<PAGE> 1
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 DECEMBER 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 0-398
LANCE, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
NORTH CAROLINA 56-0292920
- --------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification Number)
8600 SOUTH BOULEVARD, CHARLOTTE, NORTH CAROLINA
- --------------------------------------------------------------------------------
(Address of principal executive offices)
POST OFFICE BOX 32368, CHARLOTTE, NORTH CAROLINA 28232
- --------------------------------------------------------------------------------
(Mailing address of principal executive offices)
Registrant's telephone number, including area code: (704) 554-1421
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act: $.83-1/3
PAR VALUE COMMON STOCK
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 such 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. [ ]
The aggregate market value of shares of the Registrant's $.83-1/3 par value
Common Stock, its only outstanding class of voting stock, held by non-affiliates
as of February 20, 1998 was approximately $600,100,000.
The number of shares outstanding of the Registrant's $.83-1/3 par value Common
Stock, its only outstanding class of Common Stock, as of February 20, 1998, was
29,929,773 shares.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following annual report to security holders and proxy statement
are incorporated by reference into the indicated parts of this Annual Report on
Form 10-K:
<TABLE>
<CAPTION>
Incorporated Documents Parts into which Incorporated
---------------------- -----------------------------
<S> <C>
Proxy Statement for Annual Meeting of Parts I and III
Stockholders to be held April 17, 1998
Annual Report to Stockholders for the Part II
fiscal year ended December 27, 1997
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
The Registrant manufactures, markets and distributes branded and
private label snack foods and bakery products.
The Registrant manufactures, markets and distributes packaged snack and
bread basket items primarily under the LANCE label. The principal snack items
are filled sandwich crackers, filled sandwich cookies, peanuts, potato chips,
corn chips, popcorn, cakes, cookies, candies, chewing gum and meat snacks. The
principal bread basket items are wafers, crackers, melba toast and bread sticks,
individually packaged for restaurants and similar institutions. Various items
purchased from others and resold account for approximately 24% of net sales and
other operating revenue.
The Registrant's products are sold under various trade names and
registered trademarks that it owns, including TOASTCHEE, LANCHEE, RYE CHEE,
CHOC-O-LUNCH, VAN-O-LUNCH, NEKOT, GOLD-N-CHEES, BIG TOWN, CAPTAIN'S WAFERS and
VISTA.
The Registrant sells and distributes its products through convenience
stores, independent and chain supermarkets, discount stores, mass merchandisers,
club stores, drug stores, military and governmental establishments, schools,
hospitals, other institutional food service providers, restaurants, wholesale
grocers and through company-owned vending machines. The Registrant sells and
distributes most of its products through its own direct-store-delivery ("DSD")
organization in 32 states and the District of Columbia. In addition, sales of
both branded and private label products are made throughout the United States
and portions of Canada by the Registrant's sales representatives, brokers and
distributors and delivered by others. Several of the most popular snack and
bread basket items are packaged in multi-pack configurations or larger size bags
and boxes for distribution to grocers, supermarkets and discount and club
stores.
The Registrant's DSD organization is administered through 22 sales
districts that are divided into 272 sales branches, each under the direction of
a branch manager. Within each branch are sales territories, each serviced by one
representative. At December 27, 1997, there were 1,962 sales territories. The
Registrant uses its own fleet of tractors and trailers to make weekly deliveries
of its products to the sales territories. The Registrant provides its
representatives with stockroom space for their inventory requirements. The
representatives load their own trucks from these stockrooms for delivery to
customers and to service vending machines owned by the Registrant. The
Registrant owns and operates vending machines in approximately 60,000 locations.
These vending machines are made available to customers primarily on a commission
or rental basis. The machines are not designed or manufactured specifically for
the Registrant, and their use is not limited to any particular sales area or
class of customer.
3
<PAGE> 4
In late 1996, the Registrant completed the restructuring of its
operations designed to significantly reduce costs. Throughout 1997, the
Registrant focused on profitable sales growth and profit margin enhancement.
This included continued reductions in stock keeping units and elimination of
certain products. The principal snack items discontinued in 1997 were Wheat
Wafers, Gum Ball Pops, Nacho Mini Rounds, Reduced Fat GOLD-N-CHEES and Fat Free
Fig Bars. Profitable sales growth efforts also included new product
introductions to complement existing product lines. The principal new snack
items introduced in 1997 included Snack Mix, Crispy Marshmallow Treats, Buffalo
Wings Flavored Potato Chips and Honey Mustard Flavored Potato Chips. The
Registrant also introduced its Kids Pack line of filled sandwich crackers in
1997. This product offers four sandwich crackers per pack rather than the
traditional six sandwich crackers to provide smaller-portion packages preferred
by children.
In 1997, there were significant increases in product promotions,
including the Kids Pack introduction. The Registrant also increased its
television, radio and print advertising and added sales and marketing personnel
to focus on specific sales and marketing channels.
During 1997, the Registrant continued efforts to improve efficiency of
its sales and delivery processes. Within its DSD organization, five sales
territories were closed and 62 sales territories were consolidated. The
Registrant also continued to add distributors and brokers to cover certain
markets and categories of customers. Also, the Registrant increased its capital
expenditures for vending machines and added vending service personnel.
The principal raw materials used in the manufacture of snack foods and
bakery products are flour, peanuts, peanut butter, oils, shortenings, potatoes,
shelled corn, popcorn, cornmeal, pork skins, tree nuts, starch, sugar, cheese,
corn syrup, cocoa, fig paste and seasonings. The principal supplies used are
flexible film, cartons, trays, boxes and bags. These raw materials and supplies
are generally available in adequate quantities in the open market either from
sources in the United States or from other countries and are generally
contracted for a season in advance. The principal supplies of energy used in the
manufacture of these products are electricity, natural and propane gas, fuel oil
and diesel fuel, all of which are currently available in adequate quantities.
All of the Registrant's products are sold in highly competitive markets
in which there are many competitors. In the case of many of its products, the
Registrant competes with manufacturers with greater total revenues and greater
resources than the Registrant does. The principal methods of competition are
price, delivery, service and product quality. Generally, the Registrant believes
that it is competitive in these methods as a whole. The methods of competition
and the Registrant's competitive position vary according to the locality, the
particular products and the policies of its competitors. Although reliable
statistics are unavailable as to production and sales by others in the industry,
the Registrant believes that in its areas of distribution it is one of the
largest producers of filled sandwich crackers.
On December 27, 1997, the Registrant and its subsidiaries had 4,573
employees, none of whom were covered by a collective bargaining agreement.
4
<PAGE> 5
ITEM 2. PROPERTIES
The Registrant's principal plant and general offices are located in
Charlotte, North Carolina on a 288 acre tract owned by the Registrant. The main
facility at this location is an air-conditioned and sprinklered plant, office
building and cafeteria of brick and steel containing approximately 670,000
square feet. The manufacturing portion of this facility houses seven oven lines
and is equipped with storage facilities to handle many of the Registrant's raw
materials in bulk and is operated on a continuous three-shift basis. Adjacent to
the main facility is an air-conditioned and sprinklered plant of brick and steel
used for processing potato chips, corn chips and similar products containing
approximately 140,000 square feet and is operated on a continuous two-shift
basis. Also adjacent to the main facility are a 70,400 square foot precast
concrete building, which houses a vending machine repair and maintenance
facility, an 11,000 square foot brick and steel building, which houses vehicle
maintenance operations, 40,000 square foot and 14,000 square foot metal
warehouse buildings and a 5,500 square foot brick veneer office building. During
1998, the Registrant intends to add a 50,000 square foot metal building for
finished goods storage and shipping.
The Registrant also owns a plant located on an 18.5 acre tract in
Burlington, Iowa. The plant is of masonry and steel and contains approximately
313,000 square feet. This plant houses seven oven lines and certain of which are
operated on a continuous three-shift basis. One line operates on a continuous
basis seven days a week. The Registrant intends to add an additional oven line
to this facility during 1998. Adjacent to the plant is a steel storage building
of approximately 5,800 square feet.
The Registrant leases office space and most of its stockroom space in
various towns and cities, mainly on month-to-month tenancies, and a building in
Greenville, Texas containing approximately 6,150 square feet which serves as a
distribution and vending maintenance center.
During 1997, the Registrant sold plants located in Greenville, Texas
and Columbia, South Carolina. These facilities were closed during 1996 as part
of the restructuring of operations announced in December 1995.
The Registrant believes that it has sufficient production capacity to
meet foreseeable demand in 1998.
SEPARATE ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
Information as to executive officers of the Registrant who are
directors or nominees of the Registrant is incorporated herein by reference to
the section captioned Election of Directors in the Registrant's Proxy Statement
for the Annual Meeting of Stockholders to be held April 17, 1998. Information as
to each executive officer of the Registrant who is not a director or a nominee
is as follows:
5
<PAGE> 6
<TABLE>
<CAPTION>
Name Age Information About Officer
---- --- -------------------------
<S> <C> <C>
Peter M. Duggan 57 Senior Vice President of the Company since 1995, Vice
President 1994-1995 and a Group Vice President for
the Snacks and International Consumer Products
Division of Borden, Inc. (consumer products company)
1985-1993
G. R. Melvin 61 Senior Vice President of the Company 1996-1998
(retired from the Company in January 1998) and Vice
President 1978-1996
L. Rudy Gragnani 44 Vice President of the Company since 1997; Vice
President of Coca-Cola Bottling Company of New York
1996-1997 and Director of Information Services of
Coca-Cola Bottling Co. Consolidated 1988-1996
Earl D. Leake 46 Vice President of the Company since 1995 and
Treasurer and Assistant Secretary 1988-1995
B. Clyde Preslar 43 Vice President and Chief Financial Officer of the
Company since 1996; Director, Financial Services of
Worldwide Power Tools Group (a consumer products
division of The Black and Decker Corporation)
1993-1996 and Director, Corporate Business Planning
and Analysis of The Black and Decker Corporation
1991-1993
R. Gerald Swain 61 Vice President of the Company 1991-1998 (retired from
the Company in February 1998)
Richard G. Tucker 43 Vice President of the Company since 1996; Plant
Manager (bakery division) of RJR Nabisco Holdings
Corporation (consumer products company) 1989-1996
Gregory M. Venner 40 Vice President of the Company since 1997; Marketing
Director and Business Director, Tropicana Products
(food products company) 1993-1996 and Marketing Director,
Conagra Frozen Foods 1990-1993
</TABLE>
6
<PAGE> 7
<TABLE>
<S> <C> <C>
H. Dean Fields 56 President of Vista Bakery, Inc. (subsidiary of the
Company) since 1996 and Manager, Columbia, South
Carolina Plant of Vista Bakery, Inc. 1993-1996
James C. Melton 38 Corporate Controller and Principal Accounting Officer
since 1997; independent financial consultant 1995-1996;
Corporate Controller and Assistant Treasurer, Kayser-Roth
Corporation (consumer products company) 1990-1994
Robert S. Carles 57 Secretary of the Company since 1997, Assistant
Secretary 1981-1997 and Corporate Attorney since 1976
</TABLE>
All the Company's executive officers were appointed to their current
positions at the Annual Meeting of the Board of Directors effective April 18,
1997, except that Mr. Gragnani was appointed effective May 1, 1997. All of the
Registrant's executive officers' terms of office extend until the next Annual
Meeting of the Board of Directors and until their successors shall have been
duly elected and qualified.
Items 3 and 4 are inapplicable and have been omitted.
PART II
Items 5 through 8 are incorporated herein by reference to pages 13
through 34 of the Registrant's 1997 Annual Report to Stockholders.
Item 9 is inapplicable and has been omitted.
PART III
Items 10 through 13 are incorporated herein by reference to the
sections captioned Principal Stockholders and Holdings of Management, Election
of Directors, Compensation/Stock Option Committee Interlocks and Insider
Participation, Director Compensation, Executive Officer Compensation and
Compliance with Section 16(a) of the Securities Exchange Act of 1934 in the
Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
April 17, 1998 and to the Separate Item in Part I of this Annual Report
captioned Executive Officers of the Registrant.
7
<PAGE> 8
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements.
See Table of Contents to Financial Statements filed herewith
as a separate part of this Annual Report.
2. Financial Schedules.
Schedules have been omitted because of the absence of
conditions under which they are required or because information required is
included in financial statements or the notes thereto.
3. Exhibits.
3.1 Restated Charter of Lance, Inc. incorporated herein by
reference to Exhibit 3(a) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 26, 1992.
3.2 Bylaws of Lance, Inc., as amended through April 21,
1995, incorporated herein by reference to Exhibit 3.2 to the Registrant's
Quarterly Report on Form 10-Q for the twelve weeks ended June 17, 1995.
4 See 3.1 and 3.2 above.
10.1 Lance, Inc. 1991 Stock Option Plan incorporated herein
by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form
S-8, Registration No. 33-41866.
10.2* The Lance, Inc. Key Executive Employee Benefit Plan
incorporated herein by reference to Exhibit 10 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1983.
10.3* Form of Executive Employment Agreement between Lance,
Inc. and the Key Executives incorporated herein by reference to Exhibit 10(c) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended December
26, 1992.
10.4 Lance, Inc. 1983 Incentive Stock Option Plan
incorporated herein by reference to Exhibit 10.1 to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 26, 1987.
- --------------------------
* Management contract.
8
<PAGE> 9
10.5* Lance, Inc. Key Executive Employee Benefit Plan Trust,
dated December 3, 1993, between Lance, Inc. and First Union National Bank of
North Carolina incorporated herein by reference to Exhibit 10(v) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 25,
1993.
10.6 Lance, Inc. 1995 Nonqualified Stock Option Plan for
Non-Employee Directors as amended on April 18, 1997 incorporated herein by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for
the twelve weeks ended June 14, 1997.
10.7 Lance, Inc. 1997 Incentive Equity Plan incorporated
herein by reference to Exhibit 4 to the Registrant's Registration Statement on
Form S-8, File No. 333-25539.
10.8* Lance, Inc. Benefit Restoration Plan incorporated
herein by reference to Exhibit 10(vi) to the Registrant's Quarterly Report on
Form 10-Q for the twelve weeks ended June 11, 1994.
10.9* Lance, Inc. Annual Corporate Performance Incentive Plan
- - Officers - 1997 incorporated herein by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the twelve weeks ended June 14,
1997.
10.10* Lance, Inc. Long-Term Incentive Plan - Officers - 1997
incorporated herein by reference to Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q for the twelve weeks ended June 14, 1997.
10.11* Chairman of the Board Compensation Letter dated April
19, 1996 incorporated herein by reference to Exhibit 10.9 to the Registrant's
Quarterly Report on Form 10-Q for the twelve weeks ended June 15, 1996.
10.12* Salary Continuation Agreement dated as of April 29,
1996 between the Registrant and B. Clyde Preslar incorporated herein by
reference to Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 28, 1996.
10.13* Termination Agreement dated as of November 7, 1997
between the Registrant and B. Clyde Preslar terminating the Salary Continuation
Agreement between the Registrant and B. Clyde Preslar dated April 29, 1996.
10.14* Form of Compensation and Benefits Assurance Agreement
dated November __, 1997 between the Registrant and each of Paul A. Stroup, III,
Earl D. Leake, Peter M. Duggan, B. Clyde Preslar, Richard G. Tucker, Gregory M.
Venner and L. R. Gragnani.
10.15* Executive Severance Agreement dated November 7, 1997
between the Registrant and Paul A. Stroup, III.
- -------------------------
* Management contract.
9
<PAGE> 10
10.16* Executive Severance Agreement dated November 7, 1997
between the Registrant and Earl D. Leake.
10.17* Form of Executive Severance Agreement dated November
__, 1997 between the Registrant and each of Peter M. Duggan, B. Clyde Preslar,
Richard G. Tucker, Gregory M. Venner and L. R. Gragnani.
13 The Registrant's 1997 Annual Report to Stockholders.
This Annual Report to Stockholders is furnished for the information of the
Commission only and, except for the parts thereof incorporated by reference in
this Report on Form 10-K, is not to be deemed "filed" as a part of this filing.
21 List of the Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule. (Filed in electronic format
only. Pursuant to Rule 402 of Regulation S-T, this schedule shall not be deemed
filed for purposes of Section 11 of the Securities Act of 1933 or Section 18 of
the Securities Exchange Act of 1934.)
27.2 Restated Financial Data Schedule for the twelve weeks
ended March 22, 1997. (Filed in electronic format only. Pursuant to Rule 402 of
Regulation S-T, this schedule shall not be deemed filed for purposes of Section
11 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of
1934.)
27.3 Restated Financial Data Schedule for the twelve weeks
ended June 14, 1997. (Filed in electronic format only. Pursuant to Rule 402 of
Regulation S-T, this schedule shall not be deemed filed for purposes of Section
11 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of
1934.)
99 Cautionary Statement under the Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1995.
(b) Reports on Form 8-K
There were no reports on Form 8-K required to be filed
by the Registrant during the 16 weeks ended December 27, 1997.
- -------------------------
* Management contract.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LANCE, INC.
Dated: March 25, 1998 By: /s/ B. Clyde Preslar
-------------------------------
B. Clyde Preslar
Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ Scott C. Lea Chairman of the Board March 25, 1998
- ---------------------------------------- and Director
Scott C. Lea
/s/ P. A. Stroup, III President, Chief Executive March 25, 1998
- ---------------------------------------- Officer and Director
P. A. Stroup, III (Principal Executive Officer)
/s/ B. Clyde Preslar Vice President (Principal March 25, 1998
- ---------------------------------------- Financial Officer)
B. Clyde Preslar
/s/ James C. Melton Controller (Principal March 25, 1998
- ---------------------------------------- Accounting Officer)
James C. Melton
/s/ Alan T. Dickson Director March 25, 1998
- ----------------------------------------
Alan T. Dickson
/s/ J. W. Disher Director March 25, 1998
- ----------------------------------------
J. W. Disher
/s/ James H. Hance, Jr. Director March 25, 1998
- ----------------------------------------
James H. Hance, Jr.
