SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from
_____________ To _____________
Commission File Numbers 333-23893; 333-23893-01; 333-23893-02; 333-23893-03
--------------------------------------
<TABLE>
<CAPTION>
CFP HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<S> <C> <C>
Delaware 2013 95-4413619
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
CFP GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 2013 95-4616486
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
CUSTOM FOOD PRODUCTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
California 2013 95-3760291
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
QF ACQUISITION CORP.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 2013 22-3174301
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
------------------------------------
1117 West Olympic Blvd.
Montebello, CA 90640
(Address, Including Zip Code of Registrant's Principal Executive Offices)
800-423-3903
(Registrant's telephone number, including area code)
------------------------------------
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 (or for shorter period that the registrant was required
to file such reports),
and (2) has been subject to filing requirements for the past 90 days.
[x] YES [ ] NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1998
----- -------------------------------
Voting Common Stock - Class A, $.01 par value 14,705
Non-voting common Stock - Class A, $.01
par value 11,241
Non-voting common Stock - Class B $.01
par value 3,059
<PAGE>
CFP Group, Inc. and Subsidiaries
FORM 10-Q
INDEX
Part I. Financial Information Page #
Item 1. Financial Statements
Consolidated Balance Sheets - 1
March 31, 1998 and September 30, 1998
Consolidated Statements of Operations - 2
Three months and six months ended September 30,
1998 & 1997
Consolidated Statements of Cash Flows - 3
Three months and six months ended September 30,
1998 and 1997
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and 7
Analysis of
Financial Condition and Results of Operations
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures
Exhibit Index
<PAGE>
<TABLE>
Part I Financial Information
Item 1. Financial Statements
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<CAPTION>
March 31, September 30,
1998 1998
---------------- -----------------
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,344 $ 2,647
Accounts receivable, net of allowance for doubtful accounts of $115,000
and $188,000 at March 31, 1998 and September 30, 1998, respectively 12,007 10,577
Inventories 15,718 18,535
Prepaid expenses and other current assets 890 1,115
---------------- -----------------
Total current assets 29,959 32,874
Property and equipment, net 27,004 28,427
Costs in excess of net assets acquired, net 68,608 66,902
Intangible and other assets, net 7,508 7,198
---------------- -----------------
Total $ 133,079 $ 135,401
================ =================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 2,232 $ 734
Accounts payable 6,816 7,575
Accrued expenses and other current liabilities 5,404 5,359
---------------- ------------------
Total current liabilities 14,452 13,668
---------------- ------------------
Long term debt 141,267 146,828
---------------- ------------------
Commitments and contingencies
Redeemable common stock 2,319 2,319
---------------- ------------------
Stockholders' deficiency:
Preferred stock, $.01 par value; 6,472 shares authorized, none issued and
outstanding
Voting common stock - Class A, $.01 par value; 100,000 shares authorized,
14,705 shares issued and outstanding 3,196 3,196
Nonvoting common stock - Class A, $.01 par value; 25,000 shares
authorized, 11,241 (inclusive of 3,011 shares classified as redeemable
common stock) shares issued and outstanding 2,204 2,204
Nonvoting common stock - Class B, $.01 par value; 25,000 shares
authorized, 3,059 shares (inclusive of 2,162 shares classified as redeemable
common stock) issued and outstanding 623 623
Stockholders' notes receivable (203) (203)
Accumulated deficit (30,779) (33,234)
---------------- ------------------
Total stockholders' deficiency (24,959) (27,414)
---------------- ------------------
Total $ 133,079 $ 135,401
================ ==================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
1997 1998 1997 1998
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Sales $ 46,593 $ 45,070 $ 91,348 $ 89,346
Cost of Sales 38,505 35,962 75,788 72,065
-------------- --------------- -------------- --------------
Gross Profit 8,088 9,108 15,560 17,281
Selling, general and administrative expenses 4,160 4,834 8,286 9,550
Terminated transaction related costs 256
-------------- --------------- -------------- --------------
Income from operations 3,928 4,274 7,274 7,475
Interest expense 4,412 4,353 8,562 8,696
-------------- --------------- -------------- --------------
Loss before income taxes and extraordinary item (484) (79) (1,288) (1,221)
Provision for income taxes 181 231
-------------- --------------- -------------- --------------
Net loss before extraordinary item (484) (260) (1,288) (1,452)
Extraordinary loss on early extinguishment of debt 1,003
-------------- --------------- -------------- --------------
Net loss $ (484) $ (260) $ (1,288) $ (2,455)
============== =============== ============== ==============
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
CFP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (484) $ (260) $ (1,288) $ (2,455)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 1,634 1,622 3,273 3,206
Amortization of deferred financing costs and original
issue discount 310 298 618 598
Deferred Income Taxes 15 15
Extraordinary loss on early extinguishment of debt 1,003
Changes in assets and liabilities:
Accounts receivable (1,462) 528 (1,501) 1,431
Inventories (6,291) (1,583) (9,204) (2,737)
Prepaid expenses and other current liabilities (1,029) 148 (610) (108)
Income taxes receivable/payable 38 88
Accounts payable 1,528 1,160 3,448 759
Accrued expenses and other current liabilities (3,223) (2,914) 488 (132)
---------- ---------- ---------- ----------
Net cash (used in) provided by operating activities (9,002) (963) (4,761) 1,653
---------- ---------- ---------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (1,991) (1,858) (2,604) (3,003)
Proceeds from sale of equipment 1,137 1,137
Other assets (258) (776) (503) (819)
---------- ---------- ---------- ----------
Net cash used in investing activities (1,112) (2,634) (1,970) (3,822)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Borrowings under revolving loan facility 10,500 7,654 10,500 8,773
Repayment of revolving loan facilities (5,000) (2,500) (5,500) (4,500)
Proceeds from issuance of long term-debt 992 992 14,127
Repayment of long-term debt and capitalized lease obligations (676) (161) (820) (14,338)
Deferred financing costs (6) (81) (8) (590)
Proceeds from sale of common stock 15 15
Collection of shareholder notes receivable 1 1
Purchase of common stock (63) (63)
---------- ---------- ---------- ----------
Net cash provided by financing activities 5,763 4,912 5,117 3,472
---------- ---------- ---------- ----------
Net (decrease) increase in cash (4,351) 1,315 (1,614) 1,303
Cash, beginning of period 4,876 1,332 2,139 1,344
---------- ---------- ---------- ----------
Cash, end of period $ 525 $ 2,647 $ 525 $ 2,647
========== ========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,760 $ 7,064 $ 7,372 $ 7,964
Income taxes $ 41 $ 131 $ 41 $ 131
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
CFP GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of CFP Group,
Inc. and its wholly-owned subsidiaries (the "Company") have been prepared in
accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the period are not
necessarily indicative of the results that may be expected for the full fiscal
year. The accompanying financial statements include the results of CFP Group,
Inc. ("CFP Group") and its wholly-owned subsidiary CFP Holdings, Inc. ("CFP
Holdings"), and CFP Holdings' wholly-owned subsidiaries Custom Food Products,
Inc. ("Custom Foods") and QF Acquisition Corp. ("Quality Foods"). The
consolidated financial statements as presented herein should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998.
The Company's fiscal year is the 52 or 53 week period ending on the
Saturday nearest to March 31. The Company's three month periods ended on the
Saturday nearest September 30, 1998 and 1997 were 13 weeks in duration. The
Company's six month periods ended on the Saturday nearest September 30, 1998 and
1997 were 26 weeks in duration. For simplicity of presentation, the Company has
described the interim periods and year end period herein as ending on September
30 and March 31 respectively.
NOTE 2: NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 131, "Disclosure about Segments of an Enterprise and
Related Information" ("SFAS 131"), which requires disclosure of certain
information about operating segments, geographic areas in which the Company
operates, major customers, and products and services. The Company will evaluate
the effect that this new standard has on the Company's financial statement
presentation, and the required information will be reflected in the financial
statements for the year ended March 31, 1999.
NOTE 3: LOAN AND SECURITY AGREEMENT
On May 5, 1998, the Company entered into a $40.0 million loan and security
agreement (the "Loan and Security Agreement") with a financial institution
providing for revolving credit loans (the "Revolver") and term loan and
equipment loan options. Maximum borrowings under the Revolver cannot exceed
$40.0 million, subject to a borrowing base and other limitations including
amounts outstanding under the term loans, letters of credit and other borrowing
instruments under the Loan and Security Agreement. Borrowings under the Loan and
Security
4
<PAGE>
Agreement bear interest at varying rates as disclosed in Note 5. All amounts
outstanding under the Loan and Security Agreement become due and payable in May
2002.
Loans under the Loan and Security Agreement are secured by substantially
all of the Company's assets, including a pledge of all the stock of Quality
Foods and Custom Foods, are guaranteed by the Company's subsidiaries, which
guarantees are secured by substantially all of the assets of the Company's
subsidiaries, and are further secured by a pledge of all the stock of CFP
Holdings, Inc. The Loan and Security Agreement and the indenture contain
numerous restrictive covenants, which limit the discretion of the management of
the Company with respect to certain business matters. These covenants place
significant restrictions on, among other things, the ability of the Company to
incur additional indebtedness, to create liens or other encumbrances, to pay
dividends or make other restricted payments, to make investments, to make
capital expenditures, loans and guarantees and to sell or otherwise dispose of a
substantial portion of assets to, or merge or consolidate with, another entity.
