UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: Commission File Number:
June 26, 1999 0-13544
BEN & JERRY'S HOMEMADE, INC.
(Exact name of registrant as specified in its charter)
VERMONT 03-0267543
(State of incorporation) (I.R.S. Employer Identification No.)
30 Community Drive
South Burlington, Vermont 05403-6828
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(802) 651-9600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the classes of common stock
outstanding as of the latest practicable date. 6,381,502 shares of Class A
Common Stock and 804,565 shares of Class B Common Stock outstanding as of August
6, 1999.
<PAGE>
BEN & JERRY'S HOMEMADE, INC.
INDEX
PART I: FINANCIAL INFORMATION PAGE NO.
Consolidated Balance Sheets as of
June 26, 1999 and December 26, 1998............................................1
Consolidated Statements of Income for the
Thirteen and twenty-six weeks ended
June 26, 1999 and June 27, 1998................................................3
Consolidated Statements of Cash Flows for the
Twenty-six weeks ended June 26, 1999
and June 27, 1998..............................................................4
Notes to Consolidated Financial Statements.....................................5
Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................7
PART II: OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders..................17
Item 5 - Other Information....................................................18
Item 6 - Exhibit and Reports on Form 8-K......................................19
SIGNATURES....................................................................20
Exhibit 11....................................................................21
<PAGE> - 1 -
<TABLE>
<CAPTION>
BEN & JERRY'S HOMEMADE, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
June 26, December 26,
1999 1998
---------- ------------
(Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21,777 $ 25,111
Short term investments 24,003 22,118
Trade accounts receivable:
(less allowance of $1,111 in 1999
and $979 in 1998 for doubtful accounts) 27,807 11,338
Inventories 16,735 13,090
Deferred income taxes 8,299 7,547
Prepaid expenses and other current assets 2,199 3,105
--------- --------
Total current assets 100,820 82,309
Property, plant and equipment, net 63,909 63,451
Investments 306 303
Other assets 5,635 3,438
--------- ---------
$ 170,670 $ 149,501
========= =========
</TABLE>
Note: The balance sheet at December 26, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to consolidated financial statements.
<PAGE> - 2 -
BEN & JERRY'S HOMEMADE, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES & STOCKHOLDERS' EQUITY
(In thousands except share data)
<TABLE>
<CAPTION>
June 26, December 26,
1999 1998
---------- ------------
(Unaudited) (Note)
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 43,477 $ 28,662
Current portion of long-term debt and
obligations under capital leases $5,825 5,266
-------- --------
Total current liabilities 49,302 33,928
Long-term debt and obligations under capital leases 21,664 20,491
Deferred income taxes 4,180 4,174
Stockholders' equity:
$1.20 noncumulative Class A preferred stock - par value
$1.00 per share, redeemable at $12.00 per share;
900 shares authorized, issued and outstanding;
aggregated preference on liquidation - $9 1 1
Class A common stock - $.033 par value; authorized
20,000,000 shares; issued: 6,708,282 at June 26, 1999
and 6,592,392 at December 26, 1998 221 218
Class B common stock - $.033 par value; authorized
3,000,000 shares; issued: 807,437 at June 26, 1999
and 824,480 at December 26, 1998 27 27
Additional paid-in-capital 52,061 50,556
Retained earnings 49,739 45,328
Accumulated other comprehensive loss (114) (151)
Treasury stock, at cost: 348,506 Class A and 1,092 Class B
shares at June 26, 1999 and 291,032 Class A
and 1,092 Class B shares at December 26, 1998 (6,411) (5,071)
--------- ---------
Total stockholders' equity 95,524 90,908
--------- ---------
$ 170,670 $ 149,501
========= =========
</TABLE>
Note: The balance sheet at December 26, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to consolidated financial statements.
<PAGE> - 3 -
BEN & JERRY'S HOMEMADE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
For the Thirteen weeks ended For the Twenty-six weeks ended
---------------------------- ------------------------------
June 26, 1999 June 27, 1998 June 26, 1999 June 27, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $68,172 $58,749 $118,237 $100,305
Cost of sales 40,555 37,596 72,532 65,188
------- ------- -------- --------
Gross profit 27,617 21,153 45,705 35,117
Selling, general and
administrative expenses 22,728 17,827 39,374 31,250
Other income (expense):
Interest income 419 477 917 1,030
Interest expense (477) (458) (867) (973)
Other income (expense), net 113 (17) 404 (2)
------- ------- -------- ---------
55 2 454 55
------- ------- -------- --------
Income before income taxes 4,944 3,328 6,785 3,922
Income taxes 1,730 1,198 2,374 1,412
------- ------- -------- --------
Net income $ 3,214 $ 2,130 $ 4,411 $ 2,510
======= ======= ======== ========
Shares used to compute net income per common share
Basic 7,128 7,245 7,119 7,244
Diluted 7,628 7,546 7,590 7,498
Net income per common share
Basic $ 0.45 $ 0.29 $ 0.62 $ 0.35
Diluted $ 0.42 $ 0.28 $ 0.58 $ 0.33
See notes to consolidated financial statements.
