SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1998
OR
[] TRANSITION REPORT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-4183
CHOCK FULL O' NUTS CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 13-0697025
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
370 Lexington Avenue, New York, New York 10017
(Address of Principal Executive Offices) (Zip Code)
212-532-0300
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title Of Each Class On Which Registered
Common Stock, par value $.25 per share New York Stock Exchange
8% Convertible Subordinated Debentures, American Stock Exchange
due September 15, 2006
7% Convertible Senior Subordinated Debentures, New York Stock Exchange
due April 1, 2012
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes x No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [].
Aggregate market value of the Common Stock ($.25 par value) held by non
affiliates of the registrant as of October 8,1998: $51,800,000
Number of Shares of Common Stock ($.25 par value) outstanding as of
October 8 1998: 10,831,000
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual proxy statement for the year ended July 31, 1998 are
incorporated by reference into Part III.
Certain statements in the Letter of the President and Chief Executive Officer
and Chairman of the Board included in the Annual Report to Shareholders and in
the "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and elsewhere in this Form 10-K constitute "forward-looking
statements" within the meaning of the Reform Act. See "Forward-Looking
Statements".
PART I
Item 1. BUSINESS
Item 101 (a) and (c) of Regulation S-K
The Company is the fourth largest roaster, packer, and marketer of coffee in
the United States based on coffee pounds sold by the Company. Its broad
range of regular and decaffeinated, ground roast, instant and specialty coffees
for the Foodservice and Retail Grocery Industries are sold regionally
throughout the United States and Canada under various well known trademarks,
including Chock full o' Nuts, LaTouraine and Cain's. Best known among its
products is Chock full o' Nuts brand premium, vacuum packed, all-method grind
coffee. The Company is also one of the largest marketers of Foodservice and
private label coffees. The balance of the Company's business is derived from
its developing Quikava outlets and from real estate operations.
Incorporated in 1932, for many years, the Company's primary business was the
operation of counter service restaurants, under the Chock full o' Nuts name.
In 1953, the Company expanded its business by marketing the coffee made
famous in its restaurants to consumers via supermarkets and other Retail
Grocery outlets. Impactful advertising, featuring the "Heavenly Coffee" jingle,
made Chock full o' Nuts brand premium coffee a market leader. In 1983,
Management discontinued the Company's restaurant operations and concentrated
its efforts on the sale of coffee and related food products. In 1994, the
Company commenced opening a limited number of Chock Cafes in the New York
metropolitan area. In October 1996, the Company adopted a plan to discontinue
operations of these company-owned cafes. See Note 5 of Notes to Consolidated
Financial Statements.
In July 1998, the Company acquired the hot beverage business of Park Foods, LLP
("Park"). Park's business consists primarily of sales of coffee, cappuccino,
cocoa and leaf tea to a nationwide customer base. See Note 2 of Notes to
Consolidated Financial Satements.
In January 1997, the Company acquired substantially all of the assets and
assumed substantially all of the liabilities of Ireland Coffee & Tea Company
a leading roaster and distributor of coffees to hotels, restaurants and
institutions on the East Coast. See Note 2 of Notes to Consolidated Financial
Statements.
In March 1994, the Company acquired all the assets and liabilities of a company
("Quikava") whose menu features a full assortment of the most popular specialty
coffee beverages, plus a variety of freshly prepared foods and snacks
specifically suited for in-car consumption. Quikava's unique "double drive-
thru" format targets the suburban commuter and is uniquely suited to take
advantage of the growth of Specialty Coffees "away from home", where annual
growth rates are significant.
In December 1992, the Company acquired the stock of Cain's Coffee Co.
("Cain's") and certain trademarks related to that business. Cain's primary
business is the direct sale and distribution of coffee and related products
under the Cain's label to Foodservice Customers in twelve states primarily
West of the Mississippi. Cain's also sells coffee and tea to Retail Customers,
using a direct store distribution system.
In November 1992, the Company acquired a controlling interest in a partnership,
which owned Dana Brown Private Brands, Inc., a company which markets and sells
private label coffee and tea products to food retailers and distributors,
located primarily in the Midwest.
In December 1986, the Company acquired Greenwich Mills Company ("Greenwich").
Established in 1912, Greenwich is a leading manufacturer and supplier of
coffee, tea and allied products to Foodservice and private label customers.
The majority of their customers are located in markets East of the
Mississippi. Greenwich's best known trademark is LaTouraine.
Corporate Management is currently focused on the following growth initiatives:
(1) Maximizing the Company's Foodservice franchise by significantly broadening
its customer base for Cain's, Chock full o' Nuts and LaTouraine brand coffee,
tea and allied products; (2) Increasing Retail Grocery Market shares for such
higher margin products as Chock full o' Nuts brand Cafe Blend, decaffeinated,
instant and Rich French Roast coffees; (3) Selectively pursuing new business
development opportunities that will deliver significant volume and profit
growth; and (4) Expansion of its developing Quikava drive-thru outlets through
franchising.
The following table sets forth revenues and operating results from continuing
operations, before interest and corporate expenses, attributable to the
Company's beverage products sales, Quikava sales and real estate operations,
for the fiscal years ended July 31, 1998, 1997 and 1996:
Fiscal Years Ended July 31,
1998 1997 1996
(In Thousands)
Revenues Net Sales - Beverage Products $ 390,731 $360,467 $319,213
Net Sales - Quikava 3,626 3,737 1,922
Rentals from Real Estate 2,011 2,091 2,156
Operating Profit/(Loss):
Beverage Products 17,854 23,498 16,708
Quikava (1,781) (1,998) (1,649)
Real Estate Operations 260 140 671
COFFEE AND RELATED PRODUCTS
Description of Coffee Market
According to certain available industry surveys and Company estimates, total
United States coffee sales by manufacturers in 1997 were approximately $6
billion. Approximately 34% of total United States coffee sales in 1997 were
to Foodservice customers.
BEVERAGE PRODUCTS OPERATIONS
Foodservice Sales and Marketing
In January 1985, the Company began using Company sales personnel and
independent food brokers to market its coffee and allied products to
Foodservice customers. These include chain and independent restaurants,
hospitals, airlines, schools, governmental institutions, vending and office
coffee service operators and other institutional distributors. In December
1986, the Company acquired Greenwich, which is a major direct sales and
distribution supplier in the Eastern United States of coffee, tea and allied
products to Foodservice Customers and private label customers. Greenwich's
best-known label is LaTouraine, which enjoys a reputation for high quality.
LaTouraine also distributes spices, international coffee mixes, specialty
coffees, whole bean and pod Espresso, hot chocolate, iced and hot tea,
powdered soft drinks, soup bases, and portion controlled jams, jellies and
condiments.
In December 1992, the Company acquired Cain's, which is a major supplier in
the Midwest and Southwest of products similar to those sold by Greenwich and
LaTouraine to Foodservice Customers.
In fiscal 1998, approximately 48% of sales were derived from processing and
marketing coffee and allied products for sale to Foodservice Customers (49%
and 46% in fiscal 1997 and 1996, respectively). Sales of coffee products to
Foodservice Customers have traditionally been less price-sensitive and depend
more on the level of customer service provided. These sales also tend to
generate higher operating margins, due to lower marketing and advertising
expenses, than do sales of coffee products to Retail Customers. In addition,
the absence of competitors with a dominant market position, makes the
Company's pricing to Foodservice Customers less susceptible, as compared to
pricing to Retail Customers, to changes in price in response to pricing actions
of any single competitor.
Retail Sales and Marketing
The Company currently sells most of its Retail Grocery coffee products to
supermarket chains, wholesalers and independent food outlets ("Retail
Customers") through independent food brokers. The Company's retail products
include coffees sold under the Chock full o' Nuts, Cain's, Ireland and Safari
labels. The Company believes that its best known product, Chock full o' Nuts
premium, vacuum packed, all-method grind coffee, is superior to most
competitors in being able to produce a more consistent, better tasting,
finished brew from a single, "all-method grind", regardless of the coffee maker
used. The Company also sells an "extended yield" coffee, which produces more
cups than equivalent quantities of standard yield coffee. Additionally, the
Company sells decaffeinated roast and ground coffee, instant coffees, a
premium quality Cafe blend and a Rich French Roast coffee.
The Company and Greenwich roast, pack and market regular, decaffeinated and
instant coffees for sale by others under a variety of private labels.
In fiscal 1998, the Company's coffee sales to Retail Customers accounted for
approximately 46% of sales (44% and 48% in fiscal 1997 and 1996, respectively)
and coffee sales under the Chock full o'Nuts label represented approximately
4% of total Branded Retail Grocery coffee sales in the United States.
Chock full o' Nuts all-method grind coffee is sold in most major metropolitan
areas of the United States and in the provinces of Ontario and Quebec, Canada.
Sales are concentrated in the New York metropolitan area, upstate New York,
New England, Philadelphia, Washington, D.C. and Florida. The Company
believes that its distinctive packaging design and one grind concept are
important factors in the marketing of its coffee products. Marketing a single
grind coffee has enabled the Company's all-method grind coffee to be
consistently one of the fastest moving items off supermarket shelves in its
core markets.
The sales of Cain's, Ireland and Safari brand products are concentrated in the
Midwest, East and Southwest, respectively.
Suppliers and Manufacturing
The Company's coffee is primarily a blend of readily available Central and
South American coffees. The Company purchases approximately 100 million
pounds of green coffee beans annually. All such coffee is purchased from
approximately 25 importers located in New York City, New Orleans and Miami,
who assume the risk of delivering beans that meet the Company's quality
requirements at a guaranteed price. The Company generally buys its coffee
pursuant to contracts providing for delivery in 4 to 12 weeks and supplements
such contracts with purchases on the spot market. All purchases are subject
to inspection and approval by the United States Food and Drug Administration.
Manufacturing activities for coffee and related products are presently
conducted at the following facilities:
Location Principal Use
Brooklyn, New York............Coffee Roasting Plant, Warehouse
St. Louis, Missouri...........Coffee Roasting Plant, Warehouse
Hialeah, Florida..............Coffee Roasting Plant, Warehouse
Rochester, New York...........Coffee Roasting Plant, Warehouse
Oklahoma City, Oklahoma.......Coffee Roasting Plant and Processing
Plant for Tea and Related Food
Products, Warehouse
Springfield, Missouri.........Processing Plant for Spices, Warehouse
Pleasantville, New Jersey.....Coffee Roasting Plant, Warehouse
All of the above facilities are owned, except the Rochester, New York,
Springfield, Missouri and Pleasantville, New Jersey facilities, which are
leased. The Company believes that it has sufficient production capacity to
meet its current and future needs.
The Company also rents executive office space in New York City and maintains
arehousing facilities in over forty-five locations throughout the United
States. None of these facilities are material to the Company's operations.
Competition
The coffee business is highly competitive. The Company competes for Retail
Customers with a number of nationally and regionally established brands. Its
largest competitors are Kraft Foods (Maxwell House, Yuban and Sanka coffees),
Procter & Gamble (Folger's coffees) and The Nestle Company (Hills, MJB and
Chase & Sanborn coffees), with combined annual sales accounting for
approximately 80% of the United States coffee market. The profitability of the
Company's coffee sales to Retail Customers is largely dependent on competitive
pricing conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
There are many competitors in the business of selling coffee to Foodservice
Customers. However, the Company believes that no single competitor's sales
constitute more than 20% of this market. Sales of coffee, tea and allied
products to Foodservice Customers have traditionally been less price-sensitive
and more dependent on the level of service provided to such customers than
sales of such products to Retail Customers. In addition, the absence of
direct competitors with a dominant market position has traditionally made the
Company's pricing to Foodservice Customers less susceptible, as compared to
pricing to Retail Customers, to changes in price in response to pricing
actions of any single competitor.
QUIKAVA OPERATIONS
Quikava is the operator and franchiser of double-drive thru outlets, which
offer a variety of specialty coffees, espresso-based drinks, fresh baked
goods, sandwiches, other "finger foods" and snacks. Quikava units are
situated on major commuter thoroughfares in suburban markets and offer quick-
service of quality beverages and snacks. The Company intends to develop
additional Quikava units, most of which will be franchised. At the fiscal
year end, the Company was operating eight company owned units and there were
30 operating franchised units.
CAFES
In June 1994, with the opening of a flagship store in Midtown Manhattan, the
Company began to develop the business of operating retail cafes which offered
moderately priced specialty coffees, sandwiches, salads, bakery products,
snacks, and other assorted food and beverage products. In October 1996, the
Company discontinued the operations of its Cafes due to store operating losses
esulting from high food and labor costs and insufficient volume to cover high
fixed and operating costs related to Midtown Manhattan operations as well as
a Cafe Corporate structure organized to support a much higher number of
locations. See Note 5 of Notes to the Consolidated Financial Statements.
RESEARCH AND DEVELOPMENT
The Company invested a nominal amount in research and development for the
three years ended July 31, 1998.
TRADEMARKS
Certain trademarks (i.e. Chock full o' Nuts, LaTouraine, Eppen Smith, Cain's,
Safari and Ireland) are important to the business of the Company.
EMPLOYEES
The Company employs approximately 1,430 employees, 18% of whom are represented
by labor unions. The Company believes that its relations with both union and
non-union employees are good.
REAL ESTATE OPERATIONS
The Company is both lessor and lessee on certain properties. Such properties
had been part of the Company's original restaurant operations. Additionally,
the Company owns a coffee roasting facility in Castroville, California which
it leases to another coffee company.
OTHER MATTERS
Reference is made to Notes 2 and 5 of Notes to Consolidated Financial
Statements with respect to the acquisition and disposition of certain assets.
Item 101 (b) of Regulation S-K
Segment Information is included elsewhere in this document after Management's
Discussion and Analysis of Financial Consolidation and Results of Operations.
Item 101 (d) of Regulation S-K
All of the Company's operations are located in the United States. Export sales
are not significant.
Item 2. PROPERTIES
The Company leases certain premises which are under long-term leases expiring
on various dates through 2009 and certain of which contain renewal options.
Reference should be made to Note 6 of Notes to Consolidated Financial
Statements for additional information about these leases. The following table
sets forth the location and certain information with respect to the Company's
plants and certain other properties as of October 8, 1998, all of which
premises the Company considers adequate for its present and anticipated needs.
PLANTS AND OTHER PROPERTIES
Approximate Whether
Square Feet Owned
of or
Location Principal Use Floor Space Leased (1)
Brooklyn, New York Coffee Roasting
Plant, Warehouse 55,000 Owned
St. Louis, Missouri Coffee Roasting
Plant, Warehouse 77,000 Owned
Secaucus, New Jersey Warehouse and
Offices 104,000 Owned
Hialeah, Florida Coffee Roasting
Plant, Warehouse 50,000 Owned
Rochester, New York Coffee Roasting
Plant, Warehouse 50,000 Leased
Oklahoma City, Oklahoma Coffee Roasting Plant
and Processing
Plant for
Tea and Related
Food Products,
Warehouse 150,000 Owned
Springfield, Missouri Processing Plant
for Spices,
Warehouse 30,000 Leased
Pleasantville, New Coffee Roasting 47,000 Leased
Jersey Plant, Warehouse
574 Fifth Avenue Real Estate
New York, New York Operation 13,000 Leased
422 Madison Avenue Real Estate
New York, New York Operation 8,750 Leased
532 Madison Avenue Real Estate
New York, New York Operation 12,250 Leased
49 Broadway Real Estate
New York, New York Operation 12,000 Leased
1420 Broadway Real Estate
New York, New York Operation 6,750 Leased
370 Lexington Avenue Corporate
New York, New York Headquarters 11,000 Leased
Waverly Place corner
Green Street Real Estate
New York, New York Operation 2,500 Leased
Castroville, Real Estate
California Operation 66,000 Owned
Queen Ann Plaza
Norwell, Mass Quikava Operation 250 Leased
2297 Brown Avenue
Manchester,
New Hampshire Quikava Operation 500 Leased
917 Lynnfield Street
Lynn, Mass Quikava Operation 600 Leased
1184 Main Street
Haverhill, Mass Quikava Operation 600 Leased
84 Milfod Road
Amherst, New Hampshire Quikava Operation 600 Leased
374 Bridge Street
N. Weymouth, Mass Quikava Operation 600 Leased
895 Bald Hill Road
Warwick, Rhode Island Quikava Operation 600 Leased
190 Old Derby Street Headquarters
Hingham, Mass. Quikava 1,196 Leased
83 Brocton Avenue
Abington, Mass. Quikava Operations 600 Leased
(1) -- No Company-leased premises are owned by any officer or director of the
Company. See Note 6 of Notes to Consolidated Financial Statements.
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
"Common Share Prices" and related security holder matters may be found
immediately after "Segment Information."
Item 6. SELECTED FINANCIAL DATA
"Selected Financial Data" may be found immediately after Note 11 of Notes to
Consolidated Financial Statements.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" may be found immediately after "Forward-Looking Statements."
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted in a separate section of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Applicable-Report dated May 5, 1998 - The Company engaged Grant Thornton LLP
as its independent auditors for the year ending July 31, 1998.
PART III
Item 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
and
Item 11. EXECUTIVE COMPENSATION
and
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
and
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted, per General Instruction G. The information required by Part III shall
be incorporated by reference from the Registrant's definitive proxy statement
pursuant to Regulation 14A for the fiscal year ended July 31, 1998 which is to
be filed with the Commission.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2) The response to this portion of Item 14 is submitted as a
separate section of this report.
(3) The response to this portion of Item 14 is submitted as a separate
section of this report (see below).
(b) Reports on Form 8-K: Filed on May 5, 1998 - The Company engaged Grant
Thornton LLP as its independent auditors for the year ending July 31, 1998.
(c) The response to this portion of Item 14 is submitted as a separate section
of this report (see below).
(d) The response to this portion of Item 14 is submitted as a separate section
of this report.
Pursuant to Regulation S-K Item 601, following is a list of Exhibits.
Exhibit 3 Articles of incorporation and by laws.
(a) Articles of incorporation filed as an Exhibit to Form 10-K for the
fiscal year ended July 31, 1994 is incorporated herein by reference.
(b) By-laws filed as an Exhibit to Form 10-K for the fiscal year ended
July 31, 1994 is incorporated herein by reference.
Exhibit 4 Instruments defining the rights of security holders, including
indentures.
(a) Indenture dated as of September 15, 1986 between the Company and
Manufacturers Hanover Trust Company ("Manufacturers") filed as an
Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is
incorporated herein by reference.
(b) Form of the Company's 8% Convertible Subordinated Debenture
included in Exhibit 4(a)filed as an Exhibit to Form 10-K for the fiscal
year ended July 31, 1994 is incorporated herein by reference.
(c) Instrument of resignation, appointment and acceptance dated August
9, 1993 among the Company, Manufacturers and Liberty Bank and Trust
Company of Oklahoma City filed as an Exhibit to Form 10-K for the
fiscal year ended July 31, 1994 is incorporated herein by reference.
(d) Indenture dated as of April 1, 1987 between the Company and IBJ
Schroder Bank and Trust Company filed as an Exhibit to Form 10-K for the
fiscal year ended July 31, 1994 is incorporated herein by reference.
(e) Form of the Company's 7% Convertible Senior Subordinated Debenture
included in Exhibit 4(d) filed as an Exhibit to Form 10-K for the fiscal
year ended July 31, 1994 is incorporated herein by reference.
Exhibit 9 Voting Trust Agreement, not applicable.
Exhibit 10 Material contracts
(a) Amended and Restated Rights Agreement, dated as of December 30, 1997,
between Chock full O' Nuts Corporation and American Stock Transfer
Company, as Rights Agent, the Form of Rights Certificate and Summary
of Rights to Purchase Common Stock filed as an Exhibit to Form 8-K
dated December 30, 1997 is incorporated herein by reference.
(b) Benefits protection trust with State Street Bank and Trust Company
filed as an Exhibit to Form 10-K for the fiscal year ended July 31, 1994
is incorporated herein by reference.
(c) Resolution of the Board of Directors adopting severance policy filed as
an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is
incorporated herein by reference.
(d) Chock full o' Nuts Corporation Employees' Stock Ownership Plan dated
December 16,1988 filed as an Exhibit to From 10-K for the fiscal year
ended July 31, 1995, is incorporated herein by reference.
(e) Amended and Restated Credit Agreement dated December 4, 1992, amended
and restated as of January 1, 1996, among Chock full o' Nuts Corporation
and its Subsidiaries and National Westminster Bank N.A., now known as
Fleet Bank, N.A., and Chemical Bank, now known as the Chase Manhattan
Bank, filed as an Exhibit to Form 10-K for the fiscal year ended July 31,
1996, is incorporated herein by references.
(f) Form of restricted stock agreement dated January 2,1988 with key
employees (including certain officers and directors) filed as an Exhibit
to Form 10-K for the fiscal year ended July 31, 1994 is incorporated
herein by reference.
(g) Asset Purchase Agreement dated as of January 16, 1997 by and between
Chock full o' Nuts Corporation and Ireland Coffee-Tea, Inc. filed as an
Exhibit to Form 8-K dated February 3, 1997 is incorporated herein by
reference.
(h) Asset Purchase Agreement dated as of July 13, 1998 by and between
Chock full o' Nuts Corportion and Park, L.P. attached herein.
(i) Employment agreements of executive officers dated August 5, 1998
attached herein.
(j) Supplemental Executive Retirement Plan effective January 1, 1998
attached herein.
(k) 1984 Incentive Compensation Plan attached herein.
Exhibit 11 Statement re: Computation of Per Share Earnings
Exhibit 12 Statement re: Computation of ratios, not applicable.
Exhibit 13 Not applicable.
Exhibit 18 Letter re: change in accounting principles, not applicable.
Exhibit 21 Subsidiaries of the registrant.
Exhibit 22 Published report regarding matter submitted to vote of security
holders, not applicable.
Exhibit 23 Consent of experts and counsel, not applicable.
Exhibit 24 Power of attorney, not applicable.
Exhibit 27 Financial Data Schedule.
Exhibit 99 Additional exhibits, not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CHOCK FULL O' NUTS CORPORATION
(Registrant)
October 23, 1998 /s/ Howard M. Leitner
Howard M. Leitner, Vice President,
Chief Financial and Accounting Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
October 23, 1998 /s/ Norman E. Alexander October 23, 1998 /s/ Mark A. Alexander
Norman E. Alexander Mark A. Alexander
Chairman of the Board Director
October 23, 1998 /s/ Stuart Z. Krinsly October 23, 1998 /s/ Martin J. Cullen
Stuart Z. Krinsly Martin J. Cullen
Director Vice President
and Director
October 23, 1998 /s/ Howard M. Leitner October 23, 1998 /s/ Marvin I. Haas
Howard M. Leitner Marvin I. Haas
Vice President and President and
Chief Financial Officer Chief Executive
and Director Officer
and Director
October 23, 1998 /s/ R. Scott Schafler October 23, 1998 /s/ Henry Salzhauer
R. Scott Schafler Henry Salzhauer
Director Director
October 23, 1998 /s/ Jerry Columbus October 23, 1998 ____________________
Jerry Columbus David S. Weil
Director Director
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
YEAR ENDED JULY 31, 1998
CHOCK FULL O' NUTS CORPORATION
NEW YORK, NEW YORK
FORM 10-K--ITEM 14(a)(1) and (2)
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements of the Registrant and its
subsidiaries are included in Item 8:
Page
Report of Independent Certified Public Accountants................15
Report of Independent Auditors....................................16
Consolidated Balance Sheets--July 31, 1998 and 1997...............17 and 18
Consolidated Statements of Operations--Years Ended
July 31, 1998, 1997 and 1996....................................19
Consolidated Statements of Cash Flows--
Years Ended July 31, 1998, 1997 and 1996........................20 and 21
Consolidated Statements of Stockholders' Equity--
Years Ended July 31, 1998, 1997 and 1996........................22 and 23
Notes to Consolidated Financial Statements........................24 to 34
The following consolidated financial statement schedule of the registrant and
its subsidiaries is included in Item 14(d):
Page
Schedule II -- Valuation and Qualifying Accounts..................42
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been omitted.
GRANT THORNTON LLP
Report of Independent Auditors
The Board of Directors and Stockholders
Chock Full o' Nuts Corporation
New York, New York
We have audited the accompanying consolidated balance sheet of Chock Full o'
Nuts Corporation and subsidiaries as of July 31, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Chock
Full o' Nuts Corporation and subsidiaries as of July 31, 1998, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles. We have also
audited Schedule II for the year ended July 31, 1998. In our opinion, this
Schedule presents fairly, in all material respects, the information required
to be set forth therein.
GRANT THORNTON LLP
New York, New York
October 15, 1998
ERNST & YOUNG LLP
Report of Independent Auditors
The Board of Directors and Stockholders
Chock Full o' Nuts Corporation
New York, New York
We have audited the accompanying consolidated balance sheet of Chock Full o'
Nuts Corporation and subsidiaries as of July 31, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the two years in the period ended July 31, 1997. Our audit also
included the financial statement schedule listed in the index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Chock
Full o' Nuts Corporation and subsidiaries at July 31, 1997, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended July 31, 1997 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
ERNST & YOUNG LLP
New York, New York
September 30, 1997
CONSOLIDATED BALANCE SHEETS
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
July 31, 1998 and 1997
ASSETS 1998 1997
CURRENT ASSETS:
Cash and cash equivalents $ 6,148,068 $ 4,585,633
Receivables, principally trade, less
allowances for doubtful accounts and
discounts of $1,329,000 and $1,422,000--
Notes 3 and 10(a) 40,559,581 37,554,412
Inventories--Notes 1 and 3 60,641,309 82,951,688
Prepaid expenses and other -- Note 4 3,636,446 2,457,221
OTAL CURRENT ASSETS 110,985,404 127,548,954
PROPERTY, PLANT AND EQUIPMENT, at cost-
Note 3:
Land 3,127,640 3,114,889
Buildings and improvements 15,161,611 14,805,429
Leaseholds and leasehold improvements 2,304,715 2,526,691
Machinery and equipment 84,778,461 78,162,457
105,372,427 98,609,466
Less allowances for depreciation and
amortization 56,346,824 49,933,489
49,025,603 48,675,977
REAL ESTATE HELD FOR DEVELOPMENT OR SALE
at cost -- Note 3 2,175,344 7,635,427
OTHER ASSETS AND DEFERRED CHARGES, net--
Note 10 (b) 23,223,366 23,799,057
EXCESS OF COST OVER NET ASSETS
ACQUIRED, net 15,773,875 9,670,551
$201,183,592 $217,329,966
See notes to consolidated financial statements
CONSOLIDATED BALANCE SHEETS - Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
July 31, 1998 and 1997
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,502,778 $13,590,697
Accrued expenses 9,159,994 12,148,313
Income taxes--Note 4 1,093,979 1,957,788
Current installments of long-term debt --
Note 3 __________ 766,000
TOTAL CURRENT LIABILITIES 18,756,751 28,462,799
LONG-TERM DEBT, Excluding Current Installments--
Note 3 92,246,967 106,065,753
OTHER NON-CURRENT LIABILITIES 3,854,833 3,265,078
DEFERRED INCOME TAXES -- Note 4 8,770,000 7,655,000
STOCKHOLDERS' EQUITY--Notes 3 and 7:
Common stock, par value $.25 per share;
Authorized 50,000,000 shares;
Issued 11,306,444 and 11,211,068 shares 2,826,611 2,802,767
Additional paid-in capital 52,064,121 51,357,008
Retained earnings 30,848,452 25,349,146
85,739,184 79,508,921
Deduct:
Cost of 475,522 shares in treasury (6,573,719) (6,573,719)
Deferred compensation under stock
bonus plan and employees' stock
ownership plan (1,610,424) (1,053,865)
TOTAL STOCKHOLDERS' EQUITY 77,555,041 71,881,337
LEASES--Note 6 _________ __________
$201,183,592 $217,329,966
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Years ended July 31, 1998, 1997 and 1996
1998 1997 1996
Revenues:
Net sales $394,356,822 $364,203,601 $321,134,537
Rentals from real estate 2,011,257 2,091,307 2,156,070
396,368,079 366,294,908 323,290,607
Costs and expenses:
Cost of sales 293,304,109 257,078,504 229,477,193
Selling, general and
administrative expenses 85,682,621 86,018,181 77,223,407
Expenses of real estate 1,751,005 1,951,137 1,484,681
380,737,735 345,047,822 308,185,281
OPERATING PROFIT 15,630,344 21,247,086 15,105,326
Gain on sale of real estate -
Note 10(c) 1,281,698 460,000
Interest and dividend income 628,333 1,061,160 865,145
Interest expense (7,903,211) (8,599,963) (8,783,798)
Other (deductions)/income--
Notes 10(d) and (e) (166,859) (1,495,891) 60,692
INCOME BEFORE INCOME TAXES 9,470,305 12,212,392 7,707,365
Income taxes--Note 4:
Current:
Federal 2,126,000 1,885,000 1,905,000
State and local 709,000 753,000 488,000
Deferred 1,136,000 1,660,000 683,000
3,971,000 4,298,000 3,076,000
INCOME FROM CONTINUING
OPERATIONS 5,499,305 7,914,392 4,631,365
Discontinued operations --
Note 5:
(Loss)from operations, net of
income tax credits of
$1,073,000 (1,757,044)
(Loss) on disposition, net of
deferred income tax credit of
$2,590,000 (4,410,000)
(6,167,044)
NET INCOME/(LOSS) $5,499,305 $7,914,392 $(1,535,679)
Income /(loss) per share--
Note 1:
Basic:
Continuing operations $ .53 $ .76 $ .45
Discontinued operations (.60)
Net income/(loss) $ .53 $ .76 $(.15)
Diluted:
Continuing operations $ .45 $ .55 $ .41
Discontinued operations (.28)
Net income $ .45 $ .55 $ .13
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Years Ended July 31, 1998, 1997 and 1996
1998 1997 1996
Operating Activities - Continuing
Operations:
Income from continuing operations
before income taxes $9,470,305 $12,212,392 $7,707,365
Adjustments to reconcile pretax
income from continuing operations
to net cash provided by
continuing operations:
Depreciation and amortization of
property, plant and equipment 6,724,977 7,386,215 6,380,262
Amortization of deferred
compensation
and deferred charges 3,732,609 4,437,262 4,561,305
Gain on sale of real estate (1,281,698) (460,000)
Other, net (443,670) (312,060) (1,000,099)
Changes in operating assets and
liabilities, net of aquisitions:
(Increase)/decrease in
receivables (407,866) (4,889,186) 6,818,278
Decrease/(increase) in
inventories 28,875,289 (21,960,180) 913,733
(Increase)/decrease in
prepaid expenses (1,455,579) 1,600,484 (281,086)
(Decrease)/increase in accounts
payable, accrued expenses and
income taxes (9,871,375) 1,259,724 (5,098,044)
Net cash provided by /(used
in)operating activities -
continuing operations 35,342,992 (265,349) 19,541,714
Operating Activities - Discontinued
Operations:
Discontinued operations exclusive
of income taxes
Adjustments to reconcile pretax
loss from discontinued (9,830,044)
operations to net cash used
in discontinued operations
Provision for close down and
write-off of equipment 7,000,000
Depreciation and amortization 431,623
Other (192,929)
Net cash (used in)
discontinued operations (2,591,350)
Income taxes - current (2,835,000) (2,638,000) (1,320,000)
NET CASH PROVIDED BY/(USED IN)
OPERATING ACTIVITIES 32,507,992 (2,903,349) 15,630,364
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Years Ended July 31, 1998, 1997 and 1996
1998 1997 1996
Investing Activities -
Continuing Operations:
Purchases of marketable
securities (41,646) (34,026) (152,018,726)
Proceeds from sale and
collection of principal of
marketable securities 79,99 158,863,555
Purchases of property, plant and
equipment (6,926,061) (6,123,523) (7,411,199)
Acquisition of businesses (14,900,112) (5,872,858)
(Advances to)/proceeds from
co-packer (923,893) 1,549,328 (3,132,245)
Proceeds from sale of real-estate 6,685,941 460,000
Other (13,147)
Net Cash (used in)
investing activities -
continuing operations (16,105,771) (10,401,086) (3,251,762)
Net cash (used in)investing
activities -
discontinued operations -
Purchases of property and
equipment (2,608,543)
NET CASH (USED IN)
INVESTING ACTIVITIES (16,105,771) (10,401,086) (5,860,305)
Financing activities - Continuing
Operations:
Loan to employees' stock
ownership plan (1,000,000) (500,000)
Net (payments of)/proceeds from
long-term debt (13,839,786) 1,596,285 (1,333,428)
NET CASH (USED IN)/ PROVIDED BY
FINANCING ACTIVITIES (14,839,786) 1,596,285 (1,833,428)
INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS - CONTINUING
OPERATIONS 1,562,435 (11,708,150) 7,936,631
Cash and cash equivalents at
beginning of year -
continuing operations 4,585,633 16,293,783 8,357,152
CASH AND CASH EQUIVALENTS AT END
OF YEAR-CONTINUING OPERATIONS $6,148,068 $4,585,633 $16,293,783
Supplemental Information
Cash paid during the year: 1998 1997 1996
Interest $7,688,931 $8,143,201 $8,259,325
Income taxes 3,958,061 2,168,425 848,539
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Years Ended July 31, 1998, 1997 and 1996
Common Stock
Shares Amount Shares Amount
In Thousands
Balance at July 31, 1995 11,211 $2,803 476 $6,574
Net(loss)
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization
Loan to employees' stock
ownership plan ______ _____ ___ _____
Balance at July 31, 1996 11,211 2,803 476 6,574
Net income
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization ______ _____ ___ _____
Balance at July 31, 1997 11,211 2,803 476 6,574
Net income
Conversion of debentures 95 24
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Loan to employees' stock
ownership plan
Amortization _____ _____ ____ _____
Balance at July 31, 1998 11,306 $2,827 476 $6,574
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Years Ended July 31, 1998, 1997, and 1996
Deferred
Compensation
Under Stock
Bonus Plan
and Employees'
Stock Additional
Ownership Paid-In Retained
Plan Capital Earnings
In Thousands
Balance at July 31, 1995 $1,620 $51,357 $18,970
Net (loss) (1,535)
Deferred compensation
under stock bonus plan and
employees' stock ownership
plan:
Amortization (586)
Loan to employees' stock
ownership plan 500 ______ ______
Balance at July 31, 1996 1,534 51,357 17,435
Net income 7,914
Deferred compensation
under stock bonus plan and
employees' stock ownership plan:
Amortization (480) ______ ______
Balance at July 31, 1997 1,054 51,357 25,349
Net income 5,499
Conversion of debentures 707
Deferred compensation understock
bonus plan and employees' stock
ownership plan:
Loan to employees' stock
ownership plan 1,000
Amortization (444) ______ ______
Balance at July 31, 1998 $1,610 $52,064 $30,848
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
July 31, 1998, 1997 and 1996
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Fiscal year: The Company's year ends on the last Friday in July. Fiscal years
are designated as ending July 31 for convenience of reference.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its subsidiaries. Significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Receivables - Concentration of Credit Risk: The Company's primary business is
the roasting, packing and marketing of a broad range of regular and
decaffeinated, ground roast, instant and specialty coffees for the
Foodservice and Retail Grocery Industries. These products are sold
regionally throughout the United States and Canada. The Company performs
periodic credit evaluations of its customers' financial condition and
generally does not require collateral. Credit losses relating to customers
have consistently been within management's expectations.
Cash Equivalents: The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Inventories: Inventories are stated at the lower of cost (first-in, first-out)
or market and consist of:
July 31, 1998 1997
Finished goods $35,775,998 $41,747,129
Raw materials 17,539,666 36,412,728
Supplies 7,325,645 4,791,831
$60,641,309 $82,951,688
Commodities: The Company uses coffee futures and options for hedging
purposes to reduce the effect of changing green coffee prices. The contracts
that effectively meet the risk reduction and correlation criteria are recorded
using hedge accounting. Effectiveness is measured based upon high correlation
between commodity gains and losses on the futures and options and those on the
firm commitment. Under hedge accounting, the gain or loss on the hedge is
deferred and recorded as a component of the underlying inventory purchase.
Gains and losses on hedges that are terminated prior to inventory purchases
are recorded in inventory until the inventory is sold.
Property, Plant and Equipment: Depreciation and amortization of property,
plant and equipment are computed by the straight-line method for financial
reporting purposes and by accelerated methods for income tax purposes.
Long-Lived Assets: In accordance with Financial Accounting Standards Board
("FASB") Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of", the Company records
impairment losses on long-lived assets used in operations, including
intangible assets, when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated
by those assets are less than the carrying amounts of those assets.
Pre-opening Costs: Pre-opening costs are charged to operations as incurred.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES
July 31, 1998, 1997 and 1996
Excess of Cost over Net Assets Acquired: The Company evaluates goodwill
impairment at the end of each quarter based on recoverability measured by
undiscounted estimated operating profits (i.e., pretax earnings before
interest expense and goodwill amortization). Under this approach, the carrying
value would be reduced to estimated realizable value if it is probable that
Management's best estimate of future operating profits during the goodwill
amortization period will be less than the carrying amount of the related
goodwill. Excess of cost over net assets acquired is being amortized on a
straight-line basis over periods of 40 and 15 years. Accumulated amortization
amounted to $2,319,000 and $2,010,000 at July 31, 1998 and 1997,
respectively.