Director March __, 1998
- ----------------------------------------
William R. Holland
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C> <C>
/s/ Weldon H. Johnson Director March 25, 1998
- ----------------------------------------
Weldon Johnson
Director March __, 1998
- ----------------------------------------
Nancy Van Every McLaurin
/s/ Robert V. Sisk Director March 25, 1998
- ----------------------------------------
Robert V. Sisk
/s/ Isaiah Tidwell Director March 25, 1998
- ----------------------------------------
Isaiah Tidwell
/s/ S. Lance Van Every Director March 25, 1998
- ----------------------------------------
S. Lance Van Every
</TABLE>
12
<PAGE> 13
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
FORM 10-K
FOR CORPORATIONS
ITEM 14(a) - FINANCIAL STATEMENTS
13
<PAGE> 14
TABLE OF CONTENTS
Annual Report to Stockholders
<TABLE>
<CAPTION>
Page
----
<S> <C>
Data incorporated by reference from the 1997
Annual Report to Stockholders of Lance, Inc.
and Subsidiaries:
Independent Auditors' Report..................................................................................13
Consolidated Balance Sheets, December 27, 1997 and December 28, 1996..........................................14
For the Fiscal Years Ended December 27, 1997, December 28, 1996
and December 30, 1995:
Consolidated Statements of Income .........................................................................15
Consolidated Statements of Changes in Stockholders' Equity.................................................16
Statements of Consolidated Cash Flows......................................................................17
Notes to Consolidated Financial
Statements...................................................................................................18
</TABLE>
FINANCIAL STATEMENTS AND SCHEDULES OMITTED
The above listed financial statements are presented on only a consolidated basis
since the Company is primarily an operating company and its subsidiaries
included for the periods presented in the consolidated financial statements are
totally-held subsidiaries. Schedules have been omitted because of the absence of
conditions under which they are required or because information required is
included in financial statements or the notes thereto.
14
<PAGE> 15
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
EXHIBITS
Item 14(a)(3)
FORM 10-K
ANNUAL REPORT
For the fiscal year ended Commission File Number
December 27, 1997 0-398
LANCE, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description
---- -------------------
<S> <C>
3.1 Restated Charter of Lance, Inc. incorporated herein by reference to Exhibit 3(a) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 26, 1992.
3.2 Bylaws of Lance, Inc., as amended through April 21, 1995, incorporated herein by reference
to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the twelve weeks ended
June 17, 1995.
4 See 3.1 and 3.2 above.
10.1 Lance, Inc. 1991 Stock Option Plan incorporated herein by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8, Registration No. 33-41866.
10.2* The Lance, Inc. Key Executive Employee Benefit Plan incorporated herein by reference to
Exhibit 10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1983.
10.3* Form of Executive Employment Agreement between Lance, Inc. and the Key Executives
incorporated herein by reference to Exhibit 10(c) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 26, 1992.
</TABLE>
- -------------------------
* Management contract.
15
<PAGE> 16
<TABLE>
<S> <C>
10.4 Lance, Inc. 1983 Incentive Stock Option Plan incorporated herein by reference to Exhibit
10.1 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 26, 1987.
10.5* Lance, Inc. Key Executive Employee Benefit Plan Trust, dated December 3, 1993, between Lance,
Inc. and First Union National Bank of North Carolina incorporated herein by reference to
Exhibit 10(v) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December
25, 1993.
10.6 Lance, Inc. 1995 Nonqualified Stock Option Plan for Non-Employee Directors incorporated
herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for
the twelve weeks ended June 14, 1997.
10.7 Lance, Inc. 1997 Incentive Equity Plan incorporated herein by reference to Exhibit 4 to the
Registrant's Registration Statement on Form S-8, File No. 333-25539.
10.8* Lance, Inc. Benefit Restoration Plan incorporated herein by reference to Exhibit 10(vi) to
the Registrant's Quarterly Report on Form 10-Q for the twelve weeks ended June 11, 1994.
10.9* Lance, Inc. Annual Corporate Performance Incentive Plan - Officers - 1997 incorporated
herein by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q
for the twelve weeks ended June 14, 1997.
10.10* Lance, Inc. Long-Term Incentive Plan - Officers - 1997 incorporated herein by reference to
Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the twelve weeks ended
June 14, 1997.
10.11* Chairman of the Board Compensation Letter dated April 19, 1996 incorporated herein by
reference to Exhibit 10.9 to the Registrant's Quarterly Report on Form 10-Q for the twelve
weeks ended June 15, 1996.
10.12* Salary Continuation Agreement dated as of April 29, 1996 between the Registrant and
B.Clyde Preslar incorporated herein by reference to Exhibit 10.10 to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 28, 1996.
10.13* Termination Agreement dated as of November 7, 1997 between the Registrant and B. Clyde
Preslar terminating the Salary Continuation Agreement between the Registrant and B. Clyde
Preslar dated April 29, 1996.
</TABLE>
- -----------------------
* Management contract.
16
<PAGE> 17
<TABLE>
<S> <C>
10.14* Form of Compensation and Benefits Assurance Agreement dated November __, 1997 between the
Registrant and each of Paul A. Stroup, III, Earl D. Leake, Peter M. Duggan, B. Clyde
Preslar, Richard G. Tucker, Gregory M. Venner and L. R. Gragnani.
10.15* Executive Severance Agreement dated November 7, 1997 between the Registrant and
Paul A. Stroup, III.
10.16* Executive Severance Agreement dated November 7, 1997 between the Registrant and
Earl D. Leake.
10.17* Form of Executive Severance Agreement dated November __, 1997 between the Registrant and
each of Peter M. Duggan, B. Clyde Preslar, Richard G. Tucker, Gregory M. Venner and
L. R. Gragnani.
13 The Registrant's 1997 Annual Report to Stockholders. This Annual Report to Stockholders
is furnished for the information of the Commission only and, except for the parts thereof
incorporated by reference in this Report on Form 10-K, is not to be deemed "filed" as a
part of this filing.
21 List of the Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule. (Filed in electronic format only. Pursuant to Rule 402 of
Regulation S-T, this schedule shall not be deemed filed for purposes of Section 11 of the
Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934.)
27.2 Restated Financial Data Schedule for the twelve weeks ended March 22, 1997. (Filed in
electronic format only. Pursuant to Rule 402 of Regulation S-T, this schedule shall not
be deemed filed for purposes of Section 11 of the Securities Act of 1933 or Section 18
of the Securities Exchange Act of 1934.)
27.3 Restated Financial Data Schedule for the twelve weeks ended June 14, 1997. (Filed in
electronic format only. Pursuant to Rule 402 of Regulation S-T, this schedule shall not
be deemed filed for purposes of Section 11 of the Securities Act of 1933 or Section 18
of the Securities Exchange Act of 1934.)
99 Cautionary Statement under the Safe Harbor Provisions of the Private Securities Litigation
Reform Act of 1995.
</TABLE>
- ---------------------------
* Management contract.
17
<PAGE> 1
EXHIBIT 10.13
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT, made as of this 7th day of November, 1997,
by and between B. CLYDE PRESLAR (Preslar) and LANCE, INC. (Lance).
STATEMENT OF PURPOSE
In connection with the execution by Preslar and Lance of the Executive
Severance Agreement dated the date hereof, Preslar and Lance have agreed that
the Salary Continuation Agreement dated April 28, 1996 shall be terminated along
with the letter agreement dated March 22, 1996 from Lance to Preslar.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, the parties hereto agree as follows:
1. TERMINATION. The Salary Continuation Agreement dated April 29, 1996
between Preslar and Lance and the letter agreement from Lance to Preslar dated
March 22, 1996 are hereby terminated in all respects and are of no further force
or effect.
2. MISCELLANEOUS. This Agreement shall be binding upon the parties
hereto, their heirs and assigns; this Agreement may not be amended or modified
except by written amendment signed by the parties hereto and this Agreement
shall be construed and interpreted under the laws of the State of North
Carolina.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
/s/ B. Clyde Preslar
---------------------------
B. Clyde Preslar
LANCE, INC.
By /s/ P. A. Stroup III
-------------------------
President
<PAGE> 1
EXHIBIT 10.14
STATE OF NORTH CAROLINA
COMPENSATION AND BENEFITS
COUNTY OF MECKLENBURG ASSURANCE AGREEMENT
THIS COMPENSATION AND BENEFITS ASSURANCE AGREEMENT, entered into this
______ day of November, 1997, by and between Lance, Inc., a North Carolina
corporation, (the "Company,") and __________________________, (the "Executive");
STATEMENT OF PURPOSE
Executive is a key employee of the Company, has contributed materially
to the successful operation of the Company's business and has rendered valuable
services to the Company. Moreover, Executive possesses intimate knowledge of the
Company, its history, operating methods, manufacturing and distribution systems,
personnel and products. Therefore, it is important to the continued success of
the Company that the Company continue to have the benefit of Executive's advice,
counsel and services, and for such reasons the Company desires to provide
Executive with the benefits set forth in this Compensation and Benefits
Assurance Agreement.
NOW, THEREFORE, in consideration of the Statement of Purpose and of the
mutual covenants and agreements herein set forth and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and Executive do hereby agree as follows:
1. Definitions. As used in this Compensation and Benefits Assurance
Agreement, unless the context expressly indicates otherwise, the following terms
have the following meanings:
(a) "Affiliates" of an entity means any and all corporations and other
business entities which, directly or indirectly, control, are controlled by, or
are under common control with such entity.
(b) "Base Salary" means, at any time, the then regular annual rate of
pay which Executive is receiving as annual salary, excluding amounts (i)
designated by the Company as payment toward reimbursement of expenses or (ii)
received under incentive or other bonus plans, regardless of whether or not the
amounts are deferred.
(c) "Beneficial Owner" has the meaning ascribed to such term in Section
13(d) of the Exchange Act and Rule 13d-3 of the General Rules and Regulations
under the Exchange Act.
<PAGE> 2
(d) "Board" means the Board of Directors of the Company or any
committee of the Board to which the Board has delegated, either specifically or
generally, the duties and authority of the Board for the particular action or
determination required or permitted to be made by the Board.
(e) "Cause" means the occurrence of any one or more of the following:
(i) A demonstrably willful and deliberate act or failure
to act by Executive (other than as a result of
incapacity due to physical or mental illness) which
is committed in bad faith, without reasonable belief
that such action or inaction is in the best interests
of the Company, which causes actual material
financial injury to the Company and which act or
inaction is not remedied within fifteen (15) business
days of written notice from the Company; or
(ii) The Executive's conviction for committing an act of
fraud, embezzlement, theft, or any other act
constituting a felony involving moral turpitude or
causing material harm, financial or otherwise, to the
Company.
"Cause" must be determined by the Board in the exercise of good faith and
reasonable judgment.
(f) "Change in Control" means, and shall be deemed to have occurred
upon, the first to occur of any of the following events:
(i) Any Outside Person becomes the Beneficial Owner,
directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the
combined voting power of the Company's then
outstanding securities; or
(ii) During any period of two (2) consecutive years (not
including any period prior to the date hereof),
individuals who at the beginning of such period
constitute the Board of Directors of the Company (and
any new Director, whose nomination for election by
the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the Directors then in
office who either were Directors at the beginning of
the period or whose nomination for election was so
approved) cease for any reason to constitute a
majority of the members of the Board of Directors of
the Company; or
2
<PAGE> 3
(iii) The stockholders of the Company approve: (i) a plan
of complete liquidation of the Company; or (ii) an
agreement for the sale or disposition of all or
substantially all of the Company's assets other than
a sale or disposition of all or substantially all of
the Company's assets to an entity at least sixty
percent (60%) of the combined voting power of the
voting securities of which are owned by the
stockholders of the Company in substantially the same
proportions as their ownership of the Company
immediately prior to such sale or disposition; or
(iv) The stockholders of the Company approve a merger,
consolidation, or reorganization of the Company with
or involving any other corporation, other than a
merger, consolidation, or reorganization that would
result in the voting securities of the Company
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by
being converted into voting securities of the
surviving entity) or any parent thereof at least
sixty percent (60%) of the combined voting power of
the voting securities of the Company (or such
surviving entity) outstanding immediately after such
merger, consolidation, or reorganization.
However, in no event shall a "Change in Control" be deemed to have occurred if
Executive is part of a purchasing group which consummates the Change in Control
transaction. Executive shall be deemed "part of a purchasing group" for purposes
of the preceding sentence if Executive is an equity participant in the acquiring
company or group or surviving entity (the "Purchaser") except for ownership of
less than one percent (1%) of the equity of the Purchaser.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Company" means Lance, Inc., a North Carolina corporation, and such
term includes any or all of its Affiliates.
(i) "Effective Date" means the date of this Compensation and Benefits
Assurance Agreement.
(j) "Excess Parachute Payment" means "excess parachute payment" within
the meaning of Section 280G of the Code.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
3
<PAGE> 4
(l) "Excise Tax" means the tax imposed on Excess Parachute Payments
pursuant to Section 280G and Section 4999 of the Code.
(m) "Good Reason" means the occurrence of any one or more of the
following, without Executive's prior express written consent, within the
thirty-six (36) calendar months immediately following a Change in Control:
(i) The assignment of Executive to duties inconsistent
with Executive's authorities, duties,
responsibilities, and status as an officer of the
Company, or a reduction or alteration in the nature
or status of Executive's authorities, duties or
responsibilities from those in effect as of one
hundred eighty (180) calendar days prior to the
Change in Control, other than an insubstantial and
inadvertent act that is remedied by the Company
promptly after receipt of notice thereof given by
Executive;
(ii) The Company's requiring Executive to be based at a
location in excess of fifty (50) miles from the
location of Executive's principal job location or
office immediately prior to the Change in Control,
except for required travel on the Company's business
to an extent consistent with Executive's then present
business travel obligations;
(iii) A reduction by the Company of Executive's Base Salary
in effect on the date hereof, or as the same shall be
increased from time to time;
(iv) The failure of the Company to keep in effect any of
the Company's compensation, health and welfare
benefits, or perquisite programs under which
Executive receives value, as such programs exist
immediately prior to the Change in Control; provided,
however, the replacement of an existing program with
a new program will be permissible (and not grounds
for a Good Reason termination if done for all
employees generally and the value to be delivered to
Executive under the new program is at least as great
as the value delivered to Executive under the
existing program); or
(v) Any breach by the Company of its obligations under
Paragraph 6 herein or any failure of a successor
company to assume and agree to perform the Company's
entire obligations under this Compensation and
Benefits Assurance Agreement as required by Paragraph
6 herein.
4
<PAGE> 5
"Good Reason" shall be determined by Executive in the exercise of good
faith and reasonable judgment. Executive's right to terminate
employment for Good Reason shall not be affected by Executive's
incapacity due to physical or mental illness. Executive's continued
employment shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason herein, and any
such consent or waiver must be in writing and signed by Executive.
(n) "Member of the Van Every Family" means (i) a lineal descendant of
Salem A. Van Every, Sr., including adopted persons as well as persons related by
blood, (ii) a spouse of an individual described in clause (i) of this Paragraph
1(n) or (iii) a trust, estate, custodian and other fiduciary or similar account
for an individual described in clause (i) or (ii) of this Paragraph 1(n).
(o) "Outside Person" means any Person other than (i) a Member of the
Van Every Family, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or (iii) a corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
(p) "Person" has the meaning ascribed to said term in Section 3(a)(9)
of the Exchange Act as modified and used in Sections 13(d) and 14(d) of the
Exchange Act, including a "group" as defined in Section 13(d) of the Exchange
Act.
(q) "Qualifying Termination" has the meaning ascribed to said term in
Paragraph 4(b) hereof.
(r) "Severance Benefits" has the meaning ascribed to said term in
Paragraph 4(c) hereof.
(s) "Termination of Employment" means any termination of employment
with either the Company or any successor to the Company that acquires all or
substantially all of the business and/or assets of the Company (whether direct
or indirect, by purchase, merger, consolidation or otherwise); provided,
however, no termination of employment shall be deemed to have occurred by reason
of such an acquisition unless there is either (i) a termination of employment
with both the Company and such successor or (ii) a termination of employment
with the Company and no successive employment by such successor.
2. Term of Agreement.
(a) [PAUL STROUP AND EARL LEAKE VERSION] The term of this Compensation
and Benefits Assurance Agreement will commence on the Effective Date and shall
continue in effect through December 31, 2011 (the "Initial Term").
5
<PAGE> 6
(a) [STANDARD VERSION] The term of this Compensation and Benefits
Assurance Agreement will commence on the Effective Date and shall continue in
effect until the third anniversary of the Effective Date (the "Initial Term").
(b) The Initial Term of this Compensation and Benefits Assurance
Agreement automatically shall be extended for one additional year at the end of
the Initial Term, and then again after each one (1) year period thereafter (each
such one (1) year period following the Initial Term being hereinafter referred
to as a "Successive Period"). However, subject to Paragraph 2(c) herein either
party may terminate this Compensation and Benefits Assurance Agreement effective
at the end of the Initial Term or at the end of any Successive Period thereafter
(the "Expiration Date") by giving the other party written notice of such
termination and intent not to renew, delivered at least one (1) year prior to
the Expiration Date. If such notice is properly delivered by either party, this
Compensation and Benefits Assurance Agreement, along with all corresponding
rights, duties and covenants, shall automatically expire on the Expiration Date.
(c) Notwithstanding the foregoing, in the event that a Change in
Control occurs during the Initial Term or any Successive Period, upon the
effective date of such Change in Control the term of this Compensation and
Benefits Assurance Agreement shall automatically and irrevocably be renewed and
extended for a period of thirty-six (36) full calendar months from the effective
date of such Change in Control (the "Change in Control Renewal Period"), and
this Compensation and Benefits Assurance Agreement shall automatically terminate
upon the expiration of the Change in Control Renewal Period. Further, this
Compensation and Benefits Assurance Agreement shall be assigned to, and shall be
assumed by, the successor to the Company in such Change in Control as further
provided in Paragraph 6 herein.
3. Employment. The Company shall employ Executive to perform such tasks
as the Company shall specify from time to time. Executive agrees to devote his
full time during customary business hours and his best efforts to the business
and affairs of the Company. Executive's employment with the Company, however,
may be terminated by either Executive or the Company at any time, with or
without Cause, upon notice by the party wishing to terminate such employment to
the other party, and nothing in this Compensation and Benefits Assurance
Agreement shall give Executive any right to be retained in the employ of the
Company or, upon dismissal, any rights except as expressly otherwise provided
herein.
4. Change in Control Severance Benefits.
(a) The Company shall pay Executive the Severance Benefits described in
Paragraph 4(c) herein if during the Initial Term or any Successive Period a
Change in Control occurs and if within the thirty-six (36) calendar months
immediately following such Change in Control, Executive incurs a Qualifying
Termination. The Severance Benefits described in Subparagraphs (4)(c)(i) through
(iv) herein shall be paid to
6
<PAGE> 7
Executive in cash in a single lump sum as soon as practicable following
Executive's Qualifying Termination, but in no event later than thirty (30)
calendar days after such date. Notwithstanding the foregoing, however, Severance
Benefits which become due pursuant to Paragraphs 4(b)(iv) and 6(a) herein shall
be paid immediately.
