Exhibit
10.2


 


EXECUTION COPY


 


AGRILINK FOODS, INC.


90 Linden Oaks


Rochester, NY 14625


 


August 19, 2002


 


Pro-Fac Cooperative, Inc.


90 Linden Oaks


Rochester, NY 14625


 


Ladies and Gentlemen:


 


This
letter agreement (this “Agreement”) is entered into in connection with the
termination of the Marketing and Facilitation Agreement dated as of November 3,
1994, (the “MFA”), by and between Pro-Fac Cooperative, Inc. (“Pro-Fac”) and
Curtice-Burns Foods, Inc., predecessor in interest to Agrilink Foods, Inc.
(“Agrilink”). The MFA is the latest in the series of substantially similar
agreements dating back to 1961 which evidence the symbiotic relationship
between Pro-Fac and Agrilink. The members and patrons of Pro-Fac are active
growers who have joined together in their cooperative to market their crops at
a fair price and to try to achieve as much stability and continuity as is
possible in agriculture. While Pro-Fac and its members and patrons have
considerable expertise in the growing of crops, they do not have such expertise
in the processing and sale of the crops in the form of commercially viable
processed food products. Agrilink has long been engaged in the processing,
distribution and sale of processed foods on a diversified geographical basis,
but it lacks expertise in the farming and growing of the crops on which it
depends for a reliable and long term source of supply for its products. Pro-Fac
and Agrilink came together because of the need of Pro-Fac to find a stable
market for crops grown by its members and patrons and because of the need of
Agrilink for a reliable supply of such crops. While Agrilink has always
believed that it has available to it adequate funds to finance its non-Pro-Fac
related operations, in order to process and market Pro-Fac products Agrilink has
required significant additional sources of financing in the form of working
capital and facilities necessary to give it the capacity to provide a reliable
and stable market for Pro-Fac crops. Consequently, the willingness of Agrilink
to enter into its relationship with Pro-Fac has always depended upon the
commitment of Pro-Fac to provide financial support and other accommodations to
Agrilink from a variety of sources not directly available to Agrilink. Pro-Fac
has always provided such accommodations in order to achieve its primary
objective of a guaranteed and stable market for crops grown by its members and
patrons. As most recently reflected in the MFA, those accommodations have
included the guarantee by Pro-Fac of all indebtedness for borrowed funds of
Agrilink, the making available by Pro-Fac to Agrilink of access to the Federal
Farm Credit System for borrowing of funds, the long term commitment of Pro-Fac
to provide Agrilink with a stable and reliable source of high quality crops
that provide the essential basis for the operation and utilization of
facilities of Agrilink in which Pro-Fac products are processed, favorable
extended payment terms for crops of Pro-Fac’s members, the acceptance by
Pro-Fac of the risk of losses by Agrilink on the sale of Pro-Fac products, and
the commitment of Pro-Fac to provide loans to Agrilink for use as working
capital of funds of Pro-Fac not needed by Pro-Fac for its own business
purposes. In exchange, Agrilink has paid Pro-Fac the commercial market value of
its crops plus an additional payment based on Agrilink’s earnings from the
marketing of Pro-Fac products. The parties hereto acknowledge that


 

















 


all income, gains, and losses
earned by Pro-Fac under the MFA have been reported as patronage sourced income
pursuant to Subchapter T of the Internal Revenue Code, and that
characterization has been supported by longstanding rulings from the Internal
Revenue Service. Since the termination fee provided for in Paragraph 1 below is
being paid to Pro-Fac in full and arms length consideration for the cessation
of its rights to earn patronage income under the MFA, it is by necessity
Pro-Fac’s intent to treat such termination fee as patronage income and include
it in its patronage dividends to its member/growers.


 