</TABLE>
<PAGE> - 4 -
BEN & JERRY'S HOMEMADE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
Twenty-six weeks ended
-------------------------------
June 26, June 27,
1999 1998
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 4,411 $ 2,510
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,483 3,966
Provision for bad debts 116
Deferred income taxes (746) (2,425)
Loss on disposition of assets 39 89
Changes in operating assets and liabilities:
Accounts receivable (16,674) (2,777)
Inventories (3,203) (5,500)
Prepaid expenses 64 (599)
Accounts payable and accrued expenses 12,329 10,950
Income taxes payable/receivable 2,536 3,273
-------- --------
Net cash provided by operating activities 3,355 9,487
Cash Flows From Investing Activities:
Additions to property, plant and equipment (3,588) (5,116)
Proceeds from sale of assets 5
Changes in other assets (81) (597)
Increase in investments (1,888) 857
Acquisitions, net of cash acquired (1,012)
-------- --------
Net cash used for investing activities (6,564) (4,856)
Cash flows from financing activities:
Repayments of long-term debt and capital leases (135) (198)
Repurchase of common stock (1,524) (364)
Proceeds from issuance of common stock 1,508 286
-------- --------
Net cash used for financing activities (151) (276)
Effect of exchange rate changes on cash 26 1
-------- --------
(Decrease) increase in cash and cash equivalents (3,334) 4,356
Cash and cash equivalents at beginning of year 25,111 47,318
-------- --------
Cash and cash equivalents at end of twenty-six weeks $ 21,777 $ 51,674
======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE> - 5 -
BEN & JERRY'S HOMEMADE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All numbers in tables in thousands except per share data)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating Results for the three and six month periods ended June
26, 1999 are not necessarily indicative of the results that may be expected for
the year ending December 25, 1999. For further information, refer to the
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 26, 1998.
2. INVENTORIES
June 26, December 26,
1999 1998
-------- ------------
Frozen dessert products and ingredients $15,033 $12,025
Paper goods 919 524
Food, beverage and gift items 783 541
-------- --------
Total $16,735 $13,090
======== ========
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
June 26, December 26,
1999 1998
-------- ------------
Trade accounts payable $ 9,290 $ 4,623
Accrued expenses 15,859 12,552
Accrued payroll and related costs 3,686 3,272
Accrued promotional costs 7,957 4,297
Accrued marketing costs 5,017 2,837
Accrued insurance expense 673 1,081
Income taxes payable 995 -
-------- --------
Total $43,477 $28,662
======== ========
<PAGE> - 6 -
BEN & JERRY'S HOMEMADE, INC.
Form 10-Q for quarter ended June 26, 1999
4. COMPREHENSIVE INCOME
As of December 28, 1997 the Company adopted Statement No. 130, Reporting
Comprehensive Income (Statement 130). Statement 130 establishes new rules for
the reporting and display of comprehensive income and its components; however,
the adoption of this statement had no impact on the Company's net income or
stockholders' equity. Statement 130 requires unrealized gains or losses on the
Company's available-for-sale securities and foreign currency translation
adjustments, which prior to adoption were reported separately in stockholders'
equity, to be included in other comprehensive income.
Total comprehensive income for the thirteen weeks ended June 26, 1999 amounted
to $3.2 million compared to $2.1 million for the same period in 1998. Other
comprehensive income consisted of adjustments for net foreign currency
translation gains in the amounts of $27,000 and $2,000 for the thirteen week
periods ended June 26, 1999 and June 27, 1998, respectively. Total comprehensive
income for the twenty-six weeks ended June 26, 1999 amounted to $4.4 million
compared to $2.5 million for the same period in 1998. Other comprehensive income
consisted of adjustment for net foreign currency translation gains in the
amounts of $37,000 and $1,000 for the twenty-six week periods ended June 26,
1999 and June 27, 1998.
