UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 7, 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 0-7277
WSMP, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0945643
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
CLAREMONT, NORTH CAROLINA 28610
(Address of principal executive offices) (Zip Code)
(704)459-7626
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 19, 1997
Common Stock, $1.00 par value 3,498,859
WSMP, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
Part I. Financial Information:
----------------------------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
November 7, 1997 and February 28, 1997............ 1-2
Consolidated Condensed Statements of
Operations and Retained Earnings -
Twelve Weeks Ended November 7, 1997
and November 1, 1996 and Thirty-six Weeks
Ended November 7, 1997 and November 1, 1996....... 3-4
Consolidated Condensed Statements of Cash
Flows - Thirty-six Weeks Ended November 7,
1997 and November 1, 1996......................... 5
Notes to Consolidated Condensed Financial
Statements........................................ 6-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.. 10-14
Part II. Other Information:
------------------------------
Item 6. Exhibits and Reports on Form 8-K......... 15
Signatures........................................ 15
Index to Exhibits................................. 16
Exhibit 11 - Computation of Earnings per
Common and Common Equivalent Share............... 17
Exhibit 99(a) - WSMP, Inc. and HERTH Management,
Inc. Extension Agreement......................... 18-20
Exhibit 99(b) - Richardson Change of Control
Agreement........................................ 21-29
Exhibit 99(c) - Howard Change of Control
Agreement........................................ 30-38
Exhibit 99(d) - Clark Change of Control
Agreement........................................ 39-47
Exhibit 99(e) - Templeton Change of Control
Agreement........................................ 48-56
Exhibit 99(f) - Hefner Change of Control
Agreement........................................ 57-65
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WSMP, INC. AND SUBSIDIARIES
- ----------------------------------------------------------
Consolidated Condensed Balance Sheets
(Unaudited)
November 7, February 28,
ASSETS 1997 1997
- ------ ----------- -----------
Current assets:
Cash and cash equivalents $ 828,201 $ 2,424,982
Marketable equity securities 191,592 171,910
Accounts receivable, net:
Trade and other 5,648,739 3,206,256
Related party 165,087 254,744
Current portion of notes receivable, net:
Related party 472,602 563,644
Other 543,515 409,996
Inventories 7,816,408 6,210,990
Prepaid expenses and other 442,540 371,267
Deferred income taxes 421,576 454,259
----------- -----------
Total current assets 16,530,260 14,068,048
----------- -----------
Property, plant and equipment, net 23,054,518 22,952,785
----------- -----------
Other assets:
Properties held for sale 1,680,993 3,277,670
Excess of cost over fair value of net assets
of businesses acquired, net 2,967,689 628,186
Covenant not to compete 847,731
Noncurrent notes receivable 570,747 470,345
Noncurrent related party notes receivable 1,558,399 963,117
Investment in affiliates 374,533
Other 360,938 391,916
----------- -----------
Total other assets 7,986,497 6,105,767
----------- -----------
Total assets $47,571,275 $43,126,600
=========== ===========
(Unaudited)
November 7, February 28,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1997
- ------------------------------------ ----------- -----------
Current liabilities:
Notes payable $ 4,012,162 $ 4,027,776
Current installments of long-term debt 1,531,868 1,297,792
Trade accounts payable 3,037,401 2,879,309
Other accrued liabilities 3,435,969 2,962,471
----------- -----------
Total current liabilities 12,017,400 11,167,348
Deferred income taxes 1,198,854 1,247,504
Long-term debt, excluding current installments 10,454,334 12,422,150
----------- -----------
Total liabilities 23,670,588 24,837,002
----------- -----------
Commitments and Contingencies
Shareholders' equity:
Preferred stock - par value $.10, authorized
2,500,000 shares; no shares issued
Common stock - par value $1, authorized
10,000,000 shares; issued 3,373,859 shares
at November 7, 1997 and 2,919,088 shares
at February 28, 1997 3,373,859 2,919,088
Capital in excess of par value 10,775,911 7,141,097
Unrealized gain on securities available
for sale 19,299 10,059
Retained earnings 9,731,618 8,219,354
----------- -----------
Total shareholders' equity 23,900,687 18,289,598
----------- -----------
Total liabilities and shareholders' equity $47,571,275 $43,126,600
=========== ===========
WSMP, INC. AND SUBSIDIARIES
- ----------------------------------------------------------
Consolidated Condensed Statements of Operations and Retained Earnings
Twelve Weeks Ended November 7, 1997 and November 1, 1996
(Unaudited)
1997 1996
----------- -----------
Operating revenues:
Food sales $23,321,903 $20,009,711
Franchise, royalty and other fees (includes
related party transactions totaling $51,410
in 1997 and $190,895 in 1996) 420,985 578,311
----------- -----------
Total operating revenues 23,742,888 20,588,022
----------- -----------
Costs and expenses:
Cost of goods sold (includes related party
transactions totaling $109,827 in 1997 and
$125,677 in 1996) 15,920,141 15,065,992
Operating expenses (includes related party
transactions totaling $297,070 in 1997 and
$92,568 in 1996) 4,101,920 2,776,643
Selling, general and administrative expenses
(includes related party transactions totaling
$396,491 in 1997 and $420,096 in 1996) 2,190,475 1,665,285
Depreciation and amortization 753,432 595,344
----------- -----------
Total costs and expenses 22,965,968 20,103,264
----------- -----------
Operating income 776,920 484,758
----------- -----------
Other income (expense):
Other income (includes interest and related
party transactions totaling $38,258 in 1997
and $22,335 in 1996) 161,362 156,949
Net gain on dispositions and write-
downs of assets (includes related party
transactions totaling $365,781 in 1997 and
$251,408 in 1996) 533,079 257,380
Equity in loss of affiliates (18,000) (10,500)
Interest expense (includes related party
transactions totaling $45,489 in 1997 and
$6,245 in 1996) (341,338) (451,749)
Other expense (includes related party trans-
actions totaling $30,595 in 1997 and $16,126
in 1996) (140,601) (147,781)
----------- -----------
Net other income (expense) 194,502 (195,701)
----------- -----------
Earnings before income tax 971,422 289,057
Provision for income tax 354,569 110,652
----------- -----------
Net earnings $ 616,853 $ 178,405
=========== ===========
Retained earnings:
Balance at beginning of period $ 9,114,765 $ 7,345,288
Net earnings 616,853 178,405
----------- -----------
Balance at end of period $ 9,731,618 $ 7,523,693
=========== ===========
Net earnings per common and common
equivalent share $ .16 $ .06
=========== ===========
See accompanying notes to unaudited consolidated condensed financial statements.
WSMP, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations and Retained Earnings
Thirty-six Weeks Ended November 7, 1997 and November 1, 1996
(Unaudited)
1997 1996
----------- -----------
Operating revenues:
Food sales $75,171,911 $58,474,782
Franchise, royalty and other fees (includes
related party transactions totaling $212,945
in 1997 and $634,388 in 1996) 1,349,889 1,855,748
----------- -----------
Total operating revenues 76,521,800 60,330,530
----------- -----------
Costs and expenses:
Cost of goods sold (includes related party
transactions totaling $318,945 in 1997 and
$396,380 in 1996) 52,355,204 43,553,248
Operating expenses (includes related party
transactions totaling $881,597 in 1997 and
$496,532 in 1996) 12,826,558 8,388,051
Selling, general and administrative expenses
(includes related party transactions totaling
$1,249,947 in 1997 and $1,345,079 in 1996) 6,450,900 5,062,188
Depreciation and amortization 2,170,482 1,779,179
----------- -----------
Total costs and expenses 73,803,144 58,782,666
----------- -----------
Operating income 2,718,656 1,547,864
----------- -----------
Other income (expense):
Other income (including interest) (includes
related party transactions totaling $100,975
in 1997 and $152,054 in 1996) 561,371 798,440
Net gain on dispositions and write-
downs of assets (includes related party
transaction totaling $477,299 in 1997 and
$251,408 in 1996) 553,566 257,530
Equity in loss of affiliates (14,000) (95,000)
Interest expense (includes related party
transactions totaling $79,454 in 1997 and
$24,193 in 1996) (1,079,965) (1,285,376)
Other expense (includes related party trans-
actions totaling $95,159 in 1997 and
$46,682 in 1996) (358,110) (530,090)
----------- -----------
Net other expense (337,138) (854,496)
----------- -----------
Earnings before income tax 2,381,518 693,368
Provision for income tax 869,254 268,333
----------- -----------
Net earnings $ 1,512,264 $ 425,035
=========== ===========
Retained earnings:
Balance at beginning of period $ 8,219,354 $ 7,098,658
Net earnings 1,512,264 425,035
----------- -----------
Balance at end of period $ 9,731,618 $ 7,523,693
=========== ===========
Net earnings per common and common
equivalent share $ .40 $ .14
=========== ===========
See accompanying notes to unaudited consolidated condensed financial statements.
WSMP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Condensed Statements of Cash Flows
Thirty-six Weeks Ended November 7, 1997 and November 1, 1996
(Unaudited)
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,512,264 $ 425,035
----------- -----------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,170,482 1,779,180
Depreciation on properties leased to others 154,841 194,668
Increase in deferred income taxes, net (21,501) (18,284)
Provision for losses on receivables 19,244 178,883
Net gain on disposition of assets (net of write-downs) (553,566) (257,530)
Other non-cash adjustments to earnings 619,482 115,978
Changes in operating assets and liabilities (net of
effects from purchase of restaurant companies)
providing (using) cash:
Receivables (2,452,990) (1,262,187)
Inventories (1,485,366) (891,603)
Income taxes refundable, prepaid expenses and other (42,542) 141,304
Trade accounts payable and other accrued liabilities 392,246 687,334
----------- -----------
Total adjustments (1,199,670) 667,743
----------- -----------
Net cash provided by operating activities 312,594 1,092,778
----------- -----------
Cash flows from investing activities:
Increase in marketable equity securities (4,908) (3,508)
Proceeds from sales of assets to others 2,164,064 215,037
Proceeds from sales of assets to related parties 950,000 785,000
Decrease in related party notes receivables 179,452 176,460
Decrease in other notes receivable 396,953 319,030
Deposits, net of refunds 4,868 (14,887)
Capital expenditures to related parties (342,851) (289,131)
Capital expenditures - others (2,645,201) (777,673)
----------- -----------
Net cash provided by investing activities 702,377 410,328
----------- -----------
Cash flows from financing activities:
Principal payments on long-term debt (3,092,338) (1,657,017)
Net payments under short-term borrowing agreements (15,614)
Proceeds from exercise of stock options 496,200
----------- -----------
Net cash used in financing activities (2,611,752) (1,657,017)
----------- -----------
Net decrease in cash and cash equivalents (1,596,781) (153,911)
Cash and cash equivalents at beginning of period 2,424,982 430,311
----------- -----------
Cash and cash equivalents at end of period $ 828,201 $ 276,400
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
WSMP, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to present
fairly the financial position as of November 7, 1997 and February 28, 1997,
the results of operations for the fiscal quarters and thirty-six weeks ended
November 7, 1997 and November 1, 1996 and the cash flows for the thirty-six
weeks ended November 7, 1997 and November 1, 1996.
2. The results of operations for the fiscal quarters and thirty-six weeks ended
November 7, 1997 and November 1, 1996 are not necessarily indicative of the
results to be expected for the full year.
3. Financial statements for fiscal 1997 have been reclassified, where
applicable, to conform to financial statement presentation used in fiscal
1998.
4. Earnings per share is based on the weighted average number of
common shares and dilutive common equivalent shares outstanding during each
fiscal period. Common equivalent shares relate to outstanding stock
options. The weighted average number of shares used in the calculation are
3,752,632 and 3,023,596 for the thirty-six weeks ended in 1997 and 1996,
respectively. The weighted average number of shares used in the calculation
for the third fiscal quarter ended in 1997 and 1996, are 3,808,286 and
3,114,571, respectively.
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128) was issued to simplify the standards for
computing earnings per share (EPS) and make them comparable to international
EPS standards. SFAS 128 is effective for periods ending after December 15,
1997 and cannot be adopted at an earlier date. SFAS 128 will require dual
presentation of basic and diluted EPS on the face of the statement of
current earnings and a reconciliation of the components of the basic and
diluted EPS calculations in the notes to the financial statements. Basic
EPS excludes dilution and is computed by dividing net earnings by the
weighted-average number of common shares outstanding for the period.
Diluted EPS is similar to fully diluted EPS pursuant to Accounting Princi-
ples Board (APB) Opinion No. 15. The Company will adopt SFAS 128 in the
quarter and year ending February 27, 1998. Had the new standard been
applied in the quarter ended November 7, 1997, diluted EPS would have been
the same as primary EPS under APB Opinion No. 15.
Basic EPS would have been as follows:
Twelve Weeks Ended Thirty-six Weeks Ended
------------------------- -------------------------
November 7, November 1, November 7, November 1,
1997 1996 1997 1996
----------- ----------- ----------- -----------
Basic EPS .19 .06 .47 .15
=========== =========== =========== ===========
Weighted Average
Number of Common
Shares Outstanding 3,242,549 2,760,338 3,242,055 2,760,338
=========== =========== =========== ===========
5. The Company reports the results of its operations using a 52-53 week basis.
In line with this, reports for interim fiscal periods are prepared on the
basis of 12-12-12-16 week periods. The Company follows this policy
consistently.
6. A summary of inventories entering into cost of goods sold is:
<TABLE>
<CAPTION>
November 7, February 28, November 1, February 23,
1997 1997 1996 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Hams in curing process $ 1,248,506 $ 1,734,178 $ 1,655,574 $ 1,326,420
Other food (includes cured hams) 5,063,877 2,716,670 3,089,247 2,818,418
Supplies 1,504,025 1,760,142 1,700,423 1,408,803
----------- ----------- ----------- -----------
Totals $ 7,816,408 $ 6,210,990 $ 6,445,244 $ 5,553,641
=========== =========== =========== ===========
</TABLE>
7. The Company has certain debt obligations that contain restrictive covenants.
The Company was in compliance with these covenants at November 7, 1997.
8. The Company has guaranteed loan obligations of two of its franchisees in an
amount not to exceed $612,000. The loans are secured by certain restaurant
equipment and restaurant real estate purchased by the franchisees.
9. Supplemental cash flow disclosures - cash paid during the period for:
Thirty-six Weeks Ended
-------------------------
November 7, November 1,
1997 1996
----------- -----------
Interest $ 939,313 $ 1,143,289
=========== ===========
Income taxes $ 260,595 $ 14,666
=========== ===========
During the first quarter of fiscal 1998, the Company purchased fixed assets,
goodwill and inventories of certain commonly controlled franchised units in
exchange for cash, the assumption of current and long-term liabilities, the
issuance of long-term notes, and the forgiveness of a note receivable.
Also, as part of the same transaction, the Company issued 98,750 shares of
common stock in exchange for a non-competition agreement. Specific amounts
relating to items purchased and consideration given are set forth in Note
10.
During fiscal 1998, the Company sold its investment in two affiliated
companies, accounted for under the equity method, for cash totaling $150,000
and notes receivables totaling $295,450.
The Company acquired machinery and equipment totaling $81,877 through
capital leases and the issuance of notes payable during fiscal 1998.
During fiscal 1998, the Company issued 1,380 common shares to employees
under its services award program. The fair value of the stock issued and
the related expense recorded totaled $21,616.
Accounts receivable totaling $84,494 and $53,595 were converted to notes
receivable in fiscal 1998 and fiscal 1997, respectively.
