EXHIBIT 10.24
DIAMOND WALNUT GROWERS, INC.
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7.35% Senior Notes, Series A, due December 1, 2013
Second Amendment to Note Purchase Agreement
dated as of July 17, 2001
Dated as of
April 8, 2005
TO EACH OF THE HOLDERS OF THE ABOVE NOTES
AS LISTED IN THE ATTACHED SCHEDULE A
Ladies and Gentlemen:
DIAMOND GROWERS, WALNUT INC., a California corporation (the "Company"),
intends to convert from an incorporated non-stock agricultural cooperative
marketing association organized under the Food and Agricultural Code of the
State of California to a Delaware corporation (the "Conversion"). The Conversion
will be accomplished by merging the Company with and into Diamond Foods, Inc., a
newly-formed Delaware corporation and wholly owned subsidiary of the Company
(the "New Company"). The New Company intends to issue new equity in a public
offering (the "Public Offering"). The Conversion will not occur unless the
Public Offering is completed. The Conversion and the Public Offering may not
take place under the Agreement described below without your consent and several
amendments to the Agreement. In addition, the Company is requesting modification
to certain of the Company's financial covenants in the Agreement.
In consideration of the foregoing, the Company hereby agrees with you as
follows:
1. Note Purchase Agreement. Reference is hereby made to the Note Purchase
Agreement dated as of July 17, 2001, as amended by the Amendment to Note
Purchase Agreement dated as of December 1, 2004 (the "Agreement"), between the
Company and you (or your predecessor in interest listed in Schedule A to the
Agreement) pursuant to which the Company issued its 7.35% Senior Notes, Series
A, due December 1, 2013, held by you. Certain capitalized terms used in this
Amendment are defined in Schedule B to the Agreement.
2. Consent and Amendments. Subject to the satisfaction of the conditions
set forth in Section 5,
(a) You consent to the Conversion.
(b) As the context may require, all references in the Agreement and the
Notes to "Diamond Walnut Growers, Inc., a California corporation" and similar
phrases are hereby amended to be references instead to "Diamond Foods, Inc., a
Delaware corporation" and correlative phrases.
(c) Section 5.1 of the Agreement is hereby amended in its entirety to read
as follows:
Section 5.1. Organization; Power and Authority. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and is duly qualified as a foreign corporation and is
in good standing in each jurisdiction in which such qualification is required by
law, other than those jurisdictions as to which the failure to be so qualified
or in good standing would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. The Company has the corporate power
and authority to own or hold under lease the properties it purports to own or
hold under lease, to transact the business it transacts and proposes to
transact, to execute and deliver this Agreement and the Other Agreements and the
Notes and to perform the provisions hereof and thereof.
(d) Section 5.9 of the Agreement is hereby amended by (i) deleting the
phrase "Company is taxed as a cooperative under Subtitle A., Chapter 1,
Subchapter T, Section 1381 et seq. of the Code and the," (ii) deleting the last
sentence thereof and (iii) adding the following sentence:
The Company and its Subsidiaries have not been previously audited by the
Internal Revenue Service except for the fiscal year ended July 31, 1998,
which audit has been completed.
(e) Section 5.15(a) of the Agreement is hereby amended by (i) deleting the
date "May 1, 2001" and inserting in lieu thereof the date "April 8, 2005, and
(ii) adding the following sentence:
The Company has delivered to you and each Other Purchaser all of the
agreements to which the Company is a party pertaining to such Debt.
(f) Exhibit 5.15 of the Agreement is hereby amended in its entirety to
read as follows:
Description of Debt
of the Company and its Subsidiaries
as of April 8, 2005
1. Master Loan Agreement entered into as of February 23, 2004 and amended
and restated on March 21, 2005, between CoBANK, ACB ("CoBank"), and the Company,
as supplemented by the Revolving Credit Supplement dated November 23, 2004 and
the Revolving Term Loan Supplement dated February 23, 2004 (the "CoBank
Agreement").