1.             Termination Fee.
Subject to the terms of Paragraph 4 below, as  consideration to Pro-Fac for
terminating its rights under the MFA,  Agrilink will pay to Pro-Fac
an amount equal to $10,000,000 per year for  the five (5) consecutive
years following the date of this Agreement (the  “Termination Date”). Such
amount shall be paid in quarterly installments  as follows: $4,000,000 on
each July 1st, and $2,000,000 on each October  1st, January 1st and April 1st,
wired to an account designated by Pro-Fac  not less than 30 days prior
to the due date for each such payment, until  an aggregate amount of
$50,000,000 has been paid or until a Prepayment is  made pursuant to Paragraph 2
below. It is the parties intention that the  first payment hereunder be
made as of the Termination Date in the amount  of $4,000,000 (subject to the
provisions of Paragraph 4 below), with the  next payment to be made on October 1,
2002 and quarterly thereafter until  all payments required
hereunder have been made. In the event that payment  of the amounts under this
Paragraph 1 are prohibited because of the  existence of a default, that
is neither waived nor cured, under the terms  of any Third Party
Indebtedness of Agrilink and/or any of its subsidiaries  having a
principal amount in excess of $20,000,000, the payments due  hereunder will
be deferred until permitted by the applicable instruments  evidencing such
indebtedness and will then be made to the fullest extent  permitted.
During the period of any such deferral, the portion of the  payments so
deferred shall bear interest at the rate of 10% per annum  compounded
annually. Notwithstanding the preceding provisions of this  Paragraph 1,
Agrilink’s obligation to make any payment due during a fiscal  year shall be
conditioned upon Pro-Fac, as of the time such payment is  due, having
maintained grower membership such that it would be capable  (based on the
commitments of its growers) of delivering to Agrilink in the  twelve months
following the due date for such payment at least 75% of the  aggregate volume
of crops that it delivered to Agrilink pursuant to the  MFA during the
corresponding twelve month period most recently ended prior  to the date of
this Agreement; provided, that Pro-Fac shall be deemed to  have satisfied
such condition if Pro-Fac’s inability to achieve the  foregoing delivery capacity
in any given year is due primarily to  Agrilink’s reduced
requirements for crops in that or a previous year that  has caused a
reduction in Pro-Fac membership; provided, that,  notwithstanding the foregoing
proviso, to the extent that Agrilink’s  requirements increase
subsequent to a reduction, Pro-Fac shall not be  deemed to have satisfied such
condition unless it will have used its  commercially reasonable
efforts to restore membership. “Third Party  Indebtedness” means, for
purposes of this Paragraph 1, (i) indebtedness  under any credit facility
provided by a bank or other financial  institution, (ii) indebtedness
for borrowed money under any bond or note  indenture and notes issued
pursuant thereto, (iii) indebtedness under any  financing facility, note or
other evidence of indebtedness (as determined  in accordance with generally
accepted accounting principles) provided by  or issued to a financial
institution in connection with a borrowing or  other financing transaction,
and (iv) any refinancing of the foregoing.  


 


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2.             Defeasance Prepayment and Mandatory Prepayment.


 


(a)     At any time while amounts
remain outstanding under this Agreement,  Agrilink may satisfy all or
any portion of its obligation hereunder  by making a lump-sum payment
(a “Defeasance Prepayment”) by means of  deposit to an escrow account
maintained by an escrow agent selected  by Agrilink and reasonably
acceptable to Pro-Fac. The escrow agent  shall hold such lump-sum
payment in escrow, subject to the  provisions of Paragraph 1
above, until any portion thereof would  have been paid pursuant to
the terms and conditions of this  Agreement, at which time the
escrow agent shall pay such amounts to  Pro-Fac; provided, that all
amounts remaining in escrow, if any,  after all payments due to
Pro-Fac hereunder have been paid, shall be  paid to Agrilink. In the
event of a Defeasance Prepayment, the  amount required to satisfy
the portion of Agrilink’s obligation  hereunder being prepaid shall
be sufficient to enable the escrow  agent to pay the portion of
the obligations being prepaid, without  any discount, when due,
assuming all such quarterly payments that  are being prepaid will in
fact become payable according to the terms  hereof. Any amount paid
pursuant to this Paragraph 2(a) shall reduce  future payments under
Paragraph 1, in the order that such payments  would otherwise be made.


 


(b)     In the event of a Change of
Control at any time when any amount  remains to be paid pursuant
to Paragraph 1 above, Agrilink must  satisfy all of its obligation
hereunder by making a lump-sum payment  (a “Mandatory Prepayment”,
and collectively with a Defeasance  Prepayment referred to herein
as a “Prepayment”) to Pro-Fac equal to  an amount calculated by
applying a discount factor of 10% per annum,  on a quarterly basis, to the
amount required to satisfy all  remaining payments to be made
pursuant to Paragraph 1 above,  assuming all such quarterly
payments that are being prepaid will in  fact become payable according
to the terms hereof. Agrilink shall  have no further obligation to
Pro-Fac hereunder after the Mandatory  Prepayment has been made. “Change
of Control” means, for purposes of  this Paragraph 2(b), any
transaction or series of transactions,  including any sale, transfer
or issuance by securities sale, merger,  consolidation,
recapitalization or otherwise, that results, directly  or indirectly,
in (i) a transfer of all or substantially all of the  assets of
Agrilink, or (ii) Vestar Capital Partners IV, L.P. and its  affiliates
ceasing to possess, directly or indirectly, the power to  elect a majority
of Agrilink Holdings, Inc.’s board of directors.  


 


3.             Prohibited
Payments. Until the entire amount due hereunder is paid in  accordance with
Paragraph 1 or 2 above, Agrilink shall not make payments  to Agrilink
Holdings, LLC (“Holdings LLC”), Agrilink Holdings, Inc. nor to  Vestar/Agrilink
Holdings LLC (“Vestar”) if such funds will be used  directly or indirectly to
redeem, acquire or make distributions or  payments with respect to any
Vestar Securities. “Vestar Securities” means  equity securities of Holdings
LLC originally issued to Vestar or any of  its affiliates pursuant to
the Unit Purchase Agreement (“the UPA”), dated  as of June 20, 2002,
among Vestar, Pro-Fac and Agrilink.(1)


 


4.             Payment Adjustments.
Notwithstanding the provisions of Paragraph 1 above,  the payments to be made to
Pro-Fac pursuant to Paragraph 1 (or Paragraph  2, if applicable) will be
reduced, in the order in which such payments are  otherwise scheduled to be
made, to the extent that either                              


 


(1)           In the event
that the LLC structure is implemented, this provision will not prohibit tax
distributions to any member of any constituent entity.