5
<PAGE>
NOTE 4: INVENTORIES
Inventories consisted of the following:
March 31, September 30,
30,00000000
1998 1998
------------------ ------------------
Raw materials $ 5,655 $ 5,505
Work-in-process 3,470 6,095
Finished goods 6,593 6,935
------------------ ------------------
Total $ 15,718 $ 18,535
================== ==================
<TABLE>
NOTE 5: LONG-TERM OBLIGATIONS
<CAPTION>
March 31, Sept 30,
1998 1998
-------------- --------------
<S> <C> <C>
Long-term obligations consisted of the following:
Senior notes payable, interest at 115/8% payable semiannually, principal due
January 2004. $ 115,000 $ 115,000
Term note payable to a bank, interest at a reference rate (8.5% at March 31, 1998)
plus 2% or Eurodollar rate (5.7% at March 31, 1998) plus 3% payable
semiannually, principal payable quarterly at $1.0 million increasing to $2.2
million with the remaining balance due in June 2002. 9,000
Term note payable to a financial institution, interest at a reference rate (8.25% at
September 30, 1998) or Eurodollar rate (5.8% at September 30, 1998) plus
2.25%, entire principal balance due in May 2002. 10,000
Revolving loan payable to a bank, interest at a reference rate (8.5% at March 31,
1998) plus 1.25% or Eurodollar rate (5.7% at March 31, 1998) plus 2.5% payable
quarterly, expires June 2002. 5,000
Revolving loan payable to a financial institution, interest at a reference rate (8.25%
at September 30, 1998) or Eurodollar rate (5.8% at September 30, 1998) plus
2.25% , expires May 2002. 8,400
Debt assumed in connection with the acquisition of Quality Foods:
Revenue bond payable to a government financing authority, interest at a
reference rate (5.8% at September 30, 1998) not to exceed 18% payable
monthly, principal payable annually at $100,000 increasing to $400,000
through December 2014. 4,200 4,200
Notes Payable to a government agency, interest at 2%, payable with principal
monthly through April 2012, collateralized in a second position on the
Company's Philadelphia facility. 1,955 1,854
Note payable to a government agency, interest at 0.5% payable monthly
beginning April 1999 through October 2005, principal and interest payable in
equal monthly installments from November 2005 through April 2010,
collateralized in a shared third position on the Company's Philadelphia facility. 1,000 1,000
Notes payable to a government agency, interest at 5.25% payable monthly with
principal through February 2012, collateralized in a shared third position on the
Company's Philadelphia facility. 710 696
Capital lease obligations payable in varying monthly installments through 2021,
collateralized by buildings and equipment with a net book value of $6,317,000
and $6,052,000, at March 31, 1998, and September 30, 1998 respectively. 6,634 6,412
-------------- --------------
Total 143,499 147,562
Less current portion (2,232) (734)
-------------- --------------
Long-term debt $ 141,267 $ 146,828
============== ==============
</TABLE>
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying consolidated
financial statements.
Results of Operations
Three months ended September 30, 1998 compared to three months ended September
30, 1997.
Net Sales. Net sales decreased by 3% to $45.1 million for the quarter
ended September 30, 1998 from $46.6 million for the quarter ended September 30,
1997. Total pounds sold by the company decreased by 4% to 26.2 million pounds
for the quarter ended September 30, 1998 from 27.4 million pounds for the
quarter ended September 30, 1997. The small quarterly decrease in net sales was
caused primarily by: 1) A decrease in non- value-added product sales due to the
Company's strategic decision to stop selling certain low margin products and 2)
A slight decrease in value-added product sales as sales to one of the Company's
largest customers, which have stabilized at a volume level that is comparable to
that of the two previous quarters, were substantially offset by sales to other
value-added product customers. The net sales price increased to $1.72 per pound
from $1.70 per pound primarily as a result of sales mix variations.
Gross Profit. Gross profit increased to $9.1 million for the quarter
ended September 30, 1998 from $8.1 million for the quarter ended September 30,
1997. This $1.0 million increase was primarily due to efficiencies in operations
as well as favorable raw material prices. The gross margin increased to 20.2%
for the quarter ended September 30, 1998 from 17.4% for the quarter ended
September 30, 1997 for the same reasons.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $4.8 million for the quarter ended
September 30, 1998 from $4.2 million for the quarter ended September 30, 1997,
primarily due to strategic staffing additions.
Income from Operations. As a result of the foregoing items, income from
operations increased to $4.3 million for the quarter ended September 30, 1998
from $3.9 million for the quarter ended September 30, 1997.
Interest Expense. Interest expense was flat at $4.4 million for the
quarter ended September 30, 1998 when compared to the quarter ended September
30, 1997.
Provision for Income Taxes. The provision for income taxes increased to
$181,000 for the quarter ended
7
<PAGE>
September 30, 1998 from zero for the quarter ended September 30, 1997, to
provide for various state income taxes. For the quarter ended September 30, 1998
the expected income tax benefit based on the statutory rate was reduced to zero
because the company provided a valuation allowance related to its net operating
loss carry forward.
Net Loss. A net loss of $260,000 was incurred for the quarter ended
September 30, 1998 versus a net loss of $484,000 for the quarter ended September
30, 1997 due to the net impact of the foregoing items.
Six months ended September 30, 1998 compared to six months ended September 30,
1997.
Net Sales. Net sales decreased by 2% to $89.3 million for the period
ended September 30, 1998 from $91.3 million for the period ended September 30,
1997. Total pounds sold by the company decreased by 3% to 51.8 million pounds
for the period ended September 30, 1998 from 53.4 million pounds for the period
ended September 30, 1997. The small decrease in net sales was primarily due to a
decrease in non-value-added product sales due to the Company's strategic
decision to stop selling certain low margin products. The net sales price
increased to $1.73 per pound from $1.71 per pound primarily as a result of sales
mix variations.
Gross Profit. Gross profit increased to $17.3 million for the period
ended September 30, 1998 from $15.6 million for the period ended September 30,
1997. This $1.7 million increase was primarily due to efficiencies in operations
as well as favorable raw material prices. The gross margin increased to 19.3%
for the period ended September 30, 1998 from 17.0% for the quarter ended
September 30, 1997 for the same reasons.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $9.6 million for the period ended September
30, 1998 from $8.3 million for the period ended September 30, 1997, primarily
due to strategic staffing additions.
Terminated Transaction Related Costs. In the period ended September 30,
1998, the Company expensed $256,000 in transaction costs associated with a
potential acquisition which has been terminated.
Income from Operations. As a result of the foregoing items, income from
operations increased to $7.5 million for the period ended September 30, 1998
from $7.3 million for the period ended September 30, 1997.
Interest Expense. Interest expense was up slightly at $8.7 million for
the period ended September 30, 1998 when compared to $8.6 million for the period
ended September 30, 1997.
Provision for Income Taxes. The provision for income taxes increased to
8
<PAGE>
$231,000 for the period ended September 30, 1998 from zero for the period ended
September 30, 1997, to provide for various state income taxes. For the period
ended September 30, 1998 the expected income tax benefit based on the statutory
rate was reduced to zero because the company provided a valuation allowance
related to its net operating loss carry forward.
Extraordinary Loss. The Company used proceeds from new borrowings under
the Loan and Security Agreement to repay all amounts outstanding under its prior
credit agreement. In connection with these repayments, an extraordinary loss on
the extinguishment of debt of approximately one million dollars was recorded.
This amount principally consisted of unamortized deferred financing costs.
Net Loss. A net loss of $2.5 million was incurred for the period ended
September 30, 1998 versus a net loss of $1.3 million for the period ended
September 30, 1997 due to the net impact of the foregoing items.
Year 2000 Issue
Introduction: The term "year 2000 issue" is a general term used to
describe the various problems that may result from the improper processing of
dates and date sensitive calculations by computers and other machinery as the
year 2000 is approached and reached. These problems generally arise in cases
where computer systems or any equipment with computer chips use two-digit fields
that recognize dates using the assumption that the first two digits are "19". On
January 1, 2000, any clock or date recording mechanism including date sensitive
software that uses only two digits to represent the year may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations, causing disruption of operations, including
among other things a temporary inability to process transactions, send invoices
or engage in similar activities.
State of Readiness: The Company has selected a new Year 2000 compliant
Enterprise Wide System and currently expects to have this new system implemented
by the end of calendar 1999. Further, the Company is currently engaged in a
review of its computer systems and applications, including packaged software
used by the Company, that will not be addressed by the new system. The Company
expects to make any modifications required to resolve year 2000 issues in a
timely manner and leave adequate time to assess and correct any significant
issues that may materialize. These modifications include a plan to upgrade our
current enterprise systems to be Year 2000 compliant by March 1999. The Company
has also initiated formal communications with selected vendors and customers to
determine the extent to which the Company is vulnerable to those third parties'
failure to remediate their own year 2000 issues. The Company can give no
guarantee that the systems of other companies on which the Company's systems
rely will be converted on time or that failure to convert by another company or
a conversion that is incompatible with the Company's systems would not have a
material
9
<PAGE>
adverse effect on the Company. The Company is taking steps to reduce the
likelihood that such failures could affect the Company's systems through any
electronic communications.
Costs to Address the Year 2000 Issue: The Company does not expect that
the review and modifications described above, excluding the cost of implementing
the new system, will require material expenditures. The new system purchase,
installation and training is projected to cost approximately $900,000.
Risks Presented by the Year 2000 Issue: If the Company is unable to
successfully implement the upgrades to its existing systems sufficiently in
advance of the year 2000 or if any other system modifications required to
address the Company's year 2000 issues are not made, or are not timely, the year
2000 issues could have a material adverse impact on the operations and financial
results and conditions of the Company. In addition, if any third parties who
provide goods and services that are critical to the Company's business
activities fail to appropriately address their year 2000 issues, there could be
a material adverse effect on the Company's financial condition and results of
operations.
Contingency Plans: Based on the assessment efforts to date, the Company
does not believe that the Year 2000 issue will have a material adverse effect on
its financial condition or results of operations. The Company will develop
appropriate contingency plans in the event that a significant exposure is
identified.