2. Credit Agreement entered into as of December 2, 2004, between Bank of
the West and the Company.
(g) Section 9.5 of the Agreement is hereby amended to delete the second
sentence thereof.
(h) Section 10.2(a) of the Agreement is hereby amended by (i) deleting the
phrase "incorporated non-stock marketing cooperative" and inserting the word
"corporation" in lieu thereof and (ii) deleting clause (iii).
(i) Section 10.3(b) of the Agreement is hereby amended in its entirety to
read as
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follows:
(b) Subject to compliance at all times with Section 10.7, liens on
inventory in favor of producers of farm products arising under Section 55631 of
the California Food and Agricultural Code;
(j) Section 10.3(j) is hereby amended to read in its entirety as follows,
and the current Sections 10.3(j) and (k) are hereby renumbered Sections 10.3(k)
and (l), respectively:
(j) any Lien on equity in CoBank required pursuant to the CoBank
Agreement;
(k) Section 10.4(a) of the Agreement is hereby amended in its entirety to
read as follows:
(a) Limitation on Total Debt. The Company will not permit (i) the
following ratio to exceed 3.75 to 1.00: (A) Total Debt, determined as of the end
of each of the fiscal quarters ended on October 31, 2005, January 31, 2006 and
April 30, 2006, to (B) EBITDA, calculated (I) as of October 31, 2005, as 4 times
EBITDA for the fiscal quarter ending on such date, (II) as of January 31, 2006,
as 2 times EBITDA for the two consecutive fiscal quarters ending on such date,
and (III) as of April 30, 2006, as 1.3333 times EBITDA for the three consecutive
fiscal quarters ending on such date; and (ii) the following ratio to exceed 3.00
to 1.00: (A) Total Debt at any time on or after July 31, 2006, to (B) EBITDA,
calculated as any determination date for the most recent four consecutive fiscal
quarters ending on or before such determination date.
(l) Section 10.4 of the Agreement is hereby amended to add the following:
(c) Interest Coverage. The Company will not permit the Interest Charges
Coverage Ratio to be less than 3.00 to 1.00 (i) for the first fiscal quarter
ending after the Effective Date, (ii) for the first two consecutive fiscal
quarters ending after the Effective Date, (iii) for the first three consecutive
fiscal quarters ending after the Effective Date, and (iv) for each four
consecutive fiscal quarters thereafter.
(m) Section 10.5 of the Agreement is hereby amended in its entirety to
read as follows:
Section 10.5. Consolidated Net Worth. The Company will not permit
Consolidated Net Worth at any time to be less than the sum of (a) 80% of
Consolidated Net Worth as of the Effective Date plus (b) 50% of Consolidated Net
Income, if positive, for each fiscal quarter ending after the Effective Date
plus (c) 100% of the Net Proceeds Amount received by the Company from any
Investment in the equity of the Company made after the Effective Date.
(n) Section 10.7 of the Agreement is hereby amended in its entirety to
read as follows:
Section 10.7. Waiver of Producer's Lien; Inventory. The Company shall not
at any time allow more than 2% of its accounts payable to walnut producers to be
to walnut producers that have not given the Company written waivers
substantially in the form of Exhibit 10.7 hereof of any liens such producers may
have on the Company's inventory arising under Section 55631 of the California
Food and Agricultural Code. Furthermore, the Company shall not at
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any time allow less than 50% of the its accounts payable to nut suppliers be to
walnut suppliers.
(o) Exhibit 10.7 of the Agreement is hereby amended in its entirety to
read as follows:
Waiver of Producer's Lien. Producer expressly waives the provisions of
California Food and Agricultural Code Section 55631, which provides in part:
"Every producer of any farm product that sells any product which is
grown by him to any processor . . . has a lien upon such product and
upon all processed or manufactured forms of such fm product for his
labor, care, and expense in growing and harvesting such product."
The producer's lien under Section 55631 is a first priority lien on the farm
product sold. A person waiving the benefits of Section 55631 would be in the
position of a general creditor of the processor, instead of a secured creditor.