5. SEGMENT INFORMATION
As of December 28, 1997, the Company adopted the Financial Accounting Standards
Boards' Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information (Statement 131). Statement 131
superseded FASB Statement No. 14, Financial Reporting for Segments of a Business
Enterprise. Statement 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. Statement 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The adoption of Statement 131 did not affect results of
operations or financial position, but did affect the disclosure of segment
information.
Ben & Jerry's Homemade, Inc. has one reportable segment: ice cream manufacturing
and distribution. The Company manufactures super premium ice cream, frozen
yogurt, sorbet and various ice cream novelty products. These products are
distributed throughout the United States primarily through independent
distributors and in certain countries outside the United States.
6. BUSINESS ACQUISITION
Effective February 26, 1999, the Company acquired a 60% ownership interest in
its Israeli licensee, The American Company for Ice Cream Manufacturing E.I. Ltd,
for $1 million. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the costs of the acquisition have been allocated to
assets acquired. The excess of the acquisition costs over the fair values of the
net assets acquired was $1.7 million and has been recorded as goodwill, which is
being amortized on a straight-line basis over 15 years.
Effective June 16, 1999 the Company purchased the assets of one of its
franchisees for approximately $875,000. The acquisition included two scoop shops
located in Las Vegas, Nevada, territory rights and goodwill. The intangible
assets of $606,000 are being amortized on a straight line basis over 10 years.
<PAGE>- 7 -
7. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The SOP provides guidance for
the capitalization of certain costs incurred to develop or obtain internal-use
software. The Company adopted this SOP effective December 27, 1998. The adoption
of the Statement did not have a material effect on the Company's financial
position or operating results.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities (Statement 133).
Statement 133 establishes standards for public companies regarding the
recognition and measurement of derivatives and hedging activities. The statement
is effective for years beginning after June 15, 2000. The Company does not
believe the adoption of this statement will have a material impact on the
Company's financial statements based on the nature and extent of the Company's
use of derivative instruments at the present time.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
The following table sets forth certain items as a percentage of net sales which
are included in the Company's Consolidated Statements of Income and the
percentage increase of such items as compared to the prior period:
<TABLE>
<CAPTION>
Percentage of Net Sales
-----------------------
Thirteen Weeks Twenty-Six Weeks Percentage Increase
Ended Ended 1999 Compared to 1998
-------------- ---------------- ----------------------
June 26, June 27, June 26, June 27, Thirteen Weeks Twenty-Six Weeks
1999 1998 1999 1998 Ended Ended
------- ------- ------- ------ -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0% 16.0% 17.9%
Cost of sales 59.5% 64.0% 61.3% 65.0% 7.9% 11.3%
------ ------ ------ ------ ------- ------
Gross profit 40.5% 36.0% 38.7% 35.0% 30.6% 30.2%
Selling, general and
administrative
expenses 33.3% 30.4% 33.3% 31.1% 27.4% 26.0%
------ ------ ------ ------ ------- ------
Operating income 7.2% 5.6% 5.4% 3.9% 47.0% 63.7%
------ ------ ------ ------ ------- ------
Other income (expense), net 0.0% 0.0% 0.3% 0.0% 2650.0% 725.5%
------ ------ ------ ------ ------- ------
Income before income taxes 7.2% 5.6% 5.7% 3.9% 48.6% 73.0%
Income taxes 2.5% 2.0% 2.0% 1.4% 44.4% 68.1%
------ ------ ------ ------ ------- ------
Net income 4.7% 3.6% 3.7% 2.5% 50.9% 75.7%
====== ====== ====== ====== ======= ======
</TABLE>
<PAGE>- 8 -
THIRTEEN WEEKS ENDED JUNE 26, 1999 AND JUNE 27, 1998
Net Sales
Net sales for the thirteen weeks ended June 26, 1999 increased 16.0% to $68.2
million compared to $58.7 million for the same period in 1998. Sales of the
Company's domestic pint products increased 8.8% with the original ice cream line
providing the majority of the increase. This volume increase was combined with a
price increase of 3.3% on pints sold to distributors that went into effect in
July 1998. Unit volume of 2 1/2 gallon bulk container products increased 26.6%
compared to the same period in 1998.
Packaged sales (primarily pints) represented approximately 78% of total net
sales in the second quarter of both 1999 and 1998. Net sales of 2 1/2 gallon
bulk containers represented approximately 10% of total net sales in the second
quarter of 1999 and 8% of total net sales in the second quarter of 1998. Net
sales of novelty products (including single servings) accounted for
approximately 9% of total net sales in the second quarter of 1999, compared to
12% for the same period in 1998. Net sales from the Company's retail business
represented 3% of total net sales in the second quarter of 1999 compared to 2%
for the same quarter in 1998.