(b) The occurrence of any one or more of the following events (a
"Qualifying Termination") within the thirty-six (36) calendar months immediately
following a Change in Control of the Company which occurred during the Term or
any Successive Period shall entitle Executive to receive the Severance Benefits:
(i) Executive's involuntary Termination of Employment
without Cause;
(ii) Executive's voluntary Termination of Employment for
Good Reason;
(iii) Executive's voluntary Termination of Employment, with
or without Good Reason, during the thirteenth (13th)
calendar month following the month during which the
Change in Control occurs; or
(iv) The Company, or any successor company, commits a
material breach of any of the provisions of this
Compensation and Benefits Assurance Agreement.
A Qualifying Termination shall not include Executive's Termination of Employment
within thirty-six (36) calendar months following a Change in Control by reason
of death, disability [as such term is defined under the Company's governing
disability plan (or any successor plan thereto)], Executive's voluntary
Termination of Employment without Good Reason except as otherwise expressly
provided in Paragraph 4(b)(iii) above, or Executive's involuntary Termination of
Employment for Cause. Moreover, a Termination of Employment which occurs before
a Change in Control or later than thirty-six (36) months following a Change in
Control shall not constitute a Qualifying Termination.
(c) The "Severance Benefits" provided for in Paragraphs 4(a) and (b)
herein are as follows:
(i) A lump-sum cash amount equal to the Executive's
unpaid Base Salary , accrued vacation pay,
unreimbursed business expenses, and all other items
earned by and owed to the Executive through and
including the date of Executive's Qualifying
Termination. Such payment shall constitute full
satisfaction for these amounts owed to Executive.
7
<PAGE> 8
(ii) A lump-sum cash amount equal to the sum of (A) three
(3) multiplied by the Executive's Base Salary in
effect upon the date of the Qualifying Termination
or, if greater, by Executive's Base Salary in effect
immediately prior to the occurrence of the Change in
Control plus (B) three (3) multiplied by the greater
of (I) Executive's annual bonus actually earned by
Executive (whether or not deferred) during the bonus
plan year which ended immediately prior to the
Qualifying Termination or (II) Executive's
then-current target bonus opportunity (stated in
terms of a percentage of Base Salary) established
under the Company's Annual Corporate Performance
Incentive Plan for Officers (or any successor plan
thereto), if any, for the incentive plan year in
which the date of Executive's Qualifying Termination
occurs.
(iii) A lump-sum cash amount equal to the greater of (A)
the Executive's then-current target bonus opportunity
(stated in terms of a percentage of Base Salary)
established under the Company's Annual Corporate
Performance Incentive Plan for Officers (or any
successor plan thereto), if any, for the incentive
plan year in which the date of Executive's Qualifying
Termination occurs, adjusted on a pro rata basis
based on the number of days Executive was actually
employed during such incentive plan year (but in no
event shall such target bonus be less than that in
effect for the period immediately prior to the
occurrence of the Change in Control); or (B) the
actual bonus earned through the date of the
Qualifying Termination under the Company's Annual
Corporate Performance Incentive Plan for Officers (or
any successor plan thereto), if any, based on the
then-current level of goal achievement. Such payment
shall constitute full satisfaction for these amounts
owed to Executive.
(iv) A lump-sum cash amount equal to the product
determined by multiplying (A) the sum of the amounts
payable under Subparagraphs 4(c) (i), (ii) and (iii)
herein by (B) the highest percentage of Executive's
compensation (eligible for such contributions)
contributed to the Executive's account under the
Lance, Inc. Profit-Sharing Retirement Plan and Trust
(the "Retirement Plan") during the three (3)
consecutive plan years ended immediately prior to the
Qualifying Termination. The source of payment of this
sum shall be the general assets of the Company unless
the payment of such amounts is otherwise permissible
from the
8
<PAGE> 9
Retirement Plan without violating any governmental
regulations or statutes including, but not limited
to, ERISA discrimination testing requirements.
(v) At the exact same cost to Executive, and at the same
coverage level as in effect as of the date of
Executive's Qualifying Termination (subject to
changes in coverage levels applicable to all
employees generally), a continuation of the
Executive's (and Executive's eligible dependents')
health insurance coverage for thirty-six (36) months
from the date of the Qualifying Termination. The
applicable COBRA health insurance benefit
continuation period shall begin coincident with the
beginning of this thirty-six (36) month benefit
continuation period.
Provided, however, the provision of these health
insurance benefits shall be discontinued prior to the
end of the thirty-six (36) month continuation period
to the extent that Executive becomes covered under
the health insurance coverage of a subsequent
employer which does not contain any exclusion or
limitation with respect to any preexisting condition
of Executive or Executive's eligible dependents. For
purposes of enforcing this offset provision,
Executive shall have a duty to inform the Company if
Executive becomes covered under any such health
insurance of a subsequent employer. Executive shall
provide, or cause to provide, to the Company in
writing correct, complete, and timely information
concerning the same.
(vi) At no expense to Executive, standard outplacement
services for Executive from a nationally recognized
outplacement firm of Executive's selection, for a
period of up to two (2) years from the date of
Executive's Qualifying Termination. However, such
services shall be at the Company's expense to a
maximum amount not to exceed twenty percent (20%) of
the Executive's Base Salary as of the date of
Executive's Qualifying Termination.
5. Excise Tax Payment.
(a) Following a Qualifying Termination, if any portion of the Severance
Benefits or any other payment or benefits under any agreement with or plan of
the Company, including but not limited to stock options and other long-term
incentives, (hereinafter referred to in the aggregate as "Total Payments") will
be subject to the Excise Tax, the Company shall pay to Executive, in cash, an
additional amount (the "Gross-Up
9
<PAGE> 10
Payment") sufficient to cover the full cost of all Excise Taxes and Executive's
federal, state and local income and employment taxes on this additional payment
so that the net amount retained by Executive, after the payment of all Excise
Taxes on the Total Payments and all federal, state and local income and
employment taxes and Excise Taxes on the Gross-Up Payment, shall be equal to the
Total Payments. The Total Payments, however, shall be subject to any federal,
state and local income and employment taxes thereon. For this purpose, Executive
shall be deemed to be in the highest marginal rate of federal, state and local
taxes. The Gross-Up Payment shall be made at the same time as the Severance
Benefits described in Subparagraphs 4(c)(i) through (iv) herein are due.
(b) In the event the Internal Revenue Service subsequently adjusts the
Excise Tax computation made pursuant to Paragraph 5(a) above, the Company shall
pay Executive an additional Gross-Up Payment in the full amount necessary to
make Executive whole on an after-tax basis (less any amounts received by
Executive that Executive would not have received had the computations initially
been computed as subsequently adjusted), including the amount of any underpaid
Excise Tax, and any related interest and/or penalties due to the Internal
Revenue Service.
6. Assignment of This Agreement or Benefits Hereunder.
(a) Successors. The Company will require any successor (whether via a
Change in Control, direct or indirect, by purchase, merger, consolidation, or
otherwise) of the Company to expressly assume and agree to perform the
obligations under this Compensation and Benefits Assurance Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession
shall, as of the date immediately preceding the date of a Change in Control,
automatically provide Executive with Good Reason to collect, immediately, full
benefits hereunder as a Qualifying Termination.
(b) Assignment by Executive. This Compensation and Benefits Assurance
Agreement shall inure to the benefit of and be enforceable by Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees. If an Executive should die while any
amount is still payable to Executive hereunder had the Executive continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Compensation and Assurance Benefits Agreement
to Executive's estate. Executive's rights hereunder shall not otherwise be
assignable.
7. Notices. Any notice required to be delivered to the Company by
Executive hereunder shall be properly delivered to the Company when personally
delivered to (including by a reputable overnight courier), or actually received
through the U.S. mail, postage prepaid, by:
10
<PAGE> 11
Lance, Inc.
P. O. Box 32368
8600 South Boulevard
Charlotte, NC 28232
Attn: President
Any notice required to be delivered to Executive by the Company
hereunder shall be properly delivered to Executive when personally delivered to
(including by a reputable overnight courier), or actually received through the
U.S. mail, postage prepaid, by, Executive at his last known address as reflected
on the books and records of the Company.
8. Contractual Rights to Benefits. This Compensation and Benefits
Assurance Agreement establishes in Executive a right to the benefits to which
Executive is entitled hereunder. However, except as expressly stated herein,
nothing herein contained shall require or be deemed to require, or prohibit or
be deemed to prohibit, the Company to segregate, earmark, or otherwise set aside
any funds or other assets, in trust or otherwise, to provide for any payments to
be made or required hereunder. This Compensation and Benefits Assurance
Agreement is intended to be an unfunded general asset promise for a select,
highly compensated member of the Company's management and, therefore, is
intended to be exempt from the substantive provisions of the Employee Retirement
Income Security Act of 1974, as amended.
9. Legal Fees and Expenses. The Company shall pay all legal fees, costs
of litigation, prejudgment interest, and other expenses which are incurred in
good faith by Executive as a result of the Company's refusal to provide the
benefits to which Executive becomes entitled under this Compensation and
Assurance Benefits Agreement or under any other agreement with or plan of the
Company which would provide Executive with benefits or payments following a
Qualifying Termination (collectively "Termination Benefit Arrangements"), or as
a result of the Company's (or any third party's) contesting the validity,
enforceability, or interpretation of this Compensation and Benefits Assurance
Agreement or any Termination Benefits Arrangement, or as a result of any
conflict between the parties pertaining to this Compensation and Benefits
Assurance Agreement or any Termination Benefits Arrangement.
10. Exclusivity of Benefits. Unless specifically provided herein,
neither the provisions of this Compensation and Benefits Assurance Agreement nor
the benefits provided hereunder shall reduce any amounts otherwise payable, or
in any way diminish Executive's rights as an employee of the Company, whether
existing now or hereafter, under any compensation and/or benefit plans,
programs, policies, or practices provided by the Company, for which Executive
may qualify. Vested benefits or other amounts which Executive is otherwise
entitled to receive under any plan, policy, practice, or program of the Company
(i.e., including, but not limited to, vested benefits under the Company's
qualified employee benefit plans), at or subsequent to the date of Executive's
Qualifying
11
<PAGE> 12
Termination shall be payable in accordance with such plan, policy, practice, or
program except as expressly modified by this Compensation and Benefits Assurance
Agreement.
11. Includable Compensation. Severance Benefits provided hereunder
shall not be considered "includable compensation" for purposes of determining
Executive's benefits under any other plan or program of the Company unless
otherwise provided by such other plan or program.
12. Mitigation. In no event shall Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to Executive under any of the provisions of this Compensation and Benefits
Assurance Agreement, nor shall the amount of any payment hereunder be reduced by
any compensation earned by Executive as a result of employment by another
employer, other than as provided in Subparagraph 4(c)(v) herein.
13. Entire Agreement. This Compensation and Benefits Assurance
Agreement represents the entire agreement between the parties with respect to
the subject matter hereof, and supersedes all prior discussions, negotiations,
and agreements concerning the subject matter hereof, including, but not limited
to, any prior severance agreement made between Executive and the Company other
than the Executive Severance Agreement between Executive and the Company entered
into on the date hereof.
14. Tax Withholding. The Company shall withhold from any amounts
payable under this Compensation and Benefits Assurance Agreement all federal,
state, city, or other taxes as legally required to be withheld.
15. Waiver of Rights. Except as otherwise provided herein, Executive's
acceptance of Severance Benefits, the Gross-Up Payment (if applicable) and any
other payments required hereunder shall be deemed to be a waiver of all rights
and claims of Executive against the Company pertaining to any matters arising
under this Compensation and Benefits Assurance Agreement.
16. Severability. In the event any provision of this Compensation and
Benefits Assurance Agreement shall be held illegal or invalid for any reason,
the illegality or invalidity shall not affect the remaining parts of this
Compensation and Benefits Assurance Agreement, and this Compensation and
Benefits Assurance Agreement shall be construed and enforced as if the illegal
or invalid provision had not been included.
17. Applicable Law. To the extent not preempted by the laws of the
United States, the laws of the State of North Carolina shall be the controlling
law in all matters relating to this Compensation and Benefits Assurance
Agreement.
12
<PAGE> 13
18. Execution. This Compensation and Benefits Assurance Agreement is
hereby executed in duplicate originals, one of which is being retained by each
of the parties hereto.
IN WITNESS WHEREOF, Lance, Inc. has caused this Compensation and
Benefits Assurance Agreement to be signed by its duly authorized officers, and
Executive has hereunto set his hand and seal, all as of the day and year first
above written.
"Company"
Lance, Inc.
[Corporate Seal]
Attest: By:
-----------------------
__________ President
- -------------------------
Secretary
"Executive"
[SEAL]
---------------------
[Type Name]
13
<PAGE> 1
EXHIBIT 10.15
STATE OF NORTH CAROLINA EXECUTIVE
SEVERANCE AGREEMENT
COUNTY OF MECKLENBURG
THIS AGREEMENT, entered into this 7th day of November, 1997, by and
between Lance, Inc., a North Carolina corporation, hereinafter referred to as
the "Company", and Paul A. Stroup, III, hereinafter referred to as "Executive";
STATEMENT OF PURPOSE
On April 20, 1990, the Company and Executive entered into an Executive
Employment Agreement (the "Employment Agreement") pursuant to which the Company
continued Executive's employment as Executive Vice President of the Company and
provided Executive with certain benefits under the Lance, Inc. Key Executive
Employee Benefit Plan. Executive currently holds the title of President and
Chief Executive Officer of the Company, is a member of the Company's Board of
Directors and holds various other positions with the Company and its Affiliates.
The Board of Directors of the Company has recently authorized a program
(the "New Severance Program") designed to provide certain executives of the
Company with severance benefits upon the termination of their employment with
the Company and its Affiliates under certain circumstances following a Change in
Control of the Company. Certain of the benefits provided Executive under the
Employment Agreement would be duplicative of the benefits offered under the New
Severance Program. Moreover, the benefits which would be provided Executive
under the Employment Agreement in the event of Executive's involuntary
termination of employment without Cause prior to a Change in Control are not
clear.
Therefore, the Company and Executive have decided that it is desirable
and in their respective best interests that the Employment Agreement be
terminated and in lieu thereof that Executive and the Company enter into (i) a
Compensation and Benefits Assurance Agreement pursuant to the New Severance
Program and (ii) this Agreement which provides Executive certain benefits in the
event of Executive's termination of employment under certain circumstances prior
to a Change in Control and in the event of Executive's Retirement.
NOW, THEREFORE, in consideration of the Statement of Purpose and the
terms and provisions of this Agreement, the parties hereto mutually agree as
follows:
1. DEFINITIONS. Capitalized terms used in this Agreement that (i) are
not expressly defined herein and (ii) are defined in the Compensation and
Benefits Assurance Agreement shall have the respective meanings given to those
terms in the Compensation and
<PAGE> 2
Benefits Assurance Agreement. In addition, as used herein, the following terms
shall have the following meanings:
(a) "Cause" means:
(i) Executive's failure to devote his best
efforts and substantially full time during
normal business hours to the discharge of
the duties and responsibilities of
Executive's position reasonably assigned to
him, other than during reasonable periods of
vacation and other reasonable leaves of
absence commensurate with Executive's
position and length of service; or
(ii) A material and willful breach of Executive's
fiduciary duties to the Company and its
stockholders; or
(iii) In connection with the discharge of
Executive's duties with the Company, one or
more material acts of fraud or dishonesty or
gross abuse of authority; or
(iv) Executive's commission of any willful act
involving moral turpitude which materially
and adversely affects (A) the name and good
will of the Company or (B) the Company's
relationship with its employees, customers
or suppliers; or
(v) Executive's habitual and intemperate use of
alcohol or drugs to the extent that the same
materially interferes with Executive's
ability to competently, diligently and
substantially perform the duties of his
employment.
(b) "Compensation and Benefits Assurance Agreement" means
that certain Compensation and Benefits Assurance
Agreement between Executive and the Company entered
into on the date hereof.
(c) "Current Annual Salary" means the amount of Base
Salary actually paid to Executive during the 52-week
year immediately prior to his Termination of
Employment.
(d) "Disability" means the inability, by reason of
physical or mental infirmity or both, of an
apparently permanent nature of Executive to perform
satisfactorily the duties then assigned to him or the
duties of any other executive position to which the
Board is willing to assign him; Disability must be
determined by the Board and shall be based
2
<PAGE> 3
upon certification of such Disability by an
independent qualified physician or other credible
medical evidence, if available.
(e) "Payment Period" means the time beginning with the
Period following the Period in which Executive's
Retirement occurs and ending upon the earlier of (i)
the end of the Period during which occurs the
fifteenth anniversary of the date of Executive's
Retirement or (ii) the last day of the Company's
fiscal year during which occurs the seventy-fifth
anniversary of Executive's birth.
(f) "Period" means the Company's accounting period as
hereinafter described. In accordance with the
provisions of ss.441(f) of the Internal Revenue Code
of 1986, as amended, the Company uses a fiscal year
varying from 52 to 53 weeks ending on the last
Saturday in December in each year, which fiscal year
consists of 13 accounting periods of 4 weeks each,
except that in a year consisting of 53 weeks, the
last accounting period consists of 5 weeks. In the
event that the Company changes its fiscal year for
income tax purposes, the Company shall have the right
to alter and adjust payment dates under Paragraph 3
of this Agreement to coincide with its then existing
accounting period, provided, however, that under no
circumstances shall the Company have the right to
adjust such payment dates hereunder to dates more
than 31 days apart.
(g) "Retire" and "Retirement" mean any Termination of
Employment (including on account of death or
Disability) on or after the Retirement Date.
(h) "Retirement Date" means the earlier of:
(i) the last day of the Company's fiscal year
during which Executive attains the age of
sixty (60) years (i.e., December 31, 2011);
(ii) the date of Executive's death while employed
by the Company; or
(iii) the date of Executive's Termination of
Employment by reason of Executive's
Disability.
(i) "Severance Multiple" means the lesser of (i) two and
one half (2 1/2) or (ii) the quotient obtained by
dividing (A) the number of full months between
Executive's Termination of Employment and the last
day of the Company's fiscal year during which
Executive will attain the age of sixty (60) years
(i.e., December 31, 2011) by (B) 12.
3
<PAGE> 4
(j) "Stock Options" means Executive's options to purchase
shares of the Company's common stock pursuant to
options granted to Executive by the Company prior to
Executive's Termination of Employment, which options
are otherwise vested in Executive on the date of his
Termination of Employment and remain unexercised upon
the expiration of such options in accordance with
their terms upon or subsequent to Executive's
Termination of Employment.
(k) "Termination Date" means the date of Executive's
Termination of Employment.