(p) Section 10 of the Agreement is hereby amended by adding Section 10.9
thereto reading as follows:
Section 10.9. Restricted Payments. The Company will not, and will not
permit any of its Subsidiaries to, declare or make, or incur any liability to
declare or make, any Restricted Payment unless immediately after giving effect
to such action, no Default or Event of Default would exist.
(q) Clause (ii) of Section 1l(f) is hereby amended in its entirety to read
as follows:
(ii) (A) the Company or any Subsidiary is in default in the performance of
or compliance with any term of any evidence of any Debt in an aggregate
outstanding principal amount of at least $5,000,000 or of any mortgage,
indenture or other agreement relating thereto or (B) any other condition
exists and as a consequence of such condition such Debt may be or has been
declared due and payable before its stated maturity or before its
regularly scheduled dates of payment, or
(r) The definition of "Consolidated Adjusted Net Worth" in Schedule B to
the Agreement is hereby deleted in its entirety.
(s) Schedule B to the Agreement is hereby amended to add the following
definitions:
"Capital Lease" means a lease with respect to which the lessee is required
concurrently to recognize the acquisition of an asset and the incurrence of a
liability in accordance with GAAP.
"Consolidated Net Income" means, with reference to any period, the net
income (or loss) of the Company and its Subsidiaries for such period (taken as a
cumulative whole), as determined in accordance with GAAP, after eliminating all
offsetting debits and credits between the Company and its Subsidiaries and all
other items required to be eliminated in the course of the preparation of
consolidated financial statements of the Company and its Subsidiaries in
accordance with GAAP, provided that there shall be excluded any net income
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or gain (but not any net loss) during such period from any extraordinary items.
"Consolidated Net Worth" means, at any time,
(a) the sum of (i) the par value (or value stated on the books of
the corporation) of the capital stock (but excluding treasury stock and
capital stock subscribed and unissued) of the Company and its Subsidiaries
plus (ii) the amount of the paid-in capital and retained earnings of the
Company and its Subsidiaries, in each case as such amounts would be shown
on a consolidated balance sheet of the Company and its Subsidiaries as of
such time prepared in accordance with GAAP, minus
(b) to the extent included in clause (a), all amounts properly
attributable to minority interests, if any, in the stock and surplus of
Subsidiaries.
"Distribution" means, in respect of any corporation, association or other
business entity:
(a) dividends or other distributions or payments on capital stock or
other equity interest of such corporation, association or other business
entity (except distributions in such stock or other equity interest); and
(b) the redemption or acquisition of such stock or other equity
interests or of warrants, rights or other options to purchase such stock
or other equity interests (except when solely in exchange for such stock
or other equity interests) unless made, contemporaneously, from the net
proceeds of a sale of such stock or other equity interests.
"EBIT" means, with respect to any period, Consolidated Net Income for such
period plus all amounts deducted in the computation thereof on account of (a)
Interest Charges, (b) taxes imposed on or measured by income or excess profits,
(c) any Make-Whole Loan Amount paid by the Company pursuant to Section 4.2 of
the Trust Agreement in connection with an Unscheduled Redemption of Preferred
Securities and (d) non-cash share based expenses governed by FASB 123(R).
"EBITDA" means, with respect to any period, Consolidated Net Income for
such period plus all amounts deducted in the computation thereof on account of
(a) Interest Charges, (b) taxes imposed on or measured by income or excess
profits, (c) any Make-Whole Loan Amount paid by the Company pursuant to Section
4.2 of the Trust Agreement in connection with an Unscheduled Redemption of
Preferred Securities, (d) non-cash share based expenses governed by FASB 123(R)
(e) depreciation and (f) amortization.
"Fair Market Value" means, at any time and with respect to any property,
the sale value of such property that would be realized in an arm's-length sale
at such time between an informed and willing buyer and an informed and willing
seller (neither being under a compulsion to buy or sell).