International sales were $8.2 million for the second quarter of 1999,
representing 12.1% of net sales, as compared to $6.1 million in 1998, or 10.5%
of net sales. The increase in 1999 was primarily due to higher sales in the
United Kingdom.
Cost of Sales and Gross profit
Cost of sales in the second quarter of 1999 increased approximately $3.0 million
or 7.9% over the same period in 1998 and overall gross profit as a percentage of
net sales increased to 40.5% in the second quarter of 1999 from 36.0% in the
comparable period last year. Improvements in gross profit margin are primarily
the result of a decrease in dairy costs, higher selling prices from a 3.3% price
increase effective in July 1998 and in connection with the Company's
distribution redesign in 1999, and improved efficiencies in the plants.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 27.4% to $22.7 million in
the second quarter of 1999 from $17.8 million for the same period in 1998.
Selling, general and administrative expenses as a percentage of net sales
increased to 33.3% in the second quarter of 1999 as compared to 30.4% for the
comparable period last year. The increase in selling, general and administrative
expenses primarily reflects increased marketing and selling expenses related to
the Company's earlier restructuring of its distribution system and increased
radio advertising. In addition, the Company is investing more heavily in its
international operations, most notably in the United Kingdom, Japan and Israel
(where the Company made the previously disclosed majority equity investment), in
order to capitalize on further opportunities to grow its ice cream sales outside
the United States. Selling, general and administrative expenses also reflect
increased salaries, recruiting and training expenses related to building more
infrastructure to manage its business.
<PAGE>- 9 -
Other Income (Expense)
Other income increased in the second quarter of 1999 to $113,000 from an expense
of $17,000 in 1998. This increase is primarily related to foreign currency
exchange gains. Interest income decreased $58,000 in the second quarter of 1999
as compared to the same period in the prior year. This decrease in interest
income was due to a lower average invested balance throughout the period.
Interest expense increased $19,000 in the second quarter of 1999 as compared to
the same period in the prior year. This is due to an increase in debt
outstanding related to the Company's 60% investment in its Israeli licensee.
Income Taxes
The Company's recorded income tax expense during the second quarter of 1999 was
$1.7 million compared to $1.2 million in the second quarter of 1998. Management
anticipates an effective income tax rate of 35% in 1999 compared to 36% in 1998
based upon the expected geographic mix of earnings.
Net Income
Net income for the second quarter of 1999 was $3.2 million compared to $2.1
million in 1998. Net income as a percentage of net sales was 4.7% in the second
quarter of 1999 compared to net income of 3.6% of net sales in the second
quarter of 1998. Diluted net income per share was $.42 per common share for the
second quarter of 1999 compared to a diluted net income per common share of $.28
for the second quarter of 1998.
Twenty-Six Weeks Ended June 26, 1999 and June 27, 1998
Net Sales
Net sales for the twenty-six weeks ended June 26, 1999 increased 17.9% to $118.2
million compared to $100.3 million for the same period in 1998. Pint volume
increased 12.4% compared to the same period in 1998, which was primarily
attributable to the Company's original line of products. This volume increase
was combined with a price increase of 3.3% on pints sold to distributors that
went into effect in July 1998. Unit volume of 2 1/2 gallon bulk container
products increased 25.0% compared to the same period in 1998
Packaged sales (primarily pints) represented 82% of total net sales in the first
half of 1999 and 1998. Net sales of 2 1/2 gallon bulk containers represented
approximately 9% of total net sales in the first half of 1999 compared to 7.0%
in 1998. Net sales of novelty products (including single servings) accounted for
approximately 7% of total net sales in the first half of 1999, compared to 9% in
1998. Net sales from the Company's retail business represented 2% of total net
sales in the first half of 1999 and 1998.
International sales were $11.7 million for the first half of 1999, representing
9.9% of net sales, as compared to $8.0 million in 1998, or 8.0% of net sales.
The increase in 1999 was primarily due to higher sales to the United Kingdom.
<PAGE>- 10 -
Cost of Sales and Gross Profit
Cost of sales in the first half of 1999 increased approximately $7.3 million or
11.3% over the same period in 1998 and overall gross profit as a percentage of
net sales was 38.7% in 1999 as compared to 35.0% for the comparable period in
1998. The higher gross profit as a percentage of net sales primarily resulted
from increases in selling prices from a 3.3% price increase effective in July
1998 and in connection with the Company's distribution redesign in 1999, better
plant utilization due to higher production volumes, and improved efficiencies in
the plants.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 26.0% to $39.4 million
for the first six months of 1999 from $31.3 million for the same period in 1998.
