-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HviaEhIkoKSqx8hxKr74QMU6S+j1TLpHHfE3uS+oQhkECMSbfD7xjrnoMCetGBXv raRiG26UcoKoEpER/Lgzbw== 0000939930-96-000009.txt : 19960924 0000939930-96-000009.hdr.sgml : 19960924 ACCESSION NUMBER: 0000939930-96-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960923 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIMON INC CENTRAL INDEX KEY: 0000939930 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-FARM PRODUCT RAW MATERIALS [5150] IRS NUMBER: 541746567 STATE OF INCORPORATION: VA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13684 FILM NUMBER: 96633034 BUSINESS ADDRESS: STREET 1: 512 BRIDGE ST STREET 2: P O BOX 681 CITY: DANVILLE STATE: VA ZIP: 24541 BUSINESS PHONE: 8047927511 MAIL ADDRESS: STREET 1: 512 BRIDGE ST STREET 2: P O BOX 681 CITY: DANVILLE STATE: VA ZIP: 24541 10-K 1 Page 1 of 216 Exhibit Index on Page 79 through 82 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended June 30, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to . Commission File Number 1-13684 DIMON Incorporated (Exact name of registrant as specified in its charter) VIRGINIA 54-1746567 (State or other jurisdiction of incorporation) (IRS Employer Identification No.) 512 Bridge Street, Danville, Virginia 24541 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (804) 792-7511 Securities registered pursuant to Section 12(b) of the Act: Common Stock (no par value) Common Stock Purchase Rights Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes.....X...... No........... Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of Common Stock held by non-affiliates of the registrant (based upon the closing sale price quoted by The New York Stock Exchange) on August 31, 1996, was approximately $690,839,000. In determining this figure, the registrant has assumed that all of its directors and officers, and all persons known to it to beneficially own ten percent or more of its Common Stock, are affiliates. This assumption shall not be deemed conclusive for any other purpose. As of August 31, 1996, there were 42,366,059 shares of Common Stock outstanding. Portions of the registrant's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders to be held November 15, 1996, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the "Proxy Statement"), are incorporated by reference into Part III of this Form 10-K. PART I ITEM 1. BUSINESS As used in the following description, unless the context otherwise requires, the term "Company" refers to DIMON Incorporated and its subsidiaries and affiliates. Unless otherwise indicated, references to years refer to the Company's fiscal year ended June 30. The Company is engaged in two international businesses -- the purchasing, processing and selling of leaf tobacco, primarily flue-cured, burley and oriental tobaccos, which are the primary components of American blend cigarettes, and the purchasing, transporting and selling of fresh-cut flowers to wholesalers and retailers. The Company believes it is the world's second largest independent leaf tobacco merchant with an estimated 30% share of the established worldwide leaf tobacco market. The Company is the successor to Dibrell Brothers, Incorporated ("Dibrell") and Monk-Austin, Inc. ("Monk- Austin") which merged in April 1995 ("the "Merger"). The Company was incorporated in 1995 under the laws of the Commonwealth of Virginia. See Note M to the Company's Consolidated Financial Statements for the year ended June 30, 1996, included herein as part of Item 8, for detailed financial information regarding each of the Company's business segments. Tobacco The Leaf Tobacco Industry The world's large multinational cigarette manufacturers, with one exception, rely on independent leaf tobacco merchants such as the Company to supply the majority of their leaf tobacco needs. Leaf tobacco merchants select, purchase, process, store, pack, ship and, in certain developing markets, provide agronomy expertise and financing for growing leaf tobacco. At the present time, there are four major global leaf tobacco merchants including the Company. These four merchants source, process and ship leaf tobacco around the world, for delivery to manufacturers of cigarettes and other tobacco products. The Company believes that the leaf tobacco industry is characterized by the following trends: Growth of American Blend Cigarettes. As a result of increased demand and strong brand growth, production of branded American blend cigarettes has increased based on recent calendar year information. In addition, worldwide consumption of American blend cigarettes continues to increase even in some countries where total cigarette consumption is flat or declining. American blend cigarettes contain less tar and nicotine and taste milder than cigarettes historically consumed outside of the U.S. Cigarette production in the U.S. reached record levels in 1995, totaling 741.84 billion units, an increase of 4.1% over 1994, according to the U.S. Department of Agriculture. Exports of domestically produced cigarettes in 1995 totaled 35.1% of cigarette production in the U.S., up from 31.8% in 1994 and 30.9% in 1993. As American blend cigarettes have continued to gain market share, the demand for export quality flue-cured, burley and oriental tobaccos sourced and processed by leaf tobacco merchants has grown accordingly. Although the consumption of cigarettes increased by 1% in the U.S. in 1995, the consumption of cigarettes generally has decreased in the U.S. and in some other countries in recent years, and may continue to decrease in the future. The Company believes that cigarette consumption in certain other countries, however, including those in Central and Eastern Europe and the former Soviet Union, has increased. Growth in Foreign Operations of Large Cigarette Manufacturers. Several of the large multinational cigarette manufacturers have expanded their operations throughout the world, particularly in Central and Eastern Europe and the former Soviet Union, in order to increase their access to and penetration of these markets. As cigarette manufacturers expand their global operations, the Company believes there will be increased demand for local sources of leaf tobacco and local tobacco processing and distribution, primarily due to the semi-perishable nature of unprocessed leaf tobacco and the existence of domestic content laws in certain countries. The Company believes -2- that the international expansion of the large multinational cigarette manufacturers will cause these manufacturers to place greater reliance on the services of financially strong leaf tobacco merchants with the ability to source and process tobacco on a global basis and to help develop higher quality local sources of tobacco. Growth in Foreign Sourced Tobacco. In an effort to respond to cigarette manufacturers' increasing demand for lower cost American blend cigarette ingredients, the major leaf tobacco merchants have made significant investments in South America, Africa and Asia, the principal sources of flue- cured and burley tobaccos outside the U.S. This trend is expected to continue in the foreseeable future as the quality of foreign grown tobacco continues to improve. Improved Market Conditions. The global leaf tobacco industry is currently recovering after experiencing a disruption in demand and reduction in pricing during 1993 and 1994. The disruption of the industry in the U.S. during these years occurred primarily because of (1) the enactment of legislation requiring that cigarettes manufactured in the U.S. for domestic consumption and export contain at least 75% domestically grown tobacco (the "75/25 Rule"), (2) a poor quality 1993 flue-cured tobacco crop in the U.S. and (3) the introduction of legislation in the summer of 1993 to increase significantly the federal excise tax on cigarettes that resulted in manufacturers' reluctance to build inventories. Concurrent with the reduction in demand for international tobaccos related to the 75/25 Rule and lower than expected initial demand for imported tobacco products in Central and Eastern Europe and the former Soviet Union, the worldwide price of tobacco declined due to oversupply attributable to record foreign tobacco crops. This combination of reduced demand and lower prices had a negative impact on the financial performance of the leaf tobacco merchants and resulted in significant increases in uncommitted tobacco inventories among the merchants. In 1994 and 1995, the demand and supply imbalance in the worldwide tobacco market began to improve. Leaf tobacco production outside the U.S. was curtailed in response to the high levels of uncommitted tobacco inventories. The 75/25 Rule was repealed in September, 1995, due to its violation of GATT and was replaced by a series of less stringent import quotas. This resulted in cigarette manufacturers in the U.S. resuming their purchases of tobacco grown outside the U.S. The combination of lower levels of tobacco production and increased demand had a positive impact on worldwide tobacco prices, a corresponding positive impact on the profitability of the industry, and resulted in significant reductions in uncommitted tobacco inventories. Business Strategy The Company's primary business objective is to capitalize on growth in worldwide consumption of American blend cigarettes by becoming the low-cost preferred supplier of leaf tobacco to the large multinational manufacturers of American blend cigarettes. To achieve this objective, the Company has designed a strategy to position itself to meet the needs of its cigarette manufacturing customers throughout the world by expanding its global operations directly in the major tobacco exporting countries and by forming strategic relationships with its major customers in countries with emerging tobacco production in which such customers have specific needs. The Company's ability to respond to the global expansion and changing needs of the large multinational cigarette manufacturers is a critical factor in developing and expanding customer relationships. The principal components of the Company's business strategy are as follows: Increase the Company's operations in low-cost tobacco growing regions. To ensure breadth and depth of supply of tobacco, particularly the tobaccos used in American blend cigarettes, the Company has expanded and plans to continue to expand its operations in South America, Africa and China, the largest production areas of flue-cured and burley tobaccos outside of the U.S. In 1995, the Company signed an agreement with the China National Tobacco Corporation to provide additional access to a state-of-the-art processing facility and tobacco sources in the Yunnan province. The Company also made acquisitions in 1995 in Greece and Turkey, both of which are key producers of oriental tobacco. The Company intends to utilize its agronomy expertise in helping to develop low-cost sources of American blend quality tobaccos and its existing relationships with the major multinational cigarette manufacturers to gain market share in these growth regions. -3- Capitalize on outsourcing trends. The Company anticipates further outsourcing of leaf tobacco purchasing and processing by cigarette manufacturers. This outsourcing trend is driven by (1) higher margins in cigarette production, (2) the increasing sophistication required in sourcing leaf tobacco on a global basis, (3) and continued privatization of tobacco and cigarette production operations in certain countries. In late 1994, the Company began providing all leaf tobacco auction buying in the U.S. for R. J. Reynolds Tobacco Company, Inc. ("RJR"), the second largest cigarette producer in the U.S. More recently, the Company began to purchase and process all of the auction market tobacco requirements in the U.S. for Lorillard Tobacco Company ("Lorillard"), a major cigarette producer in the U.S. Improve efficiency and reduce operating costs. In connection with the Merger, the Company initiated a restructuring plan for its operations. The plan was designed to eliminate unprofitable locations, consolidate duplicative processing facilities, reduce the salaried workforce, improve operating efficiencies and increase regional unit accountability. This initiative resulted in the recognition of various after tax charges in 1995 and 1996, aggregating $17.8 million and $11.8 million, respectively. These are expected to reduce the Company's annual operating costs and expenses by approximately $25 million pre-tax in 1997 when the benefits are expected to be fully realized. Since the Merger, the Company has completed the following in connection with its restructuring plan: - Consolidated the former Dibrell and Monk-Austin operations in Brazil to operate as DIMON do Brazil and sold its 50% interest in a Brazilian tobacco processing joint venture in November, 1995; - Combined the former Dibrell and Monk-Austin operations in Malawi at Centraleaf to operate as DIMON Malawi and dissolved a former Dibrell joint venture in Malawi; - Combined the former Dibrell and Monk-Austin operations in Zimbabwe to operate as DIMON Zimbabwe; - Revised plans for two factories in China's Yunnan Province to call for a single plant in the city of Kunming; and - Closed Monk-Austin's Lake City, South Carolina plant. Expand operations in new markets. During the last decade, several of the large multinational cigarette manufacturers have expanded their global operations, particularly into Central and Eastern Europe and the former Soviet Union, in order to increase their access to and penetration of new markets. The Company believes this will increase demand for local sources of leaf tobacco and local tobacco processing due to the semi-perishable nature of unprocessed tobacco and the existence of domestic content laws in certain foreign countries. The Company believes those factors will cause manufacturers to place greater reliance on the services of financially strong leaf tobacco merchants with the ability to source and process tobacco on a global basis and to help develop higher quality local sources of leaf tobacco. Operations The Company has developed an extensive international network through which it purchases, processes and sells tobacco. In addition to its processing facilities in Virginia and North Carolina, the Company owns or has an interest in, processing facilities in Brazil and Zimbabwe, the two most significant non-U.S. exporters of flue-cured tobacco, Malawi and Mexico, two of the leading non-U.S. exporters of burley tobacco, and Greece and Turkey, the leading exporters of oriental tobacco. The Company also has processing facilities in Italy and Germany. In addition, the Company has entered into contracts, joint ventures and other arrangements for the purchase of tobacco grown in substantially all countries that produce export-quality, flue-cured and burley tobaccos, including Argentina, Canada, Chile, Guatemala, India and Tanzania. -4- Purchasing. The Company purchases tobacco in approximately 26 countries. Although in previous years the majority of the dollar value of tobacco sold by the Company was produced domestically, the relative importance of tobacco grown overseas to the Company's profitability has increased steadily. During 1996, approximately 57% of the dollar value of tobacco purchased by the Company was purchased in the U.S. Approximately 17%, 9% and 3% of the dollar value of tobacco purchased by the Company during 1996 was purchased in Brazil, Zimbabwe and Malawi, respectively. The balance of the Company's tobacco purchases during 1996 were made in other tobacco growing countries, including Argentina, Bulgaria, Canada, Chile, China, Germany, Guatemala, France, Greece, India, Italy, Mexico, Poland, the former Soviet Union, Tanzania and Turkey. The Company believes it has access to a diverse supply of tobacco grown in a number of regions throughout the world and can respond quickly to factors that may cause fluctuations in the quality, yield or price of tobacco crops grown in any one region. Tobacco generally is purchased at auction or directly from growers. Tobacco grown in the U.S., Canada, Malawi and Zimbabwe is purchased by the Company principally on auction markets. The Company purchases domestic tobacco on the flue-cured, burley and air-cured auction markets in Florida, Georgia, Kentucky, Maryland, North Carolina, South Carolina, Tennessee and Virginia for shipment to the Company's facilities in North Carolina and Virginia for processing to customer specification. The Company usually purchases tobacco at the auction markets after receiving specific customer orders or indications of customers' upcoming needs. The Company's network of buyers allows the Company to cover the major auctions of flue-cured and burley tobaccos throughout the world. These buyers are experts in differentiating hundreds of grades of tobacco based on customer specifications and preferences that take into account, among other factors, the texture, visual appearance and aroma of the tobacco. In non-auction markets such as Argentina, Brazil, Greece and Turkey, the Company purchases tobacco directly from farmers or from local entities that have arrangements with farmers. These direct purchases are often made by the Company based upon its projection of the needs of its long-standing customers rather than against specific purchase orders. The Company's arrangements with farmers vary from locale to locale depending on the Company's predictions of future supply and demand, local historical practice and availability of capital. For example, in Brazil, the Company generally contracts to purchase a farmer's entire tobacco crop at the market price at the time of harvest based on the quality of the tobacco delivered. Pursuant to these purchase contracts, the Company provides farmers with fertilizer and other materials necessary to grow tobacco and may extend loans to farmers to finance the crop. Under longer-term arrangements with farmers, the Company may also finance farmers' construction of curing barns. In addition, the Company's field representatives maintain frequent contact with farmers prior to and during the growing and curing seasons to provide technical assistance to improve the quality and yield of the crop. In other non-auction markets, such as Argentina and India, the Company buys tobacco from local entities that have purchased tobacco from farmers and supervises the processing of that tobacco by those local entities. The Company believes that its long-standing relationships with its customers are vital to its operations outside of the auction markets. Processing. The Company processes tobacco to meet each customer's specifications as to quality, yield, chemistry, particle size, moisture content and other characteristics. The Company processes purchased tobacco in its 17 tobacco facilities located throughout the world. Unprocessed tobacco is a semi-perishable commodity that generally must be processed within a relatively short period of time to prevent fermentation or deterioration in quality. Accordingly, the Company has located its processing facilities close to its principal sources of tobacco. Upon arrival at the Company's processing plants, flue-cured and burley tobacco is first reclassified according to grade. Most of that tobacco is then blended to meet customer specifications regarding color, body and chemistry, threshed to remove the stem from the leaf and further processed to produce strips of tobacco and separate out small scrap. The Company also sells a small amount of processed but unthreshed flue-cured and burley tobacco in loose-leaf and bundle form to certain of its customers. -5- Processed flue-cured and burley tobacco is redried to remove excess moisture so that it can be held in storage by customers or the Company for long periods of time. After redrying, whole leaves, bundles, strips or stems are separately packed in cases, bales, cartons or hogsheads for storage and shipment. Packed flue-cured and burley tobacco generally is transported in the country of origin by truck or rail, and exports are moved by ship. Prior to and during processing, steps are taken to ensure consistent quality of the tobacco, including the regrading and removal of undesirable leaves, dirt and other foreign matter. Customer representatives are frequently present at the Company's facilities to monitor the processing of their particular orders. Increased customer requirements and competition among leaf merchants have led to improvements in processing designed to minimize waste and thereby increase yield. Throughout the processing, Company technicians use laboratory test equipment for quality control to ensure that the product meets all customer specifications. From time to time, the Company processes and stores tobacco acquired by various stabilization cooperatives under the U.S.'s price support program. The Company can derive significant revenues from the fees charged for such services, particularly in years when a substantial portion of the domestic tobacco crop is acquired by such cooperatives under the program. While these revenues are not material to the Company's net sales, they result in additional recovery of fixed cost which may be significant to gross profit. Selling. The Company sells its tobacco to manufacturers of cigarettes and other consumer tobacco products located in about 60 countries around the world. The Company ships tobacco to international locations designated by these manufacturers. A majority of the shipments of tobacco are to factories of these manufacturers that are located outside the U.S. In certain countries, the Company also uses sales agents to supplement its selling efforts. Several of these customers individually account for a significant portion of the Company sales in a normal year. The loss of any one or more of such customers could have a materially adverse effect on the tobacco business of the Company. The consumer tobacco business in most markets is dominated by a relatively small number of large multinational cigarette manufacturers and by government controlled entities. Approximately 55% and 52% of the Company's consolidated tobacco sales for 1996 and 1995, respectively, were contracted to be delivered to 37 customers which the Company believes are owned by or under common control of Japan Tobacco, Philip Morris or RJR, each of which contributed in excess of 10% of total tobacco sales, with RJR and Philip Morris accounting for significantly more sales than Japan Tobacco. No other customer accounts for more than 10% of the Company's sales. See "-- Global Operations -- United States" and Note M to the Company's Consolidated Financial Statements for the year ended June 30, 1996, included herein as part of Item 8. The Company generally has maintained relationships with its customers for over forty years. In 1996, the Company delivered approximately 38% of its tobacco sales to customers in the U.S., approximately 28% to customers in Europe and the remainder to customers located in Asia, South America and elsewhere. As of June 30, 1996, the Company's consolidated entities had tobacco inventories of approximately $315 million and approximately $254 million in commitments or indications from customers for purchases of tobacco. At June 30, 1995, those entities had tobacco inventories of approximately $410 million and approximately $256 million in commitments or indications from customers for purchases of tobacco. Substantially all of the June 30, 1996, commitments are expected to be delivered in 1997. The level of purchase commitments for tobacco fluctuates from period to period and is significant only to the extent it reflects short-term changes in demand for leaf tobacco. The Company makes 85-95% of its leaf tobacco purchases pursuant to customer orders or supply contracts or customer indications of anticipated need, with most purchases made based on indications. Customers are legally bound to purchase tobacco acquired by the Company pursuant to orders, but no contractual obligation exists with respect to tobacco purchased in response to indications. However, the Company has done business with most of its customers for many years and has never experienced a significant failure of customers to purchase tobacco for which they have given indications. Other than the contracts with RJR and Lorillard described below under "--Global Operations --United States," the Company has no significant supply agreements with its customers. -6- The Company typically makes sales based on a customer's letter of credit, by cash against documents or by payment against invoice. Substantially all of the Company's sales throughout the world are denominated in U.S. dollars. While payment for tobacco sold by the Company is usually received after the tobacco has been processed and shipped, some customers make advances to the Company periodically throughout the buying season as tobacco is purchased by the Company for their accounts. Distribution of processed tobacco is made by delivery from the Company's storage facilities directly to customers, by truck or rail to customers' storage or manufacturing facilities or to port for shipping. Global Operations United States. The Company owns and operates four processing facilities in North Carolina and Virginia. The price of tobacco grown in the U.S. is supported under a government price support program which also establishes quotas for production. Consequently, U.S.-grown tobacco is typically more expensive than tobacco grown elsewhere. Although domestic tobacco historically has accounted for a large portion of the Company's sales, the Company expects that, because of this price differential and its generally increasing business outside of the U.S., sales of flue-cured and burley tobacco grown in the U.S. and related services will be less significant than in the past. The Company believes that any short-term decline in its domestic business should be offset in the short-term by increased foreign operations. In late 1994, Monk-Austin entered into an agreement with RJR to purchase all of RJR's U.S. auction market tobacco requirements. In late 1995, the Company entered into an agreement with Lorillard pursuant to which the Company will purchase and process all of Lorillard's domestic auction market tobacco requirements. Generally, the contracts establish a framework for pricing the Company's services (which generally is negotiated with respect to crop year, grade of tobacco leaf or type of service provided based on market prices), do not provide for minimum purchases and are terminable upon reasonable notice. The Company expects that purchases under these agreements will account for a substantial portion of its tobacco purchases in the U.S. in the future. Brazil. The Company believes it is one of the two largest independent leaf tobacco merchants in Brazil. The Company exports the majority of the tobacco that it processes in Brazil to its customers around the world. In 1996, the Company derived approximately 24% of its tobacco revenue from its Brazilian operations. In 1996, the Company merged its two wholly owned subsidiaries, Tabra and Dibrell do Brazil to form DIMON do Brazil. DIMON do Brazil has three modern tobacco processing facilities located in the center of Brazil's tobacco production area. Brazil represents the Company's most significant foreign operation in virtually all respects, including purchasing volume, processing and storage capacities and operating income potential. Through the merger and resulting reduction in duplicative functions and facilities the Company believes that it will realize certain economies of scale. The Company believes that these certain economies of scale and savings have been achieved in 1996 operating results and will be fully reflected in 1997 operating results. Zimbabwe and Malawi. The Company exports the majority of the tobacco it processes in Zimbabwe and Malawi to its customers around the world. In 1996, the Company derived approximately 12% of its tobacco revenue from its Zimbabwean and Malawian operations. In 1995, the Company combined the former Dibrell and Monk-Austin operations in Zimbabwe and Malawi to form two wholly-owned subsidiaries, DIMON Zimbabwe and DIMON Malawi. Through DIMON Zimbabwe the Company purchases, processes in two facilities and exports flue-cured and burley tobacco grown in Zimbabwe. Through DIMON Malawi the Company purchases, processes in one facility and exports flue-cured and burley tobacco grown in Malawi. Greece and Turkey. The Company believes it is the largest exporter of processed oriental tobacco in the world as a result of the acquisition of additional oriental tobacco processing facilities in Greece and Turkey. Greece and Turkey are the most important producers of oriental tobaccos. Through its wholly-owned subsidiaries, DIMON Hellas Tobacco SA and DIMON Turk Tutun AS, the Company buys, processes in two facilities in each country and exports oriental tobacco grown in each country. -7- Other Foreign Operations. The Company also has foreign subsidiaries, joint ventures and affiliates that purchase, process and sell tobacco grown in other countries throughout the world. In addition, the Company owns and operates processing facilities in Italy and Germany. In certain countries, such as China and India, the Company has processing agreements with other processors to use their facilities under the supervision of the Company's employees. In several South American countries where the Company operates, tobacco is bought from the farmers by the processors at negotiated prices, and it is necessary to prefinance the crop by making advances of cash or materials to the farmers prior to and during the growing season. Competition The leaf tobacco industry is highly competitive. Competition among dealers in leaf tobacco is based on the price charged for products and services as well as the dealers' ability to meet customer specifications in the buying, processing and financing of tobacco. The Company believes that it is well positioned to meet this competition, particularly in view of its important processing facilities in the U.S., Brazil and other major tobacco growing countries. Among independent tobacco leaf merchants, the principal competitors are Universal Corporation ("Universal"), Standard Commercial Corporation and Intabex Holding Worldwide S.A. Of the independent leaf tobacco merchants, the Company believes that, based on revenues, it ranks second in established worldwide market share. The Company further believes that among independent tobacco leaf merchants, it has the largest or second largest market share in Brazil, Greece, Turkey, the U.S. and Zimbabwe. Universal's market share in the U.S. and Zimbabwe is considerably greater than that of the Company. Seasonality The purchasing and processing activities of the Company's tobacco business are seasonal. Flue-cured tobacco grown in the U.S. generally is purchased during the five-month period beginning in July and ending in November. U.S.-grown burley tobacco is usually purchased from late November through January or February. Tobacco grown in Brazil usually is purchased from January through June. Other markets around the world last for similar periods, although at different times of the year, and as the importance of these markets has grown, seasonal fluctuations in the Company's results of operations have decreased. Mature tobacco, prior to being processed and packed, is a semi-perishable commodity. The production cycle for redrying and packing is relatively short. For example, flue-cured tobacco in the U.S. is generally processed, packed and invoiced within the same five-month period (July through November) that it is purchased. During this period inventories of unprocessed tobacco, inventories of redried tobacco and trade accounts receivable normally reach peak levels in succession. Current liabilities, particularly advances from customers and short-term notes payable to banks, normally reach their peak in this period as a means of financing the seasonal expansion of current assets. Increasing amounts of U.S.-grown burley and foreign tobacco are now being processed in periods other than July through November, reducing the seasonal fluctuations in working capital. At June 30, the end of the Company's fiscal year, the seasonal components of the Company's working capital reflect primarily the operations related to foreign grown tobacco. -8- Flowers Operations The Company's fresh-cut flower operations consist of buying flowers from sources throughout the world and transporting them, normally by air, to operating units for resale to wholesalers and retailers through its wholly- owned flowers subsidiary, Florimex Worldwide, Inc. ("Florimex"). For the year ended June 30, 1996, the Company's flower operations produced approximately 18% of the Company's revenues and represented approximately 10% of the Company's consolidated assets at year end. Florimex operates through 57 offices in 17 countries, including Austria, Canada, Colombia, the Czech Republic, Ecuador, France, Germany, Italy, Japan, Poland, The Netherlands, Spain, Sweden, Switzerland, Thailand, the United Kingdom and the U.S. The activities of certain of these offices are limited to acquiring flowers in the country of origin, but most are engaged in importation and distribution. Florimex is also engaged in additional value- added services through the design and assembly of floral bouquets for sale to supermarket retailers. Virtually all offices are operated as corporate profit centers with the general manager receiving a bonus related to the financial performance of the operation. In a limited number of cases, the local general manager owns a minority share of the unit's equity and participates in dividend distributions. Florimex's Dutch exporting operations, Baardse, are headquartered in Aalsmeer, The Netherlands, inside the premises of the world's largest flower auction facilities. In addition to the Aalsmeer auction, Florimex routinely acquires flowers from all principal Dutch flower auctions. Florimex's Dutch exporting operations sell and ship product directly to Florimex's fresh-cut flower operations and its competitors. Business Strategy The Company's business strategy for Florimex is to increase profitability by increasing sales volume within its established distribution system, rationalizing its cost structure and reducing credit losses. The Company believes that its extensive global network, with buying capacity in all major flower production markets and broad based distribution arrangements in the world's primary wholesale and retail flower markets, gives it substantial competitive advantages. The principal components of Florimex's business strategy are as follows: Expansion of Sales; New Distribution Channels. Florimex expects to increase its sales by focusing on areas of growing per capita consumption of flowers, particularly in non-traditional flower consumption markets in Europe and North America. To accomplish this objective, Florimex has recently (1) restructured its operations in North America to concentrate on (a) the growing channels of supermarkets and mass merchant retailers and (b) bouquet sales in the U.S. and (2) concentrated on sales in Europe, particularly eastern Germany and the Czech Republic. Rationalize operations. Florimex has realized substantial cost savings by reducing personnel, streamlining administrative functions globally and by eliminating unprofitable operations. Reduce credit losses. As the timely collection of trade accounts receivable has traditionally represented a considerable business risk to Florimex's flower operations, trade accounts receivable reporting and credit authorization procedures have been entirely revised. These revisions include (1) the implementation of centralized credit reporting procedures, (2) an overall reassessment of customer credits, (3) the culling of customer listings for the various Florimex companies in order to concentrate on higher margin accounts, (4) requiring bi-monthly updates to the head office on outstanding balances, and, (5) the creation of a prompt response program for customers who begin to evidence slow payer characteristics. These revised policies and procedures reduced bad debt expenses for 1996 by 75% compared to the average for the previous five years. -9- Sources of Supply Florimex acquires its fresh-cut flowers from more than 300 suppliers located in more than 50 countries on five continents. Its primary sources of supply include The Netherlands (via the Dutch auction system), Kenya (via a renewable exclusive supplier contract effective since 1976), Columbia, Ecuador and Thailand. Florimex purchased $40.9 million, or 13.9%, of its total purchases in 1996 ($33.7 million, or 11.5% in 1995) from its Dutch exporting operations on terms similar to those offered to independent parties. Florimex annually buys approximately 30% of the flower crop grown on independent supplier farms in Kenya. Florimex believes that its existing sources of supply are adequate at current sales levels. Florimex also believes that its close relationships with commercial and cargo airlines give it a competitive advantage by permitting it to transport its products around the world expeditiously and cost effectively. Customers and Market Potential Florimex sells to thousands of wholesalers and retailers throughout Europe, North America and Asia. No customer accounts for a significant portion of Florimex's sales in a normal year, and the loss of any one customer or a group of related customers should not have a material adverse effect on Florimex's business. Industry statistics indicate that the annual retail sales of fresh-cut flowers in the U.S., the largest single flower market in the world, exceed $6.5 billion. While the routine purchase of flowers is a tradition in the mature European market, the U.S. market is growing and offers an opportunity for significant penetration. The primary market growth in the U.S. is occurring among supermarkets. During 1995, the Company substantially redirected its U.S. flower resources to serve this important group of customers. Competition Competition within the fresh-cut flower distribution industry is based on adequate and reliable supplies of competitively priced, fresh, good quality flowers. Prices quoted to wholesalers are volatile and often change several times a day. Credit terms are also important. Major competitors are numerous and vary according to market. However, no cut-flower operation, including Florimex, has more than a small share of the worldwide market. Competition is therefore intense. Based on its long-standing sources of supply and well- developed purchasing and distribution facilities, Florimex believes that it competes effectively. Seasonality Sales of fresh-cut flowers are seasonal and are significantly affected by peak holiday demand. Generally the June through August months have low sales levels, with sales increasing through the fall and Christmas season. Special days, such as Valentine's Day and Mother's Day, generally result in material sales increases in February through May. Employees The Company's consolidated entities employ about 2,800 persons, excluding seasonal employees, in its worldwide tobacco operations. In the U.S. tobacco operations the Company's consolidated entities employ about 900 persons, excluding 1,200 seasonal employees. Most seasonal employees are covered by collective bargaining agreements with several U.S. labor unions. In the non- U.S. tobacco operations the Company's consolidated entities employ about 1,900 persons, excluding 6,650 seasonal employees. The Company's worldwide consolidated cut flower operation entities employ about 1,300 persons, excluding seasonal employees. The Company considers its employee relations to be satisfactory. -10- Government Regulation, Environmental Matters and Other Matters See " Managements' Discussion and Analysis of Financial Condition and Results of Operations -- Factors that May Affect Future Results" for a discussion of government regulation, environmental compliance and other matters that may affect the Company's business. -11- FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES As discussed in Item 1, the Company operates in two business segments: the purchasing, processing and selling of leaf tobacco and the purchasing and selling of cut flowers. Financial information concerning segments and geographical operations is included in Note M to the Notes to Consolidated Financial Statements. Information with respect to the Company's working capital appears in Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources. ITEM 2. PROPERTIES Following is a description of the material properties of the Company: Corporate The Company's corporate headquarters are located in Danville, Virginia; the tobacco operations are headquartered in Farmville, North Carolina, and headquarters for flowers operations are in Nuremberg, Germany. Tobacco Facilities The Company operates each of its tobacco processing plants for seven to nine months during the year to correspond with the applicable growing season. While the Company believes its processing facilities are being efficiently utilized, the Company also believes its domestic processing facilities and certain foreign processing facilities have the capacity to process additional volumes of tobacco if required by customer demand. The following is a listing of the various properties used in the tobacco operations:
AREA IN LOCATION USE SQUARE FEET UNITED STATES DANVILLE, VA FACTORY/STORAGE 2,017,000 KENBRIDGE, VA STORAGE (LEASED) 1,665,000 GREENVILLE, N.C. FACTORY/STORAGE 969,000 FARMVILLE, N.C. FACTORY/STORAGE 1,136,000 KINSTON, N.C. FACTORY/STORAGE 1,149,000 LAKE CITY, S.C. STORAGE 252,000 SOUTH AMERICA VERA CRUZ, BRAZIL FACTORY/STORAGE 1,617,000 SANTA CRUZ, BRAZIL FACTORY/STORAGE 1,693,000 VENANCIO AIRES, BRAZIL FACTORY/STORAGE 848,000 ZACAPA, GUATEMALA STORAGE 15,000 AFRICA LILONGWE, MALAWI FACTORY 248,000 HARARE, ZIMBABWE FACTORY(2)/STORAGE 1,222,000 EUROPE KARLSRUHE, GERMANY FACTORY/STORAGE 320,000 THESSALONIKI, GREECE FACTORY(2)/STORAGE 651,000 SPARANISE, ITALY FACTORY/STORAGE 541,000 IZMIR, TURKEY FACTORY(2)/STORAGE 290,000
-12- Flower Facilities Florimex has 57 different operating facilities throughout the world. The owned properties include an international distribution warehouse in Kelsterbach, Germany (near Frankfurt Airport), with offices and storages of about 60,000 square feet. In Nuremberg, the headquarters of Florimex, owned properties include office and storages of about 300,000 square feet. At all Florimex locations there are various properties, generally located near airports, consisting of owned or leased offices and storages. The storages at each location include cooler storages of various sizes to accommodate the needs of individual locations. The Company's management believes its flower operation facilities, including office, distribution and warehouse facilities, are efficiently utilized and are adequate for current and projected sales levels for the foreseeable future. Baardse, the Dutch flower exporter, has leased about 110,000 square feet of office and storage associated with the Aalsmeer auction operation. Aalsmeer has the largest flower auction facility in The Netherlands. Baardse also owns greenhouses in Aalsmeer with 125,000 square feet. All of the above property is owned, except as otherwise indicated, by the Company, its subsidiaries or investee companies. The Company believes that the facilities are generally well maintained and in good operating condition and are suitable and adequate for its purposes at current and reasonably anticipated future sales levels. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. -13- ADDITIONAL INFORMATION - EXECUTIVE OFFICERS OF THE COMPANY The names and ages of all executive officers of the Company, as of June 30, 1996, are set forth below. Executive officers serve at the pleasure of the Board of Directors and are elected at each annual organizational meeting of the Board. Mr. John M. Hines and Mr. Thomas H. Faucett retired effective June 30, 1996. On August 26, 1996, Mr. Brian J. Harker, currently Senior Vice President of DIMON International, Inc., was elected Executive Vice President and Chief Financial Officer of DIMON Incorporated effective October 1, 1996.
NAME AGE POSITION Claude B. Owen, Jr. 51 Chairman of the Board - Chief Executive Officer of the Company on October 21, 1994. He also served as Chairman, Chief Executive Officer and President of Dibrell from July 1993 until the effective time of the Merger and as Chairman of the Board and Chief Executive Officer of Dibrell from February 1990 until July 1993. Mr. Owen also serves as a director for American National Bankshares, Inc. and Richfood Holdings, Inc. Albert C. Monk III 56 President of the Company on October 21, 1994 and President and Chief Executive Officer of DIMON International on January 23, 1995. He also served as Chairman, Chief Executive Officer and President of Monk-Austin beginning from November 8, 1994 until the effective time of the Merger, Chief Executive Officer and President of Monk-Austin since 1992 and President of Monk-Austin since 1990. Mr. Monk is the first cousin of Robert T. Monk, Jr., a director of DIMON Incorporated. John M. Hines 56 Executive Vice President of the Company on February 22, 1995. He retired from the Company effective June 30, 1996 but will continue to serve as a consultant to the Company for two years. He also served as Executive Vice President and Chief Financial Officer of Monk-Austin from 1990 to the effective time of the Merger. Thomas H. Faucett 55 Chief Financial Officer of the Company since January 23, 1995; with Dibrell Brothers, Inc. Mr. Faucett was Senior Vice President - Chief Financial Officer beginning in October, 1985; and was a Director beginning in 1986.
-14- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS DIMON Incorporated's common stock is traded on the New York Stock Exchange, under the ticker symbol "DMN". The Common Stock began trading on the NYSE on April 3, 1995. The following table sets forth for the periods indicated the high and low reported sales prices of the Common Stock as reported by the NYSE and the high and low bid prices as reported by Nasdaq and the amount of dividends declared per share for the periods indicated.
DIMON Common Stock Dividends High Low Declared (1) Fiscal Year 1996 Fourth Quarter. . . . . . . . . . . $19 1 / 2 $16 1/8 $.135 Third Quarter . . . . . . . . . . . 20 7 / 8 16 .135 Second Quarter. . . . . . . . . . . 18 3 / 4 13 3 / 4 .135 First Quarter . . . . . . . . . . . 17 5 / 8 14 5 / 8 .135 Fiscal Year 1995 Fourth Quarter. . . . . . . . . . . 18 5 / 8 14 .135
Dibrell Monk-Austin Common Stock (2) Common Stock (4) High-Low (3) High-Low Third Quarter . . . . . . $14 2 / 3 - 10 2 / 3 $13 1 / 4 - 11 5 / 8 $.133 Second Quarter. . . . . . 14 5 / 6 - 13 15 - 12 7 / 8 .133 First Quarter . . . . . . 13 - 9 1/4 15 - 12 1 / 4 .133
______________________________________ (1) Dividends declared through the third quarter of 1995 reflect the dividend policy of Dibrell which is being continued by DIMON. Monk-Austin paid no dividends. (2) Prior to April 1, 1995, Dibrell common stock was traded on The Nasdaq National Market. (3) Adjusted to reflect the issuance of 1.5 shares of DIMON Common Stock for each share of Dibrell common stock in the Merger. (4) Prior to April 1, 1995, Monk-Austin common stock was traded on the NYSE. As of June 30, 1996, there were 4,596 shareholders, including approximately 3,300 beneficial holders of its Common Stock. The Company pays dividends quarterly. The Company is subject to certain restrictions on its ability to pay dividends. See "Managements' Discussion and Analysis of Financial Condition and Results of Operations -- Restrictions of Dividends." -15- ITEM 6. SELECTED FINANCIAL DATA FIVE-YEAR FINANCIAL STATISTICS
__________________________________________________________________________________________________________ DIMON Incorporated and Subsidiaries Years Ended June 30 (in thousands, except per share amounts) 1996 1995 1994 1993 1992 __________________________________________________________________________________________________________ Summary of Operations Sales and other operating revenues .$2,167,473 $1,941,188 $1,464,778 $1,706,294 $1,712,567 Cost of sales and expenses . . . . . 2,037,702 1,892,166 1,435,016 1,572,479 1,595,431 Restructuring and merger costs . . . 15,360 25,955 - - - ______________________________________________________________________ Operating income. . . . . . . . . . $ 114,411 $ 23,067 $ 29,762 $ 133,815 $ 117,136 Interest expense. . . . . . . . . . 46,924 45,231 35,117 38,128 42,837 ______________________________________________________________________ Income (loss) from continuing operations before income taxes, minority interest, equity in net income (loss) of investee companies, extraordinary items and cumulative effect of accounting changes. . . . . . .$ 67,487 $ (22,164) $ (5,355) $ 95,687 $ 74,299 Income taxes. . . . . . . . . . . . (26,995) (5,980) (2,767) (31,173) (23,590) Income (loss) applicable to minority interest. . . . . . . . . 292 216 466 486 214 Equity in net income (loss) of investee companies . . . . . . . . (274) (1,435) 687 1,404 5,112 U.S. taxes provided on investee companies . . . . . . . . (56) (370) (589) (145) - _______________________________________________________________________ Income (loss) from continuing operations before extraordinary items and cumulative effect of accounting changes . . . . . . . . $ 39,870 $ (30,165) $ (8,490) $ 65,287 $ 55,607 Extraordinary items: Partial recovery of (loss) on Iraqi receivable, net of tax . . . 1,400 - - - (3,637) Reduction of foreign income tax arising from utilization of prior years' operating losses. . . . . - - - - 6,210 Cumulative effect of accounting changes: Postretirement benefit plans, net of tax. . . . . . . . . . . . - - - (9,746) - Income taxes. . . . . . . . . . . . - - - 8,963 - _______________________________________________________________________ Net Income (Loss). . . . . . . . . . $ 41,270 $ (30,165) $ (8,490) $ 64,504 $ 58,180 Per Share Statistics Primary: Income (loss) from continuing operations before extraordinary items and cumulative effect of accounting changes. . . . . . . . $ 1.00 $ (.79) $ (0.22) $ 1.76 $ 1.57 Extraordinary items . . . . . . . . .04 - - - 0.07 Cumulative effect of accounting changes. . . . . . . . - - - (0.02) - Net income (loss) . . . . . . . . . 1.04 (.79) (0.22) 1.74 1.64 Fully diluted: Income (loss) from continuing operations before extraordinary items and cumulative effect of accounting changes. . . . . . . . .98 * * 1.65 1.40 Extraordinary items . . . . . . . . .03 - - - 0.07 Cumulative effect of accounting changes. . . . . . . . - - - (0.02) - Net income (loss) . . . . . . . . . 1.01 * * 1.63 1.47 Dividends paid (1) . . . . . . . . . 0.54 0.535 0.495 0.42 0.34 Stockholders' equity . . . . . . . . 7.46 6.27 7.57 8.32 6.28 Return on average stockholders' equity . . . . . . . . . . . . . . . 14.88% -11.45% -2.85% 24.30% 29.46%
-16- ITEM 6. SELECTED FINANCIAL DATA (continued) FIVE-YEAR FINANCIAL STATISTICS (continued)
______________________________________________________________________________________________________________ DIMON Incorporated and Subsidiaries Years Ended June 30 (in thousands, except per share amount) 1996 1995 1994 1993 1992 ______________________________________________________________________________________________________________ Balance Sheet Data Current assets . . . . . . . . . . .$ 668,775 $ 731,119 $ 685,443 $ 666,454 $ 654,447 Current liabilities. . . . . . . . . 246,433 453,522 467,776 423,854 436,042 ______________________________________________________________________ Working capital. . . . . . . . . . .$ 422,342 $ 277,597 $ 217,667 $ 242,600 $ 218,405 Working capital ratio. . . . . . . . 2.7 to 1 1.6 to 1 1.5 to 1 1.6 to 1 1.5 to 1 Property, plant and equipment (net) . . . . . . . . . .$ 236,775 $ 223,049 $ 209,739 $ 189,549 $ 163,665 Total assets . . . . . . . . . . . .$1,020,014 $ 1,093,608 $1,043,816 $ 998,520 $ 940,266 Revolving credit notes and other long-term debt. . . . . . . .$ 390,871 $ 292,528 $ 188,825 $ 180,270 $ 199,494 Convertible Subordinated Debentures . . . . . . . . . . . .$ - $ 56,370 $ 56,475 $ 56,475 $ 56,900 Stockholders' equity . . . . . . . .$ 315,848 $ 238,806 $ 288,314 $ 308,149 $ 222,962 Other Statistics Weighted average common shares,- primary . . . . . . . . . . . . . . 39,671 38,100 38,091 37,072 35,354 Weighted average common shares, fully diluted . . . . . . . . . . . 42,464 42,355 42,297 41,310 39,626 Common shares outstanding at year end . . . . . . . . . . . . 42,366 38,092 38,069 37,035 35,351 Number of stockholders at year end (2) . . . . . . . . . . 4,596 4,249 4,940 4,919 3,770 Dividends paid . . . . . . . . . . .$ 21,731 $ 15,570 $ 13,014 $ 9,818 $ 8,629 ________________________________________________________________________
* Computation of loss per share is anti-dilutive for the years 1995 and 1994. (1) Dividends declared through the third quarter of 1995 reflect the dividend policy of Dibrell which is being continued by DIMON. (2) Includes the number of Shareholders of record and non-objecting beneficial owners. -17- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless otherwise indicated, references to years refer to the Company's fiscal year ended June 30. General The Company is engaged in two business segments: the purchasing, processing and selling of leaf tobacco and the purchasing and selling of fresh-cut flowers. The Company believes that it is the world's second largest independent purchaser and processor of leaf tobacco. Approximately 82% and 80% of the Company's revenues in 1996 and 1995, respectively, were derived from its tobacco operations. The Company's tobacco business is generally conducted in U.S. dollars, as is the business of the industry as a whole. Accordingly, there is minimal currency risk related to the sale of tobaccos. However, local country operating costs, including the purchasing and processing costs for tobaccos, are subject to the effects of exchange fluctuations of the local currency against the U.S. dollar. The Company attempts to minimize such currency risks by matching the timing of its working capital borrowing needs against the tobacco purchasing and processing funds requirements in the individual countries of tobacco origin. Fluctuations in the value of foreign currencies can significantly affect the Company's operating results. In particular, the Company has a significant concentration of its purchasing, processing and exporting operations in southern Brazil. In recent years, Brazil's economic problems have received wide publicity, and that country has taken and is expected to continue to take various actions relating to foreign currency exchange controls and adjustments for devaluation of the currency and inflation. While such controls generally influence the amount of cash dividends remitted from Brazil and such adjustments can affect the Company's processing costs, they have not and are not expected to adversely affect the Company's ability to export tobacco from Brazil. See Note N to the Company's Consolidated Financial Statements for the year ended June 30, 1996, included herein. On April 1, 1995, Dibrell and Monk-Austin merged into DIMON. The Merger has been accounted for as a pooling of interests and all consolidated financial statements have been restated to include the historical results of operations of both Dibrell and Monk-Austin, including the effects of conforming the accounting policies of the two former entities. Recorded assets and liabilities have been carried forward at their historical book values. In connection with the Merger, the Company initiated a restructuring plan including both the tobacco and flower businesses. The global consolidation and rationalization program was successfully concluded during 1996. The plan was designed to eliminate unprofitable locations, consolidate duplicative processing facilities, reduce the salaried workforce, improve operating efficiencies and increase regional unit accountability. This initiative resulted in the recognition of various after tax charges in 1995 and 1996, aggregating $17.8 million, and $11.8 million, respectively. These charges are expected to reduce the Company's annual operating costs and expenses by approximately $25 million pre-tax in 1997 when the benefits are expected to be fully realized. In fiscal 1996, following the completion of the Merger, the Company implemented the Refinancing Plan (the "Refinancing Plan"), which was designed to reduce its financial leverage, decrease its reliance on short-term uncommitted lines of credit and diversify its sources of debt financing. The Refinancing Plan consisted of the following three components: -18- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) - The call for redemption in March 1996 of the Company's approximately $54.3 million principal balance of the 7 3/4% Debentures due 2006 (the "7 3/4% Debentures"); - The sale of $125 million 8 7/8% Senior Notes due 2006 (the "Notes"), completed on May 29, 1996; and - The execution of a $240 million Credit Agreement, dated as of March 15, 1996 (the "New Credit Facility"), replacing the Company's $250 million credit facility (the "Former Credit Facility"). The Company has used the net proceeds from the offering of the Notes to reduce the level of borrowings under the Company's uncommitted unsecured short-term lines of credit. The Company has historically financed its operations through a combination of short-term lines of credit, customer advances, cash from operations and equity and equity-linked securities. As the Company increased in size and scope, it became increasingly dependent on uncommitted short-term lines of credit. The Company now believes that it is prudent to finance a larger percentage of its working capital with longer term, more permanent capital. The Company believes that the longer maturity of the Notes, combined with the reduced financial leverage resulting from the conversion of the 7 3/4% Debentures and the less restrictive terms of the New Credit Facility, will give the Company increased financial flexibility. The remainder of the Company's revenues are derived from purchasing and selling fresh-cut flowers. Florimex has two principal operations, importing, exporting and wholesaling fresh-cut flowers and exporting fresh-cut flowers purchased primarily from the major flower auctions in The Netherlands. Approximately 18% of the Company's 1996 revenues were derived from its flower operations. Results of Operations The following table expresses items in the Statement of Consolidated Income as a percentage of sales for each of the three most recent years. Any reference in the table and the following discussion to any given year is a reference to the Company's fiscal year ended June 30.