The company received notes receivable totaling $1,110,000 from the sale of
property, plant and equipment in fiscal 1998.
During fiscal 1997, the Company purchased a restaurant property by
exchanging land with a book value of $260,236 and assuming a note payable
in the amount of $527,695.
10. On March 1, 1997, the Company acquired fourteen franchised restaurants from
various corporations predominantly owned by a former executive officer of
the Company for a total purchase price of $3,767,500 payable as follows:
$500 in cash; $352,780 in assumed current liabilities; $476,720 in assumed
long-term liabilities; $125,000 in forgiveness of a note receivable from
seller; $2,012,500 in common stock of the Company; and a two year 5% promis-
sory note in the amount of $800,000. As part of this transaction, 223,611
shares of common stock were issued to the selling corporations. In
addition, costs associated with the acquisition totaling $64,707 were
capitalized as part of the transaction. The acquisition price is allocated
as follows: $1,203,413 to fixed assets, $2,477,481 to excess of cost over
fair value of net assets of businesses acquired and $151,313 to restaurant
inventories.
In addition, existing lease agreements for eleven of the restaurant
properties were assigned to the Company. Also the Company signed new lease
agreements on the remaining three properties which are classified as
operating leases.
Also as part of this transaction, the former executive officer, who was
also the single largest franchisee, entered into a fifteen-year non-
competition agreement with the Company in exchange for 98,750 shares of
common stock valued at $888,750. These shares are restricted securities and
their resale is subject to certain conditions.
11. On August 28, 1997, the board of directors declared a dividend of
preferred stock purchase rights and designated a series of the already
authorized and unissued preferred stock as being issuable upon exercise of
the rights. The preferred stock purchase rights were distributed to common
stock shareholders of record on September 10, 1997, and will expire on
September 10, 2007, unless redeemed earlier at $.001 right.
The rights are designed to make it more likely that all of the Company's
shareholders receive fair and equal treatment in the event of any proposed
takeover of the Company and to guard against the use of coercive tactics to
gain control of the Company. The rights also provide protection against a
controlling shareholder taking advantage of its position by engaging in
transactions for its benefit to the detriment of other shareholders.
12. HERTH Management, Inc. provides management services to WSMP, Inc., under a
contract approved by the shareholders at their 1995 annual meeting. Under
the terms of the contract, which was originally scheduled to expire in 1999,
HERTH receives annual compensation of $1.5 million and in exchange, provides
the management services of four senior executive officers, including the
Chairman, Chief Executive Officer, and President of the Company. On August
28, 1997, the board of directors extended this contract until 2002.
13. On August 29, 1997, the Company entered into a Change of Control Agreement
with five senior executive officers. The agreement provides these officers
with certain benefits if a change in control occurs (as defined). Payments
under the agreement are payable upon a change in control, whether or not
employment is terminated. The terms of each agreement is ten years unless
it earlier expires upon termination of the executives employment.
14. On November 14, 1997, WSMP, Inc. and Sagebrush, Inc., signed a definitive
agreement whereby WSMP would acquire Sagebrush in a stock-for-stock merger
of the two companies in a transaction to be accounted for as a pooling of
interest. Under the agreement and plan of merger, the exchange ratio is
.3214 shares of WSMP common stock for each share of Sagebrush common stock.
The exchange ratio will be subject to adjustment in the event that the
average closing price per share of the WSMP common stock for a designated
10-day period prior to the merger is less than $21.78 or greater than
$23.34. The adjustment factor is designed to assure that the market value
of the WSMP common stock (determined based upon such average closing price)
exchanged for each share of Sagebrush common stock is not less than $7.00
nor more than $7.50 per share of Sagebrush common stock.
As part of the negotiations leading to the execution of the definitive
agreement, the parties negotiated an Employment and Non-Competition Agree-
ment with Sagebrush President L. Dent Miller and a Consulting and Non-
Competition Agreement with Sagebrush Chairman Charles F. Connor, Jr.
Miller and Connor also agreed that each would vote the Sagebrush shares
they own or control in favor of the merger.
The merger remains subject to customary closing conditions, including
approval of the merger by the shareholders of both WSMP and Sagebrush. WSMP
and Sagebrush will prepare a joint proxy statement and prospectus in
connection with the meetings of their shareholders, and the WSMP common
stock to be issued in the merger will be offered only by means of such joint
proxy statement and prospectus. Shareholders meetings are anticipated to
occur in late January and the merger, if approved, will be consummated
promptly thereafter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth for the periods indicated percentages which
certain items reflected in the financial data bear to operating revenue of the
Company:
<TABLE>
<CAPTION>
Relationship to Total Operating Revenue
-----------------------------------------------------
Twelve Weeks Ended Thirty-six Weeks Ended
------------------------- -------------------------
November 7, November 1, November 7, November 1,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Restaurant food sales 36.9% 30.1% 36.5% 30.8%
Food processing sales 61.4 67.1 61.7 66.2
Franchise, royalty and other fees 1.7 2.8 1.8 3.0
--------- --------- --------- ---------
Total operating revenue 100.0 100.0 100.0 100.0
Cost of goods sold 67.1 73.2 68.4 72.2
Operating expenses 17.3 13.5 16.8 13.9
Selling, general and administrative
expenses 9.2 8.1 8.4 8.5
Depreciation and amortization 3.1 2.9 2.8 2.9
--------- --------- --------- ---------
Total operating income 3.3 2.3 3.6 2.5
Net other income (expenses) .8 (.9) (.5) (1.4)
--------- --------- --------- ---------
Earnings before income tax 4.1 1.4 3.1 1.1
Provision for income tax 1.5 .5 1.1 .4
--------- --------- --------- ---------
Net earnings 2.6% .9% 2.0% .7%
========= ========= ========= =========
</TABLE>
The Company operates in three principal lines of business. Segment information
is presented as follows:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
----------------------------------- -----------------------------------
November 7, 1997 November 1, 1996 November 7, 1997 November 1, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Operating Revenues:
- -------------------
Food processing sales $ 14,568,648 $ 13,817,910 $ 47,218,487 $ 39,922,343
Restaurant food sales 8,753,255 6,191,801 27,953,424 18,552,439
Franchise, royalty and
other fees 420,985 578,311 1,349,889 1,855,748
------------ ------------ ------------ ------------
Total operating revenues $ 23,742,888 $ 20,588,022 $ 76,521,800 $ 60,330,530
============ ============ ============ ============
Operating Profits:
- ------------------
Food processing $ 1,195,570 $ 375,390 $ 2,813,609 $ 1,271,627
Restaurant operations 514,981 736,522 2,416,606 2,117,117
Restaurant franchising 303,301 324,227 939,987 1,078,494
Corporate expenses (1,236,932) (951,381) (3,451,546) (2,919,374)
------------ ------------ ------------ ------------
Operating Income 776,920 484,758 2,718,656 1,547,864
Other income (expense) 535,840 256,048 742,827 430,880
Interest expense (341,338) (451,749) (1,079,965) (1,285,376)
------------ ------------ ------------ ------------
Earnings before income tax $ 971,422 $ 289,057 $ 2,381,518 $ 693,368
============ ============ ============ ============
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
Third Quarter Ended November 7, 1997 Compared With Third Quarter Ended
November 1, 1996
- ----------------------------------------------------------------------
Revenues
--------
Restaurant Revenues: Restaurant food sales increased $2.6 million, or 41%, to
$8.8 million during the third quarter of fiscal 1998, compared to the third
quarter of fiscal 1997. Food sales increased $2.9 million due to a net
increase in the number of company owned units from nineteen at the end of the
third quarter of fiscal 1997 to thirty-two at the end of the current year
third quarter. This increase in number of units reflects the acquisition of
thirteen Western Steer restaurants and one Prime Sirloin restaurant on
March 1, 1997 from the single largest franchisee of the Company. These units
were acquired primarily through the issuance of stock and the assumption of
certain liabilities in a transaction accounted for under the purchase method
of accounting (see Note 10). In addition, the Company purchased three other
Western Steer units during the first quarter of the current fiscal year from
other franchise operators. Sales increases resulting from units added through
these acquisitions were offset by the closing of one unit during the final
quarter of fiscal 1997, as well as the closing of three units during the first
nine months of the current fiscal year. In addition, same store sales declined
approximately $325,000, or 6.5%, primarily due to new competition entering
certain existing markets.
Food Processing Revenues: Revenues from the food processing segment increased
$751,000, or 5.4%, during the third quarter of fiscal 1998 over the comparable
period of fiscal 1997. This increase occurred in the prepared foods division,
which showed an increase of $1.1 million, and was primarily driven by increased
demand from a significant customer. This division produces and packages fully
cooked items that are sold frozen or refrigerated. It includes all items
produced and packaged as part of the bakery and sandwich packaging operations,
as well as items being developed and packaged for the developing home meal
replacement market. The revenue increase in the prepared foods division was
offset by a reduction in revenue totaling $380,000 in the ham curing division,
which reflects a planned reduction in sales of lower margin items.
Franchise Royalty and Other Fees: Franchise, royalty and other fees decreased
$157,000, or 27.2%, during the third quarter of fiscal 1998, compared with the
corresponding period of the previous year. This decrease is attributed to a
net decline in the number of franchise units from sixty-seven at the beginning
of the second quarter of fiscal 1997 to forty-seven at the end of the current
quarter. A major factor in the decrease in franchise units is the Company's
acquisition of seventeen franchise units during the first quarter of fiscal
1998 as discussed previously.
Costs and Expenses
------------------
Cost of Goods Sold: Cost of goods sold as a percentage of operating revenue
decreased to 67.1% during the third quarter of fiscal 1998 from 73.2% during
the corresponding period of the previous year. This improvement can be
attributed to a shift in total revenues between the food processing segment
and the restaurant segment, as well as margin improvements in the food
processing segment. The restaurant segment, which experiences higher margins
than the food processing segment, accounted for 37.5% of total food sales in
the third quarter of fiscal 1998, compared with 30.9% in same quarter of
fiscal 1997. In addition, margin improvements were realized in the food
processing segment, as cost of goods sold as percentage of that segment's
revenue decreased to 86.3% from 92.3% during the previous third quarter.
This margin improvement occurred in the prepared foods division due to
increased revenues, and in the ham curing division due to a shift in sales
toward higher margin products.
Operating Expenses: Operating expenses include indirect costs associated with
restaurant product sales and other revenues, which consist of franchise,
royalty and other fees earned. Operating expenses as a percentage of operating
revenue increased to 17.3% during the third quarter of fiscal 1998, compared
to 13.5% during the same quarter of fiscal 1997. A major factor contributing
to this increase is the shift in total revenue distribution toward the
restaurant segment, which generates the highest proportion of operating
expense. In addition, within the restaurant segment, the company experienced
an increase in operating expense as a percentage of that segment's revenues
from 42.0% in the third quarter of 1997 to 46.1% in the current quarter.
This increase relates primarily to rent expense on the seventeen stores
acquired in the current year (see Note 10).
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased $525,000 during the third quarter of fiscal
1998 over the comparable period of fiscal 1997. Approximately $193,000 of the
increase occurred in the restaurant segment as a result of the increase in
number of company units. In addition, corporate expenses increased $264,000
during the quarter; due primarily to nonrecurring increases in legal and
accounting costs, as well as increases in investor relations costs.
Depreciation and Amortization Expense: Depreciation and amortization expense
increased $158,000 during the quarter ended November 7, 1997, as compared with
the third quarter of fiscal 1997. The majority of this increase relates to
the amortization of the goodwill and the covenant not to compete which were
recorded as part of the acquisition of the fourteen restaurants at the
beginning of the current fiscal year (see Note 10).
Other Income (Expense): Net other income totaled $195,000 during the first
thirty-six weeks of fiscal 1998, compared with net other expense totaling
$196,000 during the corresponding period of fiscal 1997. This change reflects
a reduction in interest expense totaling $110,000, resulting from debt
reductions, as well as additional gains on the sale of assets totaling
$276,000.
Thirty-six Weeks Ended November 7, 1997 Compared with Thirty-six Weeks Ended
November 1, 1996
- ----------------------------------------------------------------------------
Revenues
--------
Restaurant Revenues: Restaurant food sales for the thirty-six weeks of fiscal
1998 totaled $28.0 million, representing an increase of $9.4 million from the
same period of fiscal 1997. This increase is attributed to the net increase
in company owned units as discussed previously. Same store sales for the
current thirty-six week period remained consistent with the prior year period,
decreasing only 0.3%.
Food Processing Revenue: Revenues from the food processing segment increased
$7.3 million, or 18.3%, during the first thirty-six weeks of fiscal 1998 over
the comparable prior year period. This increase occurred in the prepared
foods division which experienced an increase totaling $8.0 million.
Approximately $4.0 million of the increase relates to sales of frozen sandwich
items, with the remaining increase relating to sales of newly developed home
meal replacement items. This increase helped offset a decrease in revenue in
the ham curing division during the corresponding period totaling $691,000,
which reflects a planned reduction in sales of lower margin items.
Franchise Royalty and Other Fees: Franchise royalty and other fees for the
first thirty-six weeks of fiscal 1998 declined $506,000 from the corresponding
period of fiscal 1997. This decrease is attributed to a net decline in the
number of franchise units from seventy-three at the beginning of fiscal 1997
to forty-seven at the end of the third quarter of fiscal 1998. As discussed
previously, a major portion of this reduction is the result of the Company's
acquisition of several franchise units during fiscal 1998.
Costs and Expenses
------------------
Cost of Goods Sold: Cost of goods sold as a percentage of operating revenue
decreased to 68.4% during the first thirty-six weeks of fiscal 1998 from 72.2%
during the corresponding period of the previous year. This improvement is the
result of a shift in total revenues between the food processing segment and
the restaurant segment, as well as margin improvements in the food processing
segment. The restaurant segment, which experiences higher margins than the
food processing segment, accounted for 37.2% of total food sales in the third
quarter of fiscal 1998, compared with 31.7% in same quarter of fiscal 1997.
In addition, margin improvements were realized in the food processing segment,
as cost of goods sold as percentage of that segment's revenue decreased to
88.9% from 91.7% during the previous thirty-six week period. This
improvement is attributable to the same factors discussed previously for the
quarterly results.
Operating Expenses: Operating expenses as a percentage of operating revenue
increased to 16.8% during the first thirty-six weeks of fiscal 1998, compared
to 13.9% during the same period in fiscal 1997. Since these expenses are
associated primarily with the restaurant segment, this increase is primarily
due to the shift in total revenue distribution toward the restaurant segment,
which generates the highest proportion of operating expenses. In addition,
within the restaurant segment, the company experienced an increase in operating
expenses as a percentage of that segment's revenues from 42.4% during the first
three quarters of fiscal 1997 to 45.0% for the current period. As previously
discussed, this increase relates primarily to rent expense on the seventeen
stores acquired in the current year (see Note 10).
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased $1.4 million through the third quarter of
fiscal 1998 over the comparable period of fiscal 1997. Approximately $638,000
of the increase occurred in the restaurant segment as a result of the increase
in number of company units. In addition, selling expenses increased $284,000
in the food processing segment as part of efforts to bring about the increase
in sales discussed previously. Corporate expenses also increased during
the current thirty-six week period; due primarily to nonrecurring increases
in legal and accounting costs, as well as increases in investor relations
costs.
Depreciation and Amortization Expense: Depreciation and amortization expense
increased $391,000 during the period November 7, 1997, as compared with the
same period of fiscal 1997. The majority of this increase relates to the
amortization of the goodwill and the covenant not to compete which were
recorded as part of the acquisition of the fourteen restaurants at the
beginning of the current fiscal year (see Note 10).