"Interest Charges" means, with respect to any period, the sum (without
duplication) of the following (in each case, eliminating all offsetting debits
and credits between the Company and its Subsidiaries and all other items
required to be eliminated in the course of the preparation of consolidated
financial statements of the Company and its Subsidiaries in accordance with
GAAP):
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(a) all interest in respect of Debt of the Company and its Subsidiaries
(including imputed interest on Capital Lease Obligations) deducted in
determining Consolidated Net Income for such period, and (b) all debt
discount and expense amortized or required to be amortized in the
determination of Consolidated Net Income for such period.
"Interest Charges Coverage Ratio" means, with respect to any period,
the ratio of (a) EBIT for such period to (b) Interest Charges for such
period.
"Investment" means any investment, made in cash or by delivery of
property, in any Person, whether by acquisition of stock, capital
contribution or otherwise.
"Net Proceeds Amount" means, with respect to any Investment in any
Person, an amount equal to the difference of
(a) the aggregate amount of the consideration (valued at
the Fair Market Value of such consideration at the time of the
consummation of such Investment) received by such Person in respect
of such Investment, minus
(b) all ordinary and reasonable out-of-pocket costs and
expenses actually incurred by such Person in connection with such
Investment.
"Restricted Payment" means any Distribution in respect of the
Company or any Subsidiary of the Company (other than on account of capital
stock or other equity interests of a Subsidiary owned legally and
beneficially by the Company or another Subsidiary), including, without
limitation, any Distribution resulting in the acquisition by the Company
of Securities which would constitute treasury stock. For purposes of this
Agreement, the amount of any Restricted Payment made in property shall be
the greater of (x) the Fair Market Value of such property (as determined
in good faith by the board of directors (or equivalent governing body) of
the Person making such Restricted Payment) and (y) the net hook value
thereof on the books of such Person, in each case determined as of the
date on which such Restricted Payment is made.
(t) On and after the date hereof, each reference in the Agreement or
the Notes to "this Agreement" or to "the Other Agreements" or the like shall
mean "this Agreement" or "the Other Agreements" as amended hereby.
3. Scope of Amendment. Except as specifically amended above, (a) the
Agreement and the Other Agreements shall each remain in full force and effect
and each is hereby ratified and confirmed and (b) the execution, delivery and
effectiveness of this Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power, or remedy of the holders of the Notes,
nor constitute a waiver of any provision of the Agreement, the Notes or any
other document, instrument or agreement constituting executed in connection
therewith.
4. Representations and Warranties. The Company hereby represents and
warrants that the following are true and correct on the date of this Amendment
and that, after giving effect to the amendments set forth in Section 2 above,
the following will be true and correct on the Effective Date:
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(a) No Default or Event of Default has occurred and is continuing,
or would result from the change in the Company's name or status.
(b) The Company has delivered to you and each Other Purchaser a copy
of its Registration Statements on Forms S-1 and S-4, filed with the SEC on
March 25, 2005 (the "Registration Statements"), relating to the Conversion
and the Public Offering. The Agreement as amended by this Amendment, the
Registration Statements and pro forma financials provided to you to date,
taken as a whole, do not contain any untrue statement of a material fact
or omit to state any material fact necessary to make the statements
therein not misleading in light of the circumstances under which they were
made. There is no fact known to the Company that could reasonably be
expected to have a Material Adverse Effect.
5. Effective Date. The Company shall give you at least 5 Business
Days' prior written notice of the date on or before July 29, 2005, on which the
Company would like the amendments in Section 2 to become effective (the
"Effective Date"). Such amendments shall become effective on the Effective Date
only upon the fulfillment to your satisfaction, prior to or on the Effective
Date, of the following conditions.
(a) The Conversion and the Public Offering have occurred.
(b) The New Company received in the Public Offering net proceeds
of at least $50,000,000.
(c) The New Company has on the Effective Date a Consolidated
Adjusted Net Worth of not less than $62,500,000.