Years Ended _____________________________________ 1996 1995 1994 ____________________________________________________________________________________ Sales and other operating revenues. . . . . 100.0% 100.0% 100.0% Cost of goods and services and expenses . . 87.9 90.6 90.0 Selling, administrative and general expenses. . . . . . . . . . . . . . . . . 6.1 6.9 8.0 Restructuring and merger related costs. . . 0.7 1.3 - _______________________________________ Operating income. . . . . . . . . . . . . . 5.3 1.2 2.0 Interest expense. . . . . . . . . . . . . . (2.2) (2.4) (2.4) _______________________________________ Income (loss) before income taxes, minority interest, equity in net loss of investee companies . . . . . . . . . . . 3.1 (1.2) (0.4) Income taxes. . . . . . . . . . . . . . . . 1.2 0.3 0.2 Equity in net loss of investee companies. . - (0.1) - _______________________________________ Net income (loss) . . . . . . . . . . . . . 1.9 (1.6) (0.6) =======================================
-19- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Comparison of the Year Ended June 30, 1996 to the Year Ended June 30, 1995 The Company's sales and other operating revenues in 1996 were $2.167 billion, an increase of 11.7% from $1.941 billion in 1995. Sales from tobacco operations increased 13.8%, from $1.555 billion in 1995 to $1.770 billion in 1996, primarily due to higher prices on tobacco from South America and increased quantities sold primarily from Europe and Africa. The sales from South America increased in the fourth quarter in 1996 compared to 1995 as demand improved, but the amount is not expected to reduce sales in 1997. See "--Factors that May Affect Future Results." The higher tobacco prices from South America accounted for $102.0 million and increased quantities sold from Europe and Africa accounted for $85.5 million and $29.4 million, respectively. The increased sales of tobacco from Europe resulted from the operations acquired in Greece, Italy and Turkey. Sales and other operating revenues of flowers increased 2.9%, from $385.9 million in 1995 to $397.3 million in 1996. The increase in the Company's sales of flowers was primarily due to the increased export sales from The Netherlands. Cost of sales and expenses of the Company's tobacco operations before restructuring and merger related costs increased 9.2% in 1996 from 1995 due primarily to the 13.8% increase in net sales. The world oversupply of tobacco, which began in 1993, started to improve in 1995 and further improved in 1996 which, along with early consolidation -related cost savings, generated the improvement in the tobacco operating margin (operating income). As a percent of net sales, operating income, excluding restructuring costs, increased to 7.8% in 1996 compared to 3.9% in 1995. Cost of sales and expenses of the flower operations before restructuring costs increased by 0.8% in 1996 from 1995 primarily due to the sales increase of 2.9% offset partially by implementing cost-cutting measures, revising credit policies which decreased bad debts and the closing of unprofitable operations in 1995. The flower operating income (loss) excluding restructuring costs, increased from a (0.1%) loss as a percent of net sales in 1995 to a positive 2.0% of net sales in 1996, primarily due to increased gross margins of the export operations in The Netherlands and by decreased costs mentioned above. Corporate expenses before restructuring costs increased $4.6 million, or 40.7%, to $15.9 million in 1996 from $11.3 million in 1995, due primarily to increased personnel costs and bonuses and legal and professional expenses in 1996. Some of the increased costs for personnel relate to reassigning departments to corporate that were previously in the tobacco operations. Restructuring charges in 1996 for the tobacco operations and corporate amounted to $11.5 million and $4.4 million, respectively. The flower operations had a $.5 million recovery of restructuring costs. The net charges are comprised of $15.7 million for employee separations, a credit of $1.2 million for facility sales and closures and $.9 million for asset writedowns and other items. Interest expense increased $1.7 million in 1996 primarily due to higher borrowings because of increased average tobacco purchases and, to a lesser extent, higher average interest rates. The effective tax rate for 1996 was 40%. In 1995, the Company had tax expense in spite of the overall pre-tax loss due to the effects of foreign tax rates, the mix of income and losses of subsidiaries, the currency effect in Brazil and non-deductible merger expenses. The $1.5 million decrease in equity in net loss of investee companies in 1996 was due primarily to the sale of the investee in Brazil which had a loss in 1995. -20- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Comparison of the Year Ended June 30, 1995 to the Year Ended June 30, 1994 The Company's sales and other operating revenues in 1995 were $1.941 billion, an increase of 32.5% from $1.465 billion in 1994. Sales from tobacco operations increased 41.9%, from $1.096 billion in 1994 to $1.555 billion in 1995, primarily due to higher prices and increased sales quantities sold primarily from the U.S. and Brazil. The higher tobacco prices and increased sales quantities sold from the U.S. accounted for $88.1 million and $248.5 million, respectively, while the increased sales quantities sold from Brazil accounted for substantially all of the increase from Brazil. The Company's increase in net sales of U.S. tobacco was primarily attributable to the Company's 1994 agreement to purchase the U.S. tobacco needs for R. J. Reynolds Tobacco Company, Inc. The increased sales of tobacco from Brazil resulted from the sales of uncommitted stocks from prior year crops. Sales and other operating revenues of flowers increased 4.6%, from $369.1 million in 1994 to $385.9 million in 1995. The increase in the Company's sales of flowers was primarily due to the favorable effect of applying U.S. dollar exchange rates to European operations, but these favorable effects were partially offset by decreased sales of certain North American operations that were closed during the year. The application of exchange rates increased sales by $35.5 million and the closing of operations decreased sales by $15.7 million. Cost of sales and expenses of the Company's tobacco operations increased 40.6% in 1995 from 1994, due primarily to the 41.9% increase in sales. The world oversupply of tobacco, which began in 1993, started to improve in 1995 as indicated by the improvement in the tobacco operating margin (operating income), before restructuring and merger related costs. As a percent of sales, operating income increased to 3.9% in 1995 compared to 3.0% in 1994. However, sales prices continued to be negatively affected by the oversupply, causing the Company to reduce the carrying amount of its tobacco inventory at year end by $9.2 million, reflecting the revaluation of that inventory at the lower of its cost or market value. Cost of sales and expenses of the flower operations increased by 5.4% in 1995 from 1994, primarily due to the sales increase of 4.6% and increased bad debts associated with flower operations now closed and other costs, inclusive of restructuring costs. The flower operating income (loss) decreased from 0.7% of net sales in 1994 to (0.1%) of net sales in 1995, primarily due to decreased gross margins of both the U.S. operations that were closed and the Baardse operations and by increased costs mentioned above. Corporate expenses increased $5.6 million, or 97.7%, to $11.3 million in 1995 from $5.7 million in 1994, due primarily to increased personnel costs and legal and professional expenses in 1995 and reversals of prior accruals in 1994 for stock appreciation rights and certain stock options. Some of the increased costs for personnel relate to reassigning departments to corporate that were previously in the tobacco operations. Restructuring charges for the tobacco and flower operations amounted to $15.2 million and $2.6 million, respectively. The charges are comprised of $12.6 million for employee separations, $2.8 million for facility closures, $2.4 million for asset writedowns and other items. In addition the Company incurred $8.1 million for merger related charges for legal, accounting and financial advisors. Interest expense increased $10.1 million in 1995, primarily due to higher borrowings because of increased average tobacco inventories and, to a lesser extent, higher average interest rates. The Company had tax expense in spite of the overall pre-tax loss in 1995, due to the effects of foreign tax rates, the mix of income and losses of subsidiaries, the currency effect in Brazil and non-deductible merger expenses. -21- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The $1.9 million decrease in equity in net income of investee companies in 1995 was due primarily to the devaluations of the local currency for the Company's investee with operations in Zimbabwe and decreased earnings for the operations in Malawi and Brazil. Liquidity and Capital Resources The following table is a summary of items from the Consolidated Balance Sheet and the Statement of Consolidated Cash Flows.
Year Ended June 30 _____________________________________________ (in thousands, except for current ratio) 1996 1995 1994 ________________________________________________________________________________________ Cash and cash equivalents. . . . . . . $ 53,820 $ 42,326 $ 12,471 Net trade receivables. . . . . . . . . 190,898 182,750 164,314 Inventories and advances on purchases of tobacco . . . . . . . . . . . . . 408,210 468,989 469,015 Total current assets . . . . . . . . . 668,775 731,119 685,443 Notes payable to banks . . . . . . . . - 233,736 255,607 Accounts payable . . . . . . . . . . . 104,506 90,446 112,310 Total current liabilities. . . . . . . 246,433 453,522 467,776 Current ratio. . . . . . . . . . . . . 2.7 to 1 1.6 to 1 1.5 to 1 Revolving Credit Notes and Other Long-term Debt . . . . . . . . . . . 265,871 292,528 188,825 Convertible Subordinated Debentures. . - 56,370 56,475 Senior Notes . . . . . . . . . . . . . 125,000 - - Stockholders' equity . . . . . . . . . 315,848 238,806 288,314 Purchase of property and equipment . . 41,266 35,892 32,382 Proceeds from sale of property and equipment. . . . . . . . . . . . . . 8,605 4,877 5,991 Depreciation and amortization. . . . . 33,780 31,852 28,862
The purchasing and processing activities of the Company's tobacco business are seasonal. The Company's need for capital fluctuates accordingly and, at any of several seasonal peaks, the Company's outstanding indebtedness may be significantly greater or lesser than at year end. The Company historically has needed capital in excess of cash flow from operations to finance inventory and accounts receivable and, more recently, to finance acquisitions of foreign tobacco operations and flower operations. The Company also prefinances tobacco crops in certain foreign countries by making cash advances to farmers prior to and during the growing season. The Company's working capital increased from $277.6 million at June 30, 1995 to $422.3 million at June 30, 1996. The Company's current ratio was 2.7 to 1 and 1.6 to 1 at June 30, 1996, and June 30, 1995, respectively. At June 30, 1996, current assets had decreased $62.3 million, or 8.5%, and current liabilities had decreased $207.1 million, or 45.7%, from June 30, 1995. The $62.3 million decrease in current assets is primarily due to the $60.8 million decrease in inventories and advances on purchases of tobacco. The $207.1 million decrease in current liabilities is primarily due to the $233.7 million decrease in notes payable to banks, primarily as a result of cash generated from operations and the issuance of the Senior Notes, offset partially by a $24.9 million increase in advances from customers. The increase in cash and cash equivalents is primarily related to the financing activities and the proceeds from long-term debt. The increase in receivables reflects the increase in sales during the fourth quarter by the tobacco division. The increase in accounts payable is due primarily to timing of inventory purchases, and the decrease in notes payable is due to increased long-term debt. -22- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Cash flows from operating activities increased to $179.8 million in 1996 as compared to $6.8 million in 1995 and $37.2 million in 1994 which was consistent with the net losses incurred in those periods. Cash flows used by investing activities increased $.7 million, or 4.9%, to $15.2 million in 1996 as compared to 1995, primarily due to the decrease in payments on notes receivable and amounts due from investees and for the increase in proceeds from other investments and other assets. Cash flows used by investing activities decreased $39.6 million, or 73.2%, to $14.5 million in 1995 as compared to 1994, primarily due to the increase in payments on notes receivable and amounts due from investees for the same period and the reduction in issuance of notes receivable. The 1995 purchase of subsidiaries was offset by the Company's 1994 purchase of shares of another company. Cash was used by financing activities in 1996 as the Company applied $153 million to reduce debt whereas in 1995 and 1994, financing activities provided $35.7 million and $14.7 million, respectively. This shift reflects the greatly improved operations in 1996. Also, see the discussion of refinancing activities below. At June 30, 1996, the Company had seasonally adjusted lines of credit of $1.137 billion, including $897 million uncommitted, unsecured working capital lines with several banks. At June 30, 1996, the Company had borrowed $232 million under its $897 million lines of credit with interest rates ranging from 5.8% to 8.0%. At June 30, 1996, the unused short-term lines of credit amounted to $521 million, net of $144 million of letters of credit and guarantees that reduce lines of credit. Total maximum outstanding borrowings during the year ended June 30, 1996, were $724 million. To ensure long-term liquidity, the Company entered into the $240 million New Credit Facility effective March 15, 1996. The New Credit Facility replaced the Company's $250 million Former Credit Facility. The Company used the Former Credit Facility to reclassify $250 million of short-term debt to long- term debt and did not borrow under it. The Company similarly uses the New Credit Facility to reclassify $232 million of its short-term debt. The interest rates available under the New Credit Facility depend on the type of advance selected and are based either on the agent bank's base lending rate (which was 8.25% at June 30, 1996, and is adjusted with changes in interest rates generally) or LIBOR plus 0.75%, through March 15, 1997, and thereafter plus a spread of 0.45% to 1.25% based on the ratings assigned to the Company's outstanding senior debt or on its consolidated interest coverage ratio. The New Credit Facility is subject to certain commitment fees and covenants that among other things require the Company to maintain minimum working capital and tangible net worth amounts, require specific liquidity and long-term solvency ratios and restrict acquisitions and, under certain circumstances, payment of dividends by the Company. The New Credit Facility terminates on March 15, 1998, but may be extended thereafter, year to year, upon approval of the Lenders. As of June 30, 1996, there were no borrowings outstanding under the New Credit Facility. On February 9, 1996, the Company called all of the 7 3/4% Debentures for redemption on March 11, 1996. As of March 4, 1996, holders of Debentures had converted approximately 99.85% of the Debentures into 4,035,969 shares of Common Stock. The remaining Debentures were redeemed on March 11, 1996, for $89,188. The Company funded the redemption price for these Debentures and expenses of the redemption from working capital. The Company has historically financed its operations through a combination of short-term lines of credit, customer advances, cash from operations and equity and equity-linked securities. At June 30, 1996, the Company had no material capital expenditure commitments. The Company believes that these sources of funds combined with the Senior Notes are sufficient to fund the Company's purchasing needs for 1997. The Company's off balance sheet financing is not material. Certain operating leases were acquired with the acquisition of, or have been added by, several foreign tobacco processing facilities and the flower subsidiaries. However, most operating assets are of long-term and continuing benefit and the Company has generally purchased these assets. -23- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Tax and Repatriation Matters The Company and its subsidiaries are subject to income tax laws in each of the countries in which it does business through wholly-owned subsidiaries and through affiliates. The Company makes a comprehensive review of the income tax requirements of each of its operations, files appropriate returns and makes appropriate income tax planning analyses directed toward the minimization of its income tax obligations in these countries. Appropriate income tax provisions are determined on an individual subsidiary level and at the corporate level on both an interim and annual basis. These processes are followed using an appropriate combination of internal staff at both the subsidiary and corporate levels as well as independent outside advisors in review of the various tax laws and in compliance reporting for the various operations. Dividend distributions are regularly made from certain subsidiaries while the undistributed earnings of certain other foreign subsidiaries are not subject to additional foreign income taxes nor considered to be subject to U.S. income taxes unless remitted as dividends. The Company intends to reinvest such undistributed earnings of certain foreign subsidiaries indefinitely; accordingly, no provision has been made for U.S. taxes on those earnings. The Company regularly reviews the status of the accumulated earnings of each of its U.S. and foreign subsidiaries and reevaluates the aforementioned dividend policy as part of its overall financing plans. Accounting Matters In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." The Company is required to adopt the new method of accounting for long-lived assets no later than the first quarter of 1997. The Company believes that its adoption of SFAS No. 121 will not have a material impact on its financial position. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for Stock-Based Compensation," which will be effective for the first quarter of 1997. SFAS No. 123 defines a fair value based method of accounting for stock-based compensation and requires certain disclosures to be made by entities electing not to adopt this method. The Company expects to implement in 1997 the disclosure only provisions, as permitted by SFAS No. 123. Factors that May Affect Future Results The foregoing discussion contains certain forward-looking statements, generally identified by phrases such as "the Company expects" or words of similar effect. The following important factors, among other things, in some cases have affected, and in the future could affect, the Company's actual results and could cause the Company's actual results for 1997 and beyond, to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Variability of Annual and Quarterly Financial Results The comparability of the Company's financial results, particularly the quarterly financial results, may be significantly affected by fluctuations in tobacco growing seasons and customer instructions with regard to the sales of processed tobacco. The cultivation period for tobacco is dependent upon a number of factors, including the weather and other natural events, such as hurricanes or tropical storms, and the Company's processing schedule can be significantly altered by variations in harvesting periods. -24- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Further, it is not possible to predict with precision the timing of orders or sales, and the Company may from time to time in the ordinary course of business keep a significant amount of processed tobacco in inventory for its customers to accommodate their inventory management and other needs. Sales recognition by the Company and its subsidiaries is based on the passage of ownership, usually with shipment of product. Since individual shipments may represent significant amounts of revenue, the Company's quarterly and annual financial results may vary significantly depending on its customers' needs and shipping instructions. In particular, because most deliveries of Brazilian tobacco are made at the end of the fourth fiscal quarter of each year or the beginning of the first quarter of the following year, significant amounts of sales and operating profits may shift from fiscal year to fiscal year. See Item 1, "Business Tobacco Seasonality" and "Business Flowers Seasonality." Governmental Intervention, Environmental Matters and Other Matters In recent years, governmental entities in the U.S. at all levels have taken or have proposed actions that may have the effect of reducing consumption of cigarettes. These activities have included: (1) the U.S. Environmental Protection Agency's decision to classify tobacco environmental smoke as a "Group A" (known human) carcinogen; (2) restrictions on the use of tobacco products in public places and places of employment including a proposal by the U.S. Occupational Safety and Health Administration to ban smoking in the work place; (3) proposals by the U.S. Food and Drug Administration to regulate nicotine as a drug and sharply restrict cigarette advertising and promotion, including the proposed regulations announced in August, 1996 that would (x) prohibit cigarette brand name sponsorship at athletic, musical, cultural and other events, (y) prohibit the sale of nontobacco products featuring cigarette brand names or logos and (z) prohibit the offering of promotional gifts or other items to cigarette purchasers; (4) increases in tariffs on imported tobacco; (5) proposals to increase the U.S. excise tax on cigarettes (6) the recently announced policy of the U.S. government to link certain federal grants to the enforcement of state laws banning the sale of tobacco products to minors and (7) recent filings of lawsuits against cigarette manufacturers by several U.S. states seeking reimbursement of Medicaid and other expenditures by such states claimed to have been made to treat diseases allegedly caused by cigarette smoking. It is not possible to predict the extent to which governmental activities might affect the Company's business. In 1993, Congress enacted a law requiring that all domestically manufactured cigarettes contain at least 75% domestically grown tobacco. Although that law was repealed in 1995 and was replaced with import quotas designed to assist domestic tobacco growers, the law had the temporary effect of drastically decreasing demand for foreign tobacco in the domestic production of cigarettes. It is not possible to predict the extent to which future governmental activities might affect the Company's business. A number of foreign countries have also taken steps to restrict or prohibit cigarette advertising and promotion, to increase taxes on cigarettes and to discourage cigarette smoking. In some cases, such restrictions are more onerous than those in the U.S. For example, advertising and promotion of cigarettes has been banned or severely restricted for a number of years in Australia, Canada, Finland, France, Italy, Singapore and a number of other countries. It is impossible to predict the extent to which restrictions on advertising might affect the Company's business. Smoking and Health Issues Reports and speculation with respect to the alleged harmful physical effects of cigarette smoking have been publicized for many years and, together with restrictions on cigarette advertisements, requirements that warning statements be placed on cigarette packaging and in advertising, increased taxes on tobacco products and controls in certain foreign countries on production and prices, decreased social acceptance of smoking and increased pressure from anti-smoking groups have had an ongoing adverse effect on sales of tobacco products. In addition, litigation is pending against the -25- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) leading U.S. manufacturers of consumer tobacco products seeking damages for health problems alleged to have resulted from the use of tobacco in various forms. Neither the Company nor, to the Company's knowledge, any other leaf merchants is a party to this litigation. It is not possible to predict the outcome of such litigation or what effect adverse developments in pending or future litigation against manufacturers might have on the business of the Company. Reliance on Significant Customers The Company's customers are manufacturers of cigarette and tobacco products located in approximately 60 countries around the world. Several of these customers individually account for a significant portion of the Company's sales in a normal year, and the loss of any one or more of such customers could have a material adverse effect on the Company's results of operations. Approximately 55% and 52% of the Company's consolidated tobacco sales for 1996 and 1995 were to three companies. See Note M to the Company's Consolidated Financial Statements for the year ended June 30, 1996, included herein. International Business Risks The Company's international operations are subject to international business risks, including unsettled political conditions, expropriation, import and export restrictions, exchange controls, inflationary economies and currency risks and risks related to the restrictions of repatriation of earnings or proceeds from liquidated assets of foreign subsidiaries. In certain countries, the Company has advanced substantial sums or guaranteed local loans or lines of credit in substantial amounts for the purchase of tobacco from growers. Risk of repayment is normally limited to the tobacco season, and the maximum exposure occurs within a shorter period. The Company's tobacco business is generally conducted in U.S. dollars, as is the business of the industry as a whole. Accordingly, there is minimal currency risk related to the sale of tobaccos. However, local country operating costs, including the purchasing and processing costs for tobaccos, are subject to the effects of exchange fluctuations of the local currency against the U.S. dollar. The Company attempts to minimize such currency risks by matching the timing of its working capital borrowing needs against the tobacco purchasing and processing funds requirements in the currency of the country of tobacco origin. Fluctuations in the value of foreign currencies can significantly affect the Company's operating results. See Note N to the Company's Consolidated Financial Statements for the year ended June 30, 1996, included herein. The Company has expanded its international operations in areas where the export of tobacco has increased due to increased demand for lower-priced tobacco. In particular, the Company has a significant concentration of its purchasing, processing and exporting operations in southern Brazil. In recent years, Brazil's economic problems have received wide publicity, and that country has taken in the past, various actions relating to foreign currency exchange controls and adjustments for devaluation of the currency and inflation. While such controls generally influence the amount of cash dividends remitted from Brazil and such adjustments can affect the Company's purchases costs of tobacco and its processing costs, they have not and are not expected to adversely affect the Company's ability to export tobacco from Brazil. However, the Company's sales and operating profits from South America decreased significantly in fiscal 1994. While sales recovered in 1995 and 1996, operating profits did not recover to the same extent, due partly to Brazil's monetary policy adopted in July 1994. This policy, along with the weakened U.S. dollar, caused the dollar cost of the 1995 and 1996 Brazilian crops to increase by 40% over the cost of the 1994 crop. As a result, even though the worldwide oversupply of tobacco has been reduced and uncertainties in the U.S. import market related to government regulation have eased, operating profits from the Company's South American sales have not recovered to the levels they reached in 1993. -26- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Restrictions on Dividends Under the terms of an Indenture, dated May 29, 1996, between the Company and Crestar Bank, as trustee, relating to the Notes (the "Indenture"), the Company will not be permitted to make certain restricted payments, including cash dividends on its Common Stock, under certain circumstances. The Company generally may make such restricted payments, provided, that (1) the Company is not in default under the Indenture, (2) the Company is able to incur at least $1.00 of additional indebtedness under a consolidated interest coverage ratio test set forth in the Indenture, and (3) the aggregate amount of the payments to be made is less than the total of (x) $20.0 million, (y) 50% of the Company's net income (as defined) for the period from April 1, 1996, through the end of the Company's most recent fiscal quarter and (z) the net cash proceeds from the sale by the Company of any equity securities or debt securities that are converted into equity securities. As of June 30, 1996, the Company was permitted to make restricted payments, including cash dividends on its Common Stock, of up to $23.2 million. -27- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA STATEMENT OF CONSOLIDATED INCOME DIMON Incorporated and Subsidiaries
Years Ended June 30 (in thousands, except per share amounts) 1996 1995 1994 __________________________________________________________________________________________ Sales and other operating revenues . . . . . . . . . $2,167,473 $1,941,188 $1,464,778 Cost of goods and services sold. . . . . . . . . . . 1,904,992 1,759,364 1,317,705 _____________________________________ 262,481 181,824 147,073 Selling, administrative and general expenses. . . . . 132,710 132,802 117,311 Restructuring and merger related costs. . . . . . . . 15,360 25,955 - _____________________________________ Operating Income. . . . . . . . . . . . . . . . . 114,411 23,067 29,762 _____________________________________ Interest Expense . . . . . . . . . . . . . . . . . . 46,924 45,231 35,117 _____________________________________ Income (loss) before income taxes, minority interest, equity in net income (loss) of investee companies and extraordinary item . . . . . . . . . . . . . . 67,487 (22,164) (5,355) Income taxes. . . . . . . . . . . . . . . . . . . . . 26,995 5,980 2,767 _____________________________________ Income (loss) before minority interest, equity in net income (loss) of investee companies and extraordinary item . . . . . . . . . . . . . . . . 40,492 (28,144) (8,122) Income applicable to minority interest. . . . . . . . 292 216 466 Equity in net income (loss) of investee companies (net of U.S. tax expense) .. . . . . . . . . . . . (330) (1,805) 98 _____________________________________ Income (loss) before extraordinary item . . . . . . . 39,870 (30,165) (8,490) Extraordinary item: Partial recovery of Iraqi receivable (net of income tax expense of $870). . . . . . . . . . . . 1,400 - - _____________________________________ NET INCOME (LOSS) $ 41,270 $ (30,165) $ (8,490) ===================================== Earnings Per Share, Primary Income (loss) before extraordinary item. . . . . . $1.00 $(.79) $(.22) Extraordinary item . . . . . . . . . . . . . . . . .04 - - ____________________________________ Net Income (Loss). . . . . . . . . . . . . . . . . $1.04 $(.79) $(.22) ==================================== Earnings Per Share, Assuming Full Dilution Income before extraordinary item . . . . . . . . . $ .98 $ * $ * Extraordinary item . . . . . . . . . . . . . . . . .03 - - _____________________________________ Net Income . . . . . . . . . . . . . . . . . . . . $1.01 $ * $ * =====================================
See notes to consolidated financial statements * Computation of loss per share is anti-dilutive for the years 1995 and 1994. -28- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) CONSOLIDATED BALANCE SHEET DIMON Incorporated and Subsidiaries
June 30 (in thousands) 1996 1995 ____________________________________________________________________________________________ ASSETS Current assets Cash and cash equivalents . . . . . . . . . . . $ 53,820 $ 42,326 Notes receivable. . . . . . . . . . . . . . . . 1,127 2,002 Trade receivables, net of allowances (1996 - $6,558, 1995 - $8,823). . . . . . . . 190,898 182,750 Inventories: Tobacco . . . . . . . . . . . . . . . . . . . 315,476 410,431 Other . . . . . . . . . . . . . . . . . . . . 18,025 14,179 Advances on purchases of tobacco. . . . . . . . 74,709 44,379 Recoverable income taxes. . . . . . . . . . . . 1,563 2,007 Prepaid expenses and other assets . . . . . . . 13,157 33,045 ________________________________ Total current assets . . . . 668,775 731,119 ________________________________ Investments and other assets Equity in net assets of investee companies . . . . . . 8,268 22,622 Other investments. . . . . . . . . . . . . . . . . . . 2,987 1,749 Notes receivable . . . . . . . . . . . . . . . . . . . 4,078 6,107 Other. . . . . . . . . . . . . . . . . . . . . . . . . 19,151 28,147 _______________________________ 34,484 58,625 ________________________________ Intangible assets Excess of cost over related net assets of businesses acquired . . . . . . . . . . . . . 23,121 26,167 Production and supply contracts. . . . . . . . . . . . 33,325 36,340 Pension asset. . . . . . . . . . . . . . . . . . . . . 4,130 4,219 ________________________________ 60,576 66,726 ________________________________ Property, plant and equipment Land . . . . . . . . . . . . . . . . . . . . . . . . 19,223 19,432 Buildings . . . . . . . . . . . . . . . . . . . . . . 143,741 135,808 Machinery and equipment . . . . . . . . . . . . . . . 160,237 169,181 Allowances for depreciation . . . . . . . . . . . . . (86,426) (101,372) _________________________________ 236,775 223,049 _________________________________ Deferred taxes and other deferred charges . . . . . . . . 19,404 14,089 _________________________________ $1,020,014 $1,093,608 =================================
-29- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) CONSOLIDATED BALANCE SHEET DIMON Incorporated and Subsidiaries 1996 1995 ______________________________________________________________________________________________ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable to banks . . . . . . . . . . . . . . . $ - $ 233,736 Accounts payable: Trade. . . . . . . . . . . . . . . . . . . . . 65,970 56,559 Officers and employees . . . . . . . . . . . . 24,074 20,714 Other. . . . . . . . . . . . . . . . . . . . . 14,462 13,173 Advances from customers. . . . . . . . . . . . . . . 74,153 49,224 Accrued expenses . . . . . . . . . . . . . . . . . . 51,797 57,359 Income taxes . . . . . . . . . . . . . . . . . . . . 5,359 11,199 Long-term debt current . . . . . . . . . . . . . . . 10,618 11,558 ___________________________________ Total current liabilities. . . . . . 246,433 453,522 ___________________________________ Long-term debt Revolving Credit Notes and Other. . . . . . . . . . 265,871 292,528 Convertible Subordinated Debentures . . . . . . . . - 56,370 Senior Notes. . . . . . . . . . . . . . . . . . . . 125,000 - ___________________________________ 390,871 348,898 ___________________________________ Deferred credits Income taxes. . . . . . . . . . . . . . . . . . . . 21,496 10,731 Compensation and other benefits . . . . . . . . . . 44,465 40,715 __________________________________ 65,961 51,446 __________________________________ Minority interest in subsidiaries . . . . . . . . . . . 901 936 __________________________________ Commitments and contingencies . . . . . . . . . . . . . - - __________________________________ Stockholders' equity Preferred Stock - no par value: 1996 1995 Authorized shares. . . . . . 10,000 10,000 Issued shares. . . . . . . . - - - - Common Stock - no par value:. 1996 1995 Authorized shares. . . . . .125,000 125,000 Issued shares. . . . . . . . 42,366 38,092 136,959 80,030 Retained earnings . . . . . . . . . . . . . . . 177,419 157,880 Equity - currency conversions. . . . . . . . . . 2,842 1,565 Additional minimum pension liability . . . . . . (1,372) (1,286) Unrealized gain on investments . . . . . . . . . - 617 _________________________________ 315,848 238,806 _________________________________ $1,020,014 $1,093,608 =================================
See notes to consolidated financial statements -30- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) STATEMENT OF STOCKHOLDERS' EQUITY DIMON Incorporated and Subsidiaries
Additional Unrealized (in thousands, Equity Minimum Gain Total except per share Common Retained Currency Pension (Loss) On Stockholders' amounts) Stock Earnings Conversions Liability Investments Equity ___________________________________________________________________________________________________________ Balance, June 30, 1993 . . . $ 79,833 $225,119 $3,477 $ (280) $ - $308,149 Net loss for the year. . . . (8,490) (8,490) Cash dividends - $0.34 per share . . . . . (13,014) (13,014) Conversion of foreign currency financial statements. . . . . 2,994 2,994 Addition to the minimum pension liability . (1,094) (1,094) Stock options exercised. . . 28 28 Unrealized loss on investments . . . . (259) (259) _____________________________________________________________________________________________ Balance, June 30, 1994 . . . $ 79,861 $203,615 $6,471 $(1,374) $ (259) $288,314 Net loss for the year. . . . (30,165) (30,165) Cash dividends - $0.41 per share . . . . . (15,570) (15,570) Conversion of foreign currency financial statements. . . . . (4,906) (4,906) Reduction in minimum pension liability . 88 88 Stock options exercised. . . 67 67 Unrealized gain on investments . . . . 876 876 Conversion of 7 3/4% Convertible Debentures to Common Stock. . . 102 102 ________________________________________________________________________________________________ Balance, June 30, 1995 . . . $ 80,030 $157,880 $1,565 $(1,286) $ 617 $238,806 Net income for the year. . . 41,270 41,270 Cash dividends - $0.54 per share . . . . . (21,731) (21,731) Conversion of foreign currency financial statements. . . . . 1,277 1,277 Addition to the minimum pension liability . (86) (86) Stock options exercised. . . 1,564 1,564 Realized gain on investments . . . . (617) (617) Conversion of 7 3/4% Convertible Debentures to Common Stock. . . 55,365 55,365 ________________________________________________________________________________________________ Balance, June 30, 1996 . . . $136,959 $177,419 $2,842 $(1,372) $ - $315,848 ================================================================================================
See notes to consolidated financial statements -31- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) STATEMENT OF CONSOLIDATED CASH FLOW DIMON Incorporated and Subsidiaries
Years Ended June 30 (in thousands) 1996 1995 1994 __________________________________________________________________________________________ Operating activities Net Income (Loss). . . . . . . . . . . . . . . .$ 41,270 $ (30,165) $ (8,490) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . 33,780 31,852 28,862 Deferred items . . . . . . . . . . . . . . . . 5,851 (620) 565 Loss (gain) on foreign currency transactions . (368) 570 (1,179) Gain on disposition of fixed assets. . . . . . (2,415) (1,819) (1,624) Gain on sale of investee . . . . . . . . . . . (3,751) - - Gain on sale of investment . . . . . . . . . . (1,090) - - Undistributed (earnings) loss of investees . . 330 1,805 (99) Dividends received from investees. . . . . . . 1,465 478 577 Income applicable to minority interest . . . . 292 216 466 Bad debt expense . . . . . . . . . . . . . . . 1,043 3,820 4,681 Gain on disposal of operations . . . . . . . . - - (1,792) Decrease (increase) in accounts receivable . . (12,644) 52,520 31,454 Decrease (increase) in inventories and advances on purchases of tobacco . . . . . . 64,438 2,156 (16,512) Decrease in recoverable taxes. . . . . . . . . 444 4,293 1,351 Decrease (increase) in prepaid expenses. . . . 17,257 (3,581) (2,056) Increase (decrease) in accounts payable and accrued expenses . . . . . . . . . . . . 14,811 (58,163) 9,730 Increase (decrease) in advances from customers. . . . . . . . . . . . . . . . . . 25,116 (3,028) 4,951 Increase (decrease) in income taxes. . . . . . (6,117) 6,075 (8,744) Other. . . . . . . . . . . . . . . . . . . . . 92 404 (4,983) __________________________________ Net cash provided by operating activities 179,804 6,813 37,158 __________________________________ Investing activities Purchase of property and equipment. . . . . . . (41,266) (27,036) (32,382) Proceeds from sale of property and equipment. . 8,605 4,877 5,991 Payments on notes receivable and receivables from investees. . . . . . . . . . . . . . . . 1,132 27,541 4,477 Issuance of notes receivable. . . . . . . . . . (1,572) (6,329) (18,385) Proceeds from or (advances) for other investments and other assets . . . . . . . . 24,422 4,067 (194) Purchase of minority interest in subsidiaries . - (507) - Purchase of subsidiaries, $8,236, 1996 and $8,856, 1995 for property and equipment . . . . . . . . . . . . . . . . (6,543) (17,123) - Purchase of shares of Standard Commercial Corporation. . . . . . . . . . . . - - (13,408) Other . . . . . . . . . . . . . . . . . . . . . - - (194) __________________________________ Net cash used by investing activities . . (15,222) (14,510) (54,095) __________________________________ Financing activities Repayment of debt . . . . . . . . . . . . . . . (830,863) (927,022) (279,304) Proceeds from debt. . . . . . . . . . . . . . . 698,207 978,366 307,246 Cash dividends paid to DIMON Incorporated stockholders . . . . . . . . . . (21,731) (15,570) (13,014) Cash dividends paid to minority stockholders. . (169) (237) (285) Proceeds from sale of common stock. . . . . . . 1,552 169 28 ___________________________________ Net cash provided (used) by financing activities . . . . . . . . . . (153,004) 35,706 14,671 ___________________________________ Effect of exchange rate changes on cash . . . . . . . . . (84) (1,584) (1,662) ___________________________________ Increase (decrease) in cash and cash equivalents. . . . . 11,494 26,425 (3,928) Increase in cash from purchased subsidiaries. . . . . . . - 3,430 - Cash and cash equivalents at beginning of year. . . . . . 42,326 12,471 16,399 ____________________________________ Cash and cash equivalents at end of year. $ 53,820 $ 42,326 $ 12,471 ==================================== Other information: Cash paid during the year: Interest . . . . . . . . . . . . . . . . . . . $ 43,361 $ 46,768 $ 34,965 Income taxes . . . . . . . . . . . . . . . . . 21,075 18,917 12,627 Non-cash investing and financing activities: Conversion of debt to equity . . . . . . . . . 55,365 102 -
See notes to consolidated financial statements -32- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note A - Merger and Significant Accounting Policies Merger On October 23, 1994, Dibrell and Monk-Austin announced execution of a definitive Agreement and Plan of Reorganization pursuant to which the businesses of Dibrell and Monk-Austin would be combined. At special meetings on March 31, 1995, the shareholders of both Dibrell and Monk-Austin approved the Agreement and related combination. As a result, Dibrell and Monk-Austin were merged into DIMON Incorporated ("DIMON") and each share of Dibrell Common Stock outstanding at the merger date was converted to 1.5 shares, and each share of Monk-Austin Common Stock outstanding at the merger date was converted into 1.0 share of DIMON Common Stock, resulting in 38.069 million total outstanding shares at April 1, 1995, the effective date of the merger. The merger qualifies as a tax free reorganization and was accounted for as a pooling of interests. Accordingly, the Company's financial statements have been restated to include the results of both Dibrell and Monk-Austin for all periods presented. Recorded assets and liabilities have been carried forward to the combined company at their historical book values. Combined and separate results of Dibrell and Monk-Austin during the periods preceding the merger were as follows:
Dibrell Monk-Austin Adjustment Combined _____________________________________________________________________________________________________________ Nine months ended March 31, 1995 (unaudited) Sales and other operating revenues . . .$819,459 $739,415 $ (140) $1,558,734 Net income (loss). . . . . . . . . . . . 6,090 (6,152) 9,829 9,767 _____________________________________________________________________________________________________________ Fiscal year ended June 30, 1994 Sales and other operating revenues . . .$928,470 $534,600 $ 1,708 $1,464,778 Net income (loss). . . . . . . . . . . . (9,144) 930 (276) (8,490) _____________________________________________________________________________________________________________
The combined financial results presented above include adjustments made to conform accounting policies of the two companies. The significant adjustments impacting net income for conformity relate to the accounting for income taxes, the treatment of grower advances in Brazil, foreign currency transaction gains and losses and certain other inventory costing policies. All other adjustments are reclassifications to conform financial statement presentation. Intercompany transactions between the two companies for the periods presented were not material. Significant Accounting Policies The accounts of the Company and its consolidated subsidiaries are included in the consolidated financial statements after elimination of significant intercompany accounts and transactions. Certain foreign consolidated subsidiaries of the Company have fiscal year ends of March 31 and May 31 to facilitate reporting of consolidated accounts. The Company accounts for its investments in certain investee companies (ownership 20% - 50%) under the equity method of accounting. Investments in certain other foreign investees and subsidiaries which are combined with other investments are stated at cost or less than cost since the Company does not exercise significant influence over financial or operating policies and because of restrictions imposed on the transfer of earnings and other economic uncertainties. Sales recognition is based on the passage of ownership, usually with shipment of product. Cash equivalents are defined as temporary investments of cash with maturities of less than 90 days. Inventories are valued at the lower of cost or market. Inventory valuation provisions included in cost of goods and services sold totaled $9.2 million and $40.9 million for 1995 and 1994, respectively. Costs of tobacco inventories are generally determined by the average cost method while costs of other inventories are generally determined by the first-in, first-out method. Substantially all of the tobacco inventory represents finished goods. Interest and other carrying charges on the inventories are expensed in the period in which they are incurred. -33- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note A - Merger and Significant Accounting Policies (continued) Equity in net assets of investee companies includes excess of equity over cost in the amount of $4,075 ($2,244 at June 30, 1995) and is being amortized on a straight-line basis over ten years. Excess of cost over related net assets of businesses acquired is being amortized on a straight-line basis over periods ranging from 10 to 40 years. The accumulated amortization at June 30, 1996, is $5,300 ($4,283 at June 30, 1995). Supply contracts include the cost allocated to two ten-year tobacco supply agreements with R. J. Reynolds Tobacco Company (RJR) pursuant to which the Company will supply RJR and its affiliates with specified quantities of its required tobaccos. Each contract is being amortized over the quantities shipped or the contract period, whichever is sooner. The accumulated amortization at June 30, 1996, is $18,900 ($15,129 at June 30, 1995). Production contracts include the cost allocated to contracts associated with farmers for the future supply of their annual tobacco production. The production contracts are being amortized primarily on a straight-line basis over ten years. The accumulated amortization at June 30, 1996, is $13,311 ($9,931 at June 30, 1995). Property, plant and equipment is accounted for on the basis of cost. Provisions for depreciation are computed on a straight-line basis at annual rates calculated to amortize the cost of depreciable properties over their estimated useful lives. Buildings and machinery and equipment are depreciated over ranges of 20 to 40 years and over five to ten years, respectively. The consolidated financial statements do not include fully depreciated assets. The Company provides deferred income taxes on temporary differences arising from tax loss carryforwards, employee benefit accruals, depreciation, deferred compensation and undistributed earnings of consolidated subsidiaries and unconsolidated affiliates not permanently reinvested. Primary earnings per share are computed by dividing earnings by the weighted average number of shares outstanding plus any common stock equivalents during each period. The fully diluted earnings per share calculation assumes that all of the outstanding Convertible Subordinated Debentures were converted into Common Stock at the beginning of the reporting period thereby increasing the weighted average number of shares considered outstanding during each period and reducing the after-tax interest expense. The weighted average number of shares outstanding are further increased by common stock equivalents on employee stock options. The Company carried its equity security investments at fair value as Prepaid expenses and other assets with any change from the average cost basis being reflected in stockholders' equity net of the tax benefit. These securities were sold in 1996. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." The Company is required to adopt the new method of accounting for long-lived assets no later than the first quarter of 1997. The Company believes that its adoption of SFAS No. 121 will not have a material impact on its financial position. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for Stock-Based Compensation," which will be effective for the first quarter of the Company's 1997 statements. SFAS No. 123 defines a fair value based method of accounting for stock-based compensation and requires certain disclosures to be made by entities electing not to adopt this method. The Company expects to implement in 1997 the disclosure only provisions, as permitted by SFAS No. 123. In the fourth quarter of 1996 the Company reclassified Other income into Sales and other operating revenues. The Company also reclassified Sundry deductions into Cost of goods sold. Both Other income and Sundry deductions are not material and the reclassification does not affect Net income. Prior year accounts have been reclassified for conformity within the financial statements. -34- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note B - Restructuring and Merger Related Costs In connection with the April, 1995, merger of Dibrell and Monk-Austin, the Company incurred legal, accounting and financial consultants costs of $8.1 million in 1995 and commenced various activities to restructure its worldwide operations. The following tables set forth the Company's restructuring provisions provided and changes in the related reserves for 1995 and 1996. The reserve balances are included in accrued expenses and deferred compensation and other benefits.
Facilities Employee Closure Separations Costs Other Total __________________________________________________________________________________________ Provision for restructuring - 1995. $12,593 $ 2,848 $2,416 $17,857 Reduced by: Cash payments. . . . . . . . . . . (76) (223) (205) (504) Asset writedowns . . . . . . . . . - (1,493) (2,211) (3,704) ______________________________________________________________ Reserve balances at June 30, 1995 . . $12,517 $ 1,132 $ - $13,649 Provision for restructuring - 1996. . 15,699 (1,244) 905 15,360 Increased (reduced) by: Cash (payments) receipts. . . . . (8,150) 4,719 (75) (3,506) Asset writedowns and sales. . . . - (4,212) (330) (4,542) Reserve balances at June 30, 1996 . . $20,066 $ 395 $ 500 $20,961 ______________________________________________________________
The 1995 restructuring provision included approximately $2.6 million for the closing of certain unprofitable flower facilities and related severance costs. The remaining 1995 restructuring provision of $15.2 million addressed rationalization of the tobacco operations through elimination of duplicative facilities and reduction of personnel. The 1996 restructuring provision of $15.4 million was primarily for additional severance costs. During the year ended June 30, 1996, the Company severed a total of 367 employees most of which were involuntarily separated. The severed employees were primarily in the tobacco division and worked in various departments throughout the Company. Remaining cash outlays associated with employee separations are expected to total $15.2 million, of which $10.8 million will be expended in 1997. Remaining amounts relate primarily to the pension plan charge and other deferred compensation, which will be made as required for funding appropriate pension and other payments in future years. No additional restructuring charges are anticipated. Note C - Investee Companies, Related Parties and Acquisitions The combined summarized information for investee companies is approximately as follows:
1996 1995 1994 ________________________________________________________________________ Current assets. . . . . . . . . . . .$13,069 $ 84,635 $110,531 Non-current assets. . . . . . . . . . 29,087 57,344 67,066 Current liabilities . . . . . . . . . 14,631 84,244 99,649 Non-current liabilities . . . . . . . 2,446 3,130 6,275 Interest of other shareholders. . . . 12,733 31,982 37,953 Net sales . . . . . . . . . . . . . . 42,388 120,183 146,731 Gross profit. . . . . . . . . . . . . 8,771 9,953 22,506 Net income (loss) . . . . . . . . . . 594 (1,395) 2,609 ___________________________________
The above changes from 1995 relate primarily to the Company selling its interest in a Brazilian investee, Rio Grande Tabacalera S.A. -35- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note C - Investee Companies, Related Parties and Acquitions (continued) Balances with related parties, primarily unconsolidated, affiliated companies, are as follows:
1996 1995 1994 ___________________________________________________________________________ Trade receivables . . . . . . . . .$23,904 $ 21,258 $ 10,968 Advances on purchases of tobacco. . 32,786 9,716 38,557 Notes receivable. . . . . . . . . . - 4,169 10,425 Trade payables. . . . . . . . . . . 6,844 1,556 7,555 Other income: Interest . . . . . . 581 1,376 1,299 Net sales . . . . . . . . . . . . . 6,673 12,907 16,257 Purchases of tobacco. . . . . . . . 61,549 73,474 76,321 ________________________________________
On April 1, 1995 the Company acquired the businesses of Austro-Hellenique De Tabac S.A. (Hellas) and Austro-Turk Tutun A.S. (Austro-Turk) for cash of $13,372 and assumption of liabilities of $3,821. Hellas and Austro-Turk have tobacco buying, processing and selling operations in Greece and Turkey, respectively. This acquisition has been accounted for as a purchase. The excess of cost over businesses acquired of $17,193 is being amortized over a ten-year period. The following pro forma information has been prepared assuming that this acquisition had taken place at the beginning of the period. The pro forma information includes adjustments to give effect to amortization of goodwill and interest expense on acquisition debt, together with related income tax effects.
