Document
relating to Hedging Agreements entered into prior to the date hereof,
until all such Primary Obligations are paid in full and all such
Contingent Primary Obligations are terminated, cash secured by an
amount not to exceed One Hundred Five Percent (105%) of the amount
thereof or otherwise satisfied; provided that each Bank's pro rata
portion of such proceeds applicable to such Contingent Primary
Obligations shall be held by the Agent as collateral in an interest
bearing account over which the Borrower shall have no right of
withdrawal; and provided, further, that the portion of such Primary
Obligations distributed pursuant to this clause (i) consisting of
Deposit and Cash Management Services Obligations arising under clause
(b) of the definition thereof shall not exceed an amount equal to
$5,000,000 per Bank or Approved Bank Affiliate, as applicable;
(ii) second, to the Secured Parties, pro rata in accordance with the respective unpaid amounts of the Primary Obligations (including in such Primary Obligations for purposes of this calculation, all of the Contingent Primary Obligations ) owed on the Term Loans, to any Bank or Approved Bank Affiliate arising under any Swap Document relating to Hedging Agreements entered into prior to the date hereof, and to any remaining Deposit and Cash Management Services Obligations, pro rata, until all such Primary Obligations are paid in full and all such contingent Primary Obligations are terminated, cash secured by an amount not to exceed One Hundred Five percent (105%) of the amount thereof or otherwise satisfied; provided that each Bank's pro rata portion of such proceeds applicable to such Contingent Primary Obligations shall be held by the Agent as collateral in an interest bearing account over which the Borrower shall have no right of withdrawal; and
(iii) third, to the Secured Parties, pro rata in accordance with the respective unpaid amounts of the Secondary Obligations.
After all the Primary Obligations are paid in full and all Contingent Primary Obligations have terminated or are otherwise satisfied, all remaining portions of the proceeds of Collateral then held by the Agent as collateral for the Contingent Primary Obligations shall be distributed to the Secured Parties, pro rata in accordance with the respective unpaid amounts of the Secondary Obligations. Notwithstanding the forgoing, if the Agent shall ever receive proceeds from the disposition of any of the Leased Equipment prior to the payment and satisfaction in full of all the Secondary Obligations secured thereby or otherwise relating thereto, the Agent shall pay the amount of the proceeds so received to the Bank or Approved Bank Affiliate entitled thereto. If all the Secondary Obligations secured by or arising in connection with a piece of Leased Equipment are paid and satisfied in full, then each Bank and each Approved Bank Affiliate who receives any proceeds from such Leased Equipment (other than through the Agent) shall deliver the proceeds so received to the Agent for distribution in accordance with clauses (i), (ii) and (iii) of this subsection 5.6(b). After all the Obligations (including without limitation, all contingent Obligations) have been paid and satisfied in full, all Commitments terminated and all other obligations of any Secured Party to the Borrower or any Obligated Party otherwise satisfied, any proceeds of Collateral shall be delivered to the Person entitled thereto as determined by applicable law or applicable court order.
(c) Noncash Proceeds. Notwithstanding anything contained herein to the contrary, if the Agent shall ever acquire any Collateral through foreclosure or by a conveyance in lieu of foreclosure or by retaining any of the Collateral in satisfaction of all or part of the Obligations or if any proceeds of Collateral received by the Agent to
be distributed and shared pursuant to this Section 5.6 are in a form other
than immediately available funds, the Agent shall not be required to remit
any share thereof under the terms hereof and the Secured Parties shall only
be entitled to their undivided interests in the Collateral or noncash
proceeds as determined by subsection 5.6(b). The Secured Parties shall
receive the applicable portions (in accordance with the forgoing clause
(b)) of any immediately available funds consisting of proceeds from such
Collateral or proceeds of such noncash proceeds so acquired only if and
when received by the Agent in connection with the subsequent disposition
thereof. While any Collateral or other property to be shared pursuant to
this Section 5.6 is held by the Agent pursuant to this clause (c), the
Agent shall hold such Collateral or other property for the benefit of the
Secured Parties and all matters relating to the management, operation,
further disposition or any other aspect of such Collateral or other
property shall be resolved by the agreement of the Required Banks.
(d) Return of Proceeds. If at any time payment, in whole or in part, of any amount distributed by the Agent hereunder is rescinded or must otherwise be restored or returned by the Agent as a preference, fraudulent conveyance, or otherwise under any bankruptcy, insolvency, or similar law, then each Person receiving any portion of such amount agrees, upon demand, to return the portion of such amount it has received to the Agent.
Section 5.7 Sharing of Payments. If a Bank, shall obtain payment of any principal of or interest on any of the Obligations due to such Bank hereunder directly (and not through the Agent) through the exercise of any right of set-off, banker's lien, counterclaim or similar right, or otherwise, such Bank shall promptly purchase from the other applicable Banks participations in the Obligations held by the other applicable Banks in such amounts, and make such other adjustments from time to time as shall be equitable to the end that all applicable Banks shall share the benefit of such payment pro rata in accordance with the unpaid principal of and interest on the Obligations then due to each of them. To such end, all of the applicable Banks shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if all or any portion of such excess payment is thereafter rescinded or must otherwise be restored. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any Bank so purchasing a participation in the Obligations held by the other Banks may exercise all rights of set-off, banker's lien, counterclaim, or similar rights with respect to such participation as fully as if such Bank were a direct holder of Obligations in the amount of such participation. Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower.
Section 5.8 Non-Receipt of Funds by the Agent. Unless the Agent shall have been notified by a Bank or the Borrower (the "Payor") prior to the date on which such Bank is to make payment to the Agent hereunder or the Borrower is to make a payment to the Agent for the account of one or more of the Banks, as the case may be (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if the Payor has not in fact made the Required Payment to the Agent, (a) the recipient of such payment shall, on demand, pay to the Agent the amount made available to it together with interest thereon in respect of the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such period and (b) Agent shall be entitled to offset against any and all sums to be paid to such recipient, the amount calculated in accordance with the foregoing clause (a).
Section 5.9 Withholding Taxes. All payments by the Borrower of amounts payable under any Loan Document shall be payable without deduction for or on account of any present or future taxes, duties, or other charges levied or imposed by the United States of America or by the government of any jurisdiction outside the United States of America or by any political subdivision or taxing authority of or in any of the foregoing through withholding or deduction with respect to any such payments (but excluding any tax imposed on or measured by the net income or profit of a Bank pursuant to the laws of the jurisdiction in which it is organized or in which the principal office or Applicable Lending Office of such Bank is located or any subdivision thereof or therein). If any such taxes, duties, or other charges are so levied or imposed, the Borrower will make additional payments in such amounts so that every net payment of amounts payable by it under any Loan Document, after withholding or deduction for or on account of any such present or future taxes, duties, or other charges, will not be less than the amount provided for herein or therein, provided that the Borrower may withhold to the extent required by law and shall have no obligation to pay such additional amounts to any Bank to the extent that such taxes, duties, or other charges are levied or imposed by reason of the failure or inability of such Bank to comply with the provisions of Section 5.10. The Borrower shall furnish promptly to the Agent for distribution to each affected Bank, as the case may be, official receipts evidencing any such withholding or reduction.
Section 5.10 Withholding Tax Exemption. Each Bank that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to the Borrower and the Agent two duly completed copies of United States Internal Revenue Service Form W-8IMY (properly completed with applicable attachments, including applicable W-9's, W-8BEN's, W-8ECI's and W-8EXP's, in each case certifying that each beneficial owner of the payments under any Loan Document is entitled to receive payments under such Loan Document without deduction or withholding of any United States federal income taxes, and withholding statements), W-8BEN or W-8ECI, or any other applicable form reasonably acceptable to Borrower and Agent, certifying in each case that such Bank is entitled to receive payments from the Borrower under any Loan Document without deduction or withholding of any United States federal income taxes. Each Bank which so delivers a Form W-8IMY (properly completed with applicable attachments, including applicable W-9's, W-8BEN's, W-8ECI's , W-8EXP's and withholding statements), W-8BEN or W-8ECI, or any other applicable form reasonably acceptable to Borrower and Agent further undertakes to deliver to the Borrower and the Agent two (2) additional copies of such form (or a successor form) on or before the date such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrower or the Agent, in each case certifying that such Bank is entitled to receive payments from the Borrower under any Loan Document without deduction or withholding of any United States federal income taxes, and in the case where such Bank has delivered a Form W-8IMY, such Bank delivers applicable W-9's, W-8BEN's, W-8ECI's and W-8EXP's, certifying that each beneficial owner of the payments under any Loan Document is entitled to receive payments under such Loan Document without deduction or withholding of any United States federal income taxes, unless an event (including, without limitation, any change in treaty, law, interpretation, or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such form with respect to it and applicable beneficial owners (a "Tax Law Change") and such Bank advises the Borrower and the Agent that it is not capable of receiving such payments without any deduction or withholding of United States federal income tax. The Borrower agrees to pay to each Bank the additional amounts specified in Section 5.9 if such Bank becomes subject to any deduction or withholding (within the meaning of Section 5.9) because of any Tax Law Change.
Section 5.11 Participation Obligations Absolute; Failure to Fund Participation. The obligations of a Revolving Bank to fund its participation in the Swingline Loans and Letters of Credit in accordance with the terms hereof shall be absolute, unconditional, and irrevocable and shall be performed strictly in accordance with the terms of the Loan Documents under all circumstances whatsoever, including, without limitation, the following circumstances: (a) any lack of validity of any Loan Document; (b) the occurrence of any Default; (c) the existence of any claim, set-off, counterclaim, defenses, or other rights which such Bank, the Borrower, any Obligated Party, or any other Person may have; (d) the occurrence of any event that has or could reasonably be expected to have a Material Adverse Effect; (e) the failure of any condition to a Loan under Article 7 to be satisfied; or (f) any other circumstance whatsoever, whether or not similar to any of the foregoing; provided that, the obligations of a Revolving Bank to fund its participation in a Swingline Loan or a Letter of Credit may be subject to avoidance if such Bank proves in a final nonappealable judgment that it was damaged and that such damage arose directly from the Agent's willful misconduct or gross negligence (notwithstanding whether such misconduct or negligence is proven by such Bank or is proven by the Borrower pursuant to Section 2.7(f)) in determining whether (i) the conditions set forth in Article 7 to the issuance of the Letter of Credit in question or the making of the Swingline Loan in question were satisfied at the time of such issuance or such Loan or (ii) the documentation presented under the Letter of Credit in question complied with the terms thereof. If a Revolving Bank fails to fund its participation in a Swingline Loan or a Letter of Credit as required hereby, such Revolving Bank shall, subject to the foregoing proviso, remain obligated to pay to the Agent the amount it failed to fund on demand together with interest thereon in respect of the period commencing on the date such amount should have been funded until the date the amount was actually funded to the Agent at a rate per amount equal to the Federal Funds Rate for such period and the Agent shall be entitled to offset against any and all sums to be paid to such Revolving Bank hereunder the amount due the Agent under this sentence.
ARTICLE 6
Yield Protection and Illegality
Section 6.1 Additional Costs.
(a) The Borrower shall pay directly to each Bank from time to time such amounts as such Bank may determine to be necessary to compensate it for any costs incurred by such Bank which such Bank determines are
attributable to its maintaining of any Loans subject to Libor Accounts or Letters of Credit hereunder or its obligation to issue or participate in any Letter of Credit, or any reduction in any amount receivable by such Bank hereunder in respect of any such Loans or Letters of Credit or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to such Bank under this Agreement or its Notes in respect of any of such Loans (other than franchise taxes and taxes imposed on the overall net income of such Bank or its Applicable Lending Office for any of such Loans by the United States of America or the jurisdiction in which such Bank has its principal office or such Applicable Lending Office);
(ii) imposes or modifies any reserve, special deposit, minimum capital, capital ratio, or similar requirement relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Bank (including, without limitation, any of such Loans or any deposits referred to in the definition of "Libor Rate" in Section 1.1 of this Agreement); or
(iii) imposes any other condition affecting this Agreement or the Notes or any of such extensions of credit or liabilities or commitments.
Each Bank will notify the Borrower (with a copy to the Agent) of any event occurring after the date of this Agreement which will entitle such Bank to compensation pursuant to this subsection 6.1(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation, and will designate a different Applicable Lending Office for the Loans affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Bank, violate any law, rule, or regulation or be in any way disadvantageous to such Bank. Each Bank will furnish the Borrower with a certificate setting forth the basis and the amount of each request of such Bank for compensation under this subsection 6.1(a). A Bank may only request compensation under this subsection 6.1(a) for Additional Costs incurred (i) at any time after the date which is three (3) months prior to the date the Bank requests such compensation and (ii) at any time after it has notified the Borrower it will request compensation under this subsection 6.1(a).
(b) Determinations and allocations by any Bank for purposes of this
Section 6.1 of the effect of any Regulatory Change on its costs of
maintaining Loans subject to a Libor Account or to issue or participate in
Letters of Credit or of maintaining Loans subject to a Libor Account or
issuing or participating in Letters of Credit or on amounts receivable by
it in respect of such Loans or Letters of Credit, and of the additional
amounts required to compensate such Bank in respect of any Additional
Costs, shall, absent manifest error, be conclusive, provided that such
determinations and allocations are made on a reasonable basis.
Section 6.2 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Bank or its Applicable Lending Office to maintain Loans subject to a Libor Account hereunder, then such Bank shall promptly notify the Borrower (with a copy to the Agent) thereof, such Bank's obligation to maintain Loans subject to a Libor Account shall be suspended until such time as such Bank may again maintain Loans subject to a Libor Account and the Bank's Libor Accounts shall be automatically Converted into Base Rate Accounts on such date as such Bank may specify to the Borrower with a copy to the Agent. To the extent that such Bank's Libor Accounts have been so Converted, all payments and prepayments of principal, which would otherwise be applied to such Bank's Libor Accounts, shall be applied instead to its Base Rate Accounts.
Section 6.3 Compensation. The Borrower shall pay to the Agent for the account of each Bank, upon the request of such Bank, such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any loss, cost, or expense incurred by it as a result of:
(a) Any payment or prepayment of a Loan subject to a Libor Account or Conversion of a Libor Account for any reason (including, without limitation, the mandatory prepayment of the Loans pursuant to Section 5.4(b) or the acceleration of the outstanding Loans pursuant to subsection 12.2(a)) on a date other than the last day of an Interest Period for the applicable Libor Account; or
(b) Any failure by the Borrower for any reason to prepay a Loan subject to a Libor Account, on the date for such prepayment specified in the relevant notice of prepayment under this Agreement.
Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest which otherwise would have accrued on the principal amount so paid or Converted for the period from the date of such payment or Conversion to the last day of the Interest Period for such Libor Account at the applicable rate of interest for such Libor Account provided for herein over (ii) the interest component of the amount such Bank would have bid in the London interbank market for Dollar deposits of leading banks and amounts comparable to such principal amount and with maturities comparable to such period.
Section 6.4 Capital Adequacy. If after the date hereof, any Bank shall have
determined that the adoption or implementation of any applicable law, rule, or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any central bank or other
Governmental Authority charged with the interpretation or administration
thereof, or compliance by such Bank (or its parent) with any guideline, request,
or directive regarding capital adequacy (whether or not having the force of law)
of any central bank or other Governmental Authority has or would have the effect
of reducing the rate of return on such Bank's (or its parent's) capital as a
consequence of its obligations hereunder or the transactions contemplated hereby
to a level below that which such Bank (or its parent) could have achieved but
for such adoption, implementation, change, or compliance (taking into
consideration such Bank's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, within ten
(10) Business Days after demand by such Bank (with a copy to the Agent), the
Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank (or its parent) for such reduction. A certificate of such
Bank claiming compensation under this Section and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive, provided that
the determination thereof is made on a reasonable basis. In determining such
amount or amounts, such Bank may use any reasonable averaging and attribution
methods. With respect to each demand by a Bank under this Section 6.4, no Bank
shall have the right to demand compensation for amounts attributable to any
reduction in such Bank's rate of return occurring at any time before the date
which is three (3) months prior to the date the Bank gives such demand for
compensation to the Borrower.
Section 6.5 Replacement of a Bank. If a Bank (other than the Agent as a
Bank) becomes a Replacement Candidate, the Borrower shall have the right to
require such Bank to assign to an Eligible Assignee selected by the Borrower and
reasonably satisfactory to the Agent (which may be one or more of the Banks) the
Notes and participation interests in the Letter of Credit Liabilities and
Swingline Loans held by such Bank pursuant to the terms of an appropriately
completed Assignment and Acceptance in accordance with subsection 14.8(b);
provided that, neither the Agent nor any Bank shall have any obligation to the
Borrower to find any such Eligible Assignee and in order for the Borrower to
replace a Bank, the Borrower must require such replacement within three (3)
months of the date the Bank became a Replacement Candidate. Each Bank (other
than the Agent as a Bank) agrees to its replacement at the option of the
Borrower pursuant to this Section 6.5; provided that the Eligible Assignee
selected by the Borrower shall purchase such Bank's interest in the Obligations
owed herewith of the Borrower to such Bank for cash in an aggregate amount equal
to the aggregate unpaid principal thereof, all unpaid interest accrued thereon,
all unpaid commitment and letter of credit fees accrued for the account of such
Bank, any breakage costs incurred by the selling Bank because of the prepayment
of any Libor Accounts, all other fees (if any) applicable thereto and all other
amounts (including any amounts due under Section 6.1 or 6.4) then owing to such
Bank hereunder or under any other Loan Document. A Bank will become a
"Replacement Candidate" if (i) it has demanded compensation under Sections 5.9,
6.1 or 6.4, (ii) it has defaulted on any obligation under the Loan Documents or
(iii) it has become insolvent and its assets become subject to a receiver,
liquidator, trustee, custodian, or other officer having similar powers. The
rights of the Borrower under this Section 6.5 shall be in addition to any other
rights or remedies the Borrower may have at law or in equity as a result of the
events described in the definition of "Replacement Candidate".
ARTICLE 7
Conditions Precedent
Section 7.1 Effectiveness of Agreement. The obligation of each Bank to enter into this Agreement and the effectiveness hereof are subject to the satisfaction of the following conditions precedent:
(a) Closing Documents. The Agent shall have received on or before the Closing Date all of the following, each dated (unless otherwise indicated) the date hereof, in form and substance satisfactory to the Agent:
(i) Resolutions. Resolutions of the Board of Directors of the Borrower and each Significant Subsidiary certified by its Secretary or an Assistant Secretary which authorize its execution, delivery, and performance of the Loan Documents to which it is or is to be a party;
(ii) Incumbency Certificate. A certificate of incumbency certified by
the Secretary or an Assistant Secretary of the Borrower and each
Significant Subsidiary certifying the name of each of its officers (A) who
is authorized to sign the Loan Documents to which it is or is to be a party
(including, without limitation, the certificates contemplated herein)
together with specimen signatures of each such officer and (B) who will,
until replaced by other officers duly authorized for that purpose, act as
its representative for the purposes of signing documentation and giving
notices and other communications in connection with this Agreement and the
transactions contemplated hereby;
(iii) Articles of Incorporation. The articles of incorporation of the Borrower and each Significant Subsidiary certified by the Secretary of State of the state of its incorporation and dated a current date;
(iv) Bylaws. The bylaws of the Borrower and each Significant Subsidiary certified by its Secretary or an Assistant Secretary;
(v) Governmental Certificates. Certificates of the appropriate government officials of the state of incorporation of the Borrower and each Subsidiary as to its existence and good standing, all dated a current date;
(vi) Notes. The Notes executed by the Borrower;
(vii) Guaranties. The Guaranty executed by the Significant Subsidiaries;
(viii) Personal Property Collateral Documents and Collateral. Subject to the provisions of Section 9.10:
(A) The Borrower Security Agreement executed by the Borrower and the Subsidiary Security Agreement executed by each of the Significant Subsidiaries;
(B) to the extent not already delivered under the Original Agreement, certificates representing the capital stock of the Subsidiaries pledged pursuant to the Borrower Security Agreement and/or the Subsidiary Security Agreement, together with undated stock powers duly executed in blank; and
(C) executed documentation as Agent may deem necessary to perfect its Liens, including, without limitation, (A) financing statements under the UCC (or other applicable documentation under the laws of any jurisdiction with respect to the perfection of Liens) and (B) intellectual property assignments for all intellectual property registered in the United States of America; and
(ix) Opinion of Counsel. A favorable opinion of legal counsel to the Borrower and the Significant Subsidiaries, as to such matters as the Agent or the Required Banks may reasonably request;
(x) Recapitalization Agreement. The Recapitalization Agreement and the other Transaction Documents (as defined in the Recapitalization Agreement), which shall have been duly executed and delivered by each of the parties thereto and the transactions contemplated thereby shall have been consummated; and
(b) Attorneys' Fees and Expenses. All costs and expenses (including, without limitation, attorneys' fees) referred to in Section 9.7 of the Forbearance Agreement and in Section 14.1 of this Agreement, to the extent incurred, shall have been paid in full by the Borrower; and
(c) No Material Adverse Effect. Other than the "Existing Defaults" (as such term is defined in the Forbearance Agreement), since December 30, 2000, there shall not have occurred any event that could reasonably be expected to have a Material Adverse Effect; and
(d) Other Conditions. (a) No Default shall have occurred and be continuing,
(b) all of the representations and warranties contained in Article 8 and in the
other Loan Documents shall be true and correct in all material respects on and
as of the Closing Date (except to the extent that such representations and
warranties relate specifically to another date), and (c) the Agent shall have
received such additional approvals, opinions, or documents as the Agent, the
Required Revolving Banks or the Required Term Banks may reasonably request.