Other Intangibles: Other intangibles consist principally of trademarks,
covenants not to compete and customer lists. Such items are being amortized
on a straight-line basis over periods of 40, 5 and 7.5 years, respectively.
See Note 10(b). The Company evaluates any impairment of these assets on a
basis similar to goodwill.
Advertising Expenses: The cost of advertising is expensed as incurred. The
Company incurred $4,632,000, $4,253,000 and $3,130,000 in advertising costs
during 1998, 1997 and 1996, respectively.
Stock-Based Compensation: In October 1995, the FASB issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, which provides an alternative to APB Opinion No. 25,
Accounting for Stock Issued to Employees, in accounting for stock-based
compensation issued to employees. The Statement allows for a fair value based
method of accounting for employee stock options and similar equity instruments.
The Company has determined it will continue to use APB Opinion No. 25 in
accounting for stock-based compensation for all options that are issued.
Per Share Data: Basic per share data is based on the following weighted
average number of common shares outstanding during each year adjusted for
unallocated shares in the employees' stock ownership plan and contingent
shares: 10,416,000, 10,395,000 and 10,308,000 in 1998, 1997 and 1996,
respectively. Diluted per share data, assuming conversion of debentures, the
aforementioned unallocated and contingent shares and the dilutive effect of
stock options, is based on 21,766,000, 22,216,000 and 22,129,000 common shares
outstanding in 1998, 1997 and 1996,respectively. In addition, net income/
(loss) is increased/(decreased) due to a reduction in interest and amortization
charges of $4,237,000, $4,392,000 and ($4,396,000) for the years ended July 31,
1998, 1997 and 1996, respectively.
Recently Issued Accounting Standards: In June 1997, the FASB issued SFAS
No. 130, "Reporting Comprehensive Income," which is effective for the Company's
fiscal year ending July 31, 1999. the statement addresses the reporting and
displaying of comprehensive income and its components. Adoption of SFAS
No. 130 is not expected to have a material effect on the Company's financial
statement disclosures.
In June 1997, the FASB also issued SFAS No.131, "Disclosures About Segments of
an Enterprise and Related Information," which is effective for the Company's
fiscal year ending July 31, 1999. The statement changes the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information
in their quarterly reports. Adoption of SFAS No. 131 is not expected to have
a material effect on the Company's financial statement disclosures.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES
July 31, 1998, 1997 and 1996
In June 1998, the FASB issued Statement No. 133, accounting for Derivative
Instruments and Hedging Activities, which is effective for the Company's
fiscal year ending July 31, 2000. The Statement permits early adoption as of
the beginning of any fiscal quarter after its issuance. The Company expects
to adopt the new Statement effective August 1,1999. The Statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings. The Company
has not yet determined what the effect of Statement 133 will be on the earnings
and financial position of the Company.
NOTE 2--ACQUISITIONS
In July 1998, the Company acquired the hot beverage business of Park Foods LLP
("Park") for an adjusted purchase price of approximately $11,300,000 which
includes $750,000 for contingent payments. Park's business consists primarily
of sales of coffee, cappuccino, cocoa and leaf tea to a nationwide customer
base. In connection with the acquisition, which has been accounted for as a
purchase transaction, the Company acquired identifiable net tangible and
intangible assets with an estimated fair value of approximately $5,300,000.
The excess of cost over net assets acquired (approximately $6,000,000) is
being amortized over a period of 40 years using the straight-line method.
The Company used its existing cash to fund the purchase price. The Company
is still gathering certain information required to complete the allocation of
the purchase price. Further adjustments may arise as a result of the
finalization of the ongoing study.
The following unaudited pro forma results of operations assume the acquisition
of Park occurred at the beginning of fiscal 1997 and give effect to certain
adjustments, including amortization of excess of cost over net assets acquired
and reduced interest income, resulting from the acquisition and related cash
funding. Amounts for 1998 and 1997 include the pre-acquisition results of
operations for Park for the year ended June 30, 1998 and 1997. The results are
not necessarily indicative of what actually would have occurred if the
acquisition had been in effect for the entire period presented.
Year Ended July 31
(in thousands,
except per share) 1998 1997
Net sales $461,523 $415,540
Net income 5,740 8,629
Net income per share:
Basic .55 .83
Diluted .46 .59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES
July 31, 1998, 1997 and 1996
In January 1997, the Company acquired substantially all of the assets and
assumed substantially all of the liabilities of Ireland Coffee & Tea Company,
a leading roaster and distributor of coffees to hotels, restaurants and
institutions on the East Coast for approximately $8,000,000 which includes
$1,500,000 for contingent payments. In connection with the acquisition which
is being accounted for as a purchase, the Company acquired identifiable net
tangible and intangible assets with an estimated fair value of approximately
$3,900,000. The excess of cost over net assets acquired (approximately
$4,100,000) is being amortized over a period of 40 years using the straight-
line method. The pro forma effects on the Company's operations as if this
business had been acquired on August 1, 1995 are not material.
NOTE 3--LONG TERM DEBT
Long-term debt consists of the following:
JULY 31,
1998 1997
7% Convertible senior subordinated
debentures due 2012 $ 51,693,000 $ 51,693,000
8% Convertible subordinated debentures
due 2006 37,240,000 43,266,000
Revolving credit and term loan 3,313,967 11,872,753
92,246,967 106,831,753
Less current installments __________ 766,000
$ 92,246,967 $106,065,753
The 7% and 8% debentures require annual sinking fund payments of $3,000,000
and $3,750,000, respectively, which after giving effect to previous
conversions and redemptions, commence April 1, 2000 and September 15, 1999,
respectively, and provide for balloon payments of $18,000,000 and $12,500,000
on April 1, 2012 and September 15, 2006, respectively. The debentures are
convertible at the option of the debenture holders into shares of the Company's
common stock at a price of $8.23 per share and $7.81 per share, respectively
(subject to adjustment). As of July 31, 1998, approximately 11,049,000 common
shares are reserved for issuance upon conversion of debentures.
Under the Company's amended and restated revolving credit and term loan
agreements (collectively the "Loan Agreements") with Fleet Bank, N.A. and
The Chase Manhattan Bank (the "Banks"), the Company may, from time to time,
borrow funds from the Banks, provided that the total principal amount of all
such loans outstanding through November 30, 1998 may not exceed $40,000,000
and after such date may not exceed $20,000,000. Interest on all such loans is
equal to the prime rate or at the Company's option the London Interbank
Offering Rate ("LIBOR") plus 1.75%, subject to adjustment based on the level
of loans outstanding (8.5% at prime and 7.44% at LIBOR, at July 31, 1998).
Outstanding borrowings under the Loan Agreements may not exceed certain
percentages of and are collateralized by, among other things, the trade
accounts receivable and inventories, and substantially all of the machinery
and equipment and real estate of the Company and its subsidiaries. All loans
made under the term loan agreement ($3,000,000 at July 31, 1998) are to be
repaid in December 1999. Outstanding loans under the revolving credit a
agreements are to be repaid in December 1999. Pursuant to the terms of the
Loan Agreements, the Company and its subsidiaries, among other things, must
maintain a minimum net worth and meet ratio tests for liabilities to net worth
and coverage of fixed charges and interest, all as defined. The Loan
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES
July 31, 1998, 1997 and 1996
Agreements also provide, among other things, for restrictions on dividends
(except for stock dividends) and require repayment of outstanding loans with
excess cash flow, as defined.
As of July 31, 1998, long-term debt matures as follows: $6,246,967 (year
ending July 31, 2000),$6,750,000 (years ending July 31, 2001, 2002, and 2003)
and $65,750,000 thereafter.
The Company believes that the fair value of its 7% and 8% convertible
subordinated debentures approximates $50,659,000 and $37,240,000,
respectively, as indicated by the public trading prices of such debt.
NOTE 4--INCOME TAXES
The provision for income taxes for continuing operations differs from the
expected Federal income tax for the reasons shown in the following table:
1998 1997 1996
Federal income tax provision
expected at the statutory rate $3,219,800 $4,152,213 $2,620,504
Effect on Federal income tax of:
State and local income taxes,
net of Federal income tax
benefit 467,940 496,980 322,080
Amortization of excess of cost
over net assets acquired 69,020 68,000 68,000
Other 214,240 347,807 65,416
Realization of prior year capital
loss not previously recorded _________ (767,000) _________
$3,971,000 $4,298,000 $3,076,000
Deferred tax liabilities and assets are comprised of the following at July 31,
1998 1997
Net deferred non-current tax liabilities:
Net difference between tax and book basis
of property, plant and equipment $8,477,000 $7,755,000
Prepaid pension expense 1,143,000 779,000
Compensation under stock bonus plan,
employees' stock ownership plan and
other qualified plans (501,000) (387,000)
Other (349,000) (492,000)
$8,770,000 $7,655,000
Net deferred current tax assets:
Net difference between tax and book
basis of inventory $339,000 $356,000
Allowance for doubtful accounts and discounts 485,000 463,000
Accrued expenses - close-down 28,000 169,000
Accrued cash bonus 20,000 208,000
Other 79,000 72,000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES
July 31, 1998, 1997 and 1996
NOTE 5--DISCONTINUED OPERATIONS
In October 1996, the Company's Board of Directors adopted a plan to discontinue
operations of the Chock Cafes. Accordingly, the operating results of the Chock
Cafe operations, including provisions for estimated lease termination costs,
employee benefits and losses during the phase-out period of approximately
$1,800,000 and a write-off of leasehold improvements and equipment and
deferred charges of approximately $5,200,000 have been segregated from
continuing operations and reported as a separate line item on the statement
of operations. During the years ended July 31, 1998 and 1997, respectively,
approximately $480,000 and $1,250,000 were charged against the previously
established reserves.
Operating results for the year ended July 31, 1996 (exclusive of any corporate
charges or interest expense and the aforementioned provisions)from discontinued
operations are as follows: Net sales $3,783,397; Cost of sales $5,903,142;
Selling, general and administrative expenses $710,299; Operating loss
$2,830,044; Income tax credits $1,073,000; and Loss from operations $1,757,044.
NOTE 6 -- LEASES
The Company and subsidiaries lease manufacturing plants, warehouses, office
space and Quikava locations and related premises. Leases which provide for
payment of property taxes, utilities and certain other expenses, expire on
various dates through 2009 and contain renewal options. As of July 31, 1998,
the Company's obligation for future minimum rental payments, assuming the
exercise of renewal options, aggregated $17,674,000. Payments required in
the following five fiscal years amount to $4,654,000 (1999), $3,983,000
(2000), $2,747,000 (2001),$1,577,000 (2002) and $1,115,000 (2003). Rental
expense charged to continuing operations under operating leases for the years
ended July 31, 1998, 1997 and 1996 was $4,531,000, $4,751,000 and
$4,150,000, respectively.
As of July 31, 1998, future minimum rental payments due from tenants under
sub-leases of retail facilities and related premises aggregated $16,313,000.
Amounts receivable in the following five fiscal years amount to $2,000,000
(1999), $2,014,000 (2000), $1,954,000 (2001), $1,820,000 (2002) and
$1,778,000(2003).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES
July 31, 1998, 1997 and 1996
NOTE 7--STOCKHOLDERS' EQUITY
A non-contributory employee stock ownership plan ("ESOP") acquires shares of
the Company's common stock for the benefit of all eligible employees. The
Company has made loans to the ESOP to be repaid in equal annual installments
over 8 years with interest primarily at 9% and 10%. Deferred compensation
equal to the loans has been recorded as a reduction of stockholders' equity
representing the Company's prepayment of future compensation expense. As the
Company makes annual contributions to the ESOP, these contributions will be
used to repay the loans to the Company, together with accrued interest, and
common stock is allocated to ESOP participants and deferred compensation is
reduced.
As of December 30, 1997, the Company's Board of Directors extended the
Company's Shareholder Rights Plan through December 30, 2007. The original
Shareholder Rights Plan was adopted in 1987 and would have expired on December
30, 1997. The Company's Shareholder Rights Plan is designed to deter
coercive or unfair takeover tactics and to prevent a person or group from
gaining control of the Company without offering a fair price to all
shareholders. The Company's Shareholder Rights Plan provides for distribution
to shareholders of a right to purchase one share of the Company's common
stock currently for $28 (subject to anti-dilution adjustments) as a dividend
on each of the Company's outstanding common shares. These rights are not
currently exercisable and will only become exercisable upon the happening of
certain events. Under certain circumstances, the rights entitle the holders
to receive, upon payment of the then current exercise price of the right,
that number of shares of Company common stock having a market value of two
times the then current exercise price of the right. The rights are redeemable
at $.01 per right at any time prior to the occurrence of certain events.
The Company's incentive compensation plan provides, among other things, for
incentive or non-qualified stock options, stock appreciation rights,
performance units, restricted stock and incentive bonus awards. During the
years ended July 31, 1998 and 1996, respectively, non-qualified stock options
for the purchase of 53,000 and 16,000 shares, at prices of $6.94 and $5.25
per share were granted to key executives under the plan. During the year ended
July 31, 1998 options to purchase 8,500 shares with an exercise price of $8.50
per share were forfeited. At July 31, 1998, there were outstanding options
for 401,000 shares with an average exercise price of $6.52 per share. Options
granted are exercisable at the fair market value at date of grant and, subject
to termination of employment (a) expire five years from the date of grant with
respect to the fiscal 1998 grants and (b) expire ten years from the date of
grant with respect to all prior grants, are non-transferable other than on
death, and are exercisable in three equal annual installments commencing (a) one
year from date of grant with respect to the fiscal 1998 grants (b) three years
from date of grant with respect to all prior grants.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES
July 31, 1998, 1997 and 1996
Had compensation cost for the Company's stock option plan been determined
based on the fair market value at the grant date for awards in 1998 and 1996
consistent with the provisions of SFAS 123, the Company's net income would
have been reduced by approximately $25,000 in 1998 and $1,000 in 1997 and net
loss would have been increased by approximately $2,000 in 1996, with no affect
on per share amounts. These pro forma amounts may not be representative of
future disclosures since the estimated fair value of stock options is amortized
to expense over the vesting period, and additional options may be granted in
future years. The fair value for the options awarded was estimated at the date
of grant using the Black-Scholes model with the following assumptions:
expected dividend yield - 0, expected stock price volatility : 1998 - 24%,
1997 and 1996 - 22%, risk-free interest rate: 1998 - 5.69%, 1997 - 6.15% and
1996 - 5.34% and expected life of options - 4 years.
Under the incentive compensation plan, as of July 31, 1998, 31,000 common
shares are outstanding which were issued to key executives in 1987 and 1988.
These shares are subject to restricted stock agreements which provide that
the shares will vest ratably over periods through 2001. Such shares are
subject, upon the occurrence of certain events, to either forfeiture or
accelerated vesting. The fair value of the shares on the dates of issuance
is being charged to operations as compensation during the period the
restrictions remain in effect. At July 31, 1998, 76,500 shares were available
under the plan.
NOTE 8--PENSION PLANS
The Company has non-contributory defined benefit pension plans covering all
employees who have completed six months of service, have attained age twenty
and one-half and are not covered by union-sponsored plans. The benefits are
based on years of service and the employee's compensation during the last 60
months of employment. The pension plans are funded to accumulate sufficient
assets to provide for accrued benefits. In addition, contributions are made
to multi-employer plans which provide defined benefits to union employees.
A summary of the components of net periodic pension cost for the defined
benefit plans for the three years ended July 31, 1998 and total contributions
charged to pension expense for the union-sponsored plans follows (in
thousands):
1998 1997 1996
Service cost-benefits earned
during the year $1,886 $1,681 $1,729
Interest cost on projected benefit
obligation 2,441 2,246 1,985
Actual return on plan assets (2,370) (2,021) (1,866)
Net amortization and deferral 174 211 144
NET PENSION COST OF DEFINED BENEFIT
PLANS 2,131 2,117 1,992
UNION-SPONSORED PLANS 339 335 319
TOTAL PENSION EXPENSE $2,470 $2,452 $2,311
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES
July 31, 1998, 1997 and 1996
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheet at July 31, for the defined benefit pension
plans (in thousands): 1998 1997
Plans Whose Plans Whose
Assets Exceed Assets Exceed
Accumulated Accumulated
Benefits Benefits
Actuarial present value of
benefit obligations:
Vested benefit obligation $ (29,263) $ (27,641)
Accumulated benefit
obligation $ (29,937) $ (27,967)
Projected benefit
obligation $ (33,991) $ (31,141)
Plan assets, consisting
primarily of U.S.
treasury notes, other
U.S. agency issues,
guaranteed insurance
contracts and corporate
investments, at fair
value 31,923 29,404
Projected benefit obligation
(in excess of)plan assets (2,068) (1,737)
Unrecognized prior service cost 333 280
Unrecognized net loss 6,862 5,586
Unrecognized net asset at
August 1, 1987; net of
amortization (397) (484)
Net pension asset
recognized in the consolidated
balance sheet $4,730 $3,645
The weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected
benefit obligation were 7.5% and 4% and 8% and 4%, respectively, at July 31,
1998 and 1997. The expected long-term rate of return on plan assets was 8.0%
in 1998, 1997 and 1996, respectively.
During fiscal 1998, the Company adopted an unfunded supplemental executive
retirement plan for certain key executives. The plan provides for benefits
that supplement those provided by a defined benefit plan and for immediate
funding in the event of a change in control of the Company (as defined). At
July 31, 1998, the projected benefit obligation for this plan was
approximately $450,000 and expense for this plan was approximately $50,000.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES
July 31, 1998, 1997 and 1996
NOTE 9--QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended July 31, 1998 and 1997:
Fiscal 1998
Three Months Ended
October 31 January 31 April 30 July 31
(Thousands of Dollars Except Per Share Data)
Net sales $108,275 $102,124 $95,896 $88,062
Gross profit $26,740 $26,529 $25,026 $22,757
Net income/(loss) $1,568 $2,685 $1,313 $(67)
Per share:
Basic $ .15 $ .26 (1) $ .13 $ (.01)
Diluted $ .12 $ .17 (1) $ .11 $ (.01)
Fiscal 1997
Three Months Ended
October 31 January 31 April 30 July 31
(Thousands of Dollars Except Per Share Data)
Net sales $82,577 $84,242 $95,306 $102,079
Gross profit $23,421 $25,787 $29,110 $28,807
Net income $ 1,451 $ 1,748 $ 2,236 $ 2,479 (2)
Per share:
Basic $ .14 $ .17 $ .21 $ .24 (2)
Diluted $ .11 $ .13 $ .15 $ 16
1) Includes gain on sale of real estate of $725,000 or $.07 per basic share and
$.03 per diluted share (see Note 10(c)).
(2) Includes write-off of $1,500,000
relating to litigation, $.09 per basic share and $.05 per diluted share and
$767,000 income tax credit relating to realization of prior year capital loss
not previously recorded , $.07 per basic share and $.03 per diluted share,
(see Notes 10(d) and 4).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
July 31, 1998, 1997 and 1996
NOTE 10--OTHER ITEMS
a. Receivables other than trade at July 31,1998 and 1997 amount to
$4,352,000 and $576,000, respectively. The 1998 amount includes
$2,400,000 from the seller of Park resulting from an adjustment to
the purchase price (see Note 2) and the amount of an insurance claim
(see Note 10(e)).
b. Other assets and deferred charges consist of (in thousands):
July 31, 1998 1997
Deferred financing costs (1) $2,051 $2,460
Non-compete agreements, net 854 1,424
Trademarks, net 5,062 5,207
Customer lists, net 2,359 3,512
Due from co-packer 2,574 1,711
Prepaid pension expense 4,730 3,645
Other 5,593 5,840
$23,223 $23,799
(1) Being amortized over the terms of the related indebtedness (see Note 3).
c. In November 1997, the Company consummated the sale of one of its downtown
Manhattan properties for $6,900,000, resulting in an after tax gain of
$725,000.
d. In connection with closing a business and termination of a pension plan the
Company paid a liability for an underfunded pension plan of approximately
$1,500,000 and recorded a similar amount receivable at July 31, 1994 from
the previous owner of such business pursuant to certain provisions of the
acquisition agreement. The previous owner of the business contested the
liability to the Company and the Company commenced litigation seeking
collection of such amount. In August 1997, the United States District
Court Southern District of New York granted the previous owner's motion
for summary judgment. The Company then appealed the decision to the Second
Circuit. However, due to the then uncertainty surrounding the outcome of
such appeal and in light of the aforementioned decision, the Company wrote-
off the $1,500,000 due from the previous owner. Such amount is included in
other deductions in fiscal 1997. In August 1998, the Second Circuit
affirmed the decision of the District Court.
e. Other deductions in fiscal 1998, includes a $650,000 charge for the write-
off of leasehold improvements and equipment and provision for estimated
lease termination costs related to the Quikava operations. Other income
in fiscal 1998, includes $570,000 of income resulting from an insurance
claim of approximately $1,000,000 (the balance is shown as a reduction of
cost of sales) related to the unauthorized distribution of inventory.
NOTE 11 -- INDUSTRY SEGMENT INFORMATION
The Company's financial information by industry segment for 1998, 1997 and
1996 may be found immediately after "Managements Discussion and Analysis of
Financial Condition and Results of Operations."
SELECTED FINANCIAL DATA
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
_________________YEAR ENDED JULY 31__________________
1998 1997 1996 1995 1994
(Dollar Amounts in Thousands, Except Per Share Amounts)
Net sales $394,357 $364,204 $321,135 $326,141 $263,511
Income from
continuing operations 5,499 7,914 4,631 6,738 8,243
Working capital 92,229 99,086 87,053 89,612 81,590
Working capital ratio 5.9 to 1 4.5 to 1 4.7 to 1 4.3 to 1 3.6 to 1
Total assets 201,184 217,330 199,435 207,005 208,807
Long-term debt 92,247 106,066 105,235 106,569 110,427
Stockholders' equity 77,555 71,881 63,487 64,937 58,262
Per common share (1):
Income from continuing
operations:
Basic .53 .76 .45 .65 .80
Diluted .45 .55 .41 .51 .57
Stock dividends distributed 3% 3%
Stockholders' equity 7.16 6.70 5.91 6.05 5.43
________________________
(1) Per share data has been retroactively adjusted for a 3% stock dividend
in July 1995 and 1994.
FORWARD-LOOKING STATEMENTS
Certain statements under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and elsewhere in this Form
10-K and in the letter of the President and Chief Executive Officer and
Chairman of the Board and elsewhere in the Company's Annual Report to
Shareholders, constitute "forward looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward looking
statements are based on current expectations and information available to
management at this time. They may involve known risks, uncertainties, and
other factors which may cause the actual results, performance or achievements
of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward looking
statements. Factors which could cause actual results to differ from the
forward looking statements include, among others, the following: general
economic and business conditions; the availability of green coffee; green
coffee prices; competition; the success of operating initiatives; development
and operating costs, including green coffee prices; advertising and
promotional efforts; brand awareness; the existence of or adherence to
development schedules; the existence or absence of adverse publicity;
availability, locations and terms of sites for Quikava franchised outlets;
changes in business strategy or development plans; quality of management;
availability, terms and deployment of capital; business abilities and
judgment of personnel; availability of qualified personnel; labor and employee
benefit costs; changes in or the failure to comply with government
regulations; construction costs, and the Year 2000 issue.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
The discussion and analysis that follows relates solely to continuing
operations of the Company. Net income for 1998 and 1997, is the same as the
results from continuing operations.
Net sales from beverage products increased to $390,731,000 or 8.4% for the
year ended July 31, 1998 compared to $360,467,000 for the prior year. The
increase was primarily due to increases in the average selling price of coffee
and to a lesser extent a 2.8% increase in coffee pounds sold. Operating profit
from beverage products was $17,854,000, a decrease of 24% for the year ended
July 31, 1998 compared to the prior year. The decrease resulted primarily
from decreased gross margins attributable to an increase in the average cost
of green coffee greater than the increase in the average selling price of
coffee and increased manufacturing costs, partially offset by increased coffee
pounds sold and increased sales of allied products. During the year ended
July 31, 1998 prices for green coffee ranged from a high of $2.11 to a low of
$1.06 per pound. Selling ,general and administrative expenses decreased
slightly primarily due to reduced coupon, compensation and bad debt costs and
decreased amortization of purchased intangibles, partially offset by increased
advertising, delivery and legal costs. Certain of the Company's selling
expenses vary with the number of pounds sold, therefore these selling
expenses have increased in 1998 compared to 1997.
Quikava's growth plans involve franchising the concept, thereby generating
initial franchise fees and continuing royalty income to cover headquarters'
expenses. Franchise operated shop sales were $3,531,000 for the year ended
July 31, 1998 versus $2,437,000 an increase of 45% over 1997. Quikava
company-operated shop sales were $3,626,000 for the year ended July 31, 1998
compared to $3,737,000 in 1997. Company operated shops generate potential
franchise interest and gain exposure to the concept. Operating losses
amounted to $1,781,000 for the year ended July 31, 1998, compared to
$1,998,000 in the prior year. The operating losses consist primarily of
headquarters' expenses (primarily payroll and related expenses for franchising
infrastructure) and shop level losses, partially offset by initial franchise
fee income in 1998 and royalty income on franchisee sales.
Net income was $5,499,000 ($.53 per basic share and $.45 per diluted share)
for the year ended July 31, 1998, compared to $7,914,000 ($.76 per basic share
and $.55 per diluted share). The difference was primarily due to reduced
operating profits from beverage products and to lesser extent reduced interest
income (resulting from decreased invested funds), partially offset by decreased
income taxes (attributable to decreased income before income taxes), the
unfavorable litigation result in fiscal 1997, the gain on sale of real estate
in 1998 ($.07 per basic share and $.03 per diluted share) and to a lesser
extent reduced interest expense (resulting from reduced amounts of debt
outstanding in the second half of the year).
In January 1997, the Company acquired substantially all of the assets and
assumed substantially all of the liabilities of Ireland Coffee and Tea Company
("Ireland"). The business of Ireland consists of roasting and distributing
coffees to hotels, restaurants and institutions on the East Coast.
Net sales from beverage products increased $41,254,000 or 13% for the year
ended July 31, 1997, compared to the prior year. The increase was primarily
due to a 15% increase in coffee pounds sold. Operating profits from beverage
products were $23,498,000, an increase of 41% for the year ended July 31, 1997
compared to the prior year. The increase resulted primarily from increased gross
margins and the operations of Ireland from date of acquisition, partially
offset by increased selling, general and administrative expenses. Increased
gross margins were primarily due to increased coffee pounds sold and a decrease
in the average cost of green coffee. During the year ended July 31, 1997
prices for green coffee ranged from a high of $3.15 to a low of $1.03 per
pound. Selling, general and administrative expenses increased primarily due
to increased advertising, brokerage and data processing costs and salaries.
Certain of the Company's selling expenses vary with the number of pounds sold,
therefore these selling expenses have increased in 1997 compared to 1996.
Net sales of Quikava franchise operated shops increased to $2,437,000 for the
year ended July 31, 1997 from $1,747,000 in the prior year. Company operated
shops with net sales of $3,737,000 (fiscal 1997) and $1,922,000 (fiscal 1996)
were opened in new markets to generate potential franchisee interest and gain
exposure to the concept. Operating losses increased to $1,998,000 for the year
ended July 31, 1997 compared to $1,649,000 in the prior year. The increase in
operating losses consists primarily of increased headquarters' expenses
(primarily payroll and related expenses for franchising infrastructure and
pre-opening costs) and increased shop level losses (primarily due to the
number of shops open less than 12 months), partially offset by increased
royalty income on increased franchisee sales. The first year shops opening
in new markets with lack of brand recognition resulted in slower sales growth
and greater shop level losses than established comparable shops.
Income from continuing operations was $7,914,000 or $.76 per basic share and
$.55 per diluted share for the year ended July 31, 1997, compared to
$4,631,000 or $.45 per basic share and $.41 per diluted share for the prior
year. The difference was primarily due to increased operating profits from
beverage products and to a lesser extent increased interest income (resulting
from increased invested funds in the early part of fiscal 1997) and reduced
interest expense (resulting from lower amounts of debt outstanding), partially
offset by increased income taxes, the write-off of amounts due from the
previous owner of an acquired business due to the result of unfavorable
litigation and increased operating losses from Quikava. Increased income taxes
are primarily attributable to increased income before income taxes, partially
offset by realization of a prior year capital loss not previously recorded.
The net loss for 1996 is due to a loss from discontinued operations of
$6,167,000 or $.60 per basic share and $.28 per diluted share (see Note 5 of
Notes to Consolidated Financial Statements).
General inflation has been relatively low for the last several years; however,
green coffee prices have changed significantly during fiscal 1998, 1997 and
1996. While the Company manages its inventory to have rapid turnover, the
changes in green coffee prices have required the Company at times to carry
higher inventories (dollars) than it might otherwise have done in a more
stable green coffee market and impacted the Company's gross profit percentage.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1998, working capital was approximately $92,229,000 and the
ratio of current assets to current liabilities was 5.9 to 1.
As of July 31, 1998, the Company had unused borrowing capacity of approximately
$37 million under its credit facilities of $40 million with Fleet Bank, N.A.
and The Chase Manhattan Bank (see Note 3 of Notes to Consolidated Financial
Statements).
The Company plans on expanding its Quikava franchised operations, which are
currently operating in 30 locations. The sales of Company operated and
franchised units are not material to the Company's consolidated sales. Total
Quikava store level operations are not currently profitable but are being
offset by franchise income and, in addition, Quikava headquarters' expenses
of approximately $1,100,000 on an annual basis are not being absorbed.
The Company believes that its cash flow from operations, its cash equivalents
and its revolving credit and term loan agreements with its Banks provide
sufficient liquidity to meet its working capital, expansion and capital
requirements.
GREEN COFFEE MARKET
Coffee is one of the leading commodities traded on futures exchanges. Supplies
fluctuate with the weather and prices can be and have been volatile. The
supply and price is affected by multiple factors, such as weather, weather
forecasts, consumption trends, changes in stock levels, export restrictions
observed by members of the Association of Coffee Producing Countries ("ACPC"),
activities of hedge funds, politics and economics in the coffee producing
countries, many of which are lesser developed nations. While coffee trades
primarily on the futures market, coffee of the quality level sought by the
Company can trade on a negotiated basis at a substantial premium above
commodity coffee pricing, depending upon the supply and demand at the time of
purchase.
In the sixties some coffee exporting countries plus a group of coffee
importing countries together formed the International Coffee Organization
("ICO"). The principal aim of the organization was to stabilize coffee prices
in the world market. One of the instruments which the ICO used to achieve
this goal was a system allocating an export quota to each of the coffee
producing countries. In July 1989, this system was abandoned due to
disagreements involving several exporting as well as importing countries. In
1994, a new International Coffee Agreement came into force which no longer
included the price stability mechanism. As a consequence, the function of
the ICO changed. This organization now provides a forum where exporting and
importing countries can discuss matters pertaining to coffee. In addition,
the ICO publishes statistics about the coffee market and has become an
administrative organization.
When the export quota system was abandoned in 1989, coffee prices declined in
the global market. Certain exporting countries were dissatisfied with the new
situation and tried to regain their grip on the international coffee market.
In 1993, they established the ACPC to boost coffee prices in the global market
by keeping part of annual production out of the world market. The ACPC members
account for around 70% of world coffee exports. The ACPC attempts to achieve
better prices by agreeing on export quotas for each member country and an
export volume ceiling for the organization as a whole.
The effect of the ACPC on coffee prices is difficult to determine in light of
the dramatic price increases resulting from the 1994 frosts in Brazil
discussed below. Nonetheless, the ACPC met in November 1994 and resolved to
sustain green coffee prices. In January 1996, the ACPC agreed to extend its
current limitations on the supply of green coffee which were scheduled to
expire in June 1996 through the 1996/1997 green coffee year. No further
actions have been taken by the ACPC subsequent to that date. The Company is
unable to predict whether the ACPC will be successful in achieving its goals.
Based on published statistics the supplies of green coffees held by consumers
(roasters and buyers) are currently near historically low levels.
Brazil, the world's largest coffee producer, experienced frosts in June and
July of 1994 which reportedly damaged approximately 40% of the green coffee
crop. The announcement of the Brazilian frost damage caused a substantial
increase in green coffee prices and other coffee-product prices worldwide.
The Company purchases a modest amount of its green coffee from Brazil. In the
third and fourth quarter of 1994 the Company experienced a significant
increase in the price of green coffee which carried over into the first three
quarters of 1995. The Company was not able to immediately pass through to
customers all of the price increases in the third and fourth quarters of 1994
and the first quarter of 1995 following the significant increase in green
coffee prices that resulted from the Brazilian frosts. Subsequent to such
period through January 1997, the Company's green coffee purchases and
commitments returned to pricing levels closer to those that existed prior to
aforementioned frosts. In February 1997, green coffee prices began to rise
significantly reaching a high of $3.18 per pound in May 1997. This bull
market was somewhat unique in that the fundamental cause was very tight
stocks of arabica coffee in consuming countries. Historically, bull markets
have been the direct result of weather developments in Brazil, specifically
cold weather and drought that damages the following crop.
During fiscal 1998, the green coffee market has been in the $1.09 to $2.11
per pound range, most recently at the lower end of this range. From August
1997 until February 1998, coffee remained relatively high, most of the time
at above $1.70 per pound, when a fast, substantial and sustained drop occurred,
caused by a significantly large Brazilian crop. This left the Company with
large quantities of high-priced inventory while sales slowed as retailers
waited for the green coffee market to effect the price they pay for roasted
coffee and pressure intensified as major competitors cut prices in response.
The result was lower net income in the third quarter of fiscal 1998 compared
to the first and second quarters and an approximate break-even in the fourth
quarter.
The Company is unable to predict weather events in particular countries that
may adversely affect coffee supplies and price. Except for late 1994 and
early 1995, the Company generally has been able to pass green coffee price
increases through to its customers, thereby maintaining its gross margins.
The Company cannot predict whether it will be able to pass inventory price
increases through to its customers in full in the future.
A significant portion of the Company's green coffee supply is contracted for
future delivery, generally between three and twelve months forward (with
declining percentages of the supply being subject to future contracts in the
latter portions of each year), to ensure both an adequate supply and reduce
the risk of price fluctuations. In addition, the Company uses options and
futures for hedging purposes to reduce the risk of changing green coffee
prices. Green coffee is a large market with well-established brokers,
importers and warehousemen though which the Company manages its requirements.
In addition to forward purchases, the Company keeps physical inventory in each
of its production facilities and third-party warehouses representing anywhere
from four to ten weeks of supply requirements.
All coffee purchase transactions are in U.S. dollars, the industry's standard
currency. The Company believes that it is not dependent upon any one
importer or broker for its supply of green coffee from any particular country.
Retail Customers are very price-sensitive about the purchase of coffee in
supermarkets. When retail prices increase dramatically, take away declines and
consumers switch to less expensive brands and high yield roasts. Likewise,
Foodservice Customers in times of price increase tend to stretch the use of
inventory.
Year 2000 Issue
In 1998, the Company established an oversight committee, to review all of the
Company's computer systems and programs, as well as the computer systems of
the third parties upon whose data or functionality the Company relies in any
material respect, and to assess their ability to process transactions in the
Year 2000. The Company has a formal Year 2000 Program focusing on three key
readiness areas: 1) Internal hardware/software and non-information technology
systems; 2) Supplier readiness; and 3) Customer readiness. For each readiness
area, the Company has identified steps to perform and developed timetables for
Year 2000 compliant. The Company has conducted an assessment of internal
applications and hardware. Some software applications have been made Year
2000 compliant and resources have been assigned to address other applications
based on their criticality and the time required to make them Year 2000
compliant. All software remediation is scheduled to be completed no later
than the beginning of 1999. The Year 2000 compliant evaluation of hardware,
including roasters, grinders, bagging machines, telecommunication equipment,
workstations and other items, is nearing completion. The Company has
identified and contacted key suppliers. To date, the Company has received
responses from the majority of its key suppliers, most of which indicate that
the suppliers are in the process of developing remediation plans. Based on
the supplier's progress to adequately address the Year 2000 issue, the Company
will develop a suppliers action list and contingency plan. The Company has
identified and been in contact with key customers. The customers have
responded that they are or will be Year 2000 compliant.
The Company has expensed approximately $350,000 for Year 2000 costs in fiscal
1998 and estimates future expenditures for Year 2000 compliance to be
approximately $275,000. There can be no assurance, however, that there will
not be a delay in, or increased costs associated with, the programs described
in this section. Since the programs described in this section are ongoing,
all potential Year 2000 complications have not yet been identified.
Therefore, the potential impact of these complications on the Company's
financial condition and results of operations cannot be determined at this
time. If computer systems used by the Company, its suppliers or customers
fail or experience significant difficulties related to the Year 2000, the
Company's results of operation and financial condition could be materially
affected.