(l) "Value" with reference to Executive's Stock Options
means the estimated present value of the Stock
Options determined on the basis of a "Black-Scholes"
valuation calculation using the price of the shares
of the Company's common stock and comparable U.S.
Treasury Strip Rates with a term equivalent to the
remaining term of the respective Stock Options as
reported in the Wall Street Journal for the date of
Executive's Termination of Employment, using the
dividends paid during the twelve month period
immediately prior to the date of Executive's
Termination of Employment and using a stock price
volatility factor as reflected in the Company's most
recent proxy statement.
2. TERMINATION OF EMPLOYMENT AGREEMENT. The Employment Agreement is
hereby terminated and neither the Company nor Executive have any further
obligations thereunder.
3. RETIREMENT.
(a) RETIREMENT BENEFITS PAYMENT. Subject to Paragraph 3(d),
following Executive's Retirement the Company agrees to pay
Executive in each Period during the Payment Period retirement
benefits in an amount to be determined as hereinafter provided
in this Paragraph 3(a). The amount payable to Executive in
each Period during the Payment Period under this Paragraph
3(a) shall be determined as follows:
(i) determine the product obtained by
multiplying Executive's Current Annual
Salary by five (5), and
(ii) divide said product so obtained by the
number of full Periods during the Payment
Period.
Said retirement benefit payments shall be made at the end of
each Period. In the event that Executive dies after Retirement
and prior to the end of the Payment Period, retirement benefit
payments under this Paragraph 3(a) shall
4
<PAGE> 5
terminate with the payment for the Period in which death
occurs. Payments under this Paragraph 3(a) are on account of
Executive's retirement.
(b) DEATH BENEFIT PAYMENTS. In the event of Executive's
Retirement by reason of his death or in the event of
Executive's death after his Retirement but prior to the end of
the Payment Period, subject to Paragraph 3(d), the Company
agrees to pay to the beneficiary designated by Executive [or
to Executive's estate in the event (i) he has not designated a
beneficiary, or (ii) the beneficiary designated by Executive
fails to survive him] in each Period during the remainder of
the Payment Period, a death benefit in an amount equal to
seventy-five percent (75%) of the retirement benefit amount
otherwise payable in each Period to Executive under Paragraph
3(a) above. Said 75% of the amount otherwise payable in each
period under Paragraph 3(a) is the total amount payable by the
Company under this Agreement to such beneficiary. If
Executive's Retirement is by reason of his death, then the
"retirement benefit amount otherwise payable in each period to
Executive under Paragraph 3(a) above" shall be the retirement
benefit amount which Executive would have received if he had
otherwise Retired and commenced receiving retirement benefits
on his date of death. The payments under this Paragraph 3(b)
shall begin with the Period following the Period in which
death occurs and shall end with the expiration of the Payment
Period. Said death benefit payments shall be made at the end
of each Period.
(c) DESIGNATION OF BENEFICIARY. Executive may designate a
beneficiary to receive payments payable hereunder after his
death by filing with the Company a beneficiary designation on
a form approved by the Company, bearing the name, address and
relationship of the beneficiary, which beneficiary designation
form shall be acknowledged by Executive before a Notary Public
or other officer authorized to administer oaths, and shall be
in such other form and shall contain such other information as
shall be satisfactory to the Company. The beneficiary may be
changed by Executive at any time by filing a new beneficiary
designation form with the Company, said new beneficiary
designation form to comply with the provisions of this
Paragraph 3(c). If Executive shall not be survived by the
beneficiary designated in accordance with the provisions
herein set forth, then upon Executive's death, any and all
payments provided for herein shall be made to Executive's
estate. If Executive shall be survived by the beneficiary
designated as provided herein, and such beneficiary shall die
prior to receiving all amounts payable hereunder to such
deceased beneficiary if such beneficiary had lived, then all
remaining amounts that would have been paid to such deceased
beneficiary if living shall be paid to the estate of such
deceased beneficiary.
(d) LUMP SUM PAYMENTS. Notwithstanding the foregoing, in lieu
of the periodic payments provided for in Paragraphs 3(a) and
3(b) above, Executive or his beneficiary or estate, as the
case may be, may elect prior to the time
5
<PAGE> 6
such payments are to commence to have the present value of
such payments made in a single cash payment within thirty (30)
days of the date such payments would otherwise commence, said
present value to be determined using the interest rate equal
to the yield on the 10-year United States Treasury Bond on the
date payments would otherwise commence and, in the case of
payments under Paragraph 3(a), without any discount for
mortality. In any case where payments hereunder are to be made
to an estate (either the estate of Executive or the estate of
a deceased beneficiary), the Company may elect in lieu of
making the periodic payments provided in Paragraph 3(b) to
have the present value of such payments made in a single cash
payment within thirty (30) days of the date such payments
would otherwise commence, said present value to be determined
in the same manner as provided above.
4. TERMINATION OF EMPLOYMENT AFTER A CHANGE IN CONTROL AND PRIOR TO
RETIREMENT.
(a) COMPENSATION AND BENEFITS ASSURANCE AGREEMENT.
Contemporaneously herewith, the Company and Executive have
entered into the Compensation and Benefits Assurance
Agreement. In no event shall any payments or benefits be made
to or provided Executive under the terms of this Agreement
upon Executive's Termination of Employment after a Change in
Control and prior to Executive's Retirement Date except for
the benefit expressly provided for in Paragraph 4(b).
(b) PRE-RETIREMENT PAYMENT. In the event of Executive's
Termination of Employment, whether voluntary or involuntary,
with or without Cause, after a Change in Control but prior to
Executive's Retirement Date, the Company agrees to pay
Executive a single lump sum cash payment within thirty (30)
days after the Termination Date in an amount equal to the
"current value" [computed as hereinafter provided in this
Paragraph 4(b)] of the per period amount of the retirement
benefits to which Executive would have been entitled to under
Paragraph 3 of this Agreement determined as if Executive's
Retirement had occurred on the Termination Date. The "current
value" of such per period amount of such retirement benefits
shall be the present value on the Termination Date of such
retirement benefits based on the following assumptions:
(i) Payment of such per period amount of such
retirement benefits would commence with the
Period following the last day of the
Company's fiscal year during which the
Executive would attain the age of sixty (60)
years (i.e., December 31, 2011) and the
Payment Period would continue through the
end of the Period during which occurs
December 31, 2026;
6
<PAGE> 7
(ii) Such present value shall be determined by
using the interest rate equal to the yield
on the 10-year United States Treasury Bond
on the Termination Date; and
(iii) Such present value shall be determined
without any discount for mortality.
5. INVOLUNTARY TERMINATION OF EMPLOYMENT PRIOR TO A CHANGE IN CONTROL
OR EXECUTIVE'S RETIREMENT DATE. In the event of Executive's involuntary
Termination of Employment without Cause prior to the earlier of a Change in
Control or Executive's Retirement Date, the Company agrees to pay to or provide
Executive with the following:
(a) A single cash payment in an amount equal to the
Severance Multiple multiplied by the sum of (i) the
highest Base Salary paid to Executive during his
employment by the Company plus (ii) the Executive's
then-current target bonus opportunity (stated in
terms of a percentage of Base Salary) established
under the Company's Annual Corporate Performance
Incentive Plan for Officers (or any successor plan
thereto), if any, in effect on the Termination Date,
which payment shall be made within thirty (30) days
after the Termination Date.
(b) Payment of retirement benefits and death benefits,
computed in accordance with Paragraph 3 of this
Agreement as if Executive's Retirement had occurred
on the Termination Date, which such payments shall be
made in accordance with the provisions of Paragraph 3
as if Executive's Retirement had occurred on the
Termination Date.
(c) A single cash payment in an amount equal to
Executive's unpaid Base Salary, accrued vacation pay,
unreimbursed business expenses, and all other items
earned by and owed to Executive through the
Termination Date.
(d) A single cash payment in an amount equal to the
greater of (i) the Executive's then-current target
bonus opportunity (stated in terms of a percentage of
Base Salary) established under the Company's Annual
Corporate Performance Incentive Plan for Officers (or
any successor plan thereto), if any, for the
incentive plan year in which the Termination Date
occurs, adjusted on a pro-rata basis based on the
number of days Executive was actually employed during
such incentive plan year or (ii) the actual bonus
earned through the Termination Date under the
Company's Annual Corporate Performance Incentive Plan
for Officers (or any successor plan thereto), if any,
based on the then-current level of goal achievement;
which payment shall be made at the same time as the
payments are made to the Company's other employees
under the Company's
7
<PAGE> 8
Annual Corporate Performance Incentive Plan for
Officers (or any successor plan thereto), if any, for
the incentive plan year during which the Termination
Date occurs.
(e) Conveyance of possession and title to the
Company-owned automobile, if any, used by Executive
in connection with his employment immediately prior
to the Termination Date within thirty (30) days after
such Termination Date.
(f) A single cash payment of the Value of the Stock
Options, which payment shall be paid within ten (10)
days following the expiration of such Stock Options.
(g) Medical Insurance coverage for Executive until
Executive reaches the age of sixty (60) (July 12,
2011) or his earlier death under such terms and
conditions as are most closely comparable to the
"Plan B" or HMO coverage option provided Executive
under the Company's Group Medical Benefits Plan on
the Termination Date and as shall be thereafter
customarily provided by the Company to the Company's
executives from time to time during such period.
During this period, Executive shall be entitled to
obtain at Executive's expense such optional
coverages, such as dental coverage and
family/dependent medical coverage, under the
Company's Group Medical Benefits Plan as are
available for the Company's employees generally.
After age sixty (60) Executive may elect to obtain at
Executive's expense coverage as a "retiree" under
such Group Medical Benefits Plan, if any, as may be
then available to the Company's retired executives.
(h) Life Insurance, accidental death and dismemberment
insurance and disability insurance for Executive
until Executive reaches age sixty (60) (July 12,
2011) or his earlier death under such terms and
conditions that are reasonably comparable to the
coverages provided Executive under the Company's
plans for such insurance on the Termination Date and
as shall be thereafter customarily provided by the
Company to Company's executives from time to time
during such period.
(i) Indemnification of Executive from any claims asserted
against Executive arising out of the prior
performance of Executive's duties with the Company or
its Affiliates to the same extent as the Company
indemnifies retired officers or directors of the
Company.
(j) Payment of Executive's vested interest under the
Company sponsored qualified profit sharing and 401(k)
Plans when and as provided in, and otherwise subject
to, the terms, provisions and conditions of said
8
<PAGE> 9
Plans, and nothing in this Agreement shall modify or
override the terms, provisions and conditions of such
Plans.
(k) At no expense to Executive, standard outplacement
services for Executive from a nationally recognized
outplacement firm of Executive's selection, for a
period of up to two (2) years from the Termination
Date. However, such services shall be at the
Company's expense to a maximum amount not to exceed
twenty percent (20%) of the Executive's Base Salary
as of the Termination Date.
6. OTHER TERMINATION OF EMPLOYMENT. Except as otherwise expressly
provided to the contrary in the Compensation and Benefits Assurance Agreement
and in Paragraph 4 of this Agreement, Executive shall not be entitled to any
payments or benefits upon his Termination of Employment in the following events:
(a) Executive's voluntary Termination of Employment prior
to his Retirement Date, or
(b) Executive's involuntary Termination of Employment for
Cause prior to his Retirement Date, or
(c) Executive's Termination of Employment, whether
voluntary or involuntary, with or without Cause,
prior to his Retirement Date and following a Change
in Control.
7. MITIGATION. In no event shall Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to Executive under any of the provisions of this Agreement, nor shall the amount
of any payment hereunder be reduced by any compensation earned by Executive as a
result of employment by another employer.
8. ADEA WAIVER. Executive understands that the severance benefits
provided in Paragraph 5 will decline as Executive approaches the age of sixty
(60) years and will be eliminated at the end of the Company's fiscal year during
which Executive attains the age of sixty (60) years. Moreover, the Compensation
and Benefits Assurance Agreement may be terminated by the Company at the end of
the Company's fiscal year during which Executive attains the age of sixty (60)
years. If such reduction and/or elimination of benefits is construed to violate
the Age Discrimination in Employment Act of 1967, as amended, Executive does
hereby release and waive any claim he may have by reason of such violation.
Executive acknowledges that this Agreement and the Compensation and Benefits
Agreement provide new consideration which he was not previously entitled to
receive, that he has consulted an attorney before executing the agreements, and
that he has been given up to twenty-one (21) days within which to consider the
agreements. This Agreement will not become effective or enforceable until seven
(7) days following Executive's execution of this Agreement, and Executive may
revoke this Agreement at any time during such seven-day period by delivering (or
causing to be delivered) to the principal office of the Company a
9
<PAGE> 10
notice of his revocation of this Agreement. The execution of the Compensation
and Benefits Assurance Agreement is in part consideration for and an integral
part of this Agreement, and therefore, any such revocation of this Agreement
will also constitute a revocation and cancellation of the Compensation and
Benefits Assurance Agreement.
9. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees, costs
of litigation, prejudgment interest, and other expenses ("Legal Expenses") which
are incurred in good faith by Executive as a result of the Company's refusal to
provide the benefits to which Executive becomes entitled under this Agreement,
or as a result of the Company's (or any third party's) contesting the validity,
enforceability, or interpretation of this Agreement, or as a result of any
conflict between the parties pertaining to this Agreement; provided, however, in
no event shall the Company be required to pay any such expenses if it is finally
determined that Executive's Termination of Employment was for Cause.
10. APPLICABLE LAW. This Agreement is made and executed with the
intention that the construction, interpretation and validity hereof shall be
determined in accordance with and governed by the laws of the State of North
Carolina.
11. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Company, its successors and assigns. This Agreement shall be
binding upon and inure to the benefit of Executive, his heirs, executors and
administrators.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes and
cancels all prior or contemporaneous oral or written agreements and
understandings between them with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its duly authorized officers and its corporate seal to be hereunto affixed,
and Executive has hereunto set his hand and seal, all as of the day and year
first above written.
Lance, Inc.
[CORPORATE SEAL]
ATTEST: By: /s/ Earl D. Leake
--------------------------------
Vice President
/s/ Robert S. Carles
- --------------------
Secretary
/s/ Paul A. Stroup, III [SEAL]
------------------------------
Paul A. Stroup, III
10
<PAGE> 11
STATE OF NORTH CAROLINA
COUNTY OF MECKLENBURG
I, Carolyn H. Martin , a Notary Public for said County and State, do
hereby certify that Paul A. Stroup, III personally appeared before me this day
and acknowledged the due execution of the foregoing instrument.
WITNESS my hand and notarial seal, this 7th day of November, 1997.
/s/ Carolyn H. Martin
------------------------------
Notary Public
[NOTARIAL SEAL]
My Commission Expires:
December 22, 2001
- ----------------------
STATE OF NORTH CAROLINA
COUNTY OF MECKLENBURG
This 7th day of November, 1997, personally came before me Earl D.
Leake, who, being by me duly sworn, says that he is a Vice President of Lance,
Inc., that the seal affixed to the foregoing instrument in writing is the
corporate seal of said Corporation, and that said writing was signed and sealed
by him, in behalf of said Corporation, by its authority duly given. And the said
Earl D. Leake acknowledged the said writing to be the act and deed of said
Corporation.
/s/ Myrna Chromzak
------------------------------
Notary Public
[NOTARIAL SEAL]
My Commission Expires:
March 19, 1999
- ---------------------
11
<PAGE> 1
EXHIBIT 10.16
STATE OF NORTH CAROLINA EXECUTIVE
SEVERANCE AGREEMENT
COUNTY OF MECKLENBURG
THIS AGREEMENT, entered into this 7th day of November, 1997, by and
between Lance, Inc., a North Carolina corporation, hereinafter referred to as
the "Company", and Earl D. Leake, hereinafter referred to as "Executive";
STATEMENT OF PURPOSE
On February 21, 1995, the Company and Executive entered into an
Executive Employment Agreement (the "Employment Agreement") pursuant to which
the Company continued Executive's employment as Treasurer and Assistant
Secretary of the Company and provided Executive with certain benefits under the
Lance, Inc. Key Executive Employee Benefit Plan. Executive currently holds the
title of Vice President of Human Resources and holds various other positions
with the Company and its Affiliates.
The Board of Directors of the Company has recently authorized a program
(the "New Severance Program") designed to provide certain executives of the
Company with severance benefits upon the termination of their employment with
the Company and its Affiliates under certain circumstances following a Change in
Control of the Company. Certain of the benefits provided Executive under the
Employment Agreement would be duplicative of the benefits offered under the New
Severance Program. Moreover, the benefits which would be provided Executive
under the Employment Agreement in the event of Executive's involuntary
termination of employment without Cause prior to a Change in Control are not
clear.
Therefore, the Company and Executive have decided that it is desirable
and in their respective best interests that the Employment Agreement be
terminated and in lieu thereof that Executive and the Company enter into (i) a
Compensation and Benefits Assurance Agreement pursuant to the New Severance
Program and (ii) this Agreement which provides Executive certain benefits in the
event of Executive's termination of employment under certain circumstances prior
to a Change in Control and in the event of Executive's Retirement.
NOW, THEREFORE, in consideration of the Statement of Purpose and the
terms and provisions of this Agreement, the parties hereto mutually agree as
follows:
1. DEFINITIONS. Capitalized terms used in this Agreement that (i) are
not expressly defined herein and (ii) are defined in the Compensation and
Benefits Assurance Agreement shall have the respective meanings given to those
terms in the Compensation and Benefits Assurance Agreement. In addition, as used
herein, the following terms shall have the following meanings:
<PAGE> 2
(a) "Cause" means:
(i) Executive's failure to devote his best
efforts and substantially full time during
normal business hours to the discharge of
the duties and responsibilities of
Executive's position reasonably assigned to
him, other than during reasonable periods of
vacation and other reasonable leaves of
absence commensurate with Executive's
position and length of service; or
(ii) A material and willful breach of Executive's
fiduciary duties to the Company and its
stockholders; or
(iii) In connection with the discharge of
Executive's duties with the Company, one or
more material acts of fraud or dishonesty or
gross abuse of authority; or
(iv) Executive's commission of any willful act
involving moral turpitude which materially
and adversely affects (A) the name and good
will of the Company or (B) the Company's
relationship with its employees, customers
or suppliers; or
(v) Executive's habitual and intemperate use of
alcohol or drugs to the extent that the same
materially interferes with Executive's
ability to competently, diligently and
substantially perform the duties of his
employment.
(b) "Compensation and Benefits Assurance Agreement" means
that certain Compensation and Benefits Assurance
Agreement between Executive and the Company entered
into on the date hereof.
(c) "Current Annual Salary" means the amount of Base
Salary actually paid to Executive during the 52-week
year immediately prior to his Termination of
Employment.