Section 7.2 Loans and Letters of Credit. The obligation of each Revolving Bank to make any Revolving Loan and the obligation of the Agent to issue any Letter of Credit or make any Swingline Loan are subject to the following additional conditions precedent:
(a) No Default. No Default shall have occurred and be continuing, or would result from such Revolving Loan or Letter of Credit;
(b) Representations and Warranties. All of the representations and warranties contained in Article 8 and in the other Loan Documents shall be true and correct in all material respects on and as of the date of such Revolving Loan or Letter of Credit with the same force and effect as if such representations and warranties had been made on and as of such date except to the extent that such representations and warranties relate specifically to another date; and
(c) Additional Documentation. The Agent shall have received such additional approvals, opinions, or documents as the Agent, the Required Revolving Banks or the Required Term Banks may reasonably request.
Each notice of borrowing by the Borrower hereunder, and each request for the issuance of a Letter of Credit, shall constitute a representation and warranty by the Borrower that the conditions precedent set forth in subsections 7.2(a) and (b) have been satisfied (both as of the date of such notice and, unless the Borrower otherwise notifies the Agent prior to the date of such borrowing or Letter of Credit, as of the date of such borrowing or Letter of Credit).
ARTICLE 8
Representations and Warranties
To induce the Agent and the Banks to enter into this Agreement, the Borrower represents and warrants to the Agent and the Banks that:
Section 8.1 Corporate Existence. The Borrower and each Subsidiary (a) is a corporation or other entity (as reflected on Schedule 8.14) duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority to own its assets and carry on its business as now being or as proposed to be conducted, and (c) is qualified to do business in all jurisdictions in which the nature of its business makes such qualification necessary and where failure to so qualify would reasonably be expected to have a Material Adverse Effect. The Borrower and each Obligated Party has the corporate power and authority to execute, deliver, and perform their respective obligations under the Loan Documents to which it is or may become a party.
Section 8.2 Financial Statements. The Borrower has delivered to the Agent and the Banks audited consolidated financial statements of the Borrower and the Subsidiaries as at and for the Fiscal Year ended on or about December 30, 2000, and unaudited consolidated financial statements of the Borrower and the Subsidiaries for the Fiscal Quarter ended September 29, 2001. Such financial statements, have been prepared in accordance with GAAP, and present fairly in all material respects, on a consolidated basis, the financial condition of the Borrower and the Subsidiaries as of the respective dates indicated therein and the results of operations for the respective periods indicated therein. Neither the Borrower nor any of the Subsidiaries has any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments, or unrealized or anticipated losses from any unfavorable commitments except as referred to or reflected in such financial statements or in the notes to such financial statements or which have otherwise been disclosed to the Banks in writing. There has been no material adverse change in the business, condition (financial or otherwise), operations,
prospects, or properties of the Borrower and the Subsidiaries taken as a whole since the effective date of the most recent financial statements referred to in this Section 8.2.
Section 8.3 Corporate Action; No Breach. The execution, delivery, and performance by the Borrower and each Obligated Party of the Loan Documents to which each is or may become a party and compliance with the terms and provisions hereof and thereof have been duly authorized by all requisite action on the part of the Borrower and each Obligated Party and do not and will not (a) violate or conflict with, or result in a breach of (i) the articles of incorporation or bylaws of the Borrower or any of the Subsidiaries, (ii) any applicable law, rule, or regulation or any order, writ, injunction, or decree of any Governmental Authority or arbitrator other than such violations, conflicts, and breaches which would not reasonably be expected to have a Material Adverse Effect, or (iii) any agreement or instrument to which the Borrower or any of the Subsidiaries is a party or by which any of them or any of their property is bound or subject other than such violations, conflicts, and breaches which would not reasonably be expected to have a Material Adverse Effect, or (b) constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien (except as provided herein) upon any of the revenues or assets of the Borrower or any Subsidiary other than such defaults which would not reasonably be expected to have a Material Adverse Effect.
Section 8.4 Operation of Business. The Borrower and each of the Subsidiaries possess all licenses, permits, franchises, patents, copyrights, trademarks, and tradenames, or rights thereto, necessary to conduct their respective businesses substantially as now conducted and as presently proposed to be conducted except those that the failure to so possess would not reasonably be expected to have a Material Adverse Effect, and the Borrower and each of its Subsidiaries are not in violation of any valid rights of others with respect to any of the foregoing except violations that would not reasonably be expected to have a Material Adverse Effect.
Section 8.5 Litigation and Judgments. Except as disclosed on Schedule 8.5 or in the Borrower's Form 10-Q for the Fiscal Quarter ended September 29, 2001, there is no action, suit, investigation, or proceeding before or by any Governmental Authority or arbitrator pending, or to the knowledge of the Borrower, threatened against or affecting the Borrower or any Subsidiary, that is reasonably expected to have a Material Adverse Effect. As of the Closing Date, there are no outstanding judgments against the Borrower or any Subsidiary.
Section 8.6 Rights in Properties; Liens; Nonproductive Assets. Except as
set forth on Schedule 8.6, the Borrower and each Subsidiary have good title to
or valid leasehold interests in their respective properties and assets, real and
personal, including the properties, assets, and leasehold interests reflected in
the financial statements described in Section 8.2 (except as sold or otherwise
disposed of since the date of such financial statements in the ordinary course
of business or as otherwise permitted by this Agreement or the Original
Agreement), and none of the properties, assets, or leasehold interests of the
Borrower or any Subsidiary is subject to any Lien, except as permitted by
Section 10.2. The properties listed on Schedule 10.8 are not utilized by the
Borrower or any Subsidiary in the ordinary course of business and do not
contribute to the cash flow or earnings of the Borrower or any Subsidiary.
Section 8.7 Enforceability. The Loan Documents to which the Borrower or any Obligated Party is party, when delivered, shall constitute the legal, valid, and binding obligations of the Borrower or the Obligated Party, as applicable, enforceable against the Borrower or the applicable Obligated Party in accordance with their respective terms, except as limited by bankruptcy, insolvency, or other laws of general application relating to the enforcement of creditors' rights and general principles of equity.
Section 8.8 Approvals. No authorization, approval, or consent of, and no filing or registration with, any Governmental Authority or third party is or will be necessary for the execution, delivery, or performance by the Borrower or any Obligated Party of the Loan Documents to which each is or may become a party or for the validity or enforceability thereof except for such authorizations, approvals, consents, filings and registrations which (i) have been obtained or made or (ii) are not required to be obtained pursuant to the terms of the Recapitalization Agreement and the failure of which to obtain or make would not reasonably be expected to have a Material Adverse Effect.
Section 8.9 Debt. The Borrower and the Subsidiaries have no Debt, except as permitted by Section 10.1.
Section 8.10 Taxes. The Borrower and each Subsidiary have filed all material tax returns (federal, state, and local) required to be filed, including all income, franchise, employment, property, and sales tax returns, and have paid all of their respective material liabilities for taxes, assessments, governmental charges, and other levies that are due and payable
other than those being contested in good faith by appropriate proceedings diligently pursued for which adequate reserves have been established in accordance with GAAP. Except as reflected on Schedule 8.10, the Borrower knows of no pending investigation of the Borrower or any Subsidiary by any taxing authority or of any pending but unassessed tax liability of the Borrower or any Subsidiary.
Section 8.11 Margin Securities. Neither the Borrower nor any Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T, U, or X of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Loan will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock.
Section 8.12 ERISA. The Borrower and each Subsidiary are in compliance with all applicable provisions of ERISA except for such events of noncompliance, which would not reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary knows or has reason to know that any Reportable Event or Prohibited Transaction has occurred and is continuing with respect to any Plan which has not been previously disclosed to the Agent. No notice of intent to terminate a Plan has been filed, nor has any Plan been terminated. No circumstances exist which constitute grounds entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings. Neither the Borrower nor any ERISA Affiliate has completely or partially withdrawn from a Multiemployer Plan. The Borrower and each ERISA Affiliate have met their minimum funding requirements under ERISA with respect to all of their Plans except for those instances of noncompliance with such requirements, which would not reasonably be expected to have a Material Adverse Effect. The present value of all vested benefits under each Plan do not exceed the fair market value of all Plan assets allocable to such benefits, as determined on the most recent valuation date of the Plan and in accordance with ERISA, by an amount that would reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any ERISA Affiliate has incurred any liability to the PBGC under ERISA in an amount that would reasonably be expected to have a Material Adverse Effect.
Section 8.13 Disclosure. All factual information (taken as a whole)
furnished by or on behalf of the Borrower in writing to the Agent or any Bank
(including, without limitation, all information contained in the Loan Documents)
for purposes of or in connection with this Agreement, the other Loan Documents,
the Recapitalization Agreement or any transaction contemplated herein or therein
is, and all other such factual information (taken as a whole) hereafter
furnished by or on behalf of the Borrower to the Agent or any Bank, will be true
and accurate in all material respects on the date as of which such information
is dated or certified and not incomplete by omitting to state any fact necessary
to make such information (taken as a whole) not misleading in any material
respect at such time in light of the circumstances under which such information
was provided. Without limiting the generality of the foregoing, Borrower
represents and warrants that all information contained on the Schedules hereto
is true and correct in all material respects.
Section 8.14 Subsidiaries. As of the Closing Date the Borrower has no Subsidiaries other than those listed on Schedule 8.14 hereto. As of the Closing Date, Schedule 8.14 sets forth the type of each Subsidiary listed thereon, the jurisdiction of incorporation or organization of each such Subsidiary, the percentage of the Borrower's ownership of the outstanding voting stock (or other ownership interests) of each such Subsidiary, whether the Subsidiary is a Significant Subsidiary, and with respect to each such Subsidiary that is a corporation, the authorized, issued and outstanding capital stock of each such Subsidiary. All of the outstanding capital stock of each Subsidiary listed on Schedule 8.14 has been validly issued, is fully paid, and is nonassessable. As of the Closing Date, there are no outstanding subscriptions, options, warrants, calls, or rights (including preemptive rights) to acquire, and no outstanding securities or instruments convertible into, capital stock of any Subsidiary listed on Schedule 8.14.
Section 8.15 Agreements. Neither the Borrower nor any Subsidiary is a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any charter or corporate restriction that would reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary is in default in any respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument to which it is a party other than defaults which would not reasonably be expected to have a Material Adverse Effect.
Section 8.16 Compliance with Laws. Neither the Borrower nor any Subsidiary is in violation of any law, rule, regulation, order, or decree of any Governmental Authority or arbitrator other than defaults, which would not reasonably be expected to have a Material Adverse Effect.
Section 8.17 Investment Company Act. Neither the Borrower nor any Subsidiary is an "investment company" within the meaning of the Investment Company Act of 1940, as amended.
Section 8.18 Public Utility Holding Company Act. Neither the Borrower nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 8.19 Environmental Matters. Except as disclosed on Schedule 8.19 or in the Borrower's Form 10-Q for the Fiscal Quarter ended September 29, 2001, and except for those matters which would not reasonably be expected to have a Material Adverse Effect:
(a) The Borrower, each Subsidiary, and all of their respective properties, assets, and operations are in full compliance with all Environmental Laws. The Borrower is not aware of, nor has the Borrower received notice of, any past, present, or future conditions, events, activities, practices, or incidents which may interfere with or prevent the compliance or continued compliance of the Borrower and the Subsidiaries with all Environmental Laws;
(b) The Borrower and each Subsidiary have obtained all permits, licenses, and authorizations that are required under applicable Environmental Laws, and all such permits are in good standing and the Borrower and its Subsidiaries are in compliance with all of the terms and conditions of such permits;
(c) No Hazardous Materials exist on, about, or within or have been used, generated, stored, transported, disposed of on, or Released from any of the properties or assets of the Borrower or any Subsidiary except in compliance with Environmental Laws. The use which the Borrower and the Subsidiaries make and intend to make of their respective properties and assets will not result in the use, generation, storage, transportation, accumulation, disposal, or Release of any Hazardous Material on, in, or from any of their properties or assets except in compliance with Environmental Laws;
(d) Neither the Borrower nor any of the Subsidiaries nor any of their respective currently or previously owned or leased properties or operations is subject to any outstanding or, to the best of its knowledge, threatened order from or agreement with any Governmental Authority or other Person or subject to any judicial or administrative proceeding with respect to (i) failure to comply with Environmental Laws, (ii) Remedial Action, or (iii) any Environmental Liabilities arising from a Release or threatened Release;
(e) There are no conditions or circumstances associated with the currently or previously owned or leased properties or operations of the Borrower or any of the Subsidiaries that could reasonably be expected to give rise to any Environmental Liabilities;
(f) Neither the Borrower nor any of the Subsidiaries is a treatment, storage, or disposal facility requiring a permit under the Resource Conservation and Recovery Act, 42 U.S.C. ' 6901 et seq., regulations thereunder or any comparable provision of state law. The Borrower and the Subsidiaries are compliance with all applicable financial responsibility requirements of all Environmental Laws;
(g) Neither the Borrower nor any of the Subsidiaries has filed or failed to file any notice required under applicable Environmental Law reporting a Release; and
(h) No Lien arising under any Environmental Law has attached to any property or revenues of the Borrower or the Subsidiaries.
Section 8.20 Solvency. As of and from and after the date of this Agreement, the Borrower and the Subsidiaries on a consolidated basis: (a) own and will own assets the fair saleable value of which are (i) greater than the total amount of their liabilities (including contingent liabilities) and (ii) greater than the amount that will be required to pay the probable liabilities of their then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to them; (b) have capital that is not unreasonably small in relation to their
business as presently conducted or any contemplated or undertaken transaction; and (c) do not intend to incur and do not believe that they will incur debts beyond their ability to pay such debts as they become due.
ARTICLE 9
Positive Covenants
The Borrower covenants and agrees that, as long as the Obligations or any part thereof are outstanding or any Bank has any Commitment hereunder, the Borrower will perform and observe the following positive covenants:
Section 9.1 Reporting Requirements. The Borrower will furnish to the Agent and each Bank:
(a) Annual Financial Statements. As soon as available, and in any event within one hundred fifteen (115) days after the end of each Fiscal Year of the Borrower, beginning with the Fiscal Year ending on the Saturday closest to December 31, 2001, (i) a copy of the annual audit report of the Borrower and the Subsidiaries for such Fiscal Year containing, on a consolidated basis, balance sheets and statements of income, retained earnings, and cash flow as at the end of such Fiscal Year and for the Fiscal Year then ended, in each case setting forth in comparative form the figures for the preceding Fiscal Year, all in reasonable detail and audited and certified by independent certified public accountants of recognized standing acceptable to the Agent, to the effect that such report has been prepared in accordance with GAAP;
(b) Monthly Financial Statements and other Reports; Delivery of New
Certificates of Title and other Collateral. As soon as available, and in
any event within forty-five (45) days after the end of each four (4) week
period during its Fiscal Year (or with respect to the last such period in
each such Fiscal Year, within ninety (90) days after the end of such four
(4) or, as the case may be, five (5) week period), a copy of an unaudited
financial report of the Borrower and the Subsidiaries as of the end of such
period and for the portion of the Fiscal Year then ended containing, on a
consolidated basis, balance sheets and statements of income, retained
earnings, and cash flow, in each case setting forth in comparative form the
figures for the corresponding period of the preceding Fiscal Year, and the
corresponding period in the projections delivered pursuant to subsection
9.1(e), all in reasonable detail certified by the chief financial officer
or treasurer of the Borrower to have been prepared in accordance with GAAP
and to fairly present in all material respects (subject to year-end audit
adjustments) the financial condition and results of operations of the
Borrower and the Subsidiaries, on a consolidated basis, at the date and for
the periods indicated therein and to be accompanied by the following each
to be in form and substance reasonably satisfactory to the Agent:
(i) a comparison of actual cash receipts and disbursements for the prior month to forecasted cash receipts and disbursements as set forth on the forecast delivered for the prior month;
(ii) an update of the status of all planned asset dispositions and a detailed listing of all asset dispositions completed in accordance with subsection 10.8(h) during the preceding month including the assets sold, the sales price for such assets, and the Net Cash Proceeds received;
(iii) a detail of the selling prices received from its product during the prior month and the selling prices for the commodities that its products compete with over the same period;
(iv) all Capital Expenditures of the Borrower and the Subsidiaries during the prior month;
(v) such information relating to the performance at each of its plants that the Agent may reasonably request;
(vi) such other information as the Agent or any Bank may reasonably require;
(vii) subject to subsection 9.10(a), any Collateral or related documents required to be delivered in accordance with this subsection 9.1(b) pursuant to Paragraph 6 of the Borrower Security Agreement or Paragraph 6 of the Subsidiary Security Agreement, including, but not limited to, all certificates of title evidencing ownership of any equipment purchased since the later of the Closing Date
or the last date certificates of title were delivered under this subsection 9.1(b), together with such documentation as the Agent may reasonably request to cause the Agent's Lien held for the benefit of the Secured Parties to be noted thereon; and
(viii) for each reporting period under this Section 9.1(b) (commencing with the reporting period ending on June 29, 2002, in the case of certification under clause (A) of this Section 9.1(b)(viii)), a foreign shipment certificate executed by a responsible officer of the Borrower demonstrating in reasonable detail, among other things, (A) the percentage of the aggregate amount of accounts receivable of the Borrower and its Subsidiaries arising from the sale or disposition of inventory subject to "Inventory Exporting" (as such term is defined in the Borrower Security Agreement and the Subsidiary Security Agreement) during such reporting period, measured as of the last day of such reporting period, and (B) that the aggregate value of the inventory subject to "Nonconforming Inventory Exporting Arrangements" (as such term is defined in the Borrower Security Agreement and the Subsidiary Security Agreement) has not exceeded 30% of the aggregate value of all inventory of the Borrower and its Subsidiaries on the last day of such reporting period.
(c) Semi-Monthly Status Report; Monthly Hedging Report. On the first Business Day of each month and on the fifteenth day (15th) of each month (or if such day is not a Business Day, on the first Business Day thereafter), a forecast of cash receipts, disbursements and projected availability under the Revolving Commitment for the eight (8) week period then beginning, such forecast to be in form and substance reasonably satisfactory to the Agent; and on the fifteenth (15th) day of each month (or if such day is not a Business Day, on the first Business Day thereafter) a detailed summary of the material terms of each Hedge Agreement to which the Borrower or any Subsidiary is a party as of the end of the previous month, in form and substance satisfactory to Agent, and including, without limitation, the term, notional amounts, fixed and floating prices and payors, credit support, and the current mark-to-market value of each transaction and accompanied by copies of all transaction confirmations, modifications or other documentation executed or delivered in connection therewith during such month;
(d) Compliance Certificate. Within sixty (60) days after the end of each Fiscal Quarter of each Fiscal Year, or with respect to the last Fiscal Quarter of each Fiscal Year, within ninety (90) days of the end of such Fiscal Quarter, a Compliance Certificate;
(e) Projections and Bonus Plan. As soon as available and in any event
forty-five (45) days after the beginning of each Fiscal Year of the
Borrower, the Borrower will deliver (i) a forecasted consolidated balance
sheet and statements of income and cash flow of the Borrower and the
Subsidiaries on a Fiscal Quarter by Fiscal Quarter basis in a format
consistent with the most recent financial statements delivered under
Section 9.1(a), including the assumptions utilized in the preparation of
such projections (in narrative form) for the forthcoming Fiscal Year and a
pro-forma projection of the Borrower's compliance with the financial
covenants in this Agreement for the same period and (ii) a copy of any
bonus compensation or incentive plan adopted for such Fiscal Year by the
Borrower and the Subsidiaries for its officers and employees;
(f) Management Letters. Promptly upon receipt thereof, a copy of any final management letter or written report submitted to the Borrower or any Subsidiary by independent certified public accountants with respect to the business, condition (financial or otherwise), operations, prospects, or properties of the Borrower or any Subsidiary;
(g) Notice of Litigation. Promptly after the commencement thereof, notice of all actions, suits, investigations (with respect to investigations only, of which the Borrower has actual knowledge) and proceedings before any Governmental Authority or arbitrator affecting the Borrower or any Subsidiary which would reasonably be expected to have a Material Adverse Effect;
(h) Notice of Default. As soon as possible and in any event within five (5) Business Days after an officer of the Borrower has knowledge of the occurrence of each Default, a written notice setting forth the details of such Default and the action that the Borrower has taken and proposes to take with respect thereto;
(i) ERISA Reports. If requested by the Agent, promptly after the filing or receipt thereof, copies of all reports, including, without limitation, annual reports, and notices which the Borrower or any Subsidiary files
with or receives from the PBGC or the U.S. Department of Labor under ERISA; and as soon as possible and in any event within five (5) Business Days after the Borrower or any Subsidiary knows or has reason to know that any Reportable Event or Prohibited Transaction has occurred with respect to any Plan or that the PBGC or the Borrower or any Subsidiary has instituted or will institute proceedings under Title IV of ERISA to terminate any Plan, a certificate of the chief financial officer or treasurer of the Borrower setting forth the details as to such Reportable Event or Prohibited Transaction or Plan termination and the action that the Borrower proposes to take with respect thereto;
(j) Notice of Material Adverse Effect. As soon as possible and in any event within five (5) Business Days after an officer of the Borrower has knowledge of the occurrence thereof, written notice of any matter that could reasonably be expected to have a Material Adverse Effect;
(k) Press Release; Proxy Statements, Etc. As soon as available, one copy of each press release sent by the Borrower, one copy of each financial statement, report, notice or proxy statement sent by the Borrower or any Subsidiary to its stockholders generally and one copy of each regular, periodic or special report, registration statement, or prospectus filed by the Borrower or any Subsidiary with any securities exchange or the Securities and Exchange Commission or any successor agency; and
(l) General Information. Promptly, such other information concerning the Borrower or any Subsidiary as the Agent or any Bank may from time to time reasonably request.
Section 9.2 Maintenance of Existence; Conduct of Business. Except as permitted by Section 10.3, the Borrower will, and will cause each Subsidiary to, preserve and maintain its corporate existence and all of its leases, privileges, licenses, permits, franchises, qualifications, and rights that are necessary in the ordinary conduct of its business. The Borrower will, and will cause each Subsidiary to, conduct its business in an orderly and efficient manner in accordance with good business practices.