 


3

















 


(i) following
February 28, 2002 and prior to the Closing, Agrilink has  made or makes
payments to Pro-Fac that are not contemplated by the Eight  Plus Four Plan
(as defined in the UPA), other than for crops purchased by  Agrilink in the
ordinary course of business pursuant to and in accordance  with the MFA,
other than payments under Section 14 thereof (“Crop Purchase  Payments”), or (ii) following
June 29, 2002 and on or prior to the  Termination Date, Agrilink
makes any payment to Pro-Fac other than (a)  Crop Purchase Payments or (b) to
fund a patronage dividend payment by  Pro-Fac to its members in an
amount not to exceed the Permitted Patronage  Amount (as defined in the
UPA).


 


5.             Miscellaneous.


 


(a)     Assignment. Agrilink shall
have the right to assign this Agreement  in whole or in part in
connection with the sale or other disposition  of all or any part of its
business. This Agreement may not be  assigned by Pro-Fac without
the prior written consent of Agrilink,  and any attempted assignment
without such consent shall be void.


 


(b)     Counterpart Execution. This
Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, with the same effect as if all parties
hereto had signed the same document. All counterparts so executed shall be deemed
to be an original, shall be construed together and shall constitute one
Agreement.


 


(c)     No Strict Construction. The
parties hereto have participated jointly  in the negotiation and
drafting of this letter agreement. In the  event an ambiguity interpretation
arises, this letter agreement  shall be construed as if
drafted jointly by the parties hereto, and  no presumption or burden of
proof shall arise favoring or  disfavoring any party hereto
by virtue of the authorship of any of  the provisions of this letter
agreement.


 


(d)     Governing Law; Waiver of Jury
Trial. THIS AGREEMENT SHALL BE  GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REFERENCE TO  CONFLICTS OR CHOICE OF LAWS
PRINCIPLES OF THE STATE OF NEW YORK OR  OF ANY OTHER JURISDICTION
THAT WOULD RESULT IN THE APPLICATION OF  ANY LAWS OTHER THAN THOSE OF
THE STATE OF NEW YORK. VENUE FOR ALL  PROCEEDINGS UNDER THIS
AGREEMENT SHALL BE ROCHESTER, NEW YORK. EACH  PARTY, TO THE FULLEST EXTENT
PERMITTED BY LAW, HEREBY WAIVES TRIAL  BY JURY OF ANY MATTER RELATED
TO THIS AGREEMENT OR THE TRANSACTIONS  CONTEMPLATED HEREBY.


 


(e)     Notices. All notices,
requests, demands or other communications  required or permitted under
this Agreement shall be given in writing  and shall be deemed to have
been given upon delivery if delivered  personally, upon receipt by
the sender of a confirmation of receipt  by the receiving party if
sent by facsimile, one day following  dispatch if sent by overnight
courier, fees prepaid, or five days  following mailing, postage
prepaid, as follows:


 


4

















 


If
to Pro-Fac:


 


Pro-Fac
Cooperative, Inc.


90
Linden Oaks


Rochester,
NY 14625


Attn:  Bruce Fox, Chairman


Facsimile:
(231) 861-4884


 


with
a copy (which shall not constitute notice to Pro-Fac) to:


Harris
Beach LLP


99
Garnsey Road


Pittsford,
NY 14534


Attn:
Thomas E. Willett, Esq.


Facsimile:
(585) 419-8818


 


If
to Agrilink:


 


Agrilink
Foods, Inc.


90
Linden Oaks


Rochester,
NY 14625


Attn:
Dennis M. Mullen


Facsimile:
(585) 383-1606


 


With
copies (which shall not constitute notice to Agrilink) to:


Vestar
Capital Partners IV, L.P.


245
Park Avenue, 41st Floor


New
York, NY 10167-4098


Attn:
David Hooper and General Counsel


Facsimile:
(212) 808-4922


 


and


 


Kirkland &
Ellis


153
East 53rd Street


New
York, NY 10022


Attn:
Michael Movsovich


Facsimile:
(212) 446-4900


 


* * * *


 


5

















 


Please
sign the enclosed copy of this Agreement in the place provided below
acknowledging receipt of this Agreement and confirming that this Agreement
reflects your understanding.


 


	
   

  	
  Very Truly Yours,

  
	
   

  	
  AGRILINK FOODS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ David M. Mehalick

  
	
   

  	
   

  	
  Name: 

  	
  David M. Mehalick

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  



 


Accepted and agreed to as of this
19th day of August, 2002


 


PRO-FAC COOPERATIVE, INC.


 


 


	
  By: 

  	
  /s/ Stephen Wright

  	
   

  
	
   

  	
  Name: 

  	
  Stephen Wright

  	
   

  
	
   

  	
  Title:

  	
  General Manager and
  Secretary