Other Income (Expense): Net other expense totaled $337,000 during the first
thirty-six weeks of fiscal 1998, compared with $854,000 during the
corresponding period of fiscal 1997. This decrease reflects a reduction in
interest expense totaling $205,000, resulting from debt reduction, as well as
additional gains on the sale of assets totaling $296,000.
Provision for Income Taxes: For the thirty-six weeks ended on November 7,
1997, the Company's effective tax rate is 36.5%. This reflects a combined
federal and state rate of 37.6%, reduced by the effect of certain tax credits
earned during the current year. The reduction in the effective tax rate from
the previous year is due primarily to higher income earnings during fiscal
1998 in states with lower income tax rates.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
- ---------------------------------------------------
The Company had working capital of $4.5 million at November 11, 1997,
reflecting an increase of $1.6 million from February 28, 1997. Accounts
receivable, inventories, and accounts payable increased between February 28,
1997, and November 7, 1997 as a result of the increased level of sales. Cash
and cash equivalents decreased during the first thirty-six weeks of fiscal 1998
from $2.4 million at February 28, 1997 to $828,000 at November 7, 1997.
Profitable operations, the sale of certain assets, and proceeds received from
exercise of stock options during the first thirty-six weeks of fiscal 1998
generated cash totaling $313,000, $3.1 million, and $496,000, respectively.
This was offset by capital expenditures and repayments of long-term debt
totaling $3.0 million and $3.1 million, respectively.
Total other assets increased from $6.1 million at February 28, 1997 to $8.0
million at November 7, 1997. Part of this change is attributable to the
purchase of the fourteen franchise units from the Company's largest
franchisee. This transaction, as described in Note 10 to the financial
statements, resulted in the Company recording $2.5 million as excess of cost
over fair value of net assets of businesses acquired. In addition, a non-
competition agreement was entered into with the former franchisee as part of
this acquisition, resulting in the Company recording an asset for the covenant
not to compete. Also contributing to the change in total other assets is the
sale of certain properties held for sale during the first thirty-six weeks of
fiscal 1998. As part of these and other property sales, the Company received
notes totaling $1.1 million, resulting in the increase in total noncurrent
notes receivable.
During fiscal 1997, the Company entered into an agreement with a bank to
provide a $6.0 million revolving credit facility which is secured by a lien
upon the Company's manufacturing inventory and receivables. At November 7,
1997, approximately $4.0 million was outstanding under this facility.
Management believes that this facility is adequate to meet the current
operating needs of the company, and that the ability exists to obtain such
additional credit facilities as is necessary to support future working capital
needs. In addition, the Company does not have any significant commitments for
future capital expenditures.
SUBSEQUENT EVENT
- ----------------
On November 14, 1997, WSMP, Inc. and Sagebrush, Inc. signed a definitive
agreement whereby WSMP would acquire Sagebrush in a stock-for-stock merger of
the two companies in a transaction to be accounted for as a pooling of
interests. Under the terms of the agreement, the exchange ratio, which is
subject of adjustment in certain circumstances, is .3214 shares of WSMP common
stock for each share of Sagebrush common stock. The merger remains subject to
customary closing conditions, including approval by shareholders of both
companies. Shareholder meetings are anticipated to occur in late January and
the merger, if approved, will be consummated promptly thereafter. (See Note 14)
YEAR 2000 ISSUES
- ----------------
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000.
"Year 2000" issues affect virtually all companies and organizations, including
WSMP, Inc. The Company has engaged its independent accountants to study aspects
of its information systems and to make recommendations with a view to upgrading
and improving such systems. WSMP management expects to identify and resolve
WSMP's specific "Year 2000" issues as part of this study and the implementation
of its advisors' recommendations.
CAUTIONARY STATEMENT AS TO FORWARD LOOKING INFORMATION
- ------------------------------------------------------
Statements contained in this report as to the Company's outlook for sales,
operations, capital expenditures and other amounts, budgeted amounts and other
projections of future financial or economic performance of the Company, and
statements of the Company's plans and objectives for future operations are
"forward looking" statements, and are being provided in reliance upon the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Important factors that could cause actual results or events to differ
materially from those projected, estimated, assumed or anticipated in any such
forward looking statements include without limitation: adverse changes in
economic, weather or other conditions in the geographic area in which the
Company's restaurants are located; risks associated with the Company's
creation of new products; additional costs due to increased prices of raw
hams; increased competition; adverse changes in consumer preferences for
country ham or bakery products; adverse changes in the availability of
supplies; adverse changes in governmental regulation relating to the Company's
business; the loss or suspension of any of the Company's licenses or permits;
the loss of the services of any of the Company's key management or other
personnel; and other factors that generally effect the Company's operations
and the restaurant industry in general.
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8 - K
- -------------------------------------------
(a) Exhibits
See Index to Exhibits
(b) Reports on Form 8-K
Three reports on Form 8-K were filed during the quarter ended November 7, 1997.
1) A Current Report dated August 28, 1997 concerned WSMP Inc.'s adoption
of a Shareholder Rights Plan and entering into the Rights Agreement with
American Stock Transfer and Trust Co. as Trustee.
2) A Current Report dated September 25, 1997 concerned WSMP, Inc. signing a
letter of intent with Sagebrush, Inc. to acquire Sagebrush, Inc. in a
stock-for-stock merger.
3) A Current Report dated November 14, 1997 concerned WSMP, Inc. and
Sagebrush, Inc. entering into a definitive Agreement and Plan of merger
concerning WSMP's acquisition of Sagebrush, Inc. in a stock-for-stock
merger.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WSMP, INC.
----------
Date DECEMBER 22, 1997 By: JAMES C. RICHARDSON, JR.
---------------------- ------------------------------
James C. Richardson, Jr.
(Chief Executive Officer)
Date DECEMBER 22, 1997 By: MATTHEW V. HOLLIFIELD
---------------------- ------------------------------
Matthew V. Hollifield
(Vice President of Finance and
Chief Accounting Officer)
INDEX TO EXHIBITS
For inclusion in Quarterly Report on Form 10-Q Quarter Ended November 7, 1997
Exhibit No. Page No.
- ----------- --------
11 Computation of Earnings Per Common
and Common Equivalent Share 17
99(a) WSMP, Inc. --HERTH Management, Inc.
Extension Agreement 18-20
99(b) Richardson Change of Control Agreement 21-29
99(c) Howard Change of Control Agreement 30-38
99(d) Clark Change of Control Agreement 39-47
99(e) Templeton Change of Control Agreement 48-56
99(f) Hefner Change of Control Agreement 57-65
Exhibit 11
WSMP, INC. AND SUBSIDIARIES
<TABLE>
Computation of Earnings (Loss) Per Common and Common Equivalent Share
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
------------------------- -------------------------
November 7, November 1, November 7, November 1,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Computation of Earnings Per Common
and Common Equivalent Share:
Net earnings $ 616,853 $ 178,405 $1,512,264 $ 425,035
=========== =========== =========== ===========
Weighted average shares computation:
Actual outstanding shares at
Beginning of period 2,919,088 2,760,338 2,919,088 2,760,338
Add weighted average
Shares applicable to:
Common stock issued 323,461 322,967
Common stock options exercised 69,744 30,984
Common stock options
Outstanding 495,993 354,233 479,593 263,258
----------- ----------- ----------- -----------
Weighted average shares as
Adjusted 3,808,286 3,114,571 3,752,632 3,023,596
=========== =========== =========== ===========
Earnings per common and
common equivalent share $ .16 $ .06 $ .40 $ .14
=========== =========== ============ ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the 1997 3rd
quarter 10-Q for WSMP, Inc. and is qualified in its entirety by reference to
such 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-27-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> AUG-15-1997
<CASH> 828,201
<SECURITIES> 191,592
<RECEIVABLES> 5,506,773
<ALLOWANCES> 45,000
<INVENTORY> 7,816,408
<CURRENT-ASSETS> 16,530,260
<PP&E> 44,296,950
<DEPRECIATION> 21,242,432
<TOTAL-ASSETS> 47,571,275
<CURRENT-LIABILITIES> 12,017,400
<BONDS> 11,986,202
0
0
<COMMON> 3,373,859
<OTHER-SE> 20,526,828
<TOTAL-LIABILITY-AND-EQUITY> 47,571,275
<SALES> 75,171,911
<TOTAL-REVENUES> 76,521,800
<CGS> 52,355,204
<TOTAL-COSTS> 52,355,204
<OTHER-EXPENSES> 12,826,558
<LOSS-PROVISION> 19,244
<INTEREST-EXPENSE> 1,079,965
<INCOME-PRETAX> 2,381,518
<INCOME-TAX> 869,254
<INCOME-CONTINUING> 1,512,264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,512,264
<EPS-PRIMARY> .40
<EPS-DILUTED> 0
</TABLE>
NORTH CAROLINA
CATAWBA COUNTY EXTENSION AGREEMENT
THIS AGREEMENT, made and entered into this the 29th day of August, 1997, by
and between HERTH MANAGEMENT, INC. , a North Carolina corporation, hereinafter
referred to as "HERTH"; and WSMP, INC., a North Carolina corporation,
hereinafter referred to as "WSMP";
W I T N E S S E T H:
WHEREAS, HERTH and WSMP have entered into a Management Services Agreement,
dated as of June 23, 1995 (hereinafter, the "Agreement"), whereby HERTH provides
management services to WSMP for a term expiring March 31, 1999; and
WHEREAS, WSMP considers HERTH to have served WSMP well under the terms of
the Agreement, and considers the continuity of management to be essential to
protecting and enhancing the best interests of WSMP and its shareholders; and
WHEREAS, WSMP wishes to insure itself the continuing services of HERTH in
the short-term future, and protect this ongoing relationship for the benefit of
WSMP's shareholders; and
WHEREAS, WSMP considers it to be in the best interest of its shareholders
to encourage the continued management of WSMP by HERTH under the terms and
conditions of the Agreement for an additional period of three years; and
WHEREAS, HERTH is willing to extend the terms of the Agreement without any
further changes or amendment to the Agreement;
NOW, THEREFORE, in consideration of the premises, the parties hereto are
agreed as follows:
1. EXTENSION OF TERM. The term of the Agreement is hereby extended for a
period of three years to expire on March 31, 2002.
2. RESTATEMENT. As amended as hereinbefore set forth, the Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have cause these presents to be
executed, this the day and year first above written.
WSMP, INC.
BY: DAVID R. CLARK
--------------------------
President
ATTEST:
MATTHEW V. HOLLIFIELD
- -----------------------
Asst. Secretary
(corporate seal)
HERTH MANAGEMENT, INC.
BY: JAMES C. RICHARDSON, JR.
--------------------------
President
ATTEST:
JAMES M. TEMPLETON
- -----------------------
Secretary
(corporate seal)
STATE OF NORTH CAROLINA
COUNTY OF CATAWBA
I, Jearldine B. McNiel, Notary Public for said County and State, certify
-------------------
that Matthew V. Hollifield personally appeared before me this day and
---------------------
acknowledged that he is Asst. Secretary of WSMP, Inc., a North Carolina
corporation, and that by authority duly given and as the act of the corporation,
the foregoing instrument was signed in its name by David R. Clark, its
--------------
President, sealed with its corporate seal and attested by him as its Asst.
Secretary.
Witness my hand and seal, this the 29th day of August, 1997.
---- ------
JEARLDINE B. MCNIEL
-----------------------
NOTARY PUBLIC
My Commission Expires: Oct. 9, 2001
--------------
STATE OF NORTH CAROLINA
COUNTY OF CATAWBA
I, Jearldine B. McNiel, Notary Public for said County and State, certify
-------------------
that James M. Templeton personally appeared before me this day and
------------------
acknowledged that he is Secretary of HERTH MANAGEMENT, INC., a North Carolina
corporation, and that by authority duly given and as the act of the corporation,
the foregoing instrument was signed in its name by James C. Richardson, Jr.,
------------------------
its President, sealed with its corporate seal and attested by him as its
Secretary.
Witness my hand and seal, this the 29th day of August, 1997.
---- ------
JEARLDINE B. MCNIEL
-----------------------
NOTARY PUBLIC
My Commission Expires: Oct. 9, 2001
--------------
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT between WSMP, Inc., a North Carolina corporation (the
"Company"), and James C. Richardson, Jr. (the "Executive") is dated as of August
- --------- -----------
29, 1997 (the "Effective Date").
----------------
W I T N E S S E T H:
WHEREAS, the Executive is an executive officer of the Company, having
provided management services through HERTH Management, Inc. ("HERTH"), thereby
-------
acquiring an intimate knowledge of the business and affairs of the Company and
having clearly demonstrated the ability to perform valuable services for the
Company; and
WHEREAS, the Company considers it to be in the best interests of its
shareholders to encourage continuity of management; and
WHEREAS, the Company believes that the possibility of the occurrence of a
Change in Control of the Company (as defined below) may result in the
termination of the Executive's management of the Company or in the distraction
of the Executive from the performance of his duties to the Company, in either
case to the detriment of the Company and its shareholders; and
WHEREAS, the Company recognizes that the Executive could suffer adverse
financial and professional consequences if a Change in Control of the Company
were to occur; and
WHEREAS, the Company wishes to enter into this Agreement to protect the
Executive in the event that a Change in Control of the Company were to occur,
thereby encouraging the Executive to continue to manage the Company and not be
distracted from the performance of his duties to the Company;
NOW, THEREFORE, the parties agree as follows:
Section 1. Construction; Definitions. (a) In the event of the enactment
-------------------------
of any successor provision to any statute or rule cited in this Agreement,
references in this Agreement to such statute or rule shall be to such successor
provision. The headings of Sections of this Agreement shall not control the
meaning or interpretation of this Agreement. References in this Agreement to
any Section are to the corresponding Section of this Agreement unless the
context otherwise indicates.
(b) As used in this Agreement, the following terms shall have the meanings
indicated:
(i) "Affiliate" and "Associate" shall have the respective meanings
----------- -----------
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on the date hereof.
(ii) "Acquiring Person" shall mean any Person who or which, together
------------------
with all Affiliates and Associates of such Person, shall be the Beneficial
Owner of securities of the Company constituting a Substantial Block, but
shall not include (A) the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or of any Subsidiary of the Company or
any Person organized, appointed or established by the Company or such
Subsidiary as a fiduciary pursuant to the terms of any such employee
benefit plan, (B) any Person consisting of or including any or all of
Messrs. James C. Richardson, Jr., David R. Clark and James M. Templeton,
but only if and so long as such Person consists of or includes at least one
full-time employee of the Company, and (C) any Person who or which,
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of a Substantial Block solely as a result of a change in
the aggregate number of shares of Voting Stock or other voting securities
of the Company outstanding since the last date on which such Person
acquired Beneficial Ownership of any securities of the Company included in
such Substantial Block.
(iii) "After-Tax Payments" means payments to or for the benefit of
--------------------
the Executive under this Agreement after reduction for any and all federal,
state and local income tax and excise tax liabilities of the Executive
resulting therefrom.
(iv) "Agreement" means this Change of Control Agreement as it may be
-----------
amended from time to time in accordance with Section 10.