Section 9.3 Maintenance of Properties. The Borrower will, and will cause each Subsidiary to, maintain, keep, and preserve all of its material properties necessary in the conduct of its business in good working order and condition (exclusive of ordinary wear and tear).
Section 9.4 Taxes and Claims. The Borrower will, and will cause each
Subsidiary to, pay or discharge at or before maturity or before becoming
delinquent (a) all taxes, levies, assessments, and governmental charges imposed
on it or its income or profits or any of its property which are material in
amount (either individually or in the aggregate), and (b) all lawful claims for
labor, material, and supplies, which are material in amount (either individually
or in the aggregate) and which, if unpaid, might become a Lien upon any of its
property; provided, however, that neither the Borrower nor any Subsidiary shall
be required to pay or discharge any of the foregoing which is being contested in
good faith by appropriate proceedings diligently pursued, and for which adequate
reserves have been established and no Lien (other than Liens permitted under
Section 10.2) on any property of the Borrower or any Subsidiary arise from such
failure.
Section 9.5 Insurance; Casualty and Condemnation Proceeds. The Borrower will, and will cause each Subsidiary to, maintain insurance with financially sound and reputable insurance companies in such amounts and covering such risks as are usually carried by Persons engaged in similar businesses and owning similar properties in the same general areas in which the Borrower and the Subsidiaries operate, provided that in any event the Borrower will maintain and cause each Subsidiary to maintain workmen's compensation insurance, property insurance, comprehensive general liability insurance, and products liability insurance reasonably satisfactory to the Agent. Each general liability insurance policy shall name the Agent as additional insured, each insurance policy covering Collateral shall name the Agent as loss payee and all such policies shall provide that they will not be canceled or materially changed without thirty (30) days prior written notice to the Agent; provided, however, that any such insurance policy may be cancelable for non-payment of applicable premiums upon not less than ten (10) days prior written notice to the Agent. Borrower and the Subsidiaries may retain the proceeds of any payments made under casualty insurance policies and any proceeds of any condemnation action, if (a) no Event of Default exists at the time such proceeds are received; (b) the Borrower or the applicable Subsidiary utilizes or commits to utilize the proceeds to repair or replace the property damaged or condemned, to construct a replacement facility for the property damaged or condemned or to expand the productive capacity of an existing facility within 180 days of receipt and, with respect to any such commitment, does so utilize such proceeds within eighteen (18) months of receipt; and (c) within ninety (90) days of the occurrence of the casualty loss or condemnation action giving rise to such proceeds, the Borrower
or the applicable Subsidiary elects (by written notice to Agent) to so utilize such proceeds, which notice shall include a reasonably detailed budget of the costs and expenses, by month, estimated to be incurred in connection with such restoration, repair, replacement or expansion, as applicable. In all other cases, such proceeds shall be paid to Agent and applied to the Obligations in accordance with subsection 5.4(b)(i)(B) (unless an Acceleration Event exists, in which case such proceeds shall be applied in accordance with subsection 5.6(b)).
Section 9.6 Inspection Rights. At any reasonable time and from time to time prior to a Default upon one (1) Business Day's prior notice and at any reasonable time after the occurrence and during the continuance of a Default, the Borrower will, and will cause each Subsidiary to, permit representatives of the Agent and each Bank to examine, copy, and make extracts from its books and records, to visit and inspect its properties, and to discuss its business, operations, and financial condition with its officers, employees, and independent certified public accountants. The Agent and each Bank will give the Borrower the opportunity to participate in any discussions they conduct with the Borrower's independent certified public accountants.
Section 9.7 Keeping Books and Records. The Borrower will, and will cause each Subsidiary to, maintain proper books of record and account in which full, true, and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities.
Section 9.8 Compliance with Laws; Environmental Laws.
(a) The Borrower will, and will cause each Subsidiary to, comply with all applicable laws (including, without limitation, all Environmental Laws), rules, regulations, orders, and decrees of any Governmental Authority or arbitrator other than such noncompliance which would not reasonably be expected to have a Material Adverse Effect.
(b) Other than any noncompliance with any of the following subsections 9.8(b)(i)-(iii) (except for noncompliance with any requirement to provide notices to the Agent) which would not reasonably be expected to have a Material Adverse Effect:
(i) Except in compliance with Environmental Laws, Borrower and each Subsidiary shall keep their respective properties, assets and operations free of Hazardous Materials and shall not, and shall not allow any tenant, occupant, or other party to generate, manufacture, refine, transport, treat, store, handle, dispose, transfer, produce, process or in any manner deal with Hazardous Materials on or at their respective properties, assets and operations. Borrower and each Subsidiary shall not cause, suffer, allow, or permit, as a result of any intentional or unintentional act or omission, and Borrower or each Subsidiary shall use its best efforts not to cause, suffer, allow, or permit, as a result of any act or omission on the part of any tenant or subtenant or occupant of their respective properties, assets and operations, a Release or threatened Release of any Hazardous Materials onto their respective properties, assets and operations or onto any other property that would reasonably be likely to result in Environmental Liabilities;
(ii) If Borrower or any subsidiary receives any written notice or advice from any Governmental Authority or from any other person with regard to any Environmental Liability or alleged Environmental Liability or with regard to any Release or threatened Release of any Hazardous Material at, on, under, or from or affecting their respective properties, assets and operations (other than immaterial notices received in the ordinary course of business, including, without limitation, routine correspondence regarding permitting or permitted releases), Borrower or the Subsidiary shall immediately notify Agent in writing; and
(iii) Borrower and/or each Subsidiary shall conduct and complete all investigations, studies, sampling and testing which are reasonably necessary or required, and all remedial, removal, and other actions reasonably necessary or required to investigate, clean up, remove, and monitor all Hazardous Materials on or affecting their respective properties, assets or operations or originating from their respective properties, assets or operations in accordance with and to the full extent required by Environmental Laws and to the satisfaction of all applicable Governmental Authorities. Notwithstanding the above, any such remedial, removal or other action shall be conducted in such a manner as to place no restriction on the future use of their respective properties, assets or operations, or to place no deed restriction upon their respective properties, assets or operations, other than restrictions limiting future use to commercial or industrial use and prohibiting the use of groundwater, and to require no post-response action care or monitoring. If Borrower and/or each Subsidiary does not commence with
any investigation, removal, remedial or other action in compliance with Environmental Laws within sixty (60) days of receipt of the initial advice or notice with regard to their respective properties, assets or operations, Agent, within thirty (30) days after notice to Borrower and/or each Subsidiary, may elect, in its sole discretion and with no obligation to do so, to undertake such action. Any monies expended by Agent in efforts to comply with any Environmental Laws or pursuant to the preceding sentence (including the reasonable costs of hiring consultants, undertaking sampling and testing, performing any removal or remedial action and reasonable attorneys' fees and disbursements) will be reimbursed by Borrower to Agent on demand, will constitute a portion of the Primary Obligations, will bear interest from the date incurred until paid at the Default Rate and will be secured by the Collateral.
Section 9.9 Compliance with Agreements. The Borrower will, and will cause each Subsidiary to, comply with all agreements, contracts, and instruments binding on it or affecting its properties or business other than such noncompliance which would not reasonably be expected to have a Material Adverse Effect.
Section 9.10. Further Assurances; Post Closing Items; Exceptions to Perfection and other Collateral Matters.
(a) Further Assurance. The Borrower will, and will cause each Subsidiary to, execute and deliver such further documentation and take such further action as may be reasonably requested by the Agent to carry out the provisions and purposes of the Loan Documents and to create, preserve, and perfect the Liens of the Agent for the benefit of itself and the Secured Parties in the Collateral; provided that:
(i) until a Perfection Event occurs, neither the Borrower nor any Subsidiary shall be required to cause the Agent's Lien to be noted on any certificate of title evidencing the ownership in any equipment subject to an operating or capital lease now in existence or hereafter entered into in accordance with this Agreement; however, if a Perfection Event occurs and continues, the Borrower shall, and shall cause the Significant Subsidiaries, to take such action as the Agent may require to perfect and protect the Liens of the Agent in any of such equipment or other vehicles as the Agent may specify (the term "Perfection Event" means the acquisition by Borrower of ownership of such equipment either pursuant to the exercise of a purchase option, at the expiration of the applicable lease term or otherwise); and
(ii) neither the Borrower nor any Subsidiary shall be required to cause the Agent's Lien on intellectual property which is registered outside the United States of America and is listed on Schedule 9.10(a) to be recorded in any jurisdiction outside the United States of America because the Borrower and the Subsidiaries intend on abandoning the registrations listed on Schedule 9.10(a); however, if the Borrower or any Subsidiary determines not to abandon a registration listed on Schedule 9.10(a), the Borrower shall, or shall cause the applicable Significant Subsidiary, to take such action as the Agent may require to record its Liens against such registration.
Each Approved Bank Affiliate, by accepting the benefits of the Liens granted in the Loan Documents: (A) consents to the Liens granted in favor of the Agent in the Borrower's rights in and to the operating and capital leases entered into with the Borrower and the equipment the subject thereof and (B) agrees that when all obligations owed to it arising in connection with any such operating or capital lease are satisfied (provided that the Borrower becomes the owner of the equipment subject to such lease), it will deliver any certificates of title evidencing the ownership in such equipment to the Agent, with such documentation as the Agent may require to release the Secured Party's Lien thereon, transfer ownership to the Borrower and record the Agent's Lien thereon. The Agent is authorized to record its Lien on any certificate of title so received.
(b) RESERVED
(c) Deposit Accounts. In the event the Borrower or a Significant Subsidiary is not able by the Closing Date to obtain and deliver to Agent a deposit account control agreement, in form and substance acceptable to the Agent, from any bank holding a deposit account (other than any Excluded Account, as defined in the Borrower Security Agreement and the Subsidiary Security Agreement), the Borrower or the applicable Significant Subsidiary shall no longer use such account, and shall immediately close such account and transfer any remaining funds therein to a deposit account for which such a control agreement has been so obtained and delivered.
(d) Creation, Perfection and Protection of Liens on Real Property. The Borrower agrees that it has caused and shall cause, and has caused and shall cause the Significant Subsidiaries to:
(i) Fee Owned Designated Property Mortgages. Execute and deliver to the Agent on or before the Closing Date, a Mortgage or a modification or amendment (a "Mortgage Amendment") to each Mortgage executed and delivered in connection with the Original Agreement covering each parcel of Fee Owned Designated Property, with a metes and bounds or other description of each such parcel attached thereto sufficient to permit the filing of such Mortgage or Mortgage Amendment (if required under applicable law) in the applicable real property records;
(ii) Fee Owned Designated Property Related Documents. Deliver to the Agent on or before the Closing Date, in form and substance reasonably satisfactory to the Agent: (A) appropriate endorsements to each mortgagee's title insurance policy in effect with respect to any Mortgage executed and delivered in connection with the Original Agreement issued by a title insurer reasonably satisfactory to the Agent, reflecting that such title insurance policies remain in full force and effect notwithstanding the transfer and assignment of the insured Mortgage to Agent from the "Agent" under the Original Agreement and the other modifications and amendments set forth in the applicable Mortgage Amendment.
(iii) Landlord Consents. Use Commercially Reasonable Efforts to obtain by June 30, 2002, from each landlord of each parcel of Designated Leased Property, a consent to the grant by the Borrower of a Lien to the Agent in the Borrower's interest in the related leasehold estate, such consent to contain customary consents, estoppels and nondisturbance provisions and to otherwise be in form and substance reasonably satisfactory to the Agent (each a "Landlord Consent" and the term "Designated Leased Property" means leasehold estates of the Borrower which the Agent has designated to be mortgaged to the Agent for the benefit of the Secured Parties based on the value of the leasehold estate, either in and of itself or because of its importance to the operations of the Borrower and the Subsidiaries);
(iv) Leasehold Properties Mortgage. For each Designated Leased Property for which a Landlord Consent has been delivered in accordance with the forgoing clause (iii), execute and deliver to the Agent on or before the date which is ten (10) days after the related Landlord Consent is delivered, a Mortgage covering each such parcel of Designated Leased Property, with a metes and bounds or other description of each such parcel attached thereto sufficient to permit the filing of such Mortgage in the applicable real property records;
(v) Designated Leased Property Related Documents. Deliver to the Agent on or before the date which is ten (10) days after the related Landlord Consent is delivered, all of the following in form and substance reasonably satisfactory to the Agent with respect to each parcel of Designated Leased Property for which a Landlord Consent has been delivered in accordance with the foregoing clause (iii):
(A) a copy and, if available, a summary of, the lease agreement;
(B) if the Agent reasonably requires, a title insurance commitment and all documentation evidencing any exceptions to title reflected thereon;
(C) if available or if the Agent otherwise reasonably requires, a survey of the parcel, certified by a licensed surveyor;
(D) if required by the Agent, an environmental report for the parcel, prepared by a third party environmental engineer reasonably acceptable to the Agent; and
(E) if required by the Agent, a mortgagee's title insurance policy (together with any required endorsements thereto) issued by a title insurer satisfactory to the Agent in an amount equal to the fair market value of the underlying leasehold estate.
If requested by the Agent or required by applicable law, the Borrower shall deliver or cause to be delivered from time to time to the Agent a current appraisal of each parcel of real property covered by a Mortgage that has a material value (as determined by the Agent), such appraisals to be in form and substance reasonably satisfactory to the Agent; provided
that unless required by applicable law or unless a Default exists, the Agent
shall not be permitted to require more than one appraisal for each such parcel
of real property during any calendar year at the Borrower's expense. If no
environmental report has been delivered with respect to a parcel of real
property pursuant to clause (d)(v)(D) of this Section 9.10 or within the twelve
(12) months prior to the Closing Date with respect to any real property covered
by a Mortgage delivered hereunder or under the Original Agreement, the Agent may
at any time after the date hereof require that the Borrower deliver to the Agent
a current environmental report applicable to such parcel of property, such
environmental report to be in form and substance reasonably satisfactory to the
Agent and to be prepared by a third party environmental engineer reasonably
acceptable to the Agent. Under the provisions of the forgoing sentence and
clause (d)(v)(D) of this Section 9.10, the Borrower shall be required to deliver
only one environmental report during any calendar year with respect to each
parcel of property. With respect to any parcel of real property of the Borrower
or a Significant Subsidiary for which an environmental report has been obtained,
if the Agent has reason to believe that the environmental condition of such
parcel is, becomes or could become impaired or the Agent has reason to believe
the Borrower, any Subsidiary, the Agent or any Bank may be subject to
Environmental Liabilities as a result of, or in connection with, such parcel, or
a Default exists, then the Agent may require from time to time the delivery of,
and the Borrower shall deliver or cause to be delivered from time to time to the
Agent, an update of, or supplement to, any existing environmental report
applicable to such parcel of property, such update or supplement to be in form
and substance reasonably satisfactory to the Agent and to be prepared by a third
party environmental engineer reasonably acceptable to the Agent. With respect to
any parcel of property, without the consent of the Secured Parties, the Agent
may determine not to require the Borrower or a Significant Subsidiary to grant a
Lien in its favor thereon if the Agent finds that the environmental condition of
such property is not satisfactory to the Agent.
(e) Insignificant Subsidiaries. If any Insignificant Subsidiary's (or the aggregate amount of the Insignificant Subsidiaries') net worth or total assets increases so that it and/or any other such Subsidiary becomes a Significant Subsidiary, the Borrower shall cause each such Significant Subsidiary to execute and deliver such documentation as the Agent may request to cause such Significant Subsidiary to evidence, perfect, or otherwise implement the guaranty of and security for the Obligations contemplated by the Guaranty and the Subsidiary Security Agreement.
Section 9.11 ERISA. The Borrower will, and will cause each Subsidiary to, comply with all minimum funding requirements and all other requirements of ERISA, if applicable, so as not to give rise to any liability which will have a Material Adverse Effect.
Section 9.12 Packers and Stockyards Act Compliance. If the Borrower or any Subsidiary purchases livestock by purchase or cash sales, the Borrower shall at its own expense take such steps to insure that any trust established under the Packers and Stockyards Act, 1921, as amended (7 U.S.C. ' 181 et seq.) shall not arise for the benefit of all unpaid cash sellers on such livestock or on the inventory derived therefrom.
Section 9.13 Payments of Adjusted Existing Accrued Interest. Borrower shall pay to the Agent, for the ratable benefit of the Term Banks, in immediately available funds, an amount equal to the Adjusted Existing Accrued Interest on the thirtieth (30th) day after the Closing Date.
ARTICLE 10
Negative Covenants
The Borrower covenants and agrees that, as long as the Obligations or any part thereof are outstanding or any Bank has any Commitment hereunder, the Borrower will perform and observe the following negative covenants:
Section 10.1 Debt. The Borrower will not, and will not permit any Subsidiary to, incur, create, assume, or permit to exist any Debt, except:
(a) Debt to the Banks pursuant to the Loan Documents;
(b) Debt described on Schedule 10.1 hereto, and any extensions, renewals, or refinancings thereof so long as (i) the principal amount of such Debt and the interest rate charged thereon after such renewal, extension, or refinancing shall not exceed the principal amount of such Debt which was outstanding and the interest rate which was in effect immediately prior to such renewal, extension, or refinancing and (ii) such Debt shall not be secured by any assets other than assets securing such Debt, if any, prior to such renewal, extension, or refinancing;
(c) Intercompany Debt owed by one or more of the Subsidiaries to the Borrower or to a Subsidiary or owed by Borrower to a Subsidiary; provided that (i) the obligations of each obligor of such Debt shall be subordinated in right of payment to the obligations under the Loan Documents from and after such time as any portion of such obligations shall become due and payable (whether at stated maturity, by acceleration or otherwise) and shall have such other terms and provisions as the Agent may reasonably require; (ii) the aggregate amount of such Debt outstanding at any time which is owed by the Insignificant Subsidiaries shall not at any time exceed One Hundred Thousand Dollars ($100,000); and (iii) the aggregate amount of such Debt outstanding at any time which is owed by any Subsidiary organized in a jurisdiction outside of the United States of America to the Borrower shall not at any time exceed Five Hundred Thousand Dollars ($500,000);
(d) Debt (including Capital Lease Obligations and in addition to the Debt described on Schedule 10.1) not to exceed Two Million Dollars ($2,000,000) in the aggregate at any time outstanding secured by purchase money Liens permitted by Section 10.2;
(e) Guarantees incurred in the ordinary course of business with respect to surety and appeal bonds, performance and return-of-money bonds, and other similar obligations not exceeding at any time outstanding One Million Dollars ($1,000,000) in aggregate liability;
(f) Debt arising in connection with non-compete, consulting or other similar agreements which are classified as liabilities on its balance sheet in accordance with GAAP entered into after the Closing Date, but only if the aggregate annual payments to be made under such agreements do not exceed Five Hundred Thousand Dollars ($500,000) and only if such agreements are approved in writing by the Agent, which approval may be given or withheld in the Agent's sole discretion;
(g) Guarantees, incurred in the ordinary course of business, of Debt of Persons who supply the Borrower or a Subsidiary with raw materials utilized in the Borrower's or a Subsidiary's business (a "Raw Material Supplier"); provided that (i) the Debt of the Raw Material Supplier is incurred to enable such Person to provide raw materials to the Borrower or a Subsidiary and (ii) the aggregate amount of the Debt of Raw Material Suppliers at any time outstanding which is Guaranteed by the Borrower and the Subsidiaries shall not exceed the sum of (A) Two Million Dollars ($2,000,000) minus (B) the aggregate amount of the advances made to Raw Material Suppliers as prepayments on raw material purchases by the Borrower and the Subsidiaries pursuant to the permissions of subsection 10.5(g);
(h) contingent obligations arising under indemnity agreements to title insurers to cause such title insurers to issue to the Agent the title insurance policies required hereby or otherwise obtained in the ordinary course of business; and
(i) Debt in addition to that specifically described in clauses (a) through (h) of this Section 10.1 which in the aggregate does not exceed One Million Dollars ($1,000,000) at any time outstanding.
Section 10.2 Limitation on Liens and Restrictions on Subsidiaries. The Borrower will not, and will not permit any Subsidiary to, incur, create, assume, or permit to exist any Lien upon any of its property, assets, or revenues, whether now owned or hereafter acquired, except the following:
(a) Liens disclosed on Schedule 10.2 hereto;
(b) Liens in favor of the Agent, for the benefit of the Secured Parties, pursuant to the Loan Documents;
(c) Encumbrances consisting of easements, zoning restrictions, or other restrictions on the use of real property that do not (individually or in the aggregate) materially affect the value of the assets encumbered thereby or materially impair the ability of the Borrower or the Subsidiaries to use such assets in their respective businesses, and none of which is violated in any material respect by existing or proposed structures or land use;
(d) Liens (other than Liens relating to Environmental Liabilities or ERISA) for taxes, assessments, or other governmental charges that are not delinquent or, if the execution thereof is stayed, which are being contested in good faith by appropriate proceedings diligently pursued and for which adequate reserves have been established;
(e) Liens of mechanics, materialmen, warehousemen, carriers, landlords or other similar statutory Liens securing obligations that are not yet due and are incurred in the ordinary course of business or, if the execution thereof is stayed, which are being contested in good faith by appropriate proceedings diligently pursued and for which adequate reserves have been established;
(f) Liens resulting from good faith deposits to secure payments of workmen's compensation or other social security programs or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids or contracts (other than for payment of Debt) entered into in the ordinary course of business;
(g) Liens for purchase money obligations (including Capital Lease Obligations); provided that: (i) the purchase of the asset subject to any such Lien is permitted under Section 11.3; (ii) the Debt secured by any such Lien is permitted under Section 10.1; and (iii) any such Lien encumbers only the asset so purchased;
(h) Any attachment or judgment Lien not constituting an Event of Default;
(i) Liens arising from filing UCC financing statements regarding leases not prohibited by this Agreement; and
(j) Liens existing on the Closing Date and disclosed in the title insurance policies delivered to the Agent under the Original Agreement or under subsection 9.10(d)(v) of this Agreement.