Liquidity and Financial Resources
The Company's total consolidated indebtedness was $147.6 million at
September 30, 1998. Interest payments on the 11 5/8% Senior Notes and
anticipated interest and principal payments under the Loan and Security
Agreement represent significant obligations of the Company. The 11 5/8% Senior
Notes require semi-annual interest payments of approximately $6.7 million which
commenced in July 1997. Borrowings under the Loan and Security Agreement bear
interest at floating rates. Approximately $5.0 million of the Revolver is
reserved to provide letters of credit supporting the industrial revenue bond
issue with respect to Quality Foods' Philadelphia facility and other
obligations.
The Company's primary sources of liquidity are cash flows from
operations and borrowings under the Revolver. At September 30, 1998
approximately $6.8 million was available to the Company for borrowings under the
Revolver, subject to inventory and accounts receivable levels. The Company
anticipates that its working capital requirements, capital expenditures and debt
service requirements for the next twelve months will be satisfied through a
combination of cash flow from operations and funds available under the Loan and
Security Agreement.
10
<PAGE>
Forward Looking Statements
This report includes "forward looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and section 21E of the Securities
Exchange Act of 1934, as amended. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Company's expectations are detailed periodically in the Company's SEC filings on
Forms 10-K and 10-Q. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements.
11
<PAGE>
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended
September 30, 1998. Reference is made to the Company's Annual
Report on Form 10-K and the exhibits filed therewith. The exhibits
filed as part of this form are listed below:
Exhibit No. Description
- ----------- -----------
10.1 Consulting Agreement dated June 30, 1998
between CFP Holdings, Inc. and Robert D.
Gioia
10.2 CFP Group, Inc. 1998 Stock Option Plan
dated July 15, 1998
27 Financial Data Schedule
12
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
CFP Group, Inc.
CFP Holdings, Inc.
Custom Food Products, Inc.
QF Acquisition Corp.
/s/ Eric W. Ek
------------------------------
November 5, 1998 Eric W. Ek
Senior Vice President,
Chief Financial Officer and
Secretary of CFP Group, Inc.
And CFP Holdings, Inc. and
its subsidiaries
CONSULTING AGREEMENT dated
as of June 30, 1998, between ROBERT D. GIOLA
(the "Consultant") and CFP HOLDINGS, INC., a
Delaware corporation (the "Company").
The Company and the Consultant are parties to an Employment Agreement
(the "Employment Agreement") dated as of December 31, 1996 pursuant to which the
Consultant served as President and Chief Executive Officer of the Company. The
Consultant and the Company have agreed that the Consultant shall no longer be an
employee of the Company and instead the Consultant shall provide certain
consulting services on the Company's behalf relating to sales and marketing
activities and strategic planning for companies in the food industry. The
Consultant and the Company agree that it is in their respective interests to
enter into a consulting agreement whereby for the consideration specified herein
the Consultant shall provide such services as an independent consultant to the
Company.
ACCORDINGLY, in consideration of the mutual covenants hereinafter set
forth, the Company and the Consultant agree as follows:
1. Retention of Consultant.
The Company retains the Consultant, and the Consultant accepts such
retention, upon the terms and conditions set forth in this agreement.
2. Term
This Agreement shall commence on the date hereof (the "Commencement Date")
and shall continue until December 31, 2001 (the "Scheduled Termination Date"),
unless sooner terminated as provided herein (the "Consulting Period").
3. Duties of Consultant.
(a) During the Consulting Period, the Consultant shall provide the
Company and its present and future affiliates, including, without limitation,
First Atlantic Capital, Ltd., with consulting services relating to the food
business and other related matters as may reasonably be requested of him by the
Board of Directors of the Company (the "Board") or its designees.
(b) During the Consulting Period, the Consultant shall devote such
time, attention and energies to his duties hereunder as shall be reasonably
necessary to provide the service set forth herein; provided, however, the
Consultant shall not be obligated to devote in excess of one third of his
business time to providing consulting services hereunder.
(c) During the Consulting Period, the Company shall use its best
efforts to ensure that the Consultant shall be a member of the Board as well as
the Board of Directors of CFP Group, Inc., Custom Food Products, Inc. and QF
Acquisition Corp. In addition, if mutually agreed, the Consultant shall serve as
a member of the Board of Directors of County Pure Foods, Inc. and such other
boards of directors as shall reasonably be requested. The Consultant shall
<PAGE>
use his best efforts to attend the meetings held by the Board and such other
boards of directors on which he shall be requested to serve as provided herein.
(d) The Consultant shall perform all such services as an independent
contractor to the Company. The Consultant hereby acknowledges that he is not an
employee, agent or representative of the Company and, accordingly, has no
authority to act for or to bind the Company without its express prior written
consent.
(e) Nothing contained in this Agreement shall obligate the Consultant
to relocate to a location other than the metropolitan Buffalo, New York area.
The parties acknowledge that the discharge of the Consultant's duties hereunder
will require the Consultant to travel as necessary to the facilities of the
Company and its affiliates and that a substantial portion of his duties will
require the Consultant to be present at the facilities of the Company and its
affiliates. The Consultant may from time to time also be required to travel to
other locations to carry out the business of the Company and perform his duties
hereunder. The Consultant shall be provided, at the expense of the Company or
one of its affiliates, with an office at the facilities of the Company located
at 5501 Tabor Road, Philadelphia, Pennsylvania. Subject to the foregoing and to
the extent consistent with the proper discharge of his duties hereunder, the
Consultant may perform his duties from Buffalo, New York and the Company (or any
of its affiliates) shall provide the Consultant with an office in Buffalo, New
York (not to exceed a cost per month of $750).
4. Compensation: Reimbursement
(a) The Company (or at the Company's option, any subsidiary or
affiliate thereof) shall pay to the Consultant, during the Consulting Period, a
consulting fee (the ("Consulting Fee") as follows:
(i) Until March 31, 1999, the Consultant shall be entitled to
receive a monthly consulting fee of $27,625 and shall also receive any
annual cash bonus to which the Consultant would have been entitled
pursuant to Section 5(c) of the Employment Agreement in respect of the
fiscal year ending March 31, 1999 had there been no termination of
employment.
(ii) Thereafter, the Consultant shall be entitled to receive a
monthly consulting fee of $10,417, payable in arrears on the last day
of each month, and to no other fee or bonus.
(b) During the Consulting Period, upon presentation by the Consultant
to the Company of appropriate vouchers, the Company shall reimburse the
Consultant, in accordance with the Company's policies from time to time, for all
reasonable and necessary expenses and other direct out-of-pocket disbursements
incurred by the Consultant for or on behalf of the Company in the performance of
his duties hereunder.
(c) During the Consulting Period, the Company shall provide the
Consultant with group health, hospitalization and disability insurance
(collectively, the "Medical Benefits") consistent with such benefits as were
provided to the Consultant immediately prior to execution and delivery of this
Agreement.
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(d) During the Consulting Period, the Company shall reimburse (the
"Premium Reimbursement") the Consultant for premiums (not to exceed $2,500 in
any year) on a current supplemental life insurance policy through Cigna
Insurance Company for a maximum amount of Five Hundred Thousand Dollars
($500,000).
5. Involuntary Termination.
(a) If the Consultant is incapacitated or disabled by accident,
sickness or otherwise so as to render him mentally or physically incapable of
performing the services required to be performed by him under this Agreement
(such condition being herein referred to as a "Disability") for a period of 180
consecutive days or longer, or for an aggregate of 210 days during any 12-month
period, the Company may, at that time or any time thereafter, at its option,
terminate the retention of the Consultant under this Agreement immediately upon
giving him notice to that effect (such termination, as well as a termination
under Section 5(b), being herein referred to as an "Involuntary Termination").
Until the Consultant's retention hereunder shall have been terminated in
accordance with the foregoing, the Consultant shall be entitled to receive his
Consulting Fee notwithstanding any such Disability.
(b) If the Consultant dies during the Consulting Period, his retention
hereunder shall be deemed to cease as of the date of his death.
6. Termination For Cause.
(a) The Company may terminate the retention of the Consultant hereunder
at any time for Cause (such termination being herein referred to as a
"Termination For Cause") immediately upon giving him notice to that effect.
(b) As used in this Agreement, the term "Cause" shall mean any of the
following: (i) any deliberate or intentional act or omission undertaken or
omitted by the Consultant causing damage to the Company or any of its affiliates
or any of their respective properties, assets or business; (ii) any fraud,
misappropriation or embezzlement by the Consultant involving properties, assets
or funds of the Company or any of its affiliates or a conviction of the
Consultant, or pleading nolo contendere by the Consultant, to any crime or
offense involving monies or other property of the Company or any of its
affiliates or any other felony offense for any crime of gross moral turpitude;
(iii) the violation by the Consultant of Section 13, 14 or 15 of the Employment
Agreement, Sections 10 or 11 of this Agreement or the provisions of any other
employment, consulting, non-competition or confidentiality agreement with the
Company or any of its affiliates; (iv) the Consultant's material breach of any
agreement to which he is a party with the Company or any of its affiliates; (v)
any usurpation by the Consultant of a corporate opportunity of the Company or
any of its affiliates; (vi) the Consultant's failure or refusal to perform any
of his material duties, responsibilities or obligations as a consultant to the
Company; provided, however, that any action or omission by the Consultant taken
in good faith and in the reasonable belief that such action or omission was in
the best interests of the Company shall not constitute "Cause".
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7. Termination Without Cause.
The Company may terminate the retention of the Consultant hereunder at any
time without Cause (such termination being herein referred to as a "Termination
Without Cause") by giving the Consultant written notice of such termination,
which notice shall be effective on the date specified in such notice.
8. Voluntary Termination.
The Consultant may terminate his retention hereunder at any time (such
termination being hereunder referred to as "Voluntary Termination") by giving
the Company notice of such termination, such termination to take effect on the
date specified in such notice.
8A. Renewal of Agreement.