Year ended June 30, 1995 (unaudited) Sales and other operating revenues . . . . . . . . . . . . .$1,965,437 Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . (36,577) Loss per share, primary. . . . . . . . . . . . . . . . . . . (.96)
Note D - Financial Instruments The estimated fair value of the Company's financial instruments at June 30, 1996 is provided in the following table:
Carrying Fair Amount Value _______________________________________________________________________ Senior Notes . . . . . . . . . . . . . . . . .$125,000 $124,531 Other Long-Term Debt and Capitalized Leases. . 44,813 42,561
Interest rate swap agreements with an aggregate notional principal balance of $202,714 ($125,000 fixed to floating and $77,214 floating to fixed) and expiring at various dates through May 23, 2001, had a negative value of $435 at June 30, 1996. In the normal course of business, the Company is a party to financial instruments with off balance sheet risk such as letters of credit and guarantees. Management does not expect any material losses to result from these instruments. The fair value estimates presented herein are based on information available to management at June 30, 1996, and were determined using market information and other commonly accepted valuation methodologies. Note E - Short-Term Borrowing Arrangements The Company has lines of credit arrangements with several banks under which the Company may borrow up to a total of $897,523 ($876,181 at June 30, 1995), excluding all long-term credit agreements. These lines bear interest at rates ranging from 5.8% to 8.0% at June 30, 1996. Unused lines of credit at June 30, 1996, amounted to $521,145 ($508,947 at June 30, 1995), net of $144,701 of available letters of credit and guarantees that reduce lines of credit. There were no compensating balance agreements at June 30, 1996, or 1995. -36- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note F - Long-Term Debt Such debt is comprised of:
1996 1995 __________________________________________________________________________ Maturing Maturing Maturing Maturing within after within after One Year One Year One Year One Year __________________________________________________________________________ Senior Notes . . . . . . .$ - $125,000 $ - $ - Convertible Subordinated Debentures . . . . . . . - - - 56,370 Revolving Credit Notes . . - 231,676 - 250,000 Other Long-Term Debt . . . 9,279 32,994 9,679 40,772 ________________________________________________ $ 9,279 $389,670 $ 9,679 $347,142 Capitalized Lease Obligations . . . . . . 1,339 1,201 1,879 1,756 ________________________________________________ $10,618 $390,871 $11,558 $348,898 ================================================
Payments of the debt are scheduled as follows:
Revolving Other Senior Credit Long-Term Notes Notes Debt Total _________________________________________________________________________ 1998 . . . . . . . . . . .$ - $231,676 $ 7,839 $239,515 1999 . . . . . . . . . . . - - 7,724 7,724 2000 . . . . . . . . . . . - - 6,318 6,318 2001 . . . . . . . . . . . - - 2,010 2,010 2002 . . . . . . . . . . . - - 1,708 1,708 2003 . . . . . . . . . . . - - 1,500 1,500 Later years. . . . . . . . 125,000 - 5,895 130,895 ________________________________________________ $125,000 $231,676 $32,994 $389,670 =================================================
On May 29, 1996, the Company issued $125 million in 8 7/8% Senior Notes (the "Notes") due 2006. The Notes are general unsecured obligations of the Company and will rank equally in right of payment with all other unsubordinated indebtedness (including the New Credit Facility) of the Company. On or after June 1, 2001, the Company may redeem the Notes in whole or in part, at established redemption prices, plus accrued and unpaid interest, if any, to the date of redemption. There are no sinking fund requirements for the Notes. The Notes are subject to certain covenants that among other things, require specific liquidity and long-term solvency ratios and, under certain circumstances, restrict payment of dividends by the Company. The Company used the net proceeds to repay certain existing short- term indebtedness and for other corporate purposes. To ensure long-term liquidity, DIMON entered into a $240 million New Credit Facility with 13 banks which replaces DIMON's $250 million Former Credit Facility. The Company had no borrowings under these agreements at either June 30, 1996 or 1995. However, the Company has used these facilities to classify $231,676 ($250,000 at June 30, 1995) of working capital loans to Revolving Credit Notes. It is the Company's intent to finance at least $231,676 on a long-term basis. The New Credit Facility is subject to certain commitment fees and covenants that among other things require DIMON to maintain minimum working capital and tangible net worth amounts, require specific liquidity and long-term solvency ratios and restrict acquisitions and, under certain circumstances, payment of dividends by the Company. The New Credit Facility's initial term is to March 15, 1998, and, pending approval by the lenders, may be extended. The rates of interest are based upon the type of loan requested by the Company. During the life of the agreement, the interest rate could be the prime rate or the LIBOR rate adjusted. The primary advance rate is the agent bank's base lending rate (8.25% at June 30, 1996). The Company pays a commitment fee of 1/4% per annum on any unused portion of the facility. Decisions relative to repayments and reborrowings are made based on circumstances then existing, including management's judgment as to the most effective utilization of funds. -37- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note F - Long-Term Debt (continued) Other long-term debt consists of obligations of DIMON Incorporated, Florimex and the tobacco operations in Africa and Italy, and is payable at interest rates varying from 4.85% to 12.0%. On February 9, 1996, the Company called all of the outstanding 7 3/4% Convertible Subordinated Debentures for redemption on March 11, 1996. The debenture call by the Company resulted in a reduction of debt of $54,312, the issuance of approximately 4.036 million shares of the Company's Common Stock valued at $53,375, $89 in cash being paid to debenture holders and $848 net for the reduction of deferred charges offset by increased interest expense. The Company funded the redemption price for these Debentures and expenses of the redemption from working capital. Note G - Long-Term Leases The Company, primarily through Florimex, has both capital and operating leases. The capital leases are for land, buildings, automobiles and trucks; the operating leases are for office equipment. The capitalized lease obligations are payable through 1999. Interest rates are imputed at 7.0% to 10.7%. Amortization is included in depreciation expense. Minimum future obligations and capitalized amounts are as follows:
Capital Operating Leases Leases _____________________________________________________________________________ 1997 . . . . . . . . . . . . . . . . . . . . . $ 1,481 $ 4,161 1998 . . . . . . . . . . . . . . . . . . . . . 916 3,308 1999 . . . . . . . . . . . . . . . . . . . . . 299 2,506 2000 . . . . . . . . . . . . . . . . . . . . . 33 1,631 2001 . . . . . . . . . . . . . . . . . . . . . - 1,304 Later years . . . . . . . . . . . . . . . . . - 1,707 _________________________ $ 2,729 $14,617 Less amount representing interest and deposits . . . . . . . . . . . . . . . . 189 ______ Present value of net minimum lease payments. . $ 2,540 Less current portion of obligations under capital leases . . . . . . . . . . . . 1,339 ______ Long-term obligations under capital leases . . $ 1,201 ====== Capitalized amounts Machinery and equipment, primarily vehicles. $ 4,648 Accumulated amortization . . . . . . . . . . (2,187) _______ $ 2,461 =======
-38- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note H - Preferred Stock/Capital Stock The Board of Directors is authorized to issue shares of Preferred Stock in series with variations as to the number of shares in any series. The Board of Directors also is authorized to establish the rights and privileges of such shares issued including dividend and voting rights. At June 30, 1996, no shares had been issued. The Company called all of its outstanding 7 3/4% Convertible Subordinated Debentures due 2006 (the "Debentures") for redemption on March 11, 1996 (the "Redemption Date"). Also, see Note F to the Notes to Consolidated Financial Statements. Note I - Stock Incentive Plan At the 1995 Special Meeting of Stockholders the DIMON Incorporated Omnibus Stock Incentive Plan (the Incentive Plan) and the DIMON Incorporated Non- Employee Directors Stock Option Plan (the Directors Plan) were approved. Also, as a result of the merger, options granted under previous plans were assumed by DIMON. The Incentive Plan authorizes the issuance of up to 2 million shares of common stock (subject to increase annually by 3% of the number of shares of common stock issued during such year, other than pursuant to the Incentive Plan). The Incentive Plan authorizes the issuance of various stock incentives to key employees of the Company or any subsidiary, including nonqualified or incentive stock options, stock appreciation rights and shares of restricted stock. Stock options granted under the Incentive Plan allow for the purchase of common stock at prices determined at the time the option is granted by a committee composed of independent directors. Stock appreciation rights (SARs) may be granted under the Incentive Plan in relation to option grants or independently of option grants. SARs generally entitle the participant to receive in cash the excess of the fair market value of a share of common stock on the date of exercise over the value of the SAR at the date of grant. Restricted stock is common stock that is both nontransferable and forfeitable unless and until certain conditions are satisfied. No options or SARs may be granted and no restricted stock may be awarded under the Incentive Plan after February 8, 2005. The options and SARs become exercisable on various dates as originally determined for the grants assumed by DIMON. Under the Incentive Plan, the committee will determine the dates that the options and SARs become exercisable. A separate Directors' Plan authorizes automatic annual grants to purchase one thousand shares to each non-employee director. Any 1996 grants will be awarded at the meeting of the DIMON Board following the 1996 annual meeting of the shareholders of DIMON. The option price will be equal to the fair market value of DIMON Common Stock on the date of grant. The maximum number of shares to be issued under the Directors Stock Plan is 50 thousand shares. Options granted under the Directors' Stock Plan are immediately exercisable. Options to purchase six thousand shares had been granted as of June 30, 1996. The Company has elected to treat the costs of SARs as compensation charges to the income statement with quarterly adjustments for market price fluctuations. All other options are treated as equivalent shares outstanding. There was a $473 charge to income in 1996, a $680 charge to income in 1995, and an $974 credit to income in 1994 arising from adjustments in fair market values of the SARs. -39- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note I - Stock Incentive Plan (continued) Information with respect to options and SARs follows:
Year Ended June 30 _____________________________________ 1996 1995 1994 __________________________________________________________________________________ Options outstanding at beginning of year . . . . . . . . . . 1,540 1,354 1,074 Options and SARs granted. . . . . . . . 403 231 299 Options exercised . . . . . . . . . . . (130) (5) (12) Options cancelled . . . . . . . . . . . (9) (40) (7) __________________________________________ Options outstanding at end of year. . . 1,804 1,540 1,354 ========================================== SARs included as outstanding at end of year. . . . . . . . . . . . 528 498 415 ========================================== Options available for future grants at end of year. . . . . . . . . . . . 337 500 1,665 ========================================== Options and SARs exercisable at end of year . . . . . . . . . . . . . 1,023 926 392 ========================================== Option and SAR market prices per share: Date of grant. . . . . . . . . . . . . $17.00 $11.50 $16.67 15.38 Exercised (at lowest and highest market prices) . . . . . . . . . . . 11.33- 14.42- 18.23- 20.75 18.25 20.67 Cancelled (at lowest and highest market prices) . . . . . . . . . . . 17.00 11.50- 10.00 13.87
Note J - Retained Earnings Consolidated retained earnings included $4,490 at June 30, 1996 ($4,860 at June 30, 1995) for the Company's share of undistributed net income of investee companies accounted for on the equity method. Note K - Income Taxes Consolidated retained earnings at June 30, 1996 and 1995 include undistributed earnings of $145,773 and $127,792 respectively, of certain foreign consolidated subsidiaries which are not subject to additional foreign income taxes nor considered to be subject to United States income taxes unless remitted as dividends. The Company intends to reinvest these undistributed earnings indefinitely; accordingly, no provision has been made for United States taxes on such earnings. At June 30, 1996, the Company has net operating tax loss carryforwards of approximately $78,772 for income tax purposes that expire in 1997 and thereafter. Those carryforwards relate primarily to state taxes for U.S. entities and to foreign taxes on Baardse and various Florimex entities. -40- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note K - Income Taxes (continued) The components of income (loss) before income taxes, minority interest, equity in net income of investee companies and cumulative effect of accounting changes, consisted of the following:
1996 1995 1994 ____________________________________________________________________________ U.S.. . . . . . . . . . . $ 6,301 $(28,293) $(1,837) Foreign . . . . . . . . . 61,186 6,129 (3,518) _________________________________________________ $67,487 $(22,164) $(5,355) =================================================
The details of the amount shown for income taxes in the Statement of Consolidated Income follow:
1996 1995 1994 __________________________________________________________________________ Current Federal . . . . . . . . . $ 7,676 $ 4,967 $ 2,721 State . . . . . . . . . . 424 73 469 Foreign . . . . . . . . . 12,633 9,719 109 ________________________________________________ $20,733 $14,759 $ 3,299 ________________________________________________ Deferred Federal . . . . . . . . . $(3,181) $(6,622) $(2,417) State . . . . . . . . . . (854) (810) (546) Foreign . . . . . . . . . 10,297 (1,347) 2,431 ________________________________________________ $ 6,262 $(8,779) $ (532) ________________________________________________ Total . . . . . . . . . . $26,995 $ 5,980 $ 2,767 ================================================
-41- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note K - Income Taxes (continued) The reasons for the difference between income tax expense based on income or (loss) before income taxes, minority interest and equity in net income of investee companies and the amount computed by applying the statutory Federal income tax rate to such income, are as follows:
Pre-tax Income ______________________________________ 1996 1995 1994 ______________________________________ Computed "expected" tax expense (benefit) . $23,620 $(7,757) $(1,784) State income taxes, net of Federal income tax benefit. . . . . . . . . . . . (280) (530) (77) Effect of foreign income taxes . . . . . . (1,060) 6,962 2,324 U.S. taxes on foreign income, net of tax credits . . . . . . . . . . . 1,270 1,440 524 Operating loss carryforwards, net. . . . . 2,262 1,942 1,896 Tax benefits derived from Foreign Sales Corporations. . . . . . . . . . . . (1,633) (887) (1,169) Meals and entertainment. . . . . . . . . . 379 316 200 Non-deductible merger expenses . . . . . . - 1,583 - Nondeductible amortization of goodwill . . 655 1,787 799 Other. . . . . . . . . . . . . . . . . . . 1,782 1,124 54 ______________________________________ Actual tax expense.. . . . . . . . . . . . $26,995 $ 5,980 $ 2,767 ======================================
-42- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note K - Income Taxes (continued) The long-term deferred tax liabilities (assets) are comprised of the following:
1996 1995 ______________________________________________________________________________ Deferred tax liabilities: Fixed assets. . . . . . . . . . . . . . . . . .$11,797 $13,825 Foreign taxes . . . . . . . . . . . . . . . . . 8,672 1,637 Other . . . . . . . . . . . . . . . . . . . . . 1,027 - __________________________ Gross deferred tax liabilities . . . . . . . . . . . 21,496 15,462 __________________________ Deferred tax assets: Tax loss carryforwards. . . . . . . . . . . . .(16,571) (12,618) Postretirement and other benefits . . . . . . .(10,317) (9,041) Currently non-deductible expenses . . . . . . . (4,384) (2,594) Foreign tax credit. . . . . . . . . . . . . . . - (2,000) Other . . . . . . . . . . . . . . . . . . . . . (892) (1,333) __________________________ Gross deferred tax assets. . . . . . . . . . . . . . (32,164) (27,586) Valuation allowance. . . . . . . . . . . . . . . . . 16,571 12,414 __________________________ Net deferred tax assets. . . . . . . . . . . . . . . (15,593) (15,172) __________________________ Net deferred tax liability . . . . . . . . . . . . .$ 5,903 $ 290 ========================
The net change in the valuation allowance for deferred tax assets was an increase of $4,157 and relates primarily to the increase in tax loss carryforwards for which no benefit can be currently recognized. Note L - Employee Benefits Retirement Benefits In 1995, the Company assumed the defined Benefit Pension Plan (the Retirement Plan) and an Excess Benefit Plan of the former Dibrell. The Retirement Plan provides retirement benefits for substantially all of the former Dibrell's U.S. salaried personnel based on years of service rendered and compensation during the last five years of employment. The Company maintains an Excess Benefit Plan that provides individuals who participate in the Retirement Plan the difference between the benefits they could potentially accrue under the Retirement Plan and the benefits actually paid as limited by regulations imposed by the Internal Revenue Code. The Company funds these plans in amounts consistent with the funding requirements of Federal Law and Regulations. Certain non-U.S. plans are sponsored by certain Florimex subsidiaries located in Italy, Austria and Germany. These plans cover substantially all of their full-time employees. Additional non-U.S. plans sponsored by certain tobacco subsidiaries cover substantially all of their full-time employees located in Greece, Italy, The Netherlands, Turkey and Zimbabwe. -43- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note L - Employee Benefits (continued) Net pension cost included the following components:
1996 1995 1994 __________________________________________________________________________________ Service cost - benefits earned during the year . .$ 1,402 $ 1,528 $ 1,270 Interest cost on projected benefit obligation. . . 4,286 4,040 3,612 Return on assets - actual. . . . . . . . . . . . . (6,174) (4,596) (357) Amortization of transition asset at July, 1986 . . (268) (268) (273) Amortization of prior service costs. . . . . . . . 659 704 488 Amortization of unrecognized loss(gain). . . . . . 3,004 1,778 (2,537) _______________________________ Net pension cost before effect of curtailment. . . 2,909 3,186 2,203 Effect of curtailment . . . . . . . . . . . . . . (698) - - _______________________________ Net pension cost. . . . . . . . . . . . . . . . .$ 2,211 $ 3,186 $ 2,203 ===============================
The funded status of the plans at June 30 was as follows:
1996 1995 _________________________________________________________________________ Actuarial present value of accumulated benefit obligation Vested . . . . . . . . . . . . . . . . . . . . . $46,893 $41,935 Nonvested. . . . . . . . . . . . . . . . . . . . 484 576 _______________________ 47,377 42,511 Benefits attributable to projected salary increases . . . . . . . . . . . . . . . . 9,560 12,077 _______________________ 56,937 54,588 Plan assets at fair value. . . . . . . . . . . . . 41,045 37,141 _______________________ Projected benefit obligation in excess of plan assets. . . . . . . . . . . . . . . . . . . 15,892 17,447 Unamortized transition asset . . . . . . . . . . 1,792 2,020 Unrecognized prior service costs . . . . . . . . . (6,817) (7,728) Unrecognized net gain (loss) . . . . . . . . . . . 4,108 (1,797) Adjustment required to recognize minimum liability. . . . . . . . . . . . . . . . 5,502 5,505 ______________________ Net pension liability. . . . . . . . . . . . . . . $20,477 $15,447 ======================
For the U.S. plans, projected benefit obligations were determined using assumed discount rates of 8% for the Retirement Plan for all three years and 8% for the Excess Benefit Plan for all three years. Assumed compensation increases were 7% for 1996 and 6.5% for 1995 and 1994 for the Retirement Plan and 5% for 1996 and 1995 and 4% for 1994 for the Excess Benefit Plan. The assumed long-term rate of return on plan assets for all three years was 9% for the Retirement Plan and 8% for 1996 and 1995 and 10% for 1994 for the Excess Benefit Plan. Plan assets consist principally of common stock and fixed income securities. For non-U.S. plans, discount rates and assumed compensation increases are in accordance with locally accepted practice. No assumed long-term rate of return is made for non-U.S. plan assets as these plans are generally not funded. -44- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note L - Employee Benefits (continued) The Company also sponsors a 401-K savings plan for most of its salaried employees located in the United States. The Company's contributions to the plan were $481 in 1996, $652 in 1995, and $648 in 1994. The Company has a Profit-Sharing Plan for substantially all of the salaried employees meeting certain eligibility requirements who were employed by Monk-Austin. This Profit Sharing Plan is in lieu of a defined benefit pension plan. Profit-Sharing Plan contributions are discretionary and totaled $1,043 in 1995, and $1,416 in 1994. There were no contributions in 1996. The Company adopted a Cash Balance Plan on July 1, 1996, that combines the Retirement Plan of the former Dibrell and the Profit-Sharing Plan of the former Monk-Austin. The adoption is estimated to increase the present value of the accumulated benefit obligation by $2,300, decrease the benefits attributable to projected salary increases by $1,800 and increase net pension cost by $600. Postretirement Health and Life Insurance Benefits The Company provides certain health and life insurance benefits to retired employees (and their eligible dependents) who meet specified age and service requirements. Plan assets consist of paid up life insurance policies on certain current retirees. The Company retains the right, subject to existing agreements, to modify or eliminate the medical benefits. The benefit obligation was determined using an assumed discount rate of 8.0% for all three years and an assumed rate of increase in health care costs, also known as the health care cost trend rate, of 11.5% for 1996 and 13.0% for 1995 and 1994. This trend rate is assumed to decrease gradually to 5.5% by 2007. The assumed long-term rate of return on plan assets was 5.5% for 1996 and 5.4% for 1995 and 1994. Based on current estimates, increasing the health care cost trend rate by one percentage point would increase the benefit obligation by approximately $1.7 million. The following table presents the plan's funded status at June 30 reconciled with amounts recognized in the Company's balance sheet:
1996 1995 _________________________________________________________________________________ Accumulated postretirement benefit obligation: Retirees . . . . . . . . . . . . . . . . . . . $12,373 $11,104 Fully eligible active plan participants. . . . 2,077 2,937 Other active plan participants . . . . . . . . 5,377 4,118 Plan assets at fair value. . . . . . . . . . . . (62) (159) _________ ________ Accumulated postretirement benefit obligation in excess of plan assets. . . . . . 19,765 18,000 Unrecognized prior service cost. . . . . . . . . (170) (191) Unrecognized net gain. . . . . . . . . . . . . . 456 1,237 ________ ________ Accrued postretirement benefit cost. . . . . . . $20,051 $19,046 ========= ========
-45- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note L - Employee Benefits (continued) Net periodic postretirement benefit cost included the following components:
1996 1995 1994 _____________________________________________________________________________ Service cost . . . . . . . . . . . . . . . $ 420 $ 395 $ 361 Interest cost. . . . . . . . . . . . . . . 1,502 1,348 1,338 Actual return on plan assets . . . . . . . 16 7 (17) ______ ______ ______ Net periodic postretirement benefit cost . $1,938 $1,750 $1,682 ====== ====== ======
The Company continues to evaluate ways in which it can better manage these benefits and control the costs. Any changes in the plan or revisions to assumptions that affect the amount of expected future benefits may have a significant effect on the amount of the reported obligation and annual expense. Employees in operations located in certain foreign countries are covered by various foreign postretirement life insurance benefit arrangements. For these foreign plans, the cash-basis cost of benefits charged to income was not material in 1996, 1995 and 1994. Note M - Geographic Area Data, Export Sales and Other Information The following description and tables present the Company's tobacco and flower operations in different geographic areas in conformity with the Statement of Financial Accounting Standards No. 14, "Financial Reporting for Segments of a Business Enterprise" (SFAS 14). Geographic area information for tobacco operations as to net sales and operating profit is based on the origin of the product sold, and identifiable assets are classified based on the origination of the product. Turkish tobacco is included in other origin. Geographic area information for flower operations as to net sales and operating profit is based on the point of sale, and identifiable assets are classified based on the point of sale. Corporate assets consist primarily of those related to cost investments. Export sales are defined as foreign sales of United States origin. Tobacco The Company is principally engaged in the tobacco business. Through its wholly-owned subsidiary, DIMON International, Inc. ("DIMON International"). DIMON International and its U.S. tobacco subsidiaries buy leaf tobacco on the auction markets in Florida, Georgia, South Carolina, North Carolina, Virginia, Kentucky, Tennessee and Maryland for its customers. This tobacco is shipped to plants located in Virginia and North Carolina where it is processed, packed in hogsheads or cases and then stored until ordered shipped by its customers. DIMON International and its tobacco subsidiaries also are engaged in buying, processing and exporting tobacco grown in Argentina, Brazil, China, Greece, Guatemala, India, Italy, Malawi, Mexico, Tanzania, Turkey, Zimbabwe and other areas which is sold on the world markets. DIMON International's investee companies are located in Greece, Zimbabwe and the United States. The disaggregation of entities necessary for geographic area data may require the use of estimation techniques for operating profit. The identifiable assets presentation does not take into account the seasonal aspects of the tobacco business, particularly the seasonal peak in South America. Flowers The Company imports, exports and distributes cut flowers through the Florimex group, which operates through 57 offices on six continents. -46- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note M - Geographic Area Data, Export Sales and Other Information (continued)
Sales and Operating Other Profit Operating As Defined By Identifiable Revenues SFAS 14 Assets _______________________________________________________________________________________ 1996 Tobacco United States. . . . . . . . . . .$ 854,853 $ 47,428 $ 106,615 South America. . . . . . . . . . . 524,886 57,038 442,471 Asia . . . . . . . . . . . . . . . 43,023 1,372 34,567 Africa . . . . . . . . . . . . . . 208,898 9,695 170,712 Other . . . . . . . . . . . . . . 138,506 10,756 114,213 Worldwide supply contract. . . . . - - 9,171 ________________________________________ $1,770,166 $126,289 $ 877,749 ___________________________________________ Flowers Europe . . . . . . . . . . . . . .$ 334,104 $ 5,532 $ 85,418 United States. . . . . . . . . . . 20,797 579 6,552 Other. . . . . . . . . . . . . . . 42,406 2,365 7,035 ___________________________________________ $ 397,307 $ 8,476 $ 99,005 ___________________________________________ $2,167,473 $134,765 (1) $ 976,754 =========== Corporate. . . . . . . . . . . . . (20,354)(1) 34,992 Equity in net assets of investee companies and related advances: Tobacco . . . - 8,268 ___________ $1,020,014 __________ =========== Operating profit before interest expense. . . . . $114,411 Interest expense . . . . . . . . . (46,924) __________ Income before income taxes, minority interest, equity in net assets of investee companies and extraordinary item. . . . . $ 67,487 =========================================== (1) Includes restructuring expenses (recoveries) of $431, Tobacco - United States; $9,308, South America; $330, Africa; $1,369, Other; $(498), Flowers - United States; and $4,420, Corporate. Europe Far East Other Total _______________________________________________________________________________________ Export sales of U.S. origin . $159,763 $193,613 $54,886 $408,262 ========================================================= Tobacco Flowers Total ________________________________________________________________________________________ Depreciation and amortization. . . . . .$26,802 $6,978 $33,780 ================================================= Capital expenditures. . . . .. . . . . .$35,444 $5,822 $41,266 ================================================= Equity in net loss of investee companies. . . . . . . . . . . . . . .$ (330) $ - $ (330) =================================================
-47- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note M - Geographic Area Data, Export Sales and Other Information (continued)
Sales and Operating Other Profit (Loss) Operating As Defined By Identifiable Revenues SFAS 14 Assets _________________________________________________________________________________________ 1995 Tobacco United States. . . . . . . . . . .$ 883,294 $ 19,137 $ 119,889 South America. . . . . . . . . . . 446,102 17,249 455,526 Asia . . . . . . . . . . . . . . . 28,111 (3,222) 40,850 Africa . . . . . . . . . . . . . . 162,562 2,926 150,736 Other . . . . . . . . . . . . . . 35,189 1,375 74,180 Worldwide supply contract. . . . . - - 10,770 _________________________________________ $1,555,258 $ 37,465 $ 851,951 ____________________________________________ Flowers Europe . . . . . . . . . . . . . .$ 326,702 $ 1,970 $ 98,835 United States. . . . . . . . . . . 24,439 (5,698) 6,722 Other. . . . . . . . . . . . . . . 34,789 658 4,976 ____________________________________________ $ 385,930 $ (3,070) $ 110,533 ____________________________________________ $1,941,188 $ 34,395(1) $ 962,484 =========== Corporate. . . . . . . . . . . . . (11,328) 108,502 Equity in net assets of investee companies and related advances: Tobacco . . . - 22,622 ___________ $1,093,608 __________ =========== Operating profit before interest expense. . . . . $ 23,067 Interest expense . . . . . . . . . (45,231) __________ Income (loss) before income taxes, minority interest and equity in net assets of investee companies. . . . . $(22,164) ============================================ (1) Includes restructuring expenses of $22,295, Tobacco - United States; $107, South America; $76, Africa; $855, Other; $741, Flowers - Europe; and $1,881, United States. Europe Far East Other Total ____________________________________________________________________________________ Export sales of U.S. origin . $174,649 $260,310 $23,891 $458,850 ====================================================== Tobacco Flowers Total _______________________________________________________________________________________ Depreciation and amortization. . . . . .$24,034 $7,818 $31,852 =============================================== Capital expenditures. . . . .. . . . . .$29,033 $6,859 $35,892 =============================================== Equity in net income of investee companies. . . . . . . . . .$ 1,805 $ - $ 1,805 ===============================================
-48- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note M - Geographic Area Data, Export Sales and Other Information (continued)
Sales and Operating Other Profit (Loss) Operating As Defined By Identifiable Revenues SFAS 14 Assets __________________________________________________________________________________________ 1994 Tobacco United States. . . . . . . . . . .$ 548,735 $ 16,370 $ 268,910 South America. . . . . . . . . . . 285,158 1,631 448,428 Asia . . . . . . . . . . . . . . . 34,473 (845) 13,177 Africa . . . . . . . . . . . . . . 161,338 13,584 105,611 Other . . . . . . . . . . . . . . 66,018 2,192 40,993 Worldwide supply contract. . . . . - - 12,000 _____________________________________________ $1,095,722 $ 32,932 $ 889,119 _____________________________________________ Flowers Europe . . . . . . . . . . . . . .$ 295,615 $ 3,984 $ 89,241 United States. . . . . . . . . . . 42,304 (2,104) 10,290 Other. . . . . . . . . . . . . . . 31,137 681 3,409 _____________________________________________ $ 369,056 $ 2,561 $ 102,940 _____________________________________________ $1,464,778 $ 35,493 $ 992,059 =========== Corporate. . . . . . . . . . . . . (5,731) 17,350 Equity in net assets of investee companies and related advances: Tobacco . . . - 34,407 ___________ $1,043,816 _________ =========== Operating profit before interest expense. . . . . $ 29,762 Interest expense . . . . . . . . . (35,117) _________ Income (loss) before income taxes, minority interest and equity in net assets of investee companies. . . . . . . . $ (5,355) =============================================== Europe Far East Other Total _____________________________________________________________________________________________ Export sales of U.S. origin . $119,650 $239,881 $9,511 $369,042 =============================================================== Tobacco Flowers Total _________________________________________________________________________________________ Depreciation and amortization. . . . . .$21,871 $ 6,991 $28,862 ================================================ Capital expenditures. . . . .. . . . . .$22,354 $10,028 $32,382 ================================================ Equity in net income of investee companies. . . . . . . . .$ 98 $ - $ 98 ================================================
-49- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note M - Geographic Area Data, Export Sales and Other Information (continued) Of the 1996, 1995 and 1994 tobacco sales and other operating revenues, approximately 55%, 52% and 43%, respectively, were to various tobacco customers which management has reason to believe are now owned by or under the common control of three companies (two companies in 1994), each of which accounted for more than 10% of net sales. At June 30, 1996, there was approximately $43.8 million due from the three major tobacco customers and included in Trade receivables. The following table summarizes the net sales made to each customer for the periods indicated:
1996 1995 1994 Customer A . . . . . . . . . . . . . . . . . . . . $474,787 $317,110 $238,370 Customer B . . . . . . . . . . . . . . . . . . . . 336,989 279,257 - Customer C . . . . . . . . . . . . . . . . . . . . 170,167 214,622 231,852 ________ ________ ________ Total . . . . . . . . . . . . . . . . . . . $981,943 $810,989 $470,222 ======= ======== =======
No customers in the flower operation accounted for more than 10% of flower sales. Note N - Foreign Currency Translation The financial statements of foreign entities included in the consolidated financial statements have been translated to U.S. dollars in accordance with FASB Statement No. 52, "Foreign Currency Translation." Under that Statement, all asset and liability accounts are translated at the current exchange rate, and income statement items are translated at the average exchange rate for each quarter; resulting translation adjustments, net of deferred taxes, are made directly to a separate component of stockholders' equity. Transaction adjustments, however, are made in the Statement of Consolidated Income. These include realized exchange adjustments relating to assets and liabilities denominated in foreign currencies. Financial statements of entities located in highly inflationary economies are remeasured in U.S. dollars. The remeasurement of and subsequent transaction adjustments are also made in the Statement of Consolidated Income. For 1996, the transaction adjustments netted to a gain of $368. The transaction adjustments netted to a loss of $570 and a gain of $1,179 for 1995 and 1994, respectively, and were primarily related to the Company's Brazilian operations. -50- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note O - Contingencies and Other Information On August 29, 1996, the Company received notices from Brazilian tax authorities of proposed adjustments to income taxes for the calendar year 1992 based on the Company's recalculation of monetary correction as allowed under Law 8200. The approximate proposed adjustment claims additional tax, including penalties and interest, through August 29, 1996, of $23,474, before related tax benefits for all assessed interest. In 1993, the Company received notices from Brazilian tax authorities of proposed adjustments to the income tax returns of the Company's entities located in Brazil for the calendar years ending 1988 through 1992. The approximate proposed adjustments claim additional tax, including penalties and interest through June 30, 1996, of $41,577, before related tax benefits for all assessed interest. The Company believes that it has properly reported its income and paid its taxes in Brazil in accordance with applicable laws and intends to contest the proposed adjustments vigorously. The Company expects that the ultimate resolution of these matters will not have a material adverse effect on the Company's consolidated balance sheet or results of operations. Consistent with the 1994 plan to liquidate Korean American Tobacco, a 49% owned affiliate, the Company is involved in legal negotiations related to the final settlement and liquidating dividend. While the ultimate results of these negotiations cannot be determined, management does not expect that the outcome will have a material adverse effect on the Company's consolidated balance sheet or results of operations. The Company and certain subsidiaries have available letters of credit of $195,304 at June 30, 1996, of which $144,701 was outstanding. These letters of credit represent, generally, performance guarantees issued in connection with purchases and sales of domestic and foreign tobacco. The Company is guarantor as to certain lines and letters of credit of affiliated companies in an amount not to exceed approximately $8,324. There was approximately $527 outstanding under these guarantees at June 30, 1996. The Company's subsidiaries have guaranteed certain loans made by Brazilian banks to local farmers. There was approximately $32,398 outstanding under these guarantees at June 30, 1996. The Company enters into forward exchange contracts to hedge certain foreign currency transactions for periods consistent with the terms of the underlying transactions. While the forward contracts affect the Company's results of operations, they do so only in connection with the underlying transactions. As a result, they do not subject the Company to risk from exchange rate movements, because gains and losses on these contracts offset losses and gains on the transactions being hedged. At June 30, 1996, the Company had $1.4 million ($1 million in 1995) of U.S. dollar/Deutschmark exchange contracts outstanding, all of which were in Deutschmarks. The forward exchange contracts generally have maturities that do not exceed 44 days at June 30, 1996. The Company's other off balance sheet risks are not material. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates may change with future events. -51- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note P - Selected Quarterly Financial Data (Unaudited) Summarized quarterly financial information is as follows:
Per Share of In Thousands Common Stock _______________________________________ ____________ Sales and Other Net Net Operating Gross Income Income Revenues (1) Profit (1) (Loss) (Loss)(3) _____________________________________________________________________________________ 1996 Fiscal Year . . . . . . .$2,167,473 $262,481 $ 41,270 $ 1.01 Fourth Quarter. . . . . . 487,271 64,022 (2) 9,130 (2) .21 (2) Third Quarter . . . . . . 577,092 61,195 6,274 .16 Second Quarter. . . . . . 763,418 82,460 19,838 .48 First Quarter . . . . . . 339,692 54,804 6,028 (4) .16 (4) 1995 Fiscal Year . . . . . . .$1,941,188 $181,824 $(30,165) $(0.79) Fourth Quarter. . . . . . 382,454 28,489 (2) (39,928) (2) (1.05) (2) Third Quarter . . . . . . 649,170 62,228 7,576 0.20 Second Quarter. . . . . . 634,796 56,206 3,709 0.10 First Quarter . . . . . . 274,768 34,901 (1,522) (0.04) ____________________________________________
(1) In the fourth quarter of 1996 the Company has reclassified Other income into Sales and other operating revenues. The Company has also reclassified Sundry deductions into Cost of goods sold. Both Other income and Sundry deductions are not material and the reclassification does not affect Net income. Previously reported Net sales and Gross margin were as follows: Net Sales Gross Profit _____________________________ 1996 Third Quarter . . $ 573,084 $ 57,355 Second Quarter. . 755,228 74,319 First Quarter . . 335,349 50,859 1995 Fiscal Year . . . $1,927,749 $170,233 Fourth Quarter. . 380,215 27,243 Third Quarter . . 644,079 58,320 Second Quarter. . 631,503 52,628 First Quarter . . 271,952 32,042 (2) In the fourth quarter of 1996 the Company recorded a $15.4 million charge related to restructuring costs. In the fourth quarter of 1995 the Company recorded charges of $9.2 million and $26.0 million related to the valuation of certain inventories and restructuring and merger related costs, respectively. (3) Fully diluted amounts are anti-dilutive for 1995. (4) In the first quarter of 1996, the Company recorded $1,400 (net of $870 tax), or $.03 per share, as an extraordinary item for the partial recovery of an Iraqi receivable. -52- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note Q -- Supplemental Guarantor Information DIMON International, Inc. and Florimex Worldwide, Inc. (collectively, the "Guarantors"), wholly owned subsidiaries of DIMON Incorporated, have fully and unconditionally guaranteed on a joint and several basis DIMON Incorporated's obligations to pay principal, premium and interest relative to the $125 million Senior Notes due 2006. Management has determined that separate, full financial statements of the Guarantors would not be material to investors and such financial statements are not provided. Supplemental combining financial information of the Guarantors is presented below:
DIMON INCORPORATED AND SUBSIDIARIES Supplemental Combining Statement of Income Year Ended June 30, 1996 (in thousands) DIMON Non- Incorporated Guarantors Guarantors Eliminations Total Sales and other operating revenues . . . . . .$ 26,003 $1,418,433 $1,236,781 $(513,744)a $2,167,473 Cost of goods and services sold. . . . . . . . (5,067) 1,329,424 1,030,612 (449,977)a 1,904,992 ________ ___________ __________ ____________ ___________ 31,070 89,009 206,169 (63,767) 262,481 Selling, administrative and general. . . . . . 13,059 69,794 78,962 (29,105)a,b 132,710 Restructuring and merger related cost . . . . . . . . . . . . . . . . 4,420 1,429 9,511 - 15,360 ________ ________ ________ __________ ___________ 13,591 17,786 117,696 (34,662) 114,411 Interest Expense . . . . . . . . . . . . . . . 24,764 28,916 27,906 (34,662)a 46,924 ________ ___________ __________ __________ ___________ Income (loss) before income taxes, minority interest and equity in net income (loss) of investee companies, equity in net income of subsidiaries and extraordinary item . . . . . . . . . . . . . (11,173) (11,130) 89,790 - 67,487 Income taxes (benefits). . . . . . . . . . . . (2,516) (2,352) 31,863 - 26,995 ________ _________ __________ _________ ____________ Income (loss) before minority interest, equity in net income (loss) of investee companies, equity in net income of subsidiaries and extraordinary item . . . . . . . . . . . . . (8,657) (8,778) 57,927 - 40,492 Income applicable to minority interest . . . . . . . . . . . . . . . . . . - - 292 - 292 Equity in net income (loss) of investee companies, net of income taxes . . . . . . . - 98 (428) - (330) Equity in net income of subsidiaries . . . . . . . . . . . . . . . . 49,927 57,207 - (107,134)a - Extraordinary item . . . . . . . . . . . . . . - 1,400 - - 1,400 ________ ___________ ________ ____________ ____________ NET INCOME . . . . . . . . . . . . . . . . . . $41,270 $ 49,927 $57,207 $(107,134) $ 41,270 ======== =========== ========= ============ ============
a. Inter-company eliminations. b. Royalty expense in SG&A and Royalty income in Other Income for Consolidated Entities. -53- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note Q -- Supplemental Guarantor Information (continued)
DIMON INCORPORATED AND SUBSIDIARIES Supplemental Combining Balance Sheet June 30, 1996 (in thousands) DIMON Non- Incorporated Guarantors Guarantors Eliminations Total ASSETS Current assets Cash and cash equivalents . . . . . $ 723 $6,894 $ 46,120 $ 83 a $ 53,820 Notes receivable . . . . . . . . . . - 475 19,347 (18,695)b 1,127 Trade receivables, net of allowances. . . . . . . . . . . . 26,762 178,390 162,624 (176,878)b 190,898 Inventories: Tobacco . . . . . . . . . . . . . - 54,729 260,747 - 315,476 Other . . . . . . . . . . . . . . 49 1,174 16,802 - 18,025 Advances on purchases of tobacco . . 168,616 28,113 49,659 (171,679)b 74,709 Recoverable income taxes . . . . . . - - 1,563 - 1,563 Prepaid expenses . . . . . . . . . . 4,190 979 7,988 - 13,157 _________ _______ __________ ___________ ___________ Total current assets 200,340 270,754 564,850 (367,169) 668,775 _________ ________ __________ ___________ ___________ Investments and other assets Equity in net assets of investee companies. . . . . . . . - 5,884 2,384 - 8,268 Consolidated subsidiaries. . . . . . 288,533 336,667 21,230 (646,430)b - Other investments. . . . . . . . . . 23,067 2,861 9,337 (32,278)b 2,987 Notes receivable . . . . . . . . . . 139 3,965 (26) - 4,078 Other. . . . . . . . . . . . . . . . - 981 18,170 - 19,151 _________ _________ _________ ___________ ___________ 311,739 350,358 51,095 (678,708) 34,484 _________ _________ _________ ___________ ___________ Intangible assets Excess of cost over related net assets of business acquired . . . 375 8,281 14,465 - 23,121 Production and supply contracts. . . - 25,960 7,365 - 33,325 Pension asset. . . . . . . . . . . . 3,042 1,088 - - 4,130 _________ _________ _________ __________ ___________ 3,417 35,329 21,830 - 60,576 _________ _________ __________ __________ ___________ Property, plant and equipment Land . . . . . . . . . . . . . . . . 1,770 1,925 15,528 - 19,223 Buildings. . . . . . . . . . . . . . 4,739 25,568 113,434 - 143,741 Machinery and equipment. . . . . . . 5,271 48,858 106,108 - 160,237 Allowances for depreciation. . . . . (4,883) (26,877) (54,666) - (86,426) _________ _________ _________ __________ ___________ 6,897 49,474 180,404 - 236,775 _________ _________ ________ ___________ ___________ Deferred taxes and other deferred charges . . . . . . . . . . 19,259 - 145 - 19,404 _________ __________ __________ ____________ __________ $541,652 $705,915 $818,324 $(1,045,877) $1,020,014 ========= ========== ========== =========== ==========
a. To adjust for cash transfers made by DIMON Incorporated to an entity which reports on an earlier period. b. Inter-company eliminations. -54- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note Q -- Supplemental Guarantor Information (continued)
DIMON INCORPORATED AND SUBSIDIARIES Supplemental Combining Balance Sheet June 30, 1996 (in thousands) DIMON Incorporated Guarantors Non-Guarantors Eliminations Total LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable. . . . . . . . . $ - $ - $ - $ - $ - Accounts payable: Trade . . . . . . . . . . . . 1,423 281,706 86,216 (303,375)b 65,970 Officers and employees. . . . 14,427 2,263 7,384 - 24,074 Other . . . . . . . . . . . . 4,749 1,554 8,159 - 14,462 Advances from customers. . . . . 3,380 49,729 73,029 (51,985)b 74,153 Accrued expenses . . . . . . . . 2,418 13,941 35,438 - 51,797 Income taxes . . . . . . . . . . (12,489)c 3,083 15,042 (277)b 5,359 Long-term debt current . . . . . 4,286 350 5,982 - 10,618 _________ ___________ _______ __________ _________ Total current liabilities . 18,194 352,626 231,250 (355,637) 246,433 _________ ____________ _______ __________ _________ Long-term debt Revolving Credit Notes and Other . . . . . . . . . . 48,856 1,068 226,717 (10,770)b 265,871 Senior Notes . . . . . . . . . . 125,000 - - - 125,000 __________ _____________ ________ __________ _________ 173,856 1,068 226,717 (10,770) 390,871 Deferred Credits Income taxes . . . . . . . . . . 6,198 (6,259) 21,557 - 21,496 Compensation and other benefits . . . . . . . . . . . 27,556 8,629 8,280 - 44,465 __________ __________ _________ __________ _________ 33,754 2,370 29,837 - 65,961 Minority interest in subsidiaries . . . . . . . . . . - - 901 - 901 __________ __________ ________ __________ _________ Stockholders' equity Common stock/Paid-in-capital . . 136,959 143,026 180,366 (323,392)b 136,959 Retained earnings. . . . . . . . 177,419 203,982 146,398 (350,380)b 177,419 Equity-currency conversions. . . 2,842 2,843 2,855 (5,698)b 2,842 Additional minimum pension liability. . . . . . . . . . . (1,372) - - - (1,372) Unrealized gain on investments . - - - - - __________ ________ _________ ___________ __________ 315,848 349,851 329,619 (679,470) 315,848 __________ _________ _________ _____________ __________ $541,652 $705,915 $818,324 $(1,045,877) $1,020,014 ========== ========== ======== ============= ===========
b. Inter-company eliminations. c. Current deferred tax on reserves for restructuring and unallocated estimated tax payments. -55- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note Q -- Supplemental Guarantor Information (continued) DIMON INCORPORATED AND SUBSIDIARIES Supplemental Combining Statement of Cash Flows Year Ended June 30, 1996 (in thousands)
DIMON Incorporated Guarantors Non-Guarantors Eliminations Total Operating Activities Net Income (Loss). . . . . . . . $ 41,270 $49,927 $57,207 $(107,134)a $41,270 Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization. . . 2,326 10,826 20,628 - 33,780 Deferred items . . . . . . . . (3,335) 2,437 6,749 - 5,851 Loss (gain) on foreign currency transactions . . . . . . . . 46 (69) (345) - (368) Gain on disposition of fixed assets . . . . . . . . . . . (14) (1,098) (1,303) - (2,415) Gain on sale of investee . . . . . . - - (3,751) - (3,751) Gain on sale of investment . . . . . - - (1,090) - (1,090) Undistributed (earnings) loss of investees/subsidiaries . . . . . (49,927) (57,305) 428 107,134 a 330 Dividends received from investee . - 1,100 365 - 1,465 Income applicable to minority interest . . . . . . . . . . - - 292 - 292 Bad debt expense . . . . . . . - (10) 1,053 - 1,043 Decrease (increase) in accounts receivable . . . . . . . . . 123,123 (12,826) (43,527) (79,414)a (12,644) Decrease (increase) in inventories and advances on purchases of tobacco. . . . . . . . . . . 6,938 91,721 28,682 (62,903)a 64,438 Decrease in recoverable taxes. . - - 444 - 444 Decrease (increase) in prepaid expenses . . . . . . 7,052 (313) 10,518 - 17,257 Increase (decrease) in accounts payable and accrued expenses . 5,212 133,597 (32,157) (91,841)a 14,811 Increase (decrease) in advances from customers . . . . . . . (499) (194,582) 13,721 206,476 a 25,116 Increase (decrease) in income taxes. . . . . . . . . . . . (2,239) (4,306) 705 (277)a (6,117) Other. . . . . . . . . . . . . 56 230 (194) - 92 ________ ________ ________ __________ _________ Net cash provided (used) by operating activities. 130,009 19,329 58,425 (27,959) 179,804 ________ ________ ________ __________ _________ Investing Activities Purchase of property and equipment . . . . . . . . . . (436) (5,363) (35,467) - (41,266) Proceeds from sale of property and equipment. . . . . . . . . 14 4,784 3,807 - 8,605 Payments on notes receivable and receivable from investees . . 30,034 870 228 (30,000)a 1,132 Advances of notes receivable. . (83) (350) (19,834) 18,695 a (1,572) Proceeds from or (advances) for other investments and other assets . . . . . . . . 5,232 24,634 1,304 (6,748)a 24,422 Purchase of subsidiary, $8,236 for property and equipment. . . . - (6,543) - - (6,543) ________ ________ ________ _________ _________ Net cash provided (used) by investing activities. . . 34,761 18,032 (49,962) (18,053) (15,222) ________ ________ _________ _________ _________
-56- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note Q -- Supplemental Guarantor Information (continued)
DIMON INCORPORATED AND SUBSIDIARIES Supplemental Combining Statement of Cash Flows Year Ended June 30, 1996 (in thousands) DIMON Incorporated Guarantors Non-Guarantors Eliminations Total Financing Activities Repayment of debt. . . . . . . (622,367) (32,346) (206,150) 30,000 a (830,863) Proceeds from debt . . . . . . 477,171 - 231,806 (10,770)a 698,207 Cash dividends paid to DIMON Incorporated stockholders (21,731) - - - (21,731) Cash dividends paid to minority stockholders . . . . . . . . - - (169) - (169) Proceeds from sale of common stock . 1,552 - - - 1,552 ________ _________ ________ _________ _________ Net cash provided (used) by financing activities. (165,375) (32,346) 25,487 19,230 (153,004) ________ ________ _________ _________ _________ Effect of exchange rate changes on cash. . . . - - (84) - (84) ________ ________ _________ _________ _________ Increase (decrease) in cash and cash equivalents . . . (605) 5,015 33,866 (26,782) 11,494 Cash and cash equivalents at beginning of year. . . 1,328 1,879 12,254 26,865 42,326 _________ __________ __________ ___________ __________ Cash and cash equivalents at end of period $ 723 $ 6,894 $ 46,120 $ 83 $ 53,820 =========== ========== ========== ========== ==========
a. Inter-company eliminations. -57- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note Q -- Supplemental Guarantor Information (continued) DIMON INCORPORATED AND SUBSIDIARIES Supplemental Combining Statement of Income Year Ended June 30, 1995 (in thousands)
DIMON Incorporated Guarantors Non-Guarantors Eliminations Total Sales and other operating revenues . . . $ 10,541 $1,259,125 $849,723 $ (178,201)a $1,941,188 Cost of goods and services sold. . . . . 3,340 b 1,159,613 733,538 (137,127)a 1,759,364 ________ ___________ ________ ___________ ___________ 7,201 99,512 116,185 (41,074) 181,824 Selling, administrative and general. . . 13,936 51,073 80,692 (12,899)a,c 132,802 Restructuring and merger related costs. . . . . . . . . . . . . 16,891 9,487 (423) - 25,955 ________ ___________ ________ ___________ ___________ (23,626) 38,952 35,916 (28,175) 23,067 ________ ___________ ________ ___________ ___________ Interest Expense . . . . . . . . 11,882 33,824 27,700 (28,175)a 45,231 ________ ___________ ________ ___________ ___________ Income (loss) before income taxes, minority interest, equity in net income (loss) of investee companies, and equity in net loss of subsidiaries . . . . . . (35,508) 5,128 8,216 - (22,164) Income taxes (benefits). . . . . . (8,567) 3,767 10,780 - 5,980 ________ ___________ ________ ___________ ___________ Income (loss) before minority interest, equity in net income (loss) of investee companies and equity in net loss of subsidiaries . . . . . . . . . . (26,941) 1,361 (2,564) - (28,144) Income applicable to minority interest . . . . . . . . . . . . - - 216 - 216 Equity in net income (loss) of investee companies, net of income taxes . . . . . . . . . . - 348 (2,153) - (1,805) Equity in net loss of subsidiaries . . . . . . . . . . (3,224) (4,933) - 8,157 a - ________ _____________ _________ ___________ ___________ NET LOSS . . . . . . . . . . . . . $(30,165) $ (3,224) $ (4,933) $ 8,157 $ (30,165) ========= ============ ========= =========== ===========
a. Inter-company eliminations. b. Reserve for inter-company profit in ending inventories c. Royalty expense in SG&A and Royalty income in Other Income for Consolidated Entities. -58- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note Q -- Supplemental Guarantor Information (continued) DIMON INCORPORATED AND SUBSIDIARIES Supplemental Combining Balance Sheet June 30, 1995 (in thousands)
DIMON Incorporated Guarantors Non-Guarantors Eliminations Total ASSETS Current assets Cash and cash equivalents. . . . . . $ 1,328 $ 1,879 $ 12,254 $ 26,865 d $ 42,326 Notes receivable . . . . . . . 30,015 851 1,136 (30,000)a 2,002 Trade receivables, net of allowances . . . . . . . . . 150,127 164,866 124,048 (256,291)a 182,750 Inventories: Tobacco . . . . . . . . . . (5,116) b 103,294 312,253 - 410,431 Other . . . . . . . . . . . . 25 2,240 11,914 - 14,179 Advances on purchases of tobacco . . . . . . . . . . . 183,504 70,009 25,448 (234,582)a 44,379 Recoverable income taxes . . . . - - 2,007 - 2,007 Prepaid expenses . . . . . . . . 12,499 667 19,879 - 33,045 _________ ________ _________ ___________ ___________ Total current assets. . . . . 372,382 343,806 508,939 (494,008) 731,119 _________ ________ _________ ____________ ___________ Investments and other assets Equity in net assets of investee companies . . . . . . . . . . - 2,555 20,067 - 22,622 Consolidated subsidiaries. . . . . 266,381 243,970 5,007 (515,358)a - Other investments. . . . . . . . 965 366 418 - 1,749 Notes receivable . . . . . . . . 45 1,016 5,046 - 6,107 Other. . . . . . . . . . . . . . 292 13,410 14,445 - 28,147 _________ ________ ________ _________ ___________ 267,683 261,317 44,983 (515,358) 58,625 _________ ________ ________ __________ ___________ Intangible assets Excess of cost over related net assets of business acquired. . . . . 388 15,209 10,570 - 26,167 Production and supply contracts. . . . - 28,340 8,000 - 36,340 Pension asset. . . . . . . . . . 3,131 1,088 - - 4,219 _________ ________ _______ __________ ___________ 3,519 44,637 18,570 - 66,726 _________ ________ ________ __________ ___________ Property, plant and equipment Land . . . . . . . . . . . . . . 1,770 1,573 16,089 - 19,432 Buildings. . . . . . . . . . . . 4,998 21,127 109,683 - 135,808 Machinery and equipment. . . . . 5,187 44,335 119,659 - 169,181 Allowances for depreciation. . . (4,167) (25,293) (71,912) - (101,372) _________ ________ ________ __________ ___________ 7,788 41,742 173,519 - 223,049 _________ ________ ________ __________ ___________ Deferred taxes and other deferred charges . . . . . . . . 10,076 4,557 (544) - 14,089 _________ ________ __________ __________ ___________ $661,448 $696,059 $745,467 $(1,009,366) $1,093,608 ========= ======== ======== ============ ===========
a. Inter-company eliminations. b. Reserve for inter-company profit in ending inventories. d. To adjust for cash transfers made by DIMON Incorporated to an entity which reports on an earlier period. -59- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note Q -- Supplemental Guarantor Information (continued)