Neither the Borrower nor any Subsidiary shall enter into or assume any agreement (other than the Loan Documents) prohibiting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired; provided that, in connection with the creation of purchase money Liens (including any such purchase money Liens securing Capital Lease Obligations), the Borrower or the Subsidiary may agree that it will not permit any other Liens to encumber the asset subject to such purchase money Lien. Except as provided herein and except for customary consensual encumbrances and restrictions contained in a purchase and sale agreement and imposed on the Subsidiary (or its assets) to be sold in a transaction permitted hereby or otherwise approved by the number of Banks required hereby, the Borrower will not and will not permit any Subsidiaries directly or indirectly to create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary to: (1) pay dividends or make any other distribution on any of such Subsidiary's capital stock owned by the Borrower or any Subsidiary; (2) subject to subordination provisions, pay any Debt owed to the Borrower or any other Subsidiary; (3) make loans or advances to the Borrower or any other Subsidiary; or (4) transfer any of its property or assets to the Borrower or any other Subsidiary.
Section 10.3 Mergers, Etc. The Borrower will not, and will not permit any Subsidiary to, become a party to a merger or consolidation, or purchase or otherwise acquire all or a substantial part of the business or assets of any Person or of a division or branch of any Person or any shares or other equity interest issued by any Person (whether or not certificated), or wind-up, dissolve, or liquidate itself; provided that, if no Default exists or would result therefrom and all applicable obligations under Section 9.10, the Borrower Security Agreement and the Subsidiary Security Agreement are complied with: (i) a Subsidiary may wind-up, dissolve, or liquidate if its assets are transferred to the Borrower or a Significant Subsidiary, (ii) any Subsidiary may merge with and into the Borrower if the Borrower is the surviving entity, (iii) any Subsidiary may merge with and into any other Significant Subsidiary if the Significant Subsidiary is the surviving entity, (iv) any Subsidiary organized under the laws of a jurisdiction outside the United States of America may merge with any other Subsidiary organized under the laws of a jurisdiction outside of the United States of America, (v) any Significant Subsidiary or the Borrower may acquire all or a substantial part of the business or assets of any Subsidiary; and (vi) the Borrower may acquire the right to obtain from third parties the raw materials utilized in the Borrower's business if the Agent approves of each such acquisition, which approval may be given or withheld in Agent's sole discretion (provided that the prior written approval of the Required Banks shall be required for any such acquisition for a purchase price in excess of $500,000).
Section 10.4 Restricted Junior Payments. The Borrower will not and will not permit any Subsidiary to directly or indirectly declare, order, pay, make, or set apart any sum for (a) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock or other equity interest of the Borrower or any Subsidiary now or hereafter outstanding, except a dividend payable solely in shares of that class of stock or other equity interest to the holders of that class, (b) any redemption, conversion, exchange, retirement, sinking fund, or similar payment, purchase, or other acquisition for value, direct or indirect, of any shares of any class of stock or other equity interest of the Borrower or any Subsidiary now or hereafter outstanding, or (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options, or other rights to acquire shares of any class of stock or other equity interest of the Borrower or any Subsidiary now or hereafter outstanding, except that any Subsidiary may make, declare, and pay dividends and make other distributions with respect to its common stock or other equity interests.
Section 10.5 Investments. The Borrower will not, and will not permit any Subsidiary to, make or permit to remain outstanding any advance, loan, extension of credit, or capital contribution to or investment in any Person, or purchase or own any stock, bonds, notes, debentures, or other securities of any Person, or be or become a joint venturer with or partner of any Person, except:
(a) the Borrower may own stock of the Subsidiaries existing on the Closing Date and notes payable by Subsidiaries in accordance with the restrictions set forth in Section 10.1;
(b) readily marketable direct obligations of the United States of America or any agency thereof with maturities of one year or less from the date of acquisition;
(c) fully insured certificates of deposit with maturities of one year or less from the date of acquisition issued by any commercial bank operating in the United States of America having capital and surplus in excess of Fifty Million Dollars ($50,000,000);
(d) commercial paper of a domestic issuer if at the time of purchase such paper is rated in one of the two highest rating categories of Standard and Poor's Corporation or Moody's Investors Service, Inc.;
(e) loans and advances to employees for business expenses incurred in the ordinary course of business not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate at any time outstanding;
(f) existing investments described on Schedule 10.5 hereto and, with respect to any investment listed on Schedule 10.5, the reinvestment of any earnings on such investment or the proceeds payable at the maturity thereof in the same, or same type of, investment;
(g) advances to Raw Material Suppliers as prepayments on raw material purchases; provided that, (i) such raw materials are acquired and utilized by the Borrower or a Subsidiary in the ordinary course of business and (ii) the aggregate amount of such advances at any time outstanding shall never exceed the remainder of (A) Two Million Dollars ($2,000,000) minus (B) the aggregate principal amount of all Debt of Raw Material Suppliers which is outstanding on the date of determination and which is Guaranteed by the Borrower or any Subsidiary;
(h) loans evidencing the deferred payment of the purchase price of the assets disposed of pursuant to subsections 10.8(e), (g), and (h);
(i) extensions of trade credit on customary terms in the ordinary course of business;
(j) any stock, bonds, notes, debentures, or other securities of any Person received in connection with the bankruptcy, reorganization or similar proceeding of suppliers and customers and the settlement of their delinquent obligations; and
(k) loans, advances, or investments in addition to those described in
clauses (a) through (j) of this Section 10.5 if the sum of (i) the
aggregate principal amount of such loans and advances outstanding, plus
(ii) the aggregate acquisition cost of the outstanding investments plus
(iii) the aggregate amount of the Net Out Flows from all Route Sales, never
exceeds Five Hundred Thousand Dollars ($500,000).
Section 10.6 Limitation on Issuance of Capital Stock. The Borrower will not permit any Subsidiary to, at any time issue, sell, assign, or otherwise dispose of (a) any of its capital stock or other equity interests, (b) any securities exchangeable for or convertible into or carrying any rights to acquire any of its capital stock or other equity interests, or (c) any option, warrant, or other right to acquire any of its capital stock or other equity interests, other than in each instance any such disposition by a Subsidiary of the Borrower to the Borrower or another Subsidiary of the Borrower.
Section 10.7 Transactions With Affiliates. The Borrower will not, and will not permit any Subsidiary to, enter into any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate of the Borrower or such Subsidiary, except in the ordinary course of and pursuant to the reasonable requirements of the Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than would be obtained in a comparable arms-length transaction with a Person not an Affiliate of the Borrower or such Subsidiary; provided that the Borrower and the Subsidiaries shall be permitted to enter into transactions with the Borrower and the other Subsidiaries permitted hereby.
Section 10.8 Disposition of Assets. The Borrower will not, and will not permit any Subsidiary to, sell, lease, assign, transfer, or otherwise dispose of any of its assets, except:
(a) dispositions of inventory in the ordinary course of business;
(b) dispositions of unnecessary, obsolete or worn out equipment and leases, sub-leases or licenses of property in the ordinary course of business for terms which do not exceed, or which are cancelable by the Borrower within one year (or such other term as may be acceptable to the Agent) and which leases, sub-leases or licenses do not materially detract from or interfere with the use or intended use of such property by the Borrower or such Subsidiary, as applicable;
(c) sales, leases, or other dispositions of vehicles so long as the Borrower uses the net proceeds of such sales to acquire replacement vehicles;
(d) sales, leases, or other dispositions of assets by any Subsidiary to a Significant Subsidiary or to the Borrower;
(e) the sale of the assets disclosed on Schedule 10.8 at any time that no Event of Default exists in one or more arm's length transactions; provided that, each asset is sold for fair value, no Default would result therefrom, and the Net Cash Proceeds of such sale are delivered to the Agent for repayment of the Loans as required by subsection 5.4(b)(i);
(f) the sale to third parties (each such third party or an Affiliate of such third party, herein a "Route Purchaser") of lists of customers who provide raw materials to the Borrower or a Subsidiary and the containers utilized to collect and store such materials (each a "Route Sale") if all the following conditions are satisfied with respect to each Route Sale:
(i) No Event of Default exists as of the date of the sale or would result therefrom, including, without limitation, any Event of Default that might result therefrom because of the failure to comply with Section 11.3 (i.e., the Capital Expenditure covenant);
(ii) such sale is made in connection with a corresponding purchase from the applicable Route Purchaser of a list of customers who can provide raw materials to the Borrower or a Subsidiary and a corresponding purchase of the containers utilized to collect and store such materials (the "Offsetting Purchase");
(iii) if the Net Cash Proceeds (calculated in accordance with clause (2) of the definition of Net Cash Proceeds) received from a Route Sale exceed the purchase price for the corresponding Offsetting Purchase, then the amount of the excess shall be delivered to the Agent for repayment of the Loans in accordance with subsection 5.4(b)(i); provided that for purposes of this Agreement (including for the purpose of determining the amount to be applied to the
repayment of the Loans in connection with a Route Sale), the term "Net Cash Proceeds" shall mean only the amount of such excess;
(iv) the sum of (A) the aggregate amount of the Net Out Flows
from all Route Sales plus (B) the aggregate principal amount of all
loans and advances outstanding under the permissions of clause (k) of
Section 10.5 plus (C) the aggregate acquisition cost of all
outstanding investments made under the permissions of clause (k) of
Section 10.5 shall never exceed Five Hundred Thousand Dollars
($500,000) (the term "Net Out Flows" means, with respect to a Route
Sale, the amount by which the purchase price for the corresponding
Offsetting Purchase exceeds the amount received from the Route Sale);
(v) the assets sold in connection with such Route Sale are sold for fair value and the Borrower shall have provided the Agent and each Bank with its calculation of the sales price therefor and the value of the assets to be purchased in connection with the corresponding Offsetting Purchase;
(vi) the proposed Route Sale and corresponding Offsetting Purchase shall comply, in all material respects, with applicable laws, rules and regulations and any applicable order, writ, injunction, or decree of any Governmental Authority or arbitrator;
(vii) the aggregate weekly amount of pounds of raw material inage attributable to all Route Sales made under the permissions of this clause (f) shall not exceed 10,000,000 pounds with the weekly amount of pounds of raw material inage attributable to a Route Sale being calculated based on the most recent week preceding the date of sale; and
(viii) Borrower shall provide the Agent and each Bank a certification as to the Borrower's compliance with the matters set forth in the forgoing clauses (i) through (vii) prior to or on the date of the closing of the proposed Route Sale;
(g) the sale of the Canadian assets of Darling International Ltd. and the Borrower's spray drying plant and related assets located in Norfolk, Nebraska; provided that with respect to any such sale (i) the Net Cash Proceeds of such sale shall be delivered to the Agent for repayment of the Loans as required in subsection 5.4(b)(i); and (ii) the Required Banks shall have given its prior approval of the sale price and other material terms of sale for each such asset sold, which approval shall not be unreasonably withheld; and
(h) the sale of assets, in addition to the sales or other dispositions
listed in clauses (a) through (g) of this Section 10.8; provided that with
respect to any such sale: (i) the sale price of the asset to be sold shall
be greater than or equal to the existing fair market value of such asset;
(ii) the Net Cash Proceeds of such sale shall be delivered to the Agent for
repayment of the Loans as required in subsection 5.4(b)(i); (iii) the
Required Banks shall have given their prior approval of the sale; (iv) the
aggregate sale price for the asset to be sold, plus the sales prices for
any sale of assets in any related transactions does not exceed One Million
Dollars ($1,000,000); and (v) the aggregate amount of all sales made
pursuant to the permissions of this clause (h) during the period commencing
on the Closing Date and ending on the Termination Date, together with the
sale price for the assets to be disposed of pursuant to the sale in
question, does not exceed Five Million Dollars ($5,000,000).
Upon the sale of any property by the Borrower or a Subsidiary under the permissions of this Section 10.8 and delivery of the proceeds therefrom in accordance with the terms of this Agreement, the Agent shall, without the requirement of any consent or approval of any Bank or any other Secured Party, execute and deliver to the buyer thereof such documentation as may be necessary to evidence the termination of the Liens of the Agent for the benefit of the Secured Parties therein and, if the stock of a Subsidiary is sold, the release of such Subsidiary from the obligations arising under the Loan Documents to which it is a party.
Section 10.9 Sale and Leaseback. The Borrower will not, and will not permit any Subsidiary to, enter into any arrangement with any Person pursuant to which it leases from such Person real or personal property that has been or is to be sold or transferred, directly or indirectly, by it to such Person, provided, however, that this Section 10.9 shall not prohibit any such arrangement otherwise permitted under this Agreement entered into in connection with the acquisition of
any capital asset within sixty (60) days of the acquisition of such capital asset for the purpose of providing financing of such capital asset.
Section 10.10 Lines of Business. The Borrower will not, and will not permit any Subsidiary to, engage in any line or lines of business activity other than the businesses in which they are engaged on the date hereof and any businesses which utilize processes similar to those utilized by the Borrower.
Section 10.11 Hedging. Borrower will not, and Borrower will not permit any Subsidiary to, enter into any Hedge Agreement other than (i) Hedge Agreements entered into prior to the date hereof pursuant to any Swap Documents, and (ii) Hedge Agreements consisting solely of interest rate-cap arrangements for notional principal amounts which in the aggregate do not exceed fifty percent (50%) of the Borrower's outstanding Debt for borrowed money, are in form and substance acceptable to the Agent and which are entered into pursuant to any Swap Documents or with counterparties whose long-term, unsecured, non-credit enhanced debt rating by S&P is at least "A" or are otherwise acceptable to the Agent and the Required Banks.
ARTICLE 11
Financial Covenants
The Borrower covenants and agrees that, as long as the Obligations or any part thereof are outstanding or any Bank has any Commitment hereunder, the Borrower will perform and observe the following financial covenants:
Section 11.1 Adjusted EBITDA. As of the end of each Fiscal Quarter, commencing with the Fiscal Quarter ending on or about March 31, 2002, the Borrower shall not permit its Adjusted EBITDA to be less than $25,000,000 for the four(4) Fiscal Quarter period then ended.
The phrase "Adjusted EBITDA" means, for any period, calculated without duplication for such period, the Borrower's EBITDA, excluding from the calculation thereof, to the extent not already excluded in the calculation of EBITDA or Net Income of Borrower, gains and/or losses from any disposition of assets.
Section 11.2 Debt Coverage. As of the end of each Fiscal Quarter, the Borrower shall not permit the ratio of (a) the sum of its consolidated Debt arising under clauses (a), (b) and (g) of the definition thereof (including, without limitation, the Loans) plus the Letter of Credit Liabilities, to (b) its Adjusted EBITDA for the four (4) Fiscal Quarters then ended, to be greater than the ratio set forth in the table below opposite the applicable Fiscal Quarter end:
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Fiscal Month | Ratio
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Each Fiscal Quarter of 2002 | 3.0 to 1.0
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Each Fiscal Quarter of 2003 | 3.0 to 1.0
|
First Fiscal Quarter of 2004 | 2.9 to 1.0
|
Second Fiscal Quarter of 2004 | 2.9 to 1.0
|
Third Fiscal Quarter of 2004 | 2.8 to 1.0
|
Fourth Fiscal Quarter of 2004 | 2.8 to 1.0
|
First Fiscal Quarter of 2005 | 2.8 to 1.0
|
Second Fiscal Quarter of 2005 | 2.7 to 1.0
|
Third Fiscal Quarter of 2005 | 2.7 to 1.0
|
Fourth Fiscal Quarter of 2005 | 2.6 to 1.0
45
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Fiscal Month | Ratio
===========================================================|===========================================
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First Fiscal Quarter of 2006 | 2.6 to 1.0
|
Second Fiscal Quarter of 2006 | 2.5 to 1.0
|
Third Fiscal Quarter of 2006 | 2.5 to 1.0
|
Fourth Fiscal Quarter of 2006 | 2.4 to 1.0
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Each Fiscal Quarter thereafter | 2.4 to 1.0
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Section 11.3 Capital Expenditure Limits. The aggregate amount of all Capital Expenditures of the Borrower and the Subsidiaries (subject to the exclusions set forth below) during the periods set forth below shall not exceed the Dollar amount set out opposite the applicable period:
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Period Dollar Amount
Fiscal Year 2002 $12,000,000
Fiscal Year 2003 $12,600,000
Fiscal Year 2004 $13,230,000
Fiscal Year 2005 $13,891,500
Fiscal Year of 2006 $14,586,075
Fiscal Year 2007 $15,315,378
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The following Capital Expenditures shall not be counted against the calculation of Capital Expenditures under this Section 11.3: Capital Expenditures made with any casualty or condemnation proceeds turned over to the Borrower by the Agent to (a) replace or repair the property damaged or condemned, (b) construct a new facility to replace the property damaged or condemned or (c) expand the productive capacity of an existing facility.
ARTICLE 12
Default
Section 12.1 Events of Default. Each of the following shall be deemed an "Event of Default":
(a) The Borrower shall fail to pay (i) when due any principal payable under any Loan Document or any part thereof; (ii) within three (3) Business Days of the date due any interest or fees payable under the Loan Documents or any part thereof; and (iii) within five (5) Business Days of the date due any other Obligation or any part thereof.
(b) Any representation, warranty, or certification made or deemed made by the Borrower or any Obligated Party (or any of their respective officers) in any Loan Document or in any certificate, report, notice, or financial statement furnished at any time in connection with any Loan Document shall be false, misleading, or erroneous in any material respect when made or deemed to have been made.
(c) The Borrower or any Significant Subsidiary shall fail to perform, observe, or comply with any covenant, agreement, or term contained in clauses (a), (b), (c), (d), (h), or (j) of Section 9.1 or contained in Article 10 or Article 11 of this Agreement. The Borrower shall fail to perform, observe or comply with any covenant, agreement, or term contained in subparagraphs 6(e)(ii), (f), (i), (m), (o), (p), (q)(iii), q(v), q(vi) , q(vii), (s)(ii),
(v)(vi), (v)(vii)(A), (v)(vii)(B) or (w)(iv) of the Borrower Security
Agreement. Any Significant Subsidiary shall fail to perform, observe, or
comply with any covenant, agreement, or term contained in subparagraphs
6(e)(ii), (f), (i), (m), (o), (p), (q)(iii), q(v), q(vi), q(vii), (s)(ii),
(v)(vi), (v)(vii)(A), (v)(vii)(B) or (w)(iv) of the Subsidiary Security
Agreement.
(d) The Borrower or any Obligated Party shall fail to perform,
observe, or comply with any other covenant, agreement, or term contained in
any Loan Document (other than covenants to pay the Obligations and the
covenants described in subsection 12.1(c)) and such failure shall continue
for a period of fifteen (15) Business Days after the earlier of (i) the
date the Agent or any Bank provides the Borrower with notice thereof or
(ii) the date the Borrower should have notified the Agent thereof in
accordance with subsection 9.1(h).
(e) The Borrower, any Subsidiary, or any Obligated Party shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner, liquidator, or the like of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the United States Bankruptcy Code (as now or hereafter in effect, the "Bankruptcy Code"), (iv) institute any proceeding or file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code, (vi) admit in writing its inability to, or be generally unable to pay its debts as such debts become due, or (vii) take any corporate action for the purpose of effecting any of the foregoing.
(f) A proceeding or case shall be commenced, without the application, approval or consent of the Borrower, any Subsidiary, or any Obligated Party, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator, or the like of the Borrower or such Subsidiary or Obligated Party or of all or any substantial part of its property, or (iii) similar relief in respect of the Borrower or such Subsidiary or Obligated Party under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment, or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of sixty (60) or more days; or an order for relief against the Borrower, any Subsidiary, or any Obligated Party shall be entered in an involuntary case under the Bankruptcy Code.
(g) The Borrower, any Subsidiary, or any Obligated Party shall fail to discharge within a period of thirty (30) days after the commencement thereof any attachment, sequestration, forfeiture, or similar proceeding or proceedings involving an aggregate amount in excess of Five Hundred Thousand Dollars ($500,000) against any of its assets or properties.
(h) A final judgment or judgments for the payment of money in excess of Five Hundred Thousand Dollars ($500,000) in the aggregate which are not adequately covered by insurance or by a third party acceptable to the Agent who has acknowledged responsibility for such judgment or judgments, shall be rendered by a court or courts against the Borrower, any Subsidiary, or any Obligated Party and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within thirty (30) days from the date of entry thereof and the Borrower or the relevant Subsidiary or Obligated Party shall not, within said period of thirty (30) days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal.
(i) The Borrower, any Subsidiary, or any Obligated Party shall fail to pay when due any principal of or interest on any Debt if the aggregate principal amount of the affected Debt equals or exceeds Five Hundred Thousand Dollars ($500,000) (other than the Obligations), or the maturity of any such Debt shall have been accelerated, or any such Debt shall have been required to be prepaid prior to the stated maturity thereof or any event shall have occurred with respect to any such Debt that permits (or, with the giving of notice or lapse of time or both, would permit) any holder or holders of such Debt or any Person acting on behalf of such holder or holders to accelerate the maturity thereof or require any such prepayment.
(j) This Agreement, the Borrower Security Agreement, the Guaranty, the Subsidiary Security Agreement, any Mortgage, or any Note shall cease to be in full force and effect (other than, with respect to the Guaranty, as a result of a permitted dissolution pursuant to Section 10.3 or a permitted asset disposition pursuant to Section 10.8) or shall be declared null and void or the validity or enforceability thereof shall be contested or challenged by the Borrower, any Subsidiary, any Obligated Party or the Borrower or any Obligated Party shall deny that it has any further liability or obligation under any of the Loan Documents.