On the third anniversary of the Commencement Date, the Company and the
Consultant shall enter into good faith negotiations for the renewal of this
Agreement following the Scheduled Termination Date. If the parties are unable,
within 90 days after commencement of such negotiations, to agree to a renewal of
this Agreement on mutually acceptable terms, the Consultant shall continue to
perform the services required hereunder until the Scheduled Termination Date,
whereupon a Termination for Nonrenewal shall be deemed to have occurred;
provided, however, that a "Termination for Nonrenewal" shall not be deemed to
have occured in the event the Consultant and the Company do in fact renew this
Agreement prior to the Scheduled Termination Date.
9. Effect of Termination.
(a) Upon the termination of the Consultant's retention hereunder due to
an Involuntary Termination occuring after March 31, 1999, a Voluntary
Termination or a Termination For Cause, neither the Consultant nor his
beneficiaries or estate shall have any further rights or claims against the
Company except to receive (i) the unpaid portion, if any, of the Consulting Fee,
computed on a pro rata basis to the date of termination, (ii) any unpaid accrued
Medical Benefits and Premium Reimbursements and (iii) reimbursements for any
expenses for which the Consultant shall not have been reimburesed as provided in
Section 4(b).
(b) Upon the termination of the Consultant's retention hereunder due to
an Involuntary Termination occuring on or prior to March 31, 1999, neither the
Consultant nor his beneficiaries or estate shall have any further rights or
claims against the Company except (i) to receive payments described in Section
9(a) above, (ii) to continue to receive $27,625 per month through March 31,
1999, plus a payment (to be made on March 31, 1999) of $50,000 and (iii) in the
case of an Involuntary Termination due to Disability, to continue to receive
Medical Benefits and Premium Reimbursements through March 31, 1999; provided,
however, that any such rights under clauses (ii) and (iii) of this Section 9(b)
shall be reduced, to the extent the Consultant shall obtain employment
(including retention as a consultant) during the period such payments are
required to be made, by the amount of the compensation and benefits received by
the Consultant in connection with such employment or consulting arrangement;
provided further, however, that such rights under clause (ii) of this Section
9(b) shall only be subject to reduction in the event (and to the extent) such
other employment (or consulting) arrangement requires the
4
<PAGE>
Consultant to devote in excess of two thirds of his business time to providing
services in connection therewith.
(c) Upon the termination of the Consultant's retention hereunder by
reason of a Termination Without Cause, neither the Consultant nor his
beneficiaries or estate shall have any further rights or claims against the
Company except (i) to receive the payments described in Section 9(a) above, (ii)
to continue to receive Medical Benefits and Premium Reimbursements through
December 31, 2001 and (iii) (A) if such Termination Without Cause occurs on or
before March 31, 1999, to continue to receive $27,625 per month through March
31, 1999, plus a payment (to be made on March 31, 1999) of $50,000 and
thereafter, to receive $10,417 per month through December 31, 2001 or (B) if
such Termination Without Cause occurs after March 31, 1999, to receive $10,417
per month through December 31, 2001; provided, however, that any such rights
under clauses (ii) and (iii) of this Section 9(c) shall be reduced, to the
extent the Consultant shall obtain employment (including retention as a
consultant) during the period such payments are required to be made, by the
amount of the compensation and benefits received by the Consultant in connection
with such employment or consulting arrangement; provided further, however, that
such rights under clause (iii) of this Section 9(c) shall only be subject to
reduction in the event (and to the extent) such other employment (or consulting)
arrangement requires the Consultant to devote in excess of two thirds of his
business time to providing services in connection therewith.
(d) Upon the termination of the Consultant's retention hereunder due to
a Termination for Nonrenewal, neither the Consultant nor his beneficiary or
estate shall have any further rights or claims against the Company under his
Agreement except (i) to receive the amounts set forth in Section 9(a) above;
(ii) to continue to receive $10,417 per month for a period of 18 months after
the Scheduled Termination Date; and (iii) to continue to receive Medical
Benefits and Premium Reimbursements for a period of 18 months after the
Scheduled Termination Date; provided, however, that any such rights under
clauses (ii) and (iii) of this Section 9(d) shall be reduced, to the extent the
Consultant shall obtain employment (including retention as a consultant) during
the period such payments are required to be made, by the amount of the
compensation and benefits received by the Consultant in connection with such new
employment or consulting arrangements; provided further, however, that such
rights under clause (ii) of this Section 9(d) shall only by subject to reduction
in the event (and to the extent) such other employment (or consulting)
arrangement requires the Consultant to devote in excess of two thirds of his
business time to providing services in connection therewith.
10. Disclosure of Information.
The Consultant agrees that he will not, at any time during the Consulting
Period or thereafter, disclose to any person, firm, corporation or other
business entity, except as required by law, any non-public information
concerning the business, clients or affairs of the Company or any subsidiary or
affiliate thereof (or any other entity for whom or with respect to which the
Consultant provides consulting services hereunder) for any reason or purpose
whatsoever nor shall the Consultant make use of any of such non-public
information for his own purpose of for the benefit of any person, firm,
corporation or other business entity except the Company or any subsidiary or
affiliate thereof (or such other entity for whom the Consultant provides
consulting services hereunder, as the case may be).
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<PAGE>
11. No-Competition.
(a) The Consultant hereby acknowledges and recognizes that he has been,
and during the Consulting Period he will continue to be, privy to non-public
information critical to the Company's and its affiliates' business and further
acknowledges and recognizes that the Company would find it extremely difficult
to replace the services he is required to provide hereunder. Accordingly, in
consideration of the premises contained herein and the consideration he has
received and to be received by the Consultant hereunder, during the Consulting
Period and the Stipulated Period (as hereinafter defined), the Consultant shall
not (i) directly or indirectly engage in, represent in any way, or be connected
with, any Competing Business (as hereinafter defined), whether such engagement
shall be as an officer, director, owner, employee, partner, affiliate or other
participant in any Competing Business, (ii) assist others in engaging in any
Competing Business, (iii) induce any entity or person with which the Company or
an affiliate thereof (or any other entity or affiliate thereof for whom the
Consultant provides consulting services hereunder) has a business relationship
to terminate or alter such business relationship; provided, however, the
foregoing shall not prevent the Consultant from owning the securities of or an
interest in any business, provided such ownership of securities or interest
represents less than five percent (5%) of any class or type of securities of, or
interest in, such business or (iv) induce any employee of the Company or any
affiliate thereof (or any other entity or affiliate thereof for whom the
Consultant provides consulting services hereunder) to terminate his or her
employment with the Company or any such affiliate thereof (or any other entity
or affiliate thereof for whom the Consultant provides consulting services
hereunder) or engage in any Competing Business.
(b) The Consultant understands that the foregoing restrictions may
limit his ability to earn a livelihood in a business similar to the business of
the Company or an affiliate thereof (or any other entity or affiliate thereof
for whom the Consultant provides consulting services hereunder), but he
nevertheless believes that he has received and will receive as a consultant to
the Company and its affiliates sufficient consideration and other benefits, as
provided hereunder, and otherwise, to justify clearly such restrictions which,
in any event (given his education, skills and ability), the Consultant does not
believe would prevent him from earning a living.
(c) As used herein, the term "Competing Business" shall mean any
business in North America if such business or the products sold by it are
competitive, directly or indirectly, with (i) the business of the Company or any
of its affiliates or any other entity for whom or with respect to which the
Consultant provides consulting services hereunder, (ii) any of the products
manufactured, sold or distributed by the Company or any of its affiliates or any
other entity for whom or with respect to which the Consultant provides
consulting services hereunder or (iii) any products or business being developed
by the Company or any of its affiliates or any other entity for whom or with
respect to which the Consultant provides consulting services hereunder. As used
herein, the term "Stipulated Period" shall mean the period commencing on the day
immediately following the date on which the Consulting Period terminates and
ending upon the later of (A) the date on which the Consultant (and his Group, as
defined in the Stockholders' Agreement, as hereinafter defined) no longer owns
any securities (including options therefor) of the Company or any of its
affiliates and (B) expiration of 18 months following such termination date.
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<PAGE>
12. Notices.
All notices, requests and other communications required or permitted
hereunder will be in writing and will be deemed given either when delivered
personally or one day after being sent by nationally-recognized overnight
courier, when confirmed by telecopy or five days after being mailed by certified
or registered U.S. mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Consultant to:
Robert D. Gioia
369 Franklin St.
Buffalo, NY 14209
with a copy to:
Saperston & Day, P.C.
110 M&T Center
Three Fountain Plaza
Buffalo, NY 14203-1486
Attention: Gary L. Mucci, Esq.
Telecopier: (716) 856-0139
If to the Company, to:
CFP Holdings, Inc.
1117 West Olympic Boulevard
Montebello, California 90640
Attention: President
Telecopier: (213) 727-0412
with a copy to:
First Atlantic Capital, Ltd.
135 East 57th Street
New York, New York 10022
Attention: James A. Long
Telecopier: (212) 750-0954
O'Sullivan Graev and Karabell, LLP
30 Rockerfeller Plaza
41st Floor
New York, New York 10112
Attention: Lawrence G. Graev, Esq.
Telecopier: (212) 408-2420
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<PAGE>
; provided that a party by giving notice to the other party may change the
address for notice set forth above.
13. Binding Agreement; Benefit.
This Agreement shall bind and inure to the benefit of any heirs or legal
representatives of the Consultant and any assigns of the Company or successors
of the Company by way or reorganization, transfer of all or substantially all of
its assets, merger, consolidation or otherwise; but because this Agreement is
personal in nature the Consultant may not assign it (or any rights or
obligations under it) without the Company's prior written consent.
14. Government Law.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York (without giving effect to
principles of conflicts of laws).
15. Headings.
Section headings are used for convenience only and shall in no way affect
the construction of this Agreement.