DIMON INCORPORATED AND SUBSIDIARIES Supplemental Combining Balance Sheet June 30, 1995 (in thousands) DIMON Incorporated Guarantors Non-Guarantors Eliminations Total LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable. . . . . . . . . $ 54,400 $ 30,000 $179,336 $ (30,000)a $ 233,736 Accounts payable: Trade . . . . . . . . . . . 4,367 149,566 111,036 (208,410)a 56,559 Officers and employees. . . 14,643 27 6,044 - 20,714 Other . . . . . . . . . . . 144 426 12,603 - 13,173 Advances from customers. . . . 3,880 228,057 75,748 (258,461)a 49,224 Accrued expenses . . . . . . . 4,509 13,815 42,158 (3,123)a 57,359 Income taxes . . . . . . . . . (10,744)e 3,672 18,271 - 11,199 Long-term debt current . . . . 4,714 628 6,216 - 11,558 ________ ________ ________ ____________ ___________ Total current liabilities . 75,913 426,191 451,412 (499,994) 453,522 ________ ________ ________ ____________ ___________ Long-term debt Revolving Credit Notes and Other . . . . . . . . . 264,143 2,559 25,826 - 292,528 Convertible Subordinated Debentures. . . . . . . . . 56,370 - - - 56,370 ________ ________ ________ ____________ ___________ 320,513 2,559 25,826 - 348,898 ________ ________ ________ ____________ ___________ Deferred Credits Income taxes . . . . . . . . 70 19 10,642 - 10,731 Compensation and other benefits . . . . . . . . . 26,146 7,642 6,927 - 40,715 ________ ________ ________ ___________ ___________ 26,216 7,661 17,569 - 51,446 ________ ________ ________ ____________ ___________ Minority interest in subsidiaries. . . . . . - - 936 - 936 ________ ________ ________ ____________ ___________ Stockholders' equity Common stock . . . . 80,030 108,780 152,609 (261,389)a 80,030 Retained earnings. . 157,880 148,455 94,791 (243,246)a 157,880 Equity-currency conversions. . 1,565 1,796 1,707 (3,503)a 1,565 Additional minimum pension liability. . . . . (1,286) - - - (1,286) Unrealized gain on investments . 617 617 617 (1,234)a 617 ________ ________ ________ ____________ ___________ 238,806 259,648 249,724 (509,372) 238,806 ________ ________ ________ ____________ ___________ $661,448 $696,059 $745,467 $(1,009,366) $1,093,608 ======== ======== ======== ============ ===========
a. Inter-company eliminations. e. Current deferred tax on reserves and unallocated, estimated tax payments. -60- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note Q -- Supplemental Guarantor Information (continued) DIMON INCORPORATED AND SUBSIDIARIES Supplemental Combining Statement of Cash Flows Year Ended June 30, 1995 (in thousands) DIMON Incorporated Guarantors Non-Guarantors Eliminations Total Operating Activities Net Income (Loss). . . . . . . . $ (30,165) $ (3,224) $ (4,933) $ 8,157 a $(30,165) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization. . 607 10,372 20,873 - 31,852 Deferred items . . . . . . . . 3,922 (3,130) (1,412) - (620) Loss (gain) on foreign currency transactions . . . . . . . . (55) 81 544 - 570 Gain on disposition of fixed assets . . . . . . . . - (280) (1,539) - (1,819) Undistributed (earnings) loss of investees/subsidiaries . . . . . 3,224 4,585 2,153 (8,157)a 1,805 Dividends received from investees. - 400 78 - 478 Income applicable to minority interest . . . . . . . . . . - - 216 - 216 Bad debt expense . . . . . . . - (30) 3,850 - 3,820 Decrease (increase) in accounts receivable . . . . . . . . . (102,713) (33,329) 97,941 90,621 a 52,520 Decrease (increase) in inventories and advances on purchases of tobacco. . . . . . . . . . . 97,253 823 (261,577) 165,657 a 2,156 Decrease in recoverable taxes. . . 1,666 - 2,627 - 4,293 Decrease (increase) in prepaid expenses . . . . . . (8,718) 1,420 3,717 - (3,581) Increase (decrease) in accounts payable and accrued expenses . . 5,224 7,736 (25,238) (45,885)a (58,163) Increase (decrease) in advances from customers . . . . . . . (918) (15,652) 201,799 (188,257)a (3,028) Increase (decrease) in income taxes. . . . . . . . . . . . (2,817) 7,135 1,757 - 6,075 Other. . . . . . . . . . . . . 269 - 135 - 404 __________ __________ __________ ___________ __________ Net cash provided (used) by operating activities. (33,221) (23,093) 40,991 22,136 6,813 __________ __________ __________ ___________ __________ Investing Activities Purchase of property and equipment . . . . . . . . . . (117) (10,966) (15,953) - (27,036) Proceeds from sale of property and equipment. . . . . . . . . - 838 4,039 - 4,877 Payments on notes receivable and receivable from investees. . . 15 3,516 24,010 - 27,541 Issuance of notes receivable . . (30,000) (2,829) (3,500) 30,000 a (6,329) Proceeds from or (advances) for other investments and other assets . . . . . . . . . 5,865 (9,075) 2,601 4,676 a 4,067 Purchase of minority interest in subsidiaries. . . . . . . . - - (507) - (507) Purchase of subsidiary, $8,856 for property and equipment . . . . . . - (17,123) - - (17,123) __________ __________ __________ ___________ __________ Net cash provided (used) by investing activities . . . . (24,237) (35,639) 10,690 34,676 (14,510) __________ __________ __________ ___________ __________
-61- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note Q -- Supplemental Guarantor Information (continued) DIMON INCORPORATED AND SUBSIDIARIES Supplemental Combining Statement of Cash Flows Year Ended June 30, 1995 (in thousands)
DIMON Incorporated Guarantors Non-Guarantors Eliminations Total Financing Activities Repayment of debt. . . (641,100) (4,699) (281,223) - (927,022) Proceeds from debt . . 708,995 60,000 239,371 (30,000)a 978,366 Cash dividends paid to DIMON Incorporated stockholders . (15,568) - (2) - (15,570) Cash dividends paid to minority stockholders . . . . - - (237) - (237) Proceeds from sale of common stock . . . . 169 - - - 169 _________ ___________ _________ _________ _________ Net cash provided (used) by financing activities. . 52,496 55,301 (42,091) (30,000) 35,706 _________ ____________ ________ _________ _________ Effect of exchange rate changes on cash. . . . - - (1,584) - (1,584) _________ ____________ ________ _________ __________ Increase (decrease) in cash and cash equivalents . . . (4,962) (3,431) 8,006 26,812 26,425 Increase in cash from purchased subsidiaries . . . . . - 3,430 - - 3,430 Cash and cash equivalents at beginning of year. . . 6,290 1,880 4,248 53 a 12,471 _________ ____________ ___________ __________ _________ Cash and cash equivalents at end of year . $ 1,328 $ 1,879 $ 12,254 $ 26,865 $ 42,326 ========= ============ =========== ========= =========
a. Inter-company eliminations. -62- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note Q -- Supplemental Guarantor Information (continued) DIMON INCORPORATED AND SUBSIDIARIES Supplemental Combining Statement of Income June 30, 1994 (in thousands)
DIMON Incorporated Guarantors Non-Guarantors Eliminations Total Sales and other operating revenues . . . . . . $ 8,579 $901,702 $723,174 $ (168,677)a $1,464,778 Cost of goods and services sold . . . . . . . . 5,517 833,767 628,829 (150,408)a 1,317,705 _______ _________ _________ ____________ ___________ 3,062 67,935 94,345 (18,269) 147,073 Selling, administrative and general. . . . . . . . 6,148 51,368 69,051 (9,256)a 117,311 _________ _________ _________ _____________ ___________ (3,086) 16,567 25,294 (9,013) 29,762 Interest Expense . . . . 4,568 13,879 25,683 (9,013)a 35,117 _________ _________ _________ _____________ ___________ Income (loss) before income taxes, minority interest, equity in net income (loss) of investee companies and equity in net loss of subsidiaries . . (7,654) 2,688 (389) - (5,355) Income taxes (benefits). . (1,999) 3,067 1,699 - 2,767 _________ _________ _________ _____________ ___________ Income (loss) before minority interest, equity in net income (loss) of investee companies and equity in net income (loss) of subsidiaries . . . . . . . (5,655) (379) (2,088) - (8,122) Income applicable to minority interest . . . . . . . . . - - 466 - 466 Equity in net income (loss) of investee companies, net of income taxes . . . . . . . (265) (109) 472 - 98 Equity in net loss of subsidiaries . . . . . . . (2,570) (2,082) - 4,652 a - _________ _________ _________ ___________ ___________ NET LOSS . . . . . . . . . . $ (8,490) $ (2,570) $ (2,082) $ 4,652 $ (8,490) ========= ========= ========= ========== ===========
a. Inter-company eliminations, including profit in inventory. -63- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note Q -- Supplemental Guarantor Information (continued) DIMON INCORPORATED AND SUBSIDIARIES Supplemental Combining Statement of Cash Flows Year Ended June 30, 1994 (in thousands)
DIMON Incorporated Guarantors Non-Guarantors Eliminations Total Operating Activities Net Income (Loss). . . . . $ (8,490) $ (2,570) $ (2,082) $ 4,652 a $ (8,490) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization. . . (416) 10,508 18,770 - 28,862 Deferred items . . 672 (4,461) 4,354 - 565 Loss (gain) on foreign currency transactions . . 80 120 (1,379) - (1,179) Gain on disposition of fixed assets. . . - (447) (1,177) - (1,624) Gain on disposal of operations . . - (1,792) - - (1,792) Undistributed earnings of investees/subsidiaries. 2,835 2,190 (472) (4,652)a (99) Dividends received from investees. . . . - - 577 - 577 Income applicable to minority interest . . . . - - 466 - 466 Bad debt expense . (3) - 4,684 - 4,681 Decrease (increase) in accounts receivable. . . . (5,838) 6,356 123,701 (92,765)a 31,454 Decrease (increase) in inventories and advances on purchases of tobacco. . 60,215 4,301 (149,953) 68,925 a (16,512) Decrease (increase) in recoverable taxes . . . (1,472) - 2,823 - 1,351 Decrease (increase) in prepaid expenses . . . . (273) (217) (1,566) - (2,056) Increase (decrease) in accounts payable and accrued expenses . . 5,280 22,090 (8,738) (8,902)a 9,730 Increase (decrease) in advances from customers 937 (101,502) 65,659 39,857 a 4,951 Increase (decrease) in income taxes. . . . . . (8,373) 4,154 (4,525) - (8,744) Other. . . . . . . (281) - (4,702) - (4,983) ________ ________ ________ ________ ________ Net cash provided (used) by operating activities. 44,873 (61,270) 46,440 7,115 37,158 ________ ________ ________ ________ ________ Investing Activities Purchase of property and equipment. . . . . (234) (9,897) (22,251) - (32,382) Proceeds from sale of property and equipment. . . - 2,023 3,968 - 5,991 Payments received on notes receivable and receivable from investees . . - 7,162 6,092 (8,777)a 4,477 Advances for notes receivable. . (75) - (18,310) - (18,385) Proceeds from or advances for investees, other investments and other assets . (11,082) (5,389) 13,677 2,600 a (194) Purchase of shares of Standard Commercial Corporation. . (13,408) - - - (13,408) Other. . . . . . . . 69 - (263) - (194) ________ ________ ________ ________ ________ Net cash provided (used) by investing activities . . . (24,730) (6,101) (17,087) (6,177) (54,095) ________ ________ ________ ________ ________
-64- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note Q -- Supplemental Guarantor Information (continued) DIMON INCORPORATED AND SUBSIDIARIES Supplemental Combining Statement of Cash Flows Year Ended June 30, 1994 (in thousands) DIMON Incorporated Guarantors Non-Guarantors Eliminations Total Financing Activities Repayment of debt. . $ (35,016) $ (17,770) $(226,518) $ - $(279,304) Proceeds from debt . 16,605 85,403 205,238 - 307,246 Cash dividends paid to DIMON Incorporated stockholders . (13,014) - - - (13,014) Cash dividends paid to minority stockholders . . . - - (285) - (285) Proceeds from sale of common stock. . . . . . . 28 - - - 28 ________ ________ ________ ________ ________ Effect of exchange rate changes Net cash provided (used) by financing activities . . . (31,397) 67,633 (21,565) - 14,671 ________ ________ ________ ________ ________ Effect of exchange rate changes on cash. . . . . . . - - (1,662) - (1,662) ________ ________ ________ ________ ________ Increase (decrease) in cash and cash equivalents . . (11,254) 262 6,126 938 (3,928) Cash and cash equivalents at beginning of year. . 17,544 1,618 (1,878) (885)a 16,399 ________ ________ ________ ________ ________ Cash and cash equivalents at end of year $ 6,290 $ 1,880 $ 4,248 $ 53 $ 12,471 =============== ========= ========== ======== =========
a. Inter-company eliminations, including profit in inventory. -65- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note Q -- Supplemental Guarantor Information (continued) DIMON INCORPORATED AND SUBSIDIARIES Notes to Consolidated Financial Statements (in thousands) (1) Each of the Guarantors, the Company's wholly-owned subsidiaries, DIMON International, Inc. and Florimex Worldwide Inc., have fully and unconditionally guaranteed on a joint and several basis the performance and punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all of the Company's obligations under the Notes and the related indenture, including its obligations to pay principal, premium, if any, and interest with respect to the Notes. The obligations of each Guarantor is limited to the maximum amount which, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, can be guaranteed by the relevant Guarantor without resulting in the obligations of such Guarantor under its Guarantee constituting a fraudulent conveyance or fraudulent transfer under applicable federal or state law. Each of the Guarantees is a guarantee of payment and not collection. Each Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Guarantor in an amount pro rata, based on the assets less liabilities of each Guarantor determined in accordance with generally accepted accounting principles (GAAP). The Company is not be restricted from selling or otherwise disposing of any of the Guarantors other than DIMON International, Inc. provided that the proceeds of any such sale are applied as required by the Indenture. Florimex Worldwide, Inc. is the primary holding and operating company in the U.S. and represents the lead company for the flowers segment. The cut flowers operations consist of buying flowers from sources throughout the world and transporting them, normally by air, to operating units for resale to wholesalers and retailers. DIMON International, Inc. is the primary holding and operating company in the U.S. and represents the lead company in the Tobacco division whose operations consist primarily of selecting, buying, processing, packing, shipping, storing and financing tobacco. Management has determined that separate, full financial statements of the Guarantors would not be material to investors and such financial statements are not provided. (2) DIMON Incorporated and each of the Guarantors have accounted for their respective subsidiaries on the equity basis. (3) Certain reclassifications were made to conform all of the financial information to the financial presentation on a consolidated basis. The principal eliminating entries eliminate investments in subsidiaries and intercompany balances. -66- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIMON Incorporated and Subsidiaries (in thousands) Note Q -- Supplemental Guarantor Information (continued) DIMON INCORPORATED AND SUBSIDIARIES Notes to Consolidated Financial Statements (in thousands) (4) Included in the above balance sheets are certain related party balances among borrower, the guarantors and non-guarantors. Due to the Company's world-wide operations, related party activity is included in most balance sheet accounts. The tables below set forth the significant intercompany balances for each of the periods presented.
June 30, 1996 Debit(Credit) DIMON Incorporated Guarantors Non-Guarantors Accounts Receivable . . . . . . . . . . $26,761 $120,661 $54,267 Advances on Purchases . . . . . . . . . 168,616 16,886 18,963 Accounts Payable. . . . . . . . . . . . (70) (272,781) (40,033) Advances from Customers . . . . . . . . (3,380) (37) (52,256)
June 30, 1995 Debit(Credit) DIMON Incorporated Guarantors Non-Guarantors Accounts Receivable . . . . . . . . . . $ 150,153 $ 104,676 $ 20,284 Advances on Purchases . . . . . . . . . 183,503 64,284 (3,108) Accounts Payable. . . . . . . . . . . . (780) (138,137) (69,487) Advances from Customers . . . . . . . . (3,879) (201,229) (57,605)
-67- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE- Inapplicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained in the Proxy Statement under the caption "Election of Directors" is incorporated herein by reference thereto. See "Additional Information - Executive Officers of the Company" at the end of Part I above for information about the executive officers of the Company. ITEM 11. EXECUTIVE COMPENSATION AND TRANSACTIONS The information contained in the Proxy Statement under the caption "Compensation of Executive Officers and Directors" is incorporated herein by reference thereto. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained in the Proxy Statement under the caption "Stock Ownership" is incorporated herein by reference thereto. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained in the Proxy Statement under the caption "Stock Ownership" is reported herein by reference thereto. -68- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) and (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Consolidated Balance Sheet--June 30, 1996 and 1995 Statement of Consolidated Income--Years ended June 30, 1996, 1995 and 1994 Statement of Consolidated Cash Flows--Years ended June 30, 1996, 1995 and 1994 Statement of Stockholders' Equity--Years ended June 30, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Financial Statement Schedules: Schedule II Valuation and Qualifying Accounts Report of Price Waterhouse LLP Report of Ernst & Young LLP (b) Current Reports on Form 8-K Form 8-K/A2, filed April 3, 1996, amending Current Report on Form 8-K/A, filed August 21, 1995. Form 8-K/A2, filed May 8, 1996, amending Current Report on Form 8-K/A1, filed January 16, 1996. Form 8-K/A3, filed May 8, 1996, amends Current Report on Form 8-K/A2 filed April 3, 1996. -69- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (continued) (3) Exhibits The following documents are filed as exhibits to this Form 10-K pursuant to Item 601 of Regulation S-K: 3.01 Amended and Restated Articles of Incorporation of DIMON Incorporated (incorporated by reference to Appendix VII to DIMON Incorporated's Joint Proxy Statement filed pursuant to Rule 424(b) in connection with DIMON Incorporated's Registration Statement on Form S-4 (form 33-89780)) 3.02 Amended and Restated By-Laws as amended of DIMON Incorporated (incorporated by reference to Exhibit 3.2 to DIMON Incorporated's Registration Statement on Form S-4 (file 33-89780)) 4.01 Specimen of Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to DIMON Incorporated's Registration Statement on Form S-4 (file 33-89780)) 4.02 Article III of the Amended and Restated Articles of Incorporation of DIMON Incorporated (filed as Exhibit 3.01) 4.03 Article III of the Amended and Restated By-Laws of DIMON Incorporated (filed as Exhibit 3.02) 4.04 Rights Agreement, dated as of March 31, 1995, between DIMON Incorporated and First Union National Bank of North Carolina, as Rights Agent (incorporated by reference to Exhibit 4 to DIMON Incorporated Current Report on Form 8-K, dated April 1, 1995) 4.05 Indenture, dated May 29, 1996 among DIMON Incorporated as issuer, DIMON International, Inc. and Florimex Worldwide, Inc. as guarantors and Crestar Bank, as trustee (filed herewith) 10.01 DIMON Incorporated Omnibus Stock Incentive Plan (incorporated herein by reference to Exhibit 10.1 to DIMON Incorporated's Registration Statement on Form S-4 (file No. 33-89780)) 10.02 DIMON Incorporated Non-Employee Directors' Stock Option Plan (incorporated herein by reference to Exhibit 10.2 to DIMON Incorporated's Registration Statement on Form S-4 (file No. 33-89780)) 10.03 Dibrell Brothers, Incorporated 1994 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to Dibrell Brothers, Incorporated's Annual Report on Form 10-K for the year ended June 30, 1994) 10.04 Form of Interpretive Letter, dated January 11, 1995, under the Dibrell Brothers, Incorporated 1994 Omnibus Stock Incentive Plan delivered by Dibrell Brothers, Incorporated to Claude B. Owen, Jr., T. H. Faucett, T. W. Oakes, L. N. Dibrell, III and H. P. Green (incorporated by reference to Exhibit 10.6 to Dibrell Brothers, Incorporated's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994) -70- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (continued) (3) Exhibits (continued) 10.05 Dibrell Brothers, Incorporated Retirement Plan (Excess Benefit Plan) (incorporated herein by reference to Exhibit 10.4 to Dibrell Brothers, Incorporated's Annual Report on Form 10-K for the year ended June 30, 1987) 10.06 Dibrell Brothers, Incorporated Pension Equalization Plan (Benefit Assurance Plan) (incorporated herein by reference to Exhibit 10.13 to Dibrell Brothers, Incorporated's Annual Report on Form 10-K for the year ended June 30, 1991) 10.07 Long-Term Stock Investment Plan for Key Employees of Monk-Austin, Inc. (incorporated by reference to Exhibit 10.5 of Monk-Austin, Inc.'s Registration Statement on S-1 (File No. 33-51842)) 10.08 Form of 1995 Declaration of Amendment to Long-Term Stock Investment Plan for Key Employees of Monk-Austin, Inc. (incorporated herein by reference to Exhibit 10.8 to DIMON Incorporated's Registration Statement on Form S-4 (File No. 33-89780)) 10.09 Employment Agreement, dated October 18, 1994, between Monk-Austin International, Inc. and Albert C. Monk III (incorporated by reference to Exhibit 10.1 to Monk-Austin, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 1994) 10.10 Employment Agreement, dated October 18, 1994, between Monk-Austin International, Inc. and John M. Hines (incorporated by reference to Exhibit 10.2 to Monk-Austin, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 1994) 10.11 Employment Agreement, dated October 18, 1994, between Monk-Austin International, Inc. and Robert T. Monk, Jr. (incorporated by reference to Exhibit 10.3 to Monk-Austin, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 1994) 10.12 Employment Agreement, dated October 18, 1994, between Monk-Austin International, Inc. and Brian J. Harker (incorporated by reference to Exhibit 10.4 to Monk-Austin, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 1994) 10.13 Employment Agreement, dated as of December 21, 1994, effective as of November 1, 1994, by and between Dibrell Brothers, Incorporated and Claude B. Owen, Jr. (incorporated by reference to Exhibit 10.1 to Dibrell Brothers, Incorporated's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994) -71- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (continued) (3) Exhibits (continued) 10.14 Employment Agreement, dated as of December 21, 1994, effective as of November 1, 1994, by and between Dibrell Brothers, Incorporated and L. N. Dibrell, III (incorporated by reference to Exhibit 10.4 to Dibrell Brothers, Incorporated's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994) 10.15 Credit Agreement dated as of March 15, 1996 among the Company, Nationsbank, N.A. as administrative agent, First Union National Bank of Virginia, Bank of America National Trust and Savings Association as Co-Agent and lenders therein (incorporated by reference to Exhibit 10.26 to DIMON Incorporated's Registration Statement on Form S-1 (No. 333-1288)) 10.16 Consulting Agreement dated April 22, 1996 between DIMON Incorporated and John M. Hines (incorporated by reference to Exhibit 10.29 to DIMON Incorporated's Registration Statement on Form S-1 (No. 333-1288)) 10.17 Guaranty Agreement, dated as of March 15, 1996 of DIMON Incorporated and Florimex Worldwide, Inc. (incorporated by reference to Exhibit 10.27 to DIMON Incorporated's Registration Statement on Form S-1 (No. 333-1288)) 10.18 Form of Note in connection with Credit Agreement (incorporated by reference to Exhibit 10.28 to DIMON Incorporated's Registration Statement on Form S-1 (No. 333-1288)) 10.19 Second Amendment dated April 22, 1996, to Employment Agreement, dated October 18, 1994, between Monk-Austin International, Inc. and John M. Hines (incorporated by reference to Exhibit 10.30 to DIMON Incorporated's Registration Statement on Form S-1 (No. 333-1288)) 10.20 Purchase Agreement by and among DIMON Incorporated, Austria Tabakwerke AG, Austria Tabak Einkaufs-Und Handelorganisation GesmbH and Austro-Hellenique S.A. De Tabac Et De Batiment, dated April 13, 1995 (incorporated by reference to Exhibit 10.1 to DIMON Incorporated's Current Report on Form 8-K, dated June 7, 1995) 10.21 Separation Agreement dated May 30, 1996, between DIMON Incorporated and T. H. Faucett (filed herewith) -72- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (continued) (3) Exhibits (continued) 11 Computation of Earnings per Common Share (filed herewith) 21 List of Subsidiaries (filed herewith) 23.1 Consent of Price Waterhouse LLP (filed herewith) 23.2 Consent of Ernst & Young LLP (filed herewith) 27 Financial Data Schedule (filed herewith) (d) Financial Statement Schedules: Schedule II, Valuation and Qualifying Accounts, appears on the following pages. The consolidated financial statement schedules listed in Item 14(a) appear on the following pages. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are not applicable and, therefore, have been omitted. -73-
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS DIMON INCORPORATED AND SUBSIDIARIES PERIODS ENDED JUNE 30 :______________________________:_________________:_______________:__________________:_______________:_________________: : COL. A : COL. B : COL. C : : COL. D : COL. E : : : : ADDITIONS : : : : : Balance at : (1) : (2) : : Balance at : : DESCRIPTION : Beginning : Charged to : Charged to : Deductions : End of : : : of Period : Costs : Other Accounts : -Describe : Period : : : : and : -Describe : : : : : : Expenses : : : : :______________________________:_________________:_______________:__________________:_______________:_________________: Year ended June 30, 1996 Deducted from asset accounts: Allowance for doubtful accounts $ 8,823,339 $1,042,911 $ - $3,308,099 (A) $ 6,558,151 Other investments (616,861) - 616,861 - - ___________ __________ ____________ __________ ___________ Total $ 8,206,478 $1,042,911 $ 616,861 $3,308,099 $ 6,558,151 =========== ========== =========== ========== =========== Year ended June 30, 1995 Deducted from asset accounts: Allowance for doubtful accounts $ 9,972,568 $3,820,054 $ - $4,969,283 (A) $ 8,823,339 Other investments 417,958 - (1,034,819) - (616,861)(B) ___________ __________ ____________ __________ ___________ Total $10,390,526 $3,820,054 $(1,034,819) $4,969,283 $ 8,206,478 =========== ========== =========== =========== =========== Year ended June 30, 1994 Deducted from asset accounts: Allowance for doubtful accounts $10,211,471 $3,633,649 $ - $3,872,552 (A) $ 9,972,568 Other Investments - - 417,958 - 417,958 (B) ___________ __________ ___________ __________ ___________ Total $10,211,471 $3,633,649 $ 417,958 $3,872,552 $10,390,526 =========== ========== =========== ========== ========== (A) CURRENCY TRANSLATION AND DIRECT WRITE-OFF. (B) NET UNREALIZED LOSS (GAIN) BEFORE TAX ON LONG-TERM MARKETABLE EQUITY SECURITIES RECORDED IN STOCKHOLDERS' EQUITY. -74- Report of Independent Accountants To the Board of Directors and Shareholders of DIMON Incorporated In our opinion, based upon our audits and the report of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of income, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of DIMON Incorporated and its subsidiaries at June 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Dibrell Brothers, Incorporated, which statements reflect total Sales and other operating revenues of $928,470,334 for the year ended June 30, 1994. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Dibrell Brothers, Incorporated is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP Price Waterhouse LLP Raleigh, North Carolina August 22, 1996, except as to Note O, which is as of August 29, 1996 -75- Report of Independent Accountants on Financial Statement Schedule To the Board of Directors and Shareholders of DIMON Incorporated Our audits of the consolidated financial statements referred to in our report dated August 22, 1996, except as to Note O, which is as of August 29, 1996, appearing in the 1996 Annual Report to Shareholders of DIMON Incorporated (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ Price Waterhouse LLP Price Waterhouse LLP Raleigh, North Carolina August 22, 1996, except as to Note O, which is as of August 29, 1996 -76- Report of Independent Auditors Shareholders and Board of Directors Dibrell Brothers, Incorporated We have audited the consolidated statements of income, stockholders' equity, and cash flows of Dibrell Brothers, Incorporated and subsidiaries for the year ended June 30, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Dibrell Brothers, Incorporated and subsidiaries for the year ended June 30, 1994, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Ernst & Young LLP Winston-Salem, North Carolina August 26, 1994 -77- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on September 19, 1996. DIMON INCORPORATED (Registrant) /s/ Claude B. Owen, Jr. By ______________________________ Claude B. Owen, Jr. Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on September 19, 1996. /s/ Claude B. Owen, Jr. /s/ Albert C. Monk III __________________________________ __________________________________ Claude B. Owen, Jr. Albert C. Monk III Chairman of the Board and Director and President of DIMON Chief Executive Officer of DIMON Incorporated Incorporated /s/ R. Stuart Dickson /s/ Thomas F. Keller ____________________________________ __________________________________ R. Stuart Dickson Thomas F. Keller Director of DIMON Incorporated Director of DIMON Incorporated /s/ Willie G. Barker, Jr. /s/ James E. Johnson, Jr. ____________________________________ __________________________________ Willie G. Barker, Jr. James E. Johnson, Jr. Director of DIMON Incorporated Director of DIMON Incorporated /s/ Jerry L. Parker /s/ Joseph L. Lanier, Jr. ____________________________________ __________________________________ Jerry L. Parker Joseph L. Lanier, Jr. Vice President-Controller (Principal Director of DIMON Incorporated Accounting Officer) of DIMON Incorporated /s/ Norman A. Scher __________________________________ /s/ Robert T. Monk, Jr. Norman A. Scher __________________________________ Director of DIMON Incorporated Robert T. Monk, Jr. Director of DIMON Incorporated /s/ Henry F. Frigon __________________________________ /s/ Louis N. Dibrell, III Henry F. Frigon __________________________________ Director of DIMON Incorporated Louis N. Dibrell, III Director of DIMON Incorporated /s/ John M. Hines __________________________________ John M. Hines Director of DIMON Incorporated -78- EXHIBIT INDEX Exhibit Page No. 3.01 Amended and Restated Articles of incorporated by reference Incorporation of DIMON (see page 70) Incorporated 3.02 Amended and Restated By-Laws as incorporated by reference amended of DIMON Incorporated (see page 70) 4.01 Specimen of Common Stock incorporated by reference Certificate (see page 70) 4.02 Article III of the Amended and Restated incorporated by reference Articles of Incorporation of DIMON (see page 70) Incorporated (filed as Exhibit 3.10) 4.03 Article III of the Amended and Restated incorporated by reference By-Laws of DIMON Incorporated (see page 70) (filed as Exhibit 3.20) 4.04 Rights Agreement, dated as of March 31, incorporated by reference 1995, between DIMON Incorporated and (see page 70) First Union National Bank of North Carolina, as Rights Agent (incorporated by reference to Exhibit 4 to DIMON Incorporated Current Report on Form 8-K, dated April 1, 1995) 4.05 Indenture, dated May 29, 1996 among DIMON 83 - 205 Incorporated as issuer, DIMON International, Inc. and Florimex Worldwide, Inc. as guarantors and Crestar Bank, as trustee (filed herewith) 10.01 DIMON Incorporated Omnibus Stock incorporated by reference Incentive Plan (incorporated herein (see page 70) by reference to Exhibit 10.1 to DIMON Incorporated's Registration Statement on Form S-4 (file No. 33-89780)) 10.02 DIMON Incorporated Non-Employee incorporated by reference Directors' Stock Option Plan (see page 70) (incorporated herein by reference to Exhibit 10.2 to DIMON Incorporated's Registration Statement on Form S-4 (file No. 33-89780)) 10.03 Dibrell Brothers, Incorporated 1994 incorporated by reference Omnibus Stock Incentive Plan (see page 70) (incorporated by reference to Exhibit 10.6 to Dibrell Brothers, Incorporated's Annual Report on Form 10-K for the fiscal year ended June 30, 1994) -79- EXHIBIT INDEX Exhibit Page No. 10.04 Form of Interpretive letter, dated incorporated by reference January 11, 1995, under the Dibrell (see page 70) Brothers, Incorporated 1994 Omnibus Stock Incentive Plan delivered by Dibrell Brothers, Incorporated to Claude B. Owen, Jr., T. H. Faucett, T. W. Oakes, L. N. Dibrell, III and H. P. Green (incorporated by reference to Exhibit 10.6 to Dibrell Brothers, Incorporated's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994) 10.05 Dibrell Brothers, Incorporated incorporated by reference Retirement Plan (Excess Benefit (see page 71) Plan) (incorporated herein by reference to Exhibit 10.4 to Dibrell Brothers, Incorporated's Annual Report on Form 10-K for the year ended June 30, 1987) 10.06 Dibrell Brothers, Incorporated incorporated by reference Pension Equalization Plan (see page 71) (Benefit Assurance Plan) (incorporated herein by reference to Exhibit 10.13 to Dibrell Brothers, Incorporated's Annual Report on Form 10-K for the year ended June 30, 1991) 10.07 Long-Term Stock Investment Plan incorporated by reference for Key Employees of Monk-Austin, (see page 71) Inc. (incorporated by reference to Exhibit 10.5 of Monk-Austin, Inc.'s Registration Statement on S-1 (File No. 33-51842)) 10.08 Form of 1995 Declaration of incorporated by reference Amendment to Long-Term Stock (see page 71) Investment Plan for Key Employees of Monk-Austin, Inc. (incorporated herein by reference to Exhibit 10.8 to DIMON Incorporated's Registration Statement on Form S-4 (File No. 33-89780)) 10.09 Employment Agreement, dated incorporated by reference October 18, 1994, between Monk-Austin (see page 71) International, Inc. and Albert C. Monk, III (incorporated by reference to Exhibit 10.1 to Monk-Austin, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 1994) 10.10 Employment Agreement, dated incorporated by reference October 18, 1994, between Monk-Austin (see page 71) International, Inc. and John M. Hines (incorporated by reference to Exhibit 10.1 to Monk-Austin, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 1994) -80- EXHIBIT INDEX Exhibit Page No. 10.11 Employment Agreement, dated incorporated by reference October 18, 1994, between Monk-Austin (see page 71) International, Inc. and Robert T. Monk, Jr. (incorporated by reference to Exhibit 10.1 to Monk-Austin, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 1994) 10.12 Employment Agreement, dated incorporated by reference October 18, 1994, between (see page 71) Monk-Austin International, Inc. and Brian J. Harker (incorporated by reference to Exhibit 10.4 to Monk-Austin, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 1994) 10.13 Employment Agreement, dated as of incorporated by reference December 21, 1994, effective as (see page 71) of November 1, 1994, by and between Dibrell Brothers, Incorporated and Claude B. Owen, Jr. (incorporated by reference to Exhibit 10.1 to Dibrell Brothers, Incorporated's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994) 10.14 Employment Agreement, dated as of incorporated by reference December 21, 1994, effective as (see page 72) of November 1, 1994, by and between Dibrell Brothers, Incorporated and L. N. Dibrell, III (incorporated by reference to Exhibit 10.1 to Dibrell Brothers, Incorporated's Quarterly Report on Form 10-Q for the quarter ended December 31, 1994) 10.15 Credit Agreement dated as of March 15, 1996 incorporated by reference among the Company, Nationsbank, N.A. as (see page 72) administrative agent, First Union National Bank of Virginia, Bank of America National Trust and Savings Association as Co-Agent and lenders therein (incorporated by reference to Exhibit 10.26 to DIMON Incorporated's Registration Statement on Form S-1 (No. 333-1288)) -81- EXHIBIT INDEX Exhibit Page No. 10.16 Consulting Agreement dated April 22, 1996 between incorporated by reference DIMON Incorporated and John M. Hines (see page 72) (incorporated by reference to Exhibit 10.29 to DIMON Incorporated's Registration Statement on Form S-1 (No. 333-1288)) 10.17 Guaranty Agreement, dated as of March 15, 1996 incorporated by reference of DIMON Incorporated and Florimex Worldwide, (see page 72) Inc. (incorporated by reference to Exhibit 10.27 to DIMON Incorporated's Registration Statement on Form S-1 (No. 333-1288)) 10.18 Form of Note in connection with Credit Agreement incorporated by reference (incorporated by reference to Exhibit (see page 72) 10.28 to DIMON Incorporated's Registration Statement on Form S-1 (No. 333-1288)) 10.19 Second Amendment dated April 22, 1996, to incorporated by reference Employment Agreement, dated October 18, 1994, (see page 72) between Monk-Austin International, Inc. and John M. Hines (incorporated by reference to Exhibit 10.30 to DIMON Incorporated's Registration Statement on Form S-1 (No. 333-1288)) 10.20 Purchase Agreement by and among DIMON incorporated by reference Incorporated, Austria Tabakwerke AG, Austria (see page 72) Tabak Einkaufs-Und Handelorganisation GesmbH and Austro-Hellenique S.A. De Tabac Et De Batiment, dated April 13, 1995 (incorporated by reference to Exhibit 10.1 to DIMON Incorporated's Current Report on Form 8-K, dated June 7, 1995) 10.21 Separation Agreement dated May 30, 1996, between 206-211 DIMON Incorporated and T. H. Faucett (filed herewith) 11 Computation of Earnings per Common Share 212 21 List of Subsidiaries 213 23.1 Consents of Price Waterhouse LLP 214 23.2 Consents of Ernst & Young LLP 215 27 Financial Data Schedule 216 -82-
EX-4 2 Exhibit 4.05 - ------------------------------------------------------------------------------ [Execution Copy] DIMON INCORPORATED as Issuer and DIMON INTERNATIONAL, INC. as Guarantor and FLORIMEX WORLDWIDE, INC. as Guarantor $125,000,000 8 7/8% SENIOR NOTES DUE 2006 ------------------------------ INDENTURE Dated as of May 29, 1996 ------------------------------ CRESTAR BANK, Trustee - ------------------------------------------------------------------------------ - 83 - CROSS-REFERENCE TABLE Reconciliation and tie between the Trust Indenture Act of 1939, as amended, and the Indenture, dated as of May 29, 1996. Trust Indenture Act Indenture Section Section - --------- --------- SECTION 310(a)(1) 7.10 (a)(2) 7.10 (a)(3) N.A. (a)(4) N.A. (a)(5) 7.10 (b) 7.08; 7.10 ( c ) N.A. SECTION 311(a) 7.11 (b) 7.11 ( c ) N.A. SECTION 312(a) 7.06(a);7.06(b) (b) 7.06( c ) ( c ) 7.06(d) SECTION 313(a) 7.06(e) (b) N.A. ( c ) 7.06(e);7.06(f) (d) 7.06 SECTION 314(a) 4.16; 4.18 (b) N.A. ( c )(1) 11.03 ( c )(2) 11.03 ( c )(3) N.A. (d) N.A. (e) 11.04 (f) 4.20 SECTION 315(a) 7.01(b) (b) 7.05(a) ( c ) 7.01(a) (d) 7.01( c ) (e) 6.10 SECTION 316(a) 2.08 (a)(1)(A) 6.05 (a)(1)(B) 6.04 (a)(2) N.A. (b) 6.07 ( c ) 9.05 SECTION 317(a)(1) N.A. (a)(2) 6.08 (b) 2.04 SECTION 318(a) 11.01 NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be part of the Indenture. - 84 - TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. Definitions 1 SECTION 1.02. Incorporation by Reference of Trust Indenture Act 19 SECTION 1.03. Rules of Construction 20 SECTION 1.04. Form of Documents Delivered to Trustee 20 SECTION 1.05. Acts of Holders 21 SECTION 1.06 Satisfaction and Discharge 21 ARTICLE II THE NOTES SECTION 2.01. Form and Dating 23 SECTION 2.02. Execution and Authentication 24 SECTION 2.03. Registrar and Paying Agent 25 SECTION 2.04. Paying Agent to Hold Money in Trust 26 SECTION 2.05. Global Note 26 SECTION 2.06. Transfer and Exchange 27 SECTION 2.07. Replacement Notes 28 SECTION 2.08. Outstanding Notes 29 SECTION 2.09 Temporary Notes 30 SECTION 2.10. Cancellation 30 SECTION 2.11. Payment of Interest; Interest Rights Preserved 30 SECTION 2.12. Computation of Interest 31 SECTION 2.13. Persons Deemed Owners 31 SECTION 2.14. CUSIP Numbers 31 ARTICLE III REDEMPTION SECTION 3.01. Notice to Trustee 32 SECTION 3.02. Selection of Notes to be Redeemed 32 SECTION 3.03. Notice of Redemption 32 SECTION 3.04. Effect of Notice of Redemption 33 SECTION 3.05. Deposit of Redemption Price 33 SECTION 3.06. Notes Redeemed in Part 34 ARTICLE IV COVENANTS SECTION 4.01. Payment of Notes 34 SECTION 4.02. Maintenance of Office or agency 34 i - 85 - SECTION 4.03. Money for the Note Payments to be Held in Trust 35 SECTION 4.04. Corporate Existence 35 SECTION 4.05. Maintenance of Property 36 SECTION 4.06. Payment of Taxes and Other Claims 36 SECTION 4.07. Repurchase at the Option of Holders upon a Change of Control 36 SECTION 4.08. Limitation on Asset Sales 38 SECTION 4.09. Ownership of and Liens on Capital Stock of Subsidiaries 43 SECTION 4.10. Restricted Payments 44 SECTION 4.11. Incurrence of Indebtedness and Issuance of Preferred Stock 47 SECTION 4.12. Liens 50 SECTION 4.13. Dividends and Other Payment Restrictions Affecting Subsidiaries 51 SECTION 4.14. Limitation on Sale and Leaseback Transactions 52 SECTION 4.15. Transactions with Affiliates 53 SECTION 4.16. Reports 53 SECTION 4.17. Waiver of Stay, Extension or Usury Laws 54 SECTION 4.18. Compliance Certificate; Notice of Default or Event of Default 54 SECTION 4.19 Payments for Consent, Waiver or Amendment 55 SECTION 4.20. Investment Company Act 55 SECTION 4.21. Further Instruments and Acts 55 ARTICLE V CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER SECTION 5.01. Merger, Consolidation or Sale of Assets 55 SECTION 5.02. Successor Corporation Substituted 56 ARTICLE VI DEFAULTS AND REMEDIES SECTION 6.01. Events of Default 57 SECTION 6.02. Acceleration 59 SECTION 6.03. Other Remedies 59 SECTION 6.04. Waiver of Past Defaults 60 SECTION 6.05. Control by Majority 60 SECTION 6.06. Limitation on Suits 60 SECTION 6.07. Rights of Holders to Receive Payment 61 SECTION 6.08. Trustee May File Proofs of Claim 61 SECTION 6.09. Priorities 62 SECTION 6.10. Undertaking for Costs 62 SECTION 6.11. Waiver of Stay or Extension Laws 63 ii - 86 - SECTION 6.12. Trustee May Enforce Claims Without Possession of the Notes 63 SECTION 6.13. Restoration of Rights and Remedies 63 SECTION 6.14. Rights and Remedies Cumulative 63 SECTION 6.15. Delay or Omission Not Waiver 63 ARTICLE VII TRUSTEE SECTION 7.01. Duties of Trustee 64 SECTION 7.02. Rights of Trustee 65 SECTION 7.03. Individual Rights of Trustee 65 SECTION 7.04. Trustee's Disclaimer 66 SECTION 7.05. Notice of Defaults 66 SECTION 7.06. Preservation of Information; Reports by Trustee to Holders 66 SECTION 7.07. Compensation and Indemnity 67 SECTION 7.08. Replacement of Trustee 68 SECTION 7.09. Successor Trustee by Merger 70 SECTION 7.10. Eligibility; Disqualification 71 SECTION 7.11. Preferential Collection of Claims Against Company 71 ARTICLE VIII DEFEASANCE SECTION 8.01. Company's Option to Effect Legal Defeasance or Covenant Defeasance 72 SECTION 8.02. Legal Defeasance and Discharge 72 SECTION 8.03. Covenant Defeasance 73 SECTION 8.04. Conditions to Legal Defeasance or Covenant Defeasance 73 SECTION 8.05. Deposited Money and U.S. Government Obligations to be Held in Trust; Miscellaneous Provisions 75 SECTION 8.06. Reinstatement 75 iii - 87 - ARTICLE IX AMENDMENTS SECTION 9.01. Without Consent of Holders 76 SECTION 9.02. With Consent of Holders 77 SECTION 9.03. Effect of Supplemental Indentures 78 SECTION 9.04. Compliance with Trust Indenture Act 78 SECTION 9.05. Revocation and Effect of Consents and Waivers 78 SECTION 9.06. Notation on or Exchange of Notes 79 SECTION 9.07. Trustee to Execute Supplemental Indentures 79 ARTICLE X GUARANTEES SECTION 10.01 Guarantees 80 SECTION 10.02 Obligations of Guarantors Unconditional 82 SECTION 10.03 Limitation on Guarantors' Liability 82 SECTION 10.04 Releases of Guarantees 82 SECTION 10.05 Application of Certain Terms and Provisions to Guarantors 83 SECTION 10.06 Additional Guarantors 83 ARTICLE XI MISCELLANEOUS SECTION 11.01. Trust Indenture Act Controls 84 SECTION 11.02. Notices 84 SECTION 11.03. Certificate and Opinion as to Conditions Precedent 85 SECTION 11.04. Statements Required in Certificate or Opinion 85 SECTION 11.05. Rules by Trustee, Paying Agent and Registrar 85 SECTION 11.06. Payments on Business Days 85 SECTION 11.07. Governing Law 85 SECTION 11.08. No Recourse Against Others 85 SECTION 11.09. Successors 86 SECTION 11.10. Counterparts 86 SECTION 11.11. Table of Contents; Headings 86 SECTION 11.12. Severability 86 SECTION 11.13 Further Instruments and Acts 86 SCHEDULE A Non-Wholly Owned Subsidiaries EXHIBIT A FORM OF GLOBAL NOTE EXHIBIT B FORM OF CERTIFICATED NOTE iv - 88 - INDENTURE, dated as of May 29, 1996, among DIMON INCORPORATED, a Virginia corporation (the "Company"), having its principal office at 512 Bridge Street, Danville, Virginia 24541, DIMON INTERNATIONAL, INC., a North Carolina corporation ("DIMON International"), having its principal office at 1200 West Marlboro Road, Farmville, North Carolina 27828, and FLORIMEX WORLDWIDE, INC., a Virginia corporation ("Florimex"), having its principal office at 512 Bridge Street, Danville, Virginia 24541 (together with DIMON International, the "Guarantors"), and CRESTAR BANK, a Virginia banking corporation, as trustee hereunder (the "Trustee"), having its Corporate Trust Office at 919 East Main Street, Richmond, Virginia 23219. RECITALS OF THE COMPANY AND THE GUARANTORS The Company has duly authorized the creation and issue of its 8 7/8% Senior Notes due 2006 (the "Notes") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. Each of the Guarantors has duly authorized the execution and delivery of this Indenture to provide a guarantee of the Notes and of certain of the obligations of the Company hereunder. All things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid instrument of the Company and of each of the Guarantors, in accordance with their respective terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, for and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Notes, as follows: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; and (b) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP. - 89 - "Acquired Indebtedness" means, with respect to any specified Person, (i) any Indebtedness or Disqualified Stock of any other Person existing at the time such other Person is merged with or into or becomes a Subsidiary of such specified Person including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person, and in either case for purposes of this Indenture, shall be deemed to be incurred by such specified Person at the time such other Person is merged with or into or becomes a Subsidiary of such specified Person or at the time such asset is acquired by such specified Person, as the case may be. "Act" when used with respect to any Holder, has the meaning set forth in Section 1.05 hereof. "Advances on Purchases of Tobacco" means loans, advances and extensions of credit made by the Company or any of its Subsidiaries to growers and other suppliers of tobacco (including Affiliates) and tobacco growers' cooperatives, whether short-term or long-term, in the ordinary course of business to finance the growing or processing of tobacco. "Affiliate" of any specified Person means (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person or (ii) any other Person who is a director or executive officer of (a) such specified Person or (b) any Person described in the preceding clause (i). For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of any class of equity securities of a Person, whether or not voting, shall be deemed to be control. "Affiliate Transaction" has the meaning set forth in Section 4.15 hereof. "Agent Members" has the meaning set forth in Section 2.05(a) hereof. "Asset Sale" means, with respect to any Person, the sale, lease, conveyance or other disposition, that does not constitute a Restricted Payment or an Investment, by such Person of any of its assets (including, without limitation, by way of a Sale and Leaseback Transaction and including the issuance, sale or other transfer of any Equity Interests in any Subsidiary) other than to the Company (including the receipt of proceeds of insurance paid on account of the loss of or damage to any asset and awards of compensation for any asset taken by condemnation, eminent domain or similar proceeding, and including the receipt of proceeds of business interruption insurance), in each case, in one or a series of related transactions; provided that, notwithstanding the foregoing, the term "Asset Sale" shall not include: 2 - 90 - (i) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Company, as permitted pursuant to Section 5.01 hereof; or (ii) the sale or lease of equipment, inventory, accounts receivable or other assets in the ordinary course of business consistent with past practice; or (iii) a transfer of assets by the Company to a Wholly Owned Subsidiary of the Company or by a Wholly Owned Subsidiary of the Company to the Company or to another Wholly Owned Subsidiary of the Company; or (iv) an issuance of Equity Interests by a Wholly Owned Subsidiary of the Company to the Company or to another Wholly Owned Subsidiary of the Company, provided that the consideration paid by the Company or such Wholly Owned Subsidiary of the Company for such Equity Interests shall be deemed to be an Investment; or (v) the sale or other disposition of cash or Cash Equivalents. "Asset Sale Offer" has the meaning set forth in Section 4.08(d) hereof. "Asset Sale Payment Date" has the meaning set forth in Section 4.08(e)(ii) hereof. "Asset Sale Purchase Price" has the meaning set forth in Section 4.08(d) hereof. "Attributable Indebtedness" means, in respect of a Sale and Leaseback Transaction at the time of determination thereof, the greater of (i) the capitalized amount in respect of such transaction that would appear on the face of a balance sheet of the lessee in accordance with GAAP and (ii) the present value (discounted at the interest rate borne by the Notes, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction (including any period for which such lease has been extended). "Bankruptcy Law" means Title 11, United States Code, or any other applicable federal, state or foreign bankruptcy, insolvency or similar law, as now or hereafter constituted. "Beneficiary" when used with respect to any individual, means the spouse, lineal descendants (including adoptive children), parents and siblings of any such individual, the estates and the legal representatives of any such individual and any of the foregoing and the trustee of any bona fide trust of which any such individual and any of the foregoing are the sole beneficiaries or grantors. 3 - 91 - "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Board Resolution" means a duly adopted resolution of the Board of Directors in full force and effect at the time of determination and certified as such by the Secretary or an Assistant Secretary of the Company. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in The City of New York are authorized or obligated by law, executive order or regulation to close. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means: (i) in the case of a corporation, capital stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalent" means: (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities not more than twelve months from the date of acquisition; (ii) U.S. dollar denominated (or foreign currency fully hedged) time deposits, certificates of deposit, Eurodollar time deposits or Eurodollar certificates of deposit of (a) any domestic commercial bank of recognized standing having capital and surplus in excess of $500 million or (b) any bank whose short- term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof (any such bank being an "Approved Lender"), in each case with maturities of not more than twelve months from the date of acquisition; (iii) commercial paper issued by any Approved Lender (or by the parent company thereof) or any variable rate notes issued by, or guaranteed by, any domestic corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody's and maturing within twelve months of the date of acquisition; (iv) shares of money market mutual funds having assets in excess of $2 billion; and 4 - 92 - (v) deposits, including interest-bearing deposits, maintained in the ordinary course of business in banks. "Certificated Notes" has the meaning set forth in Section 2.01(c) hereof. "Change of Control" means such time as: (i) any Person or group (within the meaning of Section 13(d) or 14(d) of the Exchange Act) (other than one or more members of the Monk Family) has become, directly or indirectly, the beneficial owner, by way of merger, consolidation or otherwise, of 30% or more of the voting power of the Voting Stock of the Company on a fully-diluted basis, after giving effect to the conversion and exercise of all outstanding warrants, options and other securities of the Company convertible into or exercisable for Voting Stock of the Company (whether or not such securities are then currently convertible or exercisable); or (ii) the sale, lease or transfer of all or substantially all of the consolidated assets of the Company to any Person or group; or (iii) during any period of two consecutive calendar years, individuals who at the beginning of such period constituted the Board of Directors of the Company, together with any new members of such Board of Directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the members of such Board of Directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the directors of the Company then in office; or (iv) the Company consolidates with or merges with or into another Person or any Person consolidates with, or merges with or into, the Company (in each case, whether or not in compliance with the terms of this Indenture), in any such event pursuant to a transaction in which immediately after the consummation thereof Persons owning a majority of the Voting Stock of the Company immediately prior to such consummation shall cease to own a majority of the Voting Stock of the Company or the surviving entity if other than the Company. "Change of Control Offer" has the meaning set forth in Section 4.07(a) hereof. "Change of Control Payment Date" has the meaning set forth in Section 4.07(a) hereof. "Change of Control Purchase Price" has the meaning set forth in Section 4.07(a) hereof. 5 - 93 - "Clearing Agency" has the meaning set forth in Section 3(a)(23) of the Exchange Act. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the United States Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, the body performing such duties at such time. "Company" means the party named as such in the preamble to this Indenture until a successor replaces it pursuant to the applicable provisions hereof and, thereafter, means such successor. "Company Order" means a written order signed in the name of the Company by (i) its Chairman of the Board, Chief Executive Officer, President, or a Vice President, and (ii) its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary. "Consolidated EBITDA" means, with respect to any Person for any period, the sum, without duplication, of: (i) the Consolidated Net Income for such period, plus (ii) the Consolidated Interest Expense for such period, plus (iii) amortization of deferred financing charges for such period, plus (iv) provision for taxes based on income or profits for such period (to the extent such income or profits were included in computing Consolidated Net Income for such period), plus (v) consolidated depreciation, amortization and other noncash charges of such Person and its Subsidiaries required to be reflected as expenses on the books and records of such Person, minus (vi) cash payments with respect to any nonrecurring, noncash charges previously added back pursuant to clause (v), and excluding (vii) the impact of foreign currency translations. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and other noncash charges of, a Subsidiary of a Person shall be added to Consolidated Net Income to compute Consolidated EBITDA only to the extent (and in the same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a 6 - 94 - corresponding amount would be permitted at the date of determination to be dividended to such Person by such Subsidiary without prior approval (unless such approval has been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders. "Consolidated Interest Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated EBITDA of such Person and its Subsidiaries for such period to the Consolidated Interest Expense of such Person and its Subsidiaries for such period. If the Company or any of its Subsidiaries incurs, assumes, guarantees or repays or redeems any Indebtedness (other than revolving credit borrowings) or issues or redeems preferred stock subsequent to the commencement of the four-quarter reference period for which the Consolidated Interest Coverage Ratio is being calculated but on or prior to the date on which the event for which the calculation of the Consolidated Interest Coverage Ratio is made (the "Calculation Date"), then the Consolidated Interest Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee, repayment or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period, provided however, that in making such computation on a pro forma basis, the Consolidated Interest Expense of such Person attributable to interest on any Indebtedness bearing a floating interest rate and which was not actually outstanding during all or any part of such four-quarter reference period shall be computed on a pro forma basis as if the rate in effect on the date of computation (after giving effect to any hedge in respect of such Indebtedness that will, by its terms, remain in effect until the earlier of the maturity of such Indebtedness or the date one year after the date of such determination) had been the applicable rate during that portion of such four-quarter reference period when such Indebtedness was not actually outstanding. For purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four- quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period, (ii) the Consolidated EBITDA attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Consolidated Interest Expense attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Consolidated Interest Expense will not be obligations of the referent Person or any of its Subsidiaries following the Calculation Date. "Consolidated Interest Expense" means, with respect to any Person for any period, the consolidated interest expense of such Person and its Subsidiaries for such period determined in accordance with GAAP (net of any interest income), plus, to the extent not included in such interest expense 7 - 95 - (i) amortization of original issue discount, noncash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations and any Attributable Indebtedness, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations, but excluding amortization of deferred financing charges for such period, plus (ii) the consolidated interest expense of such Person and its Subsidiaries that was capitalized during such period, plus (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or one of its Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries (whether or not such guarantee or Lien is called upon), plus (iv) the product of (a) all cash dividend payments (and noncash dividend payments in the case of a Person that is a Subsidiary) on any series of preferred stock of such Person payable to a party other than the Company or a Wholly Owned Subsidiary, multiplied by (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (unless such approval has been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write- ups subsequent to the date of this Indenture in the book value of 8 - 96 - any asset owned by such Person or a consolidated Subsidiary of such Person (other than purchase accounting adjustments made, in connection with any acquisition of any entity that becomes a consolidated Subsidiary of such Person after the date of this Indenture, to the book value of the assets of such entity), (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined on a consolidated basis in accordance with GAAP. "Consolidated Tangible Net Worth" means, with respect to any Person as of any date, the sum of (i) Consolidated Net Worth, minus (ii) the amount of such Person's intangible assets at such date, including, without limitation, goodwill (whether representing the excess of cost over book value of assets acquired or otherwise), capitalized expenses, patents, trademarks, tradenames, copyrights, franchises, licenses and deferred charges (such as, without limitation, unamortized costs and costs of research and development), all determined for such Person on a consolidated basis in accordance with GAAP. "Corporate Trust Office" means the principal office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office is, at the date of execution of this Indenture, located at 919 East Main Street, Richmond, Virginia 23219. "Covenant Defeasance" has the meaning set forth in Section 8.03(b) hereof. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Defaulted Interest" has the meaning set forth in Section 2.11 hereof. "Depositary" means The Depository Trust Company, its nominees, and their respective successors. "Disqualified Stock" means (i) with respect to any Person, Capital Stock of such Person that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date which is one year after the latest date on which the Notes mature and (ii) with respect to any Subsidiary of such Person, any Capital Stock other than any common stock with no preference, privileges, or redemption or repayment provisions. "Eligible Inventory" means, as of any date, all inventory of the Company and any of its Subsidiaries, wherever located, valued in accordance with GAAP and shown on the balance sheet of the Company for the quarterly period most recently ended prior to such date for which financial statements of the Company are available. 9 - 97 - "Eligible Receivables" means, as of any date, all accounts receivable of the Company and any of its Subsidiaries arising out of the sale of inventory in the ordinary course of business, valued in accordance with GAAP and shown on the balance sheet of the Company for the quarterly period most recently ended prior to such date for which financial statements of the Company are available. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock), whether outstanding prior to, on or after the date of this Indenture. "Event of Default" has the meaning set forth in Section 6.01 hereof. "Excess Proceeds" has the meaning set forth in Section 4.08(c) hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Exempt Affiliate Transactions" means (i) transactions between or among the Company and/or its Wholly Owned Subsidiaries, (ii) advances to officers of the Company or any Subsidiary of the Company in the ordinary course of business to provide for the payment of reasonable expenses incurred by such persons in the performance of their responsibilities to the Company or such Subsidiary or in connection with any relocation, (iii) fees and compensation paid to and indemnity provided on behalf of directors, officers or employees of the Company or any Subsidiary of the Company in the ordinary course of business, (iv) any employment agreement that is in effect on the date of this Indenture in the ordinary course of business and any such agreement entered into by the Company or a Subsidiary of the Company after the date of this Indenture in the ordinary course of business of the Company or such Subsidiary, and (v) any Restricted Payment that is not prohibited by Section 4.10 hereof. "Exempt Asset Sale" means (i) an Asset Sale on or after the date of this Indenture (A) the Net Proceeds of which plus the Net Proceeds of all other Asset Sales concurrently or previously made on or after the date of this Indenture do not exceed $25.0 million and (B) the Net Proceeds of which plus the Net Proceeds of all other Asset Sales concurrently or previously made in the same fiscal year do not exceed $10.0 million; (ii) the issuance on or after the date of this Indenture of shares of Capital Stock in any Subsidiary of the Company which conducts the Company's tobacco business in Greece to the Company's joint venture partner in Georges Allamanis Tobacco International in connection with the contribution to such Subsidiary by such partner of its interest in Georges Allamanis Tobacco International; provided that, such transaction meets the requirements set forth in clause (i) of Section 4.08(a) hereof. "Existing Indebtedness" means the Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the New Credit Facility) in existence on the date of this Indenture, until such amounts are repaid. 10 - 98 - "GAAP" means United States generally accepted accounting principles, consistently applied, as set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, that are applicable to the circumstances as of the date of determination, provided that, except as specifically provided in the Indenture, all calculations made for purposes of determining compliance with the covenants set forth in Article IV and Section 5.01 hereof shall use GAAP as in effect on the date of this Indenture for financial statements for fiscal years ending on or after December 31, 1996, but that for such purposes of determining compliance GAAP shall not include Statement of Financial Accounting Standards No. 121. "Global Note" has the meaning set forth in Section 2.01(c) hereof. "guarantee" means any obligation, contingent or otherwise, of any Person, directly or indirectly guaranteeing any Indebtedness of any other Person, including any such obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by agreement to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, 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 shall have a correlative meaning. "Guarantee" means the guarantee of the Notes by each Guarantor under Article X hereof. "Guarantors" means DIMON International, Florimex and each Material Domestic Subsidiary formed or acquired (and each other Person that becomes a Material Domestic Subsidiary) after the date of this Indenture, provided that any Material Domestic Subsidiary so acquired which is prohibited from entering into a Guarantee pursuant to restrictions contained in any debt instrument in existence at the time such Material Domestic Subsidiary was so acquired and not entered into in anticipation or contemplation of such acquisition shall not be required to become a Guarantor so long as any such restriction is in existence and to the extent of any such restriction. "Hedging Obligations" means, with respect to any Person, the obligations of such Person entered into in the ordinary course of business under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and other similar financial agreements or arrangements designed to protect such Person against, or manage the exposure of such Person to, fluctuations in interest rates, (ii) forward exchange agreements, currency swap, currency option and other similar financial agreements or arrangements designed to protect 11 - 99 - such Person against, or manage the exposure of such Person to, fluctuations in foreign currency exchange rates, and (iii) forward contracts, commodity swap, commodity option and other similar financial agreements or arrangements designed to protect such Person against, or manage the exposure of such Person to, fluctuations in commodity prices. "Holder" means (i) in the case of any Certificated Note, the person in whose name such Certificated Note is registered on the Note Registry, and (ii) in the case of any Global Note, the Depositary. "incur" has the meaning set forth in Section 4.11(a) hereof. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or Attributable Indebtedness with respect to Sale and Leaseback Transactions, or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable incurred in the ordinary course of business, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the guarantee by such Person of any indebtedness of any other Person. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, and shall include, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument, and any such supplemental indenture, respectively. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Notes. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding advances to officers and employees of the type specified in clause (ii) of the definition of Exempt Affiliate Transactions), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided that an acquisition of assets, Equity Interests or other securities by the Company for consideration consisting of common equity securities of the Company shall not be deemed to be an Investment. 12 - 100 - "Joint Venture" means a single-purpose corporation, partnership or other legal arrangement hereafter formed by the Company or any of its Subsidiaries with another Person in order to conduct a common venture or enterprise with such Person through a separate legal entity. "Legal Defeasance" has the meaning set forth in Section 8.02 hereof. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Material Domestic Subsidiary" means any Subsidiary of the Company which is organized under the laws of the United States of America, any state thereof or the District of Columbia and would constitute a "significant subsidiary" of the Company as defined in Rule 1.02 of Regulation S-X promulgated by the Commission except that for purposes of this definition all reference therein to ten (10) percent shall be deemed to be references to five (5) percent. "Material Foreign Subsidiary" means any Subsidiary of the Company, other than any Subsidiary which is organized under the laws of the United States of America, any state thereof or the District of Columbia, which constitutes a "significant subsidiary" of the Company as defined in Rule 1.02 of Regulation S-X promulgated by the Commission. "Maturity" means, when used with respect to a Note, the date on which the principal of such Note becomes due and payable as provided therein or in this Indenture, whether on the date specified in such Note as the fixed date on which the principal of such Note is due and payable, on the Change of Control Payment Date or the Asset Sale Payment Date, or by declaration of acceleration, call for redemption or otherwise. "Monk Family" means A.C. Monk III, R.T. Monk, Jr., W.C. Monk and their spouses, lineal descendants (including adoptive children), parents and siblings and their heirs, legatees, legal representatives and all trusts established by any of them for estate planning purposes of which any such individuals are the sole beneficiaries or grantors. "Moody's" means Moody's Investors Service, Inc., or, if Moody's Investors Service, Inc. shall cease rating the specified debt securities and such ratings business with respect thereto shall have been transferred to a successor Person, such successor Person; provided that if Moody's Investors Service, Inc. ceases rating the specified debt securities and its ratings business with respect thereto shall not have been transferred to any successor Person or such successor Person is S&P, then "Moody's" shall mean any other nationally recognized rating agency (other than S&P) that rates the specified debt securities and that shall have been designated by the Company in an Officers' Certificate. 13 - 101 - "Net Income" means, with respect to any Person for any period, the net income (loss) of such Person for such period, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to any Sale and Leaseback Transaction) or (b) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries and (ii) any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss; provided that in calculating Net Income, the restructuring charges incurred in connection with the merger of Dibrell Brothers, Incorporated and Monk-Austin, Inc. on April 1, 1995, shall be excluded from such calculation to the extent such charges do not exceed $38.4 million (which is composed of $23.4 million in various charges for the fiscal year of the Company ended June 30, 1995, additional charges of $5.6 million for the nine months ended March 31, 1996 and an estimated $9.4 million in additional anticipated restructuring charges). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any noncash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions), taxes paid or payable as a result thereof, and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "New Credit Facility" means the Credit Agreement, dated as of March 15, 1996, among the Company as borrower thereunder, NationsBank, N.A., as administrative agent, Bank of America NT&SA, First Union National Bank of Virginia and Crestar Bank, as co-agents, and the lenders party thereto, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced, restated or refinanced from time to time. "Note Register" has the meaning set forth in Section 2.03 hereof. "Notes" has the meaning set forth in the Recitals of the Company and the Guarantors and more particularly means any of the Notes authenticated and delivered under this Indenture. "Obligations" means any principal, premiums, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Officer" means the Chairman of the Board of Directors, the Chief Executive Officer, the President, a Vice President, the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Secretary, or an Assistant Secretary. 14 - 102 - "Officers' Certificate" means a certificate signed by (i) the Chairman of the Board of Directors, the Chief Executive Officer, the President, or a Vice President of the Company, and (ii) the Chief Financial Officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee, which certificate shall comply with the provisions of Section 11.04 hereof; provided that any Officers' Certificate delivered pursuant to the first paragraph of Section 4.18 hereof shall be signed by the Chief Executive Officer, the Chief Financial Officer or the Chief Accounting Officer of the Company. "Opinion of Counsel" means a written opinion from legal counsel (who may be counsel to the Company or the Trustee) who is acceptable to the Trustee, which opinion shall comply with the provisions of Section 11.04 hereof; provided that any Opinion of Counsel delivered pursuant to Section 8.04 hereof shall not be rendered by an employee of the Company or any of its Subsidiaries. "Paying Agent" means any Person authorized by the Company to make payments of principal, premium or interest with respect to the Notes on behalf of the Company. "Permitted Investments" means (i) any Investments in the Company; (ii) any Investments in cash or Cash Equivalents; (iii) Investments made as a result of the receipt of noncash consideration from an Asset Sale that was made pursuant to and in compliance Section 4.08 hereof; (iv) Investments (other than Advances on Purchases of Tobacco) outstanding as of the date of this Indenture; (v) Investments in Wholly Owned Subsidiaries of the Company and any entity that (a) is engaged in the same or a similar line of business as the Company or any of its Subsidiaries was engaged in on the date of this Indenture and which has not been discontinued on or prior to the date of such Investment or any reasonable extensions or expansions thereof, and (b) as a result of such Investment is a Wholly Owned Subsidiary of the Company; (vi) investments made in the ordinary course of business in export notes, trade credit assignments, bankers' acceptances, guarantees and instruments of a similar nature issued in connection with the financing of international trading transactions by (i) any commercial bank or trust company (or any Affiliate thereof) organized under the laws of the United States of America, any state thereof, or the District of Columbia having capital and surplus in excess of $100,000,000 or (ii) any international bank of recognized standing ranking among the world's 100 largest commercial banks in terms of total assets; and 15 - 103 - (vii) any Advances on Purchases of Tobacco, but only to the extent that the aggregate principal amount of such advances outstanding at any time to any Person and such Person's Affiliates does not exceed 15% of the Consolidated Tangible Net Worth of the Company for the most recently ended fiscal quarter for which internal financial statements are available. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the principal amount of such Permitted Refinancing Indebtedness does not exceed the principal amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness (x) has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded, (y) does not have a stated maturity earlier than the stated maturity of the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded, and (z) does not permit redemption or other retirement (including pursuant to any required offer to purchase to be made by the Company or a Subsidiary of the Company) of such Indebtedness at the option of the holder thereof prior to the final stated maturity of the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded, other than a redemption or other retirement at the option of the holder of such Indebtedness (including pursuant to a required offer to purchase made by the Company or a Subsidiary of the Company) which is conditioned upon a change of control of the Company pursuant to provisions substantially similar to those contained in Section 4.07 hereof; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by the Company or by the Subsidiary of the Company who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, corporation, limited or general partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. 16 - 104 - "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms hereof, a calculation in accordance with Article 11 of Regulation S-X promulgated under the Securities Act (to the extent applicable), as interpreted in good faith by the Board of Directors, or otherwise, a calculation made in good faith by the Board of Directors, as the case may be. "Property" means, with respect to any Person, any interest of such Person in any kind of property or asset, whether real, personal or mixed, tangible or intangible, excluding Capital Stock in any other Person. "Purchase Money Obligation" of any Person means any obligation of such Person to any seller or any other Person incurred or assumed to finance the construction and/or acquisition of real or personal property constituting plant or equipment to be used in the business of such Person or any of its Subsidiaries (excluding accounts payable to trade creditors incurred in the ordinary course of business), which obligation is secured by a Lien on such property constructed or acquired. "Record Date" means, for the interest payable on any Interest Payment Date, the date specified in Section 2.11 hereof. "Redemption Date" means, when used with respect to any Note or part thereof to be redeemed hereunder, the date fixed for redemption of such Notes pursuant to the terms of the Notes and this Indenture. "Redemption Price" means, when used with respect to any Note or part thereof to be redeemed hereunder, the price fixed for redemption of such Note pursuant to the terms of the Notes and this Indenture, plus accrued and unpaid interest thereon, if any, to the Redemption Date. "Registrar" has the meaning set forth in Section 2.03 hereof. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Payment" has the meaning set forth in Section 4.10(a) hereof. "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill Corporation, or, if Standard & Poor's Ratings Group shall cease rating the specified debt securities and such ratings business with respect thereto shall have been transferred to a successor Person, such successor Person; provided that if Standard & Poor's Ratings Group ceases rating the specified debt securities and its ratings business with respect thereto shall not have been transferred to any successor Person or such successor Person is Moody's, then "S&P" shall mean any other nationally recognized rating agency (other than Moody's) that rates the specified debt securities and that shall have been designated by the Company in an Officers' Certificate. 17 - 105 - "Sale and Leaseback Transaction" of any Person means an arrangement with any lender or investor or to which such lender or investor is a party providing for the leasing by such Person of any property or asset of such Person which has been or is being sold or transferred by such Person more than 180 days after the acquisition thereof or the completion of construction or commencement of operation thereof to such lender or investor or to any Person to whom funds have been or are to be advanced by such lender or investor on the security of such property or asset. The stated maturity of such arrangement shall be the date of the last payment of rent or any other amount due under such arrangement prior to the first date on which such arrangement may be terminated by the lessee without payment of a penalty. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Special Record Date" means a date fixed by the Trustee pursuant to Section 2.11 for the payment of Defaulted Interest. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred), and, when used with respect to any installment of interest on such security, the fixed date on which such installment of interest is due and payable. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "Temporary Notes" has the meaning set forth in Section 2.09 hereof. "Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C. 77aaa-77bbbb) as in effect on the date of this Indenture except as required by Section 9.04 hereof, provided that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939, as so amended. "Trust Officer" means any officer or assistant officer of the Trustee assigned by the Trustee to administer this Indenture. 18 - 106 - "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and, thereafter, means such successor Trustee. "U.S. Government Obligations" means (i) securities that are (a) direct obligations of the United States of America for the payment of which the full faith and credit of the United States of America is pledged or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof; and (ii) depositary receipts issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any U.S. Government Obligation which is specified in clause (i) above and held by such bank for the account of the holder of such depositary receipt, or with respect to any specific payment of principal or interest on any U.S. Government Obligation which is so specified and held, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal or interest of the U.S. Government Obligation evidenced by such depositary receipt. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the product obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payments at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person or, in the case of Subsidiaries that are not organized under the laws of the United States of America, any state thereof or the District of Columbia, by one or more nominees of such Person. SECTION 1.02. Incorporation by Reference of Trust Indenture Act. (a) This Indenture is subject to, and shall be governed by, the provisions of the Trust Indenture Act that are required to be a part of and to govern indentures qualified under the Trust Indenture Act, and such provisions are incorporated by reference in and made a part of this Indenture. 19 - 107 - (b) Whenever this Indenture refers to a provision of the Trust Indenture Act, the provision is incorporated by reference in and made a part of this Indenture. The following Trust Indenture Act terms incorporated by reference in this Indenture have the following meanings: "indenture securities" means the Notes. "indenture security holder" means a Holder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company, the Guarantors, or other obligor on the Notes, if any. All other Trust Indenture Act terms used or incorporated by reference in this Indenture that are defined by the Trust Indenture Act, defined by Trust Indenture Act reference to another statute or defined by Commission rule have the meanings assigned to them therein. SECTION 1.03. Rules of Construction. Unless the context otherwise requires: (a) the words "herein," "hereof" and "hereunder," and other words of similar import, refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (b) "or" is not exclusive; (c) "including" means "including without limitation"; (d) the principal amount of any noninterest bearing or other discount security, at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP; and (e) when used with respect to the Notes, the term "principal amount" shall mean the principal amount thereof at the Stated Maturity of such principal amount. SECTION 1.04. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. 20 - 108 - Any certificate or opinion of an officer of the Company or any Guarantor may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company or such Guarantor, as the case may be, stating that the information with respect to such factual matters is in the possession of the Company or such Guarantor, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.05. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 7.01) conclusive in favor of the Trustee and the Company and the Guarantors, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by an acknowledgment of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than such signer's individual capacity, such certificate or affidavit shall also constitute sufficient proof of the signer's authority. The fact and date of the execution of any such instrument or writing, or the authority of the person executing the same, may also be proved in any other manner which the Trustee deems sufficient. SECTION 1.06. Satisfaction and Discharge. This Indenture shall cease to be of further effect and the Trustee, on receipt of a Company Order requesting such action, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (a) either (i) all outstanding Notes have been delivered to the Trustee for cancellation or (ii) all such Notes not theretofore delivered to the Trustee for cancellation 21 - 109 - have become due and payable and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Notes, for principal, premium, if any, and interest to the date of such deposit together with irrevocable instructions from the Company in form and substance satisfactory to the Trustee directing the Trustee to apply such funds to the payment thereof; (b) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture pursuant to this Section 1.06, the obligations of the Company and the Guarantors to the Trustee under Section 7.07 hereof, and, if money shall have been deposited with the Trustee in trust for the Holders pursuant to this Section 1.06, the obligations of the Trustee under this Section 1.06 hereof shall survive. All money deposited with the Trustee pursuant to this Section 1.06 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent, to the Persons entitled thereto, of the principal, premium, if any, and interest for the payment of which such money has been deposited with the Trustee. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Section 1.06 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's and the Guarantors' obligations under this Indenture, and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to this Section 1.06 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Section 1.06; provided, that if the Company or the Guarantors have made any payment on any Notes because of the reinstatement of its obligations, the Company or the Guarantors, as the case may be, shall be subrogated to the rights of the Holders of such Notes to receive such payment from the cash or U.S. Government Obligations held by the Trustee or Paying Agent. The Company shall pay and indemnify the Trustee against any tax, fee or other charges imposed on or assessed against the U.S. Government Obligations deposited pursuant to this Section 1.06 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of outstanding Notes. 22 - 110 - ARTICLE II THE NOTES SECTION 2.01. Form and Dating. (a) The Notes and the certificate of authentication of the Trustee thereon shall be substantially in the form of Exhibit A or Exhibit B hereto, as applicable, which are hereby incorporated in and expressly made a part of this Indenture. (b) The Notes may have such letters, numbers or other marks of identification and such legends and endorsements, stamped, printed, lithographed or engraved thereon, (i) as the Company may deem appropriate and as are not inconsistent with the provisions of this Indenture, (ii) such as may be required to comply with this Indenture, any law or any rule of any securities exchange on which the Notes may be listed and (iii) such as may be necessary to conform to customary usage. Each Note shall be dated the date of its authentication by the Trustee. The Notes shall be issued only in fully registered form, without coupons, in denominations of $1,000 and integral multiples thereof. (c) The Notes shall be issued initially in the form of one Global Note substantially in the form of Exhibit A hereto (a "Global Note"). Upon issuance, such Global Note shall be duly executed by the Company and authenticated by the Trustee as hereinafter provided and deposited with the Trustee as custodian for the Depositary and registered in the name of Cede & Co., as nominee of the Depositary (such nominee being referred to herein as the "Global Note Holder"). The Global Note may be exchanged for securities in definitive form substantially in the form of Exhibit B hereto ("Certificated Notes") pursuant to Section 2.06 hereof. Upon issuance, any Certificated Note shall be duly executed by the Company and authenticated by the Trustee as hereinafter provided. (d) The Global Note shall bear the following legend on the face thereof: UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO DIMON INCORPORATED OR THE REGISTRAR FOR REGISTRATION OF TRANSFER OR EXCHANGE AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. 23 - 111 - TRANSFER OF THIS NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, AND NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF INTERESTS IN THIS NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.06 OF THE INDENTURE DATED AS OF MAY 29, 1996 AMONG DIMON INCORPORATED, AS ISSUER, DIMON INTERNATIONAL, INC. AND FLORIMEX WORLDWIDE, INC., AS GUARANTORS, AND THE TRUSTEE NAMED THEREIN, PURSUANT TO WHICH THIS NOTE WAS ISSUED. (e) Definitive Notes shall be typed, printed, lithographed or engraved or produced by any combination of such methods or produced in any other manner permitted by the rules of any securities exchange on which such Notes may be listed, all as determined by the officers of the Company executing such Notes, as evidenced by their execution of such Notes. SECTION 2.02. Execution and Authentication. The aggregate principal amount of Notes outstanding at any time shall not exceed $125,000,000, except as provided in Section 2.07 hereof. The Notes shall be executed on behalf of the Company by its Chief Executive Officer, its President, any Executive Vice President, its Vice President and Treasurer or its Vice President and Controller, under its corporate seal reproduced or imprinted on the Notes by facsimile or otherwise, and shall be attested by the Company's Secretary or one of its Assistant Secretaries, in each case by manual or facsimile signature. The Notes shall be authenticated by manual signature of an authorized signatory of the Trustee and shall not be valid for any purpose unless so authenticated. In case any officer of the Company whose signature shall have been placed upon any of the Notes shall cease to be such officer of the Company before authentication of such Notes by the Trustee and the issuance and delivery thereof, such Notes may, nevertheless, be authenticated by the Trustee and issued and delivered with the same force and effect as though such Person had not ceased to be such officer of the Company. The Trustee shall, upon receipt of a Company Order requesting such action, authenticate Notes for original issue up to the aggregate principal amount not to exceed $125,000,000 outstanding at any given time in the form of the Global Note. Upon the occurrence of any event specified in Section 2.06(a) hereof, the Company shall execute and the Trustee shall authenticate and make available for delivery to each beneficial owner identified by the Depositary, in exchange for such beneficial owner's interest in the Global Note, Certificated Notes representing Notes theretofore represented by the Global Note. 24 - 112 - A Note shall not be valid or entitled to any benefits under this Indenture or obligatory for any purpose unless executed by the Company and authenticated by the manual signature of one of the authorized signatories of the Trustee as provided herein. Such signature upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered under this Indenture and is entitled to the benefits of this Indenture. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate the Notes. Unless limited by the terms of such appointment, an authenticating agent may authenticate the Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. Any authenticating agent of the Trustee shall have the same rights hereunder as any Registrar or Paying Agent. Notwithstanding the foregoing, if any Note shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Note to the Trustee for cancellation as provided in Section 2.10 together with a written statement (which need not comply with Section 1.04 and need not be accompanied by an Opinion of Counsel) stating that such Note has never been issued and sold by the Company, for all purposes of this Indenture such Note shall be deemed never to have been authenticated and delivered hereunder and shall not be entitled to the benefits of this Indenture. SECTION 2.03. Registrar and Paying Agent. The Company shall maintain, pursuant to Section 4.02 hereof, an office or agency where the Notes may be presented for registration of transfer or for exchange (the "Registrar"), an office or agency where Notes may be presented for payment (the "Paying Agent") and an office or agency where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall cause to be kept at such office a register (the "Note Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Notes and of transfers of Notes entitled to be registered or transferred as provided herein. The Trustee, at its Corporate Trust Office, is initially appointed Registrar for the purpose of registering Notes and transfers of Notes as herein provided. The Company may, upon written notice to the Trustee, change the designation of the Trustee as Registrar and appoint another Person to act as Registrar for purposes of this Indenture. If any Person other than the Trustee acts as Registrar, the Trustee shall have the right at any time, upon reasonable notice, to inspect or examine the Note Register and to make such inquiries of the Registrar as the Trustee shall in its discretion deem necessary or desirable in performing its duties hereunder. The Company shall enter into an appropriate agency agreement with any Person designated by the Company as Registrar or Paying Agent that is not a party to this Indenture, which agreement shall incorporate the provisions of the Trust Indenture Act and shall implement the provisions of this Indenture that relate to such Registrar or Paying Agent. Prior to the designation of any such Person, the Company shall, by written notice (which notice shall include the name and address of such Person), inform the Trustee of such designation. The Trustee, at 25 - 113 - its Corporate Trust Office, is initially appointed Paying Agent under this Indenture. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such. Subject to Section 2.06, upon surrender for registration of transfer of any Note at an office or agency of the Company designated for such purpose, the Company shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new Notes of any authorized denomination or denominations, of like tenor and aggregate principal amount, all as requested by the transferor. Every Note presented or surrendered for registration of transfer or for exchange shall (if so required by the Company, the Trustee or the Registrar) be duly endorsed, or be accompanied by a duly executed instrument of transfer in form satisfactory to the Company, the Trustee and the Registrar, by the Holder thereof or such Holder's attorney duly authorized in writing. SECTION 2.04. Paying Agent to Hold Money in Trust. On or prior to each due date of the principal, premium, or any payment of interest with respect to any Note, the Company shall deposit with the Paying Agent a sum sufficient to pay such principal, premium or interest when so becoming due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that such Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by such Paying Agent for the payment of principal, premium and interest with respect to the Notes, shall notify the Trustee of any default by the Company in making any such payment and at any time during the continuance of any such default, upon the written request of the Trustee, shall forthwith pay to the Trustee all sums held in trust by such Paying Agent. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by such Paying Agent. Upon complying with this Section 2.04, the Paying Agent shall have no further liability for the money delivered to the Trustee. SECTION 2.05. Global Note. (a) So long as the Global Note is registered in the name of the Depositary or its nominee, members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to the Global Note held on their behalf by the Depositary or the Trustee as its custodian, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes. Notwithstanding the foregoing, nothing herein shall (i) prevent the Company, the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depositary or (ii) impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of Notes. 26 - 114 - (b) The Holder of a Global Note, may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests in such Global Note through Agent Members, to take any action which a Holder of Notes is entitled to take under this Indenture or the Notes. (c) Whenever, as a result of an optional redemption of Notes by the Company, a Change of Control Offer, an Asset Sale Offer, an exchange or pursuant to Section 2.06 hereof, a Global Note is redeemed, repurchased or exchanged in part, such Global Note shall be surrendered by the Holder thereof to the Trustee who shall cause an adjustment to be made to Schedule A thereof so that the principal amount of such Global Note will be equal to the portion of such Global Note not redeemed, repurchased or exchanged and shall thereafter return such Global Note to such Holder, provided that any such Global Note shall be in a principal amount of $1,000 or an integral multiple thereof. SECTION 2.06. Transfer and Exchange. (a) The Global Note shall be exchanged by the Company for one or more Certificated Notes if (i) the Depositary (A) has notified the Company that it is unwilling or unable to continue as, or ceases to be, a clearing agency registered under Section 17A of the Exchange Act and (B) a successor to the Depositary registered as a clearing agency under Section 17A of the Exchange Act is not able to be appointed by the Company within 90 calendar days or (ii) the Depositary is at any time unwilling or unable to continue as Depositary and a successor to the Depositary is not able to be appointed by the Company within 90 calendar days. If an Event of Default occurs and is continuing, the Company shall, at the request of the Holder of the Global Note, exchange all or part of such Global Note for one or more Certificated Notes; provided that the principal amount of each of such Certificated Notes, and such Global Note, after such exchange, shall be $1,000 or an integral multiple thereof. Whenever the Global Note is exchanged as a whole for one or more Certificated Notes such Global Note shall be surrendered by the Holder thereof to the Trustee for cancellation. Whenever the Global Note is exchanged in part for one or more Certificated Notes pursuant to this Section 2.06(a), it shall be surrendered by the Holder thereof to the Trustee and the Trustee shall make the appropriate notations thereon pursuant to Section 2.05(c) hereof. All Certificated Notes issued in exchange for the Global Note or any portion thereof shall be registered in such names, and delivered, as the Depositary shall instruct the Trustee. (b) A Holder may transfer a Note only upon the surrender of such Note for registration of transfer. No such transfer shall be effected until, and the transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer in the Note Register by the Registrar. When Notes are presented to the Registrar with a request to register the transfer of, or to exchange, such Notes, the Registrar shall register the transfer or make such exchange as requested if its requirements for such transactions and any applicable requirements hereunder are satisfied. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Certificated Notes at the Registrar's request. 27 - 115 - (c) The Company shall not be required to make and the Registrar need not register transfers or exchanges of Certificated Notes (i) selected for redemption (except, in the case of Certificated Notes to be redeemed in part, the portion thereof not to be redeemed) and (ii) for a period of 15 calendar days before a selection of Notes to be redeemed. (d) No service charge shall be made for any registration of transfer or exchange of Notes, but the Company may require payment by Holders of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer of Notes. (e) All Notes issued upon any registration of transfer or exchange pursuant to the terms of this Indenture will evidence the same debt and will be entitled to the same benefits under this Indenture as the Notes surrendered for such registration of transfer or exchange. (f) Any Holder of a Global Note shall, by acceptance of such Global Note, agree that transfers of beneficial interests in such Global Note may be effected only through a book entry system maintained by such Holder (or its agent), and that ownership of a beneficial interest in the Notes represented thereby shall be required to be reflected in book entry form. Transfers of a Global Note shall be limited to transfers in whole and not in part, to the Depositary, its successors, and their respective nominees. Interests of beneficial owners in a Global Note shall be transferred in accordance with the rules and procedures of the Depositary (or its successors). SECTION 2.07. Replacement Notes. If any mutilated Note is surrendered to the Trustee, the Company shall execute and upon its written request the Trustee shall authenticate and make available for delivery, in exchange for any such mutilated Note, a new Note containing identical provisions and of like principal amount, bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Note and (ii) such security or indemnity as may be required by them to save either of them and any agent of each of them harmless, then, in the absence of notice to the Company or the Trustee that such Note has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and make available for delivery, in lieu of any such destroyed, lost or stolen Note, a new Note containing identical provisions and of like principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Note, pay such Note. 28 - 116 - Upon the issuance of any new Note under this Section 2.07, the Company may require the payment by the Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Note issued pursuant to this Section 2.07 in lieu of any destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. The provisions of this Section 2.07 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. SECTION 2.08. Outstanding Notes. Notes outstanding at any time are all Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those paid pursuant to Section 2.07 hereof and those described in this Section 2.08 as not outstanding. A Note does not cease to be outstanding because the Company or an Affiliate of the Company holds such Note. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that such replaced Note is held by a bona fide purchaser. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or Maturity date money sufficient to pay all principal, premium, if any, and interest payable on that date with respect to the Notes (or portions thereof) to be redeemed or maturing, as the case may be, then on and after that date such Notes (or such portions thereof) shall cease to be outstanding and interest on them shall cease to accrue. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent or any amendment, modification or other change to this Indenture, Notes held or beneficially owned by the Company or a Subsidiary of the Company or by an Affiliate of the Company or of a Subsidiary of the Company or by agents of any of the foregoing shall be disregarded, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent or any amendment, modification or other change to this Indenture, only Notes which a Trust Officer actually knows are so owned shall be so disregarded. Notes so owned which have been pledged in good faith shall not be disregarded if the pledgee establishes to the satisfaction of the Trustee such pledgee's right so to act with respect to the Notes and that the pledgee is not the Company, a Subsidiary of the Company, an Affiliate of the Company or of a Subsidiary of the Company, or any of their agents. 29 - 117 - SECTION 2.09. Temporary Notes. Pending the preparation of definitive Notes, the Company may execute, and the Trustee shall authenticate, temporary notes ("Temporary Notes") which are printed, lithographed, or otherwise produced, substantially of the tenor of the definitive Notes in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officer executing the Notes may reasonably determine, as conclusively evidenced by such officer's execution of such Notes. If Temporary Notes are issued, the Company shall cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the Temporary Notes shall be exchangeable for definitive Notes upon surrender of the Temporary Notes to the Trustee, without charge to the Holder. Until so exchanged, Temporary Notes will evidence the same debt and will be entitled to the same benefits under this Indenture as the definitive Notes in lieu of which they have been issued. SECTION 2.10. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange, purchase or payment. The Trustee shall cancel all Notes surrendered for registration of transfer, exchange, purchase, payment or cancellation and shall return such canceled Notes to the Company. The Company may not issue new Notes to replace Notes it has redeemed or paid or that have been delivered to the Trustee for cancellation. SECTION 2.11. Payment of Interest; Interest Rights Preserved. Interest on any Note which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Note is registered at the close of business on the Record Date for such interest payment, which shall be the May 15 or November 15 (whether or not a Business Day) immediately preceding such Interest Payment Date. Any interest on any Note which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the registered Holder on the relevant Record Date, and, except as hereinafter provided, such Defaulted Interest, and any interest payable on such Defaulted Interest, may be paid by the Company, at its election, as provided in clause (a) or (b) below: (a) The Company may elect to make payment of any Defaulted Interest, and any interest payable on such Defaulted Interest, to the Persons in whose names the Notes are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on the Notes and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such 30 - 118 - Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as provided in this Clause. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 calendar days and not less than 10 calendar days prior to the date of the proposed payment and not less than 10 calendar days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be sent, first class mail, postage prepaid, to each Holder at such Holder's address as it appears in the Note Register, not less than 10 calendar days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names the Notes are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (b). (b) The Company may make payment of any Defaulted Interest, and any interest payable on such Defaulted Interest, on the Notes in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section 2.11, each Note delivered under this Indenture upon registration of transfer of, or in exchange for, or in lieu of, any other Note, shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note. SECTION 2.12. Computation of Interest. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 2.13. Persons Deemed Owners. Prior to the due presentation for registration of transfer of any Note, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name such Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of, premium, if any, and interest on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-Registrar shall be affected by notice to the contrary. SECTION 2.14. CUSIP Numbers. The Company, in issuing the Notes, may use a "CUSIP" number for the Notes and, if so, the Trustee shall use the relevant CUSIP number in any notices to Holders as a convenience to such Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes and that reliance may be placed only on the other identification numbers printed on the Notes. The Company shall promptly notify the Trustee of any change in any CUSIP number used. 31 - 119 - ARTICLE III REDEMPTION SECTION 3.01. Notice to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions thereof it shall notify the Trustee in writing of the Redemption Date and the principal amount of Notes to be redeemed. The Company shall give each such notice to the Trustee at least 30 calendar days prior to the Redemption Date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate and an Opinion of Counsel from the Company to the effect that such redemption will comply with any conditions to such redemption set forth herein and in the Notes. SECTION 3.02. Selection of Notes to be Redeemed. If less than all the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed, or, if such Notes are not listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate. In selecting Notes to be redeemed pursuant to this Section 3.02, the Trustee shall make such adjustments, reallocations and eliminations as it shall deem proper so that the principal amount of each Note to be redeemed shall be $1,000 or an integral multiple thereof, by increasing, decreasing or eliminating any amount less than $1,000 which would be allocable to any Holder. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. The Trustee shall notify the Company promptly of the Notes or portions of Notes to be redeemed. SECTION 3.03. Notice of Redemption. At least 30 calendar days but not more than 60 calendar days before a Redemption Date, the Company shall send a notice of redemption, first class mail, postage prepaid, to Holders of Notes to be redeemed at the addresses of such Holders as they appear in the Note Register. The notice shall identify the Notes to be redeemed (including CUSIP number) and shall state: (a) the Redemption Date; (b) the Redemption Price (and shall specify the portion of such Redemption Price that constitutes the amount of accrued and unpaid interest to be paid, if any); (c) the name and address of the Paying Agent; (d) that the Notes called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (e) if any Global Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date, the Global Note, with a 32 - 120 - notation on Schedule A thereof adjusting the principal amount thereof to be equal to the unredeemed portion, will be returned to the Holder thereof; (f) if any Certificated Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date, a new Certificated Note or Certificated Notes in principal amount equal to the unredeemed portion will be issued; (g) if fewer than all the outstanding Notes are to be redeemed, the identification and principal amounts of the particular Notes to be redeemed; (h) that, unless the Company defaults in making the redemption payment, interest on the Notes (or portions thereof) called for redemption shall cease and such Notes (or portions thereof) shall cease to accrue interest on and after the Redemption Date; (i) the paragraph of the Notes pursuant to which the Notes are being called for redemption; and (j) any other information necessary to enable Holders to comply with the notice of redemption. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. In such event, the Company shall provide the Trustee with the information required by this Section 3.03 in a timely manner. SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed, Notes called for redemption shall become due and payable on the Redemption Date and at the Redemption Price stated in such notice. Upon surrender to the Paying Agent, such Notes shall be paid at the Redemption Price stated in such notice. Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. SECTION 3.05. Deposit of Redemption Price. On or prior to 10:00 a.m., New York City time, on each Redemption Date, the Company shall deposit with the Paying Agent (or, if the Company, one of its Subsidiaries or any of their Affiliates is the Paying Agent, the Paying Agent shall segregate and hold in trust for the benefit of the Holders) money, in federal or other immediately available funds, sufficient to pay the Redemption Price on all Notes to be redeemed on that date other than Notes or portions of Notes called for redemption on such date which have been delivered by the Company to the Trustee for cancellation. So long as the Company complies with the preceding paragraph and the other provisions of this Article III, interest on the Notes or portions thereof to be redeemed on the applicable Redemption Date shall cease to accrue from and after such date and such Notes or portions thereof shall be deemed not to be entitled to any benefit under this Indenture except to receive payment of the Redemption Price on the Redemption Date (subject to the right of each Holder of record on the relevant Record Date 33 - 121 - to receive interest due on the relevant Interest Payment Date). If any Note called for redemption shall not be so paid upon surrender for redemption, then, from the Redemption Date until such Redemption Price is paid, interest shall be paid on the unpaid principal and premium and, to the extent permitted by law, on any accrued but unpaid interest thereon, in each case at the rate prescribed therefor by such Notes. SECTION 3.06. Notes Redeemed in Part. (a) Upon surrender and cancellation of a Certificated Note that is redeemed in part, the Company shall issue and the Trustee shall authenticate and make available for delivery to the surrendering Holder (at the Company's expense) a new Certificated Note equal in principal amount to the unredeemed portion of the Certificated Note surrendered and canceled, provided that each such Certificated Note shall be in a principal amount of $1,000 or an integral multiple thereof. (b) Upon surrender of a Global Note that is redeemed in part, the Paying Agent shall forward such Global Note to the Trustee who shall make a notation on Schedule A thereof to reduce the principal amount of such Global Note to an amount equal to the unredeemed portion of such Global Note, as provided in Section 2.05(c) hereof. ARTICLE IV COVENANTS SECTION 4.01. Payment of Notes. The Company shall promptly pay the principal of, premium, if any, and interest on, the Notes on the dates and in the manner provided in the Notes and in this Indenture. Principal, premium and interest shall be considered paid on the date due if, on such date, the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal, premium and interest then due. To the extent lawful, the Company shall pay interest on overdue principal, overdue premium and Defaulted Interest (without regard to any applicable grace period), at the interest rate borne on the Notes. The Company's obligation pursuant to the previous sentence shall apply whether such overdue amount is due at its Stated Maturity, as a result of the Company's obligations pursuant to Section 4.07 or Section 4.08 hereof, or otherwise. All payments with respect to a Global Note or a Certificated Note (including principal, premium, if any, and interest) the Holders of whom have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the account or (in the case of a Global Note) accounts specified by the Holders thereof or, if no such account is specified, by sending via first-class mail, postage prepaid, a check to each such Holders' registered address. SECTION 4.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency where Notes may be presented or 34 - 122 - surrendered for payment, where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served, which office shall be initially the Corporate Trust Office. The Company shall give prompt written notice to the Trustee of any change in the location of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee its agent to receive all presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside of The City of New York) where the Notes may be presented or surrendered for any or all of such purposes, and may from time to time rescind such designations; provided that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in The City of New York, for such purposes. The Company shall give prompt written notice to the Trustee of any such designation and any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof. SECTION 4.03. Money for the Note Payments to be Held in Trust. If the Company, any Subsidiary of the Company or any of their respective Affiliates shall at any time act as Paying Agent with respect to the Notes, such Paying Agent shall, on or before each due date of the principal of, premium, if any, or interest on any of the Notes, segregate and hold in trust for the benefit of the Persons entitled thereto money sufficient to pay the principal, premium, if any, or interest so becoming due until such money shall be paid to such Persons or otherwise disposed of as herein provided, and shall promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents with respect to the Notes, it shall, prior to or on each due date of the principal of, premium, if any, or interest on any of the Notes, deposit with a Paying Agent a sum sufficient to pay the principal of, premium, if any, or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest and (unless such Paying Agent is the Trustee) the Paying Agent shall promptly notify the Trustee of the Company's action or failure so to act. SECTION 4.04. Corporate Existence. Subject to the provisions of Article V hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence, rights (charter and statutory) and franchises of the Company and each of its Subsidiaries; provided that the Company and any such Subsidiary shall not be required to preserve the corporate existence of any such Subsidiary or any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders of Notes. 35 - 123 - SECTION 4.05. Maintenance of Property. The Company shall cause all Property used or useful in the conduct of its business or the business of any of its Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as, in the judgment of the Company, may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided that nothing in this Section 4.05 shall prevent the Company from discontinuing the operation or maintenance of any of such Property if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any of its Subsidiaries and not disadvantageous in any material respect to the Holders of Notes. SECTION 4.06. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon the Company or any of its Subsidiaries or upon the income, profits or Property of the Company or any of its Subsidiaries and (b) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon the Property of the Company or any of its Subsidiaries; provided that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings upon stay of execution or the enforcement thereof and for which adequate reserves in accordance with GAAP or other appropriate provision has been made. SECTION 4.07. Repurchase at the Option of Holders upon a Change of Control. (a) Upon the occurrence of a Change of Control, each Holder of Notes shall have the right to require the Company to purchase such Holder's Notes, in whole or in part, in a principal amount that is an integral multiple of $1,000, pursuant to the offer described in Section 4.07(b) hereof (the "Change of Control Offer") at a purchase price (the "Change of Control Purchase Price") in cash equal to 101% of the principal amount of such Notes (or portions thereof) to be redeemed plus accrued and unpaid interest thereon to the date of purchase (the "Change of Control Payment Date") (subject to the right of each Holder of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date). (b) Within 30 calendar days after the date of any Change of Control, the Company, or the Trustee at the request and expense of the Company, shall send to each Holder by first class mail, postage prepaid, a notice prepared by the Company describing the transaction or transactions that constitute the Change of Control and stating: (i) that a Change of Control has occurred and a Change of Control Offer is being made pursuant to this Section 4.07, and that all Notes that are timely tendered will be accepted for payment; 36 - 124 - (ii) the Change of Control Purchase Price, and the Change of Control Payment Date, which date shall be a Business Day no earlier than 30 calendar days nor later than 60 calendar days subsequent to the date such notice is mailed; (iii) that any Notes or portions thereof not tendered or accepted for payment will continue to accrue interest; (iv) that, unless the Company defaults in the payment of the Change of Control Purchase Price with respect thereto, all Notes or portions thereof accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest from and after the Change of Control Payment Date; (v) that any Holder electing to have any Notes or portions thereof purchased pursuant to a Change of Control Offer will be required to tender such Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of such Notes completed, to the Paying Agent at the address specified in the notice, prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (vi) that any Holder shall be entitled to withdraw such election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a facsimile transmission or letter, setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing such Holder's election to have such Notes or portions thereof purchased pursuant to the Change of Control Offer; (vii) that any Holder electing to have Notes purchased pursuant to the Change of Control Offer must specify the principal amount that is being tendered for purchase, which principal amount must be $1,000 or an integral multiple thereof; (viii) if Certificated Notes have been issued pursuant to Section 2.06, that any Holder of Certificated Notes whose Certificated Notes are being purchased only in part will be issued new Certificated Notes equal in principal amount to the unpurchased portion of the Certificated Note or Notes surrendered, which unpurchased portion will be equal in principal amount to $1,000 or an integral multiple thereof; (ix) that the Trustee will return to the Holder of a Global Note that is being purchased in part such Global Note with a notation on Schedule A thereof adjusting the principal amount thereof to be equal to the unpurchased portion of such Global Note; and 37 - 125 - (x) any other information necessary to enable any Holder to tender Notes and to have such Notes purchased pursuant to this Section 4.07. (c) On the Change of Control Payment Date, the Company shall (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) irrevocably deposit with the Paying Agent, by 10:00 a.m., New York City time, on such date, in immediately available funds, an amount equal to the Change of Control Purchase Price in respect of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so tendered together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. Subject to the provisions of Section 4.01, the Paying Agent shall promptly send by first class mail, postage prepaid, to each Holder of Notes or portions thereof so accepted for payment the Change of Control Purchase Price for such Notes or portions thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section 4.07, the Trustee shall act as the Paying Agent. (d) Upon surrender and cancellation of a Certificated Note that is purchased in part pursuant to the Change of Control Offer, the Company shall promptly issue and the Trustee shall authenticate and deliver to the surrendering Holder of such Certificated Note a new Certificated Note equal in principal amount to the unpurchased portion of such surrendered Certificated Note; provided that each such new Certificated Note shall be in a principal amount of $1,000 or an integral multiple thereof. Upon surrender of a Global Note that is purchased in part pursuant to a Change of Control Offer, the Paying Agent shall forward such Global Note to the Trustee who shall make a notation on Schedule A thereof to reduce the principal amount of such Global Note to an amount equal to the unpurchased portion of such Global Note, as provided in Section 2.05(c) hereof. (e) The Company shall comply with the requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act and any other securities laws or regulations, to the extent such laws and regulations are applicable, in connection with the purchase of Notes pursuant to a Change of Control Offer. SECTION 4.08. Limitation on Asset Sales. (a) The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, engage in an Asset Sale (except an Exempt Asset Sale), unless: (i) the Company (or such Subsidiary) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of, and in the case of a lease of assets, a lease providing for rent and other conditions which are no less favorable to the Company (or such Subsidiary) in any material respect than the then prevailing market conditions, evidenced in each case by 38 - 126 - a resolution of the Board of Directors of such entity set forth in an Officers' Certificate delivered to the Trustee; and (ii) at least 75% (100% in the case of lease payments) of the consideration therefor received by the Company or such Subsidiary is in the form of cash or Cash Equivalents. (b) The Company may apply, and may permit its Subsidiaries to apply, Net Proceeds of an Asset Sale (other than an Exempt Asset Sale) at its option, in each case within 270 days after the consummation of such an Asset Sale: (i) to permanently reduce any outstanding Indebtedness of the Company or any Guarantor (and to correspondingly reduce the commitments, if any, with respect thereto) that ranks pari passu with the Notes or the Guarantees, or, in the case of Net Proceeds of an Asset Sale by any Subsidiary of the Company that is not a Guarantor, to permanently reduce (A) any outstanding Indebtedness of the Company or any Guarantor (and to correspondingly reduce the commitments, if any, with respect thereto) that ranks pari passu with the Notes or the Guarantees, or (B) any outstanding Indebtedness of such Subsidiary (and to correspondingly reduce the commitments, if any, with respect thereto); (ii) to acquire another business or other long-term assets, in each case, in, or used or useful in, the same or a similar line of business as the Company or any of its Subsidiaries was engaged in on the date of this Indenture and which has not been discontinued on or prior to the date of such acquisition or any reasonable extensions or expansions thereof (including the Capital Stock of another Person engaged in such business, provided such other Person is, or immediately after giving effect to any such acquisition shall become, a Wholly Owned Subsidiary of the Company or the Investment in such Person otherwise constitutes an Investment in a Joint Venture permitted by the provisions of Section 4.10(c) hereof); or (iii) to reimburse the Company or its Subsidiaries for expenditures made, and costs incurred, to repair, rebuild, replace or restore property subject to loss, damage or taking to the extent that the Net Proceeds consist of insurance proceeds received on account of such loss, damage or taking. Pending the final application of any such Net Proceeds, the Company may (A) use such Net Proceeds to reduce temporarily any outstanding Indebtedness of the Company or any Guarantor that ranks pari passu with the Notes or the Guarantees or, in the case of Net Proceeds of an Asset Sale by any Subsidiary of the Company that is not a Guarantor, to reduce temporarily (1) any outstanding Indebtedness of the Company or any Guarantor that ranks pari passu with the 39 - 127 - Notes or the Guarantees or (2) any outstanding Indebtedness of such Subsidiary or (B) otherwise invest such Net Proceeds temporarily in Cash Equivalents. (c) Any Net Proceeds from Asset Sales (other than Exempt Asset Sales) that are not applied as provided in the preceding Section 4.08(b) within 270 days after the consummation of such an Asset Sale will be deemed to constitute "Excess Proceeds." (d) When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will be required to make an offer to all Holders of Notes then outstanding (an "Asset Sale Offer") to purchase, on a pro rata basis, the principal amount of Notes equal in amount to the Excess Proceeds (and not just the amount thereof that exceeds $10.0 million), at a purchase price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase (the "Asset Sale Purchase Price") (subject to the right of each Holder of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date), in accordance with the procedures set forth in this Indenture, and in accordance with the following standards: (i) If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis, based on the principal amount of Notes tendered, with such adjustments as may be deemed appropriate by the Trustee, so that only Notes in denominations of $1,000 or integral multiples thereof shall be purchased. (ii) If the aggregate principal amount of Notes tendered pursuant to such Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds following the completion of the Asset Sale Offer for general corporate purposes (subject to the other provisions of this Indenture), and the amount of Excess Proceeds then required to be otherwise applied in accordance with this covenant shall be reset to zero, subject to any subsequent Asset Sale. (e) Within 30 calendar days after the date the amount of Excess Proceeds exceeds $10.0 million, the Company, or the Trustee at the request and expense of the Company, shall send to each Holder by first class mail, postage prepaid, a notice prepared by the Company stating: (i) that an Asset Sale Offer is being made pursuant to this Section 4.08, and that all Notes that are timely tendered will be accepted for payment, subject to proration if the amount of Excess Proceeds is less than the aggregate principal amount of all Notes timely tendered pursuant to the Asset Sale Offer; (ii) the Asset Sale Purchase Price, the amount of Excess Proceeds that are available to be applied to purchase tendered Notes, and the date Notes are to be purchased pursuant to the 40 - 128 - Asset Sale Offer (the "Asset Sale Payment Date"), which date shall be a Business Day no earlier than 30 calendar days nor later than 60 calendar days subsequent to the date such notice is mailed; (iii) that any Notes or portions thereof not tendered or accepted for payment will continue to accrue interest; (iv) that, unless the Company defaults in the payment of the Asset Sale Purchase Price with respect thereto, all Notes or portions thereof accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest from and after the Asset Sale Payment Date; (v) that any Holder electing to have any Notes or portions thereof purchased pursuant to the Asset Sale Offer will be required to surrender such Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of such Notes completed, to the Paying Agent at the address specified in the notice, prior to the close of business on the third Business Day preceding the Asset Sale Payment Date; (vi) that any Holder shall be entitled to withdraw such election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Asset Sale Payment Date, a facsimile transmission or letter, setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing such Holder's election to have such Notes or portions thereof purchased pursuant to the Asset Sale Offer; (vii) that any Holder electing to have Notes purchased pursuant to the Asset Sale Offer must specify the principal amount that is being tendered for purchase, which principal amount must be $1,000 or an integral multiple thereof; (viii) if Certificated Notes have been issued pursuant to Section 2.06, that any Holder of Certificated Notes whose Certificated Notes are being purchased only in part will be issued new Certificated Notes equal in principal amount to the unpurchased portion of the Certificated Note or Notes surrendered, which unpurchased portion will be equal in principal amount to $1,000 or an integral multiple thereof; (ix) that the Trustee will return to the Holder of a Global Note that is being purchased in part such Global Note with a notation on Schedule A thereof adjusting the principal amount thereof to be equal to the unpurchased portion of such Global Note; and (x) any other information necessary to enable any Holder to tender Notes and to have such Notes purchased pursuant to this Section 4.08. 41 - 129- (f) On the Asset Sale Payment Date, the Company shall (i) accept for payment any Notes or portions thereof properly tendered and selected for purchase pursuant to the Asset Sale Offer and Section 4.08(e) hereof; (ii) irrevocably deposit with the Paying Agent, by 10:00 a.m., New York City time, on such date, in immediately available funds, an amount equal to the Asset Sale Purchase Price in respect of all Notes or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee the Notes so accepted together with an Officers' Certificate listing the Notes or portions thereof tendered to the Company and accepted for payment. Subject to the provisions of Section 4.01, the Paying Agent shall promptly send by first class mail, postage prepaid, to each Holder of Notes or portions thereof so accepted for payment the Asset Sale Purchase Price for such Notes or portions thereof. The Company shall publicly announce the results of the Asset Sale Offer on or as soon as practicable after the Asset Sale Payment Date. For purposes of this Section 4.08, the Trustee shall act as the Paying Agent. (g) Upon surrender and cancellation of a Certificated Note that is purchased in part, the Company shall promptly issue and the Trustee shall authenticate and deliver to the surrendering Holder of such Certificated Note a new Certificated Note equal in principal amount to the unpurchased portion of such surrendered Certificated Note; provided that each such new Certificated Note shall be in a principal amount of $1,000 or an integral multiple thereof; (h) Upon surrender of a Global Note that is purchased in part pursuant to an Asset Sale Offer, the Paying Agent shall forward such Global Note to the Trustee who shall make a notation on Schedule A thereof to reduce the principal amount of such Global Note, as provided in Section 2.05(c) hereof. (i) Upon completion of an Asset Sale Offer (including payment of the Asset Sale Purchase Price for accepted Notes), any surplus Excess Proceeds that were the subject of such offer shall cease to be Excess Proceeds, and the Company may then use such amounts for general corporate purposes (subject to other provisions of this Indenture). (j) If at any time any non-cash consideration received by the Company or any Subsidiary of the Company in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash, then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Proceeds thereof shall be applied in accordance with this Section 4.08. (k) The provisions of this Section 4.08 shall not apply to a transaction consummated in compliance with the provisions of Section 5.01 hereof. In the event of the transfer of substantially all (but not all) of the property and assets of the Company and its Subsidiaries as an entirety to a Person in a transaction permitted by Section 5.01 hereof, the successor corporation shall be deemed to have sold the properties and assets of the Company and its Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this 42 - 130 - covenant with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value of such properties and assets of the Company and its Subsidiaries deemed to be sold shall be deemed to be Net Proceeds for purposes of this Section 4.08. (l) The Company may use Net Proceeds from Exempt Asset Sales for general corporate purposes (subject to the other provisions of this Indenture). (m) The Company shall comply with the requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act and any other securities laws or regulations, to the extent such laws and regulations are applicable, in connection with the purchase of Notes pursuant to an Asset Sale Offer. (n) Notwithstanding any of the foregoing, the Company shall not permit DIMON International to sell all or substantially all of its assets. SECTION 4.09. Ownership of and Liens on Capital Stock of Subsidiaries. The Company (a) shall not permit any Person (other than the Company or any Wholly Owned Subsidiary of the Company or, in the case of Subsidiaries of Florimex, Florimex) to own any Capital Stock of any Subsidiary of the Company or any Lien thereon, (b) shall not, and shall not permit any Subsidiary of the Company to, transfer, convey, sell or otherwise dispose of any shares of Capital Stock of such Subsidiary or any other Subsidiary (except to the Company or to a Wholly Owned Subsidiary of the Company), and (c) shall not permit any Subsidiary of the Company to issue Capital Stock or securities convertible into, or warrants, rights or options to subscribe for or purchase shares of, its Capital Stock to any Person (except to the Company or to a Wholly Owned Subsidiary of the Company) or create, incur, assume or suffer to exist any Lien thereon, in each case except (i) directors' qualifying shares, (ii) shares of Capital Stock issued prior to the time such Person became a Subsidiary of the Company, provided that such Capital Stock was not issued in anticipation of such transaction, (iii) if such Subsidiary merges with another Subsidiary of the Company, (iv) (A) if such Subsidiary (other than DIMON International) ceases to be a Subsidiary of the Company (as a result of the sale of all of the issued and outstanding shares of Capital Stock of such Subsidiary owned by the Company or any Subsidiary of the Company), (B) shares of Capital Stock of Florimex or any Subsidiary of Florimex which are sold or issued to any Person (other than to a Wholly Owned Subsidiary of the Company) or (C) shares of Capital Stock of any Subsidiary of the Company which are sold or issued pursuant to the exercise of a contractual "call" option to any Person (other than to a Wholly Owned Subsidiary of the Company) which owned a portion of the Capital Stock of such Subsidiary prior to such sale or issuance; provided that, the Net Proceeds from each such sale or issuance described in this clause (iv) are applied in accordance with, and such sale or issuance otherwise complies with, Section 4.08 hereof, or (v) for purposes of clause (a) above, shares of Capital Stock of Subsidiaries of the Company that are not Wholly Owned Subsidiaries of the Company on the date of this Indenture, which shares are not owned by the Company or any Wholly Owned Subsidiary of the Company, as set forth in 43 - 131 - Schedule A to this Indenture and (vi) for purposes of clauses (a) and (c) above, (A) Liens on Capital Stock of any Subsidiary of the Company granted in accordance with the provisions of this Indenture described in the first sentence of Section 4.12 hereof and (B) shares of Capital Stock in any Subsidiary of the Company which conducts the Company's tobacco business in Greece issued after the date of this Indenture to the Company's joint venture partner in Georges Allamanis Tobacco International in connection with the contribution to such Subsidiary by such partner of its interest in Georges Allamanis Tobacco International. The Company shall not permit DIMON International to cease to be a Subsidiary of the Company. SECTION 4.10. Restricted Payments. (a) The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution of any kind or character (whether in cash, securities or other property) on account of any class of the Company's or any of its Subsidiaries' Equity Interests or the holders thereof (including, without limitation, any payment to stockholders of the Company in connection with a merger or consolidation involving the Company), other than (x) dividends or distributions payable solely in Equity Interests (other than Disqualified Stock) of the Company or (y) dividends or distributions payable solely to the Company or any Wholly Owned Subsidiary of the Company and, if such Subsidiary is not a Wholly Owned Subsidiary of the Company, payable simultaneously to its minority shareholders on a pro rata basis; (ii) purchase, repurchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any Subsidiary or other Affiliate of the Company (other than any such Equity Interests owned by the Company or any Wholly Owned Subsidiary of the Company); (iii) make any principal payment on, or purchase, repurchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of the Company or any Guarantor that is pari passu with or subordinated to the Notes or the Guarantees prior to any scheduled repayment date, sinking fund payment date or final maturity date except (w) the prepayment of Indebtedness of the Company or any of its Subsidiaries from proceeds from the issuance of the Notes within 30 days after the date on which the Company receives such proceeds, (x) the repayment of Indebtedness from Net Proceeds of Asset Sales in accordance with the provisions described in Section 4.08 hereof, (y) the repayment of Indebtedness under the New Credit Facility or (z) the purchase, redemption or acquisition by the Company of Indebtedness of the Company through the issuance in exchange therefor of Equity Interests (other than Disqualified Stock); or (iv) make any Investment (other than Permitted Investments) 44 - 132 - (all such payments and other actions set forth in clauses (i) through (iv) being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (I) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (II) at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, the Company would have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Interest Coverage Ratio test set forth under Section 4.11(a) hereof; and (III) such Restricted Payment, together with the aggregate amount of all other Restricted Payments declared or made by the Company and its Subsidiaries on or after the date of this Indenture (excluding Restricted Payments permitted by Sections 4.10(b)(ii), 4.10(b)(iii) and 4.10(b)(iv) hereof and excluding Restricted Payments permitted by Section 4.10(c) hereof) is less than the sum of (A) $20.0 million, plus (B) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the fiscal quarter commencing April 1, 1996 to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (C) 100% of the aggregate net cash proceeds received by the Company from the issue or sale after the date of this Indenture of Equity Interests of the Company or of debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or convertible debt securities) sold to a Subsidiary of the Company and other than Disqualified Stock or debt securities that have been converted into Disqualified Stock). (b) The foregoing clauses (II) and (III) of Section 4.10(a) will not prohibit: (i) the payment of any dividend on any class of Capital Stock of the Company or any Subsidiary of the Company within 60 days after the date of declaration thereof, if on the date when such dividend was declared such payment would have complied with the provisions of this Indenture; or (ii) the making of any Investment in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of Equity Interests of the Company (other than Disqualified Stock); provided, that any net cash proceeds that are used for any such Investment, and any Net Income resulting therefrom, shall be excluded from clause (III) of Section 4.10(a); or 45 - 133 - (iii) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock); provided that any net cash proceeds that are used for any such redemption, repurchase, retirement or other acquisition, and any Net Income resulting therefrom, shall be excluded from clause (III) of Section 4.10(a); or (iv) the defeasance, redemption or repurchase of pari passu or subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness or the substantially concurrent sale (other than to a Subsidiary of the Company) of Equity Interests of the Company (other than Disqualified Stock); provided, that any net cash proceeds that are used for any such defeasance, redemption or repurchase, and any Net Income resulting therefrom, shall be excluded from clause (III) of Section 4.10(a) (c) Clause (III) of Section 4.10(a), however, will not prohibit the Company or any of its Subsidiaries from making any Investment in Joint Ventures in the tobacco business on or after the date of this Indenture provided that the amount of any such Investment, together with the aggregate amount of all other such Investments in Joint Ventures made on or after the date of this Indenture, shall not at any time exceed 15% of the Consolidated Tangible Net Worth of the Company as of the last day of the quarterly period most recently ended prior to the date of such Investment for which internal financial statements of the Company are available. (d) The amount of all Restricted Payments (other than cash) shall be the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) on the date of the Restricted Payment of the asset(s) proposed to be transferred by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.10 were computed, which calculations may be based upon the Company's latest available financial statements. 46 - 134 - SECTION 4.11. Incurrence of Indebtedness and Issuance of Preferred Stock. (a) The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Indebtedness) and the Company shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Company and the Guarantors may incur Indebtedness (including Acquired Indebtedness) and the Company may issue shares of Disqualified Stock if: (i) the Consolidated Interest Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.25 to 1.0, if such Indebtedness is incurred on or before June 30, 1998, and 2.75 to 1.0, if such Indebtedness is incurred after June 30, 1998, in each case determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period; and (ii) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; provided, that no guarantee may be incurred pursuant to this paragraph, unless the guaranteed Indebtedness is incurred by the Company or a Guarantor pursuant to this paragraph. (b) The foregoing provisions will not apply to: (i) the incurrence by the Company or the Guarantors of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, any Indebtedness described in Section 4.11(a) hereof; (ii) the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes and the Guarantees thereof; (iii) the incurrence by the Company of Indebtedness under the New Credit Facility (and the incurrence by Subsidiaries of the Company of guarantees thereof) in an aggregate principal amount at any time outstanding (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Subsidiaries thereunder) not to exceed $240 million, less the aggregate amount of all Net Proceeds of 47 - 135 - Asset Sales applied to permanently reduce the outstanding amount of such Indebtedness (and to correspondingly reduce the commitments, if any, with respect thereto) pursuant to Section 4.08(b) hereof; (iv) the incurrence by the Company or any of its Subsidiaries of Indebtedness in an aggregate principal amount at any time outstanding not to exceed the sum of (A) 50% of Eligible Inventory, plus (B) 75% of Eligible Receivables; provided that (1) the aggregate principal amount of any such Indebtedness incurred by Subsidiaries of the Company that are not Guarantors at any time outstanding shall not exceed the greater of (X) the aggregate principal amount of Advances on Purchases of Tobacco outstanding at such time and (Y) the sum of (I) 50% of Eligible Inventory of all such Subsidiaries that are not Guarantors, plus (II) 75% of Eligible Receivables of all such Subsidiaries that are not Guarantors; (2) no more than $50.0 million of such Indebtedness may be secured by Liens on assets or property of Subsidiaries of the Company that are not Guarantors; and (3) none of such Indebtedness may be secured by Liens on assets or properties of the Company or the Guarantors; (v) the incurrence by the Company or any of its Subsidiaries of Indebtedness used to fund Advances on Purchases of Tobacco, but only to the extent that the aggregate principal amount of such advances outstanding at any time to any Person and such Person's Affiliates does not exceed 15% of the Consolidated Tangible Net Worth of the Company for the most recently ended fiscal quarter for which internal financial statements are available; (vi) the incurrence by the Company or any of its Subsidiaries of Indebtedness represented by Purchase Money Obligations or Capital Lease Obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property used in the business of the Company or such Subsidiary, or any Permitted Refinancing Indebtedness thereof; provided that (a) the aggregate principal amount of any such Indebtedness does not exceed 100% of the purchase price or cost of the property to which such Indebtedness relates, (b) the Indebtedness is incurred within 180 days (or 360 days, in the case of such Indebtedness incurred to finance property used in the business of any Subsidiary of the Company that is not organized under the laws of the United States of America, any state thereof or the District of Columbia) of the acquisition, construction or improvement of such property, and (c) the aggregate principal amount of such Indebtedness outstanding, together with the aggregate principal amount of Attributable Indebtedness with respect to Sale and Leaseback Transactions permitted under clause (vii) below, at any time shall not exceed $15.0 million; 48 - 136 - (vii) Attributable Indebtedness with respect to Sale and Leaseback Transactions permitted pursuant to Section 4.14 hereof; provided that the aggregate principal amount of such Indebtedness outstanding together with the aggregate principal amount of Indebtedness permitted under clause (vi) above, at any time shall not exceed $15.0 million; (viii) (A) the incurrence by the Company or any of its Wholly Owned Subsidiaries of intercompany Indebtedness owing to the Company or any of its Subsidiaries, (B) the incurrence by any Subsidiary of the Company that is not a Wholly Owned Subsidiary of Indebtedness owing to the Company or any of its Wholly Owned Subsidiaries, or (C) the incurrence by the Company or any of its Subsidiaries of Indebtedness in an aggregate principal amount outstanding at any time not to exceed $5.0 million for the purpose of making advances to Subsidiaries that are not Wholly Owned Subsidiaries of the Company or to Joint Ventures in which the Company or any of its Subsidiaries owns an interest; provided that Indebtedness may be incurred pursuant to clauses (B) and (C) only if and to the extent that the Investment constituting such Indebtedness shall be permitted under Section 4.10; and provided further that, for purposes of clauses (A) and (B), (I) in the case of Indebtedness of the Company or any Guarantor, such obligations and any trade payables owed by the Company or any Guarantor to any Subsidiary of the Company shall be unsecured and subordinated in case of an Event of Default in all respects to the Company's obligations pursuant to the Notes and such Guarantor's obligations under its Guarantee; and (II)(X) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Wholly Owned Subsidiary of the Company and (Y) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Wholly Owned Subsidiary of the Company shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Subsidiary, as the case may be, to which this clause (viii) no longer applies; (ix) the incurrence by the Company and its Subsidiaries of Hedging Obligations; (x) the incurrence by the Company and its Subsidiaries of Indebtedness with respect to letters of credit issued to customers to secure an obligation to deliver tobacco for which the customer has prepaid the purchase price thereof in cash, but only to the extent of the amount of such cash prepayment; and (xi) the incurrence by the Company and its Subsidiaries of Indebtedness (in addition to Indebtedness permitted by any other clause of this Section 4.11) in an aggregate principal amount at any time outstanding not to exceed $15.0 million. 49 - 137 - (c) The Company shall not, and shall not permit any Guarantor to, directly or indirectly, in any event incur any Indebtedness that by its terms (or by the terms of any agreement governing such Indebtedness) is subordinated to any other Indebtedness of the Company or such Guarantor, as the case may be, unless such Indebtedness is also by its terms (or by the terms of any agreement governing such Indebtedness) made expressly subordinated in right of payment to the Notes or the Guarantee of such Guarantor, as the case may be, to the same extent and in the same manner as such Indebtedness is subordinated pursuant to subordination provisions that are most favorable to the holders of any other Indebtedness of the Company or such Guarantor, as the case may be. SECTION 4.12. Liens. The Company shall not, and shall not permit any Guarantor to, directly or indirectly, create, incur, assume or suffer to exist any Lien on any of its assets, now owned or hereafter acquired, securing any Indebtedness unless the Notes, in the case of the Company, or the Guarantees, in the case of the Guarantors, are secured equally and ratably with such other Indebtedness; provided that, if such Indebtedness is by its terms subordinate to the Notes or the Guarantees, the Lien securing such subordinate or junior Indebtedness shall be subordinate and junior to the Lien securing the Notes or the Guarantees with the same relative priority as such subordinated or junior Indebtedness shall have with respect to the Notes or the Guarantees. The foregoing restrictions shall not apply to the following Liens: (a) Liens securing only Existing Indebtedness, in an aggregate principal amount not greater than $1.2 million; (b) Liens securing only the Notes; (c) Liens in favor of the Company; (d) Liens to secure Indebtedness incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of the property subject to such Liens and permitted by Section 4.11(b)(vi) hereof; provided that such Lien does not extend to or cover any property other than such item of property and any improvements on such item; (e) Liens on property existing immediately prior to the time of acquisition thereof (and not created in anticipation or contemplation of such acquisition or the financing of such acquisition) and securing Acquired Indebtedness; provided that such Lien does not extend to or cover any property other than such item of property and any improvements on such item; (f) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Guarantor (and not created in anticipation or contemplation thereof) and securing Acquired Indebtedness; 50 - 138 - provided that such Lien does not extend to or cover any property other than such item of property and any improvements on such item; (g) Liens securing Attributable Indebtedness of the Company or any Guarantor incurred with respect to Sale and Leaseback Transactions; provided that such Lien does not extend to or cover any property other than the property sold and leased back pursuant to such Sale and Leaseback Transaction; and (h) Liens to secure Permitted Refinancing Indebtedness of any Indebtedness secured by Liens referred to in the foregoing clauses (a), (d), (e) or (f) so long as such Lien does not extend to any other property. SECTION 4.13. Dividends and Other Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary of the Company to: (a) pay dividends or make any other distributions to the Company or any of its Subsidiaries on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits; or (b) pay any Indebtedness or other obligation owed to the Company or any of its Subsidiaries; or (c) make loans or advances to the Company or any of its Subsidiaries; or (d) sell, lease or transfer any of its properties or assets to the Company or any of its Subsidiaries; or (e) guarantee the obligations of the Company evidenced by the Notes or any renewals, refinancings, exchanges, refundings or extensions thereof, except for such encumbrances or restrictions existing under or by reason of: (i) this Indenture and the Notes; or (ii) applicable law; or (iii) any instrument governing Acquired Indebtedness or Capital Stock of a Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Acquired Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or 51 - 139 - the property or assets of the Person, so acquired, provided that the Consolidated Net Income of such Person is not taken into account in determining whether such acquisition was permitted by the terms of this Indenture; or (iv) any document or instrument governing Indebtedness incurred pursuant to Sections 4.11(b)(vi) or (vii) hereof, provided that any such restriction contained therein relates only to the asset or assets constructed or acquired in connection therewith; or (v) Permitted Refinancing Indebtedness of Indebtedness described in clause (iii) of this Section 4.13(e), provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. SECTION 4.14. Limitation on Sale and Leaseback Transactions. The Company shall not, and shall not permit any of its Subsidiaries to, enter into any Sale and Leaseback Transaction unless: (a) after giving pro forma effect to any such Sale and Leaseback Transaction, the Company or such Subsidiary, as the case may be, could incur the Attributable Indebtedness relating to such Sale and Leaseback Transaction under Sections 4.11 and 4.12 hereof, (b) the gross cash proceeds of such Sale and Leaseback Transaction are at least equal to the fair market value of such Property, as determined by the Board of Directors of the Company, such determination to be evidenced by a resolution of the Board of Directors of the Company, (c) the aggregate rent payable by the Company or such Subsidiary in respect of such Sale and Leaseback Transaction is not in excess of the fair market rental value of the Property leased pursuant to such Sale and Leaseback Transaction, and (d) the Company applies the Net Proceeds of the Property sold pursuant to the Sale and Leaseback Transaction as provided in Section 4.08 hereof. 52 - 140 - SECTION 4.15. Transactions with Affiliates. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, in any one transaction or a series of related transactions, sell, lease, transfer or otherwise dispose of any of its properties, assets or services to, or make any payment to, or purchase any property, assets or services from, or enter into or make any agreement, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), other than Exempt Affiliate Transactions, unless: (a) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Subsidiary of the Company than those that would have been obtained in a comparable arm's-length transaction by the Company or such Subsidiary with a Person that is not an Affiliate, and (b) the Company delivers to the Trustee (i) with respect to any Affiliate Transaction entered into after the date of this Indenture involving aggregate consideration in excess of $1.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (a) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and (ii) with respect to any Affiliate Transaction involving aggregate consideration in excess of $5.0 million, a written opinion from an independent financial advisor (as defined below) that such Affiliate Transaction is fair to the Company or such Subsidiary, as the case may be, from a financial point of view. "Independent financial advisor" means a nationally recognized accounting, appraisal or investment banking firm that is, in the reasonable judgment of the Company's Board of Directors, qualified to perform the task for which such firm has been engaged and disinterested and independent with respect to the Company. SECTION 4.16. Reports. The Company shall, so long as any Notes are outstanding, whether or not required by the rules and regulations of the Commission, furnish to the Holders of Notes, and file with the Trustee, within 15 days after it is, or would have been, required to file such with the Commission, (i) all quarterly and annual financial information that is or would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company is or were required to file such Forms, including a Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to annual information only, a report thereon by the Company's certified independent accountants, and (ii) all current reports that are or would be required to be filed with the Commission on Form 8-K if the Company is or were required to file such reports. In addition, whether or not required by the rules and regulations of the Commission, the Company will file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such filing) and make such information available to securities analysts or prospective investors upon written request. 53 - 141 - Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 4.17. Waiver of Stay, Extension or Usury Laws. The Company and the Guarantors will not at any time, to the extent that they may lawfully not do so, insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company or the Guarantors from paying all or any portion of the principal of or premium, if any, interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or that may affect the covenants or the performance of this Indenture; and, to the extent that they may lawfully do so, the Company and the Guarantors hereby expressly waive all benefit or advantage of any such law and expressly agree that they will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.18. Compliance Certificate; Notice of Default or Event of Default. (a) The Company shall deliver to the Trustee within 120 calendar days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate stating whether or not, to the best knowledge of such officer, the Company has complied with all conditions and covenants under this Indenture, and, if the Company shall be in Default, specifying all such Defaults and the nature thereof of which such officer may have knowledge. For the purposes of this Section 4.18(a), compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture. (b) The Company shall deliver written notice to the Trustee immediately upon any executive officer of the Company becoming aware of the occurrence of any event which constitutes, or with the giving of notice or the lapse of time or both would constitute, a Default or Event of Default, describing such Default or Event of Default, its status and what action the Company is taking or proposes to take with respect thereto. (c) So long as not contrary to the then-current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.16 hereof shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article IV or Article V hereof or, if any such violation has occurred, specifying the nature and period of 54 - 142 - existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. SECTION 4.19. Payment for Consent, Waiver or Amendment. Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of Notes for or as an inducement to any consent, waiver or amendment of any terms or provisions of the Notes, unless such consideration is offered to be paid or agreed to be paid to all Holders of the Notes which so consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or amendment. SECTION 4.20. Investment Company Act. None of the Company or its Subsidiaries shall become an investment company subject to registration under the Investment Company Act of 1940, as amended. SECTION 4.21 Further Instruments and Acts. Upon request of the Trustee, the Company shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. ARTICLE V CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER SECTION 5.01. Merger, Consolidation or Sale of Assets. The Company shall not, and shall not permit any Subsidiary of the Company to, in a single transaction or series of related transactions, consolidate or merge with or into (other than the consolidation or merger of a Wholly Owned Subsidiary of the Company with another Wholly Owned Subsidiary of the Company or into the Company and other than the consolidation or merger of Florimex or any Subsidiary of Florimex in connection with an Asset Sale permitted pursuant to Section 4.08 hereof) (whether or not the Company or such Subsidiary is the surviving corporation), or directly and/or indirectly through its Subsidiaries sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Subsidiaries (determined on a consolidated basis for the Company and its Subsidiaries taken as a whole) in one or more related transactions to, another corporation, Person or entity unless: (a) either (i) the Company, in the case of a transaction involving the Company, or such Subsidiary, in the case of a transaction involving a Subsidiary of the Company, is the surviving corporation or (ii) in the case of a transaction involving the Company or a Guarantor, the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company or such Guarantor) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States of America, any state thereof or the District 55 - 143 - of Columbia and expressly assumes all the obligations of the Company or such Guarantor, as the case may be, under the Notes, the relevant Guarantee and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (b) immediately prior to and after such transaction no Default or Event of Default exists; (c) the Company or, if other than the Company, the entity or Person formed by or surviving any such consolidation or merger, or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (i) will have a Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (ii) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Consolidated Interest Coverage Ratio test set forth in Section 4.11(a) hereof; (d) if, as a result of any such transaction, property or assets of the Company or a Guarantor would become subject to a Lien securing Indebtedness not excepted from the provisions of this Indenture described in Section 4.12 the Company, any such Guarantor or the surviving entity, as the case may be, shall have secured the Notes as required by such provisions; and (e) the Company shall deliver, or cause to be delivered, to the Trustee, in form reasonably satisfactory to the Trustee, an Officers' Certificate and, except in the case of a merger of a Subsidiary of the Company into the Company or into a Wholly Owned Subsidiary of the Company, an Opinion of Counsel, each stating that such consolidation, merger, conveyance, lease or disposition and any supplemental indenture with respect thereto comply with this Section 5.01 and that all conditions precedent herein provided for relating to such transaction or series of transactions have been complied with. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Subsidiaries of the Company the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. SECTION 5.02. Successor Corporation Substituted. Upon any consolidation with, or merger by the Company with and into, any other corporation, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the Property of the Company and its Subsidiaries taken as a whole in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into which the Company is merged, or the Person to which such sale, conveyance, assignment, transfer, lease, conveyance or other disposition is made, shall succeed to, and be substituted for, and may exercise every right 56 - 144 - and power of, the Company under this Indenture with the same effect as if such successor Person has been named as the Company herein; and thereafter the predecessor corporation shall be relieved of all obligations and covenants under this Indenture and the Notes, except for the obligation to pay the principal of, premium, if any, and interest if any, on the Notes. ARTICLE VI DEFAULTS AND REMEDIES SECTION 6.01. Events of Default. "Event of Default," wherever used herein with respect to the Notes, means any one of the following events (whatever the reason for such event, and whether it shall be voluntary or involuntary, or be effected by operation of law, pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) the Company fails to make any payment of interest on any Note when the same becomes due and payable and such failure continues for a period of 30 calendar days; or (b) the Company fails to make any payment of the principal of, or premium, if any, on any Note when the same becomes due and payable whether upon maturity, redemption, required repurchase or otherwise; or (c) the Company fails to observe or perform any covenant, condition or agreement on the part of the Company to be observed or performed pursuant to Sections 4.07, 4.08, 4.09, 4.10, 4.11 or 5.01 hereof; or (d) the Company fails to comply with any of its other agreements or covenants in, or provisions of, the Notes or this Indenture for 30 calendar days after written notice by the Trustee or Holders of at least 25% of the aggregate principal amount of the Notes outstanding, which notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default"; or (e) a default occurs under any mortgage, indenture or instrument (including without limitation, the New Credit Facility) under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of this Indenture, which default (i) is caused by a failure to pay principal of such Indebtedness at final maturity thereof (a "Payment Default") or (ii) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the 57 - 145 - principal amount of any other such Indebtedness as to which there has been a Payment Default or the maturity of which has been so accelerated, exceeds in the aggregate $5.0 million; or (f) a final judgment or judgments or an order or orders are rendered against the Company or any of its Subsidiaries by a court or courts of competent jurisdiction for the payment of money not fully covered by insurance in an amount in excess of $10.0 million in the aggregate, and either (i) a creditor commences an enforcement proceeding upon any such judgment or order or (ii) any such order or judgment remains undischarged or unstayed for a period of 45 days after the date on which the right to appeal has expired; or (g) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company or any Material Domestic Subsidiary or any Material Foreign Subsidiary in an involuntary case or proceeding under any Bankruptcy Law or (ii) a decree or order (A) adjudging the Company or any Material Domestic Subsidiary or any Material Foreign Subsidiary a bankrupt or insolvent, or (B) approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of, or in respect of, the Company or any Material Domestic Subsidiary or any Material Foreign Subsidiary under any Bankruptcy Law, or (C) appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Material Domestic Subsidiary or any Material Foreign Subsidiary or of any substantial part of the Property of the Company or any Material Domestic Subsidiary or any Material Foreign Subsidiary, or (D) ordering the winding-up or liquidation of the affairs of the Company or any Material Domestic Subsidiary or any Material Foreign Subsidiary, and in each case, the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive calendar days; or (h) the commencement by the Company or any Material Domestic Subsidiary or any Material Foreign Subsidiary of a voluntary case or proceeding under any Bankruptcy Law or of any other case or proceeding to be adjudicated a bankrupt or insolvent; or (ii) the consent by the Company or any Material Domestic Subsidiary or any Material Foreign Subsidiary to the entry of a decree or order for relief in respect of the Company or any Material Domestic Subsidiary or any Material Foreign Subsidiary in an involuntary case or proceeding under any Bankruptcy Law or to the commencement of any bankruptcy or insolvency case or proceeding against the Company or any Material Domestic Subsidiary or any Material Foreign Subsidiary; or (iii) the filing by the Company or any Material Domestic Subsidiary or any Material Foreign Subsidiary of a petition or answer or consent seeking reorganization or relief under any Bankruptcy Law; or (iv) the consent by the Company or any Material Domestic Subsidiary or any Material Foreign Subsidiary to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or any or of any substantial part of the Property of the Company or any Material Domestic Subsidiary or any Material Foreign Subsidiary, or (v) the making by the Company or any Material Domestic Subsidiary or any Material Foreign Subsidiary of an assignment for the benefit of creditors; or (vi) 58 - 146 - the admission by the Company or any Material Domestic Subsidiary or any Material Foreign Subsidiary in writing of its inability to pay its debts generally as they become due; or (vii) the approval by stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company; or (viii) the taking of corporate action by the Company or any Material Domestic Subsidiary or any Material Foreign Subsidiary in furtherance of any such action; or (i) the Guarantee of any Guarantor shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect (other than in accordance with the terms of this Indenture) or any Guarantor or any Person acting on behalf of any Guarantor shall deny or disaffirm such Guarantor's obligations under its Guarantee (other than by reason of a release of such Guarantor from its Guarantee in accordance with the terms of this Indenture). SECTION 6.02. Acceleration. If an Event of Default (other than an Event of Default specified in Section 6.01(g) or Section 6.01(h)) occurs and is continuing, the Trustee by notice to the Company or the Holders of at least 25% in aggregate principal amount of all of the then outstanding Notes by written notice to the Company and the Trustee may declare the unpaid principal of and any accrued interest on all the Notes then outstanding to be immediately due and payable. Upon such declaration the principal and interest shall be due and payable immediately (together with any premium if applicable). If an Event of Default specified in Section 6.01(g) or Section 6.01(h) occurs, such an amount shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may rescind and annul such an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that have become due solely because of the acceleration) have been cured or waived. No such recission shall affect any subsequent Default or impair any right consequent thereon. SECTION 6.03. Other Remedies. The Company covenants that if an Event of Default specified in Section 6.01(a) or Section 6.01(b) occurs the Company shall, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders, the whole amount then due and payable on the Notes for principal, premium, if any, and interest and, to the extent that payment of such interest shall be legally enforceable, interest upon the overdue principal and premium, if any, and upon Defaulted Interest at the rate or rates prescribed therefor in the Notes; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due to the Trustee pursuant to Section 7.07 hereof. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the 59 - 147 - collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the Property of the Company or any other obligor upon the Notes, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 6.04. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the outstanding Notes may on behalf of the Holders of all the Notes waive any existing Default or Event of Default and its consequences under this Article VI, except a continuing Default or Event of Default (a) in the payment of the principal of (or premium, if any) or interest on any Note (except a payment default resulting from an acceleration that has been rescinded), or (b) in respect of a covenant or provision hereof which under Section 9.02 hereof cannot be modified or amended without the consent of the Holder of each outstanding Note. Any such waiver may (but need not) be given in connection with a tender offer or exchange offer for the Notes. SECTION 6.05. Control by Majority. The Holders of not less than a majority in principal amount of the outstanding Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided that (a) such direction shall not be in conflict with any rule of law or with this Indenture or unduly prejudicial to the rights of other Holders and would not subject the Trustee to personal liability; and (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 6.06. Limitation on Suits. No Holder of Notes shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Notes; (b) the Holders of not less than 25% in principal amount of the outstanding Notes shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; 60 - 148 - (c) such Holder or Holders have offered to the Trustee security or indemnity satisfactory to the Trustee in its reasonable discretion against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for 30 calendar days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 30-day period by the Holders of a majority in principal amount of the outstanding Notes; in any event, it being understood and intended that no one or more Holders of Notes shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Notes, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all Holders of Notes. SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of, premium, if any, and interest on the Notes held by such Holder, on or after the respective due dates expressed in the Notes or the redemption dates or purchase dates provided for therein, or to bring suit for the enforcement of any such payment on or after such respective dates, shall be absolute and unconditional and shall not be impaired or affected without the consent of such Holder. SECTION 6.08. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceedings, or any voluntary or involuntary case under any Bankruptcy Law relative to the Company or any other obligor upon the Notes or the Property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of such Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal, premium, if any, and interest owing and unpaid in respect of the Notes, to file such other papers or documents and to take such other actions, including participating as a member or otherwise in any official committee of creditors appointed in the matter, as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due to the Trustee pursuant to Section 7.07 hereof) and of the Holders allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other Property payable or deliverable on any such claims and to distribute the same; and any receiver, assignee, trustee, custodian, liquidator, sequestrator (or other similar official) in any such proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the 61 - 149 - making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. Nothing contained herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.09. Priorities. Any money collected by the Trustee pursuant to this Article VI shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of the principal of, premium, if any, or interest, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: (a) FIRST: To the payment of all amounts due the Trustee under Section 7.07 hereof; (b) SECOND: To the payment of the amounts then due and unpaid for principal of, premium, if any, and interest on the Notes, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for principal, premium, if any, and interest, respectively; and (c) THIRD: To the Company. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 6.09. At least 15 calendar days before such record date, the Company shall mail to each Holder and the Trustee a notice that states such record date, the payment date and amount to be paid. The Trustee may mail such notice in the name and at the expense of the Company. SECTION 6.10. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Note by such Holder's acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10 percent in principal amount of the outstanding Notes, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Note on or after its Stated Maturity. 62 - 150 - SECTION 6.11. Waiver of Stay or Extension Laws. The Company (to the extent it may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. SECTION 6.12. Trustee May Enforce Claims Without Possession of the Notes. All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name, as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes. SECTION 6.13. Restoration of Rights and Remedies. If the Trustee or any Holder of Notes has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case the Company, the Trustee and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 6.14. Rights and Remedies Cumulative. Except as otherwise provided in Section 2.07 hereof, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 6.15. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article VI or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. 63 - 151 - ARTICLE VII TRUSTEE SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and shall use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; provided that in the case of any such certificates or opinions that by any provision of this Indenture are specifically required to be furnished to the Trustee, the Trustee shall examine such certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, provided that: (i) this paragraph (c) shall not limit the effect of paragraph (b) of this Section 7.01; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. (e) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (f) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk of liability is not reasonably assured to it. (g) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Article VII and to the provisions of the Trust Indenture Act. 64 - 152 - SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper Person. Except as provided in Section 7.01(b) hereof, the Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on any Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any such agent; provided that such agent was appointed with due care by the Trustee. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided that the Trustee's conduct does not constitute willful misconduct or negligence. (e) The Trustee shall not be charged with knowledge of any Default or Event of Default under Sections 6.01(c), 6.01(d), 6.01(e) or 6.01(f) hereof, of the identity of any Material Domestic Subsidiary or any Material Foreign Subsidiary or of the existence of any Change of Control or Asset Sale relating to the Company unless either (i) a Trust Officer shall have actual knowledge thereof, or (ii) the Trustee shall have received notice thereof in accordance with Section 11.02 hereof from the Company or any Holder of Notes. (f) The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, but the Trustee, in its discretion may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney. SECTION 7.03. Individual Rights of Trustee. The Trustee, any Paying Agent or Registrar, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee, Paying Agent or Registrar hereunder, as the case may be; provided that the Trustee must in any event comply with Section 7.10 and Section 7.11 hereof. 65 - 153 - SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes, and it shall not be responsible for any statement of the Company in this Indenture, including the recitals contained herein, or in any document issued in connection with the sale of the Notes or in the Notes other than the Trustee's certificate of authentication. SECTION 7.05. Notice of Defaults. Within 90 calendar days after the occurrence of any Default hereunder with respect to the Notes, the Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Note Register, notice of such Default hereunder known to the Trustee, unless such Default shall have been cured or waived; provided that, except in the case of a Default in the payment of the principal of (or premium, if any) or interest on any Note, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Trust Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders. SECTION 7.06. Preservation of Information; Reports by Trustee to Holders. (a) The Company shall furnish or cause to be furnished to the Trustee: (i) semiannually, not less than 10 calendar days prior to each Interest Payment Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of the Record Date immediately preceding such Interest Payment Date; and (ii) at such other times as the Trustee may request in writing, within 30 calendar days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 calendar days prior to the time such list is furnished; provided, however, that if and so long as the Trustee shall be the Registrar for the Notes, no such list need be furnished with respect to the Notes. (b) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.06(a) hereof and the names and addresses of Holders received by the Trustee in its capacity as Registrar, if so acting. The Trustee may destroy any list furnished to it as provided in Section 7.06(a) hereof upon receipt of a new list so furnished. (c) Holders may communicate as provided in Section 312(b) of the Trust Indenture Act with other Holders with respect to their rights under this Indenture or under the Notes. 66 - 154 - (d) Each Holder of Notes, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with this Section 7.06, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under this Section 7.06. (e) Within 60 calendar days after January 15 of each year commencing with the year 1997, the Trustee shall transmit by mail to all Holders of Notes, a brief report dated as of such January 15 if and to the extent required under Section 313(a) of the Trust Indenture Act. (f) The Trustee shall comply with Sections 313(b) and 313(c) of the Trust Indenture Act. (g) A copy of each report described in Section 7.06(e) hereof shall, at the time of its transmission to Holders, be filed by the Trustee with each stock exchange, if any, upon which the Notes are then listed, with the Commission and also with the Company. The Company shall promptly notify the Trustee of any stock exchange upon which the Notes are listed. SECTION 7.07. Compensation and Indemnity. (a) The Company shall pay to the Trustee from time to time such compensation for its services as the Company and the Trustee shall from time to time agree. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents and counsel. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. (b) The Company shall indemnify the Trustee for, and hold it harmless against, any and all loss, liability, damage, claim or expense (including reasonable attorneys' fees and expenses) arising out of or incurred by it in connection with the acceptance or administration of the trust created by this Indenture and the performance of its duties hereunder, except as set forth in the next paragraph. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend any such claim and the Trustee shall cooperate in the defense of such claim. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. 67 - 155 - (c) The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustee's own willful misconduct, negligence or bad faith. (d) To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of, premium, if any, and interest on, particular Notes. (e) The Company's payment obligations pursuant to this Section 7.07 shall survive the resignation or removal of the Trustee and discharge of this Indenture. Subject to any other rights available to the Trustee under applicable bankruptcy law, when the Trustee incurs expenses after the occurrence of a Default specified in Section 6.01(g) or Section 6.01(h) hereof, the expenses are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08. Replacement of Trustee. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article VII shall become effective until the acceptance of appointment by the successor Trustee under this Section 7.08. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 calendar days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the outstanding Notes, delivered to the Trustee and to the Company. A successor Trustee may be appointed by Act of the Holders with the Company's consent. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 calendar days after the giving of notice of removal, the Trustee being removed may petition any court of competent jurisdiction for the appointment of a successor Trustee. (d) If at any time: (i) the Trustee shall fail to comply with Section 310(b) of the Trust Indenture Act after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Note for at least six months, unless the Trustee's duty to resign is stayed in accordance with the provisions of Section 310(b) of the Trust Indenture Act; or 68 - 156 - (ii) the Trustee shall cease to be eligible under Section 7.10 hereof and shall fail to resign after written request therefor by the Company or by any such Holder; or (iii) the Trustee shall become incapable of acting or a decree or order for relief by a court having jurisdiction in the premises shall have been entered in respect of the Trustee in an involuntary case under any Bankruptcy Law; or a decree or order by a court having jurisdiction in the premises shall have been entered for the appointment of a receiver, custodian, liquidator, assignee, trustee, sequestrator (or other similar official) of the Trustee or of its Property or affairs, or any public officer shall take charge or control of the Trustee or of its Property or affairs for the purpose of rehabilitation, conservation, winding up or liquidation; or (iv) the Trustee shall commence a voluntary case under any Bankruptcy Law or shall consent to the appointment of or taking possession by a receiver, custodian, liquidator, assignee, trustee, sequestrator (or other similar official) of the Trustee or its Property or affairs, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall take corporate action in furtherance of any such action, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee with respect to the Notes, or (ii) subject to Section 6.10 hereof, any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of such Holder and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee for the Notes. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 calendar days after the giving of notice of removal, the Trustee being removed may petition any court of competent jurisdiction for the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by or pursuant to a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by the Holders of a majority in principal amount of the outstanding Notes delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with this Section 7.08, become the successor Trustee and to that extent replace any successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and shall have accepted appointment in the manner hereinafter provided, any Holder that has been a bona fide Holder for at least six months may, subject to Section 6.10 hereof, on behalf of 69 - 157 - himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee by mailing written notice of such resignation, removal and appointment by first class mail, postage prepaid, to the Holders as their names and addresses appear in the Note Register. Each notice shall include the name of the successor Trustee with respect to the Notes and the address of its Corporate Trust Office. (g) In the event of an appointment hereunder of a successor Trustee, each such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee, and shall duly assign, transfer and deliver to such successor Trustee all Property and money held by such former Trustee hereunder, subject to its Lien, if any, provided for in Section 7.07 hereof. (h) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in Section 7.08(g) hereof. (i) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article VII and under the Trust Indenture Act. SECTION 7.09. Successor Trustee by Merger. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder; provided that such corporation shall be otherwise qualified and eligible under this Article VII and under the Trust Indenture Act, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Notes shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Notes so authenticated with the same effect as if such successor Trustee had itself authenticated such Notes. In the event that any Notes shall not have been authenticated by such predecessor Trustee, any such successor Trustee may authenticate and deliver such Notes, in either its own name or that of its predecessor Trustee, with the full force and effect which this Indenture provides for the certificate of authentication of the Trustee. 70 - 158 - SECTION 7.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder which shall be: (a) a corporation organized and doing business under the laws of the United States of America, any State or Territory thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority; or (b) a corporation or other Person organized and doing business under the laws of a foreign government that is permitted to act as Trustee pursuant to a rule, regulation or order of the Commission, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by authority of such foreign government or a political subdivision thereof substantially equivalent to supervision or examination applicable to United States institutional trustees, in either case having a combined capital and surplus of at least $50,000,000. (c) If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 7.10, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Neither the Company nor any Guarantor, nor any Affiliate of the Company or any Guarantor, shall serve as Trustee hereunder. If at any time the Trustee shall cease to be eligible to serve as Trustee hereunder pursuant to the provisions of this Section 7.10, it shall resign immediately in the manner and with the effect specified in this Article VII. (d) If the Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the Company shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the penultimate paragraph of Section 310(b) of the Trust Indenture Act. SECTION 7.11. Preferential Collection of Claims Against Company. The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship listed in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent indicated therein. 71 - 159 - ARTICLE VIII DEFEASANCE SECTION 8.01. Company's Option to Effect Legal Defeasance or Covenant Defeasance. The Company may elect, at its option, at any time, to have Section 8.02 or Section 8.03 hereof applied to the outstanding Notes (in whole and not in part) upon compliance with the conditions set forth below in this Article VIII. Such election shall be evidenced by a Board Resolution delivered to the Trustee and shall specify whether the Notes are being defeased to Stated Maturity or to a specified Redemption Date determined in accordance with the terms of this Indenture and the Notes. SECTION 8.02. Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.01 hereof of its option to have this Section 8.02 applied to the outstanding Notes (in whole and not in part), the Company and the Guarantors shall be deemed to have been discharged from their obligations with respect to such Notes as provided in this Section 8.02 on and after the date the conditions set forth in Section 8.04 hereof are satisfied (hereinafter called "Legal Defeasance"). For this purpose, such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by such Notes, which shall thereafter be deemed to be "outstanding" only for the purpose of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture insofar as such Notes are concerned (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), subject to the following which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of such Notes to receive, solely from the trust fund described in Section 8.04 hereof and as more fully set forth in such Section 8.04 payments in respect of the principal of and any premium and interest on such Notes when payments are due; (b) the Company's obligations with respect to such Notes under Sections 2.04, 2.06, 2.07, 2.09, 4.02, 4.03 and 4.04 hereof; (c) the rights, powers, trusts, duties and immunities of the Trustee under this Indenture and the Company's obligations in connection therewith; (d) Article III hereof; and (e) this Article VIII. Subject to compliance with this Article VIII, the Company may exercise its option to have this Section 8.02 applied to the outstanding Notes (in whole and not in part) notwithstanding the prior exercise of its option to have Section 8.03 hereof applied to such Notes. 72 - 160 - SECTION 8.03. Covenant Defeasance. Upon the Company's exercise under Section 8.01 hereof of its option to have this Section 8.03 applied to the outstanding Notes (in whole and not in part): (a) the Company shall be released from its obligations with respect to any covenants contained in Sections 4.05 through 4.16, inclusive, Section 5.01(c), and any covenant added to this Indenture subsequent to the date of this Indenture pursuant to Section 9.01 hereof; (b) the occurrence of any event specified in Section 6.01(c) or Section 6.01(d) hereof, with respect to any of Sections 4.05 through 4.16, inclusive, Section 5.01(c), and any covenant added to this Indenture subsequent to the date of this Indenture pursuant to Section 9.01 hereof, shall be deemed not to be or result in an Event of Default, in each case with respect to such Notes as provided in this Section 8.03 on and after the date the conditions set forth in Section 8.04 hereof are satisfied (hereinafter called "Covenant Defeasance"); and (c) the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent, declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, such Covenant Defeasance means that, with respect to such Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section (to the extent so specified in the case of Sections 6.01(c) and 6.01(d) hereof), whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document; but the remainder of this Indenture and the Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01 (e) and 6.01(f) hereof shall thereafter not constitute Events of Default. SECTION 8.04. Conditions to Legal Defeasance or Covenant Defeasance. The following shall be the conditions to the application of Section 8.02 or Section 8.03 hereof to the outstanding Notes: (a) The Company shall irrevocably have deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to the benefits of the Holders of Notes, (i) cash in United States dollars, or (ii) noncallable United States Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due 73 - 161 - date of any payment, cash in United States dollars, or (iii) a combination thereof, in each case sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or any such other qualifying trustee) to pay and discharge, the principal of, premium, if any, and any installment of interest on such Notes on the Stated Maturity thereof or applicable Redemption Date, as the case may be, in accordance with the terms of this Indenture and such Notes; (b) In the event of an election to have Section 8.02 hereof apply to the outstanding Notes, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (ii) since the date of this Indenture, there has been a change in the applicable Federal income tax law, in either case (i) or (ii) to the effect that, and based thereon such opinion shall confirm that, the Holders of Notes will not recognize income, gain or loss for Federal income tax purposes as a result of the deposit, Legal Defeasance and discharge to be effected with respect to such Notes and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would be the case if such deposit, Legal Defeasance and discharge were not to occur; (c) In the event of an election to have Section 8.03 hereof apply to the outstanding Notes, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of Notes will not recognize income, gain or loss for Federal income tax purposes as a result of the deposit and Covenant Defeasance to be effected with respect to such Notes and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would be the case if such deposit and Covenant Defeasance were not to occur; (d) No Default or Event of Default with respect to the outstanding Notes shall have occurred and be continuing at the time of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) after giving effect thereto or, with respect to a Default or Event of Default specified in Section 6.01(g) or Section 6.01(h), any time on or prior to the 91st calendar day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until after such 91st calendar day); (e) Such Legal Defeasance or Covenant Defeasance shall not cause the Trustee to have a conflicting interest within the meaning of the Trust Indenture Act (assuming for the purpose of this clause (e) that all Notes are in default within the meaning of such Act); (f) Such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; 74 - 162 - (g) The Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or the Guarantors or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company, the Guarantors or others; (h) Such Legal Defeasance or Covenant Defeasance shall not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act of 1940, as amended, unless such trust shall be registered under such Act or exempt from registration thereunder; and (i) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent with respect to such Legal Defeasance or Covenant Defeasance have been complied with. SECTION 8.05. Deposited Money and U.S. Government Obligations to be Held in Trust; Miscellaneous Provisions. (a) All money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any such Paying Agent as the Trustee may determine, to the Holders of such Notes, of all sums due and to become due thereon in respect of principal and any premium and interest, but money so held in trust need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of outstanding Notes. (b) Anything in this Article VIII to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Order any money or U.S. Government Obligations held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof that would then be required to be deposited to effect the Legal Defeasance or Covenant Defeasance, as the case may be, with respect to the outstanding Notes. SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any money in accordance with this Article VIII with respect to any Notes by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application then the obligations under this Indenture and such Notes from which the Company and the Guarantors have been discharged or released pursuant to Section 8.02 or 8.03 hereof shall be revived and reinstated as though no deposit had occurred pursuant to this Article VIII with respect to such Notes, until such time as the Trustee or Paying Agent is permitted to apply all money held in 75 - 163 - trust pursuant to Section 8.05 hereof with respect to such Notes in accordance with this Article VIII; provided that if the Company makes any payment of principal of or any premium or interest on any such Note following such reinstatement of its obligations, the Company shall be subrogated to the rights (if any) of the Holders of such Notes to receive such payment from the money so held in trust. ARTICLE IX AMENDMENTS SECTION 9.01. Without Consent of Holders. The Company, the Guarantors and the Trustee may, at any time, and from time to time, without notice to or consent of any Holders, enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (a) to evidence the succession of another Person to the Company and the assumption by such successor of the covenants of the Company herein and contained in the Notes; or (b) to add to the covenants of the Company for the benefit of the Holders of the Notes or to surrender any right or power herein conferred upon the Company; or (c) to add any additional Events of Default; or (d) to provide for uncertificated Notes in addition to or in place of Certificated Notes; or (e) to evidence and provide for the acceptance of appointment hereunder of a successor Trustee; or (f) to secure the Notes; or (g) to cure any ambiguity herein, or to correct or supplement any provision hereof which may be inconsistent with any other provision hereof, or to add any other provisions with respect to matters or questions arising under this Indenture; provided that such actions shall not adversely affect the interests of the Holders of Notes in any material respect; or (h) to comply with the requirements of the Commission in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act; or (i) to evidence the agreement or acknowledgment of a Material Domestic Subsidiary formed or acquired (and each other Person that becomes a Material Domestic Subsidiary) after the date of 76 - 164 - this Indenture that is not otherwise prohibited from doing so that it is Guarantor for all purposes under this Indenture (including, without limitation, Article X hereof). SECTION 9.02. With Consent of Holders. (a) With the consent of the Holders of not less than a majority in principal amount of the outstanding Notes (which consent may, but need not, be given in connection with any tender offer or exchange offer for the Notes), by Act of said Holders delivered to the Company and the Trustee, the Company, the Guarantors and the Trustee may enter into one or more indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders (including Section 4.07 and Section 4.08 hereof); provided that no such supplemental indenture shall, without the consent of the Holder of each outstanding Note: (i) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; or (ii) reduce the principal of or premium on or change the Stated Maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes, except as provided above with respect to Sections 4.07 and 4.08 hereof; or (iii) reduce the rate of or change the time for payment of interest, including Defaulted Interest, on any Note; or (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest if any, on any Note (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); or (v) make any Note payable in money other than that stated in the Notes; or (vi) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, premium, if any, or interest on the Notes; or (vii) waive a redemption payment with respect to any Note (other than a payment required by Section 4.07 or Section 4.08 hereof); or (viii) modify the ranking or priority of the Notes or the Guarantees of any Guarantor; or 77 - 165 - (ix) release any Guarantor from any of its obligations under its Guarantee or this Indenture other than in accordance with the terms of this Indenture; or (x) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions. (b) It shall not be necessary for any Act of Holders under this Section 9.02 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. (c) After an amendment or supplement under this Section or a waiver under Section 6.04 becomes effective, the Company shall mail to the Holders of Notes a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. SECTION 9.03. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article IX, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.04. Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes shall comply with the Trust Indenture Act as then in effect. SECTION 9.05. Revocation and Effect of Consents and Waivers. (a) A consent to an amendment, supplement or a waiver by a Holder of a Note shall bind the Holder and every subsequent Holder of such Note or portion of such Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent or waiver is not made on such Note; provided that any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Note or portion of such Note if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. After an amendment, supplement or waiver becomes effective pursuant to this Article IX, it shall bind every Holder. (b) The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. 78 - 166 - No such consent shall be valid or effective for more than 120 calendar days after such record date. SECTION 9.06. Notation on or Exchange of Notes. If a supplemental indenture changes the terms of a Note, the Trustee may require the Holder thereof to deliver such Note to the Trustee. The Trustee may place an appropriate notation on such Note regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for such Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. Failure to make the appropriate notation or to issue a new Note shall not affect the validity of such amendment or supplement. SECTION 9.07. Trustee to Execute Supplemental Indentures. The Trustee shall execute any supplemental indenture authorized pursuant to this Article IX if such supplemental indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but shall not be required to, execute such supplemental indenture. In executing any supplemental indenture, the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 7.01 hereof) shall be fully protected in relying upon, an Officers' Certificate (which need only cover the matters set forth in clause (a) below) and an Opinion of Counsel provided by the Company stating that: (a) such supplemental indenture is authorized or permitted by this Indenture and that all conditions precedent to the execution, delivery and performance of such supplemental indenture have been satisfied; (b) the Company and each Guarantor have all necessary corporate power and authority to execute and deliver the supplemental indenture and that the execution, delivery and performance of such supplemental indenture have been duly authorized by all necessary corporate action of the Company and each Guarantor; (c) the execution, delivery and performance of the supplemental indenture do not conflict with, or result in the breach of or constitute a default under any of the terms, conditions or provisions of (i) this Indenture, (ii) the charter documents and By-Laws of the Company or any Guarantor, or (iii) any material agreement or instrument to which the Company or any Guarantor is subject; (d) to the best knowledge and belief of legal counsel writing such Opinion of Counsel, the execution, delivery and performance of the supplemental indenture do not conflict with, or result in the breach of any of the terms, conditions or provisions of (i) any law or regulation applicable to the Company or any Guarantor, or (ii) any material order, writ, injunction or decree of any court or governmental instrumentality applicable to the Company or any Guarantor; (e) such supplemental indenture has been duly and validly executed and delivered by the Company and each 79 - 167 - Guarantor, and this Indenture together with such supplemental indenture constitutes a legal, valid and binding obligation of the Company and each Guarantor enforceable against the Company and each Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally and general equitable principles; and (f) this Indenture together with such amendment or supplement complies with the Trust Indenture Act. ARTICLE X GUARANTEES SECTION 10.01. Guarantees. (a) Subject to the provisions of this Article X, each Guarantor, jointly and severally, hereby irrevocably and unconditionally Guarantees to each Holder of Notes and to the Trustee on behalf of the Holders (i) the due and punctual payment of principal of, premium, if any, and interest in full on each Note when and as the same shall become due and payable whether at Stated Maturity, by declaration of acceleration, in connection with a Change of Control Offer, Asset Sale Offer or redemption, or otherwise, (ii) the due and punctual payment of interest on the overdue principal of, premium, if any, and interest in full on the Notes, to the extent permitted by law, and (iii) the due and punctual performance of all other Obligations of the Company and the other Guarantors to the Holders or the Trustee, including without limitation the payment of fees, expenses, indemnification or other amounts, all in accordance with the terms of the Notes and this Indenture. In case of the failure of the Company punctually to make any such principal or interest payment or the failure of the Company or any other Guarantor to perform any such other Obligation, each Guarantor hereby agrees to cause any such payment to be made punctually when and as the same shall become due and payable, whether at Stated Maturity, by declaration of acceleration, in connection with a Change of Control Offer, Asset Sale Offer or redemption, or otherwise, and as if such payment were made by the Company and to perform any such other Obligation of the Company immediately. Each Guarantor hereby further agrees to pay any and all expenses (including reasonable counsel fees and expenses) incurred by the Trustee or the Holders in enforcing any rights under these Guarantees. The Guarantees under this Article X are guarantees of payment and not of collection. (b) Each of the Company and the Guarantors hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of merger, insolvency or bankruptcy of the Company or any other Guarantor, any right to require a proceeding first against the Company or any other Guarantor, protest or notice with respect to the Notes or the Indebtedness evidenced thereby and all demands whatsoever, and covenants that these Guarantees will not be discharged except by complete performance of the Obligations contained in the Notes and in this Indenture, or as otherwise specifically provided therein and herein. (c) Each Guarantor hereby waives and relinquishes: 80 - 168 - (i) any right to require the Trustee, the Holders or the Company (each, a "Benefited Party") to proceed against the Company, the Subsidiaries of the Company or any other Person or to proceed against or exhaust any security held by a Benefited Party at any time or to pursue any other remedy in any secured party's power before proceeding against the Guarantors; (ii) any defense that may arise by reason of the incapacity, lack of authority, death or disability of any other Person or Persons or the failure of a Benefited Party to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of any other Person or Persons; (iii) demand, protest and notice of any kind (except as expressly required by this Indenture), including but not limited to notice of the existence, creation or incurring of any new or additional Indebtedness or obligation or of any action or non- action on the part of the Guarantors, the Company, the Subsidiaries of the Company, any Benefited Party, any creditor of the Guarantors, the Company or the Subsidiaries of the Company or on the part of any other Person whomsoever in connection with any obligations the performance of which are hereby guaranteed; (iv) any defense based upon an election of remedies by a Benefited Party, including but not limited to an election to proceed against the Guarantors for reimbursement; (v) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (vi) any defense arising because of a Benefited Party's election, in any proceeding instituted under the Bankruptcy Law, of the application of Section 1111(b)(2) of the Bankruptcy Law; and (vii) any defense based on any borrowing or grant of a security interest under Section 364 of the Bankruptcy Law. (d) Each Guarantor further agrees that, as between such Guarantor, on the one hand, and Holders and the Trustee, on the other hand, (i) for purposes of the relevant Guarantee, the maturity of the Obligations Guaranteed by such Guarantee may be accelerated as provided in Article VI, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed thereby, and (ii) in the event of any acceleration of such Obligations (whether or not due and payable) such Obligations shall forthwith become due and payable by such Guarantor for purposes of such Guarantee. (e) The Guarantees shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment, or any part thereof, of principal of, premium, if any, 81 - 169 - or interest on any of the Notes is rescinded or must otherwise be returned by the Holders or the Trustee upon the insolvency, bankruptcy or reorganization of the Company or any of the Guarantors, all as though such payment had not been made. (f) Each Guarantor shall be subrogated to all rights of the Holders against the Company in respect of any amounts paid by such Guarantor pursuant to the provisions of the Guarantees or this Indenture; provided, however, that a Guarantor shall not be entitled to enforce or to receive any payments until the principal of, premium, if any, and interest on all Notes issued hereunder shall have been paid in full. (g) Each Guarantor specifically designates the relevant Guarantee as Indebtedness of such Guarantor for purposes of this Indenture. SECTION 10.02 Obligations of Guarantors Unconditional. Each Guarantor hereby agrees that its Obligations hereunder shall be Guarantees of payment and shall be unconditional, irrespective of and unaffected by the validity, regularity or enforceability of the Notes or this Indenture, or of any amendment thereto or hereto, the absence of any action to enforce the same, the waiver or consent by any Holder or by the Trustee with respect to any provisions thereof or of this Indenture, the entry of any judgment against the Company or any other Guarantor or any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. SECTION 10.03. Limitation on Guarantors' Liability. Each Guarantor, and by its acceptance hereof each Holder, hereby confirms that it is the intention of all such parties that the Guarantee by such Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law. To effectuate the foregoing intention, the Holders and such Guarantor hereby irrevocable agree that the Obligations of such Guarantor under this Article X shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the Obligations of such other Guarantor under this Article X, result in the Obligations of such Guarantor under its Guarantee not constituting a fraudulent transfer or conveyance under applicable federal or state law. SECTION 10.04. Releases of Guarantees. (a) If the Notes are defeased in accordance with the terms of Article VIII of this Indenture, then each Guarantor shall be deemed to have been released from and discharged of its obligations under its Guarantee as provided in Article VIII hereof, subject to the conditions stated therein. (b) If more than 50% of the Capital Stock or consolidated assets of Florimex or all or substantially all of the assets or all of the Capital Stock of any Guarantor (other than DIMON International) is sold (including by issuance or otherwise) by the Company or any of its Subsidiaries in one transaction or in a series of related transactions, and if (i) such Guarantor is 82 - 170 - released from its obligations under its guarantee of the Company's obligations under the New Credit Facility and (ii)(x) the Net Proceeds from such Asset Sale are applied in accordance with the provisions of Section 4.08 hereof or (y) the Company delivers to the Trustee an Officers' Certificate to the effect that the Net Proceeds from such Asset Sales shall be used in accordance with the provisions of Section 4.08 hereof within the time limits specified in Section 4.08(b) hereof, then such Guarantor shall be released from and discharged of its obligations under its Guarantee. (c) Upon delivery by the Company to the Trustee of an Officers' Certificate and Opinion of Counsel, and to the effect that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture, including without limitation Section 4.08 hereof, the Trustee shall execute any documents reasonably required in order to evidence the release of any such Guarantor from its obligations under its Guarantee. (d) Any Guarantor not released from its obligations under its Guarantee shall remain liable for the full amount of principal of, premium, if any, and interest on the Notes and for the other obligations of the Company, such Guarantor and any other Guarantor under this Indenture as provided in this Article X. SECTION 10.05. Application of Certain Terms and Provisions to Guarantors. (a) For purposes of any provision of this Indenture which provides for the delivery by any Guarantor of an Officers' Certificate or an Opinion of Counsel or both, the definitions of such terms in Section 1.01 shall apply to such Guarantor as if references therein to the Company were references to such Guarantor. (b) Any request, direction, order or demand which by any provision of this Indenture is to be made by any Guarantor shall be sufficient if evidenced by a Company Order; provided that the definition of such term in Section 1.01 hereof shall apply to such Guarantor as if references therein to the Company were references to such Guarantor. (c) Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the Holders of Notes to or on any Guarantor may be given or served as described in Section 11.02 hereof. (d) Upon any demand, request or application by any Guarantor to the Trustee to take any action under this Indenture, such Guarantor shall furnish to the Trustee such certificates and opinions as are required in Section 11.04 hereof as if all references therein to the Company were references to such Guarantor. SECTION 10.06. Additional Guarantors. The Company shall cause each Material Domestic Subsidiary, whether formed or acquired (and each other Person that becomes a Material Domestic Subsidiary) after the date of this Indenture, to execute and deliver to the Trustee, promptly upon any such formation or acquisition (a) a supplemental indenture in form and substance satisfactory to the Trustee which subjects such Material Domestic Subsidiary to the 83 - 171 - provisions of this Indenture as a Guarantor, and (b) an Opinion of Counsel to the effect that such supplemental indenture has been duly authorized and executed by such Material Domestic Subsidiary and constitutes the legal, valid, binding and enforceable obligation of such Material Domestic Subsidiary (subject to such customary exceptions concerning fraudulent conveyance laws, creditors' rights and equitable principles as may be acceptable to the Trustee in its discretion), provided, that any Material Domestic Subsidiary acquired after the date of this Indenture which is prohibited from entering into a Guarantee pursuant to restrictions contained in any debt instrument or other agreement in existence at the time such Material Domestic Subsidiary was so acquired and not entered into in anticipation or contemplation of such acquisition shall not be required to comply with the foregoing provisions of this Section so long as any such restriction is in existence and to the extent of any such restriction. ARTICLE XI MISCELLANEOUS SECTION 11.01. Trust Indenture Act Controls. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by, or with another provision (an "incorporated provision") included in this Indenture by operation of, Sections 310 to 318, inclusive, of the Trust Indenture Act, such imposed duties or incorporated provision shall control. SECTION 11.02. Notices. (a) Any notice or communication shall be in writing and delivered in person or mailed by first class mail, postage prepaid, addressed as follows: if to the Company or to any Guarantor: DIMON Incorporated, 512 Bridge Street, P.O. Box 681, Danville, Virginia 24543-0681, Attention: Claude B. Owen, Jr. or James A. Cooley; if to the Trustee: Crestar Bank, 919 East Main Street, Richmond, Virginia, 23219, Attention: Corporate Trust Trustee Administration. (b) The Company or the Trustee, by notice to the other, may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Holder shall be sent to the Holder by first class mail, postage prepaid, at the Holder's address as it appears in the Note Register and shall be duly given if so sent within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed to the Company, the Trustee or a Holder in the manner provided above, it is duly given, whether or not the addressee receives it. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give notice by mail to Holders, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. 84 - 172 - (c) Any notice or communication delivered to the Company under the provisions herein shall constitute notice to the Guarantors. SECTION 11.03. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 11.04. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture (other than pursuant to Section 4.18 hereof) shall include: (a) a statement that the individual making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such individual, such person has made such examination or investigation as is necessary to enable such person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. SECTION 11.05. Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of Holders, and any Registrar and Paying Agent may make reasonable rules for their functions; provided that no such rule shall conflict with terms of this Indenture or the Trust Indenture Act. SECTION 11.06. Payments on Business Days. If a payment hereunder is scheduled to be made on a date that is not a Business Day, payment shall be made on the next succeeding day that is a Business Day, and no interest shall accrue with respect to that payment during the intervening period. If a regular record date is a date that is not a Business Day, such record date shall not be affected. SECTION 11.07. Governing Law. THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. SECTION 11.08. No Recourse Against Others. No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation, solely by reason of its status as a director, officer, employee, incorporator or stockholder of the Company. No director, officer, employee, incorporator or stockholder of any Guarantor, as such, shall have any liability for any 85 - 173 - obligations of any Guarantor under the Guarantees or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation, solely by reason of its status as a director, officer, employee, incorporator or stockholder of any Guarantor. By accepting a Note, each Holder waives and releases all such liability (but only such liability) as part of the consideration for issuance of such Note to such Holder. SECTION 11.09. Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors and assigns whether so expressed or not. All agreements of any Guarantor under this Indenture shall bind its successors and assigns whether so expressed or not. All agreements of the Trustee in this Indenture shall bind its successors and assigns whether so expressed or not. SECTION 11.10. Counterparts. This Indenture may be executed in any number of counterparts and by the parties thereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 11.11. Table of Contents; Headings. The table of contents, cross-reference table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. SECTION 11.12. Severability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.13. Further Instruments and Acts. Upon request of the Trustee, the Company and each Guarantor will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture. 86 - 174 - IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. DIMON INCORPORATED, as Issuer By /s/ James A. Cooley Name: James A. Cooley Title: Vice President and Treasurer DIMON INTERNATIONAL, INC., as Guarantor By /s/ James A. Cooley Name: James A. Cooley Title: Treasurer FLORIMEX WORLDWIDE, INC., as Guarantor By /s/ James A. Cooley Name: James A. Cooley Title: Vice President CRESTAR BANK, as Trustee By Name: Title: 87 - 175 - SCHEDULE A Non-Wholly Owned Subsidiaries COMMONWEALTH OF VIRGINIA ) ) SS.: CITY OF RICHMOND ) On the 29th day of May, 1996, before me personally came James A. Cooley, to me known, who, being by me duly sworn, did depose and say that he is Vice President and Treasurer of DIMON Incorporated, one of the corporations described in and which executed the foregoing instrument, and that he signed his name thereto by authority of the Board of Directors of said corporation. Notary Public State of My commission expires / / [Seal] COMMONWEALTH OF VIRGINIA ) ) SS.: CITY OF RICHMOND ) On the 29th day of May, 1996, before me personally came James A. Cooley, to me known, who, being by me duly sworn, did depose and say that he is Treasurer of DIMON International, Inc., one of the corporations described in and which executed the foregoing instrument, and that he signed his name thereto by authority of the Board of Directors of said corporation. Notary Public State of My commission expires / / [Seal] 88 - 176 - COMMONWEALTH OF VIRGINIA ) ) SS.: CITY OF RICHMOND ) On the 29th day of May, 1996, before me personally came James A. Cooley, to me known, who, being by me duly sworn, did depose and say that he is Vice President of Florimex Worldwide, Inc., one of the corporations described in and which executed the foregoing instrument, and that he signed his name thereto by authority of the Board of Directors of said corporation. Notary Public State of My commission expires / / [Seal] COMMONWEALTH OF VIRGINIA ) ) SS.: CITY OF RICHMOND ) On the 29th day of May, 1996, before me personally came _____________, to me known, who, being by me duly sworn, did depose and say that he is _____________ of Crestar Bank, one of the corporations described in and which executed the foregoing instrument, and that he signed his name thereto by authority of the Board of Directors of said corporation. Notary Public State of My commission expires / / [Seal] 89 - 177 - EXHIBIT A FORM OF GLOBAL NOTE FORM OF FACE OF GLOBAL NOTE DIMON INCORPORATED No. CUSIP No. 254394 AB 5 THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO DIMON INCORPORATED OR THE REGISTRAR FOR REGISTRATION OF TRANSFER OR EXCHANGE AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFER OF THIS NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, AND NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF INTERESTS IN THIS NOTE SHALL BE -178- LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.06 OF THE INDENTURE DATED AS OF MAY 29, 1996 AMONG DIMON, AS ISSUER, DIMON INTERNATIONAL, INC. AND FLORIMEX WORLDWIDE, INC., AS GUARANTORS, AND1 THE TRUSTEE NAMED THEREIN PURSUANT TO WHICH THIS NOTE WAS ISSUED. GLOBAL NOTE REPRESENTING 8 7/8% SENIOR NOTES DUE 2006 DIMON Incorporated, a Virginia corporation, for value received, hereby promises to pay to CEDE & CO., or its registered assigns, the principal sum indicated on Schedule A hereof, on June 1, 2006. Interest Payment Dates: June 1 and December 1, commencing December 1, 1996. Record Dates: May 15 and November 15. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purposes. IN WITNESS WHEREOF, DIMON Incorporated has caused this Note to be duly executed under its corporate seal. Dated: DIMON INCORPORATED By: /s/ James A. Cooley __________________________________________ Name: Title: [Corporate Seal] Attest: ____________________________ -179- TRUSTEE'S CERTIFICATE OF AUTHENTICATION CRESTAR BANK, as Trustee, certifies that this Note is one of the Notes referred to in the Indenture. By: Authorized Signatory -180- FORM OF REVERSE SIDE OF GLOBAL NOTE DIMON INCORPORATED GLOBAL NOTE REPRESENTING 8 7/8% SENIOR NOTES DUE 2006 1. Indenture. This Note is one of a duly authorized issue of debt securities of the Company (as defined below) designated as its "8 7/8% Senior Notes due 2006" (the "Notes") limited in aggregate principal amount to $125,000,000 issued under an indenture dated as of May 29, 1996 (as amended or supplemented from time to time, the "Indenture") among the Company, as issuer, DIMON International, Inc. and Florimex Worldwide, Inc., as guarantors (collectively, and, together with any future or successor Guarantors under the Indenture, the "Guarantors"), and Crestar Bank, as trustee (the "Trustee," which term includes any successor Trustee under the Indenture), to which Indenture reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Guarantors, the Trustee and each Holder of Notes and of the terms upon which the Notes are, and are to be, authenticated and delivered. The summary of the terms of this Note contained herein does not purport to be complete and is qualified by reference to the Indenture. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Note and the terms of the Indenture, the terms of the Indenture shall control. All capitalized terms used in this Note which are not defined herein shall have the meanings assigned to them in the Indenture. The Indenture contains certain covenants that, among other things, limit the ability of the Company and the Subsidiaries to incur additional indebtedness, pay dividends or make certain other restricted payments, issue preferred stock, incur liens to secure indebtedness of the Company and the Guarantors, enter into certain sale and leaseback transactions, apply net proceeds from certain asset sales, merge with or into any other person, transfer or issue shares of capital stock of Subsidiaries to third parties, sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company and the Subsidiaries, or enter into certain transactions with affiliates. 2. Principal and Interest. DIMON Incorporated, a Virginia corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called "the Company"), promises to pay the principal amount set forth on Schedule A of this Note to the Holder hereof on June 1, 2006. The Company shall pay interest on this Note at a rate of 8 7/8% per annum, from the date of issuance or from the most -181- recent Interest Payment Date thereafter to which interest has been paid or duly provided for, semiannually in arrears on June 1 and December 1 of each year, commencing on December 1, 1996 in cash, to the Holder hereof until the principal amount hereof is paid or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, subject to certain exceptions provided in the Indenture, be paid to the Person in whose name this Note (or the Note in exchange or substitution for which this Note was issued) is registered at the close of business on the Record Date for interest payable on such Interest Payment Date. The Record Date for any interest payment is the close of business on May 15 or November 15, as the case may be, whether or not a Business Day, immediately preceding the Interest Payment Date on which such interest is payable. Any such interest not so punctually paid or duly provided for ("Defaulted Interest") shall forthwith cease to be payable to the Holder on such Record Date and shall be paid as provided in Section 2.11 of the Indenture. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Each payment of interest in respect of an Interest Payment Date will include interest accrued through the day before such Interest Payment Date. If an Interest Payment Date falls on a day that is not a Business Day, the interest payment to be made on such Interest Payment Date will be made on the next succeeding Business Day with the same force and effect as if made on such Interest Payment Date, and no additional interest will accrue as a result of such delayed payment. To the extent lawful, the Company shall pay interest on (i) any overdue principal of (and premium, if any, on) this Note, at the interest rate borne on this Note plus 1.00% per annum, and (ii) Defaulted Interest (without regard to any applicable grace period), at the same rate. The Company's obligation pursuant to the previous sentence shall apply whether such overdue amount is due at its Stated Maturity, as a result of the Company's obligations pursuant to Section 3.05, Section 4.07 or Section 4.08 of the Indenture, or otherwise. 3. Method of Payment. The Company, through the Paying Agent, shall pay interest on this Note to the registered Holder of this Note, as provided above. The Holder must surrender this Note to a Paying Agent to collect principal payments. The Company will pay principal, premium, if any, and interest in money of the United States of America that at the time of payment is legal tender for payment of all debts, public and private. Principal, premium, if any, and interest shall be paid by check mailed to the registered Holders of Notes at their registered addresses; provided that all payments with respect to Notes the Holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. -182- 4. Registrar and Paying Agent. Initially, the Trustee will act as Registrar and Paying Agent under the Indenture. The Company may, upon written notice to the Trustee, appoint and change any Registrar or Paying Agent. If the Company or any of its Affiliates acts as Paying Agent, the Company or such Affiliate shall segregate the funds held by it as Paying Agent and hold them in trust for the benefit of the Holders of Notes or the Trustee. 5. Guarantees. This Note is entitled to the benefits of the Guarantees made by DIMON International, Inc. and Florimex Worldwide, Inc. and may thereafter be entitled to Guarantees made by other Guarantors for the benefit of the Holders of Notes. Each initial Guarantor has guaranteed, and each future Guarantor will guarantee, irrevocably and unconditionally, jointly and severally, the punctual payment when due, whether at Stated Maturity, by acceleration, in connection with a Change of Control Offer, an Asset Sale Offer or redemption, or otherwise, of all Obligations of the Company under the Indenture and this Note, whether for payment of principal of, premium, if any, or interest on the Notes, expenses, indemnification or otherwise. A Guarantor shall be released from the relevant Guarantee upon the terms and subject to the conditions set forth in the Indenture. 6. Optional Redemption. The Notes may not be redeemed at the option of the Company prior to June 1, 2001. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 calendar days' nor more than 60 calendar days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest thereon to the applicable Redemption Date (subject to the right of each Holder of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date), if redeemed during the twelve-month period beginning June 1 of the years indicated below: Year Percentage 2001 104.4375% 2002 102.9583% 2003 101.4791% 2004 100.0000% 7. No Mandatory Redemption. The Notes are not subject to any sinking fund or mandatory redemption. -183- 8. Notice of Redemption. At least 30 calendar days but not more than 60 calendar days before a Redemption Date, the Company shall send, or cause to be sent, by first-class mail, postage prepaid, a notice prepared by the Company describing the redemption to each Holder of Notes to be redeemed at the addresses of such Holders as they appear in the Note Register. If less than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if such Notes are not listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate. If any Note is redeemed subsequent to a Record Date with respect to any Interest Payment Date specified above and on or prior to such Interest Payment Date, then any accrued interest will be paid on such Interest Payment Date to the Holder of the Note on such Record Date. If money in an amount sufficient to pay the Redemption Price of all Notes (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent on or before the applicable Redemption Date and certain other conditions are satisfied, interest on the Notes or portions thereof to be redeemed on the applicable Redemption Date will cease to accrue. 