SEGMENT INFORMATION
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
___________Year Ended July 31_______
1998 1997 1996
(Amounts in Thousands)
Net sales - Beverage products $390,731 $360,467 $319,213
Net sales - Quikava 3,626 3,737 1,922
$394,357 $364,204 321,135
Rental revenues $ 2,011 $ 2,091 $ 2,156
Operating profit\(loss):
Beverage products $ 17,854 $ 23,498 $ 16,708
Quikava (1,781) (1,998) (1,649)
Real estate 260 140 671
Eliminations (703) (393) (625)
$ 15,630 $ 21,247 $ 15,105
Identifiable assets:
Beverage products $171,642 $186,304 $152,168
Quikava 4,198 4,835 4,720
Real estate 3,901 9,356 9,493
Corporate 21,443 16,835 33,054
$201,184 $217,330 $199,435
Depreciation and amortization:
Beverage products $ 6,170 $ 6,843 $ 6,006
Quikava 378 366 197
Corporate 177 177 177
$ 6,725 $ 7,386 $ 6,380
Capital expenditures:
Beverage products $ 6,648 $ 5,154 $ 4,831
Quikava 170 953 2,566
Corporate 108 17 14
$ 6,926 $ 6,124 $ 7,411
______________________
The beverage products segment is engaged in the (a) roasting, packing and
marketing of regular, instant, decaffeinated and specialty coffees and (b)
packing and marketing of regular and decaffeinated tea for sale to Retail,
Foodservice and Private Label customers. Additionally, other related food
products are marketed and sold to Foodservice customers. Quikava operations
feature a full assortment of specialty coffee beverages and a variety of
freshly prepared foods and baked goods specifically suited for in-car
consumption. See Note 5 of Notes to Consolidated Financial Statements for
discontinued cafe operations. Operations of real estate represent rental and
other income principally from the Company's original restaurant facilities.
All of the Company's operations are located in the United States. Export
sales are not significant.
Identifiable assets under the caption "Corporate" include (1) cash and cash
equivalents, investments in marketable securities and short-term investments
of $5,214,000 (1998), $3,781,000 (1997) and $15,180,000 (1996) and (2) net
assets of discontinued operations of $895,000 (1997) and $941,000 (1996).
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES COMMON SHARE PRICES
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol CHF. The Company has approximately 14,000 shareholders of
record as of October 8, 1998.
_____1998____ _____1997____
High Low High Low
1st Quarter 8 3/4 6 1/2 5 3/8 4 5/8
2nd Quarter 7 7/8 6 1/2 5 3/8 4 5/8
3rd Quarter 7 15/16 6 5/8 6 1/8 5 1/8
4th Quarter 7 15/16 6 1/4 7 7/16 5 5/8
Pursuant to certain provisions of a revolving credit and term loan agreement,
the Company may not declare or pay any dividend (except for stock dividends).
Item 14(d)
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES SCHEDULE II- VALUATION AND
QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Balance
Beginning Costs and at End of
Description of Period Expenses Other Deductions Period
(1)
Year ended July 31, 1998:
Allowance for doubtful
accounts and discounts $1,422,000 $2,062,928 $22,508 $2,178,436 $1,329,000
Year ended July 31, 1997:
Allowance for doubtful
accounts and discounts $1,133,000 $2,440,846 $2,151,846 $1,422,000
Year ended July 31, 1996:
Allowance for doubtful
accounts and discounts $1,251,000 $2,315,902 $2,433,902 $1,133,000
(1) Discounts taken by customers and uncollectible accounts written-off, net
of recoveries.
Table of Contents & Auto Paragraph Numbering is used. If you insert any
new sections, please make sure you use the correct codes.ASSET PURCHASE
AGREEMENT
DATED AS OF JULY 14, 1998
BY AND BETWEEN
CHOCK FULL O' NUTS CORPORATION
AND
PARK, L.P.
TABLE OF CONTENTS
Page
RECITAL 1
ARTICLE 1 PURCHASE AND SALE OF ASSETS 1
Section 1.1. Assets 1
Section 1.2. Excluded Assets 2
Section 1.3. Limited Assumption of Liabilities 3
Section 1.4. Licenses 3
Section 1.5. Delivery of Equipment 4
ARTICLE 2 CONSIDERATION AND MANNER OF PAYMENT 4
Section 2.1. Purchase Price 4
Section 2.2. Payment of Purchase Price 5
Section 2.3. Determination of Inventory Cost Basis 5
Section 2.4. Payment of Other Inventory Value 6
Section 2.5. Payment of Finished Goods Value 6
Section 2.6. Payment of Packaging Materials Value 8
Section 2.7. Other Matters Regarding Inventory 10
Section 2.8. Green Coffee Purchase Commitments 10
Section 2.9. Calculation of Sysco Consideration 11
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER 13
Section 3.1. Organization; Good Standing 13
Section 3.2. Authorization 13
Section 3.3. Transaction Not a Breach 13
Section 3.4. No Brokers or Finders 14
Section 3.5. Absence of Changes or Events 14
Section 3.6. Personal Property 14
Section 3.7. Contracts 14
Section 3.8. Compliance with Applicable Laws 15
Section 3.9. Licenses and Permits 15
Section 3.10. Health, Safety and Environment 15
Section 3.11. Employee Benefit Plans 15
Section 3.12. Litigation 16
Section 3.13. Products 16
Section 3.14. Intellectual Property 16
Section 3.15. Customer; Suppliers; Adverse Conditions 16
Section 3.16. Warranties 16
Section 3.17. Labor 16
Section 3.18. Financial Statements 17
Section 3.19. Inventory 17
Section 3.20. Disclosure 17
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER 17
Section 4.1. Company Organization 17
Section 4.2. Authorization 17
Section 4.3. Transaction Not a Breach 18
Section 4.4. No Brokers or Finders 18
ARTICLE 5 CLOSING 18
Section 5.1. Closing 18
Section 5.2. Deliveries by Seller 18
Section 5.3. Deliveries by Buyer 19
ARTICLE 6 INDEMNIFICATION 20
Section 6.1. Indemnification by Seller 20
Section 6.2. Indemnification by Buyer 21
Section 6.3. Indemnification Procedure for Third Party Claims
21
Section 6.4. Failure to Give Timely Notice 23
Section 6.5. Certain Limitations on Remedies 23
Section 6.6. Fraud 24
Section 6.7. No Set-Off 24
ARTICLE 7 OTHER AGREEMENTS 24
Section 7.1. Employees 24
Section 7.2. Noncompetition 25
Section 7.3. Assignment of Confidentiality Agreements 26
Section 7.4. Collection of Accounts Receivable 26
ARTICLE 8 MISCELLANEOUS 26
Section 8.1. Notices 26
Section 8.2. General Definitions 27
Section 8.3. Entire Agreement 28
Section 8.4. Counterparts 28
Section 8.5. Third Parties 28
Section 8.6. Expenses 28
Section 8.7. Waiver 28
Section 8.8. Survival 29
Section 8.9. Governing Law 29
Section 8.10. Assignments 29
Section 8.11. Headings 29
Section 8.12. Construction 29
Section 8.13. Public Announcements 29
GLOSSARY OF DEFINED TERMS
"AC Humko" Section 1.4
"Accountants" Section 2.3(c)
"Adjusted MGC Price" Section 2.8(c)(i)
"Affiliate" Section 8.2
"Agreement" Introduction
"Assets" Section 1.1
"Assumed Contracts" Section 1.1(e)
"Assumed Liabilities" Section 1.3
"Audited Financial Statements" Section 3.18
"Basket Exclusion" Section 6.5(a)
"Business Unit" Recital
"Business Unit Financials" Section 3.18
"Buyer" Introduction
"Buyer Indemnified Party" Section 6.1
"CERCLA" Section 8.2
"Closing" Section 5.1
"Closing Date" Section 5.1
"Customer Equipment" Section 1.1(b)
"Defense Counsel" Section 6.3(a)
"Defense Notice" Section 6.3(a)
"Environmental and Safety Requirements" Section 3.10(a)/8.2
"Equipment" Section 1.1(c)
"Equipment Program Adjustment" Section 2.9(d)
"Escrow Agreement" Section 5.2(i)
"Estimated Finished Goods Value" Section 2.2(a)
"Estimated Other Inventory Value" Section 2.2(a)
"Estimated Packaging Goods Value" Section 2.2(a)
"Excluded Assets" Section 1.2
"Excluded Liabilities" Section 1.3
"FG Escrow Amount" Section 2.5(a)(i)(A)
"FG Overage Amount" Section 2.5(a)(i)
"FG Value Excess" Section 2.5(d)(i)
"Finished Goods Cost Basis" Section 2.3(a)
"Finished Goods Inventory" Section 2.3(a)
"Finished Goods Statement" Section 2.5(b)
"Finished Goods Value" Section 2.5(b)
"Fixed Green Coffee Price" Section 2.8(a)
"GAAP" Section 3.18
"Gilster" Section 1.4
"Green Coffee Purchase Commitments" Section 1.1(e)
"Green Coffee Statement" Section 2.8(a)
"Hazardous Materials" Section 8.2
"Indemnified Party" Section 6.3(a)
"Indemnifying Party" Section 6.3(a)
"Intellectual Property" Section 1.1(f)
"Inventory" Section 1.1(a)
"Inventory Locations" Section 1.1(a)
"Inventory Statement" Section 2.3(a)
"Licensees" Section 1.4
"Licenses" Section 1.4
"Liens" Section 1.1
"Lockbox Documents" Section 5.2(h)
"Losses" Section 6.1
"Market Green Coffee Price" Section 2.8(a)
"Material Adverse Effect" Section 3.1
"Material Contracts" Section 3.7
"ME Delivery Date" Section 1.5(a)
"ME Notice" Section 1.5(a)
"Non-Exclusive Proprietary Rights" Section 1.4
"Other Inventory" Section 2.3(a)
"Other Inventory Value" Section 2.3(a)
"Packaging Materials Cost Basis" Section 2.3(a)
"Packaging Materials Inventory" Section 2.3(a)
"Packaging Materials Statement" Section 2.6(b)
"Packaging Materials Value" Section 2.6(b)
"Permitted Liens" Section 8.2
"Person" Section 8.2
"Pfingsten" Section 7.2(a)
"PM Escrow Amount" Section 2.6(a)(i)(A)
"PM Overage Amount" Section 2.6(a)(i)
"PM Value Excess" Section 2.6(d)(i)
"Post-Closing Sysco Volume" Section 2.9(b)
"Pre-Closing Sysco Volume" Section 2.9(a)
"Purchase Price" Section 2.1
"RCRA" Section 8.2
"Required Consents" Section 3.7
"Restricted Business" Section 7.2(a)
"Rules" Section 3.3(a)
"Seller" Introduction
"Seller Equipment Lease Receivables" Section 1.2(vi)
"Seller Indemnified Party" Section 6.2
"Sysco" Section 1.1(d)
"Sysco Consideration" Section 2.9(c)
"Sysco Equipment Lease Receivables" Section 1.1(d)
"Term" Section 7.2(a)
"Third Party Claim" Section 6.3(a)
"Torbitt" Section 1.4
"Torbitt Proprietary Rights" Section 1.4
"Transaction Documents" Section 1.3
"Transferred Employees" Section 7.1(a)
"Transition Agreement" Section 5.2(f)
"WARN" Section 7.1(b)(iv)
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is dated as of
July 14, 1998, by and between CHOCK FULL O' NUTS CORPORATION, a New York
corporation ("Buyer"), and PARK, L.P., an Illinois limited partnership
("Seller").
RECITAL
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, substantially all of Seller's assets used in or
relating to Seller's coffee, cappuccino, hot cocoa and leaf tea business
(as more fully described in Section D of Seller's Confidential Offering
Memorandum) which is operated at 511 Lake Zurich Road, Barrington,
Illinois 60010 (the "Business Unit"), on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual promises and
agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
Section 1.1. Assets. On the terms and subject to the conditions set
forth in this Agreement, at the Closing (as defined herein), Seller
agrees to sell, transfer and deliver to Buyer, free and clear of all
liens, mortgages, charges, security interests, pledges or other
encumbrances or adverse claims or interests of any nature ("Liens"),
other than Permitted Liens, and Buyer agrees to purchase from Seller, all
of Seller's right, title and interest in and to the following assets used
or held in connection with the Business Unit (other than Excluded Assets)
(collectively the "Assets"):
(a) Inventory. All inventory of the Business Unit (the
"Inventory") which Inventory is located at the locations set forth on
Schedule 1.1(a) (the "Inventory Locations");
(b) Equipment at Customers. All equipment owned by Seller
and located on the premises of any customer of Seller (but not including
equipment relating to the Seller Equipment Lease Receivables as defined
in Section 1.2(vi)), which equipment has been made available to such
customer for use by such customer in its operations ("Customer
Equipment");
(c) Equipment. The equipment used in the operation of the
Business Unit as set forth on Schedules 1.1(c)(1) and 1.1(c)(2) (the
"Equipment");
(d) Sysco Equipment Lease Receivables. All equipment lease
receivables (the "Sysco Equipment Lease Receivables"), if any, due from
Sysco Corporation ("Sysco");
(e) Contracts. All purchase orders, customer commitments
and allowances, advertising agreements, purchase commitments for green
coffee (the "Green Coffee Purchase Commitments"), and other contracts or
commitments relating to the Business Unit, which are set forth on
Schedule 1.1(d) and all purchase orders, not exceeding $10,000
individually or $150,000 in the aggregate, to be performed within three
(3) months of the Closing Date relating to the Business Unit whether or
not set forth on Schedule 1.1(d) (collectively, the "Assumed Contracts").
Notwithstanding the foregoing, if any Green Coffee Purchase Commitments
relate to green coffee which is accounted for as Other Inventory for the
purposes of calculating the Other Inventory Value, such Green Coffee
Purchase Commitment shall not be deemed to be an Assumed Contract for
purposes of this Agreement;
(f) Intellectual Property. The intellectual property,
proprietary rights and related information set forth on Schedule 1.1(e)
(the "Intellectual Property");
(g) all licenses and permits relating to the Business Unit
and/or the Assets;
(h) the goodwill of the Business Unit;
(i) all claims against third parties relating to items
included in the Assets, including, without limitation, unliquidated
rights under manufacturer's and vendor's warranties; and
(j) all customer lists, supplier lists, production records
and other records relating to the Business Unit.
Section 1.2. Excluded Assets. Notwithstanding anything to the
contrary herein, Seller shall not contribute, convey, assign, or transfer
to Buyer, and Buyer shall not acquire, or make any payments or otherwise
discharge any liability or obligation of Seller with respect to any
assets (the "Excluded Assets") of Seller other than those specifically
set forth in Section 1.1. Without limiting the generality of the
forgoing, unless specifically set forth in Section 1.1, the following
shall constitute Excluded Assets:
(i) all assets, contracts and rights of Seller used by
Seller primarily in connection with any line of business other than the
Business Unit;
(ii) any tangible assets of Seller located at any location
other than 511 Lake Zurich Road, Barrington, Illinois (except for (a) the
Inventory located at the Inventory Locations, (b) any Customer Equipment,
and (c) any Equipment listed on Schedules 1.1(c)(1) or 1.1(c)(2);
(iii) all cash, cash equivalents and securities of Seller;
(iv) all bank and other depository accounts of Seller;
(v) all accounts and notes receivable of Seller;
(vi) the equipment lease receivables set forth on
Schedule 1.2(vi) (the "Seller Equipment Lease Receivables") and the
equipment relating to the Seller Equipment Lease Receivables.
(vii) AS/400 and Honeywell computer systems and corresponding
software;
(viii) telephone system;
(ix) silos;
(x) the Obsolete Packaging Materials Inventory and the
Obsolete Finished Good Inventory (as such terms are defined in
Schedule 2.3(b)); and
(xi) all corporate records and minute books of Seller.
Section 1.3. Limited Assumption of Liabilities. Notwithstanding
anything to the contrary contained in this Agreement or any agreement,
document, certificate or instrument being delivered pursuant to this
Agreement (collectively, the "Transaction Documents"), and regardless of
whether such liability is disclosed in this Agreement, in any of the
Transaction Documents or on any Schedule hereto or thereto, Buyer will
not assume, agree to pay, perform or discharge or in any way be
responsible for any debts, liabilities or obligations of the Business
Unit or Seller of any kind or nature whatsoever, whether fixed or
unfixed, known or unknown, asserted or unasserted, choate or inchoate,
liquidated or unliquidated, or secured or unsecured, including, without
limitation, any liabilities whatsoever relating, directly or indirectly,
to any Assets, any existing loans to Seller, and any and all liabilities
and obligations of Seller; all such liabilities and obligations not being
assumed by Buyer are defined herein as the "Excluded Liabilities."
Notwithstanding the forgoing, with respect to obligations to be performed
under the Assumed Contracts after the Closing, Buyer will assume such
obligations and liabilities relating thereto ("Assumed Liabilities").
Section 1.4. Licenses. Buyer hereby acknowledges, that in
connection with the sale of Seller's assets used in or relating to
Seller's food oil business and commercial bakery business, retail bakery
business, and cold beverage, gelatin and pudding business, Seller has
granted non-exclusive, royalty-free limited licenses (the "Licenses") to
use certain of Seller's intellectual property as described on Schedule
1.4 (the "Non-Exclusive Proprietary Rights") to the following parties:
(i) AC Humko Corporation, a Delaware corporation ("AC Humko"), pursuant
to an Asset Purchase Agreement, dated March 13, 1998, between Seller and
AC-Humko, (ii) Gilster-Mary Lee Corporation, a Missouri corporation
("Gilster"), pursuant to an Asset Purchase Agreement, dated March 16,
1998, between Seller and Gilster, and (iii) The Torbitt & Castleman
Corporation, a Kentucky corporation ("Torbitt," together with AC Humko
and Gilster, collectively, the "Licensees"), pursuant to an Asset
Purchase Agreement, dated May 29, 1998, between Seller and Torbitt. Buyer
hereby agrees to recognize the Licenses and to take all reasonable steps
necessary to maintain Buyer's right, title and interest in the Non-
Exclusive Proprietary Rights, so as to ensure that Licensees continue to
enjoy the Licenses. Furthermore, Buyer hereby agrees and acknowledges
that if at any time Buyer decides to no longer maintain the Non-Exclusive
Proprietary Rights granted to Torbitt as set forth on Schedule 1.4
("Torbitt Proprietary Rights"), Buyer shall deliver written notice to
Torbitt, specifying that Buyer no longer wishes to maintain such Torbitt
Proprietary Rights and offering Torbitt the option to acquire the Torbitt
Proprietary Rights at no cost to them.
Section 1.5. Delivery of Equipment.
(a) Buyer, in its sole discretion, shall advise Seller in
writing (the "ME Notice") of the date on which the Equipment is to be
available for removal by Buyer (the "ME Delivery Date"); provided,
however, that the ME Delivery Date (i) must be at least twenty (20) days
after the date on which the ME Notice is given and (ii) must, in all
events, be no later than December 20, 1998. Seller shall disassemble,
where required, and pack for shipment to Buyer all Equipment. Such
disassembly and packing shall be done in a workmanlike manner and in
accordance with manufacturer's instructions therefore, if any. Seller
and Buyer shall each pay 50% of the costs associated with the disassembly
and packing of the Equipment set forth on Schedule 1.1(c)(1), and Buyer
shall pay all of the costs associated with the disassembly and packing of
the Equipment set forth on Schedule 1.1(c)(2). In the event Buyer has
failed to remove any Equipment from Seller's premises by the earlier of
(i) twenty (20) days after the ME Delivery Date, or (ii) December 20,
1998, Seller may liquidate, sell or demolish such Equipment in connection
with the demolition of its premises. Seller shall receive all proceeds,
if any, from any such sale or liquidation, and Seller shall pay all costs
and expenses associated with such demolition. Buyer and Seller agree that
notwithstanding anything contained herein to the contrary, risk of loss
and title to the Assets shall be transferred to Buyer effective as of the
Closing.
(b) Seller shall be responsible for any damage to Equipment
occurring on account of Seller's negligence in the disassembly and
packing thereof.
(c) At such time as the Equipment is ready for shipment,
Buyer shall, at its sole cost and expense, be responsible for the removal
of all such Equipment from Seller's premises.
(d) Notwithstanding anything herein to the contrary, Buyer
shall not be entitled to take possession of the Equipment unless it has
paid to Seller all amounts due, as of the ME Delivery Date, to Seller
(except for amounts being contested in good faith by Buyer) under the
Transition Agreement, Section 2.2(b) hereof or Section 7.4 hereof.
ARTICLE 2
CONSIDERATION AND MANNER OF PAYMENT
Section 2.1. Purchase Price. The aggregate purchase price for the
Assets and the covenant not to compete set forth in Section 7.2 hereof
(the "Purchase Price") shall be:
(a) the assumption of the Assumed Liabilities; and
(b) cash in the amount of $5,000,000; and
(c) cash in the amount of the Other Inventory Value
(determined as set forth in Sections 2.3 and 2.4); and
(d) cash in the amount of the Finished Goods Value
(determined as set forth in Sections 2.3 and 2.5); and
(e) cash in the amount of the Packaging Materials Value
(determined as set forth in Sections 2.3 and 2.6); and
(f) plus or minus cash in the amount set forth in
Section 2.8 relating to the Green Coffee Purchase Commitment adjustment;
and
(g) cash in the amount of the Sysco Consideration, if any,
as determined in accordance with Section 2.9.
The Purchase Price shall be allocated among the Assets and the covenant
not to compete for all tax purposes as shall be mutually agreed to by
Buyer and Seller, acting in good faith, within 90 days of the Closing
Date.
Section 2.2. Payment of Purchase Price. The Purchase Price shall be
paid as follows:
(a) on the Closing Date, Buyer shall deliver to Seller by
wire transfer an amount equal to the sum of (i) $5,000,000; plus (ii) an
amount equal to $5,700,000 (the "Estimated Other Inventory Value"); plus
(iii) an amount equal to 92.5% of Seller's good faith estimate of the
Finished Goods Value, which amount is $2,127,500 (the "Estimated Finished
Goods Value"); plus (iv) an amount equal to 85% of Seller's good faith
estimate of the Packaging Materials Value, which amount is $1,402,500
(the "Estimated Packaging Materials Value"); and
(b) the remainder of the Purchase Price, if any, shall be
paid by Buyer to Seller, or the reimbursement of Purchase Price, if any,
shall be paid by Seller to Buyer, as provided in Sections 2.4, 2.5, 2.6,
2.8 and 2.9.
Section 2.3. Determination of Inventory Cost Basis.
(a) Delivery of Inventory Statement. Within twenty (20)
days after the Closing Date, Seller shall deliver to Buyer the "Inventory
Statement" setting forth (i) the value (the "Other Inventory Value") of
the work-in-process and raw materials Inventory (including green coffee
inventory) (the "Other Inventory"), (ii) the cost basis (the "Finished
Goods Cost Basis") of the finished goods Inventory (the "Finished Goods
Inventory") and (iii) the cost basis (the "Packaging Materials Cost
Basis") of the packaging materials Inventory (the "Packaging Materials
Inventory").
(b) Inventory Valuation Methodology. The Other Inventory
Value, Finished Goods Cost Basis and Packaging Materials Cost Basis shall
be determined as follows: (i) the Seller and Buyer jointly shall conduct
a physical count of the Inventory on the Closing Date, and (ii) the
Seller shall value the Other Inventory, Finished Goods Inventory and
Packaging Materials Inventory in accordance with the method set forth on
Schedule 2.3(b) hereof, notwithstanding that such method may not be in
accordance with generally accepted accounting principles.
(c) Dispute Resolution. Within thirty (30) days after
receipt of the Inventory Statement from Seller, Buyer shall inform Seller
whether Buyer has any exceptions to the Inventory Statement. During such
thirty-day period, Buyer shall have the right to communicate with and to
do on-site review of the work papers and other documents prepared by
Seller in connection with the Inventory Statement and Buyer's employees
and agents shall have access to employees of Seller and to all relevant
books and records to the extent reasonably required in order to complete
their review. Unless Buyer delivers to Seller within such thirty-day
period a notice specifying in reasonable detail any such exceptions, the
Other Inventory Value, Finished Goods Cost Basis and Packaging Materials
Cost Basis shall be conclusive and binding on the parties hereto. If
Buyer delivers to Seller a notice setting forth any such exceptions
within such thirty-day period, Buyer and Seller shall promptly endeavor
to resolve the matters set forth in such notice, and if Buyer and Seller
fail to reach an agreement with respect to such matters on or before the
fifteenth day after receipt by Seller of such notice from Buyer, then, as
to any matters in dispute, Buyer and Seller shall refer such matter to
Arthur Andersen L.L.C. (the "Accountants"), and the Accountants shall
promptly make an independent determination of such matters as to which
disagreement remains, which determination shall be conclusive and binding
on the parties hereto (and the Other Inventory Value, Finished Goods Cost
Basis and Packaging Materials Cost Basis shall be deemed to have been
adjusted to reflect such determination) and, as so adjusted, shall
constitute the Other Inventory Value, Finished Goods Cost Basis and
Packaging Materials Cost Basis. The expenses of the Accountants shall be
paid 50% by Buyer and 50% by Seller.
Section 2.4. Payment of Other Inventory Value. Within five days
after the determination of the Other Inventory Value:
(a) if the Other Inventory Value is greater than the
Estimated Other Inventory Value, Buyer shall pay to Seller by wire
transfer the amount of such excess; or
(b) if the Other Inventory Value is less than the Estimated
Other Inventory Value, Seller shall pay to Buyer by wire transfer the
amount of such difference.
Section 2.5. Payment of Finished Goods Value.
(a) Escrow Deposit and Initial Payment. Within five days
after the determination of the Finished Goods Cost Basis:
(i) If the Finished Goods Cost Basis is greater than the
Estimated Finished Goods Value, then such excess shall be referred to as
the "FG Overage Amount" and:
(A) If the FG Overage Amount is greater than 7.5%
of the Finished Goods Cost Basis (the "FG Escrow Amount"), Buyer shall pay
into the Escrow Account (as defined in the Escrow Agreement) by wire
transfer the FG Escrow Amount and shall pay to Seller by wire transfer
the amount by which the FG Overage Amount exceeds the FG Escrow Amount;
or
(B) If the FG Overage Amount is less than the FG
Escrow Amount, Buyer shall pay into the Escrow Account by wire transfer
the FG Overage Amount and Seller shall pay into the Escrow Account by
wire transfer the amount by which the FG Escrow Amount exceeds the FG
Overage Amount; or
(C) If the FG Overage Amount equals the FG Escrow
Amount, Buyer shall pay into the Escrow Account by wire transfer the FG
Escrow Amount.
(ii) If the Finished Goods Cost Basis is less than the
Estimated Finished Goods Value, Seller shall pay into the Escrow Account
by wire transfer the FG Escrow Amount and shall pay to Buyer by wire
transfer the amount by which the Estimated Finished Goods Value exceeds
the Finished Goods Cost Basis.
(iii) If the Finished Goods Cost Basis equals the Estimated
Finished Goods Value, Seller shall pay into the Escrow Account by wire
transfer the FG Escrow Amount.
(b) Delivery of Finished Goods Statement. No later than
February 15, 1999, Buyer shall deliver to Seller a statement (the
"Finished Goods Statement") setting forth the cost basis (based on the
Finished Goods Cost Basis) of the Finished Goods Inventory used by Buyer
up to and including January 31, 1999 (such amount being hereinafter
referred to as the "Finished Goods Value").
(c) Dispute Resolution. Within thirty (30) days after
receipt of the Finished Goods Statement from Buyer, Seller shall inform
Buyer whether Seller has any exceptions to the Finished Goods Value.
During such thirty-day period, Seller shall have the right to communicate
with and to do on-site review of the work papers and other documents
prepared by Buyer in connection with the Finished Goods Statement and
Seller's employees and agents shall have access to employees of Buyer and
to all relevant books and records to the extent reasonably required in
order to complete their review. Unless Seller delivers to Buyer within
such thirty-day period a notice specifying in reasonable detail any such
exceptions, the Finished Goods Value shall be conclusive and binding on
the parties hereto. If Seller delivers to Buyer a notice setting forth
any such exceptions within such thirty-day period, Seller and Buyer shall
promptly endeavor to resolve the matters set forth in such notice, and if
Seller and Buyer fail to reach an agreement with respect to such matters
on or before the fifteenth day after receipt by Buyer of such notice from
Seller, then, as to any matters in dispute, Seller and Buyer shall refer
such matter to the Accountants, and the Accountants shall promptly make
an independent determination of such matters as to which disagreement
remains, which determination shall be conclusive and binding on the
parties hereto (and the Finished Goods Value shall be deemed to have been
adjusted to reflect such determination) and, as so adjusted, shall
constitute the Finished Goods Value. The expenses of the Accountants
shall be paid 50% by Seller and 50% by Buyer.
(d) Disbursements from Escrow and Final Payments. Within
five days of the determination of the Finished Goods Value:
(i) if (x) the Finished Goods Value is greater than (y)
the Finished Goods Cost Basis less the FG Escrow Amount, then the amount of
such excess shall be referred to as the "FG Value Excess" and:
(A) if the FG Value Excess is greater than or equal
to the FG Escrow Amount, the FG Escrow Amount shall be paid to Seller
from the Escrow Account; or
(B) if the FG Value Excess is less than the FG
Escrow Amount, the FG Value Excess shall be paid to Seller from the
Escrow Account and the amount by which the FG Escrow Amount exceeds the
FG Value Excess shall be paid to Buyer from the Escrow Account.
(ii) if (x) the Finished Goods Value is less than (y) the
Finished Goods Cost Basis less the FG Escrow Amount, then the FG Escrow
Amount shall be paid to Buyer from the Escrow Account and the amount, if
any, by which the Finished Goods Cost Basis exceeds the sum of the
Finished Goods Value plus the FG Escrow Amount shall be paid to Buyer by
Seller by wire transfer.
Section 2.6. Payment of Packaging Materials Value.
(a) Escrow Deposit and Initial Payment. Within five days
after the determination of the Packaging Materials Cost Basis:
(i) If the Packaging Materials Cost Basis is greater than
the Estimated Packaging Materials Value, then such excess shall be
referred to as the "PM Overage Amount" and:
(A) If the PM Overage Amount is greater than 15% of
the Packaging Materials Cost Basis (the "PM Escrow Amount"), Buyer shall
pay into the Escrow Account by wire transfer the PM Escrow Amount and
shall pay to Seller by wire transfer the amount by which the PM Overage
Amount exceeds the PM Escrow Amount; or
(B) If the PM Overage Amount is less than the PM
Escrow Amount, Buyer shall pay into the Escrow Account by wire transfer
the PM Overage Amount and Seller shall pay into the Escrow Account by
wire transfer the amount by which the PM Escrow Amount exceeds the PM
Overage Amount; or
(C) If the PM Overage Amount equals the PM Escrow
Amount, Buyer shall pay into the Escrow Account by wire transfer the PM
Escrow Amount.
(ii) If the Packaging Materials Cost Basis is less than the
Estimated Packaging Materials Value, Seller shall pay into the Escrow
Account by wire transfer the PM Escrow Amount and shall pay to Buyer by
wire transfer the amount by which the Estimated Packaging Materials Value
exceeds the Packaging Materials Cost Basis.
(iii) If the Packaging Materials Cost Basis equals the
Estimated Packaging Materials Value, Seller shall pay into the Escrow
Account by wire transfer the PM Escrow Amount.
(b) Delivery of Packaging Materials Statement. No later
than January 15, 2000, Buyer shall deliver to Seller a statement (the
"Packaging Materials Statement") setting forth the cost basis (based on
the Packaging Materials Cost Basis) of the Packaging Materials Inventory
used by Buyer up to and including December 31, 1999 (such amount being
hereinafter referred to as the "Packaging Materials Value").
(c) Dispute Resolution. Within thirty (30) days after
receipt of the Packaging Materials Statement from Buyer, Seller shall
inform Buyer whether Seller has any exceptions to the Packaging Materials
Value. During such thirty-day period, Seller shall have the right to
communicate with and to do on-site review of the work papers and other
documents prepared by Buyer in connection with the Packaging Materials
Statement and Seller's employees and agents shall have access to
employees of Buyer and to all relevant books and records to the extent
reasonably required in order to complete their review. Unless Seller
delivers to Buyer within such thirty-day period a notice specifying in
reasonable detail any such exceptions, the Packaging Materials Value
shall be conclusive and binding on the parties hereto. If Seller
delivers to Buyer a notice setting forth any such exceptions within such
thirty-day period, Seller and Buyer shall promptly endeavor to resolve
the matters set forth in such notice, and if Seller and Buyer fail to
reach an agreement with respect to such matters on or before the
fifteenth day after receipt by Buyer of such notice from Seller, then, as
to any matters in dispute, Seller and Buyer shall refer such matter to
the Accountants, and the Accountants shall promptly make an independent
determination of such matters as to which disagreement remains, which
determination shall be conclusive and binding on the parties hereto (and
the Packaging Materials Value shall be deemed to have been adjusted to
reflect such determination) and, as so adjusted, shall constitute the
Packaging Materials Value. The expenses of the Accountants shall be paid
50% by Seller and 50% by Buyer.
(d) Disbursements from Escrow and Final Payments. Within
five days of the determination of the Packaging Materials Value:
(i) if (x) the Packaging Materials Value is greater than
(y) the Packaging Materials Cost Basis less the PM Escrow Amount, then
the amount of such excess shall be referred to as the "PM Value Excess"
and:
(A) if the PM Value Excess is greater than or equal
to the PM Escrow Amount, the PM Escrow Amount shall be paid to Seller
from the Escrow Account; or
(B) if the PM Value Excess is less than the PM
Escrow Amount, the PM Value Excess shall be paid to Seller from the
Escrow Account and the amount by which the PM Escrow Amount exceeds the
PM Value Excess shall be paid to Buyer from the Escrow Account.
(ii) if (x) the Packaging Materials Value is less than (y)
the Packaging Materials Cost Basis less the PM Escrow Amount, then the PM
Escrow Amount shall be paid to Buyer from the Escrow Account and the
amount, if any, by which the Packaging Materials Cost Basis exceeds the
sum of the Packaging Materials Value plus the PM Escrow Amount shall be
paid to Buyer by Seller by wire transfer.
Section 2.7. Other Matters Regarding Inventory.
(a) Seller shall destroy the Obsolete Packaging Materials
Inventory. Seller shall have the right to sell the Obsolete Finished
Goods Inventory; provided, however, Seller shall not sell the Obsolete
Finished Goods Inventory to customers of Seller or in packaging
containing the name of any customers of Seller.
(b) To the extent Buyer requires any items included in the
Packaging Materials Inventory or the Finished Goods Inventory, Buyer
shall first satisfy such requirements from the Packaging Materials
Inventory or the Finished Goods Inventory; provided, that, with respect
to the Finished Goods Inventory, such Finished Goods Inventory is of a
saleable quality and, with respect to the Packaging Materials Inventory,
such Packaging Materials Inventory is useable in the ordinary course of
business. Upon reasonable notice, Seller shall have the right to enter
Buyer's premises during normal business hours to inventory the Packaging
Materials Inventory and the Finished Goods Inventory. On a quarterly
basis, Buyer shall provide Seller with a report setting forth its usage
of the Packaging Materials Inventory and the Finished Goods Inventory.
(c) Within thirty (30) days after the final determination
of the Finished Goods Value, Seller shall have the right to remove and
sell any Finished Goods Inventory not included in the Finished Goods
Value; provided, however, Seller shall not sell such Finished Goods
Inventory to customers of Seller or in packaging containing the name of
any customers of Seller. Within thirty (30) days of the final
determination of the Packaging Materials Value, Seller shall have the
right to remove and destroy any Packaging Materials Inventory not
included in the Packaging Materials Value. To the extent Buyer does not
make available to Seller any such Finished Goods Inventory or Packaging
Materials Inventory for removal, Buyer shall pay to Seller the cost basis
of such unavailable Inventory.
Section 2.8. Green Coffee Purchase Commitments.
(a) Delivery of Green Coffee Statement. Within twenty (20)
days of the Closing Date, Seller shall deliver to Buyer a statement (the
"Green Coffee Statement") setting forth a detailed calculation of:
(i) the aggregate purchase price (the "Fixed Green Coffee Price") for the
green coffee as set forth in the Green Coffee Purchase Commitments having
fixed purchase prices (but not including any Green Coffee Purchase
Commitments which relate to green coffee which is accounted for as Other
Inventory for the purposes of calculating the Other Inventory Value) and
(ii) the aggregate purchase price (the "Market Green Coffee Price") for
the same quantity, quality and month of delivery of the green coffee
which is the subject of such Green Coffee Purchase Commitments,
calculated based on the market price as of the Closing Date.
(b) Dispute Resolution. Within thirty (30) days after
receipt of the Green Coffee Statement from Seller, Buyer shall inform
Seller whether Buyer has any exceptions to the Green Coffee Statement.