16. Entire Agreement: Amendments.
This Agreement contains the entire understanding of the parties with
respect to its subject matter and supersedes all prior agreements or
understandings between the parties with respect thereto; provided, however, that
Section 13, 14, 15 and 16 of the Employment Agreement shall not be superseded
and shall continue to be applicable to the parties hereto and provided further,
however, that for purposes of Section 16 ("Right to Sell Securities") of the
Employment Agreement, a "Trigger Effect" shall be deemed to be defined as a
"Termination Without Cause", "Involuntary Termination" or "Termination for
Nonrenewal," in each case as defined in this Agreement. Neither this Agreement
nor any part of it may in any way be altered, amended, extended, waived,
discharged or terminated except by a written agreement signed by each of them.
17. Remedies.
The Consultant acknowledges and understands that the provisions of this
Agreement are of a special and unique nature, the loss of which cannot be
adequately compensated for in damages by an action at law, and that the breach
or threatened breach of the provisions of this Agreement would cause the Company
irreparable harm. In the event of a breach of threatened breach by the
Consultant of the provisions of this Agreement, the Company shall be entitled to
an injunction restraining him from such breach. Nothing contained in this
Agreement shall be construed as prohibiting the Company from or limiting the
Company in pursuing any other remedies available for any breach or threatened
breach of this Agreement.
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18. Release.
In consideration of the premises contained herein, the Consultant hereby
releases the Comany and each of its affiliates from any claim arising under the
Employment Agreement, except as expressly contemplated by Section 16 hereof.
19. Repurchase Rights under Stockholders' Agreement.
For purposes of the provisions of Section 6 of the Stockholders'
Agreement (the "Stockholders' Agreement") dated as of December 31, 1996 among
CFP Group, Inc. ("CFP Group") and the Stockholders named therein, the parties
hereby agree that no Termination of Relationship (within the meaning of the
Stockholders' Agreement) shall be deemed to have occurred until the Consulting
Period shall have terminated pursuant to this Agreement, whereupon CFP Group (or
its designee) shall be entitled to exercise the repurchase rights provided
pursuant to said Section 6.
IN WITNESS WHEREOF, the parties have duly executed this Consulting
Agreement as of the date first above written.
CFP HOLDINGS, INC.
By: /s/ James A. Long
------------------------
James A. Long
Chairman
/s/ Robert D. Gioia
------------------------
Robert D. Gioia
9
CFP GROUP, INC.
1998 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purpose of the CFP GROUP, INC. 1998 STOCK OPTION PLAN (the "Plan")
is (i) to further the growth and success of CFP GROUP, INC., a Delaware
corporation (the "Company"), and its Subsidiaries (as hereinafter defined) by
enabling directors and employees of, and independent consultants to, the Company
and any of its Subsidiaries to acquire shares of the Class B Nonvoting Common
Stock, $.01 par value (the "Common Stock"), of the Company, thereby increasing
their personal interest in such growth and success, and (ii) to provide a means
of rewarding outstanding performance by such persons to the Company and/or its
Subsidiaries. Options granted under the Plan may be either "incentive stock
options" ("ISOs"), intended to qualify as such under the provisions of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
non-qualified stock options ("NSOs"). For purposes of this Plan, the terms
"Parent" and "Subsidiary" mean "Parent Corporation" and "Subsidiary
Corporation," respectively, as such terms are defined in Sections 424(e) and (f)
of the Code. Unless the context otherwise requires, any ISO or NSO and each Time
Vesting Option and Performance Option shall hereinafter be referred to
individually as an "Option" and collectively, as the "Options".
2. ADMINISTRATION OF THE PLAN
(a) Stock Option Committee
The Plan shall be administered by the Board of Directors of the Company
(the "Board") or a Stock Option Committee (the "Committee") consisting of two or
more Non- Employee Directors (as such term is defined in Rule 16b-3 ("Rule
16b-3") promulgated by the Securities and Exchange Commission (the "SEC") under
the Securities Exchange Act of 1934, as amended (the "1934 Act") appointed to
such Committee from time to time by the Board. The members of the Committee may
be removed by the Board at any time either with or without cause. Any vacancy on
<PAGE>
the Committee, whether due to action of the Board or any other cause, shall be
filled by the Board. The term "Committee" shall, for all purposes of the Plan
other than this Section 2, be deemed to refer to the Board if the Board is
administering the Plan.
(b) Procedures
If the Plan is administered by a Committee, the Board shall from time
to time select a Chairman from among the members of the Committee. The Committee
shall adopt such rules and regulations as it shall deem appropriate concerning
the holding of meetings and the administration of the Plan. A majority of the
entire Committee shall constitute a quorum and the actions of a majority of the
members of the Committee present at a meeting at which a quorum is present, or
actions approved in writing by all of the members of the Committee, shall be the
actions of the Committee.
(c) Interpretation
Except as otherwise expressly provided in the Plan, the Committee shall
have all powers with respect to the administration of the Plan, including,
without limitation, full power and authority to interpret the provisions of the
Plan and any Option Agreement (as defined in Section 5(b)), and to resolve all
questions arising under the Plan. All decisions of the Board or the Committee,
as the case may be, shall be conclusive and binding on all participants in the
Plan.
3. SHARES OF STOCK SUBJECT TO THE PLAN
(a) Number of Shares
Subject to the provisions of Section 9 (relating to adjustments upon
changes in capital structure and other corporate transactions), the number of
shares of Common Stock subject at any one time to Options granted under the
Plan, plus the number of shares of Common Stock theretofore issued and delivered
pursuant to the exercise of Options granted under the Plan, shall not exceed
5,375 shares (the "Aggregate Plan Shares"). The Aggregate Plan Shares may be
apportioned among two types of Options and those which may be granted at any
time and which shall vest based solely upon the passage of time (the "Time
Vesting Options") and those which may be granted at any time and
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which vest based upon the Company's achievement of certain financial objectives
(the "Performance Options"). The Options shall also be subject to the following:
(i) the number of shares of Common Stock subject at any one time to the
Time Vesting Options plus the number of shares of Common Stock theretofore
issued and delivered pursuant to the exercise of the Time Vesting Options shall
not exceed 770 shares; and
(ii) the number of shares of Common Stock subject at any one time to
the Performance Options plus the number of shares of Common Stock theretofore
issued and delivered pursuant to the exercise of the Performance Options granted
hereunder shall not exceed 4,605 shares.
If and to the extent that Options granted under the Plan terminate, expire or
are canceled without having been fully exercised, new Options may, at the sole
discretion of the Committee, be granted under the Plan with respect to the
shares of Common Stock covered by the unexercised portion of such terminated,
expired or canceled Options.
(b) Character of Shares
The shares of Common Stock issuable upon exercise of an Option granted
under the Plan shall be (i) authorized but unissued shares of Common Stock, (ii)
shares of Common Stock held in the Company's treasury or (iii) a combination of
the foregoing.
(c) Reservation of Shares
The number of shares of Common Stock reserved for issuance under the
Plan shall at no time be less than the maximum number of shares which may be
purchased at any time pursuant to outstanding Options.
4. ELIGIBILITY
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(a) General
Options may be granted under the Plan only to (i) persons who are
employees of, or independent consultants to, the Company or any of its
Subsidiaries and (ii) persons who are directors of the Company or any of its
Subsidiaries.
Options granted to employees of the Company or any of its Subsidiaries
shall be, in the discretion of the Committee, either ISOs or NSOs, and Options
granted to independent consultants to or directors of the Company or any of its
Subsidiaries who are not employees of the Company or any of its Subsidiaries
shall be NSOs. Notwithstanding the foregoing, Options may be conditionally
granted to persons who are prospective employees or directors of, or independent
consultants to, the Company or any of its Subsidiaries; provided, however, that
any such conditional grant of an ISO to a prospective employee shall, by its
terms, become effective no earlier than the date on which such person actually
becomes an employee.
(b) Exceptions
Notwithstanding anything contained in Section 4(a) to the contrary:
(i) no ISO may be granted under the Plan to an employee who owns,
directly or indirectly (within the meaning of Sections 422(b)(6) and 424(d) of
the Code), stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of its Parent, if any, or any of its
Subsidiaries, unless (A) the Option Price (as defined in Section 6(a)) of the
shares of Common Stock subject to such ISO is fixed at not less than 110% of the
Fair Market Value on the date of grant (as determined in accordance with Section
6(b)) of such shares and (B) such ISO by its terms is not exercisable after the
expiration of five years from the date it is granted; and
(ii) no Option may be granted to a person (A) who has been appointed
pursuant to Section 2(a) to serve on the Committee effective as of a future date
at any time during the period from the date such appointment is made to the date
such appointment is to become effective or (B) who is serving as a member of the
Committee.
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<PAGE>
5. GRANT OF OPTIONS
(a) General
Options may be granted under the Plan at any time and from time to time
on or prior to the tenth anniversary of the Effective Date (as defined in
Section 11). Subject to the provisions of the Plan, the Committee shall have
plenary authority, in its discretion, to determine:
(i) the persons (from among the class of persons eligible to receive
Options under the Plan) to whom Options shall be granted (the "Optionees");
(ii) the time or times at which Options shall be granted;
(iii) the number of shares subject to each Option;
(iv) the Option Price of the shares subject to each Option, which
price, in the case of ISOs, shall be not less than the minimum specified in
Section 4(b)(i) or Section 6(a) (as applicable); and
(v) the time or times when each Option shall become exercisable and the
duration of the exercise period.
(b) Option Agreements
Each Option granted under the Plan shall be designated as an ISO or an
NSO and shall be subject to the terms and conditions applicable to ISOs and/or
NSOs (as the case may be) set forth in the Plan; provided, however, that any
Option deemed by the Committee to be an ISO that for any reason does not qualify
as an incentive stock option under Section 422 of the Code shall be treated for
all purposes under the Plan as an NSO. In addition, each Option shall be
evidenced by a written agreement (an "Option Agreement"), containing such terms
and conditions not inconsistent with the Plan, as the Committee shall, in its
discretion provide. Each Option Agreement shall be executed by the Company and
the Optionee.