(d) "Disability" means the inability, by reason of
physical or mental infirmity or both, of an
apparently permanent nature of Executive to perform
satisfactorily the duties then assigned to him or the
duties of any other executive position to which the
Board is willing to assign him; Disability must be
determined by the Board and shall be based upon
certification of such Disability by an independent
qualified physician or other credible medical
evidence, if available.
2
<PAGE> 3
(e) "Payment Period" means the time beginning with the
Period following the Period in which Executive's
Retirement occurs and ending upon the earlier of (i)
the end of the Period during which occurs the
fifteenth anniversary of the date of Executive's
Retirement or (ii) the last day of the Company's
fiscal year during which occurs the seventy-fifth
anniversary of Executive's birth.
(f) "Period" means the Company's accounting period as
hereinafter described. In accordance with the
provisions of ss.441(f) of the Internal Revenue Code
of 1986, as amended, the Company uses a fiscal year
varying from 52 to 53 weeks ending on the last
Saturday in December in each year, which fiscal year
consists of 13 accounting periods of 4 weeks each,
except that in a year consisting of 53 weeks, the
last accounting period consists of 5 weeks. In the
event that the Company changes its fiscal year for
income tax purposes, the Company shall have the right
to alter and adjust payment dates under Paragraph 3
of this Agreement to coincide with its then existing
accounting period, provided, however, that under no
circumstances shall the Company have the right to
adjust such payment dates hereunder to dates more
than 31 days apart.
(g) "Retire" and "Retirement" mean any Termination of
Employment (including on account of death or
Disability) on or after the Retirement Date.
(h) "Retirement Date" means the earlier of:
(i) the last day of the Company's fiscal year
during which Executive attains the age of
sixty (60) years (i.e., December 31, 2011);
(ii) the date of Executive's death while employed
by the Company; or
(iii) the date of Executive's Termination of
Employment by reason of Executive's
Disability.
(i) "Severance Multiple" means the lesser of (i) two and
one half (2 1/2) or (ii) the quotient obtained by
dividing (A) the number of full months between
Executive's Termination of Employment and the last
day of the Company's fiscal year during which
Executive will attain the age of sixty (60) years
(i.e., December 31, 2011) by (B) 12.
(j) "Stock Options" means Executive's options to purchase
shares of the Company's common stock pursuant to
options granted to Executive by the Company prior to
Executive's Termination of Employment,
3
<PAGE> 4
which options are otherwise vested in Executive on
the date of his Termination of Employment and remain
unexercised upon the expiration of such options in
accordance with their terms upon or subsequent to
Executive's Termination of Employment.
(k) "Termination Date" means the date of Executive's
Termination of Employment.
(l) "Value" with reference to Executive's Stock Options
means the estimated present value of the Stock
Options determined on the basis of a "Black-Scholes"
valuation calculation using the price of the shares
of the Company's common stock and comparable U.S.
Treasury Strip Rates with a term equivalent to the
remaining term of the respective Stock Options as
reported in the Wall Street Journal for the date of
Executive's Termination of Employment, using the
dividends paid during the twelve month period
immediately prior to the date of Executive's
Termination of Employment and using a stock price
volatility factor as reflected in the Company's most
recent proxy statement.
2. TERMINATION OF EMPLOYMENT AGREEMENT. The Employment Agreement is
hereby terminated and neither the Company nor Executive have any further
obligations thereunder.
3. RETIREMENT.
(a) RETIREMENT BENEFITS PAYMENT. Subject to Paragraph 3(d),
following Executive's Retirement the Company agrees to pay
Executive in each Period during the Payment Period retirement
benefits in an amount to be determined as hereinafter provided
in this Paragraph 3(a). The amount payable to Executive in
each Period during the Payment Period under this Paragraph
3(a) shall be determined as follows:
(i) determine the product obtained by
multiplying Executive's Current Annual
Salary by five (5), and
(ii) divide said product so obtained by the
number of full Periods during the Payment
Period.
Said retirement benefit payments shall be made at the end of
each Period. In the event that Executive dies after Retirement
and prior to the end of the Payment Period, retirement benefit
payments under this Paragraph 3(a) shall terminate with the
payment for the Period in which death occurs. Payments under
this Paragraph 3(a) are on account of Executive's retirement.
4
<PAGE> 5
(b) DEATH BENEFIT PAYMENTS. In the event of Executive's
Retirement by reason of his death or in the event of
Executive's death after his Retirement but prior to the end of
the Payment Period, subject to Paragraph 3(d), the Company
agrees to pay to the beneficiary designated by Executive [or
to Executive's estate in the event (i) he has not designated a
beneficiary, or (ii) the beneficiary designated by Executive
fails to survive him] in each Period during the remainder of
the Payment Period, a death benefit in an amount equal to
seventy-five percent (75%) of the retirement benefit amount
otherwise payable in each Period to Executive under Paragraph
3(a) above. Said 75% of the amount otherwise payable in each
period under Paragraph 3(a) is the total amount payable by the
Company under this Agreement to such beneficiary. If
Executive's Retirement is by reason of his death, then the
"retirement benefit amount otherwise payable in each period to
Executive under Paragraph 3(a) above" shall be the retirement
benefit amount which Executive would have received if he had
otherwise Retired and commenced receiving retirement benefits
on his date of death. The payments under this Paragraph 3(b)
shall begin with the Period following the Period in which
death occurs and shall end with the expiration of the Payment
Period. Said death benefit payments shall be made at the end
of each Period.
(c) DESIGNATION OF BENEFICIARY. Executive may designate a
beneficiary to receive payments payable hereunder after his
death by filing with the Company a beneficiary designation on
a form approved by the Company, bearing the name, address and
relationship of the beneficiary, which beneficiary designation
form shall be acknowledged by Executive before a Notary Public
or other officer authorized to administer oaths, and shall be
in such other form and shall contain such other information as
shall be satisfactory to the Company. The beneficiary may be
changed by Executive at any time by filing a new beneficiary
designation form with the Company, said new beneficiary
designation form to comply with the provisions of this
Paragraph 3(c). If Executive shall not be survived by the
beneficiary designated in accordance with the provisions
herein set forth, then upon Executive's death, any and all
payments provided for herein shall be made to Executive's
estate. If Executive shall be survived by the beneficiary
designated as provided herein, and such beneficiary shall die
prior to receiving all amounts payable hereunder to such
deceased beneficiary if such beneficiary had lived, then all
remaining amounts that would have been paid to such deceased
beneficiary if living shall be paid to the estate of such
deceased beneficiary.
(d) LUMP SUM PAYMENTS. Notwithstanding the foregoing, in lieu
of the periodic payments provided for in Paragraphs 3(a) and
3(b) above, Executive or his beneficiary or estate, as the
case may be, may elect prior to the time such payments are to
commence to have the present value of such payments made in a
single cash payment within thirty (30) days of the date such
payments would otherwise commence, said present value to be
determined
5
<PAGE> 6
using the interest rate equal to the yield on the 10-year
United States Treasury Bond on the date payments would
otherwise commence and, in the case of payments under
Paragraph 3(a), without any discount for mortality. In any
case where payments hereunder are to be made to an estate
(either the estate of Executive or the estate of a deceased
beneficiary), the Company may elect in lieu of making the
periodic payments provided in Paragraph 3(b) to have the
present value of such payments made in a single cash payment
within thirty (30) days of the date such payments would
otherwise commence, said present value to be determined in the
same manner as provided above.
4. TERMINATION OF EMPLOYMENT AFTER A CHANGE IN CONTROL AND PRIOR TO
RETIREMENT.
(a) COMPENSATION AND BENEFITS ASSURANCE AGREEMENT.
Contemporaneously herewith, the Company and Executive have
entered into the Compensation and Benefits Assurance
Agreement. In no event shall any payments or benefits be made
to or provided Executive under the terms of this Agreement
upon Executive's Termination of Employment after a Change in
Control and prior to Executive's Retirement Date except for
the benefit expressly provided for in Paragraph 4(b).
(b) PRE-RETIREMENT PAYMENT. In the event of Executive's
Termination of Employment, whether voluntary or involuntary,
with or without Cause, after a Change in Control but prior to
Executive's Retirement Date, the Company agrees to pay
Executive a single lump sum cash payment within thirty (30)
days after the Termination Date in an amount equal to the
"current value" [computed as hereinafter provided in this
Paragraph 4(b)] of the per period amount of the retirement
benefits to which Executive would have been entitled to under
Paragraph 3 of this Agreement determined as if Executive's
Retirement had occurred on the Termination Date. The "current
value" of such per period amount of such retirement benefits
shall be the present value on the Termination Date of such
retirement benefits based on the following assumptions:
(i) Payment of such per period amount of such
retirement benefits would commence with the
Period following the last day of the
Company's fiscal year during which the
Executive would attain the age of sixty (60)
years (i.e., December 31, 2011) and the
Payment Period would continue through the
end of the Period during which occurs
December 31, 2026;
(ii) Such present value shall be determined by
using the interest rate equal to the yield
on the 10-year United States Treasury Bond
on the Termination Date; and
6
<PAGE> 7
(iii) Such present value shall be determined
without any discount for mortality.
5. INVOLUNTARY TERMINATION OF EMPLOYMENT PRIOR TO A CHANGE IN CONTROL
OR EXECUTIVE'S RETIREMENT DATE. In the event of Executive's involuntary
Termination of Employment without Cause prior to the earlier of a Change in
Control or Executive's Retirement Date, the Company agrees to pay to or provide
Executive with the following:
(a) A single cash payment in an amount equal to the
Severance Multiple multiplied by the sum of (i) the
highest Base Salary paid to Executive during his
employment by the Company plus (ii) the Executive's
then-current target bonus opportunity (stated in
terms of a percentage of Base Salary) established
under the Company's Annual Corporate Performance
Incentive Plan for Officers (or any successor plan
thereto), if any, in effect on the Termination Date,
which payment shall be made within thirty (30) days
after the Termination Date.
(b) Payment of retirement benefits and death benefits,
computed in accordance with Paragraph 3 of this
Agreement as if Executive's Retirement had occurred
on the Termination Date, which such payments shall be
made in accordance with the provisions of Paragraph 3
as if Executive's Retirement had occurred on the
Termination Date.
(c) A single cash payment in an amount equal to
Executive's unpaid Base Salary, accrued vacation pay,
unreimbursed business expenses, and all other items
earned by and owed to Executive through the
Termination Date.
(d) A single cash payment in an amount equal to the
greater of (i) the Executive's then-current target
bonus opportunity (stated in terms of a percentage of
Base Salary) established under the Company's Annual
Corporate Performance Incentive Plan for Officers (or
any successor plan thereto), if any, for the
incentive plan year in which the Termination Date
occurs, adjusted on a pro-rata basis based on the
number of days Executive was actually employed during
such incentive plan year or (ii) the actual bonus
earned through the Termination Date under the
Company's Annual Corporate Performance Incentive Plan
for Officers (or any successor plan thereto), if any,
based on the then-current level of goal achievement;
which payment shall be made at the same time as the
payments are made to the Company's other employees
under the Company's Annual Corporate Performance
Incentive Plan for Officers (or any successor plan
thereto), if any, for the incentive plan year during
which the Termination Date occurs.
7
<PAGE> 8
(e) Conveyance of possession and title to the
Company-owned automobile, if any, used by Executive
in connection with his employment immediately prior
to the Termination Date within thirty (30) days after
such Termination Date.
(f) A single cash payment of the Value of the Stock
Options, which payment shall be paid within ten (10)
days following the expiration of such Stock Options.
(g) Medical Insurance coverage for Executive until
Executive reaches the age of sixty (60) (July 24,
2011) or his earlier death under such terms and
conditions as are most closely comparable to the
"Plan B" or HMO coverage option provided Executive
under the Company's Group Medical Benefits Plan on
the Termination Date and as shall be thereafter
customarily provided by the Company to the Company's
executives from time to time during such period.
During this period, Executive shall be entitled to
obtain at Executive's expense such optional
coverages, such as dental coverage and
family/dependent medical coverage, under the
Company's Group Medical Benefits Plan as are
available for the Company's employees generally.
After age sixty (60) Executive may elect to obtain at
Executive's expense coverage as a "retiree" under
such Group Medical Benefits Plan, if any, as may be
then available to the Company's retired executives.
(h) Life Insurance, accidental death and dismemberment
insurance and disability insurance for Executive
until Executive reaches age sixty (60) (July 24,
2011) or his earlier death under such terms and
conditions that are reasonably comparable to the
coverages provided Executive under the Company's
plans for such insurance on the Termination Date and
as shall be thereafter customarily provided by the
Company to Company's executives from time to time
during such period.
(i) Indemnification of Executive from any claims asserted
against Executive arising out of the prior
performance of Executive's duties with the Company or
its Affiliates to the same extent as the Company
indemnifies retired officers or directors of the
Company.
(j) Payment of Executive's vested interest under the
Company sponsored qualified profit sharing and 401(k)
Plans when and as provided in, and otherwise subject
to, the terms, provisions and conditions of said
Plans, and nothing in this Agreement shall modify or
override the terms, provisions and conditions of such
Plans.
8
<PAGE> 9
(k) At no expense to Executive, standard outplacement
services for Executive from a nationally recognized
outplacement firm of Executive's selection, for a
period of up to two (2) years from the Termination
Date. However, such services shall be at the
Company's expense to a maximum amount not to exceed
twenty percent (20%) of the Executive's Base Salary
as of the Termination Date.
6. OTHER TERMINATION OF EMPLOYMENT. Except as otherwise expressly
provided to the contrary in the Compensation and Benefits Assurance Agreement
and in Paragraph 4 of this Agreement, Executive shall not be entitled to any
payments or benefits upon his Termination of Employment in the following events:
(a) Executive's voluntary Termination of Employment prior
to his Retirement Date, or
(b) Executive's involuntary Termination of Employment for
Cause prior to his Retirement Date, or
(c) Executive's Termination of Employment, whether
voluntary or involuntary, with or without Cause,
prior to his Retirement Date and following a Change
in Control.
7. MITIGATION. In no event shall Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to Executive under any of the provisions of this Agreement, nor shall the amount
of any payment hereunder be reduced by any compensation earned by Executive as a
result of employment by another employer.
8. ADEA WAIVER. Executive understands that the severance benefits
provided in Paragraph 5 will decline as Executive approaches the age of sixty
(60) years and will be eliminated at the end of the Company's fiscal year during
which Executive attains the age of sixty (60) years. Moreover, the Compensation
and Benefits Assurance Agreement may be terminated by the Company at the end of
the Company's fiscal year during which Executive attains the age of sixty (60)
years. If such reduction and/or elimination of benefits is construed to violate
the Age Discrimination in Employment Act of 1967, as amended, Executive does
hereby release and waive any claim he may have by reason of such violation.
Executive acknowledges that this Agreement and the Compensation and Benefits
Agreement provide new consideration which he was not previously entitled to
receive, that he has consulted an attorney before executing the agreements, and
that he has been given up to twenty-one (21) days within which to consider the
agreements. This Agreement will not become effective or enforceable until seven
(7) days following Executive's execution of this Agreement, and Executive may
revoke this Agreement at any time during such seven-day period by delivering (or
causing to be delivered) to the principal office of the Company a notice of his
revocation of this Agreement. The execution of the Compensation and Benefits
Assurance Agreement is in part consideration for and an integral part of this
Agreement, and
9
<PAGE> 10
therefore, any such revocation of this Agreement will also constitute a
revocation and cancellation of the Compensation and Benefits Assurance
Agreement.
9. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees, costs
of litigation, prejudgment interest, and other expenses ("Legal Expenses") which
are incurred in good faith by Executive as a result of the Company's refusal to
provide the benefits to which Executive becomes entitled under this Agreement,
or as a result of the Company's (or any third party's) contesting the validity,
enforceability, or interpretation of this Agreement, or as a result of any
conflict between the parties pertaining to this Agreement; provided, however, in
no event shall the Company be required to pay any such expenses if it is finally
determined that Executive's Termination of Employment was for Cause.
10. APPLICABLE LAW. This Agreement is made and executed with the
intention that the construction, interpretation and validity hereof shall be
determined in accordance with and governed by the laws of the State of North
Carolina.
11. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Company, its successors and assigns. This Agreement shall be
binding upon and inure to the benefit of Executive, his heirs, executors and
administrators.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes and
cancels all prior or contemporaneous oral or written agreements and
understandings between them with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its duly authorized officers and its corporate seal to be hereunto affixed,
and Executive has hereunto set his hand and seal, all as of the day and year
first above written.
Lance, Inc.
[CORPORATE SEAL]
ATTEST: By: /s/ P. A. Stroup, III
--------------------------------
President
/s/ Robert S. Carles
- --------------------
Secretary
/s/ Earl D. Leake [SEAL]
------------------------------
Earl D. Leake
10
<PAGE> 11
STATE OF NORTH CAROLINA
COUNTY OF MECKLENBURG
I, Carolyn H. Martin, a Notary Public for said County and State, do
hereby certify that Earl D. Leake personally appeared before me this day and
acknowledged the due execution of the foregoing instrument.
WITNESS my hand and notarial seal, this 7th day of November, 1997.
/s/ Carolyn H. Martin
------------------------------
Notary Public
[NOTARIAL SEAL]
My Commission Expires:
December 22, 2001
- ------------------------
STATE OF NORTH CAROLINA
COUNTY OF MECKLENBURG
This 7th day of November, 1997, personally came before me Paul A.
Stroup, III, who, being by me duly sworn, says that he is President of Lance,
Inc., that the seal affixed to the foregoing instrument in writing is the
corporate seal of said Corporation, and that said writing was signed and sealed
by him, in behalf of said Corporation, by its authority duly given. And the said
Paul A. Stroup, III acknowledged the said writing to be the act and deed of said
Corporation.
/s/ Myrna Chromzck
------------------------------
Notary Public
[NOTARIAL SEAL]
My Commission Expires:
March 19, 1999
- -------------------
11
<PAGE> 1
EXHIBIT 10.17
STATE OF NORTH CAROLINA EXECUTIVE
SEVERANCE AGREEMENT
COUNTY OF MECKLENBURG
THIS AGREEMENT, entered into this _______ day of November, 1997, by and
between Lance, Inc., a North Carolina corporation, hereinafter referred to as
the "Company," and ______________________, hereinafter referred to as
"Executive";
STATEMENT OF PURPOSE
The Board of Directors of the Company has recently authorized a program
(the "New Severance Program") designed to provide certain executives of the
Company with severance benefits upon the termination of their employment with
the Company and its Affiliates under certain circumstances following a Change in
Control of the Company.