(v) A Person shall be deemed the "Beneficial Owner" of and shall be
------------------
deemed to "beneficially own" any securities:
------------------
(A) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has (1) the right or obligation to
acquire (whether such right or obligation is exercisable or effective
immediately or otherwise) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or
otherwise or (2) the right to vote or dispose of or has "beneficial
-----------
ownership" of (as determined pursuant to Rule 13d-3 of the General
----------
Rules and Regulations under the Exchange Act), including pursuant to
any agreement, arrangement or understanding (whether or not in
writing); provided, however, that a Person shall not be deemed the
-------- -------
"Beneficial Owner" of or to "beneficially own" any security under this
------------------ ------------------
clause (2) if the agreement, arrangement or understanding to vote such
security (x) arises solely from a revocable proxy given in response to
a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the General Rules and
Regulations of the Exchange Act and (y) is not also then reportable by
such Person on Schedule 13D under the Exchange Act (or any comparable
or successor report); or
(B) that are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such
Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in writing),
for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in clause (2) of subparagraph (A) of this
paragraph (v)) or disposing of any voting securities of the Company.
No part of this definition shall cause a Person ordinarily engaged in
business as an underwriter of securities to be the "Beneficial Owner" of or
------------------
to "beneficially own" any securities acquired in a bona fide firm
------------------
commitment underwriting pursuant to an underwriting agreement with the
Company until the expiration of forty days after the date of such
acquisition.
(vi) "Benefit Plans" means all of the Company's employee benefit
---------------
plans, including life insurance and medical, dental, health, accident and
disability plans, in which the Executive was a participant on the Change in
Control Date.
(vii) "Board of Directors" means the entire Board of Directors of the
--------------------
Company.
(viii) A "Business Combination" shall occur when
----------------------
(A) any Person (other than a Subsidiary of the Company) combines
or consolidates with, or merges with and into, the Company, and the
Company shall be the continuing or surviving corporation of such
combination, consolidation or merger and, in connection with such
combination, consolidation or merger, all or part of the shares of
Voting Stock shall be changed into or exchanged for other securities
of any Person or cash or any other property;
(B) the Company combines or consolidates with, or merges with
and into, any other Person (other than a Subsidiary of the Company),
and the Company shall not be the continuing or surviving corporation
of such combination, consolidation or merger; or
(C) the Company sells or otherwise transfers (or one or more of
its Subsidiaries sells or otherwise transfers), in one or more
transactions, assets, cash flow or earning power aggregating more than
50 percent of the assets, cash flow or earning power of the Company
and its Subsidiaries (taken as a whole and calculated on the basis of
the Company's most recent regularly prepared financial statements) to
any other Person or Persons (other than the Company or any Subsidiary
of the Company).
(ix) A "Change in Control of the Company" shall have occurred if,
----------------------------------
after the Effective Date,
(A) individuals who, as of the date hereof, constitute the Board
of Directors (the "Incumbent Board") cease for any reason to
-----------------
constitute at least a majority of the Board of Directors; provided,
--------
however, that any individual becoming a director subsequent to the
-------
date hereof whose election or nomination for election by the Company's
shareholders was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered a
member of the Incumbent Board;
(B) any Person, alone or together with its Affiliates and
Associates, at any time after the Effective Date, shall become an
Acquiring Person;
(C) a Business Combination shall be consummated, unless,
immediately following such Business Combination, (1) all or
substantially all the Persons who were the beneficial owners of the
Voting Stock immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50 percent of the
shares of Voting Stock and the combined voting power of the voting
securities of the outstanding voting securities entitled to vote
generally in the election of directors of the corporation resulting
from such Business Combination in substantially the same proportions
as their ownership, immediately prior to such Business Combination, of
the Voting Stock, (2) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan of the
Company or any corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 15 percent or more of the
Voting Stock of the corporation resulting from such Business
Combination or the combined voting power of the voting securities then
outstanding of such corporation, and (3) at least one-half of the
members of the board of directors after such Business Combination were
members of the Incumbent Board at the time of the approval of such
Business Combination; or
(D) the Company is liquidated or dissolved.
(x) "Change in Control Date" means the date of occurrence
------------------------
of a Change in Control of the Company.
(xi) "Company" has the meaning assigned to such term in the recitals
---------
to this Agreement and shall include any Person with or into which such
Person shall have been merged or consolidated or to which such Person shall
have transferred all or substantially all of its assets.
(xii) "Exchange Act" means the Securities Exchange Act of 1934, as
--------------
amended.
(xiii) "Expiration Date" means the end of the ten-year period
-----------------
beginning on the Effective Date.
(xiv) "Person" means any individual, corporation, partnership, joint
--------
venture, association, joint-stock company, limited partnership, limited
liability company, trust, unincorporated organization, government or agency
or political subdivision of any government. When the context of this
Agreement so indicates, such term also has the meaning assigned to it in
Section 13(d) of the Exchange Act.
(xv) "Relevant Period" means the life of the Executive and, following
-----------------
the death of the Executive, throughout the life of the Executive's spouse,
if any.
(xvi) "Subsidiary" means any corporation or other legal entity of
------------
which a majority of the voting power of the voting equity securities or
voting interest is owned, directly or indirectly, by such Person, or which
is otherwise controlled by such Person.
(xvii) "Shares" means shares of capital stock of the Company.
--------
(xviii) "Substantial Block" shall mean a number of shares of the
-------------------
Voting Stock equal to or in excess of 15% of the number of shares of the
Voting Stock then outstanding.
(xix) "Voting Stock" means Shares the holders of which are entitled
--------------
to vote for the election of directors of the Company, but excluding Shares
entitled to vote only upon the occurrence of a contingency unless that
contingency shall have occurred.
Section 2. Term. If a Change in Control of the Company shall occur before
----
the expiration of the term of this Agreement, then, whether or not the
Executive's role as an executive officer of the Company shall at any time be
terminated, the Executive shall be entitled to receive the benefits provided for
in this Agreement. The term of this Agreement shall begin on the Effective Date
and, unless extended pursuant to the third sentence of this Section or
terminated pursuant to the fourth sentence of this Section, shall expire at the
Expiration Date. If the Company shall not have given written notice to the
Executive at least 45 days before the Expiration Date that the term of this
Agreement will expire on the Expiration Date, then the term of this Agreement
shall be extended automatically for successive one-year periods (the first such
period to begin on the day immediately following the Expiration Date) unless and
until the Company shall give written notice to the Executive at least 45 days
before the end of any one-year period for which the term of this Agreement shall
have been extended that such term will expire at the end of such one-year
period, whereupon the term of this Agreement shall expire at the end of such one
year period. This Agreement shall in any event expire upon termination of the
Executive's role as an elected or appointed officer of the Company, unless there
has been a Change in Control of the Company.
Section 3. Benefits Payable Upon Change in Control. If a Change in
---------------------------------------
Control of the Company shall occur before the expiration of the term of this
Agreement, then the Executive shall be entitled to the following benefits:
(i) The Company shall pay to the Executive, as a lump sum, an amount
equal to the sum of:
(A) three times the amount of the Executive's annual base salary
payable by HERTH to the Executive for services rendered to the Company
as in effect on the Change in Control Date, or three times the amount
attributed to the Executive by HERTH for reporting purposes in the
Company's most recent proxy statement, whichever is greater, plus
(B) three times the amount of the largest annual cash bonus paid
or payable by HERTH or by the Company to the Executive for services
rendered to the Company during any one of the three most recent fiscal
years of the Company, regardless of when such bonus may have been paid
or payable, plus
(C) the amount, if positive, equal to the aggregate spread
between the exercise prices of all outstanding unexercised options to
purchase Shares and other rights whose value derives from the value of
Shares (including, without limitation, "cash-only" stock appreciation
rights), which options or rights had been issued by the Company and
are held by the Executive on the Change in Control Date, whether or
not enough time had elapsed from the date of grant of such options or
rights so as to make them fully exercisable or vested on the Change in
Control Date, and the higher of
(1) the closing price of the Shares as reported on the
NASDAQ National Market System on the Change in Control Date, or
(2) the highest price per Share actually paid in connection
with the Change in Control of the Company, plus
(D) an additional amount equal to the aggregate of any and all
federal, state and local income tax and excise tax liabilities of the
Executive resulting from the payments due pursuant to clauses (A),
(B), (C) and (D) hereof; provided, however, that, if the total of all
-------- -------
After-Tax Payments would be increased by the limitation or elimination
of any payment under this Section 3, then amounts payable under this
Section 3 shall be reduced to the extent, and only to the extent,
necessary to maximize the After-Tax Payments. The determination as to
whether and to what extent payments under this Section 3 are required
to be reduced in accordance with the preceding sentence shall be made
at the Company's expense by Deloitte & Touche LLP or such other
nationally recognized certified public accounting firm as the Board of
Directors may designate as soon as practicable following a Change in
Control of the Company.
(ii) The Company (at its sole expense) shall take the following
actions:
(A) immediately following the Change in Control Date and
throughout the Relevant Period, the Company shall maintain in effect,
and not materially reduce the benefits provided by, each of the
Benefit Plans; and
(B) the Company shall arrange for uninterrupted participation in
each of the Benefit Plans by the Executive (and, following the death
of the Executive, by the Executive's spouse, even if such person was
not the Executive's spouse or was otherwise ineligible to participate
in a Benefit Plan on the Change in Control Date or at any other time),
provided that, if such participation in any Benefit Plan is not
--------
permitted at any time during the Relevant Period by the terms of such
Benefit Plan, then the Company (at its sole expense) shall thereupon
provide to the Executive (and, following the death of the Executive,
shall provide to the Executive's spouse) substantially the same
benefits as were provided to the Executive pursuant to such Benefit
Plan on the Change in Control Date.
Each payment required to be made to the Executive pursuant to the foregoing
provisions of this Section 3 shall be made by check drawn on an account of the
Company at a bank located in the United States of America and shall be paid not
more than 10 days after the Change in Control Date. Upon payment in full to the
Executive of all amounts due under subsection (i) of this Section 3, all of the
options and other rights referred to in clause (C) of such subsection as to
which payment has been made shall be automatically cancelled.
Section 4. Notices. Notices required or permitted to be given by either
-------
party pursuant to this Agreement shall be in writing and shall be deemed to have
been given when delivered personally to the other party or when deposited with
the United States Postal Service as registered mail with postage prepaid and
addressed:
(i) if to the Executive, at the Executive's address last shown on the
Company's records, and
(ii) if to the Company, at 1 WSMP Drive, P.O. Box 399, Claremont, NC
28610, directed to the attention of the Corporate Secretary;
or, in either case, to such other address as the party to whom or to which such
notice is to be given shall have specified by notice given to the other party.
Section 5. Withholding Taxes. The Company may withhold from all payments
-----------------
to be paid to the Executive pursuant to this Agreement all taxes that, by
applicable federal, state or local law, the Company is required to so withhold.
Section 6. Expenses of Enforcement. Upon demand by the Executive made to
-----------------------
the Company, the Company shall reimburse the Executive for all reasonable
expenses (including legal fees and expenses) incurred by the Executive in
enforcing or seeking to enforce the payment of any amount or other benefit to
which the Executive shall become entitled pursuant to this Agreement.
Section 7. No Obligation to Mitigate. The Executive shall not be required
-------------------------
to mitigate the amount of any payment or other benefit required to be paid to
the Executive pursuant to this Agreement, whether by seeking other employment or
otherwise, nor shall the amount of any such payment or other benefit be reduced
on account of any compensation earned by the Executive as a result of employment
by another Person. No amount paid or payable to the Executive by HERTH at any
time or for any reason shall be considered in mitigation of any amount due to
him under this Agreement.
Section 8. Confidential Information. From the Effective Date until the
------------------------
expiration of the term of this Agreement, the Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, that shall have been obtained by the
Executive during the Executive's management of the Company or any of its
affiliated companies and that shall not have become public knowledge (other than
as a result of acts by the Executive in violation of this Section). The
Company, however, shall not withhold or reduce any amount or other benefit
payable to the Executive pursuant to the terms of this Agreement, or otherwise,
on the ground that the Executive has breached or threatened to breach the
foregoing provisions of this Section; the sole remedy of the Company for a
breach or anticipated breach of such provisions shall be injunctive relief.
Section 9. Amendment and Waiver. This Agreement may be amended or waived
--------------------
only by a written instrument signed by both parties. No waiver by either party
of any breach of this Agreement shall be considered a waiver of any other or
subsequent breach.
Section 10. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of North Carolina.
Section 11. Validity. The invalidity or unenforceability of any provision
--------
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, all of which shall remain in full force and effect.
Section 12. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original but all of which together shall
constitute the same instrument.
Section 13. Assignment. This Agreement shall inure to the benefit of and
----------
be enforceable by the Executive's legal representative. The Company shall not
assign any of its obligations under this Agreement, by operation of law or
otherwise, without the express prior written consent of the Executive; any
assignment supposedly effected absent such consent shall be void.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the Effective Date.
WSMP, INC.
By: MATTHEW V. HOLLIFIELD
-----------------------------
Matthew V. Hollifield
Vice President of Finance
THE EXECUTIVE:
JAMES C. RICHARDDSON, JR.(L.S.)
- --------------------------------
James C. Richardson, Jr.
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT between WSMP, Inc., a North Carolina corporation (the
"Company"), and Richard F. Howard (the "Executive") is dated as of August 29,
- --------- -----------
1997 (the "Effective Date").
----------------
W I T N E S S E T H:
WHEREAS, the Executive is an executive officer of the Company, having
provided management services through HERTH Management, Inc. ("HERTH"), thereby
-------
acquiring an intimate knowledge of the business and affairs of the Company and
having clearly demonstrated the ability to perform valuable services for the
Company; and
WHEREAS, the Company considers it to be in the best interests of its
shareholders to encourage continuity of management; and
WHEREAS, the Company believes that the possibility of the occurrence of a
Change in Control of the Company (as defined below) may result in the
termination of the Executive's management of the Company or in the distraction
of the Executive from the performance of his duties to the Company, in either
case to the detriment of the Company and its shareholders; and
WHEREAS, the Company recognizes that the Executive could suffer adverse
financial and professional consequences if a Change in Control of the Company
were to occur; and
WHEREAS, the Company wishes to enter into this Agreement to protect the
Executive in the event that a Change in Control of the Company were to occur,
thereby encouraging the Executive to continue to manage the Company and not be
distracted from the performance of his duties to the Company;
NOW, THEREFORE, the parties agree as follows:
Section 1. Construction; Definitions. (a) In the event of the enactment
-------------------------
of any successor provision to any statute or rule cited in this Agreement,
references in this Agreement to such statute or rule shall be to such successor
provision. The headings of Sections of this Agreement shall not control the
meaning or interpretation of this Agreement. References in this Agreement to
any Section are to the corresponding Section of this Agreement unless the
context otherwise indicates.
(b) As used in this Agreement, the following terms shall have the meanings
indicated:
(i) "Affiliate" and "Associate" shall have the respective meanings
----------- -----------
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on the date hereof.
(ii) "Acquiring Person" shall mean any Person who or which, together
------------------
with all Affiliates and Associates of such Person, shall be the Beneficial
Owner of securities of the Company constituting a Substantial Block, but
shall not include (A) the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or of any Subsidiary of the Company or
any Person organized, appointed or established by the Company or such
Subsidiary as a fiduciary pursuant to the terms of any such employee
benefit plan, (B) any Person consisting of or including any or all of
Messrs. James C. Richardson, Jr., David R. Clark and James M. Templeton,
but only if and so long as such Person consists of or includes at least one
full-time employee of the Company, and (C) any Person who or which,
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of a Substantial Block solely as a result of a change in
the aggregate number of shares of Voting Stock or other voting securities
of the Company outstanding since the last date on which such Person
acquired Beneficial Ownership of any securities of the Company included in
such Substantial Block.