(k) Any lien or security interest created or required to be created by
the Loan Documents shall not for any reason (other than the failure of the
Borrower or a Subsidiary to comply with in subparagraphs 6(e)(ii), (f),
(i), (m), (o), (p), (q)(iii), q(v), q(vi) , q(vii), (s)(ii), (v)(vi),
(v)(vii)(A), (v)(vii)(B) or (w)(iv) of the Borrower Security Agreement or
the Subsidiary Security Agreement, such failure being an Event of Default
under subsection 12.1(c), or the release thereof in accordance with the
Loan Documents) be a valid and perfected security interest in and lien upon
any of the Collateral purported to be covered thereby with the priority
required by this Agreement within ten (10) days after notice thereof has
been provided to the Borrower by the Agent or any Bank.
(l) Any of the following events shall occur or exist with respect to
the Borrower or any ERISA Affiliate: (i) any Prohibited Transaction
involving any Plan; (ii) any Reportable Event with respect to any Plan;
(iii) the filing under Section 4041 of ERISA of a notice of intent to
terminate any Plan or the termination of any Plan; (iv) any event or
circumstance that might constitute grounds entitling the PBGC to institute
proceedings under Section 4042 of ERISA for the termination of, or for the
appointment of a trustee to administer, any Plan, or the institution by the
PBGC of any such proceedings; or (v) complete or partial withdrawal under
Section 4201 or 4204 of ERISA from a Multiemployer Plan or the
reorganization, insolvency, or termination of any Multiemployer Plan; and
in each case above, such event or condition, together with all other events
or conditions, if any, have subjected or could in the reasonable opinion of
Agent subject the Borrower to any tax, penalty, or other liability to a
Plan, a Multiemployer Plan, the PBGC, or otherwise (or any combination
thereof) which in the aggregate exceed or could reasonably be expected to
exceed Five Hundred Thousand Dollars ($500,000).
(m) (i) Any Person or group of related Persons for purposes of Section
13(d) of the Exchange Act other than the Banks party hereto on the Closing
Date and their respective Affiliates, individually or as a group, becomes a
"beneficial owner" (as such term is defined in Rule 13(d)-3 and Rule
13(d)-5 under the Exchange Act), directly or indirectly, of more than fifty
percent (50%) of the total voting power of all classes of capital stock
then outstanding of the Borrower entitled (without regard to the occurrence
of any contingency) to vote in elections of directors of the Borrower; or
(ii) the first day on which a majority of the members of the board of
directors of the Borrower are not Continuing Directors (defined as any
member who (A) was a member of the board at closing, (B) was nominated for
election by the Banks party hereto on the Closing Date in accordance with
the terms of the Recapitalization Agreement, or (C) was nominated or
elected by a majority of the Continuing Directors who were members at the
time of such nomination of election).
Section 12.2 Remedies. If any Event of Default shall occur and be continuing, the Agent may (and shall if directed by either the Required Revolving Banks or the Required Term Banks) do any one or more of the following:
(a) Acceleration. By notice to the Borrower, declare all outstanding principal of and accrued and unpaid interest on the Notes and all other amounts payable by the Borrower under the Loan Documents immediately due and payable, and the same shall thereupon become immediately due and payable, without further notice, demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, protest, or other formalities of any kind, all of which are hereby expressly waived by the Borrower;
(b) Termination of Revolving Commitments. Terminate the Revolving Commitments, including, without limitation, the obligation of the Agent to issue Letters of Credit, without notice to the Borrower;
(c) Judgment. Reduce any claim to judgment;
(d) Foreclosure. Foreclose or otherwise enforce any Lien granted to the Agent, for the benefit of the Secured Parties, to secure payment and performance of the Obligations in accordance with the terms of the Loan Documents;
(e) Rights. Exercise any and all rights and remedies afforded by the laws of the State of Texas or any other jurisdiction, by any of the Loan Documents, by equity, or otherwise;
provided, however, that upon the occurrence of an Event of Default under Section 12.1(e) or Section 12.1(f), the Revolving Commitments of all of the Revolving Banks shall automatically terminate (including, without limitation, the obligation of the Agent to issue Letters of Credit), and the outstanding principal of and accrued and unpaid interest on the Notes and all other amounts payable by the Borrower under the Loan Documents shall thereupon become immediately due and payable without notice, demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, protest, or other formalities of any kind, all of which are hereby expressly waived by the Borrower; and provided, further, that in the event that the Agent (without the direction of either the Required Revolving Banks or the Required Term Banks) shall exercise any of the remedies under subsection 12.2(a) or (b) above, the outstanding balance of the Notes and the other amounts payable by the Borrower under the Loan Documents and/or the Revolving Commitments, as applicable, shall be reinstated upon the receipt by Agent of the written consent and approval of either the Required Revolving Banks or the Required Term Banks within ten (10) days of the exercise of such remedies by the Agent.
Section 12.3 Cash Collateral. If an Event of Default shall have occurred and be continuing the Borrower shall, if requested by the Agent or the Required Revolving Banks, pledge to the Agent as security for the Obligations an amount in immediately available funds equal to the then established Contingent Primary Obligations, such funds to be held in an interest bearing cash collateral account at the Agent without any right of withdrawal by the Borrower.
Section 12.4 Performance by the Agent; Advances to Cover Returned Checks and Other Items. If the Borrower or any Obligated Party shall fail to perform any covenant or agreement in accordance with the terms of the Loan Documents, the Agent may, at the direction of either the Required Revolving Banks or the Required Term Banks, perform or attempt to perform such covenant or agreement on behalf of the Borrower. In such event, the Borrower shall, at the request of the Agent, promptly pay any amount expended by the Agent or the Banks in connection with such performance or attempted performance to the Agent at the Principal Office, together with interest thereon at the Default Rate from and including the date of such expenditure to but excluding the date such expenditure is paid in full. Notwithstanding the foregoing, it is expressly agreed that neither the Agent nor any Bank shall have any liability or responsibility for the performance of any obligation of the Borrower or any Obligated Party under any Loan Document. Under certain of the agreements the Agent has or may enter into under subsection 9.10(c) with any party maintaining a Lockbox Account or other deposit account, the Agent may be obligated to pay certain amounts to the financial institution party thereto from time to time, including, without limitation, fees owed to such financial institutions arising from their lockbox and other deposit or cash management services and amounts sufficient to reimburse such financial institutions for the amount of any item deposited in or credited to the related account which is returned unpaid. In the event the Agent is required to pay any such amounts, the Agent shall notify the Borrower and the Borrower shall promptly pay to the Agent any amount so expended by Agent, together with interest at the Default Rate from and including the date of such expenditure to, but excluding the date that such expenditure is paid in full and if Borrower fails to make such payment, Agent shall have the option of automatically making a Swingline Loan in the amount so expended.
Section 12.5 Set-off. If an Event of Default shall have occurred and be continuing, each Bank is hereby authorized at any time and from time to time, without notice to the Borrower (any such notice being hereby expressly waived by the Borrower), to set-off and apply any and all deposits (general, time, demand, provisional, or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under any Loan Document, irrespective of whether or not the Agent or such Bank shall have made any demand under such Loan Documents and although such obligations may be unmatured. Each Bank agrees promptly to notify the Borrower (with a copy to the Agent) after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights and remedies of each Bank hereunder are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Bank may have.
Section 12.6 Continuing Event of Default. Any Default capable of being remedied shall exist and therefor continue until Agent shall have been provided evidence satisfactory to it that such Default has been remedied. Any Default not capable of being remedied shall exist and therefor continue until waived by the number of Banks required by Section 14.11.
ARTICLE 13
The Agent
Section 13.1 Appointment, Powers and Immunities. Each Bank hereby appoints and authorizes (and continues the authorization and appointment under the Original Agreement of) Credit Lyonnais New York Branch to act as its agent hereunder and under the other Loan Documents and to act as its Approved Bank Affiliate's agent hereunder and under the other Loan Documents (such Affiliate by acceptance of the benefits of the Loan Documents hereby ratifying and continuing such appointment) with such powers as are specifically delegated to the Agent by the terms of the Loan Documents, together with such other powers as are reasonably incidental thereto. Neither the Agent nor any of its Affiliate's officers, directors, employees, attorneys, or agents shall be liable for any action taken or omitted to be taken by any of them hereunder or otherwise in connection with any Loan Document except for its or their own gross negligence or willful misconduct. Without limiting the generality of the preceding sentence, the Agent (i) may treat each Secured Party as the party entitled to distributions hereunder until it receives written notice of the assignment or transfer thereof signed and in form satisfactory to the Agent, (ii) shall have no duties or responsibilities except those expressly set forth in the Loan Documents, and shall not by reason of any Loan Document be a trustee or fiduciary for any Secured Party, (iii) shall not be required to initiate any litigation or collection proceedings under any Loan Document except to the extent requested by the Required Banks, the Required Revolving Banks or the Required Term Banks, as applicable, (iv) shall not be responsible to any Secured Party for any recitals, statements, representations, or warranties contained in any Loan Document, or any certificate or other documentation referred to or provided for in, or received by any of them under, any Loan Document, or for the value, validity, effectiveness, enforceability, or sufficiency of any Loan Document or any other documentation referred to or provided for therein or for any failure by any Person to perform any of its obligations thereunder, (v) may consult with legal counsel (including counsel for the Borrower), independent public accountants, and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants, or experts, and (vi) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate, or other instrument or writing believed by it to be genuine and signed or sent by the proper party or parties. As to any matters not expressly provided for by any Loan Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by the Required Banks, the Required Revolving Banks or the Required Term Banks, as applicable; and such instructions of the Required Banks, the Required Revolving Banks or the Required Term Banks, as applicable, and any action taken or failure to act pursuant thereto shall be binding on all of the Secured Parties; provided, however, that the Agent shall not be required to take any action which exposes it to personal liability or which is contrary to any Loan Document or applicable law.
Section 13.2 Rights of the Agent as a Bank. With respect to its Commitments, the Loans made by it and the Notes issued to it, Credit Lyonnais New York Branch (and any successor acting as the Agent) in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Agent, and the term "Bank" or "Banks", or "Revolving Bank" or "Revolving Banks", or "Term Bank" or "Term Banks", as applicable shall, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent and its Affiliates may (without having to account therefor to any Secured Party) accept deposits from, lend money to, act as trustee under indentures of, provide merchant banking services to, and generally engage in any kind of banking, trust, or other business with the Borrower, any of the Subsidiaries, any Obligated Party, and any other Person who may do business with or own securities of the Borrower, any Subsidiary, or any Obligated Party, all as if it were not acting as the Agent and without any duty to account therefor to the Secured Parties.
Section 13.3 Defaults. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default (other than the non-payment of principal of or interest on the Loans or of commitment fees) unless the Agent has received notice from a Bank or the Borrower specifying such Default and stating that such notice is a "Notice of Default." In the event that the Agent receives such a notice of the occurrence of a Default, the Agent shall give prompt notice thereof to the Banks (and shall give each Bank prompt notice of each such non-payment). The Agent shall (subject to Section 13.1) take such action with respect to such Default as shall be directed by the Required Banks, the Required Revolving Banks or the Required Term Banks, as applicable, including, without limitation, that the Agent shall not issue, renew or extend any Letter of Credit if so directed by the Required Revolving Banks; provided that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable and in the best interest of the Banks.
Section 13.4 Indemnification. THE BANKS HEREBY AGREE TO INDEMNIFY THE AGENT
FROM AND HOLD THE AGENT HARMLESS AGAINST (TO THE EXTENT NOT REIMBURSED UNDER
SECTIONS 14.1 AND 14.2, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE BORROWER
UNDER SECTIONS 14.1 AND 14.2), RATABLY IN ACCORDANCE WITH THEIR RESPECTIVE
COMMITMENT PERCENTAGES, ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING,
WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY KIND
OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST
THE AGENT IN ANY WAY RELATING TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR
ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY THE AGENT UNDER OR IN RESPECT OF ANY
OF THE LOAN DOCUMENTS; PROVIDED, THAT NO BANK SHALL BE LIABLE FOR ANY PORTION OF
THE FOREGOING TO THE EXTENT CAUSED BY THE AGENT'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, IT IS THE EXPRESS INTENTION OF
THE BANKS THAT THE AGENT SHALL BE INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS
AGAINST ALL OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS' FEES), AND DISBURSEMENTS OF ANY KIND OR NATURE
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY
NEGLIGENCE OF THE AGENT. WITHOUT LIMITING ANY OTHER PROVISION OF THIS SECTION,
EACH BANK AGREES TO REIMBURSE THE AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA
SHARE (CALCULATED ON THE BASIS OF THE COMMITMENT PERCENTAGES) OF ANY AND ALL
OUT-OF-POCKET EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS'
FEES) INCURRED BY THE AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION,
DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT, OR ENFORCEMENT (WHETHER
THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN
RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT
THAT THE AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY THE BORROWER.
Section 13.5 Independent Credit Decisions. Each Bank agrees that it has independently and without reliance on the Agent or any other Bank, and based on such documentation and information as it has deemed appropriate, made its own credit analysis of the Borrower and decision to enter into any Loan Document and that it will, independently and without reliance upon the Agent or any other Bank, and based upon such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under any Loan Document. Except as otherwise specifically set forth herein, the Agent shall not be required to keep itself informed as to the performance or observance by the Borrower or any Obligated Party of any Loan Document or to inspect the properties or books of the Borrower or any Obligated Party. Except for notices, reports, and other documents and information expressly required to be furnished to the Banks by the Agent hereunder or under the other Loan Documents, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other financial information concerning the affairs, financial condition, or business of the Borrower or any Obligated Party (or any of their Affiliates) which may come into the possession of the Agent or any of its Affiliates.
Section 13.6 Several Commitments. The Commitments and other obligations of the Banks under any Loan Document are several. The default by any Bank in making a Loan in accordance with its Commitment shall not relieve the other Banks of their obligations under any Loan Document. In the event of any default by any Bank in making any Loan, each nondefaulting bank shall be obligated to make its Loan but shall not be obligated to advance the amount which the defaulting Bank was required to advance hereunder. No Bank shall be responsible for any act or omission of any other Bank.
Section 13.7 Successor Agent. The Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks will have the right to appoint a successor Agent with the Borrower's consent, which shall not be unreasonably withheld. If no successor Agent shall have been so appointed by the Required Banks and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank or trust company organized under the laws of the United States of America or any State thereof and having combined capital and surplus of at least Five Hundred Million Dollars ($500,000,000). Upon the acceptance of its appointment as successor Agent, such successor Agent shall thereupon succeed to and become vested with all rights, powers, privileges, immunities, contractual obligations, and duties of the resigning Agent including, without limitation, all obligations under any Letters of Credit and Swingline Loans, and the resigning Agent shall be discharged from its duties and obligations under the Loan Documents, including, without limitation, its obligations under all Letters of Credit and under the Swingline
Commitment. After any Agent's resignation as the Agent, the provisions of this Article 13 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was the Agent.
Section 13.8 Agent Fee. The Borrower agrees to pay to the Agent, for its own account, the administrative agent fee and other fees and expenses described in that certain letter agreement dated as of March 14, 2002), between the Borrower and Credit Lyonnais New York Branch.
Section 13.9 Deposit Accounts held at Agent. The Concentration Account and any other deposit account of Borrower or a Significant Subsidiary held at Credit Lyonnais New York Branch (all such accounts, other than the Concentration Account, herein the "Credit Lyonnais Accounts") are maintained by Credit Lyonnais New York Branch, in its capacity as Agent hereunder to perfect the security interest held for the benefit of the Secured Parties therein. Withdrawals from the Concentration Account shall only be made in accordance with subsection 5.4(b)(iv). When no Event of Default exists, the Borrower or applicable Significant Subsidiary is entitled to make withdrawals from and deposits into the Credit Lyonnais Accounts. When an Event of Default exists, the Agent shall be the only party entitled to make withdrawals from the Credit Lyonnais Accounts. If the Agent exercises any right of setoff against any Credit Lyonnais Account, the amount so setoff shall be applied as proceeds of Collateral in accordance with Section 5.6; provided that the Agent shall be entitled to charge, or setoff against, the Credit Lyonnais Accounts and retain for its own account, any customary fees, costs, charges and expenses owed to it in connection with the opening, operating and maintaining the Credit Lyonnais Accounts and for the amount of any item credited to a Credit Lyonnais Account which is subsequently returned for any reason.
Section 13.10 Approved Bank Affiliates Rights. No Approved Bank Affiliate shall have any right to give any direction to the Agent in the exercise of the Agent's rights and obligations under the Loan Documents nor does an Approved Bank Affiliate have any right to consent to, or vote on, any matter hereunder except as specifically set forth in Section 14.11. As provided in Section 13.1, the Agent shall have no duties or responsibilities to any Approved Bank Affiliate except those expressly set forth in the Loan Documents.
ARTICLE 14
Miscellaneous
Section 14.1 Expenses. The Borrower hereby agrees to pay on demand: (a) all
costs and expenses of the Agent arising in connection with the preparation,
negotiation, execution, and delivery of the Loan Documents and any and all
amendments or other modifications to the Loan Documents, including, without
limitation, the reasonable fees and expenses of legal counsel for the Agent; (b)
all fees, costs, and expenses of the Agent arising in connection with any Letter
of Credit or any Swingline Loan, including the Agent's customary fees for
amendments, transfers, and drawings on Letters of Credit; (c) all costs and
expenses of the Agent and the Banks in connection with any Default and the
enforcement of any Loan Document, including, without limitation, the reasonable
fees and expenses of legal counsel for the Agent and each Bank; (d) all
transfer, stamp, documentary, or other similar taxes, assessments, or charges
levied by any Governmental Authority in respect of any Loan Document; (e) all
costs, expenses, assessments, and other charges incurred in connection with any
filing, registration, recording, or perfection of any security interest or Lien
contemplated by any Loan Document; and (f) all costs, expenses, and other
charges incurred in obtaining any collateral audit or in obtaining any valuation
or appraisal of Borrower, any Subsidiary or any of the Collateral subject to the
limitations on the Borrower's obligation to pay the costs of appraisals set out
in subsection 9.10(d) and provided that if no Default exists, Borrower shall not
have an obligation to pay for more than one (1) collateral audit each calendar
year. The Banks agree, absent conflicts of interest, to employ one counsel to
represent them in connection with the matters described in clause (c); provided
(i) Agent may retain separate counsel to represent it in its capacity as Agent
and (ii) the failure of the Banks to employ one counsel, if such failure arose
out of the need to avoid conflicts of interest, shall not affect each Bank's
right to receive reimbursement under this Section 14.1.
Section 14.2 Indemnification. SUBJECT TO THE LIMITATION ON THE REIMBURSEMENT OF EXPENSES SET FORTH IN SUBSECTION 9.10(d) AND SECTION 14.1, THE BORROWER SHALL INDEMNIFY THE AGENT AND EACH BANK AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEYS' FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY THE BORROWER OR ANY OBLIGATED PARTY OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN, OR AFFECTING ANY OF THE PROPERTIES OR ASSETS OF THE BORROWER OR ANY SUBSIDIARY, (E) THE USE OR PROPOSED USE OF ANY LETTER OF CREDIT OR ANY PAYMENT OR FAILURE TO PAY WITH RESPECT TO ANY LETTER OF CREDIT, (F) ANY AND ALL TAXES, LEVIES, DEDUCTIONS, AND CHARGES IMPOSED ON THE AGENT OR ANY BANK IN RESPECT OF ANY LETTER OF CREDIT, OR (G) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING; PROVIDED THAT THE PERSON ENTITLED TO BE INDEMNIFIED UNDER THIS SECTION SHALL NOT BE INDEMNIFIED FROM OR HELD HARMLESS AGAINST ANY LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, OR EXPENSES ARISING OUT OF OR RESULTING FROM ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITING ANY PROVISION OF ANY LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON, INCLUDING, BUT NOT LIMITED TO, NEGLIGENCE, STRICT LIABILITY AND ALL OTHER CLAIMS ARISING UNDER ENVIRONMENTAL LAWS, INCLUDING THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT (42 U.S.C. SECTION 9601 ET SEQ.) AND ANALOGOUS STATE AND LOCAL STATUTES.
Section 14.3 Limitation of Liability. None of the Agent, any Bank, or any Affiliate, officer, director, employee, attorney, or agent thereof shall have any liability with respect to, and the Borrower and, by the execution of the Loan Documents to which it is a party each Obligated Party, hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, consequential, or punitive damages suffered or incurred by the Borrower or any Obligated Party in connection with, arising out of, or in any way related to any of the Loan Documents, or any of the transactions contemplated by any of the Loan Documents.
Section 14.4 No Duty. All attorneys, accountants, appraisers, and other professional Persons and consultants retained by the Agent or any Bank shall have the right to act exclusively in the interest of the Agent and the Banks and shall have no duty of disclosure, duty of loyalty, duty of care, or other duty or obligation of any type or nature whatsoever to the Borrower or any of the Borrower's shareholders or any other Person.
Section 14.5 No Fiduciary Relationship. The relationship between the Borrower and the Obligated Parties on the one hand and the Agent and each Bank on the other is solely that of debtor and creditor, and neither the Agent nor any Bank has any fiduciary or other special relationship with the Borrower or any Obligated Parties, and no term or condition of any of the Loan Documents shall be construed so as to deem the relationship between the Borrower and the Obligated Parties on the one hand and the Agent and each Bank on the other hand to be other than that of debtor and creditor.
Section 14.6 Equitable Relief. The Borrower recognizes that in the event the Borrower or any Obligated Party fails to pay, perform, observe, or discharge any or all of the obligations under the Loan Documents, any remedy at law may prove to be inadequate relief to the Agent and the Banks. The Borrower therefore agrees that the Agent and the Banks, if the Agent or the Required Banks so request, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.