Selling, general and administrative expenses as a percentage of net sales
increased from 31.1% in 1998 to 33.3% in 1999. The increase in selling, general
and administrative expenses primarily reflects increased marketing and selling
expenses related to the Company's earlier restructuring of its distribution
system and increased radio advertising. In addition, the Company is investing
more heavily in its international operations, most notably in the United
Kingdom, Japan and Israel (where the Company made the previously disclosed
majority equity investment), in order to capitalize on further opportunities to
grow its ice cream sales outside the United States. Selling, general and
administrative expenses also reflect increased salaries, recruiting and training
expenses related to building more infrastructure to manage its business.
Other Income (Expense)
Other income increased in the first half of 1999 to $404,000 from an expense of
$2,000 in 1998. This increase is primarily related to foreign currency exchange
gains. Interest income decreased to $917,000 for the first half of 1999 compared
to $1.0 million for the same period in the prior year. This decrease in interest
income was due to a lower average invested balance throughout the period.
Interest expense decreased $106,000 for the first six months of 1999 as compared
to the same period in the prior year due to the $5 million Senior Notes
Principal payment made in September 1998 partially offset by interest expense on
increased debt outstanding acquired in the Company's 60% owned Israeli licensee
starting in March 1999.
Income Taxes
The Company's recorded income tax expense during the first half of 1999 was $2.4
million compared to $1.4 million in the first half of 1998. Management
anticipates an effective income tax rate of 35% in 1999 compared to 36% in 1998
based upon the expected geographic mix of earnings.
Net Income
Net income for the first half of 1999 was $4.4 million compared to $2.5 million
in 1998. Net income as a percentage of net sales was 3.7% in the first half of
1999 compared to net income of 2.5% of net sales in the first half of 1998.
Diluted net income per share was $.58 per common share for the first half of
1999 compared to a diluted net income per common share of $.33 for the first
half of 1998.
The results from the first six months are not necessarily indicative of the
results for the full year 1999.
<PAGE>- 11 -
Liquidity and Capital Resources
As of June 26, 1999, the Company had $45.8 million of cash, cash equivalents and
short term investments, a $1.4 million decrease since December 26, 1998. Net
cash provided by operations in the first half of 1999 was approximately $3.2
million. Uses of cash included increases in accounts receivable and inventories
of $16.7 million and $3.2 million respectively, repurchase of Company stock of
$1.5 million, and additions to property plant and equipment, primarily for
equipment upgrades at the Company's manufacturing facilities, of $3.7 million.
Partially offsetting these uses of cash was an increase in accounts payable and
accrued expenses of $12.3 million. In addition, the Company acquired a 60%
interest in its Israeli licensee for $1 million in February, 1999. Cash acquired
in the transaction was $858,000. In June 1999, the Company acquired the assets
of one its franchisees, which included Las Vegas Nevada territory rights and two
scoop shops, for approximately $875,000.
Since December 26, 1998, trade accounts receivable and the sum of accounts
payable and accrued expenses have increased $16.7 million and $12.3 million,
respectively. The increase in accounts receivable is due to increased sales
during the summer months combined with a contractual change in the Company's
distribution agreement with Dreyers Grand Ice Cream effective in January 1999,
which altered the payment terms from 14 to 28 days. The increase in accounts
payable and accrued expenses reflect the seasonality of the Company's business
and increased sales and marketing expenses. Inventories have increased $3.2
million since December 26, 1998. This increase reflects seasonally higher raw
material inventories and increased finished good inventories.
The Company anticipates capital expenditures in the remainder of 1999 of
approximately $6.3 million. Most of these projected capital expenditures relate
to equipment upgrades and enhancements at the Company's manufacturing
facilities, computer related expenditures and corporate space expansion at its
headquarters.
The Company's short and long term debt includes $25 million aggregate principal
amount of Senior Notes issued in 1993 and 1994. The first principal payment of
$5 million was paid in September 1998 and the remaining principal is payable in
annual installments through 2003.
During the six months ended June 26, 1999 the Company repurchased a total of
68,000 shares of the Company's Class A common stock for approximately $1.5
million. The repurchase program announced in September, 1998 authorized the
Company to purchase shares of the Company's Class A Common Stock up to an
aggregate cost of $5 million for use for general corporate purposes.