(iii) "After-Tax Payments" means payments to or for the benefit of
--------------------
the Executive under this Agreement after reduction for any and all federal,
state and local income tax and excise tax liabilities of the Executive
resulting therefrom.
(iv) "Agreement" means this Change of Control Agreement as it may be
-----------
amended from time to time in accordance with Section 10.
(v) A Person shall be deemed the "Beneficial Owner" of and shall be
------------------
deemed to "beneficially own" any securities:
------------------
(A) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has (1) the right or obligation to
acquire (whether such right or obligation is exercisable or effective
immediately or otherwise) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or
otherwise or (2) the right to vote or dispose of or has "beneficial
-----------
ownership" of (as determined pursuant to Rule 13d-3 of the General
----------
Rules and Regulations under the Exchange Act), including pursuant to
any agreement, arrangement or understanding (whether or not in
writing); provided, however, that a Person shall not be deemed the
-------- -------
"Beneficial Owner" of or to "beneficially own" any security under this
------------------ ------------------
clause (2) if the agreement, arrangement or understanding to vote such
security (x) arises solely from a revocable proxy given in response to
a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the General Rules and
Regulations of the Exchange Act and (y) is not also then reportable by
such Person on Schedule 13D under the Exchange Act (or any comparable
or successor report); or
(B) that are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such
Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in writing),
for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in clause (2) of subparagraph (A) of this
paragraph (v)) or disposing of any voting securities of the Company.
No part of this definition shall cause a Person ordinarily engaged in
business as an underwriter of securities to be the "Beneficial Owner" of or
------------------
to "beneficially own" any securities acquired in a bona fide firm
------------------
commitment underwriting pursuant to an underwriting agreement with the
Company until the expiration of forty days after the date of such
acquisition.
(vi) "Benefit Plans" means all of the Company's employee benefit
---------------
plans, including life insurance and medical, dental, health, accident and
disability plans, in which the Executive was a participant on the Change in
Control Date.
(vii) "Board of Directors" means the entire Board of Directors of the
--------------------
Company.
(viii) A "Business Combination" shall occur when
----------------------
(A) any Person (other than a Subsidiary of the Company) combines
or consolidates with, or merges with and into, the Company, and the
Company shall be the continuing or surviving corporation of such
combination, consolidation or merger and, in connection with such
combination, consolidation or merger, all or part of the shares of
Voting Stock shall be changed into or exchanged for other securities
of any Person or cash or any other property;
(B) the Company combines or consolidates with, or merges with
and into, any other Person (other than a Subsidiary of the Company),
and the Company shall not be the continuing or surviving corporation
of such combination, consolidation or merger; or
(C) the Company sells or otherwise transfers (or one or more of
its Subsidiaries sells or otherwise transfers), in one or more
transactions, assets, cash flow or earning power aggregating more than
50 percent of the assets, cash flow or earning power of the Company
and its Subsidiaries (taken as a whole and calculated on the basis of
the Company's most recent regularly prepared financial statements) to
any other Person or Persons (other than the Company or any Subsidiary
of the Company).
(ix) A "Change in Control of the Company" shall have occurred if,
----------------------------------
after the Effective Date,
(A) individuals who, as of the date hereof, constitute the Board
of Directors (the "Incumbent Board") cease for any reason to
-----------------
constitute at least a majority of the Board of Directors; provided,
--------
however, that any individual becoming a director subsequent to the
-------
date hereof whose election or nomination for election by the Company's
shareholders was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered a
member of the Incumbent Board;
(B) any Person, alone or together with its Affiliates and
Associates, at any time after the Effective Date, shall become an
Acquiring Person;
(C) a Business Combination shall be consummated, unless,
immediately following such Business Combination, (1) all or
substantially all the Persons who were the beneficial owners of the
Voting Stock immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50 percent of the
shares of Voting Stock and the combined voting power of the voting
securities of the outstanding voting securities entitled to vote
generally in the election of directors of the corporation resulting
from such Business Combination in substantially the same proportions
as their ownership, immediately prior to such Business Combination, of
the Voting Stock, (2) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan of the
Company or any corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 15 percent or more of the
Voting Stock of the corporation resulting from such Business
Combination or the combined voting power of the voting securities then
outstanding of such corporation, and (3) at least one-half of the
members of the board of directors after such Business Combination were
members of the Incumbent Board at the time of the approval of such
Business Combination; or
(D) the Company is liquidated or dissolved.
(x) "Change in Control Date" means the date of occurrence
------------------------
of a Change in Control of the Company.
(xi) "Company" has the meaning assigned to such term in the recitals
---------
to this Agreement and shall include any Person with or into which such
Person shall have been merged or consolidated or to which such Person shall
have transferred all or substantially all of its assets.
(xii) "Exchange Act" means the Securities Exchange Act of 1934, as
--------------
amended.
(xiii) "Expiration Date" means the end of the ten-year period
-----------------
beginning on the Effective Date.
(xiv) "Person" means any individual, corporation, partnership, joint
--------
venture, association, joint-stock company, limited partnership, limited
liability company, trust, unincorporated organization, government or agency
or political subdivision of any government. When the context of this
Agreement so indicates, such term also has the meaning assigned to it in
Section 13(d) of the Exchange Act.
(xv) "Relevant Period" means the life of the Executive and, following
-----------------
the death of the Executive, throughout the life of the Executive's spouse,
if any.
(xvi) "Subsidiary" means any corporation or other legal entity of
------------
which a majority of the voting power of the voting equity securities or
voting interest is owned, directly or indirectly, by such Person, or which
is otherwise controlled by such Person.
(xvii) "Shares" means shares of capital stock of the Company.
--------
(xviii) "Substantial Block" shall mean a number of shares of the
-------------------
Voting Stock equal to or in excess of 15% of the number of shares of the
Voting Stock then outstanding.
(xix) "Voting Stock" means Shares the holders of which are entitled
--------------
to vote for the election of directors of the Company, but excluding Shares
entitled to vote only upon the occurrence of a contingency unless that
contingency shall have occurred.
Section 2. Term. If a Change in Control of the Company shall occur before
----
the expiration of the term of this Agreement, then, whether or not the
Executive's role as an executive officer of the Company shall at any time be
terminated, the Executive shall be entitled to receive the benefits provided for
in this Agreement. The term of this Agreement shall begin on the Effective Date
and, unless extended pursuant to the third sentence of this Section or
terminated pursuant to the fourth sentence of this Section, shall expire at the
Expiration Date. If the Company shall not have given written notice to the
Executive at least 45 days before the Expiration Date that the term of this
Agreement will expire on the Expiration Date, then the term of this Agreement
shall be extended automatically for successive one-year periods (the first such
period to begin on the day immediately following the Expiration Date) unless and
until the Company shall give written notice to the Executive at least 45 days
before the end of any one-year period for which the term of this Agreement shall
have been extended that such term will expire at the end of such one-year
period, whereupon the term of this Agreement shall expire at the end of such one
year period. This Agreement shall in any event expire upon termination of the
Executive's role as an elected or appointed officer of the Company, unless there
has been a Change in Control of the Company.
Section 3. Benefits Payable Upon Change in Control. If a Change in
---------------------------------------
Control of the Company shall occur before the expiration of the term of this
Agreement, then the Executive shall be entitled to the following benefits:
(i) The Company shall pay to the Executive, as a lump sum, an amount
equal to the sum of:
(A) three times the amount of the Executive's annual base salary
payable by HERTH to the Executive for services rendered to the Company
as in effect on the Change in Control Date, or three times the amount
attributed to the Executive by HERTH for reporting purposes in the
Company's most recent proxy statement, whichever is greater, plus
(B) three times the amount of the largest annual cash bonus paid
or payable by HERTH or by the Company to the Executive for services
rendered to the Company during any one of the three most recent fiscal
years of the Company, regardless of when such bonus may have been paid
or payable, plus
(C) the amount, if positive, equal to the aggregate spread
between the exercise prices of all outstanding unexercised options to
purchase Shares and other rights whose value derives from the value of
Shares (including, without limitation, "cash-only" stock appreciation
rights), which options or rights had been issued by the Company and
are held by the Executive on the Change in Control Date, whether or
not enough time had elapsed from the date of grant of such options or
rights so as to make them fully exercisable or vested on the Change in
Control Date, and the higher of
(1) the closing price of the Shares as reported on the
NASDAQ National Market System on the Change in Control Date, or
(2) the highest price per Share actually paid in connection
with the Change in Control of the Company, plus
(D) an additional amount equal to the aggregate of any and all
federal, state and local income tax and excise tax liabilities of the
Executive resulting from the payments due pursuant to clauses (A),
(B), (C) and (D) hereof; provided, however, that, if the total of all
-------- -------
After-Tax Payments would be increased by the limitation or elimination
of any payment under this Section 3, then amounts payable under this
Section 3 shall be reduced to the extent, and only to the extent,
necessary to maximize the After-Tax Payments. The determination as to
whether and to what extent payments under this Section 3 are required
to be reduced in accordance with the preceding sentence shall be made
at the Company's expense by Deloitte & Touche LLP or such other
nationally recognized certified public accounting firm as the Board of
Directors may designate as soon as practicable following a Change in
Control of the Company.
(ii) The Company (at its sole expense) shall take the following
actions:
(A) immediately following the Change in Control Date and
throughout the Relevant Period, the Company shall maintain in effect,
and not materially reduce the benefits provided by, each of the
Benefit Plans; and
(B) the Company shall arrange for uninterrupted participation in
each of the Benefit Plans by the Executive (and, following the death
of the Executive, by the Executive's spouse, even if such person was
not the Executive's spouse or was otherwise ineligible to participate
in a Benefit Plan on the Change in Control Date or at any other time),
provided that, if such participation in any Benefit Plan is not
--------
permitted at any time during the Relevant Period by the terms of such
Benefit Plan, then the Company (at its sole expense) shall thereupon
provide to the Executive (and, following the death of the Executive,
shall provide to the Executive's spouse) substantially the same
benefits as were provided to the Executive pursuant to such Benefit
Plan on the Change in Control Date.
Each payment required to be made to the Executive pursuant to the foregoing
provisions of this Section 3 shall be made by check drawn on an account of the
Company at a bank located in the United States of America and shall be paid not
more than 10 days after the Change in Control Date. Upon payment in full to the
Executive of all amounts due under subsection (i) of this Section 3, all of the
options and other rights referred to in clause (C) of such subsection as to
which payment has been made shall be automatically cancelled.
Section 4. Notices. Notices required or permitted to be given by either
-------
party pursuant to this Agreement shall be in writing and shall be deemed to have
been given when delivered personally to the other party or when deposited with
the United States Postal Service as registered mail with postage prepaid and
addressed:
(i) if to the Executive, at the Executive's address last shown on the
Company's records, and
(ii) if to the Company, at 1 WSMP Drive, P.O. Box 399, Claremont, NC
28610, directed to the attention of the Corporate Secretary;
or, in either case, to such other address as the party to whom or to which such
notice is to be given shall have specified by notice given to the other party.
Section 5. Withholding Taxes. The Company may withhold from all payments
-----------------
to be paid to the Executive pursuant to this Agreement all taxes that, by
applicable federal, state or local law, the Company is required to so withhold.
Section 6. Expenses of Enforcement. Upon demand by the Executive made to
-----------------------
the Company, the Company shall reimburse the Executive for all reasonable
expenses (including legal fees and expenses) incurred by the Executive in
enforcing or seeking to enforce the payment of any amount or other benefit to
which the Executive shall become entitled pursuant to this Agreement.
Section 7. No Obligation to Mitigate. The Executive shall not be required
-------------------------
to mitigate the amount of any payment or other benefit required to be paid to
the Executive pursuant to this Agreement, whether by seeking other employment or
otherwise, nor shall the amount of any such payment or other benefit be reduced
on account of any compensation earned by the Executive as a result of employment
by another Person. No amount paid or payable to the Executive by HERTH at any
time or for any reason shall be considered in mitigation of any amount due to
him under this Agreement.
Section 8. Confidential Information. From the Effective Date until the
------------------------
expiration of the term of this Agreement, the Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, that shall have been obtained by the
Executive during the Executive's management of the Company or any of its
affiliated companies and that shall not have become public knowledge (other than
as a result of acts by the Executive in violation of this Section). The
Company, however, shall not withhold or reduce any amount or other benefit
payable to the Executive pursuant to the terms of this Agreement, or otherwise,
on the ground that the Executive has breached or threatened to breach the
foregoing provisions of this Section; the sole remedy of the Company for a
breach or anticipated breach of such provisions shall be injunctive relief.
Section 9. Amendment and Waiver. This Agreement may be amended or waived
--------------------
only by a written instrument signed by both parties. No waiver by either party
of any breach of this Agreement shall be considered a waiver of any other or
subsequent breach.
Section 10. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of North Carolina.
Section 11. Validity. The invalidity or unenforceability of any provision
--------
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, all of which shall remain in full force and effect.
Section 12. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original but all of which together shall
constitute the same instrument.
Section 13. Assignment. This Agreement shall inure to the benefit of and
----------
be enforceable by the Executive's legal representative. The Company shall not
assign any of its obligations under this Agreement, by operation of law or
otherwise, without the express prior written consent of the Executive; any
assignment supposedly effected absent such consent shall be void.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the Effective Date.
WSMP, INC.
By: MATTHEW V. HOLLIFIELD
-----------------------------
Matthew V. Hollifield
Vice President of Finance
THE EXECUTIVE:
RICHARD F. HOWARD (L.S.)
- --------------------------------
Richard F. Howard
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT between WSMP, Inc., a North Carolina corporation (the
"Company"), and David R. Clark (the "Employee") is dated as of August 29, 1997
- --------- ----------
(the "Effective Date").
----------------
W I T N E S S E T H:
WHEREAS, the Employee is a key employee of the Company, having served in an
executive capacity at the Company, thereby acquiring an intimate knowledge of
the business and affairs of the Company and having clearly demonstrated the
ability to perform valuable services for the Company; and
WHEREAS, the Company considers it to be in the best interests of its
shareholders to encourage the continued employment of key employees of the
Company in that the continuity of management is essential to protecting and
enhancing the best interests of the Company and its shareholders; and
WHEREAS, the Company believes that the possibility of the occurrence of a
Change in Control of the Company (as defined below) may result in the
termination of the Employee's employment by the Company or in the distraction of
the Employee from the performance of his duties to the Company, in either case
to the detriment of the Company and its shareholders; and
WHEREAS, the Company recognizes that the Employee could suffer adverse
financial and professional consequences if a Change in Control of the Company
were to occur; and
WHEREAS, the Company wishes to enter into this Agreement to protect the
Employee in the event that a Change in Control of the Company were to occur,
thereby encouraging the Employee to remain with the Company and not be
distracted from the performance of his duties to the Company;
NOW, THEREFORE, the parties agree as follows:
Section 1. Construction; Definitions. (a) In the event of the enactment
-------------------------
of any successor provision to any statute or rule cited in this Agreement,
references in this Agreement to such statute or rule shall be to such successor
provision. The headings of Sections of this Agreement shall not control the
meaning or interpretation of this Agreement. References in this Agreement to
any Section are to the corresponding Section of this Agreement unless the
context otherwise indicates.
(b) As used in this Agreement, the following terms shall have the meanings
indicated:
(i) "Affiliate" and "Associate" shall have the respective meanings
----------- -----------
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on the date hereof.