Section 14.7 No Waiver; Cumulative Remedies. No failure on the part of the Agent or any Bank to exercise and no delay in exercising, and no course of dealing with respect to, any right, power, or privilege under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege under any Loan Document preclude any other or further exercise thereof or the exercise of any other right, power, or privilege.
The rights and remedies provided for in the Loan Documents are cumulative and not exclusive of any rights and remedies provided by law.
Section 14.8 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of the parties hereto, the Approved Bank Affiliates and their respective successors and assigns. The Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Agent and all of the Banks. Any Bank may sell participations to one or more banks or other institutions in or to all or a portion of its rights and obligations under the Loan Documents (including, without limitation, all or a portion of its Commitment, the Loans owing to it and the Letter of Credit Liabilities and Swingline Loans which it has made or in which it has a participating interest); provided, however, that (i) such Bank's obligations under the Loan Documents (including, without limitation, its Commitments) shall remain unchanged, (ii) such Bank shall remain solely responsible to the Borrower for the performance of such obligations, (iii) such Bank shall remain the holder of its Notes and owner of its participation or other interests in Letter of Credit Liabilities and Swingline Loans for all purposes of any Loan Document, (iv) the Borrower shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under the Loan Documents, (v) if no Event of Default exists, any such Person purchasing a participation must represent that it is not, and is not acting on behalf of, any Person identified on Schedule 14.8, and (vi) such Bank shall not sell a participation that conveys to the participant the right to vote or give or withhold consents under any Loan Document, other than the right to vote upon or consent to (A) any increase of such Bank's Commitments, (B) any reduction of the principal amount of, or interest to be paid on, the Loans or other Obligations of such Bank, (C) any reduction of any commitment fee, letter of credit fee, or other amount payable to such Bank under any Loan Document, (D) any postponement of any date for the payment of any amount payable in respect of the Loans or other Obligations of such Bank, or (E) the release of any material Collateral or the release of the Borrower or any Obligated Party from liability arising under the Loan Documents (except as may otherwise result from a dissolution permitted under Section 10.3).
(b) The Borrower and each of the Banks agree that any Bank (the "Assigning Bank") may at any time assign to an Eligible Assignee (or to an Affiliate of the Assigning Bank or an investment fund or similar entity managed by such Assigning Bank or an Affiliate of such Assigning Bank) all, or a part, of its rights and obligations under the Loan Documents (including, without limitation, its Commitments and Loans and participation interests) (each an "Assignee"); provided, however, that:
(i) each such assignment shall be of a consistent, and not a varying, percentage of either (A) all of the Assigning Bank's rights and obligations as a Revolving Bank under the Loan Documents, or (B) all of the Assigning Bank's rights and obligations as a Term Bank under the Loan Documents;
(ii) except in the case of (A) an assignment of all of a Bank's rights and obligations as either a Revolving Bank or a Term Bank, as applicable, under the Loan Documents, or (B) an assignment by any Bank to an Affiliate of such Bank or to an investment fund or similar entity managed by such Bank or an Affiliate of such Bank, the amount of the Commitments of the Assigning Bank being assigned or if any Commitment has terminated, the outstanding principal amount of the related Loans, pursuant to each assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than (A) One Million Dollars ($1,000,000) with respect to any assignment of its Revolving Commitment or Revolving Loans, and (B) Three Million Dollars ($3,000,000) with respect to any assignment of its Term Commitment or Term Loans;
(iii) the parties to each such assignment shall execute and deliver to the Agent for its acceptance (to the extent required) and recording in the Register (as defined below), an Assignment and Acceptance, together with the Notes subject to such assignment, and shall deliver to the Agent a processing and recordation fee of Three Thousand Five Hundred Dollars ($3,500) payable by the Assigning Bank or the Assignee (and not the Borrower); and
(iv) the Agent must consent to such assignment, which consent
shall not be unreasonably withheld or delayed and shall be evidenced
by the Agent's execution of the Assignment and Acceptance; provided,
however, the Agent's consent shall not be required if the Assignee is
(x) an Affiliate of the
Assigning Bank, or (y) an investment fund or similar entity managed by such Assigning Bank or an Affiliate of such Assigning Bank.
Upon such execution, delivery, acceptance, and recording, from and after
the effective date specified in each Assignment and Acceptance, which
effective date shall be at least five (5) Business Days after the execution
thereof, or, if so specified in such Assignment and Acceptance, the date of
acceptance thereof by the Agent, (x) the assignee thereunder shall be a
party hereto as a "Bank" and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Bank hereunder and under
the Loan Documents and (y) the Bank that is an assignor thereunder shall,
to the extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights (other
than its indemnity and expense reimbursement rights for the period prior to
the effective date of the assignment) and be released from its obligations
under the Loan Documents (and, in the case of an Assignment and Acceptance
covering all or the remaining portion of a Bank's rights and obligations
under the Loan Documents, such Bank shall cease to be a party thereto). The
term "Eligible Assignee" means any Person; provided, that, any such Person
(i) must, if no Event of Default exists, represent that it is not, and is
not acting on behalf of, any Person who is a business competitor of
Borrower or any Subsidiary and is identified on Schedule 14.8 (as such
Schedule may be modified and supplemented by the Borrower from time to time
to add or delete such competitors with the prior written consent of the
Required Banks); (ii) with respect to any assignment of any Assigning
Bank's rights as a Revolving Bank, must represent that it is capable of
making revolving extensions of credit or funding risk participations in
letters of credit of the type contemplated hereby in accordance with the
terms hereon, and (iii) with respect to any assignment of any Assigning
Bank's rights as a Revolving Bank, must appear in the most recent list of
the National Association of Insurance Commissioners (NAIC) List of Approved
Banks from the Purposes and Procedures Manual of the NAIC Securities
Valuation Office or is otherwise acceptable to the Agent in its sole
discretion. No Assigning Bank making an assignment to an Assignee in good
faith shall have any liability to the Borrower, the Agent or any other
Bank, Secured Party, Obligated Party or other Person for the failure of any
of the representations made by such Assignee to be true. Notwithstanding
the foregoing, any Bank may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Bank, including, without limitation, any pledge or
assignment to secure obligations to a Federal Reserve Bank or in connection
with the securitization of a portfolio by any Bank which is an investment
fund or similar entity; provided, however, that no such pledge or
assignment shall release a Bank from any of its obligations hereunder or
substitute any such pledgee or assignee for such Bank as a party hereto.
(c) The Agent, acting solely for this purpose on behalf of the Borrower, shall maintain at its Principal Office a copy of each Assignment and Acceptance delivered to and accepted by it (to the extent required) and a register for the recordation of the names and addresses of the Banks and the Commitments of, and principal amount of the Loans owing to and Letter of Credit Liabilities and Swingline Loans participated in by, each Bank from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agent, and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes under the Loan Documents. The Register shall be available for inspection by the Borrower or any Bank at any reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an Assigning Bank and Assignee representing that it is an Eligible Assignee, together with any Notes subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit F, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, and (iii) give prompt written notice thereof to the Borrower. Within five (5) Business Days after its receipt of such notice the Borrower, at its expense, shall execute and deliver to the Agent in exchange for the surrendered Notes new Notes to the order of such Eligible Assignee in an amount equal to the Commitments or Loans assumed by it pursuant to such Assignment and Acceptance and, if the Assigning Bank has retained Commitments or Loans, Notes to the order of the Assigning Bank in an amount equal to the Commitments and Loans retained by it hereunder (each such promissory note shall constitute a "Note" for purposes of the Loan Documents). Such new Notes shall be in an aggregate principal amount of the surrendered Notes, shall be dated the effective date of such Assignment and Acceptance, and shall otherwise be in substantially the form of the applicable Exhibit hereto.
(e) Any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section, disclose to the Assignee or participant or proposed Assignee or participant, any information relating to the Borrower or the Subsidiaries furnished to such Bank by or on behalf of the Borrower or the Subsidiaries.
Section 14.9 Survival. All representations and warranties made in any Loan Document or in any document, statement, or certificate furnished in connection with any Loan Document shall survive the execution and delivery of the Loan Documents and no investigation by the Agent or any Bank or any closing shall affect the representations and warranties or the right of the Agent or any Bank to rely upon them. Without prejudice to the survival of any other obligation of the Borrower hereunder, the obligations of the Borrower under Article 6, Section 14.1, and Section 14.2 shall survive repayment of the Notes and termination of the Commitments and the Letters of Credit.
Section 14.10 Entire Agreement; Amended and Restatement; Release. THIS AGREEMENT, THE NOTES, AND THE OTHER LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES THERETO. This Agreement amends and restates in its entirety the Original Agreement. The execution of this Agreement, the Notes and the other Loan Documents executed in connection herewith does not extinguish the indebtedness outstanding in connection with the Original Agreement nor does it constitute a novation with respect to such indebtedness. THE BORROWER REPRESENTS AND WARRANTS THAT AS OF THE CLOSING DATE THERE ARE NO CLAIMS OR OFFSETS AGAINST OR DEFENSES OR COUNTERCLAIMS TO ITS OR ANY OBLIGATED PARTIES' OBLIGATIONS UNDER THE ORIGINAL AGREEMENT, THE SWAP DOCUMENTS, THE DOCUMENTATION RELATING TO THE DEPOSIT AND CASH MANAGEMENT SERVICES AND ANY OPERATING OR CAPITAL LEASE ENTERED INTO WITH A SECURED PARTY (ANY OF THE DOCUMENTS EXECUTED IN CONNECTION WITH ANY OF THE FORGOING OR ANY OF THE LOAN DOCUMENTS COLLECTIVELY, THE "TRANSACTION DOCUMENTS"). TO INDUCE THE BANKS AND THE AGENT TO ENTER INTO THIS AGREEMENT, THE BORROWER AND, BY THE EXECUTION OF THE LOAN DOCUMENTS TO WHICH IT IS A PARTY, EACH OBLIGATED PARTY WAIVES ANY AND ALL CLAIMS, OFFSETS, DEFENSES OR COUNTERCLAIMS, WHETHER KNOWN OR UNKNOWN, ARISING PRIOR TO THE DATE HEREOF AND HEREBY RELEASES AGENT, THE BANKS, THE OTHER SECURED PARTIES, AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND ATTORNEYS (COLLECTIVELY THE "RELEASED PARTIES") FROM ANY AND ALL OBLIGATIONS, INDEBTEDNESS, LIABILITY, CLAIMS, RIGHTS, CAUSES OF ACTION OR DEMANDS WHATSOEVER, WHETHER KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED WHICH THE BORROWER OR ANY OBLIGATED PARTY EVER HAD, NOW HAS, CLAIMS TO HAVE OR MAY HAVE AGAINST ANY RELEASED PARTY ARISING PRIOR TO THE CLOSING DATE AND FROM OR IN CONNECTION WITH THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
Section 14.11 Amendments. No amendment or waiver of any provision of any Loan Document to which the Borrower is a party, nor any consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be agreed or consented to by the Required Banks and the Borrower, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that no amendment, waiver, or consent shall, do any of the following: (a) increase any Commitment of any Bank without the written consent of such Bank or increase the total Revolving Commitments without the written consent of each of the Banks; (b) reduce the principal of, or interest on, the Notes, the Reimbursement Obligations, or any fees or other amounts payable hereunder without the written consent of each Bank affected thereby; (c) postpone any date fixed for any payment of principal of, or interest on, the Notes, the Reimbursement Obligations, or any fees or other amounts payable hereunder (including, without limitation, any prepayment required pursuant to Section 5.4) without the written consent of each Bank affected thereby (other than any waiver of or change in the amount or timing of any mandatory prepayment which indirectly results from any waiver, modification or amendment of any covenant in any Loan Document which is otherwise permitted to be agreed or consented to by the Required Banks); (d) modify, waive or amend any provision contained in this Section 14.11 or change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes or the Letter of Credit Liabilities or the number of Banks which shall be required for the Banks (or Banks of any Class) or any of them to take any action under
any Loan Document without, in each case, the written consent of each Bank; (e) change Section 5.6, the definition of the terms Obligations, Primary Obligations, Secondary Obligations, or Secured Parties without the written consent of each Bank; or (f) except as permitted by Section 10.8, release any Collateral or release the Borrower or any Obligated Party from any liability, including, but not limited to, the release of any Obligated Party from a Guaranty or other Loan Document without the written consent of each Bank. Notwithstanding anything to the contrary contained in this Section, (i) no amendment, waiver, or consent shall be made with respect to Section 2.7, Section 2.8, or Article 13 without the prior written consent of the Agent; (ii) no amendment, waiver, or consent shall be made with respect to Section 5.6 or the definitions of the terms Obligations, Primary Obligations, Secondary Obligations, or Secured Parties in any manner that might adversely effect the Approved Bank Affiliates without the prior written consent of the Approved Bank Affiliates who hold more than fifty percent (50%) of the then outstanding liquidated Obligations owed to all Approved Bank Affiliates; and (iii) any waiver, amendment or modification of this Agreement which by its terms affects the rights or duties under this Agreement of the Revolving Banks (but not the Term Banks) or the Term Banks (but not the Revolving Banks) may be effected by an agreement or agreements in writing entered into by Borrower and the requisite percentage in interest of the affected Class of Banks that would be required to consent thereto under this Section 14.11 as if such Class of Banks were the only Class of Banks hereunder at the time.
Section 14.12 Maximum Interest Rate.
(a) No interest rate specified in any Loan Document shall at any time exceed the Maximum Rate. If at any time the interest rate (the "Contract Rate") for any Obligation shall exceed the Maximum Rate, thereby causing the interest accruing on such Obligation to be limited to the Maximum Rate, then any subsequent reduction in the Contract Rate for such Obligation shall not reduce the rate of interest on such Obligation below the Maximum Rate until the aggregate amount of interest accrued on such Obligation equals the aggregate amount of interest which would have accrued on such Obligation if the Contract Rate for such Obligation had at all times been in effect.
(b) No provision of any Loan Document shall require the payment or the
collection of interest in excess of the maximum amount permitted by
applicable law. If any excess of interest in such respect is hereby
provided for, or shall be adjudicated to be so provided, in any Loan
Document or otherwise in connection with this loan transaction, the
provisions of this Section shall govern and prevail and neither the
Borrower nor the sureties, guarantors, successors, or assigns of the
Borrower shall be obligated to pay the excess amount of such interest or
any other excess sum paid for the use, forbearance, or detention of sums
loaned pursuant hereto. In the event any Bank ever receives, collects, or
applies as interest any such sum, such amount which would be in excess of
the maximum amount permitted by applicable law shall be applied as a
payment and reduction of the principal of the Obligations; and, if the
principal of the Obligations has been paid in full, any remaining excess
shall forthwith be paid to the Borrower. In determining whether or not the
interest paid or payable exceeds the Maximum Rate, the Borrower and each
Bank shall, to the extent permitted by applicable law, (a) characterize any
non-principal payment as an expense, fee, or premium rather than as
interest, (b) exclude voluntary prepayments and the effects thereof, and
(c) amortize, prorate, allocate, and spread in equal or unequal parts the
total amount of interest throughout the entire contemplated term of the
Obligations so that interest for the entire term does not exceed the
Maximum Rate.
Section 14.13 Notices. All notices and other communications provided for in any Loan Document to which the Borrower or any Obligated Party is a party shall be given or made in writing and telecopied, mailed by certified mail return receipt requested, or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof and, if to an Obligated Party, at the address for notices for the Borrower; or, as to any party at such other address as shall be designated by such party in a notice to each other party given in accordance with this Section. Except as otherwise provided in any Loan Document, all such communications shall be deemed to have been duly given when transmitted by telecopy, subject to telephone confirmation of receipt, or when personally delivered or, in the case of a mailed notice, three (3) Business Days after being duly deposited in the mails, in each case given or addressed as aforesaid; provided, however, notices to the Agent pursuant to Section 2.7, Section 5.3 or Section 7.2 shall not be effective until received by the Agent.
Section 14.14 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas and the applicable laws of the United States of America.
Section 14.15 Counterparts. This Agreement may be executed in one or more counterparts and on telecopy counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.
Section 14.16 Severability. Any provision of any Loan Document held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of any Loan Document and the effect thereof shall be confined to the provision held to be invalid or illegal.
Section 14.17 Headings. The headings, captions, and arrangements used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.
Section 14.18 Non-Application of Chapter 346 of Texas Finance Code. The provisions of Chapter 346 of the Texas Finance are specifically declared by the parties hereto not to be applicable to any Loan Documents or to the transactions contemplated thereby.
Section 14.19 Construction. The Borrower, each Obligated Party (by its execution of the Loan Documents to which it is a party), the Agent, and each Bank acknowledges that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review the Loan Documents with its legal counsel and that the Loan Documents shall be construed as if jointly drafted by the parties thereto.
Section 14.20 Independence of Covenants. All covenants under the Loan Documents shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default if such action is taken or such condition exists.
Section 14.21 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF THE AGENT OR ANY BANK IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.
Section 14.22 Confidentiality. The Agent and each Bank (each a "Lending
Party") agrees to keep any Designated Information (as defined below) delivered
or made available by the Borrower to it confidential from anyone other than
Persons employed or retained by such Lending Party who are, or are expected to
be, engaged in evaluating, approving, structuring, or administering the credit
facility provided herein; provided that nothing herein shall prevent any Lending
Party from disclosing such Designated Information: (a) to any other Lending
Party, (b) to any other Person on a need to know basis if reasonably incidental
to the administration of the credit facility provided herein, (c) upon the order
of any court or administrative agency, (d) upon the request or demand of any
regulatory agency or authority, (e) which has been publicly disclosed other than
as a result of a disclosure by any Lending Party prohibited by this Agreement,
(f) in connection with any litigation to which such Lending Party or any of its
Affiliates may be a party, (g) to the extent necessary in connection with the
exercise of any remedy hereunder, (h) to such Lending Party's legal counsel and
independent auditors, (i) to the National Association of Insurance Commissioners
or any similar organization or any nationally recognized rating agency that
requires access to information about a Bank's or any of its Affiliate's
investment portfolio in connection with ratings issued with respect to such Bank
or such Affiliate, (j) to any Affiliate of such Lending Party, solely in
connection with this Agreement, and (k) subject to written provisions
substantially similar (but no less stringent) to those contained in this
Section, to any actual or proposed participant or assignee of any of its rights
and obligations under the Loan Documents in accordance with the terms hereof.
The term "Designated Information" means any information which has been
designated by the Borrower in writing as confidential.
Section 14.23 Waiver of Existing Defaults. Subject to the satisfaction of the conditions set forth in Section 7.1, the Agent and the Banks waive the Existing Defaults (as defined in the Forbearance Agreement) and agree not to exercise any rights and remedies available as a result of the occurrence thereof. The Borrower and, by the execution of the Loan Documents to which it is a party, each Obligated Party agree that the foregoing waiver shall not constitute and shall not be deemed a waiver of any of the obligations under the Loan Documents, or a waiver of any rights or remedies arising as a result of the failure to observe and perform such obligations. The failure of the Borrower or any Obligated Party to
strictly comply with its obligations under the Loan Documents will result in the occurrence of a Default in accordance with the terms hereof.
Section 14.24 Conflict with Loan Documents. In the event of any direct conflict between the provisions of this Agreement and the provisions of any other Loan Document, the provisions of this Agreement shall control.
[Remainder of Page Intentionally Left Blank - Signature Pages Follow]
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.
BORROWER:
DARLING INTERNATIONAL INC.
By: /s/ Brad Phillips ------------------------ Name: Brad Phillips Title: Treasurer |
Address for Notices:
251 O'Connor Ridge Blvd., Suite 300
Irving, Texas 75038
Telephone No.: 972-717-0300
Facsimile No.: 972-717-1588
Attention: Treasurer
AGENT:
Revolving Commitment: CREDIT LYONNAIS NEW YORK BRANCH
--------------------
individually as a Bank and as the Agent
$1,618,288.25
Swingline Commitment: By: /s/ James B. Hallock
-------------------- --------------------------
Name: James B. Hallock
$3,500,000 Title: Vice President
Term Loan: Address for Notices:
--------- -------------------
$5,694,378.42 Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
Telephone No.: 212-261-3259
Facsimile No.: 212-261-7861
Attention: Mr. James Hallock
With a copy to:
--------------
Credit Lyonnais Dallas Branch
2200 Ross Avenue, Suite 4400 West
Dallas, Texas 75201
Telephone No.: 214-220-2304
Facsimile No.: 214-220-2323
Attention: David Cagle
Applicable Lending Office:
-------------------------
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
|
[signature page to amended and restated credit agreement]
Revolving Commitment ARK CLO 2000-1, LIMITED
--------------------
$385,274.60 By: Patriarch Partners, LLC, its Collateral
Manager
Term Loan: By: /s/ Lynn Tilton
--------- ---------------------
Name: Lynn Tilton
$1,355,836.52 Title: Manager
Address for Notices:
-------------------
Ark CLO 2000-1, Limited
c/o The Chase Manhattan Bank Texas
600 Travis Street, 50th Floor
Houston, Texas 77002
Telephone: (713) 216-2009
Facsimile: (713) 577-5280
with copies to:
Patriarch Partners, LLC
40 Wall Street, 25th Floor
New York, New York 10005
Attention: Dennis Dolan/Lynn Tilton
Telephone: (212) 825-0550
Facsimile: (212) 825-2038
and
Woodside Capital Management, LLC
36 Woodland Street, 2nd Floor
Hartford, CT 06105
Attention: Anthony Varone
Telephone: (860) 547-1761
Facsimile: (860) 547-1870
Applicable Lending Office:
-------------------------
Ark CLO 2000-1, Limited
c/o The Chase Manhattan Bank Texas
600 Travis Street, 50th Floor
Houston, Texas 77002
Telephone: (713) 216-2009
Facsimile: (713) 577-5280
|
[signature page to amended and restated credit agreement]
Revolving Commitment BANK ONE N.A.