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(c) No Evidence of Employment or Service
Nothing contained in the Plan or in any Option Agreement shall confer
upon any Optionee any right with respect to the continuation of his or her
employment by or service with the Company or any of its Subsidiaries or
interfere in any way with the right of the Company or any such Subsidiary
(subject to the terms of any separate agreement to the contrary) at any time to
terminate such employment or service or to increase or decrease the compensation
of the Optionee from the rate in existence at the time of the grant of an
Option.
(d) Date of Grant
The date of grant of an Option under this Plan shall be the date as of
which the Committee approves the grant; provided, however, that in the case of
an ISO, the date of grant shall in no event be earlier than the date as of which
the Optionee becomes an employee of the Company or one of its Subsidiaries.
6. OPTION PRICE
(a) General
Subject to Section 9, the price (the "Option Price") at which each
share of Common Stock subject to an Option granted under the Plan may be
purchased shall be determined by the Committee at the time the Option is
granted; provided, however, that in the case of an ISO, such Option Price shall
in no event be less than 100% of the Fair Market Value on the date of grant (as
determined in accordance with Section 6(b)) of such share of Common Stock; and
provided further, however, that (x) in the case of an NSO granted at any time
after the initial public offering of the Common Stock, such Option Price shall
in no event be less than 100% of the Fair Market Value on the date of grant (as
determined in accordance with Section 6(b)) of such Common Stock, (y) in the
case of any Performance Option, such Option Price shall in no event be less than
the Fair Market Value on the date of grant (as determined in accordance with
Section 6(b)) or $289.02, whichever is greater and (z) in the case of any Time
Vesting Option, such Option Price shall in no event be less than the Fair Market
Value on the date of grant (as determined in accordance with Section 6(b)) or
$289.02 whichever is greater.
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(b) Determination of Fair Market Value
Subject to the requirements of Section 422 of the Code, for purposes of
the Plan, the "Fair Market Value" of shares of Common Stock shall be equal to:
(i) if such shares are publicly traded, (x) the closing price, if
applicable, or the average of the last bid and asked prices on the date of grant
or, if lower, the average of the daily closing prices (or the means between the
last bid and asked prices for days on which no sales took place) of the 30
business days immediately preceding the date of grant, in the over-the-counter
market as reported by NASDAQ or (y) if the Common Stock is then traded on a
national securities exchange, the average of the high and low prices on the date
of grant or, if lower, the average of the daily closing prices (or the means
between the last bid and asked prices for days on which no sales took place) of
the 30 business days immediately preceding the date of grant, on the principal
national securities exchange on which it is so traded; or
(ii) if there is no public trading market for such shares, the fair
value of such shares on the date of grant as determined by the Committee without
regard in respect to any such determination for any discount, including without
limitation, for the fact that such share is nonvoting common stock, is held by a
minority stockholder, that there is no public market for the stock, or if there
were a public market for such stock, such stock would be "restricted" as defined
under Rule 144 promulgated under the Securities Act of 1933, after taking into
consideration all other factors which it deems appropriate, including without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arms' length.
Notwithstanding anything contained in the Plan to the contrary, all
determinations pursuant to Section 6(b)(ii) shall be made without regard to any
restriction other than a restriction which, by its terms, will never lapse.
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(c) Repricing of NSOs
Subsequent to the date of grant of any NSO, the Committee may, at its
discretion and with the consent of the Optionee, establish a new Option Price
for such NSO so as to increase or decrease the Option Price of such NSO.
7. VESTING AND EXERCISABILITY OF OPTIONS
(a) Committee Determination
Each Option granted under the Plan shall be exercisable at such time or
times, or upon the occurrence of such event or events, and for such number of
shares subject to the Option, as shall be determined by the Committee and set
forth in the Option Agreement evidencing such Option; provided, however, that if
the Company files a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), for the initial public offering of its
securities, no Option granted under the Plan shall be exercisable during the
270-day period immediately following the effective date of such registration
statement. Subject to the proviso of the immediately preceding sentence, if an
Option is not at the time of grant immediately exercisable, the Committee may
(i) in the Option Agreement evidencing such Option, provide for the acceleration
of the exercise date or dates of the subject Option upon the occurrence of
specified events and/or (ii) at any time prior to the complete termination of an
Option, accelerate the exercise date or dates of such Option.
(b) Automatic Termination of Option
The unexercised portion of any Option granted under the Plan shall
automatically terminate and shall become null and void and be of no further
force or effect upon the first to occur of the following:
(i) the tenth anniversary of the date on which such Option is granted
or, in the case of any ISO granted to a person described in Section 4(b), the
fifth anniversary of the date on which such ISO is granted;
(ii) the expiration of three months from the date that the Optionee
ceases to be an employee or director of, or
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independent consultant to, the Company or any of its Subsidiaries (other than as
a result of an Involuntary Termination (as defined in clause (iii) below)) or a
Termination For Cause (as defined in clause (iv) below)); provided, however,
that if the Optionee shall die during such three-month period, the time of
termination of the unexercised portion of such Option shall be the expiration of
12 months from the date that such Optionee ceased to be an employee or director
of, or independent consultant to, the Company or any of its Subsidiaries;
(iii) the expiration of six months from the date that the Optionee
ceases to be an employee or director of, or independent consultant to, the
Company or any of its Subsidiaries, if such termination is due to such
Optionee's death or permanent and total disability (within the meaning of
Section 22(e)(3) of the Code) (an "Involuntary Termination");
(iv) immediately if the Optionee ceases to be an employee or director
of, or independent consultant to, the Company or any of its Subsidiaries, if
such termination is for Cause or is otherwise attributable to a breach by the
Optionee of an employment, consulting or other similar agreement with the
Company or any such Subsidiary (a "Termination For Cause");
(v) the expiration of such period of time or the occurrence of such
event as the Committee, in its discretion, may provide in the Option Agreement;
(vi) on the effective date of a Corporate Transaction (as defined in
Section 9(b)(i)) to which Section 9(b)(ii) (relating to assumptions and
substitutions of Options) does not apply; provided, however, subject to the
discretion of the Committee, that an Optionee's right to exercise any Option
outstanding prior to such effective date shall in all events be suspended during
the period commencing 10 days prior to the proposed effective date of such
Corporate Transaction and ending on either the actual effective date of such
Corporate Transaction or upon receipt of notice from the Company that such
Corporate Transaction will not in fact occur; and
(vii) except to the extent permitted by Section 9(b)(ii), the date on
which an Option or any part thereof or right or privilege relating thereto is
transferred (otherwise than by will or the laws of descent and distribution),
assigned,
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pledged, hypothecated, attached or otherwise disposed of by the Optionee.
The Board shall have the power to determine what constitutes a
Termination For Cause for purposes of the Plan, and the date upon which such
Termination For Cause shall occur. All such determinations shall be final and
conclusive and binding upon the Optionee.
Anything contained in the Plan to the contrary notwithstanding, unless
otherwise provided in an Option Agreement, no Option granted under the Plan
shall be affected by any change of duties or position of the Optionee (including
a transfer to or from the Company or one of its Subsidiaries), so long as such
Optionee continues to be an employee or director of, or independent consultant
to, the Company or one of its Subsidiaries.
(c) Limitations on Exercise
Anything contained in the Plan to the contrary notwithstanding, an ISO
granted under the Plan to an Optionee shall not be considered an ISO to the
extent that the aggregate Fair Market Value on the date of grant of such ISO (as
determined in accordance with Section 6(b)) of all stock with respect to which
incentive stock options are exercisable for the first time by such Optionee
during any calendar year (under all plans of the Company and its subsidiaries)
exceeds $100,000, and such portion shall be deemed to be an NSO.
(d) Vesting of Performance Options
Each Performance Option, subject to the provisions of the Option
Agreement covering such Performance Option, shall vest as follows:
(i) On each Vesting Date a portion of the Options granted to an
Optionee, which amount shall be equal to the Annual Vesting Amount for the
preceding Fiscal Year, shall immediately become vested and available for
exercise.
(ii) In addition to any Options which may vest pursuant to the
provisions of clause (i) of this subsection (d), if, on any Vesting Date
occurring in 2000, 2001, 2002, and 2003,
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the Actual EBITDA exceeds Annual Target EBITDA for the preceding Fiscal Year,
then an additional portion of the Options granted to an Optionee, which amount
shall be equal to the Cumulative Vesting Amount for the preceding Fiscal Year
less all Options vested up to such Vesting Date (including the Annual Vesting
Amount for such preceding Fiscal Year), shall immediately become vested and
available for exercise.
(iii) Notwithstanding anything contained in the Plan or such Option
Agreement to the contrary, subject to Section 9 of such Option Agreement, once
the Option has become exercisable under clauses (i) and (ii) above with respect
to any number of Option Shares, such number shall not be reduced on any
subsequent Vesting Date.
(iv) In the event the Company makes any major capital expenditures not
contemplated by the projections upon which Annual Target EBITDA and Cumulative
Target EBITDA are based, or consummates any mergers or acquisitions (whether of
assets or stock or other interests) or other extraordinary transactions, the
Board will determine in good faith appropriate adjustments to the Annual Target
EBITDA and Cumulative Target EBITDA, which adjustments shall be final and
binding.
(v) Except as otherwise provided in Sections 7 and 9, the Option shall
remain exercisable as to all such Vested Shares until the expiration of the
Option Term. Upon a Termination of Relationship, the unvested portion of the
Option shall simultaneously terminate as of the date of such Termination of
Relationship.