During such thirty-day period, Buyer shall have the right to review the
documents prepared by Seller in connection with the Green Coffee
Statement and Buyer's employees and agents shall have access to employees
of Seller and to all relevant books and records to the extent reasonably
required in order to complete their review. Unless Buyer delivers to
Seller within such thirty-day period a notice specifying in reasonable
detail any such exceptions, the Fixed Green Coffee Price and the Market
Green Coffee Price shall be conclusive and binding on the parties hereto.
If Buyer delivers to Seller a notice setting forth any such exceptions
within such thirty-day period, Buyer and Seller shall promptly endeavor
to resolve the matters set forth in such notice, and if Buyer and Seller
fail to reach an agreement with respect to such matters on or before the
fifteenth day after receipt by Seller of such notice from Buyer, then, as
to any matters in dispute, Buyer and Seller shall refer such matter to
the Accountants, and the Accountants shall promptly make an independent
determination of such matters as to which disagreement remains, which
determination shall be conclusive and binding on the parties hereto (and
the Fixed Green Coffee Price and the Market Green Coffee Price shall be
deemed to have been adjusted to reflect such determination) and, as so
adjusted, shall constitute the Fixed Green Coffee Price and the Market
Green Coffee Price. The expenses of any such accounting firm shall be
paid by 50% by Buyer and 50% by Seller.
(c) Within five days after the determination of the Fixed
Green Coffee Price and the Market Green Coffee Price:
(i) if the Fixed Green Coffee Price is greater than the sum
of the Market Green Coffee Price plus $100,000 (the "Adjusted MGC
Price"), Seller shall pay to Buyer by wire transfer the amount of such
difference; or
(ii) if the Fixed Green Coffee Price is less than the
Adjusted MGC Price, Buyer shall pay to Seller by wire transfer the amount
of such difference.
The Other Inventory payment, if any, to be made pursuant to
Section 2.4 shall be netted against the payment, if any, to be made
pursuant to this Section 2.8(c).
Section 2.9. Calculation of Sysco Consideration and Price
Adjustment.
(a) Pre-Closing Sysco Volume. Within thirty (30) days of
the Closing Date, Seller shall prepare and deliver to Buyer a schedule
setting forth the monthly average volume of coffee (excluding Chef's
Blend) measured in pounds purchased by Sysco in the twelve (12) month
period ending on June 30, 1998 ("Pre-Closing Sysco Volume"). Seller
shall provide Buyer and its representatives with all documentation and
books and records reasonably necessary for Buyer to verify the Pre-
Closing Sysco Volume. To the extent Buyer disagrees with Seller's
proposed Pre-Closing Sysco Volume, it shall notify Seller in writing
within ten (10) days of receipt of such proposed Pre-Closing Sysco Volume
and, thereafter, Seller and Buyer shall cooperate to reach agreement as
to the amount of the Pre-Closing Sysco Volume. If Seller and Buyer
cannot agree upon the Pre-Closing Sysco Volume, the matter shall be
referred to the Accountants for resolution. Buyer, on the one hand, and
Seller, on the other hand, shall bear the fees and expenses of the
Accountants equally. The determination of the Pre-Closing Sysco Volume
by the Accountants shall be final and binding on Seller and Buyer.
(b) Post-Closing Sysco Volume. No later than January 15,
2000, Buyer shall prepare and deliver to Seller a schedule setting forth
the monthly average volume of coffee (excluding Chef's Blend) measured in
pounds purchased by Sysco for the twelve (12) month period commencing
January 1, 1999 ("Post-Closing Sysco Volume") and the amount of the
Equipment Program Adjustment (as defined in Section 2.9(d)). Buyer shall
provide Seller and its representatives with all documentation and books
and records reasonable necessary for Seller to verify the Post-Closing
Sysco Volume and the Equipment Program Adjustment. To the extent Seller
disagrees with Buyer's proposed Post-Closing Sysco Volume or Equipment
Program Adjustment, it shall notify Buyer in writing within ten days of
receipt of such statement and, thereafter, Buyer and Seller shall
cooperate to reach agreement as to the amount of the Post-Closing Sysco
Volume and the Equipment Program Adjustment. If Buyer and Seller cannot
agree upon the Post-Closing Sysco Volume or Equipment Program Adjustment,
the matter shall be referred to the Accountants for resolution. Buyer, on
the one hand, and Seller on the other hand, shall bear the fees and
expenses of the Accountants equally. The determination of the Post-
Closing Sysco Volume and the Equipment Program Adjustment by the
Accountants shall be final and binding on Buyer and Seller.
(c) Sysco Consideration and Price Adjustment. If the Post-
Closing Sysco Volume is at least eighty-five percent (85%) of the Pre-
Closing Sysco Volume, Buyer, within five (5) days of the final
determination of the Post-Closing Sysco Volume in accordance with Section
2.9(b) above, shall pay Seller Seven Hundred and Fifty Thousand Dollars
($750,000) (the "Sysco Consideration"). If the Post-Closing Sysco Volume
is less than eighty-five percent of the Pre-Closing Sysco Volume, then
for each one percent (1%) of the Post-Closing Sysco Volume less than
eighty-five percent (85%) of the Pre-Closing Sysco Volume, the Sysco
Consideration will be reduced by fifteen thousand dollars ($15,000), and
Buyer shall pay to Seller the Sysco Consideration, as may be adjusted as
set forth in this Section 2.9(c), within five (5) days of such final
determination. The calculation of the Sysco Consideration shall be made
in accordance with the example calculation set forth in Schedule 2.9(c).
(d) Sysco Equipment Program. The amount due the Seller in
Section 2.9(c) will be reduced (but not below zero) by the cost of any
new equipment or spare parts purchased, or equipment services provided,
all consistent with the past practices of Seller during the twelve (12)
month period ending June 30, 1998, for those Sysco houses set forth on
Schedule 2.9(d) (for which Seller is supplying equipment, equipment
services and spare parts as of the Closing Date) by Buyer during the
period from the Closing Date to December 31, 1999, offset by the
aggregate of all up charges for any equipment in the Sysco pricing during
such period (the "Equipment Program Adjustment").
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents, warrants and covenants to Buyer that:
Section 3.1. Organization; Good Standing. Seller is an Illinois
limited partnership duly organized, validly existing and in good standing
under the laws of the State of Illinois and has all requisite power and
authority to own, lease and operate its assets, properties and business
and to carry on its business as now being conducted. Seller is duly
qualified or otherwise authorized to transact business in each
jurisdiction where the failure to so qualify would have a material
adverse effect on the Business Unit ("Material Adverse Effect"). The
jurisdictions in which the Seller is qualified with respect to the
operations of the Business Unit are set forth on Schedule 3.1.
Section 3.2. Authorization. Seller has the requisite power and
authority to execute, deliver and perform its obligations under this
Agreement and the Transaction Documents to which it is a party. The
execution and delivery of this Agreement and the Transaction Documents to
which it is a party, the performance by Seller of its obligations
hereunder and thereunder and the consummation by Seller of the
transactions contemplated hereby and thereby have been duly authorized by
all necessary action on the part of the Seller and no other proceedings
on the part of Seller are necessary. This Agreement and the Transaction
Documents to which Seller is a party have been duly executed and
delivered by Seller and constitute the legal, valid and binding
obligation of Seller, enforceable against it in accordance with their
respective terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors generally and the availability of
equitable remedies.
Section 3.3. Transaction Not a Breach. Except as set forth on
Schedule 3.3, neither the execution and delivery of this Agreement or the
Transaction Documents by Buyer nor the performance by Buyer of the
transactions contemplated hereby or thereby will:
(a) (i) violate or conflict with or result in a breach of
any provision of any law, statute, rule, regulation, order, permit,
judgement, injunction, decree or other decision (collectively "Rules") of
any court or other tribunal or any governmental entity or agency binding
on Seller or (ii) conflict with or result in the breach of any of the
terms, conditions or provisions thereof;
(b) constitute a default under the certificate of limited
partnership or limited partnership agreement of Seller, or, of any
Material Contract listed or required to be listed on Schedule 3.7;
(c) constitute an event which would permit any party to
terminate, or accelerate the maturity of any indebtedness or other
obligation under, any Material Contract listed or required to be listed
on Schedule 3.7;
(d) result in the creation or imposition of any Lien upon
the Assets; or
(e) require any authorization, consent, approval, exemption
or other action by or notice to any court or administrative or
governmental body.
Section 3.4. No Brokers or Finders. Other than J.H. Chapman,
L.L.C., the fees and expenses of which shall be borne by Seller, Seller
has not retained any broker or finder, made any statement or
representation to any Person which would entitle such Person to, or
agreed to pay, any broker's, finder's or similar fees or commissions in
connection with the transactions contemplated by this Agreement.
Section 3.5. Absence of Changes or Events. Except as set forth on
Schedule 3.5, since December 31, 1997 Seller has operated the Business
Unit in the ordinary course of business.
Section 3.6. Personal Property. Seller has good and valid title,
free and clear of all Liens except for Permitted Liens, to the Assets.
THE ASSETS (OTHER THAN INVENTORY) BEING SOLD TO BUYER HEREUNDER ARE BEING
SOLD ON AN "AS-IS" BASIS AND SELLER HEREBY DISCLAIMS ANY AND ALL
REPRESENTATIONS AND WARRANTIES REGARDING THE FITNESS OR CONDITION OF THE
ASSETS (OTHER THAN INVENTORY), INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR WARRANTY OF
MERCHANTABILITY. Except as set forth on Schedule 3.6, none of the
personal property of Seller is held under any lease, security agreement,
conditional sales contract or other title retention or security
arrangement, or is located other than at 511 Lake Zurich Road,
Barrington, Illinois.
Section 3.7. Contracts. Schedule 3.7 is a correct and complete list
of every material written contract, agreement, relationship or
commitment, and, to the actual knowledge of Seller, every material oral
contract, commitment, agreement or relationship, relating to the Business
Unit to which Seller is a party (and which, to the actual knowledge of
Seller, is in effect) or by which Seller is bound (the "Material
Contracts"), correct and complete copies of which previously have been
furnished to Buyer. Except as set forth on Schedule 3.7, Seller is not
in default, and no event has occurred which with the giving of notice or
the passage of time or both would constitute a default by Seller, under
any Material Contract or any other obligation owed by Seller, which
default would, either individually or together with such other defaults
have a Material Adverse Effect, and, to the actual knowledge of Seller,
no event has occurred which with the giving of notice or the passage of
time or both would constitute such a default by any other party to any
such Material Contract or obligation. Except as set forth on Schedule
3.7(a), no consent is required to assign any Material Contract to Buyer
(all such consents being hereinafter called "Required Consents") and (b)
the assignment of any Material Contract to Buyer will not (i) result in
the automatic termination of such Material Contract, (ii) result in the
automatic amendment of any of the terms of such Material Contract or
(iii) give rise to a right of any party to unilaterally amend the terms
of, renegotiate the terms of, or terminate any such Material Contract.
Section 3.8. Compliance with Applicable Laws. Seller is not in
violation of any Rules in connection with the conduct, ownership, use,
occupancy or operation of the Business Unit or the Assets, nor has Seller
received notice (written or oral) of any such violation, which violation
would have a Material Adverse Affect.
Section 3.9. Licenses and Permits. Seller holds all permits,
licenses and approvals of governmental authorities and agencies necessary
for the current conduct, ownership, use, occupancy or operation of the
Business Unit or the Assets. Seller is in compliance in all material
respects with such permits, licenses and approvals, all of which are in
full force and effect, and Seller has not received any notices (written
or oral) to the contrary; all of such permits, licenses and approvals
being set forth on Schedule 3.9.
Section 3.10. Health, Safety and Environment.
(a) Compliance with Environmental and Safety Requirements.
To the actual knowledge of Seller, except as set forth on Schedule
3.10, it is in compliance with all applicable federal, state and local
laws, rules, regulations, ordinances and requirements relating to public
health and safety, worker health and safety and pollution and protection
of the environment, all as amended or hereafter amended ("Environmental
and Safety Requirements"), with respect to which Seller's failure to
comply would have a Material Adverse Effect.
(b) No Hazardous Wastes. Except as set forth in Schedule
3.10 and to the actual knowledge of Seller, Seller has never generated,
transported, treated, stored, or disposed of any Hazardous Wastes at any
site, location or facility other than in material compliance with
Environmental and Safety Requirements and, to Seller's actual knowledge,
(i) no such Hazardous Wastes are present on, in or under any real
property owned or used by Seller, and (ii) such property does not contain
(including without limitation, containment by means of any underground
storage tank) any Hazardous Waste.
(c) No Actions or Proceedings. Seller has not been subject
to, or received any notice (written or oral) of any private,
administrative or judicial action, or any notice (written or oral) of any
intended private, administrative, or judicial action relating to the
presence or alleged presence of Hazardous Wastes in, under or upon any
real property owned or used by Seller, and other than as set forth on
Schedule 3.10, to the actual knowledge of Seller, (i) there is no
reasonable basis for any such notice or action; and (ii) there are no
pending or threatened actions or proceedings (or notices of potential
actions or proceedings) from any governmental agency or any other entity
regarding any matter relating to health, safety or protection of the
environment.
Section 3.11. Employee Benefit Plans. Correct and complete
copies of all employee benefit plans of Seller relating to the employees
of the Business Unit previously have been furnished to Buyer and, to the
actual knowledge of Seller, such employee benefit plans are in
substantial compliance with governing documents and agreements and with
applicable laws.
Section 3.12. Litigation. Except as set forth in Schedule
3.12, there is no suit, action, proceeding, claim, order, arbitration or
investigation, either administrative or judicial, pending or, to the
actual knowledge of Seller, threatened against any of Seller (or pending
or, to the actual knowledge of Seller, threatened against any of the
current or former officers, directors or employees of any of Seller) with
respect to the Business Unit or the Assets, which if adversely determined
could reasonably be expected to have a Material Adverse Effect, before
any court, or before any governmental department, commission, board,
agency, or instrumentality. Seller, in connection with or relating to
the Assets or the Business Unit, (i) is not subject to any judgment,
order or decree of any court or governmental agency; (ii) has not
received any opinion or memorandum or legal advice from legal counsel to
the effect that it is exposed from a legal standpoint, to any liability
which may be material to its business; and (iii) is not engaged in any
legal action to recover monies due it or for damages sustained by it.
Section 3.13. Products. Schedule 3.13 contains a list of all
products presently manufactured or sold by Seller in the operation of the
Business Unit. None of the products manufactured or sold by Seller has
in the past five years been recalled by Seller or, to the best of
Seller's actual knowledge, by any distributor, dealer or other
independent agent.
Section 3.14. Intellectual Property. The Intellectual
Property contains all material patents, patent rights, patent
applications, licenses, trademarks, trademark applications, tradenames,
copyrights and similar rights currently used in the Business Unit.
Section 3.15. Customer; Suppliers; Adverse Conditions. Except
as set forth on Schedule 3.15, there has not, since January 1, 1998, been
any termination or cancellation of the business relationship of Seller
with any of the major customers or major suppliers of the Business Unit.
Section 3.16. Warranties. All of Seller's standard warranties
and service policies covering the products sold by the Business Unit
which are in force as of the date hereof are set forth in Schedule 3.16.
Section 3.17. Labor. Seller is in material compliance with
all applicable laws respecting employment and employment practices, terms
and conditions of employment, occupational safety and health, and wages
and hours (except where the failure to be in compliance would not have a
Material Adverse Effect) and Seller has not received any written notice
that it has failed to comply in any respect with any such laws. Seller
has not engaged in any unfair labor practice. There is no unfair labor
practice complaint against Seller pending before the National Labor
Relations Board or, to the best of Seller's actual knowledge, threatened.
There is no labor strike, dispute, slowdown or stoppage, actual, pending
or, to the best of Seller's actual knowledge, threatened, against or
affecting Seller. To the best of Seller's actual knowledge, there are no
charges, claims, lawsuits or proceedings by or on behalf of any of its
employees, whether threatened or pending, asserting any violation of any
federal, state or local law regarding civil rights, equal employment
opportunity, fair employment practices, or discrimination or harassment
based on any legally protected status, or asserting any other dispute,
tort or cause of action related to or growing out of the employment
relationship or asserted contractual relationship of Seller and any
employee (except for unemployment compensation claims or medical claims).
The Seller is not a party to any collective bargaining agreement with
any union or other representative of employees and no question concerning
representation exists with regard to any group of employees of Seller.
Section 3.18. Financial Statements. A copy of the audited
financial statements for the Seller, as of and for the period ended
December 27, 1997 (the "Audited Financial Statements"), is included in
Schedule 3.18. Except as specified in Schedule 3.18, the Audited
Financial Statements were prepared using generally accepted accounting
principles ("GAAP") consistently applied, and present fairly the
financial position of Seller as of December 31, 1997, and the results of
operations, and cash flows for the period then ended. A copy of the
unaudited financial statements for the Business Unit as of and for the
period ended December 27, 1997 and as of and for the period ended
March 31, 1998 (the "Business Unit Financials") are included in
Schedule 3.18. Seller has advised Buyer and Buyer acknowledges that the
Business Unit Financials have not been compiled, reviewed, certified or
audited by any independent Person or accounting firm. The Business Unit
Financials are based on Seller's management's reasonable estimates as to
the allocation of overhead and other shared expenses among Seller's other
business units. Except as specified in Schedule 3.18, the Business Unit
Financials were prepared in accordance with GAAP consistently applied and
present fairly in all material respects the results of operations for the
year ended December 27, 1997 and the three months ended March 31, 1998.
Section 3.19. Inventory. Except for Inventory that is
accorded no value pursuant to the application of Schedule 2.3(b),
Section 2.5 or Section 2.6 hereto, all Inventory will be merchantable and
of a quality and quantity usable or salable by Buyer in its operations of
the Business Unit in the ordinary course
Section 3.20. Disclosure. The parties agree that any item
disclosed in any Schedule to this Agreement shall be deemed to have been
disclosed on all Schedules to this Agreement wherein such disclosure may
have been required.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents, warrants and covenants to Seller that:
Section 4.1. Company Organization. Buyer is a corporation duly
organized validly existing under the laws of the State of New York.
Buyer has the power and authority to own
all of its properties and assets and to conduct its business, except
where the failure to have such power would not have a material adverse
effect on its business.
Section 4.2. Authorization. The execution and delivery of this
Agreement and the Transaction Documents to which Buyer is a party, the
performance by Buyer of its obligations hereunder and thereunder and the
consummation by Buyer of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action and no other
act or proceeding on the part of Buyer is necessary. Buyer has full
power and authority to enter into, execute and deliver this Agreement and
the Transaction Documents to which Buyer is a party and to perform its
obligations hereunder and thereunder. Assuming the due authorization,
execution and delivery hereof by Seller, this Agreement and the
Transaction Documents to which Buyer is a party constitute the valid and
legally binding obligations of Buyer, enforceable in accordance with
their terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the rights of creditors generally, and the availability of
equitable remedies.
Section 4.3. Transaction Not a Breach. Neither the execution and
delivery of this Agreement and the Transaction Documents by Buyer nor the
performance by Buyer of the transactions contemplated hereby or thereby
will:
(a) to the actual knowledge of Buyer (i) violate or
conflict with or result in a breach of any provision of any Rules of any
court or other tribunal or any governmental entity or agency binding on
Buyer or its properties, or (ii) conflict with or result in the breach of
any of the terms, conditions or provisions thereof;
(b) constitute a default under the charter documents or the
by-laws of Buyer, or, to Buyer's actual knowledge, of any material
contract, agreement, indenture or instrument to which Buyer is a party or
by which it is bound;
(c) constitute an event which would permit any party to
terminate, or accelerate the maturity of any indebtedness or other
obligation under, material contract, agreement, indenture or instrument
to which Buyer is a party or by which it is bound;
(d) require any authorization, consent, approval, exemption
or other action by or notice to any court or administrative or
governmental body.
Section 4.4. No Brokers or Finders. Buyer has not retained any
broker or finder, made any statement or representation to any Person
which would entitle such Person to, or agreed to pay, any broker's,
finder's or similar fees or commissions in connection with the
transactions contemplated by this Agreement.
ARTICLE 5
CLOSING
Section 5.1. Closing. The transactions that are the subject of
this Agreement shall be consummated at a closing (the "Closing"), which
shall be held at the offices of Katten Muchin & Zavis, 525 West Monroe
Street, Suite 1600, Chicago, Illinois, contemporaneously with the
execution of this Agreement by the parties hereto (the "Closing Date").
The Closing shall be deemed effective at the close of Seller's business
on the day immediately preceding the Closing Date.
Section 5.2. Deliveries by Seller. At the Closing, Seller shall
deliver or cause to be delivered to Buyer:
(a) Duly executed instruments of transfer and assignment,
including, without limitation, bills of sale and assignments in form and
substance reasonably satisfactory to Buyer and its counsel, sufficient to
vest in Buyer valid title to all of Seller's right, title and interest in
and to the Assets, free and clear of all Liens except for Permitted
Liens.
(b) Intentionally Omitted.
(c) Non-Competition Agreement. The rights of Seller in and
to a three (3) year non-competition agreement between Pfingsten
Investment Partnership I, L.P. and Anthony J. Rebello, a copy of which is
annexed hereto as Exhibit A, shall be assigned to Buyer.
(d) Resolutions. A copy of the requisite consent under the
limited partnership agreement of Seller, certified by the general partner
of Seller as having been duly and validly adopted and in full force and
effect authorizing execution and delivery of this Agreement and the
performance by Seller of the transactions contemplated hereby.
(e) Certificate of Existence. A certificate of existence,
dated within ten (10) days of the Closing Date, by the Secretary of State
of Illinois as to Seller.
(f) Transition Agreement. A transition services agreement
substantially in the form of Exhibit B attached hereto (the "Transition
Agreement") duly executed by an authorized officer of Seller.
(g) Consents. All approvals and/or consents required to
transfer the Assumed Contracts to Buyer.
(h) Lockbox Assignment. The agreements necessary to
transfer to Buyer thirty (30) days after the Closing Date the lockbox
located at LaSalle National Bank into which Seller's accounts receivable
relating to the Business Unit are deposited (the "Lockbox Documents").
(i) Escrow Agreement. The Escrow Agreement dated the date
hereof among Buyer, Seller and American National Bank and Trust Company
of Chicago, as escrow agent (the "Escrow Agreement"), duly executed by
the Seller.
(j) Legal Opinion. A favorable opinion of Katten Muchin &
Zavis, counsel to Seller, addressed to Buyer dated the Closing Date and
in form reasonably satisfactory to Buyer and its counsel.
(k) Other. Such other instruments and documents as Buyer
shall have reasonably requested.
Section 5.3. Deliveries by Buyer. At the Closing, Buyer shall
deliver to Seller:
(a) Wire Transfer. A federal funds wire transfer(s) of the
Cash Portion of the Purchase Price in accordance with Section 2.2.
(b) Assumption Agreement. An assumption agreement in form
and substance reasonably satisfactory to Seller, executed by Buyer,
pursuant to which Buyer assumes the Assumed Liabilities as of the
Closing.
(c) Resolutions. A copy of a resolution of the Board of
Directors of Buyer, certified by the assistant secretary of Buyer as
having been duly and validly adopted and in full force and effect
authorizing execution and delivery of this Agreement and the performance
by Buyer of the transactions contemplated hereby.
(d) Good Standing Certificate. A certificate of good
standing, dated within ten (10) days of the Closing Date, with respect
to Buyer issued by the Secretary of State of New York.
(e) Transition Agreement. The Transition Agreement duly
executed by an authorized officer of Buyer.
(f) Escrow Agreement. The Escrow Agreement duly executed
by the Buyer.
(g) Legal Opinion. A favorable opinion of Morse, Zelnick,
Rose & Lander, LLP, counsel to Buyer, addressed to Seller, dated the
Closing Date and in form reasonably satisfactory to Seller and its
counsel.
(h) Other. Such other instruments and documents as Seller
shall have reasonably requested.
ARTICLE 6
INDEMNIFICATION
Section 6.1. Indemnification by Seller. From and after the Closing,
Seller agrees to indemnify, defend and save Buyer and its officers,
directors, affiliates, employees and agents (each, a "Buyer Indemnified
Party"), harmless from and against, and to promptly pay to a Buyer
Indemnified Party or reimburse a Buyer Indemnified Party for, any and all
liabilities, obligations, deficiencies, demands, claims, suits, actions,
or causes of action, assessments, losses, costs, expenses, interest,
fines, penalties, actual or punitive damages or costs or expenses of any
and all investigations, proceedings, judgments, environmental analyses,
remediations, settlements and compromises (including reasonable fees and
expenses of attorneys, accountants and other experts) (individually and
collectively, the "Losses") sustained or incurred by any Buyer
Indemnified Party relating to, resulting from, arising out of or
otherwise by virtue of any of the following:
(a) any misrepresentation or breach of a representation or
warranty made herein by Seller, or non-compliance with or breach by
Seller of any of the covenants or
agreements contained in this Agreement or the Transaction Documents
to be performed by Seller;
(b) any liability or obligation arising out of or in
connection with the operation of the Business Unit prior to the Closing
Date, except for the Assumed Liabilities;
(c) the failure of Seller to discharge any liability or
obligation of Seller which has not been specifically assumed by Buyer
pursuant to this Agreement.
(d) the assertion or recovery against Buyer of any
liability under any "bulk sales" or similar law or statute relating to
the transfer of the Assets hereunder; and
(e) any claim for payment of fees and/or expenses as a
broker or finder in connection with the origin, negotiation, execution or
consummation of this Agreement based upon any alleged agreement between
the claimant and Seller, including any fees owed to J.H. Chapman, L.L.C.
Section 6.2. Indemnification by Buyer. From and after the Closing,
Buyer agrees to indemnify, defend and save Seller and its partners,
officers, affiliates, employees and agents (each, a "Seller Indemnified
Party") forever harmless from and against, and to promptly pay to a
Seller Indemnified Party or reimburse a Seller Indemnified Party for, any
and all Losses sustained or incurred by any Seller Indemnified Party
relating to, resulting from, arising out of or otherwise by virtue of any
of the following:
(a) any misrepresentation or breach of a representation or
warranty made herein by Buyer, or non-compliance with or breach by Buyer
of any of the covenants or agreements contained in this Agreement or the
Transaction Documents to be performed by Buyer or any of their affiliates
(or the successors or assigns of any of them);
(b) the assertion or recovery against such Seller
Indemnified Party of any liability for Buyer's failure to pay the Assumed
Liabilities;
(c) the assertion or recovery against any Seller
Indemnified Party of any liability or obligation of Buyer arising out of
or in connection with the Buyer's operation of the Business Unit from and
after the Closing Date, and
(d) any Losses relating to or arising from Buyer's
negligence in the removal of the Equipment from Seller's premises; and
(e) any claim for payment of fees and/or expenses as a
broker or finder in connection with the origin, negotiation, execution or
consummation of this Agreement based upon any alleged agreement between
the claimant and Buyer.
Section 6.3. Indemnification Procedure for Third Party Claims.
(a) In the event that subsequent to the Closing any Person
entitled to indemnification under this Agreement (an "Indemnified Party")
asserts a claim for indemnification or receives notice of the assertion
of any claim or of the commencement of any action or proceeding by any
Person who is not a party to this Agreement or an affiliate of a party to
this Agreement (including, but not limited to any domestic or foreign
court or governmental authority, federal, state or local) (a "Third Party
Claim") against such Indemnified Party, against which a party to this
Agreement is required to provide indemnification under this Agreement (an
"Indemnifying Party"), the Indemnified Party shall promptly give written
notice together with a statement of any available information regarding
such claim to the Indemnifying Party within fifteen (15) days after
learning of such claim (or within such shorter time as may be necessary
to give the Indemnifying Party a reasonable opportunity to respond to
such claim). The Indemnifying Party shall have the right, upon written
notice to the Indemnified Party (the "Defense Notice") within thirty days
(30) after receipt from the Indemnified Party of notice of such claim,
which notice by the Indemnifying Party shall specify the counsel it will
appoint to defend such claim ("Defense Counsel"), to conduct at its
expense the defense against such claim in its own name, or if necessary
in the name of the Indemnified Party.
(b) In the event that the Indemnifying Party shall fail to
give the Defense Notice, it shall be deemed to have elected not to
conduct the defense of the subject claim, and in such event the
Indemnified Party shall have the right to conduct such defense in good
faith and to compromise and settle the claim without prior consent of the
Indemnifying Party and the Indemnifying Party will be liable for all
costs, expenses, settlement amounts or other Losses paid or incurred in
connection therewith.
(c) In the event that the Indemnifying Party does deliver a
Defense Notice and thereby elects to conduct the defense of the subject
Third Party Claim, the Indemnified Party will cooperate with and make
available to the Indemnifying Party such assistance and materials as it
may reasonably request, all at the expense of the Indemnifying Party, and
the Indemnified Party shall have the right at its expense to participate
in the defense assisted by counsel of its own choosing. Without the
prior written consent of the Indemnified Party, the Indemnifying Party
will not enter into any settlement of any Third Party Claim or cease to
defend against such claim, if pursuant to or as a result of such
settlement or cessation, (i) injunctive or other equitable relief would
be imposed against the Indemnified Party, or (ii) such settlement or
cessation would lead to liability or create any financial or other
obligation on the part of the Indemnified Party for which the Indemnified
Party is not entitled to indemnification hereunder. If a firm decision
is made to settle a Third Party Claim, which offer the Indemnifying Party
is not permitted to settle under this Section 6.3 without the consent of
the Indemnified Party, and the Indemnifying Party desires to accept and
agree to such offer, the Indemnifying Party will give written notice to
the Indemnified Party to that effect. If the Indemnified Party fails to
consent to such firm offer within 10 calendar days after its receipt of
such notice, the Indemnified Party may continue to contest or defend such
Third Party Claim and, in such event, the maximum liability of the
Indemnifying Party as to such Third Party Claim will not exceed the
amount of such settlement offer, plus costs and expenses paid or incurred
by the Indemnified Party up to the point such notice had been delivered.
Except as provided in Section 6.3(b) hereof, if an Indemnified Party
settles any Third Party Claim without the prior written consent of the
Indemnifying Party, the Indemnifying Party shall have no obligation to
indemnify the Indemnified Party under this Article 6 with respect to such
Third Party Claim.
(d) Notwithstanding Section 6.3(a) hereof, if, after
receipt of a Defense Notice, any Third Party Claim seeks an injunction or
other equitable relief, which, if successful, could reasonably be
expected to materially interfere with the business, operations, assets,
condition (financial or otherwise) of the Business Unit then, and in such
event, Buyer shall have the right to control the defense or settlement of
any such Third Party Claim. If Buyer should so elect to exercise such
right, Buyer shall pay the reasonable legal expenses associated with such
defense and the Indemnifying Party shall have the right at its sole
expense to participate in, but not control, the defense or settlement of
such Third Party Claim. No settlement of any such Third Party Claim may
be made without the consent of the Indemnifying Party which consent may
not be unreasonably withheld.
(e) Any judgment entered or settlement agreed upon in the
manner provided herein shall be binding upon the Indemnifying Party, and
shall conclusively be deemed to be an obligation with respect to which
the Indemnified Party is entitled to prompt indemnification hereunder,
subject to the Indemnifying Party's right to appeal an appealable
judgment or order.
Section 6.4. Failure to Give Timely Notice. A failure by an
Indemnified Party to give timely, complete or accurate notice as provided
in Section 6.3 will not affect the rights or obligations of any party
hereunder except and only to the extent that, as a result of such
failure, any party entitled to receive such notice was deprived of its
right to recover any payment under its applicable insurance coverage or
was otherwise damaged as a result of such failure to give timely notice.
Section 6.5. Certain Limitations on Remedies.
(a) Notwithstanding anything to the contrary set forth in
this Agreement (but subject to the proviso set forth in this sentence),
Seller shall not be liable hereunder to Buyer as a result of any
misrepresentation in any of the representations or warranties of Seller
set forth in this Agreement (or in any Schedule hereto), except to the
extent that the Losses incurred by the subject party as a result of such
misrepresentations shall exceed in the aggregate $75,000 (the "Basket
Exclusion"), and then only to the extent of such excess; provided
however, that the Basket Exclusion shall not apply to any breach of the
representations and warranties contained in Section 3.6. Notwithstanding
the foregoing, when determining whether the Basket Exclusion has been
satisfied, Losses relating to misrepresentations in any of the
representations or warranties of Seller set forth in this Agreement (or
any Schedule hereto) shall be measured without regard to any materiality
qualifiers included in such representations or warranties.
(b) Except as set forth in Section 6.6, the aggregate
amount required to be paid by Seller under this Article 6 shall not
exceed $5,000,000.
(c) Except as set forth in Section 6.6, the indemnification
provided for in this Article 6 shall be the sole and exclusive remedy and
recourse for any and all claims relating to or arising out of any breach
of this Agreement or the Transaction Documents or any obligation
hereunder or thereunder by any party.
(d) Except as set forth in Section 6.6, any indemnification
claim by Buyer or any Buyer Indemnified Party pursuant to Section 6.1 and
Section 6.2 must be asserted by written notice of a claim on or prior to
the date which is twelve (12) months after the Closing Date; provided
that claims based on breaches of Section 3.6, 7.1(d), 7.2 or 7.4 shall
survive until the expiration of the applicable statute of limitations.
(e) With respect to any Losses paid by an Indemnifying
Party, the Indemnified Party shall assign or otherwise cooperate with the
Indemnifying Party to pursue any claims against or otherwise recover such
Losses from any other person or entity.
(f) Any Indemnified Party shall use reasonable efforts to
collect the proceeds of any insurance which would have the effect of
reducing a Losses (in which case such proceeds shall reduce such Losses)
and, if indemnification payments have been received prior to the
collection of such proceeds, shall remit to the Indemnifying Party or
Parties the amount of such proceeds (net of the cost of collection
thereof) to the extent of indemnification payments received in respect of
such Losses.
(g) Any payment made to Buyer under this Article 6 shall be
treated as a reduction of the Purchase Price.
Section 6.6. Fraud. In the case of fraud by any party in connection
with the transactions contemplated hereby, all other parties shall have
all remedies available at law and
at equity without giving effect to any of the limitations set forth in
Sections 6.5(b), (c) or (d) above.
Section 6.7. No Set-Off. Buyer agrees that it shall not have the
right to set-off any indemnification claims it may have under this
Article 6 against any amounts due and owing by Buyer to Seller under any
other provisions of this Agreement or under the Transition Agreement;
provided, however, Buyer shall have the right to set-off any good faith
indemnification claims against the Sysco Consideration. The amount of any
such set-off to the Sysco Consideration shall be deposited by Buyer into
an interest bearing escrow (with an escrow agent and pursuant to an
escrow agreement mutually acceptable to Buyer and Seller) pending
resolution of such claims.
ARTICLE 7
OTHER AGREEMENTS
Section 7.1. Employees.
(a) Employment Offers. Buyer shall offer employment, under
terms and conditions acceptable to Buyer, as of the Closing Date to
certain employees of Seller involved in the Business Unit set forth on
Schedule 7.1. The employees of Seller who accept such offer shall be and
become employees of Buyer effective as of the Closing Date ("Transferred
Employees").
(b) Credit for Past Service. Buyer shall, with respect to
the Transferred Employees, treat the employment with Seller as service
with Buyer only for purposes of eligibility to participate in and vesting
under its pension plan, and for no other purpose.
(c) Health Insurance. Buyer will allow Transferred
Employees to join Buyer's medical and dental plan provided such
Transferred Employees are covered under Seller's medical and dental plan
on the Closing Date, and in connection therewith Buyer shall, with
respect to such Transferred Employees (and their covered dependents), (a)
waive any waiting period, (b) waive any exclusion or limitation for pre-
existing conditions, and (c) grant credit for purposes of annual
deductibles and out of pocket expenses for amounts incurred under
Seller's plan.
(d) WARN. Seller shall make any filings and shall deliver
any notices required in connection with the transactions contemplated
hereby under the Workers Adjustment, Retraining and Notification Act
("WARN"), or any similar state law so that Buyer shall have no liability
under WARN as a result of the transactions contemplated hereby.
Section 7.2. Noncompetition.
(a) To effectively protect the value of the Assets and the
goodwill of the Business Unit so transferred, and to induce Buyer to
consummate the transactions contemplated hereby, Seller and Pfingsten
Partners, L.L.C. ("Pfingsten") covenant and agree that, for a period
ending on the third anniversary of the Closing Date (the "Term") neither
Seller nor Pfingsten nor any affiliate of Seller or Pfingsten will (i) in
the entire United States (including without limitation, in the case of
California, the counties set forth on Schedule 7.2 hereto), compete
(directly or indirectly) with the Buyer in the business of manufacturing,
selling or distributing coffee, cappuccino, hot cocoa and leaf tea (the
"Restricted Business"); and, in particular, they will not in competition
with the Restricted Business (A) solicit or deal with any supplier of the
Restricted Business, (B) solicit or deal with any customer of the
Restricted Business, or (C) directly or indirectly, own, manage, operate,
finance, join, control or participate in the ownership, management,
operation, financing or control of, or be connected as a director,
officer, employee, partner, consultant or agent with, any business in
competition with the Restricted Business; or (ii) solicit for employment
any of the Transferred Employees (provided, however, Buyer agrees that
Pfingsten or its affiliates may solicit for employment Fred Gillette
and/or Scott Greziak). In the event that the provisions of this Section
7.2(a) should ever be deemed to exceed the time or geographic limitations
or any other limitations permitted by applicable laws, then such
provisions shall be deemed reformed to the maximum permitted by
applicable laws. Seller and Pfingsten specifically acknowledge and agree
that (x) the foregoing covenant is an essential element of this Agreement
and that, but for the agreement of Seller and Pfingsten to comply with
such covenant, Buyer would not have entered into this Agreement; (y) the
remedy at law for any breach of the foregoing covenant will be
inadequate; and (z) Buyer, in addition to any other relief available to
it, shall be entitled to temporary and permanent injunctive relief in the
event Seller, Pfingsten or any affiliate of Seller or Pfingsten violates
the provisions of this Section 7.2(a).