The Company has available two $10 million unsecured working capital line of
credit agreements with two banks. Interest on borrowings under the agreements is
set at the banks' base rate or at LIBOR plus a margin based on a pre-determined
formula. No amounts were borrowed under these or any bank agreements during
1999. The working capital line of credit agreements expire December 23, 2001.
Management believes that internally generated funds, cash currently on hand,
investments held in marketable securities and equipment lease financing and/or
borrowings under the Company's two unsecured bank lines of credit will be
adequate to meet anticipated operating and capital requirements.
<PAGE>- 12 -
Year 2000 Readiness Disclosure
Background of Year 2000 Issues. The "Year 2000" issue is the result of computer
systems and software programs using two rather than four digits to define a
year. As a result, computer systems that have date sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. Unless
remedied, the Year 2000 issue could result in system failures, miscalculations,
and the inability to process necessary transactions or engage in similar normal
business activities. In addition to computer systems and software, equipment
using embedded chips, such as manufacturing and telephone equipment, could also
be at risk.
State of Readiness. The Company has developed, and is implementing a Year 2000
plan to address Year 2000 issues. The plan focuses on the following three broad
categories: (a) information technology systems; (b) manufacturing facilities
including embedded technology; and (c) external noncompliance by customers,
distributors, suppliers and other business partners.
The Company has completed the inventory and assessment of the core software
applications and hardware infrastructure. The remediation and testing of the
Company's software and hardware deficiencies caused by the Year 2000 issue is
substantially complete. The financial, human resources and payroll systems have
been upgraded and tested. The repair of the manufacturing and distribution
systems is approximately ninety percent complete; testing and validation of
these systems is scheduled to be completed in the third quarter of 1999. The
Company's communications and networking equipment was upgraded and tested during
the second quarter of 1999.
The Company has completed a detailed assessment of its manufacturing facilities
and embedded chip technology. The testing and remediation of equipment and
software systems known to have possible Year 2000 issues is substantially
complete. The replacement of the remaining equipment and software has been
scheduled for after the peak summer production schedule to minimize the
operational impact.
A critical step in this project is the coordination of Year 2000 readiness with
third parties. The Company is communicating with its significant suppliers,
distributors and customers to determine the extent to which the Company is
vulnerable if the third parties fail to resolve their Year 2000 issues. The
Company will continue to assess and work with all of its major partners to
understand the associated risks and plan for contingencies.
Risks Related to Year 2000 Issues. The Company presently believes that the Year
2000 issue will not pose significant operational problems and that the internal
Year 2000 issues will be resolved in a timely manner. However, the future
compliance of Year 2000 processing within the Company is dependent upon key
personnel, vendor software, vendor equipment and components. In the unlikely
event that no further progress is made on the Company's Year 2000 project, the
Company may be unable to manufacture or ship product, invoice customers or
collect payments. As a result, Year 2000 issues could have a material adverse
impact on the Company's operations and its financial results. In addition, if
systems operated by third parties (including municipalities or utilities) are
not Year 2000 compliant, this could also have a material adverse affect on the
Company.
<PAGE>- 13 -
Costs to Address Year 2000 Issues. The Company does not separately track the
internal costs incurred for the Year 2000 project, which are primarily the
related payroll costs for its information systems ("IS") group. There have been
no incremental payroll costs related to the Year 2000 project, however
non-critical IS projects have been deferred due to concentration on Year 2000
efforts. The delay of these projects is not expected to have a material impact
on the operations of the Company.
The external costs for software; hardware, equipment and services related to the
Year 2000 project are expected to be approximately $1.2 million for 1999. The
Company will expense the costs of modifying existing systems and capitalize the
replacement cost of software or equipment that is not Year 2000 compliant. There
can be no guarantee, however, that the systems of other entities which the
Company relies upon will be converted on a timely basis or that any failure to
convert by another entity would not have an adverse effect on the Company's
systems and operations.
Contingency Plans. Due to the general uncertainty inherent in the Year 2000
problem, including uncertainty regarding the Year 2000 readiness of suppliers,
distributors and other manufacturers, the Company is developing contingency
plans. This process includes, among others, developing backup procedures in case
of systems failures, identifying alternative production plans and developing
alternative plans to engage in business activities with customers, distributors
and suppliers that are not experiencing Year 2000 problems.
The above forward looking statements with regard to the timing and overall cost
estimates of the Company's efforts to address the Year 2000 problem are based
upon the Company's experience thus far in this effort. Should the Company
encounter unforeseen difficulties either in the continuing review of its
internal systems, the ultimate remediation, or the responses of its business
partners, the actual results could vary significantly from the estimates in
these forward-looking statements.