(e) Accelerated Vesting of Performance Options
(i) In addition to any Options which may vest pursuant to the
subsection (d) above, if all or substantially all of the assets, or all or
substantially all of the capital stock, whether pursuant to a stock sale or
merger, is sold (a "Sale of the Company"), prior to the Vesting Date occurring
on June 30, 2003, a portion of the Options granted to an Optionee, which amount
shall be equal to the Accelerated Vesting Amount (as set forth on Annex I
attached to such Optionee's Option Agreement) for the corresponding Fiscal Year,
shall immediately become vested and available for exercise.
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(ii) In addition to any Option that may vest pursuant to clause (i) of
this subsection (e), in the event the Sale of the Company occurs within six
months of the end of any Fiscal Year, and EBITDA for the twelve months ending in
the month of the consummation of the Sale of the Company (the "LTM EBITDA") is
equal to, or exceeds, the midpoint of the range between the Target EBITDA for
the immediately previous Fiscal Year and Target EBITDA for that current Fiscal
Year, then a portion of the Options granted to an Optionee, which amount shall
be equal to the Annual Vesting Amount for the current Fiscal Year, shall
immediately become vested and available for immediate exercise. For purposes of
determining the Annual Vesting Amount pursuant to this clause (ii), the Annual
Vesting Ratio shall equal the lesser of (i) 100% and (ii) the product of (x) 5
and (y) the positive difference between (A) the LTM EBITDA divided by the
Prorated Annual Target EBITDA and (B) .80.
8. PROCEDURE FOR EXERCISE
(a) Payment
At the time an Option is granted under the Plan, the Committee shall,
in its discretion, specify one or more of the following forms of payment which
may be used by an Optionee upon exercise of his Option:
(i) cash or personal or certified check payable to the Company in an
amount equal to the aggregate Option Price of the shares with respect to which
the Option is being exercised;
(ii) stock certificates (in negotiable form) representing shares of
Common Stock having a Fair Market Value on the date of exercise (as determined
in accordance with Section 6(b) as if the date of exercise were the date of
grant) equal to the aggregate Option Price of the shares with respect to which
the Option is being exercised;
(iii) a promissory note payable to the Company in an amount equal to
the aggregate Option Price of the shares with respect to which the Option is
being exercised secured by the shares issued upon exercise the Option being
exercised; or
(iv) a combination of the methods set forth in clauses (i), (ii) and
(iii).
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(b) Notice
An Optionee (or other person, as provided in Section 10(b)) may
exercise an Option granted under the Plan in whole or in part (but for the
purchase of whole shares only), as provided in the Option Agreement evidencing
his Option, by delivering a written notice (the "Notice") to the Secretary of
the Company. The Notice shall:
(i) state that the Optionee elects to exercise the Option;
(ii) state the number of shares with respect to which the Option is
being exercised (the "Optioned Shares");
(iii) state the method of payment for the Optioned Shares (which method
must be available to the Optionee under the terms of his or her Option
Agreement);
(iv) state the date upon which the Optionee desires to consummate the
purchase (which date must be prior to the termination of such Option and no
later than 30 days from the delivery of such Notice);
(v) include a copy of any election filed by the Optionee pursuant to
Section 83(b) of the Code;
(vi) if the Option is received pursuant to Section 10(b) by any person
other than the Optionee, include evidence to the satisfaction of the Committee
of the right of such person to exercise the Option; and
(vii) include such further provisions consistent with the Plan as the
Committee may from time to time require.
The exercise date of an Option shall be the date on which the Company
receives the Notice from the Optionee.
(c) Issuance of Certificates
The Company shall issue a stock certificate in the name of the Optionee
(or such other person exercising the Option in accordance with the provisions of
Section 10(b)) for the Optioned Shares as soon as practicable after receipt of
the Notice and
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payment of the aggregate Option Price for such shares. Neither the Optionee nor
any person exercising an Option in accordance with the provisions of Section
10(b) shall have any privileges as a stockholder of the Company with respect to
any shares of stock subject to an Option granted under the Plan until the date
of issuance of a stock certificate pursuant to this Section 8(c).
9. ADJUSTMENTS
(a) Changes in Capital Structure
Subject to Section 9(b), if the Common Stock is changed by reason of a
stock split, reverse stock split, stock dividend or recapitalization, or
converted into or exchanged for other securities as a result of a merger,
consolidation or reorganization, the Committee shall make such adjustments in
the number and class of shares of stock with respect to which Options may be
granted under the Plan as shall be equitable and appropriate in order to make
such Options, as nearly as may be practicable, equivalent to such Options
immediately prior to such change. A corresponding adjustment changing the number
and class of shares allocated to, and the Option Price of, each Option or
portion thereof outstanding at the time of such change shall likewise be made.
Notwithstanding anything contained in the Plan to the contrary, in the case of
ISOs, no adjustment under this Section 9(a) shall be appropriate if such
adjustment (i) would constitute a modification, extension or renewal of such
ISOs within the meaning of Sections 422 and 424 of the Code, and the regulations
promulgated by the Treasury Department thereunder, or (ii) would, under Section
422 of the Code and the regulations promulgated by the Treasury Department
thereunder, be considered as the adoption of a new plan requiring stockholder
approval.
(b) Corporate Transactions
The following rules shall apply in connection with the dissolution or
liquidation of the Company, a reorganization, merger or consolidation in which
the Company is not the surviving corporation, or a sale of all or substantially
all of the assets of the Company to another person or entity (each a "Corporate
Transaction"):
(i) each holder of an Option outstanding at such time shall be given
(A) written notice of such Corporate Transaction
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at least 20 days prior to its proposed effective date (as specified in such
notice) and (B) an opportunity, during the period commencing with delivery of
such notice and ending 10 days prior to such proposed effective date, to
exercise the Option to the full extent to which such Option would have been
exercisable by the Optionee at the expiration of such 20-day period, which
exercise may at the option of the holder be conditioned upon consummation of the
Corporate Transaction; provided, however, that upon the occurrence of a
Corporate Transaction, all Options granted under the Plan and not so exercised
shall automatically terminate; and
(ii) notwithstanding anything contained in the Plan to the contrary,
Section 9(b)(i) shall not be applicable if provision shall be made in connection
with such Corporate Transaction for the assumption of outstanding Options by, or
the substitution for such Options of new options covering the stock of, the
surviving, successor or purchasing corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number, kind and option prices
of shares subject to such options; provided, however, that in the case of ISOs,
the Board shall, to the extent not inconsistent with the best interests of the
Company or its Subsidiaries (such best interests to be determined in good faith
by the Board in its sole discretion), use its best efforts to ensure that any
such assumption or substitution will not constitute a modification, extension or
renewal of the ISOs within the meaning of Section 424(h) of the Code and the
regulations promulgated by the Treasury Department thereunder.
(c) Special Rules
The following rules shall apply in connection with Section 9(a) and (b)
above:
(i) no fractional shares shall be issued as a result of any such
adjustment, and any fractional shares resulting from the computations pursuant
to Section 9(a) or (b) shall be eliminated without consideration from the
respective Options;
(ii) no adjustment shall be made for cash dividends or the issuance to
stockholders of rights to subscribe for additional shares of capital stock of
the Company or other securities; and
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(iii) any adjustments referred to in Section 9(a) or (b) shall be made
by the Board or Committee (as the case may be) in its sole discretion and shall
be conclusive and binding on all persons holding Options granted under the Plan.
10. RESTRICTIONS ON OPTIONS AND OPTIONED SHARES
(a) Compliance With Securities Laws
No Options shall be granted under the Plan, and no shares of Common
Stock shall be issued and delivered upon the exercise of Options granted under
the Plan, unless and until the Company and/or the Optionee shall have complied
with all applicable Federal or state registration, listing and/or qualification
requirements and all other requirements of law or of any regulatory agencies
having jurisdiction.
The Committee in its discretion may, as a condition to the exercise of
any Option granted under the Plan, require an Optionee (i) to represent in
writing that the shares of Common Stock received upon exercise of an Option are
being acquired for investment and not with a view to distribution and (ii) to
make such other representations and warranties as are deemed appropriate by the
Company. Stock certificates representing shares of Common Stock acquired upon
the exercise of Options that have not been registered under the Securities Act
shall, if required by the Committee, bear the following legend and such
additional legends as may be required by the Option Agreement evidencing a
particular Option:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE PLEDGED,
HYPOTHECATED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT OR AN OPINION OF
COUNSEL TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED. IN
ADDITION, THE TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED PURSUANT TO THE TERMS OF AN INCENTIVE STOCK OPTION AGREEMENT
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF SUCH
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SHARES. COPIES OF THE INCENTIVE STOCK OPTION AGREEMENT MAY BE OBTAINED
WITHOUT CHARGE FROM THE SECRETARY OF THE ISSUER."
(b) Nonassignability of Option Rights
No Option granted under this Plan shall be assignable or otherwise
transferable by the Optionee except by will or by the laws of descent and
distribution or, in the case of an NSO, with the consent of the Company. An
Option may be exercised during the lifetime of the Optionee only by the
Optionee. If an Optionee dies, his or her Option shall thereafter be exercisable
during the period specified in Section 7(b)(ii) or (iii), as the case may be, by
his or her executors or administrators to the full extent to which such Option
was exercisable by the Optionee at the time of his or her death.
11. EFFECTIVE DATE OF PLAN
This Plan shall become effective on the date (the "Effective Date") of
its adoption by the Board; provided, however, that no Option shall be
exercisable by an Optionee unless and until the Plan shall have been approved by
the stockholders of the Company in accordance with the provisions of its
Certificate of Incorporation and By-laws, which approval shall be obtained by a
simple majority vote of stockholders, voting either in person or by proxy, at a
duly held stockholders' meeting, or by written consent, within 12 months before
or after the adoption of the Plan by the Board.