--------------------
$2,388,702.52
Term Loan: By: /s/ Phillip D. Martin
--------- ---------------------------
Name: Phillip D. Martin
$8,406,186.37 Title: Senior Vice President
Address for Notices:
-------------------
1 Bank One Plaza
Mail Code IL 1-0631
Chicago, IL 60670
Attention: Phil Martin
Telephone: (312) 732-4728
Facsimile: (312) 732-1775
Applicable Lending Office:
-------------------------
1 Bank One Plaza
Mail Code IL 1-0631
Chicago, IL 60670
Revolving Commitment CERBERUS PARTNERS, L.P.
--------------------
$3,101,767.87 By: Cerberus Associates, L.L.C., its
general partner
Term Loan: By: /s/ Kevin Genda
--------- ---------------------
Name: Kevin Genda
$10,915,565.48 Title: Attorney in Fact
Address for Notices:
-------------------
450 Park Avenue, 28th Floor
New York, New York 10022
Attention: Kevin Genda
Telephone: (212) 891-2117
Facsimile: (212) 891-1541
Applicable Lending Office:
-------------------------
450 Park Avenue, 28th Floor
New York, New York 10022
|
[signature page to amended and restated credit agreement]
Revolving Commitment AVENUE SPECIAL SITUATIONS FUND II, L.P.
--------------------
$2,427,162.50 By: Avenue Capital Partners II, LLC,
its General Partner
Term Loan:
---------
By: GLS Partners II, LLC, Managing
$8,541,532.54 Member of General Partner
By: /s/ Sonia Gardner
-----------------------------
Name: Sonia Gardner
Title: Member
Address for Notices:
-------------------
535 Madison Avenue, 15th Floor
New York, New York 10002
Attn: Stuart Brown
Telephone: (212) 878-3553
Applicable Lending Office:
-------------------------
535 Madison Avenue, 15th Floor
New York, New York 10002
Revolving Commitment CREDIT AGRICOLE INDOSUEZ
--------------------
$770,549.20
Term Loan: By: /s/ Kathleen M. Sweeney
--------- -----------------------------
Name: Kathleen M. Sweeney
$2,711,673.03 Title: Vice President
By: /s/ Leo von Reissig
-----------------------------
Name: Leo von Reissig
Title: Vice President
|
Credit Agricole Indosuez, New York Branch 666 Third Avenue New York, New York 10017-4011 Attention: Kathleen Sweeney Telephone: (646) 658-2058 Facsimile: (646) 658-2051
Credit Agricole Indosuez, Chicago Branch
[signature page to amended and restated credit agreement]
55 East Monroe Chicago, Illinois 60603
Revolving Commitment PPM AMERICA SPECIAL INVESTMENTS
--------------------
FUND, L.P.
$3,906,148.77
By: PPM America, Inc., as its
attorney-in-fact
Term Loan:
---------
$13,746,297.11 By: /s/ Ronnie Kaplan
-----------------------
Name: Ronnie Kaplan
Title: Vice President
Address for Notices:
-------------------
225 West Wacker Drive, 9th Floor
Chicago, Illinois 60606
Attn: Ronnie Kaplan, Vice President
Telephone: (312) 634-2572
Facsimile: (312) 634-0741
Applicable Lending Office:
-------------------------
225 West Wacker Drive, 9th Floor
Chicago, Illinois 60606
Revolving Commitment PPM AMERICA SPECIAL INVESTMENTS CBO II, L.P.
--------------------
$2,472,215.07
By: PPM America, Inc., as its
attorney-in-fact
Term Loan:
---------
$8,700,078.98
By: /s/ Ronnie Kaplan
-----------------------
Name: Ronnie Kaplan
Title: Vice President
Address for Notices:
-------------------
225 West Wacker Drive, 9th Floor
Chicago, Illinois 60606
Attn: Ronnie Kaplan, Vice President
Telephone: (312) 634-2572
Facsimile: (312) 634-0741
Applicable Lending Office:
-------------------------
225 West Wacker Drive, 9th Floor
Chicago, Illinois 60606
|
[signature page to amended and restated credit agreement]
Revolving Commitment DAPLE, S.A.
--------------------
$267,248.22 By: PPM America, Inc., as its
attorney-in-fact
Term Loan:
---------
$940,484.78 By: /s/ Ronnie Kaplan
-----------------------
Name: Ronnie Kaplan
Title: Vice President
Address for Notices:
-------------------
225 West Wacker Drive, 9th Floor
Chicago, Illinois 60606
Attn: Ronnie Kaplan, Vice President
Telephone: (312) 634-2572
Facsimile: (312) 634-0741
Applicable Lending Office:
-------------------------
225 West Wacker Drive, 9th Floor
Chicago, Illinois 60606
Revolving Commitment WELLS FARGO BANK (TEXAS) NATIONAL
-------------------- ASSOCIATION
$0.00
Term Loan: By: /s/ Nipul V. Patel
--------- ------------------------
Name: Nipul V. Patel
$609.76 Title: Vice President
Address for Notices:
-------------------
Wells Fargo Bank (Texas), National
Association
1000 Louisiana Street, 4th Floor
Mail Sort T5001-047
Houston, Texas 77002
Attention: Nipul Patel
Telephone: (713) 319-1413
Facsimile: (713) 739-1076
Applicable Lending Office:
-------------------------
Wells Fargo Bank (Texas), National
Association
1000 Louisiana Street, 4th Floor
Mail Sort T5001-047
Houston, Texas 77002
|
[signature page to amended and restated credit agreement]
Exhibit 10.6
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into as of as of May 10, 2002 among DARLING INTERNATIONAL INC., a Delaware corporation (the "Company"), and the other parties identified on the signature pages hereto (individually, a "Holder" and collectively, the "Holders").
This Agreement is made pursuant to that certain Recapitalization Agreement, dated as of March 15, 2002, by and among the Company, the Holders and the other parties thereto (the "Recapitalization Agreement"). The execution of this Agreement is a condition to the closing of the transactions contemplated by the Recapitalization Agreement.
1. Definitions. As used herein, unless the context otherwise requires, the following terms have the following meanings:
"Additional Common Shares" means shares of Common Stock acquired pursuant to the Investment Agreement by a Holder or eligible transferee under Section 1.03 of the Investment Agreement.
"Closing Date" is defined in Section 2.1.
"Commission" means the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act.
"Common Stock" means the common stock of the Company, par value $0.01 per share.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Exchange Act shall include a reference to the comparable section, if any, of any similar Federal statute.
"Form S-3" is defined in Section 2.1.
"Initial Lender Common Shares" means the shares of the Company's Common Stock issued to the Holders in accordance with Section 2.2B of the Recapitalization Agreement.
"Initial Lender Preferred Shares" means the shares of the Company's Series A Preferred Stock issued to the Holders in accordance with Section 2.2B of the Recapitalization Agreement
"Initiating Holder" is defined in Section 2.2.
"Investment Agreement" means that certain Investment Agreement dated of even date herewith, entered into by and among the Company and the Holders.
"1993 Agreement" is defined in Section 2.8.
"Permitted Assignee(s)" means an assignee or assignees permitted pursuant to paragraph 7 of this Agreement. The terms "Holder" and "Holders" as used herein shall include Permitted Assignee(s) except where the context explicitly limits those terms to parties identified on the signature pages to this Agreement.
"Person" means a corporation, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency.
"Piggyback Notice" is defined in Section 2.3(a).
"Piggyback Registration" is defined in Section 2.3(a).
"Registration Expenses" means all expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all registration, listing, filing and stock exchange and NASD fees, as
applicable, all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses (including expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company), messenger and delivery expenses, any fees and disbursements of underwriters customarily paid by issuers or sellers of securities (excluding underwriting discounts and commissions), registrar and transfer agent's fees, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of "cold comfort" letters required by or incident to such performance and compliance, reasonable fees and expenses of one counsel to the Holders (selected by Holders representing at least 50% of the Registrable Securities covered by each registration statement filed pursuant to Section 2 and the fees and expenses of any other Persons retained by the Company).
"Registrable Securities" means the Initial Lender Common Shares, the
Initial Lender Preferred Shares and any Additional Common Shares including, but
not limited to, any capital stock issued or issuable with respect to such shares
by way of stock dividend, stock split or in connection with a combination of
shares, reclassification, recapitalization, merger, consolidation,
reorganization or otherwise; provided, however, that securities shall cease to
be Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities are disposed of in accordance with such registration statement,
(b) sold as permitted by Rule 144 (or any successor provisions) under the
Securities Act, or (c) they cease to be outstanding.
"Securities Act" means the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. References to a particular section of the Securities Act shall include a reference to the comparable section, if any, of any such similar Federal statute.
"Selling Holder" is defined in Section 2.2.
"Series A Preferred Stock" means the Series A Preferred Stock of the Company, par value $0.01 per share, the designation, preferences and rights of which are set forth in that certain Certificate of Designation, Preferences and Rights filed with the Secretary of the state of Delaware on May 10, 2002.
"Shelf Registration" is defined in Section 2.1.
2. Registration Under Securities Act, Etc.
2.1 Shelf Registration.
The Company agrees to file as soon as reasonably practicable after the closing of the transactions contemplated under the Recapitalization Agreement (but in no event later than ten (10) days thereafter) (the "Closing Date") a registration statement with respect to all of the Registrable Securities on Form S-1 (or any other appropriate form) covering the offer and sale of the Registrable Securities by the Holders or their Permitted Assignee(s) on a delayed and continuous basis pursuant to Rule 415 under the Securities Act (the "Shelf Registration"). The Company agrees to use its reasonable best efforts to have the Shelf Registration declared effective no later than 60 days after the Closing Date and to keep the Shelf Registration with respect to the Registrable Securities continuously effective, supplemented and amended, as required by the Securities Act, for a period of 5 years following the date on which the Shelf Registration is declared effective in order to permit the prospectus forming a part thereof to be usable under the Securities Act by the Holders and their Permitted Assignees from the date the Shelf Registration is declared effective by the Commission; provided, however, that if for any reason the effectiveness of the Shelf Registration is suspended, such period shall be extended by the aggregate number of days of each such suspension period; and provided, further, that the effectiveness of the Shelf Registration may be terminated earlier with respect to the Registrable Securities if and to the extent that all of the Registrable Securities registered therein cease to be Registrable Securities in accordance with the terms hereof. The Company shall be deemed not to have used its best efforts to keep the Shelf Registration effective during the requisite period if it voluntarily takes any action that would result in a holder of Registrable Securities not being able to offer and sell such Registrable Securities during that period, unless (a) such action is required by applicable law, or (b) upon the occurrence of any event that requires the Company to make changes in any registration statement or the prospectus in order that such registration statement or prospectus does not contain an untrue statement of a material fact and does not omit to state a material fact required to be stated therein or necessary to make the
statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading, such action is taken by the Company in good faith and for valid business reasons and the Company thereafter promptly complies with the requirements of Section 2.5(g) below if the Company has determined in good faith that there are no material legal or commercial impediments in so doing. Notwithstanding the forgoing, if the Company shall furnish to each holder of Registrable Securities, a certificate signed by the President or chief financial officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Shelf Registration to be amended or supplemented and it is therefore in the best interests of the Company and its stockholders to defer the amendment or supplement of such Shelf Registration, the Company shall have the right to defer taking action with respect to such amendment or supplement for a period of not more than 30 calendar days after furnishing such certificate to each holder of Registrable Securities; provided, however, that the Company may not utilize this right more than once in any 12 month period.
The Company shall use its best efforts to qualify for registration on Form S-3 or any comparable or successor form or forms ("Form S-3"). Upon becoming qualified for registration on Form S-3, the Company shall file as soon as reasonably practicable an amendment to the Shelf Registration on Form S-1 to convert it to a registration on Form S-3 and use its best efforts to have such amendment declared effective as soon as practicable.
Notwithstanding any other provision of this Agreement to the contrary, the Company shall cause (a) the Shelf Registration and the related prospectus and any amendment or supplement thereto to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission thereunder, (b) the Shelf Registration and any amendment thereto not to contain, when it becomes effective, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (c) any prospectus forming a part of the Shelf Registration, and any amendment or supplement to such prospectus, not to contain, as of the date of such prospectus or amendment or supplement, any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company will have no obligations under this paragraph with respect to the Plan of Distribution as described in any prospectus related to the Shelf Registration or as to any written information furnished to the Company through an instrument duly executed by or on behalf of any such selling security holder specifically stating that it is for use in the preparation of the Shelf Registration.
The Company agrees to pay all Registration Expenses in connection with the Shelf Registration, whether or not it becomes effective.
2.2 Demand Registration.
(a) Request. At any time after the expiration of the five year term
for effectiveness of the Shelf Registration effected pursuant to Section 2.1,
upon the written request of one or more holders (each, an "Initiating Holder")
of the Registrable Securities representing not less than 33% of the Registrable
Securities then outstanding that the Company effect the registration under the
Securities Act of all or part of such Initiating Holders' Registrable Securities
(which written request shall specify the intended number of Registrable
Securities to be disposed of by such holder(s) and the intended method of
disposition thereof), the Company will promptly give written notice of such
requested registration to all registered holders of the Registrable Securities.
The Company will use its best efforts to effect the registration under the
Securities Act, including by means of a shelf registration pursuant to Rule 415
under the Securities Act or any similar rule then in effect, if so requested in
such request and the Company is then eligible to use such registration, of the
Registrable Securities which the Company has been so requested to register by
(i) such Initiating Holders and (ii) all such other holders (such holders
together with the Initiating Holders are hereinafter referred to as the "Selling
Holders") who by written request (which written request shall specify the
intended number of Registrable Securities to be disposed of by such holder(s)
and the intended method of disposition thereof) given to the Company within 30
days after the giving of such written notice by the Company request the Company
to register all or part of their Registrable Securities, all to the extent
requisite to permit the disposition of the Registrable Securities so to be
registered; provided, that the Company shall not be obligated to effect any
registration hereunder, if the aggregate offering price of the Registrable
Securities to be so registered is less than $10,000,000.
(b) Registration of Other Securities. Whenever the Company shall effect a registration pursuant to this Section 2.2 in connection with an underwritten offering by one or more Selling Holders of Registrable Securities, no securities other than Registrable Securities shall be included among the securities covered by such registration unless the managing underwriter of such offering shall have consented in writing to the inclusion of such other securities. The Company shall not enter into an agreement providing for the right to be included in any such offering with any of its security holders (other than the Holders) unless such agreement shall be expressly subject to the provisions of this Section 2.2(b).
(c) Registration Statement Form. Registrations under this Section 2.2 shall be on such appropriate registration form of the Commission as shall be selected by the Selling Holders of more than 50% of the Registrable Securities to be so registered and that shall be reasonably acceptable to the Company.
(d) Effective Registration Statement. A registration request pursuant to this Section 2.2 shall not be deemed to have been effected (i) unless a registration statement with respect thereon has become effective, (ii) if after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason not attributable to the Selling Holders and has not thereafter become effective, (iii) if after it has become effective, such registration statement is withdrawn or abandoned by the Selling Holders due to a material adverse change to the Company, (iv) if such registration is postponed by the Company pursuant to 2.2(g), or (v) if the conditions to closing specified in the underwriting agreement, if any, entered into a connection with such registration are not satisfied or waived, other than by reason of a failure on the part of the Selling Holders.
(e) Selection of Underwriters. The underwriter or underwriters of each underwritten offering of the Registrable Securities to be so registered shall be selected by the Selling Holders of more than 50% of the Registrable Securities to be so registered, subject to the Company's approval which will not be unreasonably withheld or delayed.
(f) Priority in Requested Registration. If the managing underwriter of any underwritten offering shall advise the Company in writing (with a copy to each Selling Holder of Registrable Securities requesting registration) that, in its opinion, the number or amount of securities requested to be included in such registration exceeds the number or amount which can be sold in such offering within a price range acceptable to the Selling Holders of more than 50% of the Registrable Securities requested to be included in such registration, the Company will include in such registration only the number or amount of Registrable Securities which the Company is so advised in writing (with a copy to each Selling Holder of Registrable Securities requesting registration) by the managing underwriter can be sold in such offering. Any such limitation of Registrable Securities requested to be included in such registration shall be applied pro rata among the Selling Holders requesting such registration on the basis of the aggregate number or amount of the Registrable Securities of such Selling Holders requested to be so registered.
(g) Right to Postpone Registration. Notwithstanding the forgoing, if the Company shall furnish to each Selling Holder of Registrable Securities, a certificate signed by the President or chief financial officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed and it is therefore in the best interests of the Company and its stockholders to defer the filing of such registration statement, the Company shall have the right to defer taking action with respect to such filing for a period of not more than 90 calendar days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any 12 month period.
(h) Limitations on Demand Registrations. Notwithstanding anything in this Section 2.2 to the contrary, in no event will the Company be required to effect, in the aggregate, without regard to the holder of Registrable Securities making such request, more than two registrations pursuant to this Section 2.2.
2.3 Piggyback Registrations.
(a) Right to Piggyback. If at any time subsequent to the expiration of the five year term for effectiveness of the Shelf Registration effected pursuant to Section 2.1, the Company proposes to file a registration statement under the Securities Act (except on Form S-4, Form S-8, or any successor forms thereto) whether or not
for its own account (other than a registration effected pursuant to Section 2.2 hereof), then the Company shall give written notice of such proposed filing to the holders of Registrable Securities at least 30 days before the anticipated filing date (the "Piggyback Notice"). The Piggyback Notice shall offer such holders the opportunity to register such amount of Registrable Securities as each such holder may request (a "Piggyback Registration"). Subject to Section 2.3(b) hereof, upon the written request of any such holders of Registrable Securities made within 15 days of the date of the Piggyback Notice (which request shall specify the aggregate number of the Registrable Securities to be registered and will also specify the intended method of disposition thereof), the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the holders thereof, to the extent required to permit the public disposition (without limitation or restriction as to amount or number of Registrable Securities to be sold) (in accordance with such intended methods thereof) of the Registrable Securities to be so registered; provided, however, that if any time after giving written notice of the proposed filing and prior to the effective date of the registration statement filed in connection with such registration the Company shall determine for any reason not to pursue the effectiveness of the registration, the Company shall give written notice of such determination to each holder of Registrable Securities and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith. . The holders of Registrable Securities shall be permitted to withdraw all or part of the Registrable Securities from a Piggyback Registration at any time prior to the effective date of such Piggyback Registration.
(b) Priority on Piggyback Registrations. The Company shall cause the
managing underwriters of a proposed underwritten offering to permit holders of
Registrable Securities requested to be included in the registration for such
offering to include all such Registrable Securities on the same terms and
conditions as any similar securities, if any, of the Company or any selling
security holder included therein; provided, however, the inclusion of
Registrable Securities in a Piggyback Registration in respect of a demand
registration filed for the account of those certain Persons identified on the
signature pages to the 1993 Agreement (as hereinafter defined) or their
successors and assigns, will be subject to the consent in writing of the
managing underwriter of such offering; and, provided further, if the managing
underwriters of such underwritten offering determine in good faith that the
total number of securities that such holders, the Company, and any other persons
having rights to participate in such registration, propose to include in such
offering is such as to materially and adversely affect the success of such
offering, then (i) if such Piggyback Registration is a primary registration on
behalf of the Company, the securities to be offered shall be allocated as
follows: (A) first, the full number of securities to be offered by the Company
shall be included in such registration, (B) then, except as otherwise provided
in the proviso to this clause (B), up to the full number of securities to be
offered by holders of Registrable Securities shall be included in such
registration (allocated among such holders pro rata in proportion to the number
of securities owned to the extent necessary to reduce the total number of
securities to be included in such offering to the amount recommended by such
managing underwriters), provided, as to those certain Persons identified on the
signature pages to the 1993 Agreement or their successors and assigns, up to the
full number of securities to be offered by holders of Registrable Securities and
by such Persons shall be included in such registration (allocated among such
holders and Persons pro rata in proportion to the number of securities owned to
the extent necessary to reduce the total number of securities to be included in
such offering to the amount recommended by such managing underwriters), and (C)
to the extent an amount of securities recommended by the managing underwriters
remains available, up to that amount of securities shall be included in such
registration for the account of all such other persons (allocated among them pro
rata in proportion to the respective dollar amounts of securities owned to the
extent necessary to reduce the total number of securities to be included in such
offering to the amount recommended by such managing underwriters), and (ii) if
such Piggyback Registration is an underwritten secondary registration on behalf
of the holders of securities of the Company, the Company shall include in such
registration: (A) first, up to the full number of securities of such persons
exercising "demand" registration rights that in the opinion of such underwriter
can be sold (allocated among such holders as they may so determine), and (B)
second, the number of securities included in such registration pursuant to this
Section 2.3 in excess of the securities such persons exercising "demand"
registration rights proposed to sell that, in the opinion of such managing
underwriter, can be sold (allocated pro rata on the basis of aggregate dollar
amount of securities requested to be included therein).
(c) No Liability for Delay. So long as the Company complies with the terms and conditions of this Agreement and its obligations hereunder, the Company shall not be held responsible for any delay in the filing or processing of a registration statement which includes any Registrable Securities nor for any delay in requesting the effectiveness of such registration statement due to requests by holders of Registrable Securities pursuant to this Section 2.3.
2.4 "Market Stand-Off" Agreement.
(a) Restrictions on Public Sale by Holders of Registrable Securities. Each holder of Registrable Securities which are covered by a registration statement filed pursuant to Sections 2.2 or 2.3, hereof agrees, if requested (pursuant to a timely written notice) by the managing underwriters in an underwritten offering, not to effect any public sale or distribution of any of the Company's securities, including a sale pursuant to Rule 144 (except as part of such underwritten offering), during the period beginning 10 days prior to, and ending 180 days after (or such shorter period as may be agreed to by any managing underwriter of an underwritten offering effected pursuant to Sections 2.2 or 2.3), the closing date of each underwritten offering made pursuant to such registration statement, provided that the Company shall have used its reasonable best efforts to cause all officers, directors and holders of 5% or more of the then outstanding equity securities of the Company to enter into similar agreements.