(ii) "Acquiring Person" shall mean any Person who or which, together
------------------
with all Affiliates and Associates of such Person, shall be the Beneficial
Owner of securities of the Company constituting a Substantial Block, but
shall not include (A) the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or of any Subsidiary of the Company or
any Person organized, appointed or established by the Company or such
Subsidiary as a fiduciary pursuant to the terms of any such employee
benefit plan, (B) any Person consisting of or including any or all of
Messrs. James C. Richardson, Jr., David R. Clark and James M. Templeton,
but only if and so long as such Person consists of or includes at least one
full-time employee of the Company, and (C) any Person who or which,
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of a Substantial Block solely as a result of a change in
the aggregate number of shares of Voting Stock or other voting securities
of the Company outstanding since the last date on which such Person
acquired Beneficial Ownership of any securities of the Company included in
such Substantial Block.
(iii) "After-Tax Payments" means payments to or for the benefit of
--------------------
the Employee under this Agreement after reduction for any and all federal,
state and local income tax and excise tax liabilities of the Employee
resulting therefrom.
(iv) "Agreement" means this Change of Control Agreement as it may be
-----------
amended from time to time in accordance with Section 10.
(v) A Person shall be deemed the "Beneficial Owner" of and shall be
------------------
deemed to "beneficially own" any securities:
------------------
(A) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has (1) the right or obligation to
acquire (whether such right or obligation is exercisable or effective
immediately or otherwise) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or
otherwise or (2) the right to vote or dispose of or has "beneficial
-----------
ownership" of (as determined pursuant to Rule 13d-3 of the General
----------
Rules and Regulations under the Exchange Act), including pursuant to
any agreement, arrangement or understanding (whether or not in
writing); provided, however, that a Person shall not be deemed the
-------- -------
"Beneficial Owner" of or to "beneficially own" any security under this
------------------ ------------------
clause (2) if the agreement, arrangement or understanding to vote such
security (x) arises solely from a revocable proxy given in response to
a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the General Rules and
Regulations of the Exchange Act and (y) is not also then reportable by
such Person on Schedule 13D under the Exchange Act (or any comparable
or successor report); or
(B) that are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such
Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in writing),
for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in clause (2) of subparagraph (A) of this
paragraph (v)) or disposing of any voting securities of the Company.
No part of this definition shall cause a Person ordinarily engaged in
business as an underwriter of securities to be the "Beneficial Owner" of or
------------------
to "beneficially own" any securities acquired in a bona fide firm
------------------
commitment underwriting pursuant to an underwriting agreement with the
Company until the expiration of forty days after the date of such
acquisition.
(vi) "Benefit Plans" means all of the Company's employee benefit
---------------
plans, including life insurance and medical, dental, health, accident and
disability plans, in which the Employee was a participant on the Change in
Control Date.
(vii) "Board of Directors" means the entire Board of Directors of the
--------------------
Company.
(viii) A "Business Combination" shall occur when
----------------------
(A) any Person (other than a Subsidiary of the Company) combines
or consolidates with, or merges with and into, the Company, and the
Company shall be the continuing or surviving corporation of such
combination, consolidation or merger and, in connection with such
combination, consolidation or merger, all or part of the shares of
Voting Stock shall be changed into or exchanged for other securities
of any Person or cash or any other property;
(B) the Company combines or consolidates with, or merges with
and into, any other Person (other than a Subsidiary of the Company),
and the Company shall not be the continuing or surviving corporation
of such combination, consolidation or merger; or
(C) the Company sells or otherwise transfers (or one or more of
its Subsidiaries sells or otherwise transfers), in one or more
transactions, assets, cash flow or earning power aggregating more than
50 percent of the assets, cash flow or earning power of the Company
and its Subsidiaries (taken as a whole and calculated on the basis of
the Company's most recent regularly prepared financial statements) to
any other Person or Persons (other than the Company or any Subsidiary
of the Company).
(ix) A "Change in Control of the Company" shall have occurred if,
----------------------------------
after the Effective Date,
(A) individuals who, as of the date hereof, constitute the Board
of Directors (the "Incumbent Board") cease for any reason to
----------------
constitute at least a majority of the Board of Directors; provided,
--------
however, that any individual becoming a director subsequent to the
-------
date hereof whose election or nomination for election by the Company's
shareholders was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered a
member of the Incumbent Board;
(B) any Person, alone or together with its Affiliates and
Associates, at any time after the Effective Date, shall become an
Acquiring Person;
(C) a Business Combination shall be consummated, unless,
immediately following such Business Combination, (1) all or
substantially all the Persons who were the beneficial owners of the
Voting Stock immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50 percent of the
shares of Voting Stock and the combined voting power of the voting
securities of the outstanding voting securities entitled to vote
generally in the election of directors of the corporation resulting
from such Business Combination in substantially the same proportions
as their ownership, immediately prior to such Business Combination, of
the Voting Stock, (2) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan of the
Company or any corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 15 percent or more of the
Voting Stock of the corporation resulting from such Business
Combination or the combined voting power of the voting securities then
outstanding of such corporation, and (3) at least one-half of the
members of the board of directors after such Business Combination were
members of the Incumbent Board at the time of the approval of such
Business Combination; or
(D) the Company is liquidated or dissolved.
(x) "Change in Control Date" means the date of occurrence of a Change
------------------------
in Control of the Company.
(xi) "Company" has the meaning assigned to such term in the recitals
---------
to this Agreement and shall include any Person with or into which such
Person shall have been merged or consolidated or to which such Person shall
have transferred all or substantially all of its assets.
(xii) "Exchange Act" means the Securities Exchange Act of 1934, as
--------------
amended.
(xiii) "Expiration Date" means the end of the ten-year period
-----------------
beginning on the Effective Date.
(xiv) "Person" means any individual, corporation, partnership, joint
--------
venture, association, joint-stock company, limited partnership, limited
liability company, trust, unincorporated organization, government or agency
or political subdivision of any government. When the context of this
Agreement so indicates, such term also has the meaning assigned to it in
Section 13(d) of the Exchange Act.
(xv) "Relevant Period" means the life of the Employee and, following
-----------------
the death of the Employee, throughout the life of the Employee's spouse, if
any.
(xvi) "Subsidiary" means any corporation or other legal entity of
------------
which a majority of the voting power of the voting equity securities or
voting interest is owned, directly or indirectly, by such Person, or which
is otherwise controlled by such Person.
(xvii) "Shares" means shares of capital stock of the Company.
--------
(xviii) "Substantial Block" shall mean a number of shares of the
-------------------
Voting Stock equal to or in excess of 15% of the number of shares of the
Voting Stock then outstanding.
(xix) "Voting Stock" means Shares the holders of which are entitled
--------------
to vote for the election of directors of the Company, but excluding Shares
entitled to vote only upon the occurrence of a contingency unless that
contingency shall have occurred.
Section 2. Term. If a Change in Control of the Company shall occur before
----
the expiration of the term of this Agreement, then, whether or not the
Employee's employment by the Company shall at any time be terminated, the
Employee shall be entitled to receive the benefits provided for in this
Agreement. The term of this Agreement shall begin on the Effective Date and,
unless extended pursuant to the third sentence of this Section or terminated
pursuant to the fourth sentence of this Section, shall expire at the Expiration
Date. If the Company shall not have given written notice to the Employee at
least 45 days before the Expiration Date that the term of this Agreement will
expire on the Expiration Date, then the term of this Agreement shall be extended
automatically for successive one-year periods (the first such period to begin on
the day immediately following the Expiration Date) unless and until the Company
shall give written notice to the Employee at least 45 days before the end of any
one-year period for which the term of this Agreement shall have been extended
that such term will expire at the end of such one-year period, whereupon the
term of this Agreement shall expire at the end of such one-year period. This
Agreement shall in any event expire upon the termination by the Employee or the
Company of the Employee's employment by the Company, unless there has been a
Change in Control of the Company.
Section 3. Benefits Payable Upon Change in Control. If a Change in
---------------------------------------
Control of the Company shall occur before the expiration of the term of this
Agreement, then the Employee shall be entitled to the following benefits:
(i) The Company shall pay to the Employee, as a lump sum, an amount
equal to the sum of:
(A) three times the amount of the Employee's annual base salary
as in effect on the Change in Control Date, plus
(B) three times the amount of the largest annual cash bonus paid
or payable by the Company to the Employee for services rendered during
any one of the three most recent fiscal years of the Company,
regardless of when such bonus may have been paid or payable, plus
(C) the amount, if positive, equal to the aggregate spread
between the exercise prices of all outstanding unexercised options to
purchase Shares and other rights whose value derives from the value of
Shares (including, without limitation, "cash-only" stock appreciation
rights), which options or rights had been issued by the Company and
are held by the Employee on the Change in Control Date, whether or not
enough time had elapsed from the date of grant of such options or
rights so as to make them fully exercisable or vested on the Change in
Control Date, and the higher of
(1) the closing price of the Shares as reported on the
NASDAQ National Market System on the Change in Control Date, or
(2) the highest price per Share actually paid in connection
with the Change in Control of the Company, plus
(D) an additional amount equal to the aggregate of any and all
federal, state and local income tax and excise tax liabilities of the
Employee resulting from the payments due pursuant to clauses (A), (B),
(C) and (D) hereof; provided, however, that, if the total of all After
-------- -------
Tax Payments would be increased by the limitation or elimination of
any payment under this Section 3, then amounts payable under this
Section 3 shall be reduced to the extent, and only to the extent,
necessary to maximize the After-Tax Payments. The determination as to
whether and to what extent payments under this Section 3 are required
to be reduced in accordance with the preceding sentence shall be made
at the Company's expense by Deloitte & Touche LLP or such other
nationally recognized certified public accounting firm as the Board of
Directors may designate as soon as practicable following a Change in
Control of the Company.
(ii) The Company (at its sole expense) shall take the following
actions:
(A) immediately following the Change in Control Date and
throughout the Relevant Period, the Company shall maintain in effect,
and not materially reduce the benefits provided by, each of the
Benefit Plans; and
(B) the Company shall arrange for uninterrupted participation in
each of the Benefit Plans by the Employee (and, following the death of
the Employee, by the Employee's spouse, even if such person was not
the Employee's spouse or was otherwise ineligible to participate in a
Benefit Plan on the Change in Control Date or at any other time),
provided that, if such participation in any Benefit Plan is not
--------
permitted at any time during the Relevant Period by the terms of such
Benefit Plan, then the Company (at its sole expense) shall thereupon
provide to the Employee (and, following the death of the Employee,
shall provide to the Employee's spouse) substantially the same
benefits as were provided to the Employee pursuant to such Benefit
Plan on the Change in Control Date.
Each payment required to be made to the Employee pursuant to the foregoing
provisions of this Section 3 shall be made by check drawn on an account of the
Company at a bank located in the United States of America and shall be paid not
more than 10 days after the Change in Control Date. Upon payment in full to the
Employee of all amounts due under subsection (i) of this Section 3, all of the
options and other rights referred to in clause (C) of such subsection as to
which payment has been made shall be automatically cancelled.
Section 4. Notices. Notices required or permitted to be given by either
-------
party pursuant to this Agreement shall be in writing and shall be deemed to have
been given when delivered personally to the other party or when deposited with
the United States Postal Service as registered mail with postage prepaid and
addressed:
(i) if to the Employee, at the Employee's address last shown on the
Company's records, and
(ii) if to the Company, at 1 WSMP Drive, P.O. Box 399, Claremont, NC
28610, directed to the attention of the Corporate Secretary;
or, in either case, to such other address as the party to whom or to which such
notice is to be given shall have specified by notice given to the other party.
Section 5. Withholding Taxes. The Company may withhold from all payments
-----------------
to be paid to the Employee pursuant to this Agreement all taxes that, by
applicable federal, state or local law, the Company is required to so withhold.
Section 6. Expenses of Enforcement. Upon demand by the Employee made to
-----------------------
the Company, the Company shall reimburse the Employee for all reasonable
expenses (including legal fees and expenses) incurred by the Employee in
enforcing or seeking to enforce the payment of any amount or other benefit to
which the Employee shall become entitled pursuant to this Agreement.
Section 7. Employment by Subsidiary. If, at the Effective Date, the
------------------------
Employee is an employee of a subsidiary of the Company, then references in this
Agreement to the Employee's employment by the Company shall be understood as
references to the Employee's employment by the subsidiary.
Section 8. No Obligation to Mitigate. The Employee shall not be required
-------------------------
to mitigate the amount of any payment or other benefit required to be paid to
the Employee pursuant to this Agreement, whether by seeking other employment or
otherwise, nor shall the amount of any such payment or other benefit be reduced
on account of any compensation earned by the Employee as a result of employment
by another Person.
Section 9. Confidential Information. From the Effective Date until the
------------------------
expiration of the term of this Agreement, the Employee shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, that shall have been obtained by the Employee
during the Employee's employment by the Company or any of its affiliated
companies and that shall not have become public knowledge (other than as a
result of acts by the Employee in violation of this Section). The Company,
however, shall not withhold or reduce any amount or other benefit payable to the
Employee pursuant to the terms of this Agreement, or otherwise, on the ground
that the Employee has breached or threatened to breach the foregoing provisions
of this Section; the sole remedy of the Company for a breach or anticipated
breach of such provisions shall be injunctive relief.
Section 10. Amendment and Waiver. This Agreement may be amended or waived
--------------------
only by a written instrument signed by both parties. No waiver by either party
of any breach of this Agreement shall be considered a waiver of any other or
subsequent breach.
Section 11. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of North Carolina.
Section 12. Validity. The invalidity or unenforceability of any provision
--------
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, all of which shall remain in full force and effect.
Section 13. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original but all of which together shall
constitute the same instrument.
Section 14. Assignment. This Agreement shall inure to the benefit of and
----------
be enforceable by the Employee's legal representative. The Company shall not
assign any of its obligations under this Agreement, by operation of law or
otherwise, without the express prior written consent of the Employee; any
assignment supposedly effected absent such consent shall be void.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement as of the Effective Date.
WSMP, INC.
By: MATTHEW V. HOLLIFIELD
----------------------------
Matthew V. Hollifield
Vice President of Finance
THE EMPLOYEE:
DAVID R. CLARK (L.S.)
- -------------------------------
David R. Clark
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT between WSMP, Inc., a North Carolina corporation (the
"Company"), and James M. Templeton (the "Executive") is dated as of August 29,
- --------- -----------
1997 (the "Effective Date").
----------------
W I T N E S S E T H:
WHEREAS, the Executive is an executive officer of the Company, having
provided management services through HERTH Management, Inc. ("HERTH"), thereby
-------
acquiring an intimate knowledge of the business and affairs of the Company and
having clearly demonstrated the ability to perform valuable services for the
Company; and
WHEREAS, the Company considers it to be in the best interests of its
shareholders to encourage continuity of management; and
WHEREAS, the Company believes that the possibility of the occurrence of a
Change in Control of the Company (as defined below) may result in the
termination of the Executive's management of the Company or in the distraction
of the Executive from the performance of his duties to the Company, in either
case to the detriment of the Company and its shareholders; and
WHEREAS, the Company recognizes that the Executive could suffer adverse
financial and professional consequences if a Change in Control of the Company
were to occur; and
WHEREAS, the Company wishes to enter into this Agreement to protect the
Executive in the event that a Change in Control of the Company were to occur,
thereby encouraging the Executive to continue to manage the Company and not be
distracted from the performance of his duties to the Company;
NOW, THEREFORE, the parties agree as follows:
Section 1. Construction; Definitions. (a) In the event of the enactment
-------------------------
of any successor provision to any statute or rule cited in this Agreement,
references in this Agreement to such statute or rule shall be to such successor
provision. The headings of Sections of this Agreement shall not control the
meaning or interpretation of this Agreement. References in this Agreement to
any Section are to the corresponding Section of this Agreement unless the
context otherwise indicates.