Forward-Looking Statements
This section, as well as other portions of this document, includes certain
forward-looking statements about the Company's business, new products, sales,
dairy prices, other expenditures and cost savings, Year 2000 program costs,
effective tax rate, operating and capital requirements and refinancing. Any such
statements are subject to risks that could cause the actual results or needs to
vary materially. These risks are discussed in "Risk Factors" below.
Risk Factors
Dependence on Independent Ice Cream Distributors. Historically, the Company has
been dependent on maintaining satisfactory relationships with Dreyer's Grand Ice
Cream, Inc. ("Dreyer's") and the other independent ice cream distributors that
have acted as the Company's exclusive or master distributor in their assigned
territories. In 1998, Dreyer's distributed significantly more than a majority of
the sales of Ben & Jerry's products. While the Company believes its
relationships with Dreyer's and its other distributors generally have been
satisfactory and have been instrumental in the Company's growth, the Company has
at times experienced difficulty in maintaining such relationships to its
satisfaction.
<PAGE>- 14 -
In August 1998 - January 1999, the Company redesigned its distribution network,
entering into a distribution agreement with The Pillsbury Company ("Pillsbury")
and a new agreement with Dreyer's. These arrangements take effect in September
1999, except for certain territories, which were effective, in April - May 1999.
The Company believes the terms of the new arrangements will, on balance, be more
favorable to the Company and expects that, under the distribution network
redesign, no one distributor will account for more than 40% of the Company's net
sales. However, there may be temporary market dislocation in connection with the
shift from Dreyer's to Pillsbury as the Company's principal distributor in
certain markets. Both Pillsbury, through its Haagen-Daz unit, and Dreyer's are
competitors of the Company.
Since available distribution alternatives are limited, there can be no assurance
that difficulties in maintaining satisfactory relationships with Pillsbury,
Dreyer's and its other distributors, some of which are also competitors of the
Company, will not have a material adverse effect on the Company's business.
Growth in Sales and Earnings. In the second quarter of 1999, net sales of the
Company increased 16.0% to $68.2 million from $58.7 million for the second
quarter of 1998. Pint volume for the second quarter of 1999 increased 12.0%
compared to the same period in 1998. The super premium ice cream, frozen yogurt
and sorbet industry category sales increased 8.3% in the second quarter of 1999
compared to the second quarter of 1998. In the first half of 1999, net sales of
the Company increased 17.9% to $118.2 million from $100.3 million for the first
half of 1998. Pint volume for the first half of 1999 increased 12.4% compared to
the same period in 1998. The super premium ice cream, frozen yogurt and sorbet
industry supermarket category sales increased 5.3% in the first half of 1999
compared to the first half of 1998. Given these overall domestic super premium
industry trends, the successful introduction of innovative flavors on a periodic
basis has become increasingly important to sales growth by the Company.
Accordingly, the future degree of market acceptance of any of the Company's new
products, which will be accompanied by significant promotional expenditures, is
likely to have an important impact on the Company's 1999 and future financial
results.
Competitive Environment. The super premium frozen dessert market is highly
competitive with the distinctions between the super premium category, and the
"adjoining" premium and premium plus categories less marked than in the past. As
noted above, the ability to successfully introduce innovative flavors on a
periodic basis that are accepted by the marketplace is a significant competitive
factor. In addition, the Company's principal competitors, two of which are
distributors for the Company, are large, diversified companies with resources
significantly greater than the Company's. The Company expects strong competition
to continue, including competition for adequate distribution and competition for
the limited shelf space for the frozen dessert category in supermarkets and
other retail food outlets.
In July 1999 Dreyer's announced a line of superpremium ice cream, Dreamery (TM),
which is expected to be launched in September with a significant marketing
program including radio, outdoor and television advertising. The Dreamery (TM)
product will be marketed primarily in pints.
Increased Cost of Raw Materials. Management believes that the general trend of
volatility in dairy ingredient commodity costs may continue and it is possible
that at some future date both gross margins and earnings may not be adequately
protected by pricing adjustments, cost control programs and productivity gains.
<PAGE>- 15 -
Reliance on a Limited Number of Key Personnel. The success of the Company is
significantly dependent on the services of Perry Odak, the Chief Executive
Officer, and a limited number of executive managers working under Mr. Odak, as
well as certain continued services of Jerry Greenfield the Chairperson of the
Board and co-founder of the Company; and Ben Cohen, Vice Chairperson and
co-founder of the Company. Loss of the services of any of these persons could
have a material adverse effect on the Company's business.