(d) The representations and warranties of the New Company in the
Agreement as amended by this Amendment shall be true and correct as
of the Effective Date.
(e) The Company and the New Company shall have performed and
complied with all agreements and conditions contained in this
Agreement required to be performed or complied with by it on or
prior to the Effective Date, and after giving effect to the
Conversion, no Default or Event of Default shall have occurred and
be continuing.
(f) The New Company shall have delivered to you an Officer's
Certificate, dated the Effective Date, certifying that the
conditions specified in Sections 5(a), (b), (c), (d) and (e) have
been fulfilled.
(g) You have received from the New Company, in form and substance
reasonably satisfactory to you, its written assumption dated the
Effective Date of the due and punctual performance and observance of
each covenant and condition of this Agreement, the Other Agreements
and the Notes (the "Assumption").
(h) The New Company shall have delivered to you a certificate of
its secretary certifying as to (i) the resolutions attached thereto
of the Company and the New Company relating to the authorization,
execution and delivery of this Amendment and the Assumption and
approving the transactions contemplated by this Amendment and (ii)
the organizational documents of the New Company.
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(i) You shall have received certificates of good standing from the
Secretaries of State of the States of Delaware and California indicating
that the New Company is qualified to do business and in good standing in
such jurisdictions.
(j) You shall have received from nationally recognized independent
counsel, or other independent counsel reasonably satisfactory to you, and
in form and substance reasonably satisfactory to you, a legal opinion to
the effect that (i) the Conversion has occurred, (ii) the Company and its
Subsidiaries are corporations, duly organized, validly existing and in
good standing, and (iii) this Amendment, the Agreement as amended by this
,4mendment and all agreements or instruments effecting the Assumption are
enforceable against the New Company in accordance with their terms, comply
with the terms of the Agreement as amended by this Amendment, and are in
compliance with law and other agreements to which the Company and the New
Company is a party.
(k) If necessary or appropriate, a new Private Placement Number
issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the
Securities Valuation Office of the National Association of Insurance
Commissioners) shall have been obtained for the Notes.
(l) All corporate and other proceedings in connection with the
transactions contemplated by this Amendment and all documents and
instruments incident to such transactions shall be satisfactory to you and
your special counsel, and you and your special counsel shall have received
all such counterpart originals or certified or other copies of such
documents as you or they may reasonably request.
6. Covenants
(a) Cumulative Recourse Offered Preferred Shares. The Company agrees
within 5 Business Days after the closing date of the Public Offering to (a)
prepay the Loan under the Subordinated Loan Agreement in full pursuant to
Section 2.03 of the Subordinated Loan Agreement and (b) in connection with such
repayment, effect under the Trust Agreement an Unscheduled Redemption of all
issued and outstanding Preferred Securities.
(b) Payment of Fees. Without limiting the provisions of Section 15.1 of
the Agreement, the Company or the New Company shall pay the fees, charges and
disbursements of your special counsel to the extent reflected in a statement or
statements of such counsel rendered to the Company, within 30 days of receipt of
such statements.
(c) Modification Fee. The Company or the New Company shall pay you
promptly after your execution of this Amendment a modification fee in the amount
of 0.1% of the aggregate principal amount of the Notes held by you.
7. Miscellaneous.
(a) Counterparts. This Amendment may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
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(b) Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of California without reference to
conflicts of law rules.
(c) Headings. Heading in this Amendment are for convenience of reference
only and are not part of the substance hereof.
(d) Equity in CoBank. Pursuant to the CoBank Agreement and the Bylaws of
CoBank, the Company has equity in CoBank, and has granted CoBank a statutory
first lien on all such equity. You hereby waive all defaults arising as a result
of the grant of such first lien and the ownership of such equity in CoBank.
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If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
DIAMOND WALNUT GROWERS, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: VP Finance - Controller
The foregoing is hereby agreed to as of the date hereof.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Director
PRU & CO.
By Prudential Investment Management, Inc.,
a general partner
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Vice President
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SCHEDULE A
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
PRU & CO.
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