12. EXPIRATION AND TERMINATION OF THE PLAN
Except with respect to Options then outstanding, the Plan shall expire
on the first to occur of (i) the tenth anniversary of the date on which the Plan
is adopted by the Board, (ii) the tenth anniversary of the date on which the
Plan is approved by the stockholders of the Company and (iii) the date as of
which the Board, in its sole discretion, determines that the Plan shall
terminate (the "Expiration Date"). Any Options outstanding as of the Expiration
Date shall remain in effect until they have been exercised or terminated or have
expired by their respective terms.
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13. AMENDMENT OF PLAN
The Board may, at any time prior to the Expiration Date, modify and
amend the Plan in any respect; provided, however, that the approval of the
holders of a majority of the votes that may be cast by all of the holders of
shares of common stock and preferred stock of the Company, if any, entitled to
vote (voting as a single class) shall be obtained prior to any such amendment
becoming effective if such approval is required by law or is necessary to comply
with regulations promulgated by the SEC under Section 16(b) of the 1934 Act or
with Section 422 of the Code or the regulations promulgated by the Treasury
Department thereunder.
14. CAPTIONS
The use of captions in this Plan is for convenience. The captions are
not intended to provide substantive rights.
15. DISQUALIFYING DISPOSITIONS
If Optioned Shares acquired by exercise of an ISO granted under this
Plan are disposed of within two years following the date of grant of the ISO or
one year following the issuance of the Optioned Shares to the Optionee (a
"Disqualifying Disposition"), the holder of the Optioned Shares shall,
immediately prior to such Disqualifying Disposition, notify the Company in
writing of the date and terms of such Disqualifying Disposition and provide such
other information regarding the Disqualifying Disposition as the Company may
reasonably require.
16. WITHHOLDING TAXES
Whenever under the Plan shares of Common Stock are to be delivered by
an Optionee upon exercise of an NSO, the Company shall be entitled to require as
a condition of delivery that the Optionee remit or, in appropriate cases, agree
to remit when due, an amount sufficient to satisfy all current or estimated
future Federal, state and local withholding tax and employment tax requirements
relating thereto. At the time of a Disqualifying Disposition, the Optionee shall
remit to the Company in cash the amount of any applicable Federal, state and
local withholding taxes and employment taxes.
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17. DEFINITIONS
As used herein the following terms shall have the meanings set forth
below:
"Affiliate" of any Person means any other Person directly or
indirectly controlled by, controlling, or under common control with
such Person.
"Annual Actual EBITDA" means, with respect to any Fiscal Year,
the actual EBITDA for the 12-month period ending on the last day of
such Fiscal Year.
"Annual Target EBITDA" means, with respect to any Fiscal Year,
the number set forth in the Table on Annex I attached hereto in the row
labelled 'Annual Target EBITDA' for such Fiscal Year.
"Annual Vesting Amount" means, with respect to any Optionee
for any Fiscal Year, the greater of (i) zero and (ii) the product of
the Maximum Annual Vesting Amount (as set forth in the table on Annex I
attached to such Optionee's Option Agreement) and the Annual Vesting
Ratio applicable to such Fiscal Year.
"Annual Vesting Ratio" means (except in the case of
accelerated vesting pursuant to Section 7(e)(ii)), with respect to any
Fiscal Year, the lesser of (i) 100% and (ii) the product of (x) 5 and
(y) the positive difference between (A) Annual Actual EBITDA divided by
Annual Target EBITDA and (B) .80.
"Cause" shall mean (A) as to any Optionee who has entered into
an employment agreement with the Company or any of its Affiliates,
"cause" as defined therein or (B) in addition, as to all other
Optionees, resignation or any of the following: (i) any deliberate or
intentional act or omission undertaken or omitted by such Optionee
causing damage to the Company or any of its affiliates or any of their
respective properties, assets or business; (ii) any fraud,
misappropriation or embezzlement by such Optionee involving properties,
assets or funds of the Company or any of its affiliates or a conviction
of such Optionee, or pleading nolo contendere by such Optionee, to any
crime or
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offense involving monies or other property of the Company or any of its
affiliates or any other felony offense for any crime of gross moral
turpitude; (iii) the violation by such Optionee of the provisions of
any employment, non-competition or confidentiality agreement with the
Company or any of its affiliates; (iv) such Optionee's material breach
of any agreement to which he is a party with the Company or any of its
affiliates; (v) any usurpation by such Optionee of a corporate
opportunity of the Company or any of its affiliates; (vi) such
Optionee's failure or refusal to perform any of his material duties,
responsibilities or obligations as an employee of the Company;
provided, however, that any action or omission by such Optionee taken
in good faith and in the reasonable belief that such action or omission
was in the best interests of the Company shall not constitute "Cause";
and provided further, however, that such Optionee shall be entitled to
cure any action or inaction that unintentionally violates clause (iii)
hereof or any violation of clause (iv) hereof, in each case within
thirty (30) days of his receipt of written notice thereof from the
Company.
"Cumulative Actual EBITDA" means, with respect to any Fiscal
Year, the actual EBITDA for the period commencing on April 1, 1998 and
ending on the last day of such Fiscal Year (with such period being
treated as one accounting period for such purposes).
"Cumulative Target EBITDA" means, with respect to any Fiscal
Year, the number set forth in the table on Annex I attached hereto in
the row labelled 'Cumulative Target EBITDA' for such Fiscal Year.
"Cumulative Vesting Amount" means, with respect to any
Optionee for any Fiscal Year, the greater of (i) zero and (ii) the
product of the Maximum Cumulative Vesting Amount (as set forth in the
table on Annex I attached to such Optionee's Option Agreement) and the
Cumulative Vesting Ratio for such Fiscal Year.
"Cumulative Vesting Ratio" means, with respect to any Fiscal
Year, the lesser of (i) 100% and (ii) the product of (x) 5 and (y) the
positive difference between (A)
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Cumulative Actual EBITDA divided by Cumulative Target EBITDA and (B)
.80.
"EBITDA" means the net income of the Company excluding the
effect of any Stipulated Items (as hereinafter defined) and before
payment or provision for payment of (i) interest expense; (ii) any
Federal, state, local or other taxes based on income; (iii)
depreciation expense; and (iv) amortization of goodwill and other
intangible assets.
"Option Shares" has the meaning ascribed to such term in
Section 3 of each Option Agreement.
"Person" means any individual, partnership, corporation,
group, trust or other legal entity.
"Prorated Annual Target EBITDA" means for any Fiscal Year, the
sum of (i) the Annual Target EBITDA for the immediately preceding
Fiscal Year and (ii) the product of (A) the number of months which have
elapsed during such Fiscal Year and (B) the quotient obtained by
dividing (1) the difference between the Annual Target EBITDA for the
current Fiscal Year and the Annual Target EBITDA for the immediately
preceding Fiscal Year by (2) 12.
"Securities Purchase Agreement" means the Securities Purchase
Agreement dated as of December 31, 1996, among Quality Foods, L.P., the
partners of Quality Foods, L.P., certain additional beneficial owners
of Quality Foods, L.P., the stockholders of QF Acquisition Corp., the
stockholders of QF Management Corp., and CFP Holdings, Inc.
"Shares" means (i) the presently issued and outstanding shares
of capital stock of the Company, any options or stock subscription
warrants exercisable therefor (which options and warrants shall be
deemed to be that number of outstanding shares of stock for which they
are exercisable), (ii) any additional shares of capital stock of the
Company hereafter issued and outstanding and (iii) any shares of
capital stock of the Company into which such shares may be converted or
for which they may be exchanged or exercised.
"Stipulated Items" means income or expense items of a
character significantly different from those incurred
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in the typical or customary business activities of the Company
conducted in the ordinary course or that would not be considered
recurring factors in any evaluation of the ordinary operations of the
business of the Company, including, but not limited to, (i) the sale or
abandonment of a plant or significant segment of the business of the
Company; (ii) the sale of an investment not acquired for resale; (iii)
the writeoff of goodwill due to unusual events or developments within
the fiscal year being considered; (iv) the condemnation or
expropriation of properties; and (v) certain adjustments to the reserve
accounts recorded by the Company; (vi) any management fees payable to
First Atlantic Capital, Ltd. or any of its affiliates; and (vii) fees
and expenses relating to the consummation of the transactions
contemplated by the Securities Purchase Agreement and the Rule 144A
debt offering of senior notes of the Company.
"Stockholder" means any Person owning Shares.
"Termination of Relationship" means the termination of the
employment by or relationship with the Company of any Optionee for any
reason whatsoever, including, but not limited to, termination by
resignation, discharge (with or without cause), retirement, disability
or non-renewal of an employment agreement between the Company or any of
its successors and such Optionee for any reason whatsoever, including a
termination of employment pursuant to the terms of any employment
agreement between the Company or any of its successors and such
Optionee.
"Unvested Shares" means the Option Shares with respect to
which the Option is not exercisable at any particular time.
"Vested Shares" means the Option Shares with respect to which
the Option is exercisable at any particular time.
"Vesting Date" means June 30 of each of 1999, 2000, 2001, 2002
and 2003.
18. OTHER PROVISIONS
-22-
<PAGE>
Each Option granted under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Committee,
in its sole discretion. Notwithstanding the foregoing, each ISO granted under
the Plan shall include those terms and conditions which are necessary to qualify
the ISO as an "incentive stock option" within the meaning of Section 422 of the
Code and the regulations thereunder and shall not include any terms or
conditions which are inconsistent therewith.
-23-
<PAGE>
19. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall
include the plural form, the masculine gender shall include the feminine gender,
and vice-versa, as the context requires.
20. GOVERNING LAW
The validity and construction of this Plan and the instruments
evidencing the Options granted hereunder shall be governed by the laws of the
State of Delaware.
As adopted by the Board of Directors
of CFP GROUP, INC.
on July __, 1998.
-24-
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