(b) Nothing contained in this Section 7.2 shall prevent
Seller or Pfingsten from (i) owning not more than five percent (5%) of
the publicly traded equity securities of any competing enterprise (so
long as they, individually or together, have no power to manage, operate,
advise, consult with or control the competing enterprise and no power,
alone or in conjunction with other affiliated parties, to select a
director, general partner, or similar governing official of the competing
enterprise), or (ii) acquiring the assets or capital stock or other
equity interests of any Person (having revenues of at least $20,000,000
for its most recent fiscal year as disclosed on its financial statements
for such fiscal year) engaged in the Restricted Business if such business
accounted for less than 5% of the revenues of such Person for the most
recently completed fiscal year of such Person.
(c) Seller and Pfingsten acknowledge that the foregoing
restrictions placed upon them are necessary and reasonable in scope and
duration to adequately protect Buyer's interest and the goodwill of
Buyer, and are material inducement to Buyer to execute, deliver and
perform its obligations arising under or pursuant to the transactions
contemplated by this Agreement or the Transaction Documents.
Section 7.3. Assignment of Confidentiality Agreements. As of the
Closing, Seller hereby assigns to Buyer all of Seller's rights under the
Confidentiality Agreements as described on Schedule 7.3.
Section 7.4. Collection of Accounts Receivable. On a weekly basis,
Seller agrees to pay to Buyer any payments on Buyer's accounts receivable
remitted to Seller. On a weekly basis, Buyer agrees to pay to Seller any
payment on Seller's accounts receivable remitted to Buyer. With respect
to any accounts receivable payments received by either Buyer or Seller
relating to customers common to both Buyer and Seller, if the
documentation relating to such accounts receivable payment does not
specify whether the payment relates to Seller's invoice or Buyer's
invoice, the party receiving such payment shall notify the other party
and such payment shall not be utilized by the recipient thereof until the
application thereof has been mutually agreed to by Buyer and Seller.
Buyer and Seller shall provide each other with reasonable access to their
respective books and records for the purposes of reconciling the accounts
receivable relating to the Business Unit. On the date that is thirty
(30) days after the Closing Date, pursuant to the Lockbox Documents,
Seller shall assign to Buyer the lockbox located at LaSalle National Bank
into which Seller's accounts receivable relating to the Business Unit are
deposited. Notwithstanding anything herein to the contrary, Buyer and
Seller acknowledge and agree that all accounts receivable of the Business
Unit as of the Closing (except for the Sysco Equipment Lease Receivables)
are being retained by Seller as an Excluded Asset. Seller hereby grants
to Buyer a limited power of attorney to endorse any checks payable to
Seller which are received by Buyer and specifically relate solely to an
account receivable of Buyer.
ARTICLE 8
MISCELLANEOUS
Section 8.1. Notices. All notices, reports, records or other
communications that are required or permitted to be given to the parties
under this Agreement shall be sufficient in all respects if given in
writing and delivered in person, by confirmed telecopy, by overnight
courier or by registered or certified mail, postage prepaid, return
receipt requested, to the receiving party at the following address:
If to Seller: c/o Pfingsten Partners, L.P.
520 Lake Cook Road, Suite 375
Deerfield, Illinois 60015
Facsimile: (847) 374-9150
Attention: John H. Underwood
with a copy to: Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Facsimile: (312) 902-1061
Attention: Julie A. Kunetka, Esq.
If to Buyer: Chock Full O' Nuts Corporation
370 Lexington Avenue
New York, New York 10017
Facsimile: (212) 679-9737
Attention: Howard M. Leitner
with a copy to: Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
Facsimile: (212) 838-9190
Attention: George Lander, Esq.
or such other address as such party may have given to the other parties
by notice pursuant to this Section 8.1. Notice shall be deemed given on
(i) the date such notice is personally delivered, (ii) three (3) days
after the mailing if sent by Certified or Registered Mail, (iii) one (1)
day after the date of delivery to the overnight courier if sent by
overnight courier, or (iv) the next succeeding day after transmission by
facsimile.
Section 8.2. General Definitions. For the purposes of this
Agreement, the following terms have the meaning set forth below:
"Affiliate" with respect to any party, any Person directly or
indirectly controlling, controlled by, or under common control with such
party, and any officer, director or executive employee of such party and
includes any past or present Affiliate of any such Person.
"Environmental and Safety Requirements" means all federal,
state and local laws, rules, regulations, ordinances, orders, statutes,
actions, policies and requirements relating to public health and safety,
worker health and safety, pollution or protection of the environment, all
as amended or hereafter amended.
"Hazardous Materials" means (i) hazardous materials,
hazardous substances, extremely hazardous substances, hazardous wastes,
infectious wastes, acute hazardous wastes, toxic substances, toxic
contaminants or pollutants, as those terms are defined by the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. ? 9601 et seq. ("CERCLA"), the Resource Conservation and Recovery
Act, 42 U.S.C. ? 6901 et seq. ("RCRA"), and any other Environmental and
Safety Requirements; (ii) petroleum, including crude oil or any fraction
thereof that is liquid at standard conditions of temperature and pressure
(60 degrees Fahrenheit and 14.7 pounds per square inch absolute); (iii)
any radioactive material, including any source, special nuclear, or by-
product material as defined in 42 U.S.C. ? 2011
et seq.; (iv) asbestos in any form or condition; and (v) any substance
that contains regulated levels of polychlorinated biphenyls.
"Permitted Liens" means (i) Liens for taxes not yet due and
payable or which are being contested in good faith and by appropriate
proceedings, (ii) statutory Liens of landlords for amounts not yet due
and payable, (iii) Liens of carriers, warehousemen, mechanics and
materialmen incurred in the ordinary course of business for amounts not
yet due and payable.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust,
unincorporated association, corporation or other entity or any
Governmental Authority.
Section 8.3. Entire Agreement. The Schedule and Exhibits attached
to this Agreement shall be deemed to be an integral part of this
Agreement. This Agreement and the Transaction Documents set forth the
entire understanding of the parties with respect to the subject matter
hereof and thereof, and may be modified only by instruments signed by the
parties.
Section 8.4. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
Section 8.5. Third Parties. Nothing in this Agreement, express or
implied, is intended to confer any right or remedy under or by reason of
this Agreement on any Person other than the parties hereto and their
respective heirs, representatives, successors and assigns, nor is
anything set forth herein intended to affect or discharge the obligation
or liability of any third persons to any party to this Agreement, nor
shall any provision give any third party any right of subrogation or
action over against any party to this Agreement.
Section 8.6. Expenses. Each of the parties shall pay all costs and
expenses incurred or to be incurred by it in negotiating and preparing
this Agreement and in closing and carrying out the transactions
contemplated by hereunder and thereunder including without limitation
legal
and accounting fees and expenses. Each party shall be solely responsible
for any broker fees incurred by such party in connection with the
transactions contemplated by this Agreement and the Transaction
Documents.
Section 8.7. Waiver. No failure of any party hereto to exercise any
right or remedy given such party under this Agreement or otherwise
available to such party or to insist upon strict compliance by any other
Party with its obligations hereunder, and no custom or practice of the
parties in variance with the terms hereof, shall constitute a waiver of
any party's right to demand exact compliance with the terms hereof,
unless such waiver is set forth in writing and executed by such party.
Section 8.8. Survival. Unless a specified period is set forth in
this Agreement and in the Transaction Documents (in which event such
specified period will control), all covenants contained in this Agreement
will survive the Closing and remain in effect indefinitely.
Section 8.9. Governing Law. This Agreement shall be construed and
governed in accordance with the internal laws of the State of New York
without regard to the principles of conflict of laws.
Section 8.10. Assignments. No party may assign its rights or
delegate its obligations hereunder without the consent of the other
party. Subject to the foregoing, this Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns.
Section 8.11. Headings. The subject headings of Articles,
Sections and sub-Sections of this Agreement are included for purposes of
convenience only and shall not affect the construction or interpretation
of any of its provisions.
Section 8.12. Construction. Where specific language is used
to clarify by example a general statement contained herein, such specific
language shall not be deemed to modify, limit or restrict in any manner
the construction of the general statement to which it relates. The
language used in this Agreement shall be deemed to be the language chosen
by the parties hereto to express their mutual intent, and no rule of
strict construction shall be applied against any party.
Section 8.13. Public Announcements. Prior to and after the
Closing, the parties will not issue or cause the publication of any press
release or other public announcement with respect to this Agreement or
the transactions contemplated hereby without the prior consent of the
other party, which consent will not be unreasonably withheld or delayed;
provided, however, that nothing herein will prohibit any party from
issuing or causing publication of any such press release or public
announcement to the extent that such party determines such action to be
required by law, in which case the party making such determination will,
if practicable in the circumstances, use reasonable efforts to allow the
other party reasonable time to comment on such release or announcement in
advance of its issuance. To the extent feasible, all press releases or
other announcements or notices regarding the transactions contemplated by
this Agreement shall be made jointly by the parties.
[signature page to follow]
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
SELLER:
PARK, L.P.
By:Pfingsten Investment Partnership
I, L.P.
Its: General Partner
By:Pfingsten Acquisition Corporation
I
Its: General Partner
By:
Its:
BUYER:
CHOCK FULL O' NUTS CORPORATION
By:
Its:
Page
GLOSSARY OF DEFINED TERMS (cont'd)
809443.12
03703-1-2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of August 5, 1998, by and between
Chock full O' Nuts Corporation (the "Company"), a New York corporation,
and Howard M. Leitner (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee acknowledges that he is currently employed
by the Company as an employee at will;
WHEREAS, the Company acknowledges that the Employee is a key
employee of the Company whose services are important to the Company; and
WHEREAS, in the event a change in control of the Company (as
hereinafter defined) occurs within five years from the date hereof, the
Company desires to employ the Employee and the Employee wishes to be
employed by the Company on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby
agree as follows:
1. Employment. Prior to the Effective Date (as hereinafter
defined) and subject to Section 15(b) hereof, the Employee will be
employed as an employee at will. As of the Effective Date and upon the
terms and subject to the conditions of this Agreement, the Company
hereby employs the Employee and the Employee hereby accepts employment
with the Company in the capacity hereinafter set forth.
2. Term of Employment; Effective Date. The employment term of
this Agreement (the "Term") shall commence as of the Effective Date and
shall continue in effect until the third anniversary of the Effective
Date or until sooner terminated as provided herein; provided, however,
if the Effective Date has not occurred within five years from the date
hereof, this Agreement shall terminate and be null and void. For
purposes of this Agreement, the "Effective Date" shall mean the date
upon which a change in control of the Company occurs.
3. Change in Control. For purposes of this Agreement, a
"change in control of the Company" shall be deemed to have occurred if
at any time within five years from the date hereof the individuals who
on the date hereof constitute the Board of Directors of the Company
cease to constitute at least a majority of the Board of Directors of the
Company or the successor corporation, as the case may be.
4. Duties. During the Term of this Agreement, the Employee
shall continue to serve the Company in the same executive capacity as he
did on the day prior to the Effective Date. The Employee agrees to
devote substantially all of his working time and effort to the business
and affairs of the Company and shall not be required to relocate outside
of the New York metropolitan area.
5. Compensation and Other Employee Benefits. In consideration
of the services rendered by the Employee hereunder and provided that the
Employee has substantially performed all of his obligations provided for
herein, the Company shall pay the following compensation and provide the
following benefits to the Employee during the Term of this Agreement:
(a) Base Salary. The Company shall pay to the Employee a
base salary (the "Base Salary") per year equal to the base salary paid
by the Company to the Employee on the day prior to the Effective Date.
The Base Salary shall be paid in accordance with the Company's normal
payroll practice.
(b) Bonus. The Employee shall be eligible to be paid a
cash bonus (the "Bonus") each year on the same terms and conditions as
are other executives of the Company in comparable positions. The Bonus
shall be paid in accordance with the Company's normal payroll practice.
(c) Other Employee Benefits. The Employee shall be
entitled to receive the benefits described below which the Employee has
been receiving from the Company (the "Pre-Effective Date Benefits").
(i) Vacation. The Employee shall be entitled to
the same paid vacation time annually as he was entitled to on the day prior
to the Effective Date.
(ii) Insurance. The Employee shall continue to be
entitled to participate in the medical and health, life insurance,
disability, dental and other welfare plans, programs and arrangements of
the Company in which he was entitled to participate on the day prior to
the Effective Date.
(iii) Pension, Supplemental Executive Retirement
Plan, 401(k), Deferred Compensation and Employee Stock Ownership Plan. The
Employee shall continue to be eligible to participate in the Company's
Pension Plan, Supplemental Executive Retirement Plan, 401(k) Plan,
Deferred Compensation Plan and Employee Stock Ownership Plan (the
"Company's Plans") to the extent he was able to participate on the day
prior to the Effective Date, subject to the terms and conditions
thereof. If any of the Company's Plans are terminated after the
Effective Date and prior to the Employee's termination of employment,
the Employee shall be entitled, at the Company's expense, to obtain
benefits from a third party source which are substantially similar to
the benefits provided for under such terminated Company Plan. If a Pre-
Effective Date Benefit cannot be purchased from a third party source,
the Company shall pay the Employee a cash amount representing the
financial equivalent of such benefit.
(iv) Automobile. The Company will provide the
Employee the use of an automobile of a model and type similar or
substantially equivalent to the automobile, if any, or pay the
automobile allowance, provided to the Employee on the day prior to the
Effective Date.
(d) Tax Gross-Up.
(i) To the extent that benefits provided to the
Employee under subsections 5(c)(ii) and 5(c)(iv) of this Agreement
result in imputed income and a resulting increased income tax liability
to the Employee, the Company shall pay the Employee a tax reimbursement
benefit in an amount such that, after deduction of all income taxes
payable with respect to such tax reimbursement benefit, the amount
retained by the Employee will be equal to the amount of such increased
income tax liability.
(ii) To the extent that payments provided to the
Employee under this Agreement result in a "golden parachute excise tax"
under Section 4999 of the Internal Revenue Code of 1986, as amended,
being assessed against the Employee, the Company will pay the Employee a
gross-up payment in an amount which places the Employee in the same
after-tax position as if the golden parachute excise tax had not been
assessed against the Employee.
(e) Other Compensation, Benefits and Perquisites. The
Employee shall also be eligible to receive such other compensation,
benefits and perquisites as are or may become available to other
executives of the Company. Nothing contained in this Agreement shall be
deemed to have any effect, or limit in any way, the Employee's rights
under any stock option agreement or arrangement with the Company.
6. Termination Provisions.
(a) Termination for Cause. The Company may terminate the
Employee's employment hereunder for Cause, as hereinafter defined,
immediately upon written notice to the Employee. For purposes of this
Agreement, "Cause" shall mean dishonesty or any act or conduct on the
part of the Employee which is materially injurious to the business or
reputation of either the Company or any of its subsidiaries or
affiliates. If the Employee's employment is terminated for Cause, the
Employee shall be entitled to receive only the unpaid portion of the
Base Salary then in effect which has accrued to the date of termination.
(b) Termination By Reason of Permanent Disability. If at
any time during the Term the Company reasonably determines that the
Employee has been or will be unable, as a result of physical or mental
illness or incapacity, to perform his duties hereunder for a period of
four consecutive months or for an aggregate of more than six months in
any twelve month period (a "Permanent Disability"), the Employee's
employment hereunder may be terminated by the Company upon 30 days'
written notice to the Employee. If the Employee's employment is
terminated by reason of Permanent Disability, the Employee shall be
entitled to receive the unpaid portion of the Base Salary then in effect
which has accrued to the date of termination. In addition, the Employee
shall be entitled to receive, within 60 days of the end of the year in
which such Permanent Disability occurs, a pro rated portion of the
Bonus. For these purposes the pro rata portion shall be determined by
dividing the number of days in such year prior to the Employee's
Permanent Disability by 365.
(c) Termination By Reason of Death. The Employee's
employment hereunder shall automatically terminate on the date of his
death. If the Employee's employment is so terminated by his death, the
Company shall pay to the Employee's estate a lump sum amount equal to
the unpaid portion of the Base Salary then in effect through the end of
the month in which his death occurs. Such amount shall be paid within
30 days after the date of his death if a personal representative has
been appointed by the end of such thirty day period or, if a personal
representative has not been appointed by the end of such thirty day
period, promptly after a personal representative has been appointed. In
addition, the Employee's estate shall be entitled to receive, within 60
days of the end of the year in which the Employee's death occurs, a pro
rated portion of the Bonus. For these purposes the pro rata portion
shall be determined by dividing the number of days in such year prior to
the Employee's death by 365.
(d) Other Termination Provisions. (i) The Board of
Directors of the Company may terminate the Employee's employment
hereunder at any time for any reason without Cause or the Employee may
terminate his employment for Good Reason (as defined below) in which
cases the Employee shall remain entitled to receive (A) all Base Salary
and Bonuses hereunder, whether or not yet earned (at the times when such
Base Salary and Bonuses would otherwise have been payable) and (B) all
Pre-Effective Date Benefits hereunder through continued participation in
the Company's Plans, as if he was an active employee, or, if continued
participation in a Company Plan is not possible, a cash amount
representing the financial equivalent of the Pre-Effective Date Benefits
ceasing to be provided to the Employee, until the earlier of the third
anniversary of the Effective Date or his earlier Permanent Disability or
death.
(ii) Termination by the Employee of the Employee's
employment for "Good Reason" shall mean termination upon the election of
the Employee following a change in control of the Company upon the
occurrence, without the Employee's consent, of any of the following
events:
(A) the assignment to the Employee of any duties
inconsistent with the Employee's positions, duties, responsibilities and
status with the Company immediately prior to a change in control of the
Company, or a change in the Employee's reporting responsibilities,
titles or offices from those in effect immediately prior to a change in
control of the Company, other than in connection with the termination of
the Employee's employment for Cause or by Permanent Disability or as a
result of the Employee's Death or by the Employee other than for Good
Reason;
(B) a reduction by the Company in the Employee's
Base Salary and Pre-Effective Date Benefits; or
(C) required relocation outside of the New York
metropolitan; area.
(iii) Notwithstanding anything to the contrary provided
hereunder, to the extent any of the Employee's Bonuses payable to the
Employee pursuant to this Section 6(d)(i) following a change in control
of the Company are less than the Minimum Bonus (as defined below), each
such Bonus shall be increased by the difference between the amount of
such Bonus and the Minimum Bonus. For purposes of this Section 6(d), a
"Minimum Bonus" shall mean an annual bonus equal to the average annual
bonus paid to the Employee over the four complete fiscal years next
preceding the change in control of the Company.
7. Covenants of the Employee.
(a) Non-Competition. During the Term and thereafter for
so long as the Employee is entitled to receive payments of Base Salary
under Section 6(d) the Employee shall not, directly or indirectly, be
associated with any entity which competes with the Company and whose
primary business is, or personally engage in, the same or similar line
of business of the Company, whether as a director, officer, employee,
agent, consultant, partner, owner, independent contractor or otherwise.
(b) Non-Solicitation of Employees of the Employer. Until
the date six (6) months from the date of such termination, the Employee
shall not, and shall cause each business or entity with which he shall
become associated in any capacity not to, solicit for employment or
employ any person who is then, or who was at any time after the date
four months prior to the date of such termination, employed in a
professional or managerial position by the Company, its subsidiaries or
affiliates.
(c) Confidentiality. The Employee agrees and acknowledges
that the Confidential Information of the Company and its subsidiaries
and affiliates, as hereinafter defined, is valuable, special and unique
to their business; that such business depends on such Confidential
Information; and that the Company wishes to protect such Confidential
Information by keeping it confidential for the use and benefit of the
Company and its subsidiaries and affiliates. Based on the foregoing,
the Employee agrees to undertake the following obligations with respect
to such Confidential Information:
(i) the Employee agrees to keep any and all Confidential
Information in trust for the use and benefit of the Company and its
subsidiaries and affiliates;
(ii) the Employee agrees that, except as required by
applicable law or as authorized in writing by the Board of Directors of
the Company, he will not at any time during or after the termination of
his employment hereunder, disclose, directly or indirectly, any
Confidential Information of the Company or any of subsidiaries or
affiliates;
(iii) the Employee agrees to take all reasonable steps
necessary, or reasonably requested by the Company, to ensure that all
Confidential Information is kept confidential for the use and benefit of
the Company and subsidiaries and affiliates; and
(iv) the Employee agrees that, upon termination of his
employment hereunder or at any other time the Company, may in writing so
request, he will promptly deliver to the Company all materials
constituting Confidential Information (including all copies thereof)
that are in his possession or under his control. The Employee further
agrees that, if requested by the Company, to return any Confidential
Information pursuant to this subparagraph (iv), he will not make or
retain any copy or extract from such materials.
For purposes of paragraph (c) of this Section 7, "Confidential
Information" means any and all information developed by or for the
Company or any of its subsidiaries or affiliates of which the Employee
gains or has acquired knowledge during or prior to the Term by reason of
his employment with the Company that is (A) not generally known in any
industry in which the Company or any of its subsidiaries or affiliates
is or may become engaged or (B) not publicly available. Confidential
Information includes, but is not limited to, any and all information
developed by or for the Company or any of its subsidiaries or affiliates
concerning plans, marketing and sales methods, customer lists,
materials, processes, business forms, procedures, devices, plans for
development of products, services or expansion into new areas or
markets, internal operations, and any trade secrets and proprietary
information of any type owned by the Company or any of its subsidiaries
or affiliates, together with all written, graphic and other materials
relating to all or any part of the same.
8. Successors; Assignment.
(a) The Company. The Company may assign any of its rights
and obligations hereunder, without the written consent of the Employee.
This Agreement shall be binding upon and shall inure to the benefit of
the Company and its successors and assigns.
(b) The Employee. Neither this Agreement nor any right or
interest hereunder may be assigned by the Employee, his beneficiaries,
or legal representatives without the prior written consent of the Board
of Directors of the Company; provided, however, that nothing in this
Section 8 shall preclude (i) the Employee from designating a beneficiary
to receive any benefit payable hereunder upon his death, or (ii) the
executors, administrators, or other legal representatives of the
Employee or his estate from assigning any rights hereunder to
distributees, legatees, beneficiaries, testamentary trustees or other
legal heirs of the Employee.
9. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given when
delivered by hand, mailed by first-class registered or certified mail,
postage prepaid and return receipt requested, or delivered by overnight
courier addressed as follows:
(i) If to the Company:
Chock full O' Nuts Corporation
370 Lexington Avenue
New York, New York 10017
Attention: Chief Executive Officer
(ii) If to the Employee:
Howard M. Leitner
c/o Chock full O' Nuts Corporation
370 Lexington Avenue
New York, New York 10017
or, in each case, at such other address as may from time to time be
specified to the other party in a notice similarly given.
10. Governing Law; Arbitration.
(a) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York
without giving effect to the conflicts of law principles thereof.
(b) Arbitration. Any controversy or claim arising out of
this Agreement shall be settled by arbitration which shall be in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association as such rules shall be in effect on the date of
delivery of demand for arbitration. The arbitration of such issues,
including the determination of the amount of any damages suffered by
either party hereto by reason of the acts or omissions of the other,
shall be to the exclusion of any court of law. The decision of the
arbitrator shall be final and binding on both parties and their
respective heirs, executors, administrators, successors and assigns.
Each party shall pay its own attorneys and the expenses of its witnesses
and all other expenses connected with the presentation of its case;
provided, however, if the Employee substantially prevails in enforcing
his rights in the arbitration, the Company shall pay all of the
Employee's reasonable legal fees and expenses connected with the case.
11. Entire Agreement. This Agreement contains the entire
agreement of the parties and their affiliates relating to the subject
matter hereof and supersedes all prior agreements, representations,
warranties and understandings, written or oral, with respect thereto.
12. Severability. If any term or provision of this Agreement or
the application thereof to any person, property or circumstance shall to
any extent be invalid or unenforceable, the remainder of this Agreement,
or the application of such term or provision to persons, property or
circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall remain valid and enforceable to the
fullest extent permitted by law.
13. Remedies.
(a) Injunctive Relief. The Employee acknowledges and
agrees that the covenants and obligations of the Employee contained in
subsections (a), (b) and (c) of Section 7 hereof relate to special,
unique and extraordinary matters and are reasonable and necessary to
protect the legitimate interests of the Company and its subsidiaries and
affiliates and that a breach of any of the terms of such covenants and
obligations will cause the Company irreparable injury for which adequate
remedies at law are not available. Therefore the Employee agrees that
the Company shall be entitled to an injunction, restraining order, or
other equitable relief from any court of competent jurisdiction,
restraining the Employee from any such breach.
(b) Remedies Cumulative. The Company's rights and
remedies under this Section 13 are cumulative and are in addition to any
other rights and remedies the Company may have at law or in equity.
14. Withholding Taxes. The Company may deduct any federal,
state or local withholding or other taxes from any payments to be made
by the Company hereunder in such amounts which the Company reasonably
determine are required to deduct under applicable law.
15. Amendments, Miscellaneous, Etc.
(a) Amendments. The Company may amend, modify, cancel or
terminate this Agreement or any term hereof prior to a change in control
of the Company by giving written notice to the Employee ninety (90) days
in advance of the effective date of such termination (the "Notice
Period"). Notwithstanding the foregoing, neither this Agreement nor any
term hereof may be changed, waived, discharged, cancelled or terminated
after a change in control of the Company except by an instrument in
writing signed by the party against which such change, waiver,
discharge, cancellation or termination is sought to be enforced.
(b) Termination of Employment During Notice Period. If the
Employee's employment with the Company is terminated during the Notice
Period for any reason other than for Cause, the Employee shall be
treated for the purposes of this Agreement as if he was an active
employee entitled to all Base Salary and Bonuses and Pre-Effective Date
Benefits hereunder as in effect on the day prior to the Notice Period.
(c) Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument and shall be
the valid and binding agreement of the parties when such counterparts
have been duly executed and delivered by each party hereto.
[Remainder of this page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the date first written above.
CHOCK FULL O' NUTS CORPORATION
By
Name:
Title:
HOWARD M. LEITNER
- 7 -
R&O-403325.4
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT(the "Agreement"), dated as
of October 27, 1998, by and between Chock full O' Nuts Corporation (the
"Company"), a New York corporation, and Marvin I. Haas (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee acknowledges that he is currently employed
by the Company as an employee at will;
WHEREAS, the Company acknowledges that the Employee is a key
employee of the Company whose services are important to the Company; and
WHEREAS, in the event a change in control of the Company (as
hereinafter defined) occurs within five years from the date hereof, the
Company desires to employ the Employee and the Employee wishes to be
employed by the Company on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby
agree as follows:
1. Employment. Prior to the Effective Date (as hereinafter
defined) and subject to Section 15(b) hereof, the Employee will be
employed as an employee at will. As of the Effective Date and upon the
terms and subject to the conditions of this Agreement, the Company
hereby employs the Employee and the Employee hereby accepts employment
with the Company in the capacity hereinafter set forth.
2. Term of Employment; Effective Date. The employment term of
this Agreement (the "Term") shall commence as of the Effective Date and
shall continue in effect until the third anniversary of the Effective
Date or until sooner terminated as provided herein; provided, however,
if the Effective Date has not occurred within five years from the date
hereof, this Agreement shall terminate and be null and void. For
purposes of this Agreement, the "Effective Date" shall mean the date
upon which a change in control of the Company occurs.
3. Change in Control. For purposes of this Agreement, a
"change in control of the Company" shall be deemed to have occurred if
at any time within five years from the date hereof the individuals who
on the date hereof constitute the Board of Directors of the Company
cease to constitute at least a majority of the Board of Directors of the
Company or the successor corporation, as the case may be.
4. Duties. During the Term of this Agreement, the Employee
shall continue to serve the Company in the same executive capacity as he
did on the day prior to the Effective Date. The Employee agrees to
devote substantially all of his working time and effort to the business
and affairs of the Company and shall not be required to relocate outside
of the New York City area.
5. Compensation and Other Employee Benefits. In consideration
of the services rendered by the Employee hereunder and provided that the
Employee has substantially performed all of his obligations provided for
herein, the Company shall pay the following compensation and provide the
following benefits to the Employee during the Term of this Agreement:
(a) Base Salary. The Company shall pay to the Employee a
base salary (the "Base Salary") per year equal to the base salary paid
by the Company to the Employee on the day prior to the Effective Date.
The Base Salary shall be paid in accordance with the Company's normal
payroll practice.
(b) Bonus. The Employee shall be eligible to be paid a
cash bonus (the "Bonus") each year on the same terms and conditions as
are other executives of the Company in comparable positions. The Bonus
shall be paid in accordance with the Company's normal payroll practice.
(c) Other Employee Benefits. The Employee shall be
entitled to receive the benefits described below which the Employee has
been receiving from the Company (the "Pre-Effective Date Benefits").
(i) Vacation. The Employee shall be entitled to
the same paid vacation time annually as he was entitled to on the day prior
to the Effective Date.
(ii) Insurance. The Employee shall continue to be
entitled to participate in the medical and health, life insurance,
disability, dental and other welfare plans, programs and arrangements of
the Company in which he was entitled to participate on the day prior to
the Effective Date.
(iii) Pension, Supplemental Executive Retirement
Plan, 401(k), Deferred Compensation and Employee Stock Ownership Plan. The
Employee shall continue to be eligible to participate in the Company's
Pension Plan, Supplemental Executive Retirement Plan, 401(k) Plan,
Deferred Compensation Plan and Employee Stock Ownership Plan (the
"Company's Plans") to the extent he was able to participate on the day
prior to the Effective Date, subject to the terms and conditions
thereof. If any of the Company's Plans are terminated after the
Effective Date and prior to the Employee's termination of employment,
the Employee shall be entitled, at the Company's expense, to obtain
benefits from a third party source which are substantially similar to
the benefits provided for under such terminated Company Plan. If a Pre-
Effective Date Benefit cannot be purchased from a third party source,
the Company shall pay the Employee a cash amount representing the
financial equivalent of such benefit.
(iv) Automobile. The Company will provide the
Employee the use of an automobile of a model and type similar or
substantially equivalent to the automobile, if any, or pay the
automobile allowance, provided to the Employee on the day prior to the
Effective Date.
(v) Office and Secretarial Services. The Company
will provide the Employee an office and secretarial and office support
services similar or substantially equivalent to the office and
secretarial and office support services provided to the Employee on the
day prior to the Effective Date.
(d) Tax Gross-Up.
(i) To the extent that benefits provided to the
Employee under subsections 5(c)(ii), 5(c)(iv) and 5(c)(v) of this
Agreement result in imputed income and a resulting increased income tax
liability to the Employee, the Company shall pay the Employee a tax
reimbursement benefit in an amount such that, after deduction of all
income taxes payable with respect to such tax reimbursement benefit, the
amount retained by the Employee will be equal to the amount of such
increased income tax liability.
(ii) To the extent that payments provided to the
Employee under this Agreement result in a "golden parachute excise tax"
under Section 4999 of the Internal Revenue Code of 1986, as amended,
being assessed against the Employee, the Company will pay the Employee a
gross-up payment in an amount which places the Employee in the same
after-tax position as if the golden parachute excise tax had not been
assessed against the Employee.
(e) Other Compensation, Benefits and Perquisites. The
Employee shall also be eligible to receive such other compensation,
benefits and perquisites as are or may become available to other
executives of the Company. Nothing contained in this Agreement shall be
deemed to have any effect, or limit in any way, the Employee's rights
under any stock option agreement or arrangement with the Company.
6. Termination Provisions.
(a) Termination for Cause. The Company may terminate the
Employee's employment hereunder for Cause, as hereinafter defined,
immediately upon written notice to the Employee. For purposes of this
Agreement, "Cause" shall mean dishonesty or any act or conduct on the
part of the Employee which is materially injurious to the business or
reputation of either the Company or any of its subsidiaries or
affiliates. If the Employee's employment is terminated for Cause, the
Employee shall be entitled to receive only the unpaid portion of the
Base Salary then in effect which has accrued to the date of termination.
(b) Termination By Reason of Permanent Disability. If at
any time during the Term the Company reasonably determines that the
Employee has been or will be unable, as a result of physical or mental
illness or incapacity, to perform his duties hereunder for a period of
four consecutive months or for an aggregate of more than six months in
any twelve month period (a "Permanent Disability"), the Employee's
employment hereunder may be terminated by the Company upon 30 days'
written notice to the Employee. If the Employee's employment is
terminated by reason of Permanent Disability, the Employee shall be
entitled to receive the unpaid portion of the Base Salary then in effect
which has accrued to the date of termination. In addition, the Employee
shall be entitled to receive, within 60 days of the end of the year in
which such Permanent Disability occurs, a pro rated portion of the
Bonus. For these purposes the pro rata portion shall be determined by
dividing the number of days in such year prior to the Employee's
Permanent Disability by 365.
(c) Termination By Reason of Death. The Employee's
employment hereunder shall automatically terminate on the date of his
death. If the Employee's employment is so terminated by his death, the
Company shall pay to the Employee's estate a lump sum amount equal to
the unpaid portion of the Base Salary then in effect through the end of
the month in which his death occurs. Such amount shall be paid within
30 days after the date of his death if a personal representative has
been appointed by the end of such thirty day period or, if a personal
representative has not been appointed by the end of such thirty day
period, promptly after a personal representative has been appointed. In
addition, the Employee's estate shall be entitled to receive, within 60
days of the end of the year in which the Employee's death occurs, a pro
rated portion of the Bonus. For these purposes the pro rata portion
shall be determined by dividing the number of days in such year prior to
the Employee's death by 365.
(d) Other Termination Provisions. (i) The Board of
Directors of the Company may terminate the Employee's employment
hereunder at any time for any reason without Cause or the Employee may
voluntarily resign at any time for any reason without Cause, in which
cases the Employee shall remain entitled to receive (A) all Adjusted Base
Salary(as defined below) and Bonuses hereunder whether or not yet earned
(at the times when the Employee's Base Salary and Bonuses would
otherwise have been payable) and (B) all Pre-Effective Date Benefits
hereunder through continued participation in the Company's Plans for those
Pre-Effective Date Benefits provided under the Company Plans, as if he was
an active employee, or, if continued participation in a Company Plan or
provision of Pre-Effective Date Benefits not offered through a Company Plan
is not possible, a cash amount representing the financial equivalent of the
Pre-Effective Date Benefits ceasing to be provided to the Employee, until the
earlier of the third anniversary of the Effective Date or his earlier
Permanent Disability or death. For purposes of this Section 6(d)(i), "Adjusted
Base Salary" shall mean the Employee's Base Salary increased by $75,000.
(ii) Notwithstanding anything to the contrary provided
hereunder, to the extent any of the Employee's Bonuses payable to the
Employee pursuant to this Section 6(d)(i) following a change in control
of the Company are less than the Minimum Bonus (as defined below), each
such Bonus shall be increased by the difference between the amount of
such Bonus and the Minimum Bonus. For purposes of this Section 6(d), a
"Minimum Bonus" shall mean an annual bonus equal to the average annual
bonus paid to the Employee over the four complete fiscal years next
preceding the change in control of the Company.
7. Covenants of the Employee.
(a) Non-Competition. During the Term and thereafter for
so long as the Employee is entitled to receive payments of Base Salary
under Section 6(d) the Employee shall not, directly or indirectly, be
associated with any entity which competes with the Company and whose
primary business is, or personally engage in, the same or similar line
of business of the Company, whether as a director, officer, employee,
agent, consultant, partner, owner, independent contractor or otherwise.
(b) Non-Solicitation of Employees of the Employer. Until
the date six (6) months from the date of such termination, the Employee
shall not, and shall cause each business or entity with which he shall
become associated in any capacity not to, solicit for employment or
employ any person who is then, or who was at any time after the date
four months prior to the date of such termination, employed in a
professional or managerial position by the Company, its subsidiaries or
affiliates.