(b) As used in this Agreement, the following terms shall have the meanings
indicated:
(i) "Affiliate" and "Associate" shall have the respective meanings
----------- -----------
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on the date hereof.
(ii) "Acquiring Person" shall mean any Person who or which, together
------------------
with all Affiliates and Associates of such Person, shall be the Beneficial
Owner of securities of the Company constituting a Substantial Block, but
shall not include (A) the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or of any Subsidiary of the Company or
any Person organized, appointed or established by the Company or such
Subsidiary as a fiduciary pursuant to the terms of any such employee
benefit plan, (B) any Person consisting of or including any or all of
Messrs. James C. Richardson, Jr., David R. Clark and James M. Templeton,
but only if and so long as such Person consists of or includes at least one
full-time employee of the Company, and (C) any Person who or which,
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of a Substantial Block solely as a result of a change in
the aggregate number of shares of Voting Stock or other voting securities
of the Company outstanding since the last date on which such Person
acquired Beneficial Ownership of any securities of the Company included in
such Substantial Block.
(iii) "After-Tax Payments" means payments to or for the benefit of
--------------------
the Executive under this Agreement after reduction for any and all federal,
state and local income tax and excise tax liabilities of the Executive
resulting therefrom.
(iv) "Agreement" means this Change of Control Agreement as it may be
-----------
amended from time to time in accordance with Section 10.
(v) A Person shall be deemed the "Beneficial Owner" of and shall be
------------------
deemed to "beneficially own" any securities:
------------------
(A) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has (1) the right or obligation to
acquire (whether such right or obligation is exercisable or effective
immediately or otherwise) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or
otherwise or (2) the right to vote or dispose of or has "beneficial
-----------
ownership" of (as determined pursuant to Rule 13d-3 of the General
----------
Rules and Regulations under the Exchange Act), including pursuant to
any agreement, arrangement or understanding (whether or not in
writing); provided, however, that a Person shall not be deemed the
-------- -------
"Beneficial Owner" of or to "beneficially own" any security under this
------------------ -----------------
clause (2) if the agreement, arrangement or understanding to vote such
security (x) arises solely from a revocable proxy given in response to
a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the General Rules and
Regulations of the Exchange Act and (y) is not also then reportable by
such Person on Schedule 13D under the Exchange Act (or any comparable
or successor report); or
(B) that are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such
Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in writing),
for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in clause (2) of subparagraph (A) of this
paragraph (v)) or disposing of any voting securities of the Company.
No part of this definition shall cause a Person ordinarily engaged in
business as an underwriter of securities to be the "Beneficial Owner" of or
------------------
to "beneficially own" any securities acquired in a bona fide firm
------------------
commitment underwriting pursuant to an underwriting agreement with the
Company until the expiration of forty days after the date of such
acquisition.
(vi) "Benefit Plans" means all of the Company's employee benefit
---------------
plans, including life insurance and medical, dental, health, accident and
disability plans, in which the Executive was a participant on the Change in
Control Date.
(vii) "Board of Directors" means the entire Board of Directors of the
--------------------
Company.
(viii) A "Business Combination" shall occur when
----------------------
(A) any Person (other than a Subsidiary of the Company) combines
or consolidates with, or merges with and into, the Company, and the
Company shall be the continuing or surviving corporation of such
combination, consolidation or merger and, in connection with such
combination, consolidation or merger, all or part of the shares of
Voting Stock shall be changed into or exchanged for other securities
of any Person or cash or any other property;
(B) the Company combines or consolidates with, or merges with
and into, any other Person (other than a Subsidiary of the Company),
and the Company shall not be the continuing or surviving corporation
of such combination, consolidation or merger; or
(C) the Company sells or otherwise transfers (or one or more of
its Subsidiaries sells or otherwise transfers), in one or more
transactions, assets, cash flow or earning power aggregating more than
50 percent of the assets, cash flow or earning power of the Company
and its Subsidiaries (taken as a whole and calculated on the basis of
the Company's most recent regularly prepared financial statements) to
any other Person or Persons (other than the Company or any Subsidiary
of the Company).
(ix) A "Change in Control of the Company" shall have occurred if,
----------------------------------
after the Effective Date,
(A) individuals who, as of the date hereof, constitute the Board
of Directors (the "Incumbent Board") cease for any reason to
-----------------
constitute at least a majority of the Board of Directors; provided,
--------
however, that any individual becoming a director subsequent to the
-------
date hereof whose election or nomination for election by the Company's
shareholders was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered a
member of the Incumbent Board;
(B) any Person, alone or together with its Affiliates and
Associates, at any time after the Effective Date, shall become an
Acquiring Person;
(C) a Business Combination shall be consummated, unless,
immediately following such Business Combination, (1) all or
substantially all the Persons who were the beneficial owners of the
Voting Stock immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50 percent of the
shares of Voting Stock and the combined voting power of the voting
securities of the outstanding voting securities entitled to vote
generally in the election of directors of the corporation resulting
from such Business Combination in substantially the same proportions
as their ownership, immediately prior to such Business Combination, of
the Voting Stock, (2) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan of the
Company or any corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 15 percent or more of the
Voting Stock of the corporation resulting from such Business
Combination or the combined voting power of the voting securities then
outstanding of such corporation, and (3) at least one-half of the
members of the board of directors after such Business Combination were
members of the Incumbent Board at the time of the approval of such
Business Combination; or
(D) the Company is liquidated or dissolved.
(x) "Change in Control Date" means the date of occurrence of a Change
------------------------
in Control of the Company.
(xi) "Company" has the meaning assigned to such term in the recitals
---------
to this Agreement and shall include any Person with or into which such
Person shall have been merged or consolidated or to which such Person shall
have transferred all or substantially all of its assets.
(xii) "Exchange Act" means the Securities Exchange Act of 1934, as
--------------
amended.
(xiii) "Expiration Date" means the end of the ten-year period
-----------------
beginning on the Effective Date.
(xiv) "Person" means any individual, corporation, partnership, joint
--------
venture, association, joint-stock company, limited partnership, limited
liability company, trust, unincorporated organization, government or agency
or political subdivision of any government. When the context of this
Agreement so indicates, such term also has the meaning assigned to it in
Section 13(d) of the Exchange Act.
(xv) "Relevant Period" means the life of the Executive and, following
-----------------
the death of the Executive, throughout the life of the Executive's spouse,
if any.
(xvi) "Subsidiary" means any corporation or other legal entity of
------------
which a majority of the voting power of the voting equity securities or
voting interest is owned, directly or indirectly, by such Person, or which
is otherwise controlled by such Person.
(xvii) "Shares" means shares of capital stock of the Company.
--------
(xviii) "Substantial Block" shall mean a number of shares of the
-------------------
Voting Stock equal to or in excess of 15% of the number of shares of the
Voting Stock then outstanding.
(xix) "Voting Stock" means Shares the holders of which are entitled
--------------
to vote for the election of directors of the Company, but excluding Shares
entitled to vote only upon the occurrence of a contingency unless that
contingency shall have occurred.
Section 2. Term. If a Change in Control of the Company shall occur before
----
the expiration of the term of this Agreement, then, whether or not the
Executive's role as an executive officer of the Company shall at any time be
terminated, the Executive shall be entitled to receive the benefits provided for
in this Agreement. The term of this Agreement shall begin on the Effective Date
and, unless extended pursuant to the third sentence of this Section or
terminated pursuant to the fourth sentence of this Section, shall expire at the
Expiration Date. If the Company shall not have given written notice to the
Executive at least 45 days before the Expiration Date that the term of this
Agreement will expire on the Expiration Date, then the term of this Agreement
shall be extended automatically for successive one-year periods (the first such
period to begin on the day immediately following the Expiration Date) unless and
until the Company shall give written notice to the Executive at least 45 days
before the end of any one-year period for which the term of this Agreement shall
have been extended that such term will expire at the end of such one-year
period, whereupon the term of this Agreement shall expire at the end of such one
year period. This Agreement shall in any event expire upon termination of the
Executive's role as an elected or appointed officer of the Company, unless there
has been a Change in Control of the Company.
Section 3. Benefits Payable Upon Change in Control. If a Change in
---------------------------------------
Control of the Company shall occur before the expiration of the term of this
Agreement, then the Executive shall be entitled to the following benefits:
(i) The Company shall pay to the Executive, as a lump sum, an amount
equal to the sum of:
(A) three times the amount of the Executive's annual base salary
payable by HERTH to the Executive for services rendered to the Company
as in effect on the Change in Control Date, or three times the amount
attributed to the Executive by HERTH for reporting purposes in the
Company's most recent proxy statement, whichever is greater, plus
(B) three times the amount of the largest annual cash bonus paid
or payable by HERTH or by the Company to the Executive for services
rendered to the Company during any one of the three most recent fiscal
years of the Company, regardless of when such bonus may have been paid
or payable, plus
(C) the amount, if positive, equal to the aggregate spread
between the exercise prices of all outstanding unexercised options to
purchase Shares and other rights whose value derives from the value of
Shares (including, without limitation, "cash-only" stock appreciation
rights), which options or rights had been issued by the Company and
are held by the Executive on the Change in Control Date, whether or
not enough time had elapsed from the date of grant of such options or
rights so as to make them fully exercisable or vested on the Change in
Control Date, and the higher of
(1) the closing price of the Shares as reported on the
NASDAQ National Market System on the Change in Control Date, or
(2) the highest price per Share actually paid in connection
with the Change in Control of the Company, plus
(D) an additional amount equal to the aggregate of any and all
federal, state and local income tax and excise tax liabilities of the
Executive resulting from the payments due pursuant to clauses (A),
(B), (C) and (D) hereof; provided, however, that, if the total of all
-------- -------
After-Tax Payments would be increased by the limitation or elimination
of any payment under this Section 3, then amounts payable under this
Section 3 shall be reduced to the extent, and only to the extent,
necessary to maximize the After-Tax Payments. The determination as to
whether and to what extent payments under this Section 3 are required
to be reduced in accordance with the preceding sentence shall be made
at the Company's expense by Deloitte & Touche LLP or such other
nationally recognized certified public accounting firm as the Board of
Directors may designate as soon as practicable following a Change in
Control of the Company.
(ii) The Company (at its sole expense) shall take the following
actions:
(A) immediately following the Change in Control Date and
throughout the Relevant Period, the Company shall maintain in effect,
and not materially reduce the benefits provided by, each of the
Benefit Plans; and
(B) the Company shall arrange for uninterrupted participation in
each of the Benefit Plans by the Executive (and, following the death
of the Executive, by the Executive's spouse, even if such person was
not the Executive's spouse or was otherwise ineligible to participate
in a Benefit Plan on the Change in Control Date or at any other time),
provided that, if such participation in any Benefit Plan is not
--------
permitted at any time during the Relevant Period by the terms of such
Benefit Plan, then the Company (at its sole expense) shall thereupon
provide to the Executive (and, following the death of the Executive,
shall provide to the Executive's spouse) substantially the same
benefits as were provided to the Executive pursuant to such Benefit
Plan on the Change in Control Date.
Each payment required to be made to the Executive pursuant to the foregoing
provisions of this Section 3 shall be made by check drawn on an account of the
Company at a bank located in the United States of America and shall be paid not
more than 10 days after the Change in Control Date. Upon payment in full to the
Executive of all amounts due under subsection (i) of this Section 3, all of the
options and other rights referred to in clause (C) of such subsection as to
which payment has been made shall be automatically cancelled.
Section 4. Notices. Notices required or permitted to be given by either
-------
party pursuant to this Agreement shall be in writing and shall be deemed to have
been given when delivered personally to the other party or when deposited with
the United States Postal Service as registered mail with postage prepaid and
addressed:
(i) if to the Executive, at the Executive's address last shown on the
Company's records, and
(ii) if to the Company, at 1 WSMP Drive, P.O. Box 399, Claremont, NC
28610, directed to the attention of the Corporate Secretary;
or, in either case, to such other address as the party to whom or to which such
notice is to be given shall have specified by notice given to the other party.
Section 5. Withholding Taxes. The Company may withhold from all payments
-----------------
to be paid to the Executive pursuant to this Agreement all taxes that, by
applicable federal, state or local law, the Company is required to so withhold.
Section 6. Expenses of Enforcement. Upon demand by the Executive made to
-----------------------
the Company, the Company shall reimburse the Executive for all reasonable
expenses (including legal fees and expenses) incurred by the Executive in
enforcing or seeking to enforce the payment of any amount or other benefit to
which the Executive shall become entitled pursuant to this Agreement.
Section 7. No Obligation to Mitigate. The Executive shall not be required
-------------------------
to mitigate the amount of any payment or other benefit required to be paid to
the Executive pursuant to this Agreement, whether by seeking other employment or
otherwise, nor shall the amount of any such payment or other benefit be reduced
on account of any compensation earned by the Executive as a result of employment
by another Person. No amount paid or payable to the Executive by HERTH at any
time or for any reason shall be considered in mitigation of any amount due to
him under this Agreement.
Section 8. Confidential Information. From the Effective Date until the
------------------------
expiration of the term of this Agreement, the Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, that shall have been obtained by the
Executive during the Executive's management of the Company or any of its
affiliated companies and that shall not have become public knowledge (other than
as a result of acts by the Executive in violation of this Section). The
Company, however, shall not withhold or reduce any amount or other benefit
payable to the Executive pursuant to the terms of this Agreement, or otherwise,
on the ground that the Executive has breached or threatened to breach the
foregoing provisions of this Section; the sole remedy of the Company for a
breach or anticipated breach of such provisions shall be injunctive relief.
Section 9. Amendment and Waiver. This Agreement may be amended or waived
--------------------
only by a written instrument signed by both parties. No waiver by either party
of any breach of this Agreement shall be considered a waiver of any other or
subsequent breach.
Section 10. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of North Carolina.
Section 11. Validity. The invalidity or unenforceability of any provision
--------
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, all of which shall remain in full force and effect.
Section 12. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original but all of which together shall
constitute the same instrument.
Section 13. Assignment. This Agreement shall inure to the benefit of and
----------
be enforceable by the Executive's legal representative. The Company shall not
assign any of its obligations under this Agreement, by operation of law or
otherwise, without the express prior written consent of the Executive; any
assignment supposedly effected absent such consent shall be void.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the Effective Date.
WSMP, INC.
By: MATTHEW V. HOLLIFIELD
-----------------------------
Matthew V. Hollifield
Vice President of Finance
THE EXECUTIVE:
JAMES M. TEMPLETON (L.S.)
- --------------------------------
James M. Templeton
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT between WSMP, Inc., a North Carolina corporation (the
"Company"), and Larry D. Hefner (the "Employee") is dated as of August 29, 1997
- --------- ----------
(the "Effective Date").