In addition to the benefits under the New Severance Program, the
Company desires to provide Executive with certain benefits in the event of
Executive's involuntary termination of employment without cause prior to a
Change in Control.
Therefore, the Company and Executive have entered into (i) a
Compensation and Benefits Assurance Agreement pursuant to the New Severance
Program and (ii) this Agreement which provides Executive certain benefits in the
event of Executive's termination of employment under certain circumstances prior
to a Change in Control.
NOW, THEREFORE, in consideration of the Statement of Purpose and the
terms and provisions of this Agreement, the parties hereto mutually agree as
follows:
1. DEFINITIONS. Capitalized terms used in this Agreement that (i) are
not expressly defined herein and (ii) are defined in the Compensation and
Benefits Assurance Agreement shall have the respective meanings given to those
terms in the Compensation and Benefits Assurance Agreement. In addition, as used
herein, the following terms shall have the following meanings:
(a) "Cause" means:
(i) Executive's failure to devote his best
efforts and substantially full time during
normal business hours to the discharge of
the duties and responsibilities of
Executive's position reasonably assigned to
him, other than during reasonable periods of
vacation and other reasonable leaves of
absence commensurate with Executive's
position and length of service; or
(ii) A material and willful breach of Executive's
fiduciary duties to the Company and its
stockholders; or
<PAGE> 2
(iii) In connection with the discharge of
Executive's duties with the Company, one or
more material acts of fraud or dishonesty or
gross abuse of authority; or
(iv) Executive's commission of any willful act
involving moral turpitude which materially
and adversely affects (A) the name and good
will of the Company or (B) the Company's
relationship with its employees, customers
or suppliers; or
(v) Executive's habitual and intemperate use of
alcohol or drugs to the extent that the same
materially interferes with Executive's
ability to competently, diligently and
substantially perform the duties of his
employment.
(b) "Compensation and Benefits Assurance Agreement" means
that certain Compensation and Benefits Assurance
Agreement between Executive and the Company entered
into on the date hereof.
(c) "Effective Date" means the date of this Agreement.
(d) "Termination Date" means the date of Executive's
Termination of Employment.
2. TERM OF AGREEMENT.
(a) This Agreement will commence on the Effective Date
and shall continue in effect until the third
anniversary of the Effective Date (the "Initial
Term").
(b) The Initial Term of this Agreement automatically
shall be extended for one additional year at the end
of the Initial Term, and then again after each
successive one (1) year period thereafter (each such
one (1) year period following the Initial Term being
hereinafter referred to as a "Successive Period").
However, either party may terminate this Agreement
effective at the end of the Initial Term or at the
end of any Successive Period thereafter (the
"Expiration Date") by giving the other party written
notice of such termination and intent not to renew,
delivered at least one (1) year prior to the
Expiration Date. If such notice is properly delivered
by either party, this Agreement, along with all
corresponding rights, duties, and covenants shall
automatically expire on the Expiration Date.
3. COMPENSATION AND BENEFITS ASSURANCE AGREEMENT. Contemporaneously
herewith, the Company and Executive have entered into the Compensation and
Benefits Assurance Agreement. Notwithstanding anything to the contrary contained
herein, in no event shall any payments or benefits be made to or provided
Executive under the terms of
2
<PAGE> 3
this Agreement if Severance Benefits are payable under the Compensation and
Benefits Assurance Agreement.
4. INVOLUNTARY TERMINATION OF EMPLOYMENT PRIOR TO A CHANGE IN CONTROL.
In the event of Executive's involuntary Termination of Employment without Cause
prior to a Change in Control, the Company agrees to pay to or provide Executive
with the following:
(a) A single cash payment in an amount equal to the sum
of (i) Executive's Base Salary in effect on the
Termination Date plus (ii) the Executive's
then-current target bonus opportunity (stated in
terms of a percentage of Base Salary) established
under the Company's Annual Corporate Performance
Incentive Plan for Officers (or any successor plan
thereto), if any, in effect on the Termination Date,
which payment shall be made within thirty (30) days
after the Termination Date.
(b) A single cash payment in an amount equal to
Executive's unpaid Base Salary, accrued vacation pay,
unreimbursed business expenses, and all other items
earned by and owed to Executive through the
Termination Date.
(c) A single cash payment in an amount equal to the
greater of (i) the Executive's then-current target
bonus opportunity (stated in terms of a percentage of
Base Salary) established under the Company's Annual
Corporate Performance Incentive Plan for Officers (or
any successor plan thereto), if any, for the
incentive plan year in which the Termination Date
occurs, adjusted on a pro-rata basis based on the
number of days Executive was actually employed during
such incentive plan year or (ii) the actual bonus
earned through the Termination Date under the
Company's Annual Corporate Performance Incentive Plan
for Officers (or any successor plan thereto), if any,
based on the then-current level of goal achievement;
which payment shall be made at the same time as the
payments are made to the Company's other employees
under the Company's Annual Corporate Performance
Incentive Plan for Officers (or any successor plan
thereto), if any, for incentive plan year during
which the Termination Date occurs.
(d) Indemnification of Executive from any claims asserted
against Executive arising out of the prior
performance of Executive's duties with the Company or
its Affiliates to the same extent as the Company
indemnifies retired officers or directors of the
Company.
(e) Payment of Executive's vested interest under the
Company sponsored qualified profit sharing and 401(k)
Plans when and as provided in, and otherwise subject
to, the terms, provisions and conditions of said
Plans, and nothing in this Agreement shall modify or
override the terms, provisions and conditions of such
Plans.
3
<PAGE> 4
5. OTHER TERMINATION OF EMPLOYMENT. Except as otherwise expressly
provided to the contrary in the Compensation and Benefits Assurance Agreement,
Executive shall not be entitled to any payments or benefits upon his Termination
of Employment in the following events:
(a) Executive's voluntary Termination of Employment, or
(b) Executive's involuntary Termination of Employment for
Cause, or
(c) Executive's Termination of Employment, whether
voluntary or involuntary, with or without Cause,
following a Change in Control.
6. MITIGATION. In no event shall Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to Executive under any of the provisions of this Agreement, nor shall the amount
of any payment hereunder be reduced by any compensation earned by Executive as a
result of employment by another employer.
7. APPLICABLE LAW. This Agreement is made and executed with the
intention that the construction, interpretation and validity hereof shall be
determined in accordance with and governed by the laws of the State of North
Carolina.
8. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Company, its successors and assigns. This Agreement shall be
binding upon and inure to the benefit of Executive, his heirs, executors and
administrators.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes and
cancels all prior or contemporaneous oral or written agreements and
understandings between them with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its duly authorized officers and its corporate seal to be hereunto affixed,
and Executive has hereunto set his hand and seal, all as of the day and year
first above written.
Lance, Inc.
[CORPORATE SEAL]
ATTEST: By:______________________________
President
- ------------------------------
Secretary
____________________________[SEAL]
4
<PAGE> 1
EXHIBIT 13
1997 ANNUAL REPORT TO STOCKHOLDERS (EXCERPT)
KPMG PEAT MARWICK LLP
Suite 2800
Two First Union Center
Charlotte, NC 28282-8290
Independent Auditors' Report
The Board of Directors and Stockholders
Lance, Inc.:
We have audited the accompanying consolidated balance sheets of Lance, Inc. and
subsidiaries as of December 27, 1997 and December 28, 1996 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the fiscal years in the three-year period ended December 27, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits 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 financial position of Lance, Inc. and its
subsidiaries as of December 27, 1997 and December 28, 1996, and the results of
their operations and their cash flows for each of the fiscal years in the
three-year period ended December 27, 1997 in conformity with generally accepted
accounting principles.
As discussed in Notes 1 and 9 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
during the fiscal year ended December 30, 1995.
February 17, 1998
KPMG PEAT MARWICK LLP
[LOGO] Member Firm of
Kynveld Peat Marwick Goerdeler
13
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
December 27, 1997 and December 28, 1996
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
ASSETS NOTES 1997 1996
===================================================================================================================
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 34,040 $ 29,764
Marketable securities 2 25,430 25,482
Accounts receivable (less allowance for doubtful accounts
of $1,054 in 1997 and $867 in 1996, respectively) 34,057 32,050
Inventories 3 17,882 22,175
Deferred income tax benefit 5 6,913 7,099
Prepaid expenses and other 1,275 1,348
- -------------------------------------------------------------------------------------------------------------------
Total current assets 119,597 117,918
PROPERTY, NET 4,9 130,264 126,193
OTHER 2,879 3,094
===================================================================================================================
TOTAL $ 252,740 $ 247,205
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
===================================================================================================================
CURRENT LIABILITIES:
Accounts payable $ 5,821 $ 7,050
Accrued compensation 13,142 14,636
Accrued for profit-sharing retirement plan 7 5,396 4,543
Accrued income taxes 5 1,072 129
Accrual for insurance claims 4,632 3,899
Other payables and accrued liabilities 7,215 5,491
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 37,278 35,748
- -------------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES AND DEFERRED CREDITS:
Deferred income taxes 5 10,005 6,553
Accrued postretirement health care costs 6 11,180 10,034
Accrual for insurance claims 4,449 6,458
Supplemental retirement benefits 3,306 3,550
- -------------------------------------------------------------------------------------------------------------------
Total other liabilities and deferred credits 28,940 26,595
- -------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY: 7,8
Common stock, $.83 1/3 par value (authorized: 75,000,000
shares; issued and outstanding: 29,923,287 shares in 1997,
29,888,265 shares in 1996) 24,936 24,907
Additional paid in capital 999 -
Unamortized portion of restricted stock awards 7 (488) -
Retained earnings 160,682 159,700
Net unrealized gain on marketable securities 2 393 255
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 186,522 184,862
- -------------------------------------------------------------------------------------------------------------------
TOTAL $ 252,740 $ 247,205
===================================================================================================================
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Fiscal Years Ended December 27, 1997, December 28, 1996 and December 30, 1995
(In thousands, except share and per share data)
1997 1996 1995
NOTES (52 WEEKS) (52 Weeks) (52 Weeks)
======================================================================================================================
<S> <C> <C> <C> <C>
NET SALES AND OTHER OPERATING REVENUE $ 486,854 $ 477,015 $ 480,810
- ----------------------------------------------------------------------------------------------------------------------
COST OF SALES AND OPERATING EXPENSES:
Cost of sales 228,583 232,715 240,624
Selling and delivery 187,047 181,780 191,199
General and administrative 20,649 22,031 18,923
Provisions for profit-sharing retirement plan 7 5,456 4,477 4,849
Loss from restructuring and impairment 9 - - 35,897
- ----------------------------------------------------------------------------------------------------------------------
Total 441,735 441,003 491,492
- ----------------------------------------------------------------------------------------------------------------------
PROFIT (LOSS) FROM OPERATIONS 45,119 36,012 (10,682)
OTHER INCOME, NET (INCLUDING INTEREST
INCOME OF $2,581 IN 1997, $2,221 IN 1996
AND $2,036 IN 1995) 9 3,569 4,768 582
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 48,688 40,780 (10,100)
- ----------------------------------------------------------------------------------------------------------------------
INCOME TAX EXPENSE (BENEFIT): 5
Current 15,044 13,703 13,477
Deferred 3,547 2,485 (16,638)
- ----------------------------------------------------------------------------------------------------------------------
Total 18,591 16,188 (3,161)
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 30,097 $ 24,592 $ (6,939)
======================================================================================================================
SHARE AND PER SHARE INFORMATION: 1
Net income (loss) - basic $ 1.01 $ 0.82 $ (0.23)
=========== =========== ============
Net income (loss) - diluted $ 1.00 $ 0.82 $ (0.23)
=========== =========== ============
Cash dividends $ 0.96 $ 0.96 $ 0.96
=========== =========== ============
Weighted average shares of common stock
outstanding - basic 29,893,000 30,075,000 30,400,000
=========== =========== ============
Weighted average shares of common stock
outstanding - diluted 30,018,000 30,086,000 30,400,000
=========== =========== ============
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 4
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Fiscal Years Ended December 27, 1997, December 28, 1996 and December 30, 1995
(In thousands, except share data)
UNAMORTIZED NET
PORTION OF UNREALIZED
ADDITIONAL RESTRICTED GAIN ON
COMMON PAID-IN STOCK RETAINED MARKETABLE
SHARES STOCK CAPITAL AWARDS EARNINGS SECURITIES TOTAL
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 30,433,407 $25,361 $ - $ - $208,800 $ - $234,161
Net loss - - - - (6,939) - (6,939)
Cash dividends paid to stockholders - - - - (29,183) - (29,183)
Stock options exercised (Note 7) 13,858 12 - - 144 - 156
Retirement of common stock (110,000) (92) - - (1,858) - (1,950)
Net change in unrealized gain on
marketable securities - - - - - 298 298
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 30, 1995 30,337,265 25,281 - - 170,964 298 196,543
Net income - - - - 24,592 - 24,592
Cash dividends paid to stockholders - - - - (28,879) - (28,879)
Retirement of common stock (449,000) (374) - (6,977) - (7,351)
Net change in unrealized gain on
marketable securities - - - - - (43) (43)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 28, 1996 29,888,265 24,907 - - 159,700 255 184,862
Net income - - - - 30,097 30,097
Cash dividends paid to stockholders - - - - (28,699) - (28,699)
Stock options exercised (Note 7) 29,822 25 328 - - - 353
Issuance of restricted stock 30,200 25 671 (488) - - 208
Retirement of common stock (25,000) (21) - (416) - (437)
Net change in unrealized gain on
marketable securities - - - - - 138 138
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 27, 1997 29,923,287 $24,936 $ 999 $ (488) $160,682 $ 393 $186,522
=========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 5
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
For the Fiscal Years Ended December 27, 1997, December 28, 1996 and December 30, 1995
(In thousands)
1997 1996 1995
(52 WEEKS) (52 Weeks) (52 Weeks)
- -------------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 30,097 $ 24,592 $ (6,939)
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Depreciation 20,025 20,295 24,626
(Gain) loss on sale and impairment of property, net (976) (1,953) 30,873
Deferred income taxes 3,638 2,485 (16,637)
Other, net 358 495 4,595
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,007) (2,256) 1,570
Decrease (increase) in refundable income taxes - 4,765 (2,806)
Decrease in inventory 4,293 10,346 6,431
(Increase) decrease in prepaid expenses and other
current assets 73 (438) (311)
Increase (decrease) in accounts payable (1,229) 618 (2,140)
Increase (decrease) in accrued income taxes 943 129 (461)
Increase in other payables and accrued liabilities 704 4,374 9,011
- -------------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 55,919 63,452 47,812
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment (34,129) (19,223) (19,984)
Proceeds from sale of property 11,009 3,689 1,209
Purchases of marketable securities (16,103) (10,276) (9,156)
Maturities of marketable securities 12,125 11,917 3,274
Sales of marketable securities 4,050 4,747 7,436
Other, net (20) 312 (202)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (23,068) (8,834) (17,423)
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Dividends paid (28,699) (28,879) (29,183)
Issuance (purchase) of common stock, net 124 (7,351) (1,794)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (28,575) (36,230) (30,977)
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,276 18,388 (588)
CASH AND CASH EQUIVALENTS AT BEGINNING OF FISCAL YEAR 29,764 11,376 11,964
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF FISCAL YEAR $ 34,040 $ 29,764 $ 11,376
===================================================================================================================
SUPPLEMENTAL INFORMATION:
Cash paid for income taxes $ 14,050 $ 10,829 $ 16,743
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Lance, Inc. (the Company) manufactures and purchases snack foods and bakery
products which are sold and distributed through the Company's own sales
organization to convenience stores, supermarkets, discount stores, restaurants,
and similar establishments, in schools, office buildings, manufacturing plants,
and similar locations through Company vending machines and through distributors
and brokers. Sales are concentrated primarily in the Southeastern and
Midwestern United States. The Company's policy is to recognize a sale at the
time the product is delivered to the customer.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include in consolidation the accounts of
Lance, Inc. and its wholly-owned subsidiaries. All material intercompany items
have been eliminated. Certain 1996 and 1995 amounts shown in the accompanying
consolidated financial statements have been reclassified for consistent
presentation.
USE OF ESTIMATES
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Examples include provisions for bad debts and the useful lives of
buildings and equipment. Actual results may differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts and notes
receivable, marketable securities and accounts payable approximate fair value.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES
Marketable securities at December 27, 1997 are principally instruments of the
U.S. government and its agencies, of state governments, and of municipalities.
Debt and marketable equity securities are classified in one of three
categories: trading, available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling them in
the near term. Held-to-maturity securities are those securities which the
Company has the ability and intent to hold until maturity. All other securities
not included in trading or held-to-maturity are classified as
available-for-sale. All of the Company's marketable securities were classified
as available-for-sale at December 27,1997 and December 28,1996.
Available-for-sale securities are recorded at market value. Unrealized holding
gains and losses, net of the related income tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of stockholders' equity until
18
<PAGE> 7
realized. Dividend and interest income are recognized when earned. Realized
gains and losses for securities classified as available-for-sale are included in
earnings and are derived using the specific identification method for
determining the cost of securities sold.
INVENTORIES AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company's primary raw materials include peanuts, peanut butter, flour and
other similar grain products. Supplies principally consist of packaging
materials including overwrap film and boxes.
Inventories are valued at the lower of cost or market; 78% of the cost of the
inventories in 1997 and 77% in 1996 was determined using the last-in, first-out
(LIFO) method and the remainder was determined using the first-in, first-out
(FIFO) method.
The Company enters into various forward purchase agreements and derivative
financial instruments to reduce the impact of volatility in raw materials
ingredients prices. The Company has only limited involvement with derivative
financial instruments and does not use them for trading purposes. These
transactions meet the requirements for hedge accounting, including designation
to specific inventory amounts and probable future purchases, and high
correlation. Amounts payable or receivable under the agreements are recognized
as deferred gains or losses and included in other assets or liabilities. These
deferred amounts are charged or credited to cost of sales as the related raw
materials are charged to operations.
PROPERTY AND DEPRECIATION
Depreciation is computed over estimated useful lives of depreciable property,
using the straight-line method, generally as follows:
<TABLE>
<S> <C>
Land improvements 20 years
Buildings 20-50 years
Machinery and equipment 5-12 years
Vending machines on location 8 years
Trucks and automobiles 3-9 years
Furniture and fixtures 10 years
</TABLE>
Property is recorded at cost less accumulated depreciation with the exception
of assets held for disposal which are recorded at their estimated fair value.
Upon retirement or disposal of any item of property, the cost is removed from
the property account and the accumulated depreciation applicable to such item
is removed from accumulated depreciation. Major renewals and betterments are
capitalized, maintenance and repairs are expensed as incurred, and gains and
losses on dispositions are reflected in income.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less cost to
sell.