(c) Confidentiality. The Employee agrees and acknowledges
that the Confidential Information of the Company and its subsidiaries
and affiliates, as hereinafter defined, is valuable, special and unique
to their business; that such business depends on such Confidential
Information; and that the Company wishes to protect such Confidential
Information by keeping it confidential for the use and benefit of the
Company and its subsidiaries and affiliates. Based on the foregoing,
the Employee agrees to undertake the following obligations with respect
to such Confidential Information:
(i) the Employee agrees to keep any and all Confidential
Information in trust for the use and benefit of the Company and its
subsidiaries and affiliates;
(ii) the Employee agrees that, except as required by
applicable law or as authorized in writing by the Board of Directors of
the Company, he will not at any time during or after the termination of
his employment hereunder, disclose, directly or indirectly, any
Confidential Information of the Company or any of subsidiaries or
affiliates;
(iii) the Employee agrees to take all reasonable steps
necessary, or reasonably requested by the Company, to ensure that all
Confidential Information is kept confidential for the use and benefit of
the Company and subsidiaries and affiliates; and
(iv) the Employee agrees that, upon termination of his
employment hereunder or at any other time the Company, may in writing so
request, he will promptly deliver to the Company all materials
constituting Confidential Information (including all copies thereof)
that are in his possession or under his control. The Employee further
agrees that, if requested by the Company, to return any Confidential
Information pursuant to this subparagraph (iv), he will not make or
retain any copy or extract from such materials.
For purposes of paragraph (c) of this Section 7, "Confidential
Information" means any and all information developed by or for the
Company or any of its subsidiaries or affiliates of which the Employee
gains or has acquired knowledge during or prior to the Term by reason of
his employment with the Company that is (A) not generally known in any
industry in which the Company or any of its subsidiaries or affiliates
is or may become engaged or (B) not publicly available. Confidential
Information includes, but is not limited to, any and all information
developed by or for the Company or any of its subsidiaries or affiliates
concerning plans, marketing and sales methods, customer lists,
materials, processes, business forms, procedures, devices, plans for
development of products, services or expansion into new areas or
markets, internal operations, and any trade secrets and proprietary
information of any type owned by the Company or any of its subsidiaries
or affiliates, together with all written, graphic and other materials
relating to all or any part of the same.
8. Successors; Assignment.
(a) The Company. The Company may assign any of its rights
and obligations hereunder, without the written consent of the Employee.
This Agreement shall be binding upon and shall inure to the benefit of
the Company and its successors and assigns.
(b) The Employee. Neither this Agreement nor any right or
interest hereunder may be assigned by the Employee, his beneficiaries,
or legal representatives without the prior written consent of the Board
of Directors of the Company; provided, however, that nothing in this
Section 8 shall preclude (i) the Employee from designating a beneficiary
to receive any benefit payable hereunder upon his death, or (ii) the
executors, administrators, or other legal representatives of the
Employee or his estate from assigning any rights hereunder to
distributees, legatees, beneficiaries, testamentary trustees or other
legal heirs of the Employee.
9. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given when
delivered by hand, mailed by first-class registered or certified mail,
postage prepaid and return receipt requested, or delivered by overnight
courier addressed as follows:
(i) If to the Company:
Chock full O' Nuts Corporation
370 Lexington Avenue
New York, New York 10017
Attention: Chief Executive Officer
(ii) If to the Employee:
Marvin I. Haas
c/o Chock full O' Nuts Corporation
370 Lexington Avenue
New York, New York 10017
or, in each case, at such other address as may from time to time be
specified to the other party in a notice similarly given.
10. Governing Law; Arbitration.
(a) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York
without giving effect to the conflicts of law principles thereof.
(b) Arbitration. Any controversy or claim arising out of
this Agreement shall be settled by arbitration which shall be in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association as such rules shall be in effect on the date of
delivery of demand for arbitration. The arbitration of such issues,
including the determination of the amount of any damages suffered by
either party hereto by reason of the acts or omissions of the other,
shall be to the exclusion of any court of law. The decision of the
arbitrator shall be final and binding on both parties and their
respective heirs, executors, administrators, successors and assigns.
Each party shall pay its own attorneys and the expenses of its witnesses
and all other expenses connected with the presentation of its case;
provided, however, if the Employee substantially prevails in enforcing
his rights in the arbitration, the Company shall pay all of the
Employee's reasonable legal fees and expenses connected with the case.
11. Entire Agreement. This Agreement contains the entire
agreement of the parties and their affiliates relating to the subject
matter hereof and supersedes all prior agreements, representations,
warranties and understandings, written or oral, with respect thereto.
12. Severability. If any term or provision of this Agreement or
the application thereof to any person, property or circumstance shall to
any extent be invalid or unenforceable, the remainder of this Agreement,
or the application of such term or provision to persons, property or
circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall remain valid and enforceable to the
fullest extent permitted by law.
13. Remedies.
(a) Injunctive Relief. The Employee acknowledges and
agrees that the covenants and obligations of the Employee contained in
subsections (a), (b) and (c) of Section 7 hereof relate to special,
unique and extraordinary matters and are reasonable and necessary to
protect the legitimate interests of the Company and its subsidiaries and
affiliates and that a breach of any of the terms of such covenants and
obligations will cause the Company irreparable injury for which adequate
remedies at law are not available. Therefore the Employee agrees that
the Company shall be entitled to an injunction, restraining order, or
other equitable relief from any court of competent jurisdiction,
restraining the Employee from any such breach.
(b) Remedies Cumulative. The Company's rights and
remedies under this Section 13 are cumulative and are in addition to any
other rights and remedies the Company may have at law or in equity.
14. Withholding Taxes. The Company may deduct any federal,
state or local withholding or other taxes from any payments to be made
by the Company hereunder in such amounts which the Company reasonably
determine are required to deduct under applicable law.
15. Amendments, Miscellaneous, Etc.
(a) Amendments. The Company may amend, modify, cancel or
terminate this Agreement or any term hereof prior to a change in control
of the Company by giving written notice to the Employee ninety (90) days
in advance of the effective date of such termination (the "Notice
Period"). Notwithstanding the foregoing, neither this Agreement nor any
term hereof may be changed, waived, discharged, cancelled or terminated
after a change in control of the Company except by an instrument in
writing signed by the party against which such change, waiver,
discharge, cancellation or termination is sought to be enforced.
(b) Termination of Employment During Notice Period. If the
Employee's employment with the Company is terminated during the Notice
Period for any reason other than for Cause, the Employee shall be
treated for the purposes of this Agreement as if he was an active
employee entitled to all Base Salary and Bonuses and Pre-Effective Date
Benefits hereunder as in effect on the day prior to the Notice Period.
(c) Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument and shall be
the valid and binding agreement of the parties when such counterparts
have been duly executed and delivered by each party hereto.
[Remainder of this page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the date first written above.
CHOCK FULL O' NUTS CORPORATION
By
Name:
Title:
Marvin I. Haas
- 8 -
R&O-410173.2
CHOCK FULL O'NUTS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
Page No.
ARTICLE I.
ESTABLISHMENT AND PURPOSE 1
1.1. Establishment 1
1.2. Purpose 1
ARTICLE II.
DEFINITIONS 2
2.1. Accrued Benefit 2
2.2. Actuarial Equivalent 3
2.3. Administrative Committee 3
2.4. Affiliated Group 3
2.5. Annuity Starting Date 3
2.6. Benefit Service 3
2.7. Board of Directors 3
2.8. Change in Control 3
2.9. Code 5
2.10 Company 5
2.11. Early Retirement Date 5
2.12. Effective Date 5
2.13. Hour of Service 5
2.14. Independent Actuary 5
2.15. Joint and 50% Survivor Annuity 5
2.16. Late Retirement Date 6
2.17. Life Annuity 6
2.18. Normal Retirement Date 6
2.19. Participant 6
2.20. Pension Plan 6
2.21. Plan 6
2.22. Retirement 6
2.23. Required Funding Amount 6
2.24. Retirement Date 7
2.25. Spouse 7
2.26. Surviving Spouse 7
2.27 Termination for Cause 7
2.28. Trust 7
2.29. Trustee 7
ARTICLE III.
PLAN PARTICIPATION 7
3.1. Eligibility to Participate in the Plan 7
3.2. Participation 8
ARTICLE IV.
BENEFITS 8
4.1. Retirement Benefits 8
4.2. Deferred Vested Benefit 9
4.3. Form of Retirement or Deferred Vested Benefit 9
4.4. Death Benefit 10
4.5. Time of Payment 11
4.6. Suspension of Benefits 12
4.7. Claims of Creditors 13
ARTICLE V.
VESTING 13
5.1. Vesting 13
ARTICLE VI.
CHANGE IN CONTROL 14
6.1. Change in Control 14
ARTICLE VII.
PLAN ADMINISTRATION 15
7.1. Administration of the Plan 15
ARTICLE VIII.
AMENDMENT AND TERMINATION 16
8.1. Amendment and Termination of the Plan 16
ARTICLE IX.
GENERAL PROVISIONS 16
9.1. Funding 16
9.2. Nonalienation of Benefits under this Plan 16
9.3. Plan not a Contract of Employment 17
9.4. Required Notification to Administrative Committee 17
9.5. Successors 18
9.6. Facility of Payment 18
9.7. Required Information to Administrative Committee 19
9.8. Claims Procedure 20
9.9. Indemnification 20
9.10. Controlling State Law 20
9.11. Severability 20
9.12. Adoption of the Plan 21
APPENDIX I 22
CHOCK FULL O'NUTS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Article I
ESTABLISHMENT AND PURPOSE
I.1 Establishment. Effective as of January 1, 1998, the Company
adopted a supplemental retirement plan known as the Plan for the
benefit of a select group of highly compensated employees and their
Surviving Spouses.
I.2 Purpose. The purpose of the Plan is to provide retirement
income and supplemental death benefits based on compensation in
excess of the limitations imposed by Code Section 401(a)(17) for
eligible Participants to supplement the benefits accrued under the
Pension Plan, and to enable the Company to attract and retain certain
key executives. The Plan is intended to qualify as a plan maintained
primarily for the purpose of providing certain deferred compensation
benefits to a select group of management or highly compensated
employees, as described in Sections 201(2), 301(a)(3), 401(a)(1) and
4021(b)(6) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
Article II
DEFINITIONS
Definitions. As used herein, the following words and phrases have
the meanings ascribed to them in Article II unless a different
meaning is plainly required by the context. Some of the words and
phrases used in the Plan are not defined in this Article II, but, for
convenience, are defined as they are introduced into the text. Words
in the masculine gender shall be deemed to include the feminine
gender and words in the feminine gender shall be deemed to include
the masculine gender. Any headings used herein are included for ease
of reference only, and are not to be construed so as to alter any of
the terms of the Plan.
II.1 "Accrued Benefit" shall mean with respect to a Participant a
monthly benefit expressed as a Life Annuity as of a specified date
equal to (a) minus (b) below (both calculated as of the Participant's
Retirement) and, if applicable, as adjusted pursuant to (c) below
(but not less than zero) where:
(a) is the vested benefit that would be payable to the
Participant under the Pension Plan computed without regard to the
limitation imposed by Section 401(a)(17) of the Code, such vested
benefit not to exceed one hundred and thirty thousand dollars
($130,000) per annum;
(b) is the vested benefit payable to the Participant under
the Pension Plan; and
(c) is the reduction for early retirement benefit
commencement under the terms of the Pension Plan, to the extent that
the Participant's Annuity Starting Date precedes his Normal
Retirement Date.
II.2 "Actuarial Equivalent" shall mean a benefit or benefits which
are of equal value at the date of determination to the benefits for
which they are to be submitted. Actuarial Equivalence shall be based
on the interest and mortality tables used to determine actuarial
equivalence under Appendix 1 of the Pension Plan.
II.3 "Administrative Committee" shall mean the Compensation
Committee of the Board of Directors which shall administer the Plan
in accordance with Article VII.
II.4 "Affiliated Group" shall mean the Company and all other
entities required to be aggregated under Code Sections 414(b), (c) or
(m).
II.5 "Annuity Starting Date" shall mean the first day of the first
period for which an amount is payable as an annuity, or in the case
of a benefit not payable in the form of an annuity, the first day on
which all events have occurred which entitle the Participant to such
a benefit.
II.6 "Benefit Service" shall mean the sum of all credited service
earned under the Pension Plan determined as set forth under such
plan.
II.7 "Board of Directors" shall mean the Board of Directors of the
Company.
II.8 "Change in Control" shall occur if:
(a) the individuals who, as of December 31, 1997,
constitute the Board of Directors of the Company (the "Incumbent
Board"), cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to December 31, 1997 whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at
least two-thirds of the directors then comprising the Incumbent Board
shall be considered as though such an individual were a member of the
Incumbent Board;
(b) any individual, entity, or group (within the
meaning of section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended), acquires (directly or indirectly) the
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under such Act) of more than twenty (20) percent of the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors ("Voting
Power");
(c) any share of common stock or any other voting
securities of the Company shall be purchased pursuant to a tender or
exchange offer (other than a tender or exchange offer made by the
Company); or
(d) the Company's stockholders shall approve a
merger or consolidation, sale or disposition of all or substantially
all of the Company's assets or a plan of liquidation or dissolution
of the Company, other than (A) a merger of consolidation in which the
voting securities of the Company outstanding immediately prior
thereto will become (by operation of law), or are to be converted
into, voting securities of the surviving corporation or its parent
corporation immediately after such merger or consolidation that are
owned by the same person or entity or persons or entities as
immediately prior thereto and possess at least seventy-five (75)
percent of the Voting Power held by the voting securities of the
surviving corporation or its parent corporation, (B) a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no person acquires more than fifty
(50) percent of the Voting Power, or (C) a merger of consolidation in
which the Company is the surviving corporation and such transaction
was determined not to be a Change in Control, which transaction and
determination was approved by a majority of the Board in actions
taken prior to, and with respect to, such transaction.
II.9 "Code" shall mean the Internal Revenue Code of 1986, as
amended. Reference to a section of the Code shall include that
section and any comparable section or sections of any future
legislation that amends, supplements, or supersedes such section.
II.10 "Company" shall mean Chock full o'Nuts Corporation and any
successor thereof.
II.11 "Early Retirement Date" shall have the same meaning as set
forth in Article I of the Pension Plan.
II.12 "Effective Date" shall mean January 1, 1998.
II.13 "Hour of Service" shall have the same meaning as set forth in
Article I of the Pension Plan.
II.14 "Independent Actuary" shall mean the actuarial consultant
appointed by the Trustee in accordance with the Trust to determine
the Required Funding Amount.
II.15 "Joint and 50% Survivor Annuity" shall mean a series of monthly
installments which will be made for the lifetime of the Participant.
If the Participant predeceases his Spouse, payment in an amount
equal to fifty percent (50%) of the Participant's monthly payment
will continue for the Spouse's life. The benefit under a Joint and
50% Survivor Annuity will be the Actuarial Equivalent of the benefit
under the Life Annuity form of payment.
II.16 "Late Retirement Date" shall have the same meaning as set forth
in the Pension Plan.
II.17 "Life Annuity" shall mean a series of monthly installments
which continue for the lifetime of the Participant and cease upon his
death.
II.18 "Normal Retirement Date" shall have the same meaning as set
forth in the Pension Plan.
II.19 "Participant" shall mean any employee of the Company who
becomes eligible to participate in the Plan and who continues to be
entitled to any benefits under the Plan.
II.20 "Pension Plan" shall mean the Chock full o'Nuts Corporation
Pension Plan, as such plan may be amended, from time to time.
II.21 "Plan" shall mean the Chock full o'Nuts Corporation
Supplemental Executive Retirement Plan, as such plan may be amended,
from time to time.
II.22 "Retirement" shall mean separation from service with all
members of the Affiliated Group at a time when the Participant is
eligible for payment of an Accrued Benefit pursuant to Article IV.
II.23 "Required Funding Amount" shall mean the sum of the aggregate
present value of all vested Accrued Benefits, and (ii) the present
value of all estimated fees and expenses of the Trust, each as
determined by the Independent Actuary at the times and in the manner
described in the Trust, using actuarial assumptions set forth under
Section 1.2 of the Pension Plan.
II.24 "Retirement Date" shall have the same meaning as set forth in
Article I of the Pension Plan.
II.25 "Spouse" shall mean the person legally married to the
Participant as of his or her Annuity Starting Date.
II.26 "Surviving Spouse" shall mean the person legally married to the
Participant at his date of death.
II.27 Termination for Cause shall mean termination on account of
dishonesty or any act or conduct on the part of the Participant which
is materially injurious to the business or reputation of any member
of the Affiliated Group.
II.28 "Trust" shall mean the Chock full o'Nuts Corporation Executive
Supplemental Retirement Plan Trust.
II.29 "Trustee" shall mean the trustee appointed under the Chock full
o'Nuts Corporation Executive Supplemental Retirement Plan (Springing)
Trust.
Article III
PLAN PARTICIPATION
III.1 Eligibility to Participate in the Plan. Those employees of the
Company that are designated by the Board of Directors or the
Compensation Committee of the Board of Directors shall be eligible to
participate in the Plan. A list of such Participants may, from time
to time, be attached hereto as Appendix 1.
III.2 Participation. A Participant shall remain a Participant so
long as he is vested in any Accrued Benefits under the Plan.
Article IV
BENEFITS
IV.1 Retirement Benefits.
(a) Except as otherwise provided herein, a Participant's
vested Accrued Benefit shall be determined as of his Normal
Retirement Date and paid commencing as of such date, provided that he
has separated from service from the Affiliated Group ("Normal
Retirement Benefit").
(b) A Participant who separates from service from the
Affiliated Group prior to his Normal Retirement Date may, in
accordance with Section 4.5, elect to commence payment of his vested
Accrued Benefit as of an Early Retirement Date. In such event his
benefit shall be equal to his vested Accrued Benefit (after any
applicable reduction under Section 2.1(c) of the Plan) determined as
of the Participant's Early Retirement Date and commencing as of such
date ("Early Retirement Benefit").
(c) A Participant who separates from service from the
Affiliated Group after his Normal Retirement Date may, in accordance
with Section 4.5, elect to commence payment of his vested Accrued
Benefit as of a Late Retirement Date. In such event his benefit
shall be equal to his vested Accrued Benefit determined as of his
Late Retirement Date (taking into account his service performed and
Compensation earned after his Normal Retirement Date) and commencing
as of such date ("Late Retirement Benefit").
IV.2 Deferred Vested Benefit. A Participant who separates from
service from the Affiliated Group before he is eligible to receive
payment of an Accrued Benefit but after he meets the vesting
requirements of Article V shall be entitled to a deferred monthly
retirement benefit. The Participant's benefit shall be equal to his
vested Accrued Benefit calculated as of his date of separation from
service, and subject to Section 4.5, commence on the first date on
which he would be eligible to receive a Normal Retirement Benefit.
IV.3 Form of Retirement or Deferred Vested Benefit. (a) At the
election of the Participant, the vested Accrued Benefit under
Sections 4.1 and 4.2 of this Plan may be paid in the form of a Life
Annuity or a Joint and 50% Survivor Annuity. Such election shall be
made on a form provided by the Company within thirty (30) days after
the date on which the Participant commences participation in the
Plan. A Participant may change such election by filing an
appropriate form issued by the Company, provided that any such change
in election shall not be effective unless made before the year in
which the Participant separates from service from the Affiliated
Group. Benefits under each form shall be paid in monthly
installments. Benefits under this section other than in the form of
a Life Annuity shall be the Actuarial Equivalent of a Life Annuity.
(b) Notwithstanding subsection (a) above, a Participant who
separates from service or retires with a vested Accrued Benefit shall
be paid the Actuarial Equivalent of such benefit in a single sum if
such Actuarial Equivalent does not exceed five thousand dollars
($5,000). If the Participant subsequently resumes participation in
the Plan, such Participant's benefit at his later date of separation
from service shall be reduced by the amount of the Accrued Benefit
that was previously paid to him.
IV.4 Death Benefit. If the Participant's death occurs before the
Annuity Starting Date and the Participant elected a form of benefit
other than a Life Annuity, a monthly benefit shall be payable to the
Surviving Spouse for the remainder of his or her life as follows.
(a) Subject to paragraph (c) below, if a vested Participant
dies prior to an Early Retirement Date or Normal Retirement Date, his
Surviving Spouse shall receive a survivor annuity for life equal to
the annuity which would have been payable to such Surviving Spouse if
such Participant had:
(1) separated from service from the Affiliated Group on
the date prior to the date of his date of death (or actual date of
separation from service, if earlier);
(2) survived to the date he would have first become
eligible to commence receipt of a vested Accrued Benefit under the
Plan;
(3) retired on such date with a Joint and 50% Survivor
Annuity; and
(4) died on the next day.
(b) Subject to paragraph (c) below, if a vested Participant
dies after his Early Retirement Date or Normal Retirement Date, the
Surviving Spouse shall receive a survivor annuity for life equal to
the annuity that would have been payable to such Surviving Spouse if
the Participant had retired on the date preceding his death with his
vested Accrued Benefit payable in the form of a Joint and 50%
Survivor Annuity.
(c) A Surviving Spouse may, with the consent of the
Administrative Committee, defer the commencement of a death benefit
but not later than the first day of the month following the
Participant's Normal Retirement Date (had he lived).
IV.5 Time of Payment.
(a) Unless a Participant elects otherwise, and subject to
Section 4.6, payment of the vested Accrued Benefit of a Participant
under Sections 4.1 and 4.2 of the Plan shall commence as of the
Participant's Normal Retirement Date, provided that he has separated
from service from the Affiliated Group. A Participant may, within
thirty (30) days after the date on which he commences participation
in the Plan, elect on a form provided by the Company to commence
payment of his vested Accrued Benefit as of an Early Retirement Date
or Late Retirement Date. A Participant may change such election by
filing an appropriate form issued by the Company, provided that any
such change shall not be effective unless made before the year in
which the Participant separates from service from the Affiliated
Group.
(b) Payment of a Participant's vested Accrued Benefit under
Section 4.4(a) of this Plan shall commence on the first day of the
month following the first date on which the Participant would have
been eligible to commence receipt of benefit payments under the Plan
had he lived. Payment of a Participant's vested Accrued Benefit
under Section 4.4(b) of this Plan shall commence on the first day of
the month following the Participant's death.
IV.6 Suspension of Benefits.
(a) The payment of a vested Accrued Benefit will be suspended
for each calendar month or four-or-five week payroll ending in a
calendar month following the Annuity Starting Date during which a
Participant receives payment for the performance of an Hour of
Service with the Company or any member of the Affiliated Group on
each of eight (8) or more days (or separate work shifts). A
Participant's vested Accrued Benefit which commences later than his
Normal Retirement Date will be computed without regard to amounts
which are suspended under the preceding sentence.
(b) Benefits suspended in accordance with this Section shall
resume no later than the first day of the third calendar month
following the calendar month when the Participant again fails to
receive payment for the performance of an Hour of Service with the
Company or any member of the Affiliated Group on each of eight (8) or
more days (or separate work shifts). The initial payment upon
resumption shall include the payment scheduled to occur in the
calendar month when payments resume and any amounts withheld during
the period between the cessation of employment and the resumption of
payments, less any amounts which are subject to offset.
(c) The Administrative Committee may, in its discretion,
establish procedures for the resumption of benefits and the
offsetting of benefit overpayments, if any.
IV.7 Claims of Creditors. It is the intent that benefits under the
Plan are and shall remain at all times subject to the claims of the
general creditors of the Company.
Article V
VESTING
V.1 Vesting. A Participant shall be 100% vested in his Accrued
Benefit after completion of five years of Vesting Service, upon
attainment of Normal Retirement Age or death; provided, however, that
if a Participant's employment with a member of the Affiliated Group
is Terminated for Cause prior to Retirement the Participant's Accrued
Benefit whether vested or not shall be forfeited.
Article VI
CHANGE IN CONTROL
VI.1 Change in Control.
(a) Not later than ten (10) days after the occurrence of a
Change in Control, the Company shall make a contribution to the Trust
equal to the amount by which the Required Funding Amount exceeds the
fair market value of the assets of the Trust, if any, on the date of
such Change in Control. Such contribution shall be in cash, in
marketable securities, or in a combination thereof acceptable to the
Trustee. Upon receipt of such amount from the Company, the Trust
shall make any and all payments required hereunder, which payments
shall discharge the Company's obligations hereunder.
(b) In the event and at the time(s) following a Change in
Control that the Company receives notification from the Trustee
indicating that the then Required Funding Amount exceeds the fair
market value of the assets of the Trust, the Company shall, not later
than thirty (30) days following receipt of such notice, make an
additional contribution(s) to the Trust equal to such excess amount.
Such additional contribution(s) shall be in cash, in marketable
securities, or in a combination thereof acceptable to the Trustee.
(c) The Company may at any time (whether prior to or after a
Change in Control) make other transfers of cash or marketable
securities acceptable to the Trustee to the Trust to augment the
principal to be held, administered and disposed of by the Trustee.
Article VII
PLAN ADMINISTRATION
VII.1 Administration of the Plan. The Plan shall be administered by
an Administrative Committee, which shall be appointed by the Board of
Directors, subject, however, to any action taken by the Board of
Directors in respect to the Plan. The Administrative Committee shall
be responsible for the administration of the Plan and shall have all
of the powers and duties set forth in the Pension Plan including,
without limitation, the discretionary power to determine eligibility
for participation in the Plan and to construe the terms of the Plan.
The Administrative Committee shall file with the Department of Labor
and distribute to the Participants any reports and other information
required by applicable law and shall be entitled to rely conclusively
upon all tables, valuations, certificates, opinions and reports
furnished by any actuary, accountant, controller, counsel or other
person employed or engaged by it with respect to the Plan. The
Administrative Committee shall cause the Independent Actuary to
perform an actuarial valuation of the Plan at least annually in
accordance with generally accepted actuarial principles.
Article VIII
AMENDMENT AND TERMINATION
VIII.1 Amendment and Termination of the Plan. The Board of
Directors may amend or terminate the Plan at any time. No such
amendment or termination shall deprive any Participant or Surviving
Spouse of any portion of any vested Accrued Benefit which would be
payable if the Participant separated from service from the Affiliated
Group for any reason (other than Termination for Cause), including
death.
Article IX
GENERAL PROVISIONS
IX.1 Funding. Benefits payable under this Plan to a Participant
shall, upon his separation from service from all members of the
Affiliated Group, be paid directly from the general assets of the
Company. Subject to Section 6.1, the Company shall not be obligated
to set aside, earmark or escrow any funds or other assets to satisfy
its obligations under this Plan, and the Participant and his
Surviving Spouse shall not have any property interest in any specific
assets of the Company other than the unsecured right to receive
payments from the Company as provided herein.
IX.2 Nonalienation of Benefits under this Plan. Except for claims
of indebtedness owing to the Company, the interests of Participants
and their Surviving Spouses are not subject to claims, indebtedness,
attachment, execution, garnishment, or other legal or equitable
process and such interests may not be voluntarily or involuntarily
sold, transferred or assigned. Any attempt by a Participant or his
Surviving Spouse or any other person to sell, transfer, alienate,
assign, pledge, anticipate, encumber, charge, or otherwise dispose of
any right to benefits payable hereunder shall be void.
IX.3 Plan not a Contract of Employment. This Plan shall not be
deemed to constitute a contract between the Company and any
Participant or to be a consideration or an inducement for the
employment of any Participant or employee of the Company. Nothing
contained in this Plan shall be deemed to give any Participant or
employee the right to be retained in the service of the Company or to
interfere with the right of the Company to discharge any Participant
or employee at any time regardless of the effect which such discharge
shall have upon such individual as a Participant in the Plan.
IX.4 Required Notification to Administrative Committee. Each
Participant entitled to benefits hereunder shall file with the
Administrative Committee from time to time in writing his post office
address and each change of post office address, and any check
representing payment hereunder and any communication addressed to a
Participant or a former active Participant hereunder at his last
address filed with the Administrative Committee, or if no such
address has been filed, then at his last address as indicated on the
records of the Company shall be binding on such person for all
purposes of the Plan, and neither the Administrative Committee nor
other payor shall be obliged to search for or ascertain the location
of any such person. If the Administrative Committee for any reason
is in doubt as to the address of any Participant or former active
Participant entitled to benefits hereunder or as to whether benefit
payments are being received by the person entitled thereto, it shall,
by registered mail addressed to the person concerned at his address
last known to the Administrative Committee, notify such person that
all unmailed and future retirement income payments shall be
henceforth withheld until he provides the Administrative Committee
with evidence of his continued life and his proper mailing address.
IX.5 Successors. The provisions of this Plan shall be binding upon
the Company, each Participating Employer, and their successors and
assigns and upon each Participant and his heirs, spouses, estates,
and legal representatives.
IX.6 Facility of Payment. Whenever and as often as any person
entitled to payments hereunder shall be under a legal disability, or
in the sole judgment of the Administrative Committee shall otherwise
be unable to apply such payments to his own best interest and
advantage, the Administrative Committee, in the exercise of its
discretion, may direct all or any portion of such payments to be made
in any one or more of the following ways:
(a) directly to such person;
(b) to his legal curator, guardian, or conservator, or other
court-appointed or court-recognized representatives; or
(c) to his Surviving Spouse, to another member of his family,
or to any other person, to be expended for his benefit.
IX.7 Required Information to Administrative Committee. Each
Participant will furnish the Administrative Committee such
information as the Administrative Committee considers necessary or
desirable for purposes of administering the Plan, and the provisions
of the Plan respecting any payments thereunder are conditional upon
the Participant's furnishing promptly such true, full and complete
information as the Administrative Committee may request. Each
Participant shall submit proof of his age to the Administrative
Committee at such time as required by the Administrative Committee.
The Administrative Committee will, if such proof of age is not
submitted as required, use as conclusive evidence thereof such
information as is deemed by it to be reliable, regardless of the lack
of proof, or the misstatement of the age of persons entitled to
benefits hereunder, by the Participant or otherwise, in such manner
as the Administrative Committee deems equitable. Any notice or
information which, according to the terms of the Plan or the rules of
the Administrative Committee, must be filed with the Administrative
Committee, shall be deemed so filed if addressed and either delivered
in person or mailed to and received by the Administrative Committee,
in care of the Company at:
Chock full o'Nuts Corporation
370 Lexington Avenue
New York, New York 10017
IX.8 Claims Procedure. In the event that any claim for benefits,
which must initially be submitted in writing to the Administrative
Committee, is denied (in whole or in part) hereunder, the claimant
shall receive from the Company notice in writing, written in a manner
calculated to be understood by the claimant, setting forth the
specific reasons for denial, with specific reference to pertinent
provisions of this Plan. Such notice shall be provided within ninety
(90) days of the Participant's claim for benefits. Any disagreements
about such interpretations and construction may be appealed to the
Administrative Committee within sixty (60) days after receipt of a
benefit determination. The Administrative Committee shall respond to
such appeal within sixty (60) days with a notice in writing fully
disclosing its decision and the reasons therefor.
IX.9 Indemnification. The Company shall indemnify each member of
the Administrative Committee and its delegates under the Plan against
any and all claims, losses, damages, expenses (including reasonable
attorney's fees) and liabilities for anything done or omitted to be
done in connection with the Plan except when the same is due to the
willful misconduct of such person.
IX.10 Controlling State Law. To the extent not superseded by the
laws of the United States, the Plan will be construed and enforced
according to the laws of the State of New York.
IX.11 Severability. In case any provision of this Plan shall be held
illegal or invalid for any reason, such illegality or invalidity
shall not affect the remaining provisions of the Plan, and the Plan
shall be construed and enforced as if such illegal and invalid
provisions had never been set forth.
IX.12 Adoption of Plan. Any member of the Affiliated Group may, by
action of its board of directors, adopt this Plan for its eligible
employees, provided that the Board of Directors approves such
adoption. The administrative powers and control
of the Company as provided in the Plan shall not be deemed
diminished under the Plan by reason of the participation of members
of the Affiliated Group in the Plan.
IN WITNESS WHEREOF, the Company has adopted this instrument on
this ____ day of February, 1998, as of the effective date set forth
above.
ATTEST (SEAL): CHOCK FULL O'NUTS CORPORATION
_______________________ By:_______________________
CHOCK FULL O'NUTS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Appendix I
List of Participants
BAER, PETER
CULLEN, MARTIN
DONNELL, TOM G.
FAZZARI, ANTHONY
GOLDBERG, MATTHEW
GOLDMAN, MICHAEL E.
HAAS, MARVIN
KASSAR, RICHARD A.
LAPIN, KENNETH A.
LEITNER, HOWARD M.
WEISE, STEPHEN
(..continued)
- 1 -
R&O-363138.2
- ii -
- 11 -
CHOCK FULL O'NUTS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(SPRINGING) TRUST
TABLE OF CONTENTS
Page No.
1. Definitions 1
2. Trust Fund 4
3. Payments to Covered Persons 5
4. Insolvency 8
5. Payments to the Company 9
6. Trustee 9
7. Investments 12
8. Amendment or Termination 18
9. General Provisions 19
CHOCK FULL O'NUTS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(SPRINGING) TRUST
AGREEMENT AND DECLARATION OF TRUST ("Trust Agreement") dated as
of September 14, 1998 by and between Chock full o'Nuts Corporation, a
Delaware corporation ("Company") and IBJ Schroder Bank & Trust Company
("Trustee").
W I T N E S S E T H :
WHEREAS, the Company heretofore established the Chock full o'Nuts
Corporation Supplemental Executive Retirement Plan (the "Plan"), for
the purpose of providing certain executives of the Company Supplemental
Pension Benefits; and
WHEREAS, the Company's obligations under the Plan are not funded
or otherwise secured and the Company desires to assure that payment
under the Plan will not be withheld in the event that a Change in
Control of the Company occurs; and
WHEREAS, in the event of a Change in Control, the Company desires
to deposit with the Trustee, subject only to the claims of the
Company's creditors, amounts to be used to pay Covered Benefits under
the Plan;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the parties hereto agree as follows:
Section 1. Definitions.
(a) "Board of Directors" means the board of directors of the
Company.
(b) "Change in Control" means any one of the following events:
(1) the individuals who, as of December 31, 1997,
constitute the Board of Directors of the Company (the "Incumbent
Board"), cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director
subsequent to December 31, 1997 whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at
least two-thirds of the directors then comprising the Incumbent Board
shall be considered as though such an individual were a member of the
Incumbent Board;
(2) any individual, entity, or group (within the meaning
of section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended), acquires (directly or indirectly) the beneficial ownership
(within the meaning of Rule 13d-3 promulgated under such Act) of more
than twenty (20) percent of the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally
in the election of directors ("Voting Power");
(3) any share of common stock or any other voting
securities of the Company shall be purchased pursuant to a tender or
exchange offer (other than a tender or exchange offer made by the
Company); or
(4) the Company's stockholders shall approve a merger or
consolidation, sale or disposition of all or substantially all of the
Company's assets or a plan of liquidation or dissolution of the
Company, other than (A) a merger of consolidation in which the voting
securities of the Company outstanding immediately prior thereto will
become (by operation of law), or are to be converted into, voting
securities of the surviving corporation or its parent corporation
immediately after such merger or consolidation that are owned by the
same person or entity or persons or entities as immediately prior
thereto and possess at least seventy-five (75) percent of the Voting
Power held by the voting securities of the surviving corporation or its
parent corporation, (B) a merger or consolidation effected to implement
a recapitalization of the Company (or similar transaction) in which no
person acquires more than fifty (50) percent of the Voting Power, or
(C) a merger of consolidation in which the Company is the surviving
corporation and such transaction was determined not to be the Change in
Control, which transaction and determination was approved by a majority
of the Board in actions taken prior to, and with respect to, such
transaction.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Covered Benefit(s)" means all or part of the benefit
provided under the terms of the Plan payable to or in respect of a
Covered Person who had accrued a benefit under the Plan before the
date of the Change in Control.
(e) "Covered Person" means:
(1) any person initially designated as a Covered Person as
listed in Exhibit A who is either in the employ of the Company as of
the date of the Change in Control or who has retired from the Company
prior to, but is in receipt of or entitled to benefit payments under
the Plan as of, the date of the Change in Control; and
(2) any executive employed by the Company as of the date
of the Change in Control who prior thereto was designated by the Board
of Directors or the Compensation Committee of the Board of Directors
for participation in the Plan and Trust; and
(3) in the case of a deceased Covered Person, that
Person's Surviving Spouse, when the context so requires.
(f) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
(g) "Independent Actuary" means the actuarial consultant
appointed by the Trustee in accordance with Section 6(d) hereof to
recalculate the Required Funding Amount.
(h) "Insolvent" or "Insolvency" means any of the following
events:
(1) The Company is unable to pay its debts as they become
due; or
(2) The Company shall make an assignment for the benefit
of creditors, file as debtor a petition in bankruptcy, petition or
apply to any tribunal for the appointment of a custodian, receiver,
liquidator, sequestrator, or any trustee for it or a substantial part
of its assets, or shall commence as debtor any case under any
bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution, or liquidation law or statute of any jurisdiction
(federal or state), whether now or hereafter in effect; or any other
person or entity shall file such a petition or application, or shall
commence such a case against the Company, unless and until such
petition, application or case is withdrawn or dismissed; or the
Company, by any act or omission, shall indicate its consent to,
approval of or acquiescence in any such petition, application or case
or order for relief or to the appointment of a custodian, receiver or
any trustee for it or any substantial part of any of its property, or
shall suffer any such custodianship, receivership, or trusteeship to
continue undischarged.