----------------
W I T N E S S E T H:
WHEREAS, the Employee is a key employee of the Company, having served in an
executive capacity at the Company, thereby acquiring an intimate knowledge of
the business and affairs of the Company and having clearly demonstrated the
ability to perform valuable services for the Company; and
WHEREAS, the Company considers it to be in the best interests of its
shareholders to encourage the continued employment of key employees of the
Company in that the continuity of management is essential to protecting and
enhancing the best interests of the Company and its shareholders; and
WHEREAS, the Company believes that the possibility of the occurrence of a
Change in Control of the Company (as defined below) may result in the
termination of the Employee's employment by the Company or in the distraction of
the Employee from the performance of his duties to the Company, in either case
to the detriment of the Company and its shareholders; and
WHEREAS, the Company recognizes that the Employee could suffer adverse
financial and professional consequences if a Change in Control of the Company
were to occur; and
WHEREAS, the Company wishes to enter into this Agreement to protect the
Employee in the event that a Change in Control of the Company were to occur,
thereby encouraging the Employee to remain with the Company and not be
distracted from the performance of his duties to the Company;
NOW, THEREFORE, the parties agree as follows:
Section 1. Construction; Definitions. (a) In the event of the enactment
-------------------------
of any successor provision to any statute or rule cited in this Agreement,
references in this Agreement to such statute or rule shall be to such successor
provision. The headings of Sections of this Agreement shall not control the
meaning or interpretation of this Agreement. References in this Agreement to
any Section are to the corresponding Section of this Agreement unless the
context otherwise indicates.
(b) As used in this Agreement, the following terms shall have the meanings
indicated:
(i) "Affiliate" and "Associate" shall have the respective meanings
----------- -----------
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on the date hereof.
(ii) "Acquiring Person" shall mean any Person who or which, together
------------------
with all Affiliates and Associates of such Person, shall be the Beneficial
Owner of securities of the Company constituting a Substantial Block, but
shall not include (A) the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or of any Subsidiary of the Company or
any Person organized, appointed or established by the Company or such
Subsidiary as a fiduciary pursuant to the terms of any such employee
benefit plan, (B) any Person consisting of or including any or all of
Messrs. James C. Richardson, Jr., David R. Clark and James M. Templeton,
but only if and so long as such Person consists of or includes at least one
full-time employee of the Company, and (C) any Person who or which,
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of a Substantial Block solely as a result of a change in
the aggregate number of shares of Voting Stock or other voting securities
of the Company outstanding since the last date on which such Person
acquired Beneficial Ownership of any securities of the Company included in
such Substantial Block.
(iii) "After-Tax Payments" means payments to or for the benefit of
--------------------
the Employee under this Agreement after reduction for any and all federal,
state and local income tax and excise tax liabilities of the Employee
resulting therefrom.
(iv) "Agreement" means this Change of Control Agreement as it may be
-----------
amended from time to time in accordance with Section 10.
(v) A Person shall be deemed the "Beneficial Owner" of and shall be
------------------
deemed to "beneficially own" any securities:
------------------
(A) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has (1) the right or obligation to
acquire (whether such right or obligation is exercisable or effective
immediately or otherwise) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or
otherwise or (2) the right to vote or dispose of or has "beneficial
-----------
ownership" of (as determined pursuant to Rule 13d-3 of the General
----------
Rules and Regulations under the Exchange Act), including pursuant to
any agreement, arrangement or understanding (whether or not in
writing); provided, however, that a Person shall not be deemed the
-------- -------
"Beneficial Owner" of or to "beneficially own" any security under this
------------------ ------------------
clause (2) if the agreement, arrangement or understanding to vote such
security (x) arises solely from a revocable proxy given in response to
a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the General Rules and
Regulations of the Exchange Act and (y) is not also then reportable by
such Person on Schedule 13D under the Exchange Act (or any comparable
or successor report); or
(B) that are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such
Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding (whether or not in writing),
for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in clause (2) of subparagraph (A) of this
paragraph (v)) or disposing of any voting securities of the Company.
No part of this definition shall cause a Person ordinarily engaged in
business as an underwriter of securities to be the "Beneficial Owner" of or
------------------
to "beneficially own" any securities acquired in a bona fide firm
------------------
commitment underwriting pursuant to an underwriting agreement with the
Company until the expiration of forty days after the date of such
acquisition.
(vi) "Benefit Plans" means all of the Company's employee benefit
---------------
plans, including life insurance and medical, dental, health, accident and
disability plans, in which the Employee was a participant on the Change in
Control Date.
(vii) "Board of Directors" means the entire Board of Directors of the
--------------------
Company.
(viii) A "Business Combination" shall occur when
----------------------
(A) any Person (other than a Subsidiary of the Company) combines
or consolidates with, or merges with and into, the Company, and the
Company shall be the continuing or surviving corporation of such
combination, consolidation or merger and, in connection with such
combination, consolidation or merger, all or part of the shares of
Voting Stock shall be changed into or exchanged for other securities
of any Person or cash or any other property;
(B) the Company combines or consolidates with, or merges with
and into, any other Person (other than a Subsidiary of the Company),
and the Company shall not be the continuing or surviving corporation
of such combination, consolidation or merger; or
(C) the Company sells or otherwise transfers (or one or more of
its Subsidiaries sells or otherwise transfers), in one or more
transactions, assets, cash flow or earning power aggregating more than
50 percent of the assets, cash flow or earning power of the Company
and its Subsidiaries (taken as a whole and calculated on the basis of
the Company's most recent regularly prepared financial statements) to
any other Person or Persons (other than the Company or any Subsidiary
of the Company).
(ix) A "Change in Control of the Company" shall have occurred if,
----------------------------------
after the Effective Date,
(A) individuals who, as of the date hereof, constitute the Board
of Directors (the "Incumbent Board") cease for any reason to
-----------------
constitute at least a majority of the Board of Directors; provided,
--------
however, that any individual becoming a director subsequent to the
-------
date hereof whose election or nomination for election by the Company's
shareholders was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered a
member of the Incumbent Board;
(B) any Person, alone or together with its Affiliates and
Associates, at any time after the Effective Date, shall become an
Acquiring Person;
(C) a Business Combination shall be consummated, unless,
immediately following such Business Combination, (1) all or
substantially all the Persons who were the beneficial owners of the
Voting Stock immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50 percent of the
shares of Voting Stock and the combined voting power of the voting
securities of the outstanding voting securities entitled to vote
generally in the election of directors of the corporation resulting
from such Business Combination in substantially the same proportions
as their ownership, immediately prior to such Business Combination, of
the Voting Stock, (2) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan of the
Company or any corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 15 percent or more of the
Voting Stock of the corporation resulting from such Business
Combination or the combined voting power of the voting securities then
outstanding of such corporation, and (3) at least one-half of the
members of the board of directors after such Business Combination were
members of the Incumbent Board at the time of the approval of such
Business Combination; or
(D) the Company is liquidated or dissolved.
(x) "Change in Control Date" means the date of occurrence of a
------------------------
Change in Control of the Company.
(xi) "Company" has the meaning assigned to such term in the recitals
---------
to this Agreement and shall include any Person with or into which such
Person shall have been merged or consolidated or to which such Person shall
have transferred all or substantially all of its assets.
(xii) "Exchange Act" means the Securities Exchange Act of 1934, as
--------------
amended.
(xiii) "Expiration Date" means the end of the ten-year period
-----------------
beginning on the Effective Date.
(xiv) "Person" means any individual, corporation, partnership, joint
--------
venture, association, joint-stock company, limited partnership, limited
liability company, trust, unincorporated organization, government or agency
or political subdivision of any government. When the context of this
Agreement so indicates, such term also has the meaning assigned to it in
Section 13(d) of the Exchange Act.
(xv) "Relevant Period" means the life of the Employee and, following
-----------------
the death of the Employee, throughout the life of the Employee's spouse, if
any.
(xvi) "Subsidiary" means any corporation or other legal entity of
------------
which a majority of the voting power of the voting equity securities or
voting interest is owned, directly or indirectly, by such Person, or which
is otherwise controlled by such Person.
(xvii) "Shares" means shares of capital stock of the Company.
--------
(xviii) "Substantial Block" shall mean a number of shares of the
-------------------
Voting Stock equal to or in excess of 15% of the number of shares of the
Voting Stock then outstanding.
(xix) "Voting Stock" means Shares the holders of which are entitled
--------------
to vote for the election of directors of the Company, but excluding Shares
entitled to vote only upon the occurrence of a contingency unless that
contingency shall have occurred.
Section 2. Term. If a Change in Control of the Company shall occur before
----
the expiration of the term of this Agreement, then, whether or not the
Employee's employment by the Company shall at any time be terminated, the
Employee shall be entitled to receive the benefits provided for in this
Agreement. The term of this Agreement shall begin on the Effective Date and,
unless extended pursuant to the third sentence of this Section or terminated
pursuant to the fourth sentence of this Section, shall expire at the Expiration
Date. If the Company shall not have given written notice to the Employee at
least 45 days before the Expiration Date that the term of this Agreement will
expire on the Expiration Date, then the term of this Agreement shall be extended
automatically for successive one-year periods (the first such period to begin on
the day immediately following the Expiration Date) unless and until the Company
shall give written notice to the Employee at least 45 days before the end of any
one-year period for which the term of this Agreement shall have been extended
that such term will expire at the end of such one-year period, whereupon the
term of this Agreement shall expire at the end of such one-year period. This
Agreement shall in any event expire upon the termination by the Employee or the
Company of the Employee's employment by the Company, unless there has been a
Change in Control of the Company.
Section 3. Benefits Payable Upon Change in Control. If a Change in
---------------------------------------
Control of the Company shall occur before the expiration of the term of this
Agreement, then the Employee shall be entitled to the following benefits:
(i) The Company shall pay to the Employee, as a lump sum, an amount
equal to the sum of:
(A) three times the amount of the Employee's annual base salary
as in effect on the Change in Control Date, plus
(B) three times the amount of the largest annual cash bonus paid
or payable by the Company to the Employee for services rendered during
any one of the three most recent fiscal years of the Company,
regardless of when such bonus may have been paid or payable, plus
(C) the amount, if positive, equal to the aggregate spread
between the exercise prices of all outstanding unexercised options to
purchase Shares and other rights whose value derives from the value of
Shares (including, without limitation, "cash-only" stock appreciation
rights), which options or rights had been issued by the Company and
are held by the Employee on the Change in Control Date, whether or not
enough time had elapsed from the date of grant of such options or
rights so as to make them fully exercisable or vested on the Change in
Control Date, and the higher of
(1) the closing price of the Shares as reported on the
NASDAQ National Market System on the Change in Control Date, or
(2) the highest price per Share actually paid in connection
with the Change in Control of the Company, plus
(D) an additional amount equal to the aggregate of any and all
federal, state and local income tax and excise tax liabilities of the
Employee resulting from the payments due pursuant to clauses (A), (B),
(C) and (D) hereof; provided, however, that, if the total of all After
-------- -------
Tax Payments would be increased by the limitation or elimination of
any payment under this Section 3, then amounts payable under this
Section 3 shall be reduced to the extent, and only to the extent,
necessary to maximize the After-Tax Payments. The determination as to
whether and to what extent payments under this Section 3 are required
to be reduced in accordance with the preceding sentence shall be made
at the Company's expense by Deloitte & Touche LLP or such other
nationally recognized certified public accounting firm as the Board of
Directors may designate as soon as practicable following a Change in
Control of the Company.
(ii) The Company (at its sole expense) shall take the following
actions:
(A) immediately following the Change in Control Date and
throughout the Relevant Period, the Company shall maintain in effect,
and not materially reduce the benefits provided by, each of the
Benefit Plans; and
(B) the Company shall arrange for uninterrupted participation in
each of the Benefit Plans by the Employee (and, following the death of
the Employee, by the Employee's spouse, even if such person was not
the Employee's spouse or was otherwise ineligible to participate in a
Benefit Plan on the Change in Control Date or at any other time),
provided that, if such participation in any Benefit Plan is not
--------
permitted at any time during the Relevant Period by the terms of such
Benefit Plan, then the Company (at its sole expense) shall thereupon
provide to the Employee (and, following the death of the Employee,
shall provide to the Employee's spouse) substantially the same
benefits as were provided to the Employee pursuant to such Benefit
Plan on the Change in Control Date.
Each payment required to be made to the Employee pursuant to the foregoing
provisions of this Section 3 shall be made by check drawn on an account of the
Company at a bank located in the United States of America and shall be paid not
more than 10 days after the Change in Control Date. Upon payment in full to the
Employee of all amounts due under subsection (i) of this Section 3, all of the
options and other rights referred to in clause (C) of such subsection as to
which payment has been made shall be automatically cancelled.
Section 4. Notices. Notices required or permitted to be given by either
-------
party pursuant to this Agreement shall be in writing and shall be deemed to have
been given when delivered personally to the other party or when deposited with
the United States Postal Service as registered mail with postage prepaid and
addressed:
(i) if to the Employee, at the Employee's address last shown on the
Company's records, and
(ii) if to the Company, at 1 WSMP Drive, P.O. Box 399, Claremont, NC
28610, directed to the attention of the Corporate Secretary;
or, in either case, to such other address as the party to whom or to which such
notice is to be given shall have specified by notice given to the other party.
Section 5. Withholding Taxes. The Company may withhold from all payments
-----------------
to be paid to the Employee pursuant to this Agreement all taxes that, by
applicable federal, state or local law, the Company is required to so withhold.
Section 6. Expenses of Enforcement. Upon demand by the Employee made to
-----------------------
the Company, the Company shall reimburse the Employee for all reasonable
expenses (including legal fees and expenses) incurred by the Employee in
enforcing or seeking to enforce the payment of any amount or other benefit to
which the Employee shall become entitled pursuant to this Agreement.
Section 7. Employment by Subsidiary. If, at the Effective Date, the
------------------------
Employee is an employee of a subsidiary of the Company, then references in this
Agreement to the Employee's employment by the Company shall be understood as
references to the Employee's employment by the subsidiary.
Section 8. No Obligation to Mitigate. The Employee shall not be required
-------------------------
to mitigate the amount of any payment or other benefit required to be paid to
the Employee pursuant to this Agreement, whether by seeking other employment or
otherwise, nor shall the amount of any such payment or other benefit be reduced
on account of any compensation earned by the Employee as a result of employment
by another Person.
Section 9. Confidential Information. From the Effective Date until the
------------------------
expiration of the term of this Agreement, the Employee shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, that shall have been obtained by the Employee
during the Employee's employment by the Company or any of its affiliated
companies and that shall not have become public knowledge (other than as a
result of acts by the Employee in violation of this Section). The Company,
however, shall not withhold or reduce any amount or other benefit payable to the
Employee pursuant to the terms of this Agreement, or otherwise, on the ground
that the Employee has breached or threatened to breach the foregoing provisions
of this Section; the sole remedy of the Company for a breach or anticipated
breach of such provisions shall be injunctive relief.
Section 10. Amendment and Waiver. This Agreement may be amended or waived
--------------------
only by a written instrument signed by both parties. No waiver by either party
of any breach of this Agreement shall be considered a waiver of any other or
subsequent breach.
Section 11. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of North Carolina.
Section 12. Validity. The invalidity or unenforceability of any provision
--------
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, all of which shall remain in full force and effect.
Section 13. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original but all of which together shall
constitute the same instrument.
Section 14. Assignment. This Agreement shall inure to the benefit of and
----------
be enforceable by the Employee's legal representative. The Company shall not
assign any of its obligations under this Agreement, by operation of law or
otherwise, without the express prior written consent of the Employee; any
assignment supposedly effected absent such consent shall be void.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement as of the Effective Date.
WSMP, INC.
By: MATTHEW V. HOLLIFIELD
-----------------------------
Matthew V. Hollifield
Vice President of Finance
THE EMPLOYEE:
LARRY D. HEFNER (L.S.)
- --------------------------------
Larry D. Hefner