The Company's Social Mission. The Company's basic business philosophy is
embodied in a three-part "mission statement," which includes a "social mission"
to "operate the Company in a way that actively recognizes the central role that
business plays in the structure of society by initiating innovative ways to
improve the quality of life of a broad community: local, national and
international. Underlying the mission of Ben & Jerry's is the determination to
seek new and creative ways of addressing all three parts, while holding a deep
respect for individuals inside and outside the Company and for the communities
of which they are a part." The Company believes that implementation of its
social mission, which is being more integrated into the Company's business, has
been beneficial to the Company's overall financial performance. However, it is
possible that at some future date the amount of the Company's energies and
resources devoted to its social mission could have some material adverse
financial effect.
International. Total international net sales represented approximately 12.1% of
total consolidated net sales in the second quarter of 1999. Total international
net sales represented approximately 9.9% of total consolidated net sales for the
first half of 1999. The Company's principal competitors have substantial market
shares in various countries outside the United States, principally Europe and
Japan. The Company sells product in Japan, Canada, the United Kingdom, Ireland,
France, the Netherlands, Belgium and has started selling in Peru and Lebanon in
1999. In 1987, the Company granted an exclusive license to manufacture and sell
Ben & Jerry's products in Israel. In 1999, the Company made an investment of $1
million in its Israeli licensee, which gave the Company a 60% ownership
interest. In May 1998, the Company signed a Licensing Agreement with Delicious
Alternative Desserts, LTD. to manufacture, sell and distribute Ben & Jerry's
products through the wholesale distribution channels in Canada. The Company is
investigating the possibility of further international expansion. However, there
can be no assurance that the Company will be successful in all of its
international markets or entering (directly or indirectly through licensing), on
a long-term profitable basis, such additional international markets as it
selects.
Control of the Company. The Company has two classes of common stock - the Class
A Common Stock, entitled to one vote per share, and the Class B Common Stock
(authorized in 1987), entitled, except to the extent otherwise provided by law,
to ten votes per share. Ben Cohen, Jerry Greenfield and Jeffrey Furman
(collectively the "Principal Stockholders") hold shares representing 46% of the
aggregate voting power in elections for directors, permitting them as a
practical matter to elect all members of the Board of Directors and thereby
effectively control the business, policies and management of the Company.
Because of their significant holdings of Class B Common Stock, the Principal
Stockholders may continue to exercise this control even if they sell substantial
portions of their Class A Common Stock.
<PAGE>- 16 -
In addition, the Company issued all of the authorized Class A Preferred Stock to
the Foundation in 1985. All current directors of the Foundation are directors of
the Company. The Class A Preferred Stock gives the Foundation a class voting
right to act with respect to certain Business Combinations (as defined in the
Company's charter) and significantly limits the voting rights that holders of
the Class A Common Stock and Class B Common Stock, the owners of virtually all
of the equity in the Company, would otherwise have with respect to such Business
Combinations.
Also, in April, 1998 the Legislature of the State of Vermont amended a provision
of the Vermont Business Corporation Act to provide that the directors of a
Vermont corporation may also consider, in determining whether an acquisition
offer or other matter is in the best interests of the corporation, the interests
of the corporation's employees, suppliers, creditors and customers, the economy
of the state in which the corporation is located and including the possibility
that the best interests of the corporation may be served by the continued
independence of the corporation.
Also in August, 1998, following approval by its Board of Directors, the Company
put in place two Shareholder Rights Plans, one pertaining to the Class A Common
Stock and one pertaining to the Class B Common Stock. These Plans are intended
to protect stockholders by compelling someone seeking to acquire the Company to
negotiate with the Company's Board of Directors in order to protect stockholders
from unfair takeover tactics and to assist in the maximization of stockholder
value. These Rights Plans, which are common for public companies in the United
States, may also be deemed to be "anti-takeover" provisions in that the Board of
Directors believes that these Plans will make it difficult for a third party to
acquire control of the Company on terms which are unfair or unfavorable to the
stockholders.
While the Board of Directors believes that the Class B Common Stock and the
Class A Preferred Stock are important elements in keeping Ben & Jerry's an
independent, Vermont-based business focused on its three-part corporate mission,
the Class B Common Stock and the Class A Preferred Stock may be deemed to be
"anti-takeover" provisions in that the Board of Directors believes the existence
of these securities will make it difficult for a third party to acquire control
of the Company on terms opposed by the holders of the Class B Common Stock,
including primarily the Principal Stockholders, or The Foundation, or for
incumbent management and the Board of Directors to be removed. In