(i) "Investment Guidelines" means the Investment Guidelines in
effect pursuant to Section 7.
(j) "Payment Schedule" means, collectively, for the Covered
Persons a schedule of benefits (substantially in the form annexed
hereto as Exhibit B) payable from the Trust Fund to such Covered
Person as may be provided to the Trustee by the Company in accordance
with Section 3(f) of this Trust Agreement.
(k) "Reliable Source" means a report filed with the Securities
and Exchange Commission or a public statement issued by the Company,
or a periodical of general circulation, including, but not limited to
The New York Times or The Wall Street Journal.
(l) "Required Funding Amount" means, prior to the occurrence
of the Change in Control, the aggregate present value of all Covered
Benefits which are included in Exhibit A as may be updated or modified
from time to time by the Company and furnished to the Trustee in
writing. After the occurrence of the Change in Control, the term
"Required Funding Amount" means the sum of (i) the aggregate present
value of all Covered Benefits, and (ii) the present value of all
estimated fees and expenses of the Trust, each as determined by the
Independent Actuary at the times and in the manner described in
Section 6(d).
(m) "Surviving Spouse" shall mean the person to whom a Covered
Person is legally married at his date of death.
(n) "Termination Affidavit" means an affidavit of a Covered
Person in the form annexed hereto as Exhibit C.
(o) "Trust" or "Trust Fund" means the trust fund held from
time to time by the Trustee hereunder consisting of all contributions
received by the Trustee together with the investments and
reinvestments made therewith and all net profits and earnings thereon
less all payments and charges therefrom.
Section 2. Trust Fund.
(a) Subject to the claims of creditors as hereinafter set
forth, the Company hereby deposits with the Trustee in trust One
Hundred Dollars ($100) which shall become the principal of the Trust
to be held, administered and disposed of by the Trustee as provided in
this Trust Agreement.
(b) The Company, through its Chief Financial Officer, shall
notify the Trustee promptly in writing of the occurrence of the Change
in Control.
(c) Not later than ten (10) days after the occurrence of the
Change in Control, the Company shall make a contribution to the Trust
equal to the amount by which the initial Required Funding Amount, as
set forth in Exhibit A, exceeds the fair market value of the assets of
the Trust, if any, on the date of such Change in Control, as contained
in the notification provided to the Company by the Trustee in
accordance with Section 6(d). Not later than thirty (30) days after
the occurrence of the Change in Control, the Company shall make an
additional contribution to the Trust equal to the difference between
the Required Funding Amount that has been recalculated by the
Independent Actuary in accordance with Section 6(d) and the initial
Required Funding Amount upon which the Company's first required
contribution under this Section 2(c) was based. All contributions
required to be made by the Company shall be in cash, marketable
securities, or a combination thereof acceptable to the Trustee.
(d) In the event and at the time(s) following the Change in
Control that the Company receives a notification from the Trustee in
accordance with Section 6(d) and Section 7(k) indicating that the then
Required Funding Amount exceeds the fair market value of the assets of
the Trust, the Company shall, not later than thirty (30) days
following receipt of such notice, make an additional contribution(s)
to the Trust equal to such excess amount. Such additional
contribution(s) shall be in cash, marketable securities, or a
combination thereof acceptable to the Trustee.
(e) The Company may at any time (whether prior to or after the
Change in Control) make other transfers of cash or marketable
securities acceptable to the Trustee to the Trust to augment the
principal to be held, administered and disposed of by the Trustee as
provided in this Trust Agreement.
(f) The Trust shall be an irrevocable trust.
(g) The Trust is intended to be a grantor trust under section
671 of the Code, and shall be construed accordingly.
(h) The principal of the Trust, and any earnings thereon,
shall be held separate and apart from other funds of the Company and
shall be used exclusively for the uses and purposes herein set forth.
Neither the Plan nor any Covered Person shall have any preferred
claim on, or any beneficial ownership interest in, any assets of the
Trust prior to the time such assets are paid to the Covered Person.
Section 3. Payments to Covered Persons.
(a) Upon receiving notification from the Company that the
Change in Control has occurred, the Trustee shall make payments of
Covered Benefits if and to the extent that assets are available in the
Trust for distribution, provided that at all times the Company is not
Insolvent. The Trustee shall pay Covered Benefits to the Covered
Persons in the following order:
(1) First, the Trustee shall make payments of Covered
Benefits to Covered Persons who are in pay status under the Plan as of
the date of the Change in Control in the chronological order in which
such Covered Persons are entitled to a payment of Covered Benefits
thereunder (i.e., based on the date on which payments commenced under
the Plan, with the earliest commencement date having the first
priority); and
(2) Second, the Trustee shall reserve sufficient assets
to pay all Covered Benefits not then in pay status under the Plan.
(b) Prior to receiving notification from the Company that the
Change in Control has occurred, solely out of the Trust Fund and with
no obligation otherwise to make any payment, the Trustee shall make
such payments as shall be directed by the Chief Financial Officer of
the Company in writing. The Trustee may rely and shall be fully
protected in relying on such directions.
(c) In the event of a Covered Person's termination of
employment with the Company and the Affiliated Group (as such term is
defined under the Plan) for any reason including death on or after the
occurrence of the Change in Control, such Covered Person or his
Surviving Spouse, as the case may be, shall provide the Trustee with a
Termination Affidavit. If a Covered Person dies on or after the
occurrence of the Change in Control, the Termination Affidavit shall
be provided by the Surviving Spouse who shall also supply the Trustee
with a certified copy of the death certificate of the Covered Person,
an inheritance tax waiver and such other documents as the Trustee may
require (including, without limitation, certified copies of letters
testamentary). Promptly upon receipt thereof the Trustee shall mail a
copy of the Termination Affidavit to the Company. After the Covered
Benefits are sufficiently funded in accordance with the priorities set
forth in Section 3(a), the Trustee, solely out of the Trust Fund and
with no obligation otherwise to make any payment, shall, as soon as
administratively practicable and in conformity with the instructions
set forth in the Payment Schedule, make payments to a Covered Person
at the times and in the manner set forth in the Payment Schedule last
received by the Trustee with respect to such Covered Person and
consistent with the information set forth in the Termination
Affidavit. The Trustee may rely on and shall be fully protected in
relying on the contents of a Termination Affidavit and all
documentation and other information provided to it by the Company for
all purposes under this Trust Agreement as if the Plan were deemed
funded and the Company was a "named fiduciary" as such term is defined
in ERISA.
(d) After the Covered Benefits are sufficiently funded in
accordance with the priorities set forth in Section 3(a), the Trustee
shall make payments to Covered Persons in the order in which the
Termination Affidavits for these Covered Persons are received by the
Trustee. In the event that the Trustee receives more than one
Termination Affidavit on the same day and the Trust Fund does not
contain assets sufficient to make all of the payments otherwise
required as a result of the receipt of such Termination Affidavits,
the Trustee, after the payment of all of its unpaid compensation and
expenses, shall distribute the balance of the Trust Fund to Covered
Persons who have submitted such Termination Affidavits on a pro-rata
basis.
(e) The Trustee shall not make any payments to Covered Persons
from the Trust Fund except as provided in Section 3 even though it may
be informed by another source that payments are due under the Plan.
The Trustee shall have no duty to determine the propriety or amount of
such payments or the rights of any person in the Trust Fund.
(f) Upon the execution of this Trust Agreement, the Company
shall deliver to the Trustee a list of current Covered Persons and the
corresponding present value of their accrued benefits under the Plan,
substantially in the form of Exhibit A and any initial Payment
Schedules substantially in the form of Exhibit B. The Company may,
from time to time, add additional Covered Persons to the list included
in Exhibit A and/or additional Payment Schedules to the Trust
Agreement and may, from time to time, amend the present value amounts
set forth in Exhibit A and/or the Payment Schedules then in effect or
substitute new Payment Schedules without the written consent of the
Covered Person or Covered Persons to whom such Payment Schedules
relate; provided, however, that following the Change in Control, only
the Independent Actuary may amend or otherwise revise any present
value amount set forth in Exhibit A and the Company shall not have the
power to add or substitute Payment Schedules nor may the Company amend
a Payment Schedule without the written consent of the Covered Person
to whom such Payment Schedule relates. The Trustee may rely on and
shall be fully protected in relying on the contents of Exhibit A or of
a Payment Schedule for all purposes under this Trust Agreement without
inquiry until it receives an amendment thereto or a new Payment
Schedule in substitution thereof to the extent permitted hereunder.
(g) At the time that the Company first submits a Payment
Schedule with respect to a Covered Person, it shall provide the
identity of the spouse to whom such Covered Person is then legally
married. The Trustee is entitled to treat the spouse named in a
Payment Schedule in its possession as of the date of a Covered
Person's death as the Covered Person's Surviving Spouse, unless prior
thereto it is actually in receipt of a revised Payment Schedule from
the Company identifying a different person as the Covered Person's
spouse.
(h) The Trustee shall notify the Company as to the identity of
Covered Persons who have received payment from the Trust and the
amount of such payments.
(i) If the Trust assets are not sufficient to make payment of
Covered Benefits due under the Plan (after application of the ordering
rules set forth above), the Company shall make each such payment (or
the balance of each such payment) as it falls due.
(j) The Company shall determine or cause to be determined the
amount required to be withheld under federal, state and local wage
withholding requirements or otherwise, and shall direct the Trustee to
withhold such amount and to pay or cause to be paid to the appropriate
governmental authority the amounts so withheld. The Trustee may rely
on instructions from the Company as to any required withholding and
shall be fully protected in relying upon such instructions.
(k) Except as otherwise provided herein, in the event of any
final determination by the Internal Revenue Service or a court of
competent jurisdiction, which determination is not appealable or the
time for appeal or protest of which has expired, or the receipt by the
Trustee of a substantially unqualified opinion of tax counsel selected
by the Trustee, which determination determines, or which opinion
opines, that the Covered Persons or any particular Covered Person, is
subject to federal income taxation on amounts held in Trust hereunder
prior to the distribution to the Covered Persons or Covered Person of
such amounts, the Trustee shall, on receipt by the Trustee of such
opinion, court order or assessment which forms the basis of such
determination, pay to each Covered Person the portion of the Trust
includible in such Covered Person's federal gross income.
Section 4. Insolvency.
(a) It is the intent of the parties hereto that the Trust is
and shall remain at all times subject to the claims of the general
creditors of the Company. Accordingly, the Company shall not create a
security interest in the Trust in favor of the Covered Persons or any
creditor. If the Trustee receives the notice provided for in Section
4(b), or the Trustee is served with any order, process or paper from
which it appears that an allegation to the effect that the Company is
Insolvent has been made in a judicial proceeding or the Trustee has
actual knowledge of a current report or statement from a nationally
recognized credit reporting agency or from a Reliable Source to the
effect that the Company is Insolvent, the Trustee shall hold the Trust
Fund for the benefit of the Company's creditors, and shall resume
payment of Covered Benefits under this Trust Agreement in accordance
with Section 3 hereof only upon receipt of an order of a court of
competent jurisdiction authorizing such payment or if the Trustee has
actual knowledge of a current report or statement from a nationally
recognized credit reporting agency or a Reliable Source to the effect
that the Company is not Insolvent; provided, however, that in the
event that payment of Covered Benefits was discontinued by reason of a
court order or injunction, the Trustee shall resume payment of Covered
Benefits only upon receipt of an order of a court of competent
jurisdiction authorizing such payment. The Trustee shall have an
affirmative duty to monitor the Company's solvency status after the
payment of Covered Benefits has been suspended due to the Company's
Insolvency. The Trustee shall resume distribution of Trust assets to
the Covered Persons under the terms hereof, upon no less than ten (10)
days' advance notice to the Company, if it determines that the Company
was not, or is no longer, Insolvent.
(b) The Company, through its Chief Financial officer, shall
advise the Trustee promptly in writing of the Company's Insolvency.
(c) If the Trustee discontinues payment of Covered Benefits
pursuant to Section 4(a) and subsequently resumes such payment, the
first payment to a Covered Person following such discontinuance shall
include an aggregate amount equal to the difference between the
payments which would have been made to such Covered Person under this
Trust Agreement but for Section 4(a) and the aggregate payments
actually made to such Covered Person by the Company (as certified to
the Trustee by the Covered Person in writing) during any such period
of discontinuance, plus interest on such amount at a rate equivalent
to the net rate of return earned by the Trust Fund during the period
of discontinuance.
(d) In the event that at any time any amount is paid from the
Trust Fund to creditors of the Company, the Company, shall upon demand
by the Trustee, and subject to an order of a court of competent
jurisdiction, deposit into the Trust Fund a sum equal to the amount
paid by the Trust Fund to such creditors.
(e) The Trustee shall not be liable to any person or entity in
the event Covered Benefits are discontinued pursuant to Section 4(a).
Section 5. Payments to the Company.
(a) In the event that the fair market value of the assets of
the Trust exceeds one hundred and ten percent (110%) of the Required
Funding Amount upon any recalculation of such amount required by this
Trust Agreement, the Trustee shall promptly return any such excess to
the Company, subject to the provisions of Section 4 in all events.
(b) Except as provided in Section 5(a), the Company shall have
no right or power, either before or after the Change in Control, to
direct the Trustee to return to the Company or to transfer to others
any of the assets of the Trust before the payment of all benefits
under the Plan to the Covered Persons.
Section 6. Trustee.
(a) The duties and responsibilities of the Trustee shall be
limited to those expressly set forth in this Trust Agreement, and no
implied covenants or obligations shall be read into this Trust
Agreement against the Trustee.
(b) After receiving notification from the Company that the
Change in Control has occurred, the Trustee shall have the duty to
enforce the provisions of this Trust Agreement, including, without
limitation, the duty to commence an action against the Company to
compel the performance of any of its funding obligations under the
terms of this Trust Agreement in the event that the Trustee
determines, in its discretion, that the Company's failure to perform
constitutes a material breach of any such obligations. Except as
otherwise provided herein, in any action or proceeding affecting the
Trust, the only necessary parties shall be the Company, the Trustee
and the Covered Persons with respect to whom Covered Benefits are then
held in the Trust and, except as otherwise required by applicable law,
no other person shall be entitled to any notice or service of process.
Any judgment entered in such an action or proceeding shall, to the
maximum extent permitted by applicable law, be binding and conclusive
as to all persons having or claiming to have an interest in the Trust.
(c) If all or any part of the Trust is at any time attached,
garnished, or levied upon by any court order, or in case the payment,
assignment, transfer, conveyance or delivery of any such property
shall be stayed or enjoined by any court order, or in case any order,
judgment or decree shall be made or entered by a court affecting such
property or any part thereof, then and in any of such events the
Trustee is authorized, in its sole discretion, to rely upon and comply
with any such order, writ, judgment or decree, and it shall not be
liable to the Company or any Covered Person by reason of such
compliance even though such order, writ, judgment or decree
subsequently may be reversed, modified, annulled, set aside or
vacated.
(d) The Trustee shall, as soon as practicable following its
receipt of notification from the Company that the Change in Control
has occurred, appoint an Independent Actuary from the list of
actuarial consultants set forth in Exhibit F for purposes of
recalculating the Required Funding Amount as of the date of the Change
in Control. The Required Funding Amount shall be recalculated by the
Independent Actuary on the basis of the information furnished to it by
the Company in accordance with Section 9(f), within fifteen (15) days
of receipt thereof, and in consultation with the Trustee, using
reasonable actuarial assumptions set forth in the Plan. The Trustee
shall notify the Company of the recalculated Required Funding Amount
as of the date of the Change in Control as soon as practicable
following certification of such amount by the Independent Actuary.
The Trustee shall also, as soon as practicable following its receipt
of notification from the Company that the Change in Control has
occurred, but in no event later than five (5) days thereafter,
determine the current fair market value of the Trust assets in
accordance with the provisions of Section 7(k) as of the date of such
Change in Control and shall promptly notify the Company of such value.
The Trustee shall thereafter direct the Independent Actuary to
recalculate the Required Funding Amount as of the last day of the
calendar year in which the Change in Control occurred, provided such
date is more than six (6) months after the date of such Change in
Control, and the last day of each subsequent calendar year. The
Trustee shall promptly notify the Company of each recalculation of the
Required Funding Amount as soon as practicable following certification
of such amount by the Independent Actuary. The Trustee may, in its
sole discretion, remove the Independent Actuary at any time and
appoint a successor thereto.
(e) The Trustee shall maintain such books, records and
accounts as may be necessary for the proper administration of the
Trust. The Trustee shall render to the Company, within forty-five
(45) days after each December 31 following the creation of this Trust
until the termination of this Trust, an accounting with respect to the
Trust as of each such December 31 (and as of the date of such
termination). Unless the Company shall have filed with the Trustee
written exceptions or objections to any such account within one
hundred eighty (180) days after receipt thereof, the Company shall be
deemed to have approved such account, and in such case the Trustee
shall be forever released and discharged with respect to all matters
and things reported in such account as though it had been settled by a
decree of a court of competent jurisdiction in an action or proceeding
to which the Company was a party.
(f) The Trustee shall not be liable for any act taken or
omitted to be taken hereunder if taken or omitted to be taken by it in
good faith. The Trustee shall also be fully protected in relying upon
any notice given hereunder which it in good faith believes to be
genuine, executed and delivered in accordance with this Trust.
(g) The Trustee may consult with legal counsel to be selected
by it, and the Trustee shall not be liable for any action taken or
suffered by it in accordance with the advice of such counsel. The
Trustee may hire agents, accountants, other actuaries and financial
consultants. The reasonable fees of the Independent Actuary, such
counsel, agents, accountants, other actuaries, and financial
consultants shall be deemed "expenses" under Section 6(h).
(h) The Trustee shall be reimbursed by the Company for its
reasonable expenses incurred in connection with the performance of its
duties hereunder and shall be paid reasonable fees for the performance
of such duties as set forth on Exhibit D, as from time to time amended
by the Company and the Trustee.
(i) Except where Trustee has been grossly negligent,
imprudent, or has acted in a manner which is willfully or
intentionally wrongful, the Company agrees to indemnify and hold
harmless the Trustee from and against any and all damages, losses,
claims or expenses (including expenses of investigation and fees and
disbursements of counsel to the Trustee and any taxes imposed on the
Trust or income of the Trust) arising out of or in connection with the
performance by the Trustee of its duties under this Trust Agreement.
Any amount payable to the Trustee under Section 6(h) or (i) and not
previously paid by the Company shall be paid by the Company promptly
upon demand therefor by the Trustee or, if the Trustee so chooses in
its sole discretion, from the Trust. In the event that payment is
made hereunder to the Trustee from the Trust, the Trustee shall
promptly notify the Company in writing of the amount of such payment.
The Company agrees that, within thirty (30) days of receipt of such
notice, it will deliver to the Trustee to be held in the Trust an
amount in cash, marketable securities or a combination thereof, equal
to any payments made from the Trust to the Trustee pursuant to Section
6(h) or (i). The failure of the Company to transfer any such amount
shall not in any way impair the Trustee's right to indemnification,
reimbursement and payment pursuant to Section 6(h) or (i).
(j) The Trustee may resign and be discharged from its duties
hereunder at any time by giving notice in writing of such resignation
to the Company specifying a date (not less than ninety (90) days after
the giving of such notice) when such resignation shall take effect.
Promptly after such notice, the Company (or, if the Change in Control
shall previously have occurred, the Company with the approval of at
least seventy-five percent (75%) of the then Covered Persons (other
than those individuals having the status of a Covered Person as a
result of being a Surviving Spouse of a Covered Person who are not
then receiving payments from the Trust) (hereinafter referred to as
"Interested Parties")) shall appoint a successor trustee, such trustee
to become Trustee hereunder upon the resignation date specified in
such notice. If the Company and such Interested Parties are unable to
so agree upon a successor trustee within ninety (90) days after such
notice, the Trustee shall be entitled, at the expense of the Company,
to petition a United States District Court or any of the courts of the
State of New York having jurisdiction to appoint its successor. The
Company (or, if a Change in Control shall previously have occurred,
the Company with the approval of at least seventy-five percent (75%)
of all persons who are Interested Parties or at least seventy-five
percent (75%) of all persons who are Interested Parties acting
independently of the Company and on their own behalf) may at any time
remove the Trustee and substitute a new trustee by giving ninety (90)
days notice thereof to the Trustee then acting. The Trustee shall
continue to serve until its successor accepts the trust and receives
delivery of the Trust Fund. In the event of such a resignation or
removal, the Trustee shall duly file an accounting as described in
Section 6(e) with the Company and, if applicable, the duly authorized
representative(s) of the Interested Parties who have removed the
Trustee without the participation of the Company, as the case may be,
for the period since the last previous accounting of the Trust. If
written objections to such accounting are not filed by the Company as
provided in Section 6(e), the Trustee shall, to the maximum extent
permitted by applicable law, be forever released and discharged from
all liability and accountability with respect to the propriety of its
acts and transactions shown in such accounting. For purposes of the
preceding sentence, in the event that a requisite number of Interested
Parties shall act to remove the Trustee without the participation of
the Company, then the duly authorized representative(s) of such
Interested Parties shall have the right to file written objections to
the Trustee's accounting under Section 6(e), in lieu of the Company.
Section 7. Investments.
(a) In exercising its powers under this Section 7, the Trustee
shall invest and reinvest the Trust Fund in accordance with the
Investment Guidelines issued by the Company which are appended hereto
as Exhibit E. The Company may, from time to time, prior to a Change
in Control amend the Investment Guidelines then in effect or
substitute new written Investment Guidelines. Such guidelines may
both (i) direct the Trustee to segregate any portion of the Trust Fund
held by it in one or more separate accounts to be known as Investment
Manager accounts, and (ii) provide for the specific allocation of
investment responsibilities among the Trustee and any Investment
Manager as may be appointed by the Company to manage an Investment
Manager account prior to the Change in Control. Until the Trustee
receives new Investment Guidelines, the Trustee may rely on and shall
be fully protected in relying on the last Investment Guidelines it has
received.
(b) As used herein, "Investment Manager" shall have the
meaning set forth under Section 3(38) of ERISA.
(c) To the extent that the Trust Fund has not been segregated
into one or more Investment Manager accounts or if the Trustee is
informed in writing that the Investment Manager(s) has resigned, was
removed or is no longer a qualified Investment Manager, the assets of
the Trust Fund or of the affected Investment Manager Account shall be
managed by the Trustee. The Board of Directors of the Company, shall
appoint in writing an Investment Manager(s) for each such Investment
Manager account and shall contemporaneously give written notice of
said appointment to the Trustee in accordance with the terms of this
Trust Agreement. Such Investment Manager(s) shall have full
discretion and authority to invest, reinvest or dispose of the assets
of the Trust Fund in the Investment Manager account. The Trustee
shall follow the directions of the Investment Manager(s) with respect
to the account of such Investment Manager(s) in exercising the powers
granted in this Section. All directions given by the Investment
Manager(s) to the Trustee may be in writing, signed by an officer (or
a partner) of the Investment Manager(s), or by such other person or
persons as may be designated by an officer (or a partner) of the
Investment Manager(s), may be given orally by such person or may be
transmitted to the Trustee by such other means of communication as the
Investment Manager(s), with the consent of the Trustee, may deem
appropriate or necessary. The Investment Manager(s) may directly
place orders for the purchase or sale of securities, subject to such
conditions as may be approved by the Company authorizing the
Investment Manager(s) to effect transactions directly for its
Investment Manager account, provided that the Trustee shall
nevertheless retain custody of the assets comprising said account.
The Trustee shall be under no duty to question, or make inquiries as
to, any action or direction of any Investment Manager(s) taken as
provided herein, or any failure to give directions, or to review the
securities held in any Investment Manager account, or to make
suggestions to the Investment Manager(s) or the Company with respect
to investment, reinvestment of, or disposition of investments in any
Investment Manager account. The Company, by written notice to the
Trustee, may at any time terminate the authority of an Investment
Manager(s) to direct the investments of the account of such Investment
Manager(s).
(d) Unless the Trustee participates knowingly in, or knowingly
undertakes to conceal, an act or omission of the Investment
Manager(s), knowing such act or omission to be a breach of the
fiduciary responsibility of the Investment Manager(s) with respect to
the Trust, the Trustee shall not be liable for any act or omission of
the Investment Manager(s) and shall not be under any obligation to
invest or otherwise manage the assets of the Trust that are subject to
the management of the Investment Manager(s) and, to the maximum extent
permitted by law, the Trustee shall have no liability or
responsibility for acting or not acting in accordance with any written
direction of the Investment Manager(s), or failing to act in the
absence of any such direction. The Company agrees, to the extent
permitted by law, to indemnify the Trustee and hold it harmless from
and against any claim or liability that may be asserted against it,
otherwise than on account of the Trustee's own gross negligence or
willful misconduct, by reason of the Trustee's taking or refraining
from taking any action in accordance with this Section, including,
without limiting the generality of the foregoing, any claim or
liability that may be asserted against the Trustee on account of
failure to receive securities purchased, or failure to deliver
securities sold, pursuant to orders issued by the Investment
Manager(s) directly to a broker or dealer.
(e) Except to the extent that an Investment Manager(s) has
been appointed by the Company, as more particularly described in
Section 7(c), the Trustee shall have and exercise all powers and
authority under this Trust Agreement necessary to enable it to manage,
acquire, or dispose of any assets of the Trust in accordance with the
Investment Guidelines and the following provisions of this Section 7.
(f) Subject to the Investment Guidelines, the Trustee may
cause the Trust to be invested and reinvested in every kind of
investment including, without limitation, publicly-traded or
privately-placed equity and debt interests of all kinds issued by
domestic or foreign governments, business organizations, limited
partnerships, investment companies and trusts, or other entities,
convertible securities or all kinds, exchange-traded put and call
option contracts, forward placement and optional delivery contracts,
financial futures contracts, interest-bearing deposits in any
depository institution (including the Trustee or any affiliate of the
Trustee), money market securities of all kinds, fee interests in, and
mortgages, trust deeds, and leaseholds with respect to real property
and collective investments as described in Section 7(g).
Notwithstanding anything in this Trust Agreement to the contrary, the
Trustee may hold uninvested and without liability for interest such
part of the Trust as may be reasonably necessary for orderly
administration of the Trust.
(g) Subject to the Investment Guidelines and the following
provisions of this Section 7(g), the assets of the Trust may be
invested and reinvested, in whole or in part, in any common or
collective investment fund (referred to as "fund") maintained by the
Trustee for which the Trust is an eligible participant.
Notwithstanding any other provision of this Trust Agreement, to the
extent Trust assets are invested in any such fund, the terms of the
fund's governing instrument solely shall govern the investment
responsibilities and powers of the entity responsible for management
of the fund (referred to as "fund manager"), and the terms of such
governing instrument shall be incorporated into this Trust Agreement.
The value of any interest in a fund held by the Trust shall be the
fair market value of the interest as determined by the fund manager in
accordance with the fund's governing instrument. For purposes of
valuation of the Trust assets, the Trustee shall be entitled to rely
conclusively on the value reported by the fund manager.
(h) The Trustee shall have and exercise, with respect to Trust
investments, all the powers of an absolute owner including, without
limitation, the following powers:
(1) To sell, at public or private sale, for cash or on
credit, for such consideration and upon such other terms and
conditions as may be deemed appropriate;
(2) To exercise options, conversion privileges,
subscription rights, or other rights given the owner of securities; to
vote stock in person or by proxy, with or without power of
substitution; to consent to, oppose, or participate in any
reorganization, consolidation, merger, readjustment of financial
structure, or other changes in property rights of the owner of
securities; and to deposit securities with any protective or
reorganization committee, delegate to such committee all power and
authority as may be deemed appropriate, and pay from the Trust an
appropriate portion of the reasonable compensation and expenses of
such committee;
(3) To renew, extend, or foreclose by judicial
proceeding or otherwise, any obligation held in the Trust;
(4) To subdivide, develop, improve, lease (for a term
within or beyond the existence of the Trust), grant options to
purchase, or purchase options to acquire, any real property held in
the Trust; to make ordinary and extraordinary repairs and alterations
to buildings; to raze buildings and to erect new buildings; and to
purchase such insurance on behalf of the Trust and at its expense
including, without limitation, public liability, fire and extended
coverage, rent insurance and such other insurance covering such other
insurable risks as may be deemed appropriate;
(5) To appoint ancillary or subordinate trustees or
custodians to hold title to or other indicia of ownership of property
of the Trust in those jurisdictions, domestic or foreign, in which the
Trustee is not authorized to do business and to define the scope of
the responsibilities of each such ancillary or subordinate trustee or
custodian; and
(6) To acquire or hold any securities or other property
even though the Trustee or any affiliate of the Trustee may have
invested or may thereafter invest its own or other funds in the same
or related securities or property, the principal or interest of which
may be payable at different times or rates, or may have a different
rank or priority.
(i) In its administration of the Trust, the Trustee shall have
and exercise whatever powers are necessary to discharge its
obligations and exercise its rights under this Trust Agreement
including, without limitation, the following powers:
(1) To collect income generated by the Trust investments
and proceeds realized on the sale or disposition of assets, and to
hold the same pending reinvestment or distribution in accordance with
this Trust Agreement;
(2) To register Trust property in the Trustee's own
name, in the name of a nominee, or in bearer form, provided the
Trustee's records and accounts show that such property belongs to the
Trust;
(3) To combine certificates representing securities with
certificates of the same issue held by the Trustee for other fiduciary
accounts;
(4) To deposit securities with a securities depository
and to permit the securities so deposited to be held in the name of
the depository's nominee, and to deposit securities issued or
guaranteed by the U.S. government or any agency or instrumentality
thereof, including securities evidenced by book entry rather than by
certificate, with the U.S. Department of the Treasury, a Federal
Reserve Bank, or other appropriate custodial entity, in the same
account as the Trustee's own property, provided the Trustee's records
and accounts show that such securities belong to the Trust;
(5) To hold securities issued by a foreign government or
business entity at a foreign office of the Trustee or any of its
affiliates, or to deposit such securities with a foreign securities
depository or bank regulated by a government agency or regulatory
authority in the foreign jurisdiction, and to permit the securities so
deposited to be held in the nominee name of the depository or bank,
provided the Trustee's records and accounts show that such securities
belong to the Trust;
(6) To settle securities trades through a securities
depository using an institutional delivery system, in which event the
Trustee may deliver or receive securities in accordance with
appropriate trade reports or statements given the Trustee by such
depository;
(7) To settle payment or delivery transactions pursuant
to spot or forward currency contracts entered into on the Trust's
behalf with a foreign currency dealer;
(8) To execute promissory notes and to encumber the
Trust or any of its assets by mortgage, deed of trust, pledge, or
otherwise as security; and
(9) In accordance with the Company's direction, to
commence or defend lawsuits or administrative proceedings, to
compromise, arbitrate, or settle claims or debts in favor of or
against the Trust, to select counsel acceptable to the Trustee to
conduct, subject to the Company's direction and control, the
prosecution, defense, or negotiation of any litigation or settlement,
and to pay from the Trust all costs and reasonable attorneys' fees in
connection therewith.
(j) With respect to that portion of the Trust Fund it manages
the Trustee shall account for any distinction between principal and
income of the Trust. The Trustee's records and accounts relating to
the Trust shall be available at reasonable times for inspection by the
Company or its authorized representatives.
(k) As of each accounting date specified in Section 6(e) and
the date of the Change in Control, as provided in Section 6(d), the
Trustee shall determine the current fair market value of the Trust
assets, and shall include such information in accounting to the
Company. Valuations of Trust assets shall be subject to the following
provisions:
(1) The Trustee shall determine fair market value based
on sources considered reliable by the Trustee including, without
limitation, (i) newspapers of general circulation, (ii) standard
financial periodicals and publications, (iii) statistical and
valuation services, (iv) records and reports of securities exchanges
and brokerage firms deemed reliable by the Trustee, or (v) any
combination of such sources. If the Trust consists of real property,
the Trustee shall obtain a written appraisal of the property by a
qualified appraiser and may rely on such appraisal, provided that such
reliance is reasonable and in good faith.
(2) If the Trustee is unable to determine fair market
value from the above-mentioned sources, the Trustee may rely on
information furnished by the Company, appraisers, or other sources.
The Trustee will not be liable for an inaccurate valuation based in
good faith on such information. The Trustee shall pay from the Trust
to third parties all reasonable costs incurred in obtaining asset
valuation services in connection with the discharge of its obligations
under this Section 7(k).
(l) All directions, notices, and other communications required
or permitted by this Trust Agreement shall be in writing, shall be
addressed to the party to be notified at the address set forth below
and shall be delivered by mail, personal delivery, telecopy, mailgram,
telegram or telex:
If to the Company:
Chock full o'Nuts Corporation
370 Lexington Avenue
New York, New York 10017
Attn: Howard M. Leitner
If to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attn: Retirement Plan Services Group
The Trustee may rely on the authenticity, truth and accuracy of,
and will be fully protected in acting upon:
(1) Any notice, direction, certification, approval or
other writing of the Company, if evidenced by an instrument signed by
an authorized officer.
(2) Any notice, direction, certification, approval or
other writing, oral or other transmitted form of instruction received
by the Trustee and believed by it to be genuine and to be sent by or
on behalf of the Administrative Committee of the Plan;
(3) Any copy of a resolution of the Board of Directors
of the Company, if certified by the Secretary or an Assistant
Secretary of the Company under its corporate seal;
(4) Any notice, direction, certification or other
writing, oral or other transmitted form of instructions of an
Investment Manager appointed by the Administrative Committee of the
Plan, received by the Trustee, and believed by it to be genuine and to
be sent by such Investment Manager.
The Trustee may, in its discretion, accept directions or notices given
by telephone or any form of electronic communication, other than those
specified above, unless and until the Trustee is notified in writing
by the Company that such alternative forms of communication are not
authorized. If the Trustee chooses to accept one or more of such
alternative methods of communication, the Company shall be required to
follow reasonable procedures adopted by the Trustee for written
confirmation thereof.
(m) Any corporation or association (i) into which the Trustee
may be merged or with which it may be consolidated, (ii) resulting
from any merger, consolidation, sale or reorganization to which the
Trustee may be a party, or (iii) to which all or substantially all of
the fiduciary business of the Trustee may be transferred shall become
a successor Trustee under this Trust Agreement without the necessity
of executing any instrument or performing any further act, subject to
resignation or removal of the Trustee.
(n) In addition to the Trustee's rights to consult counsel
under Section 6(g), the Trustee may consult with legal counsel of its
choosing, including counsel for the Company, with respect to the
interpretation of any or all of the Plan or this Trust Agreement, the
Trustee's rights or responsibilities hereunder, any legal proceeding
or question of law, or any act the Trustee proposes to take or omit,
and, upon prior notice to the Company, may pay such counsel reasonable
compensation from the Trust. The Trustee shall not be liable for any
action taken or omitted in good faith pursuant to the advice of such
counsel.
Section 8. Amendment or Termination.
(a) The Company and the Trustee may amend this Trust Agreement
by an instrument in writing signed by the parties hereto together with
the written consent to such amendment of at least sixty-seven percent
(67%) of all persons who are Interested Parties, except that the
Company may amend the Trust Agreement without the written consent of
any Interested Parties, but only to the extent such amendment is
required by law or is necessary or desirable to prevent adverse tax
consequences to Covered Persons. In the event that the Company
proposes to adopt an amendment to the Trust Agreement after the Change
in Control which is required by law or is necessary or desirable to
prevent adverse tax consequences to Covered Persons, the Company shall
provide the Trustee with an opinion of counsel reasonably acceptable
to the Trustee and in form and substance satisfactory to the Trustee
to that effect. The Trustee may rely and shall be fully protected in
relying on such an opinion without inquiry.
(b) The Trust shall terminate upon the final payment of all
Covered Benefits due and payable to all of the Covered Persons under
the Plan. After the Trustee's final accounts have been settled in
accordance with Section 6 hereof and after receipt of any unpaid fees
and expenses, the Trustee shall distribute the balance of the Trust
Fund as directed by the Company.
Section 9. General Provisions.
(a) The Company shall, at any time and from time to time, upon
the reasonable request of the Trustee, execute and deliver such
further instruments and do such further acts as may be necessary or
proper to effectuate the purposes of this Trust Agreement.
(b) This Trust Agreement sets forth the entire understanding
of the parties with respect to the subject matter hereof and
supersedes any and all prior agreements, arrangements and
understandings relating thereto. This Trust Agreement shall be
binding upon and inure to the benefit of the parties and their
respective successors and legal representatives.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of New York, other than and
without reference to any provisions of such laws regarding choice of
laws or conflict of laws.
(d) In the event that any provision of this Trust Agreement or
the application thereof to any person or circumstances shall be
determined by a court of proper jurisdiction to be invalid or
unenforceable to any extent, the remainder of this Trust Agreement, or
the application of such provision to persons or circumstances other
than those as to which it is held invalid or unenforceable, shall not
be affected thereby, and each provision of this Trust Agreement shall
be valid and enforced to the fullest extent permitted by law.
(e) Benefits payable to a Covered Person under this Trust
Agreement may not be anticipated, assigned, alienated or subject to
attachment, garnishment, levy, execution or other legal or equitable
process.