19
<PAGE> 8
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to the taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rate is recognized in income in the
period that includes the enactment date.
INSURANCE CLAIMS
The Company maintains a self-insurance program covering portions of workers'
compensation, automobile and general liability costs. Self-insured accruals are
based on claims filed and an estimate for significant claims incurred but not
reported and are covered by standby letters of credit with the Company's claims
administrators. Claims in excess of the self-insured levels are fully insured.
During the year ended December 30, 1995, the Company modified its assumptions
for future cost increases of incurred but unpaid workers' compensation, auto,
general and product liability insurance claims. The result was a change in
accounting estimate which increased insurance expense by $2,958,000 and reduced
net income and net income per share (diluted) by $1,923,000 and $.06
respectively, in 1995.
POST RETIREMENT PLANS
The Company has a defined benefit health care plan for substantially all
retirees and employees. The Company measures the costs of its obligation based
on its best estimate. The net periodic costs are recognized as employees
perform the services necessary to earn the postretirement benefits.
The Company also provides supplemental retirement benefits to certain officers.
Provision for these benefits, made over the period of employment of such
officers, was $246,000 in 1997, $278,000 in 1996, and $364,000 in 1995.
STOCK OPTION PLANS
On December 31, 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of the Accounting Principles
Board ("APB") Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
20
<PAGE> 9
EARNINGS PER SHARE
On December 27, 1997, the Company adopted SFAS No. 128, "Earnings Per Share"
which redefines the calculation of primary earnings per share ("basic earnings
per share") and requires entities with complex capital structures to present
both basic and diluted earnings per share amounts. In addition, SFAS No. 128
requires entities with complex capital structures to provide a reconciliation
of the numerator and denominator used in computing basic earnings per share to
the numerator and denominator used in computing diluted earnings per share.
The following table provides a reconciliation of the denominator used in
computing basic earnings per share to the denominator used in computing diluted
earnings per share (there were no reconciling items for the numerator amounts
of basic and diluted earnings per share):
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
Weighted average number of common shares
used in computing basic earnings per share 29,893,000 30,075,000 30,400,000
Effect of dilutive stock options 125,000 11,000 -
-------------------------------------------------
Weighted average number of common shares
and dilutive potential common stock used
in computing diluted earnings per share 30,018,000 30,086,000 30,400,000
=================================================
Stock options excluded from the above
reconciliation because they are anti-dilutive 46,000 313,000 453,000
=================================================
</TABLE>
ADVERTISING COSTS
The Company reports the costs of all advertising in the periods in which the
costs are incurred or the first time the advertising takes place, except for
certain direct-response advertising that results in probable and measurable
future economic benefits. Direct-response advertising is to be capitalized and
amortized over its expected period of future benefit. Advertising expense was
$12,630,000, $7,674,000 and $6,577,000 for the fiscal years 1997, 1996 and
1995, respectively.
21
<PAGE> 10
2. MARKETABLE SECURITIES
At December 27, 1997 and December 28, 1996, the Company has classified all
investments as available-for-sale. The amortized cost, gross unrealized holding
gains, gross unrealized holding losses and fair value of the available-for-sale
securities by major security type at December 27, 1997 and December 28, 1996
were as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding
Cost Gains Losses Fair Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At December 27, 1997:
U.S. government agencies $ 5,501 $ 2 $ (7) $ 5,496
Municipal obligations 19,222 146 (6) 19,362
Equity securities 58 518 (4) 572
- ------------------------------------------------------------------------------------------------------------------
Total $ 24,781 $ 666 $ (17) $ 25,430
===================================================================================================================
At December 28, 1996:
U.S. government agencies $ 6,981 $ 11 $ (11) $ 6,981
Municipal obligations 18,023 84 (9) 18,098
Equity securities 58 349 (4) 403
- ------------------------------------------------------------------------------------------------------------------
Total $ 25,062 $ 444 $ (24) $ 25,482
===================================================================================================================
</TABLE>
Maturities of investment securities were as follows at December 27, 1997 (in
thousands):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due within one year $ 3,698 $ 3,706
Due after one year through five years 18,292 18,400
Due after five years through ten years 374 376
Due after ten years through fifteen years 557 562
Due after fifteen years 1,802 1,814
Equity securities 58 572
- -------------------------------------------------------------------------------------------------------------------
Total $24,781 $25,430
===================================================================================================================
</TABLE>
22
<PAGE> 11
3. INVENTORIES
Inventories at December 27, 1997 and December 28, 1996 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $15,047 $14,600
Raw materials 4,133 6,784
Supplies, etc. 3,986 6,978
- -------------------------------------------------------------------------------------------------------------------
Total inventories at FIFO cost 23,166 28,362
Less: Adjustment to reduce FIFO cost to LIFO cost (5,284) (6,187)
- -------------------------------------------------------------------------------------------------------------------
Total inventories $17,882 $22,175
===================================================================================================================
</TABLE>
The Company purchases wheat futures contracts as a hedge against fluctuations
in the cost of processed flour. At December 27, 1997 and December 28, 1996 the
Company owned futures contracts to purchase 140,000 and 170,000 bushels of
wheat totaling $491,000 and $584,000, respectively. These contracts do not
represent a significant quantity of the Company's annual flour usage and are
expected to be realized within one year at no significant gain or loss to the
Company.
4. PROPERTY
Property at December 27, 1997 and December 28, 1996 consisted of (in
thousands):
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and land improvements $ 11,398 $ 11,312
Buildings 62,040 60,905
Machinery and equipment 108,853 98,735
Vending machines on location 84,503 83,981
Trucks and automobiles 28,676 28,101
Furniture and fixtures 3,492 3,409
Assets held for disposal 2,124 10,425
Construction in progress 20,189 9,254
- -------------------------------------------------------------------------------------------------------------------
Total 321,275 306,122
Accumulated depreciation and amortization (191,011) (179,929)
- -------------------------------------------------------------------------------------------------------------------
Property, net $ 130,264 $ 126,193
===================================================================================================================
</TABLE>
23
<PAGE> 12
5. INCOME TAXES
Income tax expense (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $12,433 $11,133 $11,024
State and local 2,611 2,570 2,453
- -------------------------------------------------------------------------------------------------------------------
Total current 15,044 13,703 13,477
- -------------------------------------------------------------------------------------------------------------------
Deferred:
Federal 3,310 2,162 (14,644)
State and local 237 323 (1,994)
- -------------------------------------------------------------------------------------------------------------------
Total deferred 3,547 2,485 (16,638)
- -------------------------------------------------------------------------------------------------------------------
Total income tax expense (benefit) $18,591 $16,188 ($3,161)
===================================================================================================================
</TABLE>
A reconciliation of income taxes computed using the statutory rates to income
tax (benefit) expense follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory income tax rate 35% 35% 35%
Income taxes (benefits) at statutory tax rate $17,040 $14,273 $(3,535)
Increase (decrease) in taxes resulting from:
State and local income taxes,
net of federal income tax benefit 1,801 1,945 298
Tax exempt interest (418) (373) (339)
Other items, net 168 343 415
- -------------------------------------------------------------------------------------------------------------------
Income tax (benefit) expense $18,591 $16,188 ($3,161)
===================================================================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 27, 1997
and December 28, 1996 are presented below (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Reserves for employee compensation and benefits, deductible $11,010 $11,210
when paid for income tax purposes, accrued for financial
reporting purposes
Other reserves deductible when paid for income tax purposes,
accrued for financial reporting purposes 1,684 1,263
Inventories, principally due to additional costs capitalized for
income tax purposes 1,629 1,646
Net state operating loss carryforwards (expiring after 2006) 670 670
- ---------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 14,993 14,789
Less valuation allowance (670) (670)
- ---------------------------------------------------------------------------------------------------------------------
Net deferred tax assets 14,323 14,119
- ---------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation, net of impairment reserves (17,089) (13,411)
Other (326) (162)
- ---------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (17,415) (13,573)
- ---------------------------------------------------------------------------------------------------------------------
Total net deferred tax (liabilities) assets $(3,092) $ 546
=====================================================================================================================
</TABLE>
24
<PAGE> 13
The net deferred tax (liabilities) assets at December 27, 1997 and December 28,
1996 are shown on the accompanying financial statements as follows:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Current deferred tax assets $ 6,913 $ 7,099
Noncurrent deferred tax liabilities (10,005) (6,553)
- -------------------------------------------------------------------------------------------------------------------
Total net deferred tax (liabilities) assets $ (3,092) $ 546
===================================================================================================================
</TABLE>
Based on the Company's historical and current earnings, management believes it
is more likely than not that the Company will realize the benefit of the
remaining deferred tax assets that are not covered by the valuation allowance.
6. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides postretirement medical benefits for retirees and their
spouses to age 65. Retirees pay contributions toward medical coverage based on
the medical plan and coverage they select. The Company's postretirement health
care plan currently is not funded.
The following table presents the plan's accumulated postretirement benefit
obligation reconciled with amounts recognized in the Company's consolidated
balance sheet as of December 27, 1997 and December 28, 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 1,121 $ 1,424
Fully eligible active plan participants 1,233 1,508
Other active plan participants 7,547 8,229
- -------------------------------------------------------------------------------------------------------------------
Total 9,901 11,161
Net unrecognized gain (loss) from past experience
different from that assumed 1,374 (1,024)
Unrecognized prior service cost (95) (103)
- -------------------------------------------------------------------------------------------------------------------
Accrued postretirement health care costs $11,180 $10,034
===================================================================================================================
</TABLE>
Net periodic postretirement benefit cost for each of the fiscal years in the
three-year period ended December 27, 1997 consisted of the following components
(in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits attributed to service
during the year $ 865 $ 714 $ 604
Interest cost on accumulated postretirement
benefit obligation 785 647 619
Amortization of unrecognized loss - 1 -
Amortization of prior service cost 8 8 -
- --------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $1,658 $1,370 $1,223
============================================================================================
</TABLE>
For measurement purposes, a 10.38% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1998; the rate was assumed
to decrease gradually to 5.25% at 2018 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. Increasing the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of December 27, 1997 by $865,000 and the aggregate of the service
and interest cost components of postretirement expense for the year ended
December 27, 1997 by $159,000. The weighted-average discount rate used in
determining the accumulated postretirement benefit obligation was 7.25% at the
beginning of the 1997 fiscal year and 6.75% at the end of the 1997 fiscal year
and was 7.00% at the beginning of the 1996 fiscal year and 7.25% at the end of
the 1996 fiscal year.
25
<PAGE> 14
7. EMPLOYEE BENEFIT PLANS AND STOCK OPTION PLANS
EMPLOYEE PROFIT-SHARING RETIREMENT PLAN
The Company has a retirement plan covering substantially all of its employees.
The plan is a defined contribution retirement plan providing for contributions
equal to 10% of income before taxes. Plan funding is made in accordance with
the provisions of the plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan under which shares of common
stock are purchased on the open market with employee and Company contributions.
The plan provides for the Company to contribute an amount equal to 10% of the
employees' contributions. A total of 800,000 shares of common stock has been
registered under the Securities Act of 1933 for purchase under the plan.
Company contributions amounted to $83,000 in 1997, $106,000 in 1996 and
$122,000 in 1995.
EMPLOYEE STOCK OPTION PLANS
The Company has stock option plans under which 1,466,666 shares of common stock
may be issued to key employees of the Company, as defined in the plans. The
plans authorize the grant of incentive stock options, non-qualified stock
options and stock appreciation rights. The plans require, among other things,
that before the stock options and stock appreciation rights may be exercised,
such key employees must remain in continuous employment of the Company not less
than six months from the date of grant.
Exercised stock options are accounted for through the issuance of previously
retired stock. Granted options generally become exercisable in three or four
installments from six to forty-eight months after date of grant. The option
price, which equals the fair market value of the Company's common stock at the
date of grant, ranges from $15.81 to $24.13 per share.
Activity under the plans for each of the years in the three-year period ended
December 27, 1997 is as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 25, 1994 507,643 $ 20.72
Stock options granted - -
Stock options exercised, including
stock appreciation rights (25,086) 4.81
Stock options expired (8,300) 9.88
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 474,257 21.04
Stock options granted 248,480 15.81
Stock options exercised - -
Stock options expired (188,931) 20.45
- ------------------------------------------------------------------------------------------------------------------
Balance at December 30, 1996 533,806 18.82
Stock options granted 299,400 18.38
Stock options exercised, including
stock appreciation rights (57,752) 17.91
Stock options expired (123,550) 18.84
- ------------------------------------------------------------------------------------------------------------------
Balance at December 27, 1997 651,904 $ 18.31
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 15
NON-EMPLOYEE STOCK OPTION PLANS
In 1995, the Company adopted a Nonqualified Stock Option Plan for Non-Employee
Directors (the Director Plan). The Company has 100,000 shares of common stock
which may be issued to non-employee directors under this plan. The Director
Plan requires among other things that the options are not exercisable unless
the optionee remains available to serve as a director of the Company until the
first anniversary of the date of grant, except that the initial option shall be
exercisable after six months. Options granted under the Director Plan shall
expire ten years from the date of grant. There were 42,500 and 12,500 options
granted during 1997 and 1996, respectively. The option price, which equals the
fair market value of the Company's common stock at the date of grant, was
$18.00 and $15.63 at December 27, 1997 and December 28, 1996.
FAIR VALUE OF STOCK OPTIONS
There were 721,904 options exercisable under all stock option plans at December
27, 1997. The Company applies APB Opinion No. 25 in accounting for its plans
and, accordingly, no compensation cost has been recognized for stock options in
the financial statements. The table below presents the assumptions and
pro-forma net income effect of the options using the Black-Scholes
option-pricing model prescribed under SFAS No. 123.
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted-average:
Expected dividend yield 5.22% 5.30% 5.30%
Risk-free interest rate 7.01% 6.50% 6.40%
Expected life 10 YEARS 8 years 8 years
Volatility 18.60% 25.00% 25.00%
Per share weighted-average fair value of
stock options granted using Black-Scholes
option-pricing model $ 3.10 $ 3.07 $ 3.38
Pro-forma net income (loss) (in thousands) $29,591 $24,449 $ (7,024)
Pro-forma earnings per share - diluted $ 0.99 $ 0.81 $ (0.23)
==================================================================================================================
</TABLE>
RESTRICTED STOCK AWARDS
During 1997 the Company awarded 30,200 shares of common stock to certain
employees under one of its incentive programs, subject to certain vesting and
performance restrictions. Compensation costs associated with these restricted
shares are deferred until earned, at which time the earned portion is charged
against current earnings. The deferred portion of these restricted shares is
included in the accompanying 1997 consolidated balance sheet as unamortized
portion of restricted stock awards.
27
<PAGE> 16
8. COMMITMENTS AND CONTINGENCIES
At December 27, 1997 the Company had an unsecured bank line of credit of
$5,000,000 against which there have been no borrowings. The Company also
maintains standby letters of credit in connection with its self insurance
reserves for casualty claims against which there have been no borrowings.
The Company and its subsidiaries lease certain facilities and equipment under
contracts classified as operating leases. Commitments under leases with terms
extending beyond one year are not material. Rental expense was $4,707,000 in
1997, $4,426,000 in 1996 and $4,481,000 in 1995.
The Company and its subsidiaries have sundry claims and other lawsuits pending
against them and also have certain guarantees which were made in the ordinary
course of business. It is not possible to determine with any certainty the
ultimate liability, if any, of the Company in any of these matters, but in the
opinion of management, their outcome should have no material adverse effect
upon the Company's consolidated financial statements taken as a whole.
9. RESTRUCTURING
During 1995 and 1996 the Company underwent a restructuring of its operations
designed to improve profitability and make it more competitive in the
marketplace. The restructuring plan included the closing of plants in Columbia,
South Carolina and Greenville, Texas resulting in workforce reductions of
approximately 500 employees. Termination benefits, plant closing charges and
other related expenses totaled $6,496,000 and are included as a component of
restructuring and impairment expense in the accompanying 1995 consolidated
statement of income.
In addition, the Company determined that certain buildings and equipment at its
closed facilities were impaired. Fair value of the impaired assets (determined
through third-party appraisals) resulted in impairment losses totaling
$29,368,000. These losses are included as a component of restructuring and
impairment expense in the accompanying 1995 consolidated statement of income.
During 1997 and 1996 the Company sold impaired assets which resulted in gains
of approximately $868,000 and $957,000 respectively. The expected disposal date
of the remaining assets is not presently determinable.
28
<PAGE> 17
10. INTERIM FINANCIAL INFORMATION (UNAUDITED)
A summary of interim financial information follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
1997 Interim Period Ended
--------------------------------------------------------------
March 22 June 14 September 6 December 27
(12 Weeks) (12 Weeks) (12 Weeks) (16 Weeks)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES AND OTHER OPERATING REVENUES $112,803 $118,107 $110,341 $145,603
Cost of sales 54,543 55,428 51,288 67,324
Selling and delivery expenses 43,329 44,785 43,112 55,821
General and administrative expenses 4,533 4,702 4,366 7,048
Provisions for profit-sharing
retirement plan 1,122 1,446 1,247 1,641
- -------------------------------------------------------------------------------------------------------------------
PROFIT FROM OPERATIONS 9,276 11,746 10,328 13,769
Other income, net 730 1,108 780 951
Income taxes 3,858 4,919 4,202 5,612
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $6,148 $7,935 $6,906 $9,108
===================================================================================================================
Net income per common share - basic $ 0.21 $ 0.27 $ 0.23 $ 0.30
Net income per common share - diluted 0.20 0.26 0.23 0.30
Dividends per common share 0.24 0.24 0.24 0.24
</TABLE>
<TABLE>
<CAPTION>
1996 Interim Period Ended
-------------------------------------------------------------
March 23 June 15 September 7 December 28
(12 Weeks) (12 Weeks) (12 Weeks) (16 Weeks)
===================================================================================================================
<S> <C> <C> <C> <C>
NET SALES AND OTHER OPERATING REVENUES $110,604 $112,639 $107,718 $146,054
Cost of sales 55,519 53,544 52,823 70,829
Selling and delivery expenses 42,964 42,852 40,996 54,968
General and administrative expenses 4,300 4,952 4,945 7,834
Provisions for profit-sharing
retirement plan 1,003 1,117 1,013 1,344
===================================================================================================================
PROFIT FROM OPERATIONS 6,818 10,174 7,941 11,079
Other income, net 1,472 737 1,247 1,312
Income taxes 3,199 4,182 3,951 4,856
===================================================================================================================
NET INCOME $ 5,091 $ 6,729 $ 5,237 $ 7,535
===================================================================================================================
Net income per common share - basic $ 0.17 $ 0.22 $ 0.17 $ 0.25
Net income per common share - diluted 0.17 0.22 0.17 0.25
Dividends per common share 0.24 0.24 0.24 0.24
===================================================================================================================
</TABLE>
29
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
During 1997, Lance, Inc. ("the Company" or "Lance") continued the execution of
its strategic plan to increase market share through profitable sales growth.