(b) Restrictions on Public Sale by the Company and Others. The Company
agrees (i) without the written consent of the managing underwriters in an
underwritten offering of Registrable Securities covered by a registration
statement filed pursuant to Sections 2.2 or 2.3 hereof, not to effect any public
or private sale or distribution of its securities, including a sale pursuant to
Regulation D under the Securities Act, during the period beginning 10 days prior
to, and ending 180 days after (or such shorter period as may be agreed to by any
managing underwriter of an underwritten offering effected pursuant to Sections
2.2 or 2.3), the closing date of each underwritten offering made pursuant to
such registration statement (except on Forms S-4 or S-8, or any successor forms
to such forms); (provided, however, that such period shall be extended by the
number of days from and including the date of the giving of any notice pursuant
to Section 2.5(g)(i) hereof to and including the date when each seller of
Registrable Securities covered by such registration statement shall have
received the copies of the supplemented or amended prospectus contemplated by
Section 2.5(g)(i) hereof), and (ii) to use its best efforts to cause each holder
of its securities purchased from the Company at any time on or after the date of
this Agreement (other than securities purchased in a registered public offering)
to agree not to effect any public sale or distribution of any such securities
during such periods, including a sale pursuant to Rule 144.
2.5 Registration Procedures. In connection with any registration of any Registrable Securities under the Securities Act pursuant to Sections 2.1, 2.2 and 2.3, the Company will as expeditiously as possible:
(a) prepare and (except as otherwise provided in Section 2.1, within 60 days after the end of the period within which requests for registration may be given to the Company or in any event as soon thereafter as practicable) file with the Commission the requisite registration statement to effect such registration and thereafter use its best efforts to cause such registration statement to become effective; provided, however, that the Company may discontinue any registration of its securities which are not Registrable Securities at any time prior to the effective date of the registration statement relating thereto; provided further, that before filing a registration statement or prospectus or any amendments or supplements thereto (including documents that would be incorporated or deemed to be incorporated therein by reference) required to be filed hereunder, the Company shall furnish, without charge, to the holders of the Registrable Securities covered by such registration statement, their counsel and the managing underwriters, if any, copies of any such registration statement, prospectus, amendment or supplement, and of all such documents proposed to be filed, which documents will be subject to the review of such holders, their counsel and such underwriters, if any, and the Company shall not file any such registration statement or prospectus or any amendments or supplements thereto (including such documents that, upon filing, would be incorporated or deemed to be incorporated by reference therein) to which the holders of a majority of the Registrable Securities covered by such registration statement, their counsel, or the managing underwriters, if any, shall reasonably object, in writing, on a timely basis;
(b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement for such period as shall be required for the disposition of all of such Registrable Securities in accordance with the intended methods of distribution set forth in such registration statement which shall be to the reasonable satisfaction of the holders of Registrable Securities covered by such registration statement;
(c) furnish to each holder of Registrable Securities covered by such registration statement, such number of conformed copies of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such holder may reasonably request;
(d) (i) use its best efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities or blue sky laws of such states of the United States of America where an exemption is not available and as the holders of Registrable Securities covered by such registration statement shall reasonably request, (ii) keep such registration or qualification in effect for so long as such registration statement remains in effect, and (iii) take any other action which may be reasonably necessary or advisable to enable such holders to consummate the disposition in such jurisdictions of the securities to be sold by such holders, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subdivision (d) be obligated to be so qualified or to consent to general service of process in any such jurisdiction;
(e) use its best efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other federal or state governmental agencies or authorities as may be necessary in the opinion of counsel to the Company and counsel to the holders of Registrable Securities covered by such registration statement to enable such holders to consummate the disposition of such Registrable Securities;
(f) use its best efforts to furnish to each such holder a signed counterpart of
(i) an opinion of counsel for the Company which can and shall be reasonably satisfactory to the holders of a majority of the Registrable Securities to be sold, and
(ii) a "comfort" letter signed by the independent public accountants who have certified the Company's financial statements included or incorporated by reference in such registration statement,
covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' comfort letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' comfort letters delivered to the underwriters in underwritten public offerings of securities (and dated the dates such opinions and comfort letters are customarily dated);
(g) (i) notify in writing each holder of Registrable Securities at any
time when a prospectus relating to Registrable Securities covered by such
registration statement is required to be delivered under the Securities Act, (A)
upon discovery that, or upon the happening of any event as a result of which,
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, in the light of the circumstances under which they were made,
and at the request of any such holder promptly prepare and furnish to it a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
the light of the circumstances under which they were made, (B) of any request by
the Commission or any other Federal or state governmental authority for
amendments or supplements to a registration statement or related prospectus
covering Registrable Securities or for additional information relating thereto,
(C) of the issuance by the Commission of any stop order suspending the
effectiveness of a registration statement covering Registrable Securities or the
initiation of any proceeding for that purpose, or (D) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any proceeding for such
purpose and (ii) notify each holder of Registrable Securities covered by such
registration statement when each registration statement or any amendment thereto
has been filed with the Commission and when each registration statement or any
post-effective amendment thereto has become effective;
(h) use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest possible moment;
(i) otherwise use it best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act, and promptly furnish to each such holder of Registrable Securities covered by the registration statement a copy of any amendment or supplement to such registration statement or prospectus;
(j) permit any holder of Registrable Securities which might be deemed, in the sole and exclusive judgment of such holder, to be an underwriter or a controlling person of the Company to participate in the preparation of such registration or comparable statement and to require the insertion therein of material, furnished to the Company in writing, which in the reasonable judgment of such holder and its counsel should be included;
(k) enter into customary agreements (including an underwriting agreement, if such proposed registration is to be an underwritten offering, containing representations and warranties, conditions to closing and indemnification and contribution obligations in customary form), use its best efforts to obtain any necessary consents, including without limitation any necessary consents of the Company's lenders, in connection with any proposed registration and sale of Registrable Securities;
(l) provide and cause to be maintained a transfer agent and registrar (which, in each case, may be the Company) for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration;
(m) use its best efforts to (i) list all Common Stock covered by such registration statement on any national securities exchange on which Registrable Securities of the same class and, if applicable, series, covered by such registration statement are then listed, or (ii) seek the authority for such Common Stock to be quoted on the NASDAQ or the National Market System of NASDAQ if the securities so qualify; and
(n) take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities.
The Company may require each holder of Registrable Securities as to which any registration is being effected to furnish the Company such information regarding such holder and the distribution of such securities as the Company may from time to time reasonably request in writing. However, no holders of Registrable Securities shall be required to make any representations or warranties to or agreements with the Company or any underwriter other than customary representations, warranties or agreements regarding such holder, such holder's Registrable Securities and such holder's intended method of distribution and any other representation required by law.
Each holder agrees that upon receipt of any written notice from the
Company of the happening of any event of the kind described in subdivision
(g)(i) of this Section 2.5, such holder will forthwith discontinue such holder's
disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until such holder's receipt of the
copies of the supplemented or amended prospectus contemplated by subdivision
(g)(i) of this Section 2.5 and, if so directed by the Company, will deliver to
the Company (at the Company's expense) all copies, other than permanent file
copies, then in such holder's possession of the prospectus relating to such
Registrable Securities current at the time of receipt of such notice.
2.6 Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the holders of the Registrable Securities registered under such registration statement, and their underwriters, if any, and their respective counsel and accountants the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and, to the extent practicable, each amendment thereof or supplement thereto, and give each of them such access to its books and records (to the extent customarily given to the underwriters of the Company's securities), such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be
necessary, in the opinion of such holders', such underwriters' and such respective counsel and accountants, to conduct a reasonable investigation within the meaning of the Securities Act.
2.7 Indemnification.
(a) Indemnification by the Company. In the event of any registration of any securities of the Company under the Securities Act, the Company will, and hereby does, indemnify and hold harmless, in the case of any registration statement filed pursuant to this Agreement, each seller of any Registrable Securities covered by such registration statement, its directors, officers, partners, members, agents and affiliates and each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such seller or any such underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such seller or any such Person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances in which they were made not misleading, and, subject to Section 2.7(c), the Company will reimburse any Holder, such seller, and each such director, officer, partner, member, agent, or affiliate, underwriter and controlling Person for any legal or any other expenses reasonable incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by or on behalf of such seller or such controlling person, as the case may be, specifically stating that it is for use in the preparation thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any Holder, such seller, or any such director, officer, partner, agent or affiliate or controlling person and shall survive the transfer of such securities by such seller.
(b) Indemnification by the Selling Holders. In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder will furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, and, to the extent permitted by law, each such holder will deliver to the Company an agreement duly executed to indemnify and hold harmless (in the same manner and to the same extent as set forth in subdivision (a) of this Section 2.7) the Company, its directors, officers and agents, and each other Person, if any, who controls the Company within the meaning of the Securities Act, with respect to any untrue statement of any material fact or alleged untrue statement of any material fact in or omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances in which they were made not misleading, in such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, but only to the extent that it is contained in any written information or affidavit so furnished in writing by such holder; provided, that the obligation to indemnify will be individual to each holder and will be limited to the net amount of proceeds received by such holder from the sale of Registrable Securities pursuant to such registration statement.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified party of written notice of the commencement of any action or proceeding involving a claim referred to in the preceding subdivisions of this Section 2.7, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action, provided, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligation s under the preceding subdivisions of this Section 2.7, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with one counsel
reasonable satisfactory to such indemnified party and all other indemnified parties that may be represented without conflict by one counsel, and after written notice from the indemnifying party to such indemnified party and all other indemnified parties that may be represented without conflict by one counsel, and after written notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other that reasonable costs of investigation. No indemnifying party shall be liable for any settlement of any action or proceeding effected without its written consent. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement, which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.
(d) Contribution. If the indemnification provided for in this Section 2.7 shall for any reason be held by a court to be unavailable to an indemnified party under subparagraph (a) or (b) hereof in respect of any loss, claim, damage or liability, or any action in respect thereof, then, in lieu of the amount paid or payable under subparagraph (a) or (b) hereof, the indemnified party and the indemnifying party under subparagraph (a) or (b) hereof shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating the same), (i) in such proportion as is appropriate to reflect the relative fault of the Company and the prospective sellers of Registrable Securities covered by the registration statement which resulted in such loss, claims, damage or liability, or action in respect thereof, with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as shall be appropriate to reflect the relative benefits received by the Company and such prospective sellers from the offering of the securities covered by such registration statement. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Such prospective sellers' obligations to contribute as provided in this subparagraph (d) are several in proportion to the relative value of their respective Registrable Securities covered by such registration statement and not joint. In addition, no Person shall be obligated to contribute hereunder any amounts in payment for any settlement of any action or claim effected without such Person's consent, which consent shall not be unreasonable withheld.
(e) Other Indemnification. Indemnification and contribution similar to that specified in the preceding subdivisions of this Section 2.7 (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities with respect to any required registration or other qualification of securities under any Federal or state law or regulation of any governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnities and contribution required by this Section 2.7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expenses, loss, damage or liability is incurred.
(g) Underwriting Agreement. To the extent that the provisions regarding indemnification and contribution contained in any underwriting agreement entered into in connection with an underwritten public offering of Registrable Securities are in conflict with the provisions of this Section 2.7, the provisions contained in the underwriting agreement shall control.
2.8 Certain Other Agreements.
(a) No agreement granting any registration rights to any Person with respect to any of the Company's securities currently remains in force and effect except (i) that certain Registration Rights Agreement entered into by the Company and certain other Persons identified on the signature pages thereto, dated as of December 29, 1993 as amended by the First Amendment dated as of April 6, 1994 (as amended the "1993 Agreement"), (ii) that certain Stock Option Agreement entered into by the Company and Denis Taura, dated as of December 13, 2000 and (iii) that certain Stock Option Agreement entered into by the Company and Denis Taura, dated as of March 15, 2000. The Company will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement, including without limitation entering into any agreement which would permit the registration of any securities to the exclusion of any portion of the Registrable Securities, unless such exclusion is first waived in writing by the holders of more than 50% or the Registrable Securities then outstanding. Without limiting the generality of the foregoing, any
registration rights hereafter granted by the Company shall be subordinate to the registration rights granted under this Agreement, and the Company shall obtain the written agreement of each Person to whom such other registration rights may be granted or may become available to such effect. This Agreement shall be construed so that it is not inconsistent with the 1993 Agreement. Each Holder agrees that its registration rights hereunder are subordinated to the registration rights granted under the 1993 Agreement.
(b) The Company will not effect or permit to occur, any combination or subdivision of Registrable Securities, which would adversely affect the ability of the holders of Registrable Securities to include such Registrable Securities in any registration of its securities contemplated by this Section 2 or the marketability of such Registrable Securities under any such registration.
2.9 Certain Rights If Named in a Registration Statement. If any statement contained in a registration statement under the Securities Act refers to the holder of Registrable Securities by name or otherwise as the holder of any securities of the Company, then such holder shall have the right to require (a) the insertion therein of language, in form and substance reasonably satisfactory to such holder, to the effect that the holding by such holder of such securities does not necessarily make such holder a "controlling person" of the Company within the meaning of the Securities Act or (b) in the event that such reference to such holder by name or otherwise is not required by the Securities Act or any of the rules and regulations promulgated thereunder, the deletion of the reference to such holder.
2.10 Registration Expenses. The Company shall pay the Registration Expenses in connection with any registration requested pursuant to this Section 2.
3. Rule 144. The Company shall take all actions reasonable necessary to enable the holders of Registrable Securities to sell such Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission including, without limiting the generality of the foregoing, filing on a timely basis all reports required to be filed by the Exchange Act. Upon the request of any holder of Registrable Securities, the Company will deliver to such holder a written statement as to whether it has complied with such requirements.
4. Amendments and Waivers. This Agreement may be amended with the consent of the Company and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, in each of the foregoing cases only if the Company shall have obtained the written consent to such amendment, action or omission to act, of the holder or holders of at least a majority of each issue of the Registrable Securities at the time of such consent. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of holders or Registrable Securities whose securities are being sold pursuant to a registration statement and that does not directly or indirectly affect the rights of other holders of Registrable Securities may be given by holders of least a majority of the Registrable Securities being sold by such holders pursuant to such Registration Statement, provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.
5. Nominees for Beneficial Owners. In the event that any Registrable Securities are held by a nominee for the beneficial owner thereof, the beneficial owner thereof may, at its election in writing delivered to the Company, be treated as the holder of such Registrable Securities for purposes of any request or other action by any holder or holders of Registrable Securities pursuant to this Agreement or any determination of any number or percentage of shared of Registrable Securities held by any holder or holders of Registrable Securities contemplated by this Agreement. If the beneficial owner of any Registrable Securities so elects, the Company may require assurances reasonable satisfactory to it of such owner's beneficial ownership of such Registrable Securities.
6. Notices. All communications provided for hereunder shall be sent by postage prepaid first-class mail, receipted courier service or facsimile telecommunication, shall be deemed to be received three days after being sent, or, if earlier, the date of actual receipt at the indicated address, and shall be addressed as follows:
(a) if to any Holder or any transferee of Registrable Securities, addressed to such person(s) at such address as shown on stock ledger of the Company;
(b) if to the Company, addressed to it at its principal executive officer or at such other address as the Company shall have furnished to each holder of Registrable Securities at the time outstanding.
7. Assignment; Calculation of Percentage Interests in Registrable Securities.
(a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns, including any Person to whom Registrable Securities are transferred; provided that the securities so transferred continue to be considered Registrable Securities in the hands of such Person.
(b) For purposes of this Agreement, all references to a percentage of the Registrable Securities shall be calculated based upon the number of such shares held by those holders needed to be included for purposes of such calculation.
8. Descriptive Headings. The descriptive headings of the several sections and paragraphs of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning hereof.
9. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by the internal laws of the State of Delaware.
10. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument.
11. Remedies. Any Person having rights under any provision of this Agreement will be entitled to enforce such rights specifically to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or other security) for specific performance and for other injunctive relief in order to enforce or prevent violation of the provisions of this Agreement.
12. Entire Agreement. This Agreement embodies the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements relating to such subject matter.
13. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.
14. Further Assurances. Each party to this Agreement hereby covenants and agrees, without the necessity of any further consideration, to execute and deliver any and all such further documents and take any and all such other actions as may be necessary or appropriate to carry out the intent and purposes of this Agreement and to consummate the transactions contemplated hereby.
Signature pages follow
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written.
DARLING INTERNATIONAL INC.
By: /s/ Brad Phillips
--------------------------
Name: Brad Phillips
Title: Treasurer
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251 O'Connor Ridge Blvd., Suite 300 Irving, Texas 75038 Fax No.: 972-717-1588 Telephone No.: 972-717-0300 Attention: Treasurer
ARK CLO 2000-1, LIMITED
By: Patriarch Partners, LLC,
its Collateral Manager
By: /s/ Lynn Tilton
--------------------------
Name: Lynn Tilton
Title: Manager
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Ark CLO 2000-1, Limited
c/o Patriarch Partners, LLC
40 Wall Street, 25th Floor
New York, New York 10005
Telephone No.: (212) 825-0550
Facsimile No.: (212) 825-2038
Attention: Dennis Dolan/Lynn Tilton
And
Woodside Capital Management, LLC
36 Woodland Street
2nd Floor
Hartford, CT 06105
Telephone No.: (860) 547-1761
Facsimile No.: (860) 547-1870
Attention: Anthony Varone
BANK ONE N.A.
By: /s/ Phillip D. Martin
--------------------------
Name: Phillip D. Martin
Title: Senior Vice President
|
Bank One N.A.
Mail Code IL1-0631
1 Bank One Plaza
Chicago, IL 60670
CERBERUS PARTNERS, L.P.
By: Cerberus Associates, L.L.C.,
its general partner
By: /s/ Kevin Genda
--------------------------
Name: Kevin Genda
Title: Attorney in Fact
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450 Park Avenue, 28th Floor New York, New York 10022 Attn: Kevin Genda
AVENUE SPECIAL SITUATIONS FUND II L.P.
By: Avenue Capital Management II, LLC
Its General Partner
By: GLS Partners II, LLC,
Managing Member
Of General Partner
By: /s/ Sonia Gardner
--------------------------
Name: Sonia Gardner
Title: Member
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Avenue Capital Group 535 Madison Avenue, 15th Floor New York, New York 10022 Telephone No.: 212-878-3553 Facsimile No.: 212-878-3559 Attn: Stuart Brown
CREDIT AGRICOLE INDOSUEZ
By: /s/ Kathleen M. Sweeney
Name: Kathleen M. Sweeney
Title: Vice President
By: /s/ Leo von Reissig
--------------------------
Name: Leo von Reissig
Title: Vice President
|
Credit Agricole Indosuez, New York Branch 666 Third Avenue New York, NY 10017-4011 Telephone No.: 646-658-2058 Facsimile No.: 646-658-2051 Attention: Kathleen Sweeney
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ James B. Hallock
--------------------------
Name: James B. Hallock
Title: Vice President
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Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, New York 10019 Telephone No.: 212-261-3259 Facsimile No.: 212-261-7861 Attention: Mr. James Hallock
Credit Lyonnais Dallas Branch 2200 Ross Avenue, Suite 4400 West Dallas, Texas 75201 Telephone No.: 214-220-2304 Facsimile No.: 214-220-2323 Attention: David Cagle
PPM AMERICA SPECIAL INVESTMENTS
FUND, L.P.
By: PPM America, Inc., as its
attorney-in-fact
By: /s/ Ronnie Kaplan
--------------------------
Name: Ronnie Kaplan
Title: Vice President
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PPM America, Inc. 225 West Wacker Drive, 9th Floor Chicago, IL 60606 Tel No.: 312-634-2572 Fax No.: 312-634-0053 Attention: Ronnie Kaplan Vice President
PPM AMERICA SPECIAL INVESTMENTS CBO II,
L.P.
By: PPM America, Inc., as its
attorney-in-fact
By: /s/ Ronnie Kaplan
--------------------------
Name: Ronnie Kaplan
Title: Vice President
|
225 West Wacker Drive, 9th Floor Chicago, Illinois 60606 Attn: Ronnie Kaplan, Vice President Telephone: (312) 634-2572 Facsimile: (312) 634-0741
225 West Wacker Drive, 9th Floor Chicago, Illinois 60606
DAPLE, S.A.
By: PPM America, Inc., as its
attorney-in-fact
By: /s/ Ronnie Kaplan
--------------------------
Name: Ronnie Kaplan
Title: Vice President
|
225 West Wacker Drive, 9th Floor Chicago, Illinois 60606 Attn: Ronnie Kaplan, Vice President Telephone: (312) 634-2572 Facsimile: (312) 634-0741
225 West Wacker Drive, 9th Floor Chicago, Illinois 60606
WELLS FARGO BANK (TEXAS) NATIONAL ASSOCIATION
By: /s/ Nipul V. Patel
--------------------------
Name: Nipul V. Patel
Title: Vice President
|
Wells Fargo Bank (Texas) National Association 1000 Louisiana Avenue, Suite 4300 Houston, TX 77002
Exhibit 21.1
Subsidiaries of the Registrant
Darling International, Ltd., an Ontario (Canada) corporation Insurance Company of Colorado, Inc., a Colorado corporation
Exhibit 23.2
The Board of Directors
Darling International Inc.:
The audits referred to in our report dated February 28, 2002 included the related financial statement schedule as of and for each of the years in the three-year period ended December 29, 2001 that is included in the registration statement. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus.
Our report dated February 28, 2002 contains an explanatory paragraph that states there is substantial doubt about the ability of the Company to continue as a going concern. The consolidated financial statements and financial statement schedule do not include any adjustments that might result from the outcome of this uncertainty.
KPMG LLP
Dallas, Texas
May 22, 2002