(f) The Company shall maintain or cause to be maintained
individual records reflecting the amount of the Covered Benefits
payable or accrued under the Plan for each Covered Person and the
present value thereof. The Company shall, as soon as practicable
following the Change in Control, and from time to time thereafter,
provide or cause to be provided to the Independent Actuary all
information necessary to recalculate the Required Funding Amount in
accordance with Section 6(d), including, without limitation, the
following information:
(1) The amount of each Covered Person's Covered Benefit
under the Plan,
(2) Any other information requested by the Independent
Actuary that is reasonably required to enable the Independent Actuary
to fulfill its duties to the Trustee, as described in this Trust
Agreement.
(g) The Company shall, as soon as practicable following the
date of this Trust Agreement and from time to time thereafter, provide
or cause to be provided to the Trustee all information necessary to
effect payment of Covered Benefits from the Trust including, without
limitation, the following information:
(1) The names, social security numbers and addresses of
all Covered Persons.
(2) Any other information requested by the Trustee that
is reasonably required by the Trustee in administering this Trust
Agreement.
(h) The Company shall prepare and file or cause to be prepared
and filed all applicable federal and state income tax returns of the
Trust, any withholding reports required by applicable federal, state,
and local wage withholding laws and any form required by applicable
law to report compensation of Covered Persons and beneficiaries. The
Trustee shall be entitled to rely on the accuracy of any such form
prepared and filed by the Company or caused to be prepared and filed
by the Company and the Trustee shall not be liable for acting in
accordance with instructions given to the Trustee in handling or
processing any such form if necessary.
(i) The Company represents that it has consulted with and has
been advised by its professional advisers and/or counsel concerning
the legality and propriety of this Trust Agreement.
(j) The Trustee may disclose the existence, nature, terms, and
conditions of the Trust and/or this Trust Agreement whenever, in the
Trustee's judgment, it is necessary or proper in the administration of
the Trust.
CHOCK FULL O'NUTS
CORPORATION
Attest:
By:
Attest:
IBJ SCHRODER BANK & TRUST
COMPANY, AS TRUSTEE
By:
EXHIBIT A
CHOCK FULL O'NUTS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(SPRINGING) TRUST
LIST OF COVERED PERSONS
Pursuant to Section 3(f) of the Trust Agreement, dated as
of
September 14, 1998 , between Chock full o'Nuts Corporation (the
"Company") and IBJ Schroder Bank & Trust Company, as Trustee, the
Company provides the following list of Covered Persons and the
respective present values of their accrued benefits under the Plan:
COVERED PERSON
PRESENT VALUE OF
ACCRUED PLAN BENEFIT *
BAER, PETER
$ 0
CULLEN, MARTIN
0
DONNELL, TOM G.
18,631
FAZZARI, ANTHONY
56,116
GOLDBERG, MATTHEW
0
GOLDMAN, MICHAEL E.
4,771
HAAS, MARVIN
100,584
KASSAR, RICHARD A.
24,868
LAPIN, KENNETH A.
1,957
LEITNER, HOWARD M.
100,332
WEISE, STEPHEN
0
TOTAL - INITIAL REQUIRED
FUNDING AMOUNT
$307,259
EXHIBIT B
CHOCK FULL O'NUTS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(SPRINGING) TRUST
PAYMENT SCHEDULE
______________, 199__
Pursuant to Section 3(f) of the Trust Agreement, dated as
of
September 14, 1998, between Chock full o'Nuts Corporation (the
"Company") and IBJ Schroder Bank & Trust Company, as Trustee, the
Company provides a Payment Schedule with respect to the following
Covered Person:
NAME AND ADDRESS OF COVERED PERSON:
SOCIAL SECURITY NUMBER:
NAME OF SPOUSE:
ADDRESS:
SOCIAL SECURITY NUMBER:
(1) The above captioned Covered Person under the Chock full
o'Nuts Corporation Supplemental Executive Retirement Plan has
submitted a Termination Affidavit indicating that he/she is a Covered
Person and entitled to a Covered Benefit under the Plan. The Covered
Person shall receive ______________ per month commencing on
____________, ______, and ending on _____________,________.
(2) There is no federal income tax withholding obligation on
these amounts.
CHOCK FULL O'NUTS CORPORATION
Dated:________________________ By:
EXHIBIT B
CHOCK FULL O'NUTS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(SPRINGING) TRUST
AMENDMENT TO PAYMENT SCHEDULE
THE COVERED PERSON MUST SIGN THE FOLLOWING CONSENT IF THIS IS AN
AMENDMENT OR SUBSTITUTION OF A PAYMENT SCHEDULE AFTER A CHANGE IN
CONTROL OF CHOCK FULL O'NUTS CORPORATION
The undersigned Covered Person to whom this Payment Schedule
relates consents to the amendment of or substitution for the Payment
Schedule heretofore on file with the Trustee with respect to him, by
the form set forth above.
Dated: _________________, 19___
Covered Person's Signature
EXHIBIT C
CHOCK FULL O'NUTS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(SPRINGING) TRUST
TERMINATION AFFIDAVIT
I, __________________, under penalties of perjury, do hereby
solemnly affirm (i) that, pursuant to Section 3(c) of the Trust
Agreement between IBJ Schroder Bank & Trust Company (the "Trustee") and
Chock full o'Nuts Corporation (the "Company"), dated as of September
14, 1998 (the "Trust Agreement"), I am providing this Termination
Affidavit to the Trustee and the Company in order to secure the
benefits to which I am entitled under such Trust Agreement and the
Chock full o'Nuts Corporation Supplemental Executive Retirement Plan
(the "Plan"); (ii) that my employment with the Company terminated on
______________ ___, 19__; (iii) that I am entitled to a Covered Benefit
with respect to the Plan and that I am fully vested under the Plan in
my benefits.**
Covered Person's Signature
* * * *
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of ________, 199_, before me personally came
______________, to me known, who, being by me duly sworn, said that the
statements herein are all true and correct.
Notary Public
Commission Expires:
EXHIBIT D
CHOCK FULL O'NUTS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(SPRINGING) TRUST
TRUSTEE'S FEE SCHEDULE
See attached letter from IBJ Schroeder to Chock full O'Nuts Corporation
dated September 4 detailing the fee schedule.
EXHIBIT E
CHOCK FULL O'NUTS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(SPRINGING) TRUST
TRUSTEE'S INVESTMENT GUIDELINES
Money market funds or U.S. three month Treasury securities.
EXHIBIT F
CHOCK FULL O'NUTS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(SPRINGING) TRUST
ACTUARIAL CONSULTANTS WHICH MAY BE
APPOINTED AS "INDEPENDENT ACTUARY"
Lloyd A. Katz, F.S.A., M.A.A.A., of The Segal Company, whose address is
1 Park Avenue, New York, New York 10016-5895 (Tel. No. (212) 251-5000)
David C. Nearpass, F.S.A., Principal and Consulting Actuary, Buck
Consultants, whose address is 1801 K Street, N.W., Suite 205L,
Washington, D.C. 20006 (Tel. No. (202) 296-7264).
* Present Value calculations are as of
August 1, 1998 and reflect a discount rate of 7.5%.
** If the Affidavit is being made by the Covered Person's
beneficiary, a statement of the date of death of the Covered Person must
be added.
(..continued)
R&O-363426.3
- 25 -
R&O-363426.3
CHOCK FULL O' NUTS CORPORATION
INCENTIVE COMPENSATION PLAN
ARTICLE I-GENERAL
1. PURPOSES
The purposes of the Chock Full O' Nuts Corporation (the "Company")
Incentive Compensation Plan (the "Plan") are (i) to provide incentives
to key employees whose performance will contribute to the long-term
success and growth of the company, (ii) to strengthen the ability of
the Company to attract and retain employees of high competence, (iii)
to increase the identity of interests of such key employees with those
of the Company's stockholders, and (iv) to help build loyalty to the
Company through recognition and the opportunity for ownership.
2. THE PLAN
This Plan shall consist of:
(a) The Incentive Stock Option Plan (Article II);
(b) The Long-Term Incentive Plan (Article III);
(c) The Restricted Stock Plan (Article IV); and
(d) The Incentive Bonus Plan (Article V).
Unless otherwise indicated, each such Plan shall be subject to the terms and
conditions of this Article I and to the terms and conditions of Article VI
hereof.
3. SHARES SUBJECT TO THE PLAN
The maximum aggregate number of shares as to which awards or options
may at any time be granted under this Plan shall be 1,340,000 [reflects
all amendments to October 15, 1998] common shares of the Company (the
"Common Shares"), subject to adjustment as provided in Section 2 of
Article VI hereof. Such Common Shares may be either authorized but
unissued shares, or shares previously issued and reacquired by the
Company. If and to the extent options granted under the Plan
terminate, expire or are canceled without having been exercised, or
shares awarded under the Restricted Stock Plan shall be forfeited, new
options may be granted with respect to the shares covered by the
terminated, expired or canceled options and forfeited shares may be
reissued under the Restricted Stock Plan.
Any shares of Common Stock of the Company which are used to pay an
award under the Incentive Bonus Plan shall not be deemed Common Shares
for purposes of the limitation on the maximum number of shares set
forth in the preceding paragraph.
4. ADMINISTRATION
The Plan shall be administered by the Company's Board of Directors
(the "Board") which may delegate any of its authority to an Incentive
Compensation Committee which shall consist of at least three members of
the Board. No member of the Incentive Compensation Committee shall be
eligible to participate in any of the Plans described in Article 1,
Section 2, if authority to administer such Plan has been delegated to
the Committee (any references herein to the "Committee" shall be deemed
to refer to either the Board or, if established, the Incentive
Compensation Committee). The Committee shall have the sole authority
to determine (a) the employees to be granted awards under the Plan;
(b) the type, size and terms of the awards to be made to each employee
selected; (c) the time when awards will be granted; and (d) any
performance objectives required for earning out any award made
hereunder. The Committee shall have full power and authority to
administer and interpret the Plan and to adopt such rules,
regulations, agreements and instruments for implementing the Plan and
for conduct of its business as it deems necessary or advisable. The
Committee's interpretations of the Plan, and all determinations made
by the Committee pursuant to the powers vested in it hereunder, shall
be conclusive and binding on all persons having any interest in the
Plan or in any awards granted hereunder.
5. ELIGIBILITY FOR PARTICIPATION
Officers and other key employees of the Company or its subsidiaries
(as defined in Section 425(f) of Code) shall be eligible to
participate in the Plan (the "Participants").
6. AMENDMENT AND TERMINATION
The Board may at any time and from time to time terminate, modify or
amend the Plan in any respect; provided, however, that unless also
approved or ratified by a vote of the majority of the holders of the
outstanding shares of the capital stock of the Company entitled to
vote thereon, any such modification or amendment shall not (subject,
however, to the provisions of Section 2 of Article VI and Section 4(c)
of Article III hereof): (i) increase the maximum number of shares for
which options and awards may be granted under the Plan; (ii) reduce
the option price at which options may be granted; (iii) extend the
period during which option may be granted or exercised beyond the
times originally prescribed; (iv) change the persons eligible to
participate in the Plan; or (v) increase the number of options or
awards that may be granted to a Participant. No such termination,
modification or amendment may affect the rights of an optionee under
an outstanding option or the grantee of an award. Nevertheless, with
the consent of the Participant affected, the Committee may amend
outstanding options or awards in a manner not inconsistent with the
terms of plan.
7. EFFECTIVE DATE
This Plan, having been approved by the Board of Directors of the
Company on January 12, 1984, shall become effective immediately upon
approval by the holders of a majority of the shares of the Company
entitled to vote at the next annual meeting of the Company and shall
continue in effect thereafter until terminated or suspended by the
Board.
ARTICLE II - Incentive Stock Option Plan
1. GRANTING OF INCENTIVE STOCK OPTIONS
(a) The purchase price of each Common Share subject to an Incentive
Stock Option shall be the Fair Market Value of a share of such stock on
the date the Incentive Stock Option is granted, provided, however, that
any Incentive Stock Option granted to a Participant who owns more than
10% of the total combined voting power of all classes of stock of the
Company or any subsidiary corporation (as defined in Section 425(f) of
the Code) shall not be less than 110% of such Fair Market Value.
(b) Incentive Stock Options shall be exercisable over an exercise
period which shall be determined by the Committee (but which shall not
exceed ten years from the date the Incentive Stock Option was granted
(the "Termination Date").
(c) The aggregate Fair Market Value (determined as of the time the
Incentive Stock Option is granted) of the Common Shares for which a
Participant may be granted Incentive Stock Options in any calendar year
(under all incentive stock option plans of the Company of any subsidiary
corporation (as defined in Section 425(f) of the Code)) shall not
exceed $100,000 plus any unused limit carryover to such year. The
unused limit carryover available in any calendar year to any Participant
shall be determined in accordance with Section 422A of the Code.
(d) The Committee, in its sole discretion, shall determine at the time
of grant whether any particular Incentive Stock Option shall become
exercisable in one or more installments and may prescribe such other
terms as it deems desirable or as may be necessary to qualify its
grants under the provisions of Section 422A of the Code. The Committee
may also, in its sole discretion, authorize acceleration of the
exercise of an option or installment thereof.
(e) The Committee may grant at any time new Incentive Stock Options to
a Participant who has previously received Incentive Stock Options or
other options whether such prior Incentive Stock Options or other
options are still outstanding, have previously been exercised in whole
or in part, or are canceled in connection with the issuance of new
Incentive Stock Options. However, no Incentive Stock Option shall be
exercisable by a Participant while there is outstanding any Incentive
Stock Option previously granted to such Participant to purchase shares
in the Company, until such option is exercised in full or expires by
reason of lapse of time.
2. EXERCISE OF INCENTIVE STOCK OPTIONS
(a) An Incentive Stock Option may be exercised, as to any and all
shares granted thereunder, by giving notice of such exercise to the
Company, provided that an option may not be exercised at any one time
as to less than 100 shares (or such number of shares as to which the
option is then exercisable if less than 100).
(b) A Participant's Incentive Stock Option agreement may provide for
payment to be in cash, stock, promissory notes or any other manner the
Committee deems acceptable.
(c) An Incentive Stock Option shall be exercisable during a
Participant's lifetime only by the Participant.
3. SUBSTITUTION OF OPTIONS
In the event of a corporate merge or consolidation, or the acquisition
by the Company of property or stock of another corporation or any
reorganization or other transaction qualifying under Section 425(a) of
the Code, the Committee may, in accordance with the provisions of that
Section of the Code, substitute options under this Plan for options
under the Plan of the acquired corporation provided that (a) the excess
of the aggregate Fair Market Value of the shares subject to option
immediately after the substitution over the aggregate option price of
such shares is not more than the similar excess immediately before
such substitution and (b) the new option does not give the Participant
additional benefits, including any extension of the exercise period.
4. TERMINATION OF EMPLOYMENT
If a Participant ceases to be an employee (other than by reason of
death or disability within the meaning of Section 105(d)(4) of the
Code) any unexercised portion of his Incentive Stock Option shall
terminate. If, prior to the Termination Date, a Participant shall
cease to be an employee by reason of death or disability within the
meaning of Section 105(d)(4) of the Code, he (or, in the event of the
Participant's death, his estate) may exercise any Incentive Stock
Options he holds for a period of 12 months after the date of cessation
of employment to the extent that it was exercisable at the time of such
cessation. Thereafter, any unexercised portion of the option shall
terminate. In no event shall Incentive Stock Options be exercised
after the Termination Date.
ARTICLE III - Long-Term Incentive Plan
1. AWARDS
Awards under this Plan may be of:
(a) NON-QUALIFIED STOCK OPTIONS ("Non-Qualified Stock Options") which
are rights to purchase Common Shares on the terms and conditions set
forth herein.
(b) STOCK APPRECIATION RIGHTS ("Stock Appreciation Rights") which are
rights to receive, without payment to the Company, cash and/or Common
Shares in lieu of the purchase of shares under a related Non-Qualified
Stock Option.
(c) PERFORMANCE UNITS ("Performance Units") which are awards having
dollar value as determined by the Committee but no Performance Unit may
have a value in excess of the Fair Market Value of a Common Share on
the date such Performance Unit is awarded. Performance Units
constitute rights to receive, without payment to the Company, cash
and/or Common Shares equivalent in value of the Performance Units,
provided specified performance objectives are met.
Non-Qualified Stock Options, Stock Appreciation Rights and Performance
Units may be granted in conjunction with each other under terms whereby
exercise of the Non-Qualified Stock Option or Stock Appreciation Rights
or payment of the Performance Unit will proportionately reduce the
number of shares or Performance Units under the related Non-Qualified
Stock Option, Stock Appreciation Rights or Performance Units. Non-
Qualified Stock Options and Performance Units may also be granted alone
and not in conjunction with each other or with Stock Appreciation
Rights, but Stock Appreciation Rights may only be granted in
conjunction with Non-Qualified Stock Options.
2. NON-QUALIFIED STOCK OPTIONS
All Non-Qualified Stock Options under this Plan shall be granted on the
following terms and conditions:
(a) Price. The purchase price per Common Share covered by each Non-
Qualified Stock Option shall be an amount determined by the Committee
in its sole discretion.
(b) Number of Shares. The number of shares subject to an outstanding
Non-Qualified Stock Option will be reduced (i) on a share-for-share
basis to the extent that shares under such Non-Qualified Stock Option
are used to calculate the cash and/or shares to be received pursuant to
exercise of a related Stock Appreciation Right, and (ii) on a one-for-
one basis to the extent that any Performance Units granted in
conjunction with such Non-Qualified Stock Option are paid.
(c) Term and Exercise Dates. The Committee shall determine at the time
of grant the term during which each Non-Qualified Stock Option may be
exercised (which shall not exceed 10 years from the date of grant) and
whether any such option shall be exercisable in one or more
installments. No Non-Qualified Stock Option shall be exercisable
prior to one year after the date on which such option was granted.
To the extent that a Non-Qualified Stock Option is not exercised when
it becomes initially exercisable, it shall be carried forward and be
exercisable until the expiration of the term of such option. No
partial exercise of a Non-Qualified Stock Option may be for less than
100 shares of Common Stock (or such number of shares as to which the
option is then exercisable if less than 100).
(d) Termination of Employment or Death.
(i) In the event that a Participant terminates employment prior to the
expiration of his Non-Qualified Stock Option by reason of retirement at
or after the age of 65 or Disability, any unexercised portion of his
Non-Qualified Stock Option shall expire three months after such
retirement or such Disability, as the case may be, and during such
three months' period the optionee shall have the same rights to
exercise the unexercised portion of his Non-Qualified Stock Option as
he would have had if he were an employee of the Company.
(ii) If prior to the expiration of any non-Qualified Stock Option, a
Participant shall die while an employee of the Company, any unexercised
portion of his option shall expire one year after his death and during
such one-year period his legal representatives, heirs or legatees shall
have the same rights to exercise the unexercised portion of the option
as the Participant would have had if he were an employee of the Company.
(iii) Except as provided in clauses (i) and (ii) of this Section 2(d),
if a Participant terminates employment for any reason prior to the
expiration of any Non-Qualified Stock Option, the unexercised portion
of such option shall automatically terminate, unless the Committee in
its sole discretion shall determine otherwise.
(e) Payment.
A Participant's Non-Qualified Stock Option agreement may provide for
payment to be in cash, stock, promissory notes or any other manner the
Committee deems acceptable.
(f) Substitution of Options.
In the event of a corporate merger or consolidation, or the acquisition
by the Company of property or stock of another corporation or any
reorganization, the Committee may, substitute options under this Plan
for options under the plan of the acquired corporation provided (i) the
excess of the aggregate Fair Market Value of the shares subject to
option immediately after the substitution over the aggregate option
price of such shares is not more than the similar excess immediately
before such substitution and (ii) the new option does not give a
Participant additional benefits, including any extension of the
exercise period.
3. STOCK APPRECIATION RIGHTS.
Concurrently with each Non-Qualified Stock Option granted under this
Plan, the Committee may grant a Participant Stock Appreciation Rights
which shall relate to such Non-Qualified Stock Option. All Stock
Appreciation Rights granted under this Plan shall be on the following
terms and conditions.
(a) Exercise. Stock Appreciation Rights shall be exercisable to the
extent and upon the same conditions that the related Non-Qualified
Stock Option is exercisable under Section 2(c). A Participant wishing
to exercise a Stock Appreciation Right shall give written notice of
such exercise to the Company.
(b) Amount of cash or Number of Shares. The amount to which a
Participant shall be entitled upon the exercise of any Stock
Appreciation Right shall be determined by multiplying (i) that portion,
as elected by the Participant, of the total number of shares which the
Participant is entitled to purchase as of the exercise date under the
related Non-Qualified Stock Option, by (ii) the amount, if any, by
which the Fair Market Value of common Share on the exercise date
exceeds the Fair Market Value of a Common share on the date the related
Non-Qualified Stock Option was granted.
Payment of the amount to which a Participant is entitled, as determined
under the above formula, upon the exercise of Stock Appreciation Rights
shall be made in cash, Common Shares, or partly in cash and partly in
Common shares, as the Committee in its sole discretion shall determine.
To the extent that payment is to be made in Common Shares, the number
of such shares to be paid shall be determined by dividing the amount
of such payment by the Fair Market Value of a Common Share on the
exercise date.
(c) Effect of Exercise. The exercise of any Stock Appreciation Right
shall reduce the number of shares subject to the related Non-Qualified
Stock Option as provided in clause (i) of Section 2(b).
(d) Termination of Employment or Death. In the event that a recipient
of Stock Appreciation Rights ceases to be employed by the Company for
any reason, his Stock Appreciation Rights shall be exercisable only to
the extent and upon the same conditions as the related Non-Qualified
Stock Option is exercisable under Section 2(d).
4. PERFORMANCE UNITS.
All Performance Units under this Plan shall be granted on the following
terms and conditions:
(a) Number and Value of Units. In the case of any Performance Units
granted in conjunction with a related Non-Qualified Stock Options: (i)
the initial number of Units shall be equal to the number of Common
Shares which are subject to the Participant's concurrently granted
Non-Qualified Stock Option; (ii) the number of such Performance Units
shall be reduced on a one basis to the extent that (A) Common Shares
are purchased upon exercise of such related Non-Qualified Stock Option,
or (B) shares under such Non-Qualified Stock Option are used to
calculate the cash and/or shares to be received pursuant to exercise of
related Stock Appreciation Rights.
(b) Payment. Payment of Performance Units shall be made by the Company
at or after the end of the Award period to the extent that such
Performance Units are earned out by attainment of the performance
objectives set for such Units by the Committee pursuant to Section 4(c)
hereof. Such payment shall be an amount equal to the dollar value of
the Performance Units earned out.
Payment of the amounts to which a Participant is entitled to be paid
in respect of Performance Units as provided above shall be made in
cash, Common Shares, or partly in cash and partly in Common Shares as
the Committee may determine. To the extent that payment is made in
Common Shares, the number of such shares shall be determined by
dividing the amount of the payment to be made by the Fair Market Value
of Common Share on the date the Committee makes the election to make
the payment in Common Shares.
(c) Performance Objectives. Except as otherwise determined by the
Committee, the award period ("Award Period") in respect of any
Performance Units shall be five-years commencing as of the beginning
of the calendar year in which such Performance Units are granted.
At the time each grant of Performance Units is made, the Committee
shall establish primary and minimum performance objectives to be
attained within the Award Period as a condition of such Performance
Units being earned out. Such performance objectives may be revised
by the Committee during the Award Period, if, in its judgment, events
or transactions unrelated to a Participant's performance have occurred
which result in a distortion of the established performance objectives.
Attainment of the primary performance objective in respect of an Award
Period will result in 100% of the Performance Units being earned out.
No Performance Units will be earned out if the minimum performance
objective is not achieved. Attainment of performance between the
primary and minimum performance objectives for an Award Period will
result in a percentage (as determined by the Committee) of the value
of the Performance Units being earned out.
(d) Termination of Employment or Death. In the event that a
Participant terminates employment prior to the end of the Award Period
by reason of death, Disability or retirement at or after age 65, his
Performance Units shall continue to be payable at the end of the Award
Period to the same extent as if he were an employee at such time;
provided, however, that the value of his Performance Units shall be
adjusted by multiplying such value by a fraction, the numerator of
which shall be the number of full calendar month between the date of
award of the Performance Units and the date that employment ceases and
the denominator of which shall be the number of full calendar months
from the date of award to the end of the Award Period. Except as
provided in this Section 4(d), upon termination of employment,
Performance Units shall terminate unless the Committee, in its sole
discretion, shall determine otherwise.
ARTICLE IV - Restricted Stock Plan
1. AWARDS
(a) Awards under this Restricted Stock Plan shall be granted in the
form of Common Shares.
(b) Common Shares awarded under this Plan may not be sold, transferred
or otherwise disposed of and shall not be pledged or otherwise
hypothecated by a Participant, except as provided in Section 2 below.
As a condition to the receipt of any shares awarded under this Plan, a
Participant shall execute and deliver to the Company an instrument in
writing, in form approved by the Committee, wherein he agrees to the
above restrictions and the legending of his shares with respect thereto.
Notwithstanding such restrictions, however, a Participant shall be
entitled to receive all dividends declared on and to vote any Common
Shares held by him and to all other rights of a shareholder with
respect thereto.
2. RELEASE OF RESTRICTIONS ON SHARES
Subject to the provisions of Section 3 and any written agreement between
the Participant and the Company relating to the award of Common Shares
hereunder, the restrictions set forth in Section 1(b) on the sale,
transfer or other disposition and on pledge or other hypothecation of
Common Shares awarded under this Plan shall lapse within a period of
years and at a rate determined by the Committee in its sole discretion.
3. TERMINATION OF EMPLOYMENT
If a Participant terminates his employment for any reason, his rights
with respect to any Common shares which remain subject to the
restrictions set forth in Section 1(b) hereof shall be as provided in
a written agreement between the participant and the Company relating
to the award and forfeiture of shares hereunder.
ARTICLE V - Incentive Bonus Plan
1. CONTRIBUTIONS
(a) Each year, the Company's Board of Directors shall determine an
amount, if any, which shall be contributed in cash by the Company for
allocation to Participants as a bonus for such year. The amount to be
contributed for any year will be based on the Board's appraisal of the
performance of the Company in such year, taking into account such
factors as attainment of profit objectives, return on shareholder's
equity, management performance, performance of corporations in similar
lines of business, general economic conditions and such other factors
as the Board may deem appropriate.
2. PAYMENT OF AWARDS
Awards made under the Incentive Bonus Plan shall be paid as follows:
(a) At the time of granting each award, the Committee, in its sole
discretion shall determine whether such award shall be paid in cash
or credited to the account of a Participant as Stock Units as provided
in paragraph (b) of this Section. If the Committee determines that an
award is to be paid in cash, payment shall be made in one lump-sum not
later than 6 months after the end of the Company's fiscal year with
respect to which such award was made.
(b) If the Committee determines that an award is to be credited as
Stock Units, the amount of such award shall be translated into a number
of Stock Units (expressed to the nearest one-hundredth) equal to the
number of Common Shares which such amount would purchase at the Fair
Market Value of such Common Share on the date on which the Committee
granted such award. Such Stock Units shall be credited to an account
(hereinafter called an "Account") for the Participant. On the record
date of the determination of shareholders entitled to receive any cash
dividend declared on the common Shares, there shall be credited to each
Deferred Award Account, a number of Dividend Equivalents equal to the
number of full Stock Units then in the Account, plus a fractional part
of a Dividend Equivalent equal to any fractional Part of Stock Unit
then in the Account. On that date the amount of such Dividend
Equivalents and fraction, if any, so credited shall be translated into
a number of additional Stock Units (expressed to the nearest one-
hundredth) equal to the number of Common Shares which the amount of
such Dividend Equivalents and fraction, if any, would purchase at the
Fair Market Value of one such Common Share on such date.
Notwithstanding the foregoing, after the date of the first installment
payment of an award payable pursuant to this paragraph (b), subsequent
Dividend Equivalents on undistributed Stock Units in a Deferred Award
account will be paid to a Participant in cash as declared.
Except as otherwise provided in this Section 2, any award payable
pursuant to this paragraph (b) shall be paid in such number of annual
installments (which need not be equal), not in excess of ten, as the
Committee in its sole discretion may determine. Such installments
shall commence not later than the first day of the first month after
such Participant's attainment of age 65. On each installment payment
date so determined by the Committee, there shall be paid or distributed
to the Participant the appropriate portion of his Deferred Award
Account.
In the event a Participant terminates employment prior to age 65 for
any reason other than voluntary resignation or discharge for cause,
any amount in the Participant's Deferred Award Account shall be
distributed to the Participant or his beneficiary or representative,
as the case may be, at such time or times within ten years after such
termination of employment as the Committee in its sole discretion may
determine. If employment terminates because of discharge by the
Company for cause, all amounts in the Deferred Award Account of the
Participant so discharged shall be forfeited. If employment is
terminated by voluntary resignation of the Participant, amounts in the
Deferred Award Account shall be distributed at the discretion of the
Committee, provided that the committee shall not be required to effect
any such distribution.
Each distribution of an award payable pursuant to this paragraph (b)
may, in the discretion of the Committee, be made either (i) in cash, in
an amount equal to the then Fair Market Value of a number of Common
Shares (including a fractional share, if necessary) equal to the then
distributable number of Stock units and fractions, if any, (ii) by
distribution to the Participant of a number of common Shares of the
Company equal to the then distributable number of full Stock Units,
with any fractional part of Stock Unit being paid at its then Fair
Market Value in cash, or (iii) partly in cash and partly in Common
Shares, the amount of cash and number of shares to be determined as
provided in the preceding clauses (i) and (ii) respectively.
(c) The Committee in its sole discretion may authorize the acceleration
of payment of any unpaid installment of any award upon written
application of the Participant or other person entitled thereto, but
such Participant or other person shall have no right to require
accelerated payment.
ARTICLE VI - Miscellaneous Provisions
1. OTHER PROVISIONS
(a) Notwithstanding any other provision of this Plan, no payment of
any unpaid award shall be made and any and all unexercised options
and all rights under the Plan of a Participant who received such award
or option grant (or his designated beneficiary or legal representatives)
to the payment or exercise thereof shall be forfeited if, prior to the
time of such payment or exercise, the Participant shall (i) be employed
by a competitor of, or shall be engaged in any activity in competition
with the Company without the Company's consent, (ii) divulge without
the consent of the Company any secret or confidential information
belonging to the Company, or (iii) engage in any other activities which
would constitute grounds for his discharge by the Company for cause.
(b) If a former Participant whose employment has been terminated dies
before receiving full payment of all amounts to which he is entitled
under this Plan, the remaining payments shall be paid when due to this
designated beneficiary or, in the absence of such designation, to his
estate.
(c) A Participant's rights and interests under the Plan (including the
right to payment of unpaid installments of awards or the exercise of
unexercised options) may not be assigned or transferred except in the
case of a Participant's death, to his designated beneficiary as
provided in the Plan or, in the absence of such designation, by will or
the laws of descent and distribution.
(d) This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation
of assets to assure the payment of any award under this Plan and payment
of awards shall be subordinate to the claims of the Company's general
creditors. In no event shall interest be paid or accrued on any award,
including unpaid installment of awards.
(e) No Participant or other person shall have any claim or right to be
granted an award under this Plan. Neither this Plan nor any action
taken hereunder shall be construed as giving any Participant any rights
to be retained in the employ of the Company.
(f) The Company shall have the right to deduct from all awards paid in
cash any federal, state or local taxes required by law to be withheld
with respect to such cash awards and, in the case of awards paid in
Common Shares, the Participant or other person receiving such shares
shall be required to pay the Company the amount of any such taxes which
the Company is required to withhold with respect to such stock awards.
(g) Each award or grant made under this Plan shall be evidenced by a
written instrument containing such terms and conditions, not
inconsistent with the Plans set forth in Articles 11 through V, as the
Committee shall approve.
(h) No Common Shares shall be issued or transferred upon payment of any
award payable hereunder unless and until all legal requirements
applicable to the issuance or transfer of such shares have been
complied with to the satisfaction of the Committee. The Committee
shall have the right to condition any award or issuance of Common Shares
made to any Participant hereunder on such Participant's undertaking in
writing to comply with such restrictions on his subsequent disposition
of such
shares as the Committee or the Company shall deem necessary or advisable
as a result of any applicable law, regulation or official interpretation
thereof, and certificates representing such shares may be legended to
reflect any such restrictions.
(i) As used in this Plan, the following terms shall have the following
meanings:
"Code" shall mean the Internal Revenue Code of 1954, as it may
be amended from time to time.
"Disability" shall mean the total disability of a Participant,
as determined by the Committee in accordance with uniform principles
consistently applied, upon the basis of such evidence as the
Committee deems necessary and desirable.
"Dividend Equivalent" means an amount equal to the amount per share of
any cash dividend declared on the Common Shares.
"Fair Market Value" of a Common share on any date shall mean the
closing price of a Common Share on such date as reported in the Wall
Street Journal for the national securities exchanges and other
securities markets which at the time are included in the Wall Street
Journal's principal stock price quotations.
2. EFFECT OF CERTAIN CHANGES
(a) If there is any change in the number of Common Shares through the
declaration of stock dividends, or through recapitalization resulting
in stock splits, or combinations or exchanges of such shares, the
number of Common Shares available for options or awards and the number
of such shares covered by outstanding options or awards, and the price
per share of such options or the applicable market value of awards,
shall be proportionately adjusted by the Committee to reflect any
increase or decrease in the number of issued Common Shares; provided,
however, that any fractional shares resulting from such adjustment
shall be eliminated.
(b) In the event of a dissolution or liquidation of the Company, or in
the event of any corporate separation or division, including, but not
limited to, split-up, split-off or spin-off, the Committee may provide
that the holder of each option or award then exercisable shall have the
right to exercise such option (at its then option price) or award
solely for the kind and amount of shares of stock and other securities,
property, cash or any combination thereof receivable upon such
dissolution, liquidation, or corporate separation or division by a
holder of the number of shares of common shares for which such option
or award might have been exercised immediately prior to such
dissolution, liquidation, or corporate separation or division; or the
committee may provide, in the alternative, that each option and award
granted under the Plan shall terminate as of a date to be fixed by the
Board; provided, however, that not less than thirty (30) days written
notice of the date so fixed shall be given to each Participant and each
Participant shall have the right, during the period of (30) days
preceding such termination (i) to exercise the options as to all or any
part of the Common Shares covered thereby, including shares as to which
such options would not otherwise be exercisable, and (ii) to exercise
any or all of such awards, including awards which would not otherwise
be exercisable.
3. HEADINGS
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the
Section shall control.
4. GOVERNING LAW
Except as otherwise required under the laws of the United States, this
Plan shall be construed in accordance with and governed by the laws of
the State of New York.
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
YEAR ENDED JULY 31,
1998 1997 1996
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA
BASIC
AVERAGE SHARES OUTSTANDING 10,768 10,736 10,736
CONTINGENT SHARES (40) (54) (60)
UNALLOCATED SHARES -
EMPLOYEES' STOCK
OWNERSHIP PLAN (312) (287) (368)
TOTAL 10,416 10,395 10,308
INCOME FROM CONTINUING
OPERATIONS $5,499 $7,914 $4,631
NET INCOME/(LOSS) $5,499 $7,914 $(1,536)
PER SHARE AMOUNTS:
INCOME FROM CONTINUING
OPERATIONS $ .53 $ .76 $ .45
NET INCOME/(LOSS) $ .53 $ .76 $(.15)
DILUTED
AVERAGE SHARES OUTSTANDING 10,768 10,736 10,736
ASSUMED CONVERSION OF
CONVERTIBLE DEBENTURES 11,297 11,821 11,821
CONTINGENT SHARES (40) (54) (60)
UNALLOCATED SHARES -
EMPLOYEES' STOCK
OWNERSHIP PLAN (312) (287) (368)
STOCK OPTIONS ___53 ________
TOTAL 21,766 22,216 22,129
INCOME FROM CONTINUING
OPERATIONS $5,499 $7,914 $4,631
ADD CONVERTIBLE DEBENTURES
INTEREST AND AMORTIZATION
OF DEFERRED CHARGES, NET
OF INCOME TAXES 4,237 4,392 4,386
TOTAL $9,736 $12,306 $9,017
NET INCOME/(LOSS) $5,499 $7,914 $ (1,536)
ADD CONVERTIBLE DEBENTURES
INTEREST AND AMORTIZATION
OF DEFERRED CHARGES, NET
OF INCOME TAXES
TOTAL 4,237 4,392 4,452
PER SHARE AMOUNTS: $9,736 $12,306 $2,916
INCOME FROM CONTINUING
OPERATIONS $ .45 $ .55 $ .41
NET INCOME $ .45 $ . 55 $ .13
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
As of October 8, 1998, the Company had directly and indirectly the
following active subsidiaries, all of which are included in the Company's
consolidated financial statements furnished herewith:
Subsidiaries of
Chock full o' Nuts Corporation
Quikava, Inc. Massachusetts 100%
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