The Company expanded its advertising, promotion and new product development to
increase its penetration in key distribution channels.
Lance also improved its operating and distribution efficiencies to reduce
costs. The Company sold underperforming assets and reinvested the proceeds to
upgrade manufacturing and distribution systems. These strategies have allowed
Lance to increase revenues and improve operating profitability during the year.
RESULTS OF OPERATIONS, 1997 COMPARED TO 1996
(Amounts in millions)
<TABLE>
<CAPTION>
1997 1996 CHANGE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $486.8 100.0% $477.0 100.0% $9.9 2.1%
- ---------------------------------------------------------------------------------------------------------------------
Cost of sales 228.6 47.0% 232.7 48.8% (4.1) (1.8%)
Selling and delivery costs 187.0 38.4% 181.8 38.1% 5.2 2.9%
General and administrative costs 20.6 4.2% 22.0 4.6% (1.4) (6.4%)
Profit-sharing provisions 5.5 1.1% 4.5 0.9% 1.0 22.2%
- ---------------------------------------------------------------------------------------------------------------------
Total cost of sales and
operating expenses 441.7 90.7% 441.0 92.5% 0.7 0.2%
- ---------------------------------------------------------------------------------------------------------------------
Operating profit 45.1 9.3% 36.0 7.5% 9.1 25.3%
Other income, net 3.6 0.7% 4.8 1.0% (1.2) (25.0%)
Income taxes 18.6 3.8% 16.2 3.4% 2.4 14.8%
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 30.1 6.2% $ 24.6 5.2% $5.5 22.4%
=====================================================================================================================
</TABLE>
REVENUES
Net sales and other operating revenue increased $9.9 million, or 2.1% due to
higher unit volume of Lance branded products and private label goods. The
increased unit volume was a result of expanded advertising and promotional
programs as well as expanded participation in key distribution channels. The
increase in 1997 revenues occurred during the Company's first three quarters
with a slight decrease in the fourth quarter.
COST OF SALES AND OPERATING EXPENSES
Cost of sales of $228.6 million decreased to 47.0% of revenues for 1997,
compared to $232.7 million, or 48.8%, in 1996. This improvement was primarily
due to lower raw materials costs and effective expense control on labor and
overhead items. The cost of sales percentage was also favorably impacted by
improvements in production efficiencies achieved through the Company's
modernization initiatives.
Selling and delivery expenses in 1997 increased $5.2 million in 1997, or 2.9%
over prior year and to 38.4% of revenues. This increase primarily reflects
expanded advertising and media promotion activities to increase market share
for Lance branded products. This increase was partially offset by lower
distribution costs reflecting efficiencies in the route distribution system.
30
<PAGE> 19
General and administrative expenses for 1997 were $1.4 million lower than prior
year. This decrease was due primarily to a reduction in severance provisions
and a reduction in outside consulting fees associated with information systems
implementation.
The provision for profit sharing contributions increased $1.0 million during
1997 due to higher operating profits.
OTHER INCOME AND INCOME TAXES
Other income decreased $1.3 million in 1997 primarily due to a net decrease in
gain on assets sold during the year. Income tax expense as a percentage of
revenues increased from 3.4% in 1996 to 3.8% in 1997 due to the utilization of
loss carryforwards in 1996.
NET INCOME
As a result of the factors discussed above, net income increased $5.5 million
to $30.1 million in 1997.
RESULTS OF OPERATIONS, 1996 COMPARED TO 1995
(Amounts in millions)
<TABLE>
<CAPTION>
1996 1995 CHANGE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $477.0 100.0% $480.8 100.0% $(3.8) (0.8%)
- ---------------------------------------------------------------------------------------------------------------------
Cost of sales 232.7 48.8% 240.6 50.0% (7.9) (3.3%)
Selling and delivery costs 181.8 38.1% 191.2 39.8% (9.4) (4.9%)
General and administrative costs 22.0 4.6% 18.9 3.9% 3.1 16.4%
Profit sharing provisions 4.5 0.9% 4.9 1.0% (0.4) (8.2%)
Restructuring charges - 0.0% 35.9 7.5% (35.9) 100.0%)
- ---------------------------------------------------------------------------------------------------------------------
Total cost of sales and
operating expenses 441.0 92.5% 491.5 102.2% (50.5) (10.3%)
- ---------------------------------------------------------------------------------------------------------------------
Operating profit 36.0 7.5% (10.7) -2.2% 46.7 436.4%
Other income, net 4.8 1.0% 0.6 0.1% 4.2 700.0%
Income taxes 16.2 3.4% (3.2) -0.7% 19.4 606.3%
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 24.6 5.2% $ (6.9) -1.4% $31.5 456.5%
=====================================================================================================================
</TABLE>
REVENUES
Net sales and other operating revenue decreased $3.8 million, or 0.8% due
primarily to route profitability improvement efforts and severe weather during
the first quarter. The revenue decline was partially offset by an increase in
unit volume and prices for the Company's private label products.
COST OF SALES AND OPERATING EXPENSES
Cost of sales of $232.7 million decreased to 48.8% of revenues for 1996,
compared to $240.6 million, or 50.0%, in 1995. This improvement was due largely
to lower labor and overhead costs resulting from the closing of the Texas and
South Carolina production facilities in 1996. The cost of sales percentage was
also favorably impacted by improvements in production efficiencies achieved at
the Iowa and North Carolina facilities.
31
<PAGE> 20
Selling and delivery expenses in 1996 decreased $9.4 million in 1996, or 4.9%
compared to prior year. This reduction reflects improvements in the
effectiveness of Lance's route sales system and vending operations.
General and administrative expenses were $3.1 million higher in 1996. This
increase was due primarily to employee severance and early retirement programs
initiated during the year. Increases in general and administrative costs
attributed to information systems implementation and incentive compensation
provisions were partially offset by costs eliminated through the restructuring
efforts.
The Company's restructuring plan was completed during 1996 with no additional
charges incurred during the year.
The provision for profit-sharing contributions decreased $0.4 million during
1996. The 1995 provision excluded the impact of restructuring and other
one-time charges in determining profitability and also provided for
discretionary contributions. The 1996 provision was determined under the plan
formula.
OTHER INCOME AND INCOME TAXES
Other income increased $4.2 million in 1996 primarily due to the absence of
certain one-time charges recorded in 1995 and gain on impaired assets sold
during the year. Income tax expense increased due to a return to profitability
in 1996.
NET INCOME
As a result of the factors discussed above, net income increased $31.5 million
to $24.6 million in 1996.
IMPACT OF INFLATION AND CHANGING PRICES
The impact of inflation on Lance has lessened in recent years as the rate of
inflation has declined. The effects of rising costs cannot always be passed
along to customers through price increases because of competitive conditions.
The Company attempts to minimize the effects of inflation on its operations
through improvements in operating efficiencies.
YEAR 2000 COMPLIANCE FOR SYSTEMS AND APPLICATIONS
Lance management has initiated a company-wide program to prepare the Company's
computer systems and applications for the year 2000 including an assessment of
compliance of its customers and key vendors. Costs for testing and conversion
of system applications is expected to total approximately $0.5 million to $1.0
million over the next two years. The Company expects to incur internal staff
costs as well as consulting and other expenses related to infrastructure and
facilities enhancements necessary to prepare the systems for the year 2000. A
significant portion of these costs are not likely to be incremental costs to
the Company, but rather will represent the redeployment of existing information
technology resources.
32
<PAGE> 21
FINANCIAL POSITION
LIQUIDITY
In 1997, Lance increased its liquidity by generating an additional $4.2 million
of cash and marketable securities. The Company continues its ability to meet
regular operating needs, capital investment program, cash dividends and stock
repurchases through its cash flow from operations and investments. A
conservative investment strategy of investing in bank paper and government
securities provides ready funds to meet operating, capital and other
requirements. Lance also has a $5 million bank line of credit, which was unused
in 1997. There are no immediate plans for its use in 1998.
CAPITAL RESOURCES
Net cash flow from operations provided $55.9 million in 1997, a decrease of
$6.9 million from 1996. This decrease is attributed to changes in the Company's
operating assets and liabilities during 1997 as follows:
A $2.0 million increase in accounts receivable due to higher sales and
timing of billing cycle,
A $4.3 million decline in inventories reflecting improved inventory
managment and production scheduling,
A $1.2 million decrease in accounts payable due to timing of
disbursements,
A $1.5 million decrease in accrued compensation reflecting reduction of
employee severance,
A $1.8 million increase in accrual for profit sharing and accrued
income taxes due to increased profits,
A $1.3 million decline in the accruals for insurance claims reflecting
the workforce reductions associated with the 1996 plant closings in
Texas and South Carolina,
A net increase of $3.6 million in deferred income taxes due to
utilization of deferred tax assets from the sale of impaired property
and equipment and
A $1.7 million increase in other payables and accrued liabilities due
to timing of disbusrements.
CAPITAL SPENDING
The Company's capital spending totaled $34.1 million in 1997 reflecting a $14.9
million increase over 1996. 1997 capital spending included replacement and
upgrades for production, information systems, transportation and vending
equipment. Sales of underutilized assets, including property and equipment from
the South Carolina and Texas facilities closed in 1996 provided cash proceeds
of $11.0 million in 1997.
Lance plans to continue its investment in facilities and equipment in 1998. At
the end of 1997, commitments for capital expenditures totaled $17.4 million.
Total 1998 capital spending is projected at 50% above 1997 levels. Planned
expenditures include expanding and upgrading the number of vending machines,
upgrading information systems and increased investment in modern production
equipment.
The Company continued its cash dividend at $0.96 per share, which amounted to
$28.7 million in 1997 compared to $28.9 million in 1996. During 1997, Lance
repurchased 25,000 shares of its common stock. On February 17,1998, the Board
of Directors authorized the repurchase of an additional 100,000 shares.
33
<PAGE> 22
FIVE YEAR SUMMARY
Consolidated Financial Highlights
For the Five Fiscal Years Ended December 27, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995* 1994 1993
(52 WEEKS) (52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net sales and other operating
revenue $486,854 $477,015 $480,810 $487,982 $472,786
Loss from restructuring and
impairment - - (35,897) - -
Profit (loss) from operations 45,119 36,012 (10,682) 42,294 47,392
Income (loss) before income taxes 48,688 40,780 (10,100) 42,027 48,507
Income taxes (benefit) 18,591 16,188 (3,161) 17,343 19,531
Net income (loss) 30,097 24,592 (6,939) 26,984 30,798
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 29,893 30,075 30,400 30,774 31,236
PER SHARE OF COMMON STOCK:
Profit (loss) from operations - basic $ 1.51 1.12 $ (0.43) $ 1.30 $ 1.45
Profit (loss) from operations - diluted $ 1.50 1.12 $ (0.43) $ 1.30 $ 1.44
Net income (loss) - basic 1.01 0.82 (0.23) 0.88 0.99
Net income (loss) - diluted 1.00 0.82 (0.23) 0.88 0.98
Cash dividends 0.96 0.96 0.96 0.96 0.96
FINANCIAL STATUS AT YEAR-END:
Total assets $252,740 $247,205 $251,345 $296,996 $308,474
</TABLE>
* 1995 financial data reflects the effect of restructuring and other one-time
charges
MARKET AND DIVIDEND INFORMATION
The Company had 4,903 stockholders of record at February 20, 1998.
The $.83-1/3 par value Common Stock of Lance, Inc. is traded in the
over-the-counter market under the symbol LNCE and transactions are reported on
The Nasdaq Stock Market. The following table sets forth the high and low sales
prices and dividends paid during the interim periods in fiscal years 1997 and
1996.
<TABLE>
<CAPTION>
1997 INTERIM
HIGH LOW DIVIDENDS
PERIODS PRICE PRICE PAID
------- ------- -------- ------
<S> <C> <C> <C>
First............................................... $19 3/4 $17 1/4 $ 0.24
Second.............................................. 20 1/2 17 1/2 0.24
Third............................................... 22 3/4 18 5/8 0.24
Fourth.............................................. 26 1/2 20 1/4 0.24
1996 INTERIM
HIGH LOW DIVIDENDS
PERIODS PRICE PRICE PAID
------- ------- --------- ------
First............................................... $18 1/8 $15 3/8 $ 0.24
Second.............................................. 17 1/4 15 3/16 0.24
Third............................................... 17 1/2 16 1/8 0.24
Fourth.............................................. 18 7/8 17 0.24
</TABLE>
34
<PAGE> 1
EXHIBIT 21
LIST OF THE SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name of Subsidiary (1) State of Incorporation
- ------------------ ----------------------
<S> <C>
Caronuts, Inc. North Carolina
Vista Bakery, Inc. North Carolina
South MECKCA, LLC Delaware
West MECKCA, LLC Delaware
Norbehouse, LP(2) Delaware
HSW Mortgage Corp.(3) North Carolina
</TABLE>
- --------------------------
(1) Each subsidiary does business under only its corporate name.
(2) Subsidiary of South MECKCA, LLC and West MECKCA, LLC.
(3) Subsidiary of Norbehouse, L.P.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Lance, Inc.
We consent to incorporation by reference in Registration Statements No. 2-77150,
No. 2-88540, No. 33-41866, No. 33-58839 and No. 333-25539 of Lance, Inc. on Form
S-8 of our report dated February 17, 1998 relating to the consolidated balance
sheets of Lance, Inc. and subsidiaries as of December 27, 1997 and December 28,
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the fiscal years in the three-year period ended
December 27, 1997, which report is incorporated by reference in the December 27,
1997 annual report on Form 10-K of Lance, Inc.
Our report refers to the adoption of the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards (SFAS) No. 121
"Accounting for the Impairment of Long-lived Assets and Long-lived Assets to be
Disposed Of" during the fiscal year ended December 30, 1995.
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LANCE, INC. FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 27,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> DEC-27-1997
<CASH> 34,040
<SECURITIES> 25,430
<RECEIVABLES> 35,111
<ALLOWANCES> 1,054
<INVENTORY> 17,882
<CURRENT-ASSETS> 119,597
<PP&E> 321,275
<DEPRECIATION> 191,011
<TOTAL-ASSETS> 252,740
<CURRENT-LIABILITIES> 37,278
<BONDS> 0
0
0
<COMMON> 24,936
<OTHER-SE> 161,586
<TOTAL-LIABILITY-AND-EQUITY> 252,740
<SALES> 486,854
<TOTAL-REVENUES> 486,854
<CGS> 228,583
<TOTAL-COSTS> 441,735
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 48,688
<INCOME-TAX> 18,591
<INCOME-CONTINUING> 30,097
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,097
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LANCE, INC. FOR THE TWELVE WEEKS ENDED MARCH 22, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-22-1997
<CASH> 31,211
<SECURITIES> 26,839
<RECEIVABLES> 32,662
<ALLOWANCES> 607
<INVENTORY> 22,387
<CURRENT-ASSETS> 121,527
<PP&E> 315,474
<DEPRECIATION> 196,797
<TOTAL-ASSETS> 246,444
<CURRENT-LIABILITIES> 32,719
<BONDS> 0
0
0
<COMMON> 24,888
<OTHER-SE> 158,670
<TOTAL-LIABILITY-AND-EQUITY> 246,444
<SALES> 112,096
<TOTAL-REVENUES> 112,096
<CGS> 54,543
<TOTAL-COSTS> 102,817
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,006
<INCOME-TAX> 3,858
<INCOME-CONTINUING> 6,148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,148
<EPS-PRIMARY> .21
<EPS-DILUTED> .20<F1>
<FN>
<F1>THIS SCHEDULE REFLECTS A RESTATEMENT OF EARNINGS PER SHARE DUE TO THE ADOPTION
OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE",
WHICH WAS ADOPTED BY LANCE, INC. AND SUBSIDIARIES EFFECTIVE DECEMBER 27, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LANCE, INC. FOR THE TWENTY-FOUR WEEKS ENDED JUNE 14,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUN-14-1997
<CASH> 33,395
<SECURITIES> 26,433
<RECEIVABLES> 35,527
<ALLOWANCES> 1,057
<INVENTORY> 19,873
<CURRENT-ASSETS> 122,504
<PP&E> 321,216
<DEPRECIATION> 196,049
<TOTAL-ASSETS> 253,123
<CURRENT-LIABILITIES> 39,624
<BONDS> 0
0
0
<COMMON> 24,914
<OTHER-SE> 159,289
<TOTAL-LIABILITY-AND-EQUITY> 253,153
<SALES> 230,910
<TOTAL-REVENUES> 230,910
<CGS> 109,971
<TOTAL-COSTS> 209,888
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 22,860
<INCOME-TAX> 8,777
<INCOME-CONTINUING> 14,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,083
<EPS-PRIMARY> .47
<EPS-DILUTED> .46<F1>
<FN>
<F1>THIS SCHEDULE REFLECTS A RESTATEMENT OF EARNINGS PER SHARE DUE TO THE ADOPTION
OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE",
WHICH WAS ADOPTED BY LANCE, INC. AND SUBSIDIARIES EFFECTIVE DECEMBER 27, 1997.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99
CAUTIONARY STATEMENT UNDER SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Lance, Inc. (the Company), from time to time, makes "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements, which may be written or oral, reflect expectations of
management of the Company at the time such statements are made. The Company is
filing this cautionary statement to identify certain important factors that
could cause the Company's actual results to differ materially from those in any
forward-looking statements made by or on behalf of the Company.
PRICE COMPETITION AND CONSOLIDATION
The sales of most of the Company's products are subject to intense
competition primarily through discounting and other price cutting techniques by
competitors, many of whom are significantly larger and have greater resources
than the Company. In addition, there is a continuing consolidation by the major
companies in the snack food industry which could increase competition.
RAW MATERIALS
The Company's cost of sales can be adversely impacted by changes in the
cost of raw materials, principally flour, peanuts and peanut butter. While the
Company obtains substantial commitments for the future delivery of certain of
its raw materials and engages in limited hedging to reduce the price risk of
these raw materials, continuing long-term increases in the costs of raw
materials could adversely impact the Company's cost of sales.
SALES GROWTH
The Company's plans for profitable sales growth depend upon the ability
of the Company to develop and execute effective marketing and sales strategies
for its products.
There are other important factors not described above which could also
cause actual results to differ materially from those in any forward-looking
statement made by or on behalf of the Company.
