Last June, after Pennexx defaulted on its credit agreementstotaling $11.9 million with Smithfield, Smithfield foreclosed onPennexx's assets and took over operations, changing the name toShowcase Foods. In a fourth-quarter 2003 earnings report,Smithfield said it would close the money-losing operation. It alsoreported that it had taken a $2-million pre-tax charge to writedown the value of Showcase assets and expects additional relatedcharges of between $6 million and $8 million during the first halfof this year.

Meanwhile, shareholders have leveled a class-action securitieslawsuit against Pennexx, Smithfield and former Pennexx directors.In response, Pennexx has filed a lawsuit seeking $226 million indamages in a cross claim against Smithfield. The suit alleges,according to a statement from Pennexx, "that Smithfield misdesignedthe plant which caused financial losses for Pennexx. As a result,Pennexx defaulted on its credit facility with Smithfield."

The federal court here ordered that the case will enter in thecivil trial pool on Nov. 1, and the final pre-trial conference willbe held Nov. 4 with all parties to be ready for trial on that date.Smithfield said in a statement, "We believe the Pennexx suit iscompletely without merit, and we intend to vigorously defendit."