9. Repurchase at the Option of Holders upon Change of Control. Upon the occurrence of a Change of Control, each Holder of Notes shall have the right to require the Company to purchase such Holder's Notes, in whole or in part, in a principal amount that is an integral multiple of $1,000, pursuant to a Change of Control Offer, at a purchase price in cash equal to 101% of the principal amount of such Notes (or portions thereof) to be redeemed plus accrued and unpaid interest thereon to the Change of Control Payment Date (subject to the right of each Holder of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date). Within 30 calendar days after the date of any Change of Control, the Company shall send, or cause to be sent, by first- class mail, postage prepaid, a notice prepared by the Company describing the Change of Control Offer to each Holder. The Holder of this Note may elect to have this Note or a portion hereof in an authorized denomination purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below and tendering this Note pursuant to the Change of Control Offer. Unless the Company defaults in the payment of the Change of Control Purchase Price with respect thereto, Notes or portions thereof accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest from and after the Change of Control Payment Date. 10. Repurchase at the Option of Holders upon Asset Sales. If at any time the Company or any Subsidiary of the Company engages in any Asset Sales, as a result of which the aggregate amount of Excess Proceeds exceeds $10.0 million, the -184- Company shall make an offer to all Holders of Notes then outstanding to purchase, on a pro rata basis, the principal amount of Notes equal in amount to the Excess Proceeds (and not just the amount thereof that exceeds $10.0 million), at a purchase price in cash in an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the Asset Sale Payment Date (subject to the right of each Holder of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date). Upon completion of an Asset Sale Offer (including payment of the Asset Sale Purchase Price for accepted Notes), any surplus Excess Proceeds that were the subject of such offer shall cease to be Excess Proceeds, and the Company may then use such amounts for general corporate purposes (subject to other provisions of the Indenture). Within 30 calendar days after the date the amount of Excess Proceeds exceeds $10.0 million, the Company shall send, or cause to be sent, to each Holder of Notes, by first-class mail, postage prepaid, a notice prepared by the Company describing the Asset Sale Offer. The Holder of this Note may elect to have this Note or a portion hereof in an authorized denomination purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below and tendering this Note pursuant to the Asset Sale Offer. Unless the Company defaults in the payment of the Asset Sale Purchase Price with respect thereto, all Notes or portions thereof accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest from and after the Asset Sale Payment Date. "Excess Proceeds" are defined in Section 4.08 of the Indenture to be Net Proceeds from Asset Sales (other than Exempt Asset Sales) not utilized for certain purposes within 270 days of consummation of an Asset Sale. "Exempt Asset Sales" are also defined in the Indenture and include, among other things, an Asset Sale (i) the Net Proceeds of which plus the Net Proceeds of all other Asset sales concurrently or previously made on or after the date of the Indenture do not exceed $25.0 million and (ii) the Net Proceeds of which plus the Net Proceeds of all other Asset Sales concurrently or previously made in the same fiscal year do not exceed $10.0 million. 11. The Global Note. So long as this Global Note is registered in the name of the Depositary or its nominee, members of, or participants in, the Depositary ("Agent Members") shall have no rights under the Indenture with respect to this Global Note held on their behalf by the Depositary or the Trustee as its custodian, and the Depositary may be treated by the Company, the Guarantors, the -185- Trustee and any agent of the Company, the Guarantors or the Trustee as the absolute owner of this Global Note for all purposes. Notwithstanding the foregoing, nothing herein shall (i) prevent the Company, the Guarantors, the Trustee or any agent of the Company, the Guarantors or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depositary or (ii) impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of Notes. The Holder of this Global Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests in this Global Note through Agent Members, to take any action which a Holder of Notes is entitled to take under the Indenture or the Notes. Whenever, as a result of optional redemption by the Company, a Change of Control Offer, an Asset Sale Offer or an exchange for Certificated Notes, this Global Note is redeemed, repurchased or exchanged in part, this Global Note shall be surrendered by the Holder thereof to the Trustee who shall cause an adjustment to be made to Schedule A hereof so that the principal amount of this Global Note will be equal to the portion not redeemed, repurchased or exchanged and shall thereafter return this Global Note to such Holder; provided that this Global Note shall be in a principal amount of $1,000 or an integral multiple of $1,000. 12. Transfer and Exchange. The Holder of this Global Note shall, by acceptance of this Global Note, agree that transfers of beneficial interests in this Global Note may be effected only through a book entry system maintained by such Holder (or its agent), and that ownership of a beneficial interest in the Notes represented thereby shall be required to be reflected in book entry form. Transfers of this Global Note shall be limited to transfers in whole and not in part, to the Depositary, its successors, and their respective nominees. Interests of beneficial owners in this Global Note shall be transferred in accordance with the rules and procedures of the Depositary (or its successors). This Global Note shall be exchanged by the Company for one or more Certificated Notes as specified in Section 2.06(a) of the Indenture if (a) the Depositary (i) has notified the Company that it is unwilling or unable to continue as, or ceases to be, a clearing agency registered under Section 17A of the Exchange Act and (ii) a successor to the Depositary registered as a clearing agency under Section 17A of the Exchange Act is not able to be appointed by the Company within 90 calendar days or (b) the Depositary is at any time unwilling or unable to continue as Depositary and a successor to the Depositary is not able to be appointed by the Company within 90 calendar days. If an Event of Default occurs and is continuing, the Company shall, at the request of the Holder hereof, exchange all or part of this Global Note for one or more Certificated Notes; provided that the principal amount of each of such Certificated Notes and this Global Note, after such exchange, shall be $1,000 or an integral multiple thereof. Whenever this Global Note is exchanged as a whole for one or more Certificated Notes, it shall be surrendered by the Holder to the Trustee for cancellation. Whenever this Global Note is exchanged in part for one or more Certificated Notes, it shall be surrendered by the Holder to the Trustee and -186- the Trustee shall make the appropriate notations hereon pursuant to Section 2.05(c) of the Indenture. All Certificated Notes issued in exchange for this Global Note or any portion hereof shall be registered in such names, and delivered, as the Depositary shall instruct the Trustee. Interests in this Global Note may not be exchanged for Certificated Notes other than as provided in this paragraph. 13. Denominations. The Notes are issuable only in registered form without coupons in denominations of $1,000 and integral multiples thereof of principal amount. 14. Unclaimed Money If money for the payment of principal premium, if any, or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders of Notes entitled to the money must look only to the Company and not to the Trustee for payment unless such abandoned property law designates another Person. 15. Discharge and Defeasance. Subject to certain conditions, the Company at any time may terminate some or all of the obligations of the Company and the Guarantors under the Notes and the Indenture if the Company irrevocably deposits in trust with the Trustee cash or U.S. Government Obligations for the payment of principal, premium, if any, and interest on the Notes to redemption or maturity, as the case may be. 16. Amendment, Waiver. Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Notes may be amended with the written consent of the Holders of not less than a majority in principal amount of the outstanding Notes (which consent may, but need not, be given in connection with any tender offer or exchange offer for Notes) and (ii) any past Default or Event of Default and its consequences may be waived with the written consent of the Holders of at least a majority in principal amount of the outstanding Notes. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder of Notes, the Company, the Guarantors and the Trustee may amend the Indenture or the Notes, among other things, (i) to evidence the succession of another Person to the Company and the assumption by such successor of the covenants of the Company under the Indenture and contained in the Notes; (ii) to add to the covenants of the Company with respect to the Notes; (iii) to add any additional Events of Default; (iv) to secure the Notes; (v) to evidence and provide for the acceptance of appointment under the Indenture of a successor Trustee; (vi) to cure any -187- ambiguity in the Indenture or to correct or supplement any provision in the Indenture which may be inconsistent with any other provision therein or to add any other provision with respect to matters or questions arising under the Indenture, provided that such actions shall not adversely affect the interests of the Holders of Notes in any material respect; (vii) to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act; or (viii) to evidence the agreement or acknowledgment of a Material Domestic Subsidiary formed or acquired (and each Person that becomes a Material Domestic Subsidiary) after the date of the Indenture that is not otherwise prohibited from doing so that it is a Guarantor for all purposes under the Indenture. 17. Defaults and Remedies. Under the Indenture, Events of Default include: (i) failure by the Company to make any payment of interest on any Note when the same becomes due and payable, and such failure continues for 30 calendar days; (ii) failure by the Company to make any payment of principal of, or premium, if any, on any Notes when the same becomes due and payable, whether upon Stated Maturity, redemption, required purchase, or otherwise; (iii) failure by the Company to observe or perform certain covenants, conditions, agreements or other provisions of the Indenture or this Note (and, in the case of certain covenants, conditions, agreements or other provisions, such failure has continued for 30 calendar days after written notice by the Trustee or the Holders of at least 25% in principal amount of the Notes); (iv) certain Payment Defaults with respect to and accelerations of other Indebtedness if the amount unpaid or accelerated exceeds $5.0 million; (v) certain events of bankruptcy or insolvency with respect to the Company, any Material Domestic Subsidiary or any Material Foreign Subsidiary; (vi) certain undischarged judgments or orders for the payment of money in excess of $10.0 million; or (vii) the Guarantee of any Guarantor being held in any judicial proceeding to be unenforceable or invalid or ceasing for any reason to be in full force and effect (other than in accordance with the terms of the Indenture) or any Guarantor or any Person acting on behalf of any Guarantor denying or disaffirming the Guarantee of such Guarantor. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Notes, subject to certain limitations, may declare the unpaid principal of and any accrued interest on all the outstanding Notes to be immediately due and payable. Certain events of bankruptcy or insolvency are Events of Default and shall result in the Notes being immediately due and payable upon the occurrence thereof without any further act of the Trustee or any Holder. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Notes unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Notes may direct the Trustee in its exercise of any trust or -188- power under the Indenture. The Holders of a majority in principal amount of the outstanding Notes, by written notice to the Company and the Trustee, may rescind any declaration of acceleration and its consequences if the rescission would not conflict with any judgment or decree, and if all existing Events of Default have been cured or waived except nonpayment of principal, premium if any, or interest that has become due solely because of acceleration. No such recission shall affect any subsequent Default or impair any right consequent thereto. 18. Individual Rights of Trustee. Subject to certain limitations imposed by the Trust Indenture Act, the Trustee or any Paying Agent or Registrar, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company, the Guarantors or its or their Affiliates with the same rights it would have if it were not Trustee, Paying Agent or Registrar, as the case may be, under the Indenture. 19. No Recourse Against Certain Others. No director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or such Guarantor under the Notes, the Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation, solely by reason of its status as a director, officer, employee, incorporator or stockholder of the Company or such Guarantor. By accepting a Note, each Holder waives and releases all such liability (but only such liability) as part of the consideration for issuance of such Note to such Holder. 20. Authentication. This Note shall not be valid until the Trustee or an authenticating agent manually signs the certificate of authentication on the other side of this Note. 21. Abbreviations. Customary abbreviations may be used in the name of a Holder of Notes or an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with rights of survivorship and not as tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors Act). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Note Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders of Notes. No representation is made as to the accuracy of such numbers either -189- as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 23. Governing Law. THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. The Company will furnish to any Holder of Notes upon written request and without charge to the Holder a copy of the Indenture which has in it the text of this Note. Requests may be made to: DIMON Incorporated 512 Bridge Street Post Office Box 681 Danville, VA 24543-0681 Att.: Secretary -190- SCHEDULE A SCHEDULE OF PRINCIPAL AMOUNT The initial principal amount at maturity of this Note shall be $125,000,000. The following decreases/increase in the principal amount in denominations of $1,000 or integral multiples thereof at maturity of this Note have been made:
Total Principal Amount at Notation Decrease in Increase in Maturity Made by Date of Principal Principal Following such or on Decrease/ Amount at Amount at Decrease/ Behalf of Increase Matturity Maturity Increase Trustee ____________ ___________ ___________ _____________ _________ ____________ ___________ ___________ _____________ _________ ____________ ___________ ___________ _____________ _________ ____________ ___________ ___________ _____________ _________ ____________ ___________ ___________ _____________ _________ ____________ ___________ ___________ _____________ _________ ____________ ___________ ___________ _____________ _________ ____________ ___________ ___________ _____________ _________ ____________ ___________ ___________ _____________ _________ ____________ ___________ ___________ _____________ _________ ____________ ___________ ___________ _____________ _________ ____________ ___________ ___________ _____________ _________ ____________ ___________ ___________ _____________ _________ ____________ ___________ ___________ _____________ _________ ____________ ___________ ___________ _____________ _________ ____________ ___________ ___________ _____________ _________
-191- ASSIGNMENT (To be executed by the registered Holder if such Holder desires to transfer this Note) FOR VALUE RECEIVED ___________________________ hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER OF TRANSFEREE - ------- BOX (FOR SOCIAL SECURITY NUMBER) - ------- _______________________________________________________________ (Please print name and address of transferee) _________________________________________________________________ this Note, together with all right, title and interest herein, and does hereby irrevocably constitute and appoint ________________________________ Attorney to transfer this Note on the Note Register, with full power of substitution. Dated: _______________ ________________________________ _______________________ Signature of Holder Signature Guaranteed: NOTICE: The signature to the foregoing Assignment must correspond to the Name as written upon the face of this Note in every particular, without alteration or any change whatsoever. -192- OPTION OF HOLDER TO ELECT PURCHASE (check as appropriate) __ In connection with the Change of Control Offer made pursuant to Section 4.07 of the Indenture, the undersigned hereby elects to have __ the entire principal amount __ $________________ ($1,000 in principal amount or an integral multiple thereof) of this Note repurchased by the Company. The undersigned hereby directs the Trustee or Paying Agent to pay it or __________________________ an amount in cash equal to 101% of the principal amount indicated in the preceding sentence plus accrued and unpaid interest thereon, if any, to the Change of Control Payment Date (subject to the right of the Holder of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date). __ In connection with the Asset Sale Offer made pursuant to Section 4.08 of the Indenture, the undersigned hereby elects to have __ the entire principal amount __ $________________ ($1,000 in principal amount or an integral multiple thereof) of this Note repurchased by the Company. The undersigned hereby directs the Trustee or Paying Agent to pay it or __________________________ an amount in cash equal to 100% of the principal amount indicated in the preceding sentence plus accrued and unpaid interest thereon, if any, to the Asset Sale Payment Date (subject to the right of the Holder of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date). Dated: _______________ ________________________________ Signature of Holder Signature Guaranteed: NOTICE: The signature to the foregoing must correspond to the Name as written upon the face of this Note in every particular, without alteration or any change whatsoever. _______________________________ -193- EXHIBIT B FORM OF CERTIFICATED NOTE FORM OF FACE OF CERTIFICATED NOTE DIMON INCORPORATED No. CUSIP No. 254394 AB 5 8 7/8% SENIOR NOTE DUE 2006 DIMON Incorporated, a Virginia corporation, for value received, hereby promises to pay to __________, or its registered assigns, the principal amount of $_______ on June 1, 2006. Interest Payment Dates: June 1 and December 1, commencing December 1, 1996. Record Dates: May 15 and November 15. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purposes. -194- IN WITNESS WHEREOF, DIMON Incorporated has caused this Note to be duly executed under its corporate seal. Dated: DIMON INCORPORATED By: __________________________________________ Name: Title: [Corporate Seal] Attest: ____________________________ TRUSTEE'S CERTIFICATE OF AUTHENTICATION CRESTAR BANK, as Trustee, certifies that this Note is one of the Notes referred to in the Indenture. By: Authorized Signatory -195- FORM OF REVERSE SIDE OF CERTIFICATED NOTE DIMON INCORPORATED 8 7/8% SENIOR NOTE DUE 2006 1. Indenture. This Note is one of a duly authorized issue of debt securities of the Company (as defined below) designated as its "8 7/8% Senior Notes due 2006" (the "Notes") limited in aggregate principal amount to $125,000,000 issued under an indenture dated as of May 29, 1996 (as amended or supplemented from time to time, the "Indenture") among the Company, as issuer, DIMON International, Inc. and Florimex Worldwide, Inc., as guarantors (collectively, and, together with any future or successor Guarantors under the Indenture, the "Guarantors"), and Crestar Bank, as trustee (the "Trustee," which term includes any successor Trustee under the Indenture), to which Indenture reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Guarantors, the Trustee and each Holder of Notes and of the terms upon which the Notes are, and are to be, authenticated and delivered. The summary of the terms of this Note contained herein does not purport to be complete and is qualified by reference to the Indenture. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Note and the terms of the Indenture, the terms of the Indenture shall control. All capitalized terms used in this Note which are not defined herein shall have the meanings assigned to them in the Indenture. The Indenture contains certain covenants that, among other things, limit the ability of the Company and the Subsidiaries to incur additional indebtedness, pay dividends or make certain other restricted payments, issue preferred stock, incur liens to secure indebtedness of the Company and the Guarantors, enter into certain sale and leaseback transactions, apply net proceeds from certain asset sales, merge with or into any other person, transfer or issue shares of capital stock of Subsidiaries to third parties, sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company and the Subsidiaries, or enter into certain transactions with affiliates. 2. Principal and Interest. DIMON Incorporated, a Virginia corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called "the Company"), promises to pay the principal amount set forth on the face hereof to the Holder hereof on June 1, 2006. The Company shall pay interest on this Note at a rate of 8 7/8% per annum, from the date of issuance or from the most recent Interest Payment Date thereafter to which interest has been paid or duly provided for, semiannually in arrears on June 1 and December 1 of each year, commencing on December 1, 1996 in cash, to the Holder hereof until the principal amount hereof is paid or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment -196- Date will, subject to certain exceptions provided in the Indenture, be paid to the Person in whose name this Note (or the Note in exchange or substitution for which this Note was issued) is registered at the close of business on the Record Date for interest payable on such Interest Payment Date. The Record Date for any interest payment is the close of business on May 15 or November 15, as the case may be, whether or not a Business Day, immediately preceding the Interest Payment Date on which such interest is payable. Any such interest not so punctually paid or duly provided for ("Defaulted Interest") shall forthwith cease to be payable to the Holder on such Record Date and shall be paid as provided in Section 2.11 of the Indenture. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Each payment of interest in respect of an Interest Payment Date will include interest accrued through the day before such Interest Payment Date. If an Interest Payment Date falls on a day that is not a Business Day, the interest payment to be made on such Interest Payment Date will be made on the next succeeding Business Day with the same force and effect as if made on such Interest Payment Date, and no additional interest will accrue as a result of such delayed payment. To the extent lawful, the Company shall pay interest on (i) any overdue principal of (and premium, if any, on) this Note, at the interest rate borne on this Note plus 1.00% per annum, and (ii) Defaulted Interest (without regard to any applicable grace period), at the same rate. The Company's obligation pursuant to the previous sentence shall apply whether such overdue amount is due at its Stated Maturity, as a result of the Company's obligations pursuant to Section 3.05, Section 4.07 or Section 4.08 of the Indenture, or otherwise. 3. Method of Payment. The Company, through the Paying Agent, shall pay interest on this Note to the registered Holder of this Note, as provided above. The Holder must surrender this Note to a Paying Agent to collect principal payments. The Company will pay principal, premium, if any, and interest in money of the United States of America that at the time of payment is legal tender for payment of all debts, public and private. Principal, premium, if any, and interest shall be paid by check mailed to the registered Holders of Notes at their registered addresses; provided that all payments with respect to Notes the Holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. 4. Registrar and Paying Agent. Initially, the Trustee will act as Registrar and Paying Agent under the Indenture. The Company may, upon written notice to the Trustee, appoint and change any Registrar or Paying Agent. If the Company or any of its Affiliates acts as Paying Agent, the Company or such Affiliate shall segregate the funds held by it as Paying Agent and hold them in trust for the benefit of the Holders of Notes or the Trustee. -197- 5. Guarantees. This Note is entitled to the benefits of the Guarantees made by DIMON International, Inc. and Florimex Worldwide, Inc. and may thereafter be entitled to Guarantees made by other Guarantors for the benefit of the Holders of Notes. Each initial Guarantor has guaranteed, and each future Guarantor will guarantee, irrevocably and unconditionally, jointly and severally, the punctual payment when due, whether at Stated Maturity, by acceleration, in connection with a Change of Control Offer, an Asset Sale Offer or redemption, or otherwise, of all Obligations of the Company under the Indenture and this Note, whether for payment of principal of, premium, if any, or interest on the Notes, expenses, indemnification or otherwise. A Guarantor shall be released from the relevant Guarantee upon the terms and subject to the conditions set forth in the Indenture. 6. Optional Redemption. The Notes may not be redeemed at the option of the Company prior to June 1, 2001. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 calendar days' nor more than 60 calendar days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest thereon to the applicable Redemption Date (subject to the right of each Holder of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date), if redeemed during the twelve-month period beginning June 1 of the years indicated below: Year Percentage 2001 104.4375% 2002 102.9583% 2003 101.4791% 2004 100.0000% 7. No Mandatory Redemption. The Notes are not subject to any sinking fund or mandatory redemption. 8. Notice of Redemption. At least 30 calendar days but not more than 60 calendar days before a Redemption Date, the Company shall send, or cause to be sent, by first-class mail, postage prepaid, a notice prepared by the Company describing the redemption to each Holder of Notes to be redeemed at the addresses of such Holders as they appear in the Note Register. If less than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or, if such Notes are not listed, on a pro rata basis, by lot or by -198- such method as the Trustee shall deem fair and appropriate. If any Note is redeemed subsequent to a Record Date with respect to any Interest Payment Date specified above and on or prior to such Interest Payment Date, then any accrued interest will be paid on such Interest Payment Date to the Holder of the Note on such Record Date. If money in an amount sufficient to pay the Redemption Price of all Notes (or portions thereof) to be redeemed on the Redemption Date is deposited with the Paying Agent on or before the applicable Redemption Date and certain other conditions are satisfied, interest on the Notes or portions thereof to be redeemed on the applicable Redemption Date will cease to accrue. 9. Repurchase at the Option of Holders upon Change of Control. Upon the occurrence of a Change of Control, each Holder of Notes shall have the right to require the Company to purchase such Holder's Notes, in whole or in part, in a principal amount that is an integral multiple of $1,000, pursuant to a Change of Control Offer, at a purchase price in cash equal to 101% of the principal amount of such Notes (or portions thereof) to be redeemed plus accrued and unpaid interest thereon to the Change of Control Payment Date (subject to the right of each Holder of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date). Within 30 calendar days after the date of any Change of Control, the Company shall send, or cause to be sent, by first- class mail, postage prepaid, a notice prepared by the Company describing the Change of Control Offer to each Holder. The Holder of this Note may elect to have this Note or a portion hereof in an authorized denomination purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below and tendering this Note pursuant to the Change of Control Offer. Unless the Company defaults in the payment of the Change of Control Purchase Price with respect thereto, Notes or portions thereof accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest from and after the Change of Control Payment Date. 10. Repurchase at the Option of Holders upon Asset Sales. If at any time the Company or any Subsidiary of the Company engages in any Asset Sales, as a result of which the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company shall make an offer to all Holders of Notes then outstanding to purchase, on a pro rata basis, the principal amount of Notes equal in amount to the Excess Proceeds (and not just the amount thereof that exceeds $10.0 million), at a purchase price in cash in an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the Asset Sale Payment Date (subject to the right of each Holder of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date). Upon completion of an Asset Sale Offer (including payment of the Asset Sale Purchase Price for accepted Notes), any surplus Excess Proceeds that were the subject of such offer shall cease to be Excess Proceeds, and the Company may then use such amounts for general corporate purposes (subject to other provisions of the Indenture). -199- Within 30 calendar days after the date the amount of Excess Proceeds exceeds $10.0 million, the Company shall send, or cause to be sent, to each Holder of Notes, by first-class mail, postage prepaid, a notice prepared by the Company describing the Asset Sale Offer. The Holder of this Note may elect to have this Note or a portion hereof in an authorized denomination purchased by completing the form entitled "Option of Holder to Elect Purchase" appearing below and tendering this Note pursuant to the Asset Sale Offer. Unless the Company defaults in the payment of the Asset Sale Purchase Price with respect thereto, all Notes or portions thereof accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest from and after the Asset Sale Payment Date. "Excess Proceeds" are defined in Section 4.08 of the Indenture to be Net Proceeds from Asset Sales (other than Exempt Asset Sales) not utilized for certain purposes within 270 days of consummation of an Asset Sale. "Exempt Asset Sales" are also defined in the Indenture and include, among other things, an Asset Sale (i) the Net Proceeds of which plus the Net Proceeds of all other Asset sales concurrently or previously made on or after the date of the Indenture do not exceed $25.0 million and (ii) the Net Proceeds of which plus the Net Proceeds of all other Asset Sales concurrently or previously made in the same fiscal year do not exceed $10.0 million. 11. Transfer and Exchange. A Holder may transfer a Note only upon the surrender of such Note for registration of transfer. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer in the Note Register by the Registrar. When Notes are presented to the Registrar with a request to register the transfer of, or to exchange, such Notes, the Registrar shall register the transfer or make such exchange as requested if its requirements for such transactions and any applicable requirements hereunder are satisfied. No service charge shall be made for any registration of transfer or exchange of Notes, but the Company may require payment of sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer of Notes. 12. Denominations. The Notes are issuable only in registered form without coupons in denominations of $1,000 and integral multiples thereof of principal amount. 13. Unclaimed Money If money for the payment of principal premium, if any, or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its -200- request unless an abandoned property law designates another Person. After any such payment, Holders of Notes entitled to the money must look only to the Company and not to the Trustee for payment unless such abandoned property law designates another Person. 14. Discharge and Defeasance. Subject to certain conditions, the Company at any time may terminate some or all of the obligations of the Company and the Guarantors under the Notes and the Indenture if the Company irrevocably deposits in trust with the Trustee cash or U.S. Government Obligations for the payment of principal, premium, if any, and interest on the Notes to redemption or maturity, as the case may be. 15. Amendment, Waiver. Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Notes may be amended with the written consent of the Holders of not less than a majority in principal amount of the outstanding Notes (which consent may, but need not, be given in connection with any tender offer or exchange offer for Notes) and (ii) any past Default or Event of Default and its consequences may be waived with the written consent of the Holders of at least a majority in principal amount of the outstanding Notes. Subject to certain exceptions set forth in the Indenture, without the consent of any Holder of Notes, the Company, the Guarantors and the Trustee may amend the Indenture or the Notes, among other things, (i) to evidence the succession of another Person to the Company and the assumption by such successor of the covenants of the Company under the Indenture and contained in the Notes; (ii) to add to the covenants of the Company with respect to the Notes; (iii) to add any additional Events of Default; (iv) to secure the Notes; (v) to evidence and provide for the acceptance of appointment under the Indenture of a successor Trustee; (vi) to cure any ambiguity in the Indenture or to correct or supplement any provision in the Indenture which may be inconsistent with any other provision therein or to add any other provision with respect to matters or questions arising under the Indenture, provided that such actions shall not adversely affect the interests of the Holders of Notes in any material respect; (vii) to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act; or (viii) to evidence the agreement or acknowledgment of a Material Domestic Subsidiary formed or acquired (and each Person that becomes a Material Domestic Subsidiary) after the date of the Indenture that is not otherwise prohibited from doing so that it is a Guarantor for all purposes under the Indenture. 16. Defaults and Remedies. Under the Indenture, Events of Default include: (i) failure by the Company to make any payment of interest on any Note when the same becomes due and payable, and such failure continues for 30 calendar days; (ii) failure by the Company to make any payment of principal of, or premium, if any, on any Notes when the same becomes due and payable, whether upon Stated Maturity, redemption, required purchase, or otherwise; (iii) failure by the Company to observe or perform certain covenants, conditions, agreements or other provisions of the Indenture or this Note (and, in the case of certain covenants, conditions, -201- agreements or other provisions, such failure has continued for 30 calendar days after written notice by the Trustee or the Holders of at least 25% in principal amount of the Notes); (iv) certain Payment Defaults with respect to and accelerations of other Indebtedness if the amount unpaid or accelerated exceeds $5.0 million; (v) certain events of bankruptcy or insolvency with respect to the Company, any Material Domestic Subsidiary or any Material Foreign Subsidiary; (vi) certain undischarged judgments or orders for the payment of money in excess of $10.0 million; or (vii) the Guarantee of any Guarantor being held in any judicial proceeding to be unenforceable or invalid or ceasing for any reason to be in full force and effect (other than in accordance with the terms of the Indenture) or any Guarantor or any Person acting on behalf of any Guarantor denying or disaffirming the Guarantee of such Guarantor. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Notes, subject to certain limitations, may declare the unpaid principal of and any accrued interest on all the outstanding Notes to be immediately due and payable. Certain events of bankruptcy or insolvency are Events of Default and shall result in the Notes being immediately due and payable upon the occurrence thereof without any further act of the Trustee or any Holder. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Notes unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Notes may direct the Trustee in its exercise of any trust or power under the Indenture. The Holders of a majority in principal amount of the outstanding Notes, by written notice to the Company and the Trustee, may rescind any declaration of acceleration and its consequences if the rescission would not conflict with any judgment or decree, and if all existing Events of Default have been cured or waived except nonpayment of principal, premium if any, or interest that has become due solely because of acceleration. No such recission shall affect any subsequent Default or impair any right consequent thereto. 17. Individual Rights of Trustee. Subject to certain limitations imposed by the Trust Indenture Act, the Trustee or any Paying Agent or Registrar, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company, the Guarantors or its or their Affiliates with the same rights it would have if it were not Trustee, Paying Agent or Registrar, as the case may be, under the Indenture. 18. No Recourse Against Certain Others. No director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or such Guarantor under the Notes, the Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation, solely by reason of its status as a director, officer, employee, incorporator or stockholder of the Company or such Guarantor. By accepting a Note, each Holder -202- waives and releases all such liability (but only such liability) as part of the consideration for issuance of such Note to such Holder. 19. Authentication. This Note shall not be valid until the Trustee or an authenticating agent manually signs the certificate of authentication on the other side of this Note. 20. Abbreviations. Customary abbreviations may be used in the name of a Holder of Notes or an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with rights of survivorship and not as tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors Act). 21. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Note Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders of Notes. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 22. Governing Law. THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. The Company will furnish to any Holder of Notes upon written request and without charge to the Holder a copy of the Indenture which has in it the text of this Note. Requests may be made to: DIMON Incorporated 512 Bridge Street Post Office Box 681 Danville, VA 24543-0681 Att.: Secretary -203- ASSIGNMENT (To be executed by the registered Holder if such Holder desires to transfer this Note) FOR VALUE RECEIVED ___________________________ hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER TAX IDENTIFYING NUMBER OF TRANSFEREE - ------ BOX (FOR SOCIAL SECURITY NUMBER) - ----- _______________________________________________________________ (Please print name and address of transferee) _________________________________________________________________ this Note, together with all right, title and interest herein, and does hereby irrevocably constitute and appoint ________________________________ Attorney to transfer this Note on the Note Register, with full power of substitution. Dated: _______________ ________________________________ _______________________ Signature of Holder Signature Guaranteed: NOTICE: The signature to the foregoing Assignment must correspond to the Name as written upon the face of this Note in every particular, without alteration or any change whatsoever. -204- OPTION OF HOLDER TO ELECT PURCHASE (check as appropriate) __ In connection with the Change of Control Offer made pursuant to Section 4.07 of the Indenture, the undersigned hereby elects to have __ the entire principal amount __ $________________ ($1,000 in principal amount or an integral multiple thereof) of this Note repurchased by the Company. The undersigned hereby directs the Trustee or Paying Agent to pay it or __________________________ an amount in cash equal to 101% of the principal amount indicated in the preceding sentence plus accrued and unpaid interest thereon, if any, to the Change of Control Payment Date (subject to the right of the Holder of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date). __ In connection with the Asset Sale Offer made pursuant to Section 4.08 of the Indenture, the undersigned hereby elects to have __ the entire principal amount __ $________________ ($1,000 in principal amount or an integral multiple thereof) of this Note repurchased by the Company. The undersigned hereby directs the Trustee or Paying Agent to pay it or __________________________ an amount in cash equal to 100% of the principal amount indicated in the preceding sentence plus accrued and unpaid interest thereon, if any, to the Asset Sale Payment Date (subject to the right of the Holder of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date). Dated: _______________ ________________________________ _____________________ Signature of Holder Signature Guaranteed: -205- NOTICE: The signature to the foregoing must correspond to the Name as written upon the face of this Note in every particular, without alteration or any change whatsoever. EX-10 3 Exhibit 10.19 ------------- SEPARATION AGREEMENT, WAIVER AND RELEASE This Separation Agreement, Waiver and Release ("Agreement") sets forth the complete terms under which the employment of T. H. Faucett with DIMON Incorporated will end. 1. Recitals. a. Each reference in this Agreement to "DIMON" shall include DIMON Incorporated, and any of its current or former divisions, parents, subsidiaries, affiliates, shareholders, owners, officers, directors, employees, servants, attorneys, agents, representatives, predecessors, successors, and assigns. b. Each reference in this Agreement to "Faucett" shall include T. H. Faucett, and any of his agents, attorneys, personal representatives, executors, administrators, heirs, beneficiaries, successors, and assigns. 2. Conclusion of Employment. Faucett acknowledges that he has voluntarily resigned from all of his duties as an employee of DIMON effective June 30, 1996. Faucett acknowledges that, as of March 31, 1996, he has resigned as an officer of DIMON and that he no longer has any authority to act on behalf of DIMON, and Faucett shall not hold himself out as an employee or representative of DIMON for any purpose. Faucett agrees that he will not seek further employment with DIMON, and he specifically waives and renounces any claim for employment with DIMON at any time after June 30, 1996. 3. Retirement Benefits. As of July 1, 1996, Faucett may receive the benefits provided under the DIMON Incorporated Savings and Profit Sharing Plan and the Retirement Plan for Employees of Dibrell Brothers and Subsidiary Companies (the "Retirement Plan"). Faucett will also be eligible to receive any benefit that he has accrued under the component of the Dibrell Brothers Incorporated Pension Equalization Plan that restores the Retirement Plan benefit that Faucett could not accrue on account of Section 401(a)(17) of the Internal Revenue Code of 1986, as amended. 4. Cash Bonus Award. If a "Bonus Award" is made under the DIMON, Incorporated Cash Bonus Plan for the fiscal year ending June 30, 1996, Faucett will receive the Bonus Award approved for him. Such Bonus Award shall be in the amount that Faucett would have received had he not terminated employment pursuant to this Agreement. -206- 5. Special Separation and Retirement Benefits. a. DIMON agrees to pay Faucett his regular base salary of $15,000 per month through June 30, 1996. DIMON will make such payments on the regularly scheduled pay periods. These payments will be reduced by the amounts required by law to be withheld and paid to the appropriate taxing agencies and by such other amounts authorized by Faucett. Faucett shall also be entitled to continued use of his company car through June 30, 1996. b. DIMON agrees that through June 30, 1996 Faucett and his spouse may continue to participate in any employee benefit plan in which they were eligible to participate as of March 31, 1996, or in any successor plan should DIMON amend or terminate any such plan prior to June 30, 1996. Faucett will remain responsible for his share of any premium, co-payments or deductibles under the respective plans. If Faucett accepts other employment prior to June 30, 1996, DIMON's obligation to continue Faucett's health and life insurance benefits under this Agreement shall cease on the date Faucett becomes eligible for coverage under the new employer's insurance benefit plans or June 30, 1996, whichever occurs sooner. Faucett shall be eligible to participate as a retiree under the terms of DIMON's health and life insurance plans. DIMON acknowledges that Faucett's rights under COBRA will begin July 1, 1996. c. In addition to any benefit available under the Retirement Plan, DIMON will provide Faucett an annuity benefit equal in value to a single life annuity paying $8,500 per month commencing July 1, 1996 and ending with the payment due for the month in which Faucett dies. The annuity benefit will be provided in the same form as the form of annuity in which Faucett elects to receive his benefit from the Retirement Plan. The monthly annuity payments will also be adjusted according to the actuarial assumptions and methods applied under the Retirement Plan if Faucett elects to receive the annuity in a form other than a single life annuity. d. Faucett and DIMON acknowledge that the payments described in Section 5c are in lieu of the Special Supplemental Retirement Benefit to which he would otherwise be entitled pursuant to Article 6 of his Employment Agreement with Dibrell Brothers, Incorporated dated January 13, 1995. Faucett acknowledges and agrees that he is not entitled to any additional compensation from DIMON of any type or nature, including but not limited to any salary, bonus, commission, or pay in lieu of any benefits. e. DIMON shall provide to Faucett access to the listing of position openings maintained by the outplacement firm Drake Beam Moran through December 31, 1996. -207- 6. Exercise of Stock Options. Through his employment with Dibrell Brothers Incorporated ("Dibrell"), on August 21, 1991, August 24, 1992, August 26, 1993, and August 25, 1994, Faucett was granted options to purchase Dibrell stock (which now cover DIMON stock) (the "Dibrell Options"). In connection with Faucett's voluntary resignation from employment with DIMON, as part of the consideration for this Agreement, and notwithstanding any agreement to the contrary, Faucett will be permitted to exercise all or part of each Dibrell Option until the expiration date of such option; provided, however, that no Dibrell Option may be exercised more than one year after Faucett's death. Faucett may exercise those options as they become exercisable in accordance with their original terms, notwithstanding his voluntary resignation from employment, and in a manner consistent with the terms of the Dibrell Options. 7. Waiver, Release, and Covenant Not to Sue. a. In exchange for the consideration provided by this Agreement, Faucett forever waives, releases, and covenants not to sue with respect to any claim against DIMON, including but not limited to all claims arising from or relating in any way to his employment with DIMON or any other act, event, or communication occurring prior to the execution of this Agreement, whether such claims are now known or may hereafter be discovered. In addition to any other claims, Faucett specifically waives, releases, and covenants not to sue with respect to any claims under the Age Discrimination in Employment Act of 1967, as amended. b. Faucett does not waive any rights or claims that may arise after the date this Agreement is executed. 8. Covenant to Maintain Confidentiality. a. Faucett acknowledges that during his employment with DIMON, he was exposed to and learned a substantial amount of information which is proprietary and confidential to DIMON, whether or not he developed or created such information. Faucett acknowledges that such proprietary and confidential information includes, but is not limited to, employee information, trade secrets, inventions, manufacturing know-how, designs, formulae, secret processes and machinery; acquisition or merger information; advertising and promotional programs; resource or developmental projects; plans or strategies for future business development; financial or statistical data; customer information, including, but not limited to, the names of DIMON's customers, the nature of DIMON's relationship to said customers, customer lists, sales records, account records, sales and marketing programs, pricing matters, and account strategies and reports; legal documents and records; sales and marketing plans and strategies; and any DIMON manuals, forms, techniques, and other business procedures or methods, devices, or matters of any kind relating to or with respect to any confidential research, engineering, developmental work, programs, or projects of DIMON, or any other information of a similar nature made available to Faucett and not known in the trade in which DIMON is engaged, which, if misused or disclosed, would adversely affect the business or standing of DIMON. -208- b. Faucett agrees that, for a period of three (3) years subsequent to July 1, 1996, except as required by law, he will not divulge to any person, agency, institution, company or other entity any information which he knows or has reason to believe is proprietary or confidential to DIMON, including but not limited to the types of information described in Section 8(a). c. Nothing under this Section 8 shall require Faucett to maintain in confidence information which is generally known in the industry. 9. Confidentiality of Terms of Agreement. Faucett agrees that he will not reveal or allow anyone else to reveal the terms of this Agreement, to any person (including officers or employees of DIMON), agency, institution, company, or other entity unless DIMON agrees in writing that he may do so. The sole exceptions are that Faucett may make such disclosures as are required by law, including disclosures to taxing agencies, and Faucett may disclose the terms of this Agreement to his wife and his attorney, accountant, or tax advisor, provided that Faucett shall inform his wife and his attorney, accountant, or tax advisor that the terms are strictly confidential and are not to be revealed to anyone else except as required by law. 10. No Disparaging Remarks. Faucett agrees that he will not disparage, denigrate, or otherwise make negative statements about DIMON or its management to any person, agency, institution, company, or other entity, including but not limited to any customer, competitor, vendor, or other business enterprise engaged in any business or commercial relationship with DIMON, whether such statements are true or otherwise. DIMON agrees that it will not disparage, denigrate, or otherwise make negative statements about Faucett to any person, agency, institution, company, or other entity, whether such statements are true or otherwise. 11. Cooperation. a. Faucett agrees, at no financial cost to him, to cooperate with DIMON and to provide consultation and advice to DIMON or its affiliates or legal or tax matters and such other matters important to the continuing functioning of DIMON and its affiliates, as requested by DIMON's Chief Executive Officer or his designee. In that regard, Faucett agrees that he shall refrain from initiating or conducting conversations with employees or customers of DIMON regarding the strategy, structure, or operations of DIMON, unless specifically requested in writing by DIMON's Chief Executive Officer or his designee. -209- b. Faucett's duties to cooperate and provide the services set forth in Section 11(a) shall extend through June 30, 1997, unless terminated sooner at DIMON's sole discretion. 12. Remedies for Breach. Faucett acknowledges that DIMON would be irreparably harmed if the covenants provided in Section 8 of this Agreement were not specifically enforced. Accordingly, DIMON shall be entitled to injunctive relief for the purpose of restraining Faucett from violating those covenants, in addition to any other relief to which DIMON may be entitled. 13. Construction of Agreement. a. This Agreement does not constitute and shall not be deemed an admission by DIMON of a violation of any statute or law or wrongdoing of any kind, nor is it an admission or finding that any claim that Faucett may raise against DIMON, including any claim in connection with Faucett's employment with DIMON or the conclusion of that employment, is or would be in any way valid or meritorious. b. Faucett and DIMON agree that this Agreement, contains all the promises and covenants made by them with respect to its subject matter, and any and all prior understandings and agreements between them, including the Employment Agreement dated January 13, 1995 between Dibrell Brothers, Incorporated and Faucett, have been merged herein or canceled by the mutual agreement of the parties. c. Any waiver of a breach of this Agreement will not constitute a waiver of any future breach, whether of a similar or dissimilar nature. d. This Agreement will be governed by and interpreted in accordance with the laws of the Commonwealth of Virginia, without any presumption or construction against the party causing the Agreement to be drafted. Any dispute arising between the parties related to or involving this Agreement will be litigated in a court having jurisdiction in the Commonwealth of Virginia. e. If any provision of this Agreement is held invalid, such invalidity will not invalidate the entire Agreement, and the remainder of the Agreement will not be affected. -210- f. Faucett acknowledges and agrees that DIMON is not undertaking to advise him with respect to the tax consequences of this Agreement and that he is solely responsible for determining those consequences. g. Faucett acknowledges that he has read this Agreement, has had at least 21 days to consider it, has been advised of his right to discuss it with his attorney, understands its terms, and is satisfied with those terms. Faucett understands that this Agreement will become effective, enforceable and binding on him seven (7) days from the day of his signature below, unless he has revoked it prior to that time. Faucett is satisfied with the terms of this Agreement and agrees that the terms are binding upon him. Agreed this 30th day of May, 1996. _____________________ /s/ T. H. Faucett Date T. H. Faucett 5/30/96 /s/ DIMON, Incorporated Date DIMON, Incorporated -211- EX-11 4 Exhibit 11 DIMON and Subsidiaries Computation of Earnings Per Common Share
YEAR ENDED JUNE 30 (in thousands, except per share data) 1996 1995 1994 PRIMARY EARNINGS Income (loss) before extraordinary item $ 39,870 $(30,165) $ (8,490) Extraordinary item 1,400 - - Net Income (Loss) $ 41,270 $(30,165) $ (8,490) SHARES Weighted average number of common shares outstanding 39,560 38,070 38,069 Shares applicable to stock options, net of shares assumed to be purchased from proceeds at average market price 111 30 22 Average Number of Shares Outstanding 39,671 38,100 38,091 EARNINGS PER SHARE Income (loss) before extraordinary item $1.00 $(.79) $(.22) Extraordinary item .04 - - Net Income (Loss) $1.04 $(.79) $(.22) ASSUMING FULL DILUTION EARNINGS Income (loss) before extraordinary item $ 39,870 $(30,165) $ (8,490) Add after tax interest expense applicable to 7 3/4% Convertible Debentures issued June 3, 1991 1,765 2,674 2,714 Income (loss) before extraordinary item 41,635 (27,491) (5,776) Extraordinary item 1,400 - - Net Income (Loss) as Adjusted $ 43,035 $(27,491) $ (5,776) SHARES Weighted average number of common shares outstanding 39,560 38,070 38,068 Shares applicable to stock options, net of shares assumed to be purchased from proceeds at the greater of average market price or ending market price 162 83 26 Assuming conversion of 7 3/4% Convertible Debentures at beginning of period 2,742 4,202 4,203 Average Number of Shares Outstanding 42,464 42,355 42,297 EARNINGS PER SHARE Income (loss) before extraordinary $ .98 $(.65) $(.14) Extraordinary item .03 - - Net Income (Loss) as Adjusted $1.01 $(.65) $(.14)
-212- EX-21 5 Exhibit 21 SUBSIDIARIES OF REGISTRANT (at June 30, 1995)
JURISDICTION PERCENTAGE OF VOTING IN WHICH SECURITIES OWNED NAME ORGANIZED BY REGISTRANT BY AFFILIATE DIMON International, Inc. (A) North Carolina 100.00% DIMON International Tabak B.V. (A) The Netherlands 100.00% (B) DIMON International A.G. (A) Switzerland 100.00% (B) DIMON Do Brasil Tabacos Ltda. (A) Brazil 100.00% (B) Mashonaland Tobacco Holdings (PVT) Ltd. (A) Zimbabwe 100.00% (B) Kin-Farm, Inc. (A) North Carolina 100.00% (B) Monk-Austin VI (FSC) (A) Virgin Islands 100.00% (B) Florimex Worldwide, Inc. (A) Virginia 100.00% DIMON GmbH (A) Germany 100.00% (C) Florimex Verwaltungsgesellschaft mbH (A) Germany 100.00% (D) Florimex Worldwide (A) The Netherlands 100.00% (C) Baardse B.V. (A) The Netherlands 100.00% (J) (C)
(A) Included in the Consolidated Financial Statements (B) Owned by DIMON International, Inc. (C) Owned by Florimex Worldwide, Inc. (D) Owned by DIMON GmbH -213- EX-23 6 Exhibit 23.1 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-93172, 33-91364, 33-93162, 33-93174, 33-93170 and 33-93168) of DIMON Incorporated of our report dated August 22, 1996, except as to Note O, which is as of August 29, 1996, appearing in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears in this Form 10-K. /s/ Price Waterhouse LLP Price Waterhouse LLP Raleigh, North Carolina September 19, 1996 -214- Exhibit 23.2 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements Form S-8 (Nos. 33-93172, 33-91364, 33-93162, 33-93174, 33-93170 and 33-93168) of DIMON Incorporated of our report dated August 26, 1994, included in the Annual Report (Form 10-K) of DIMON Incorporated for the year ended June 30, 1996, with respect to the consolidated financial statements of Dibrell Brothers, Incorporated for the year ended June 30, 1994. /s/ Ernst & Young LLP Ernst & Young LLP Winston-Salem, North Carolina September 19, 1996 -215- EX-27 7 ART. 5 FDS FOR 4TH QUARTER 10-K
5 1,000 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 53,820 0 190,898 6,558 333,501 668,775 323,201 (86,426) 1,020,014 246,433 390,871 136,959 0 0 178,889 1,020,014 2,167,473 2,167,473 1,904,992 1,904,992 0 1,043 46,924 67,487 26,995 39,870 0 1,400 0 41,270 1.04 1.01 -----END PRIVACY-ENHANCED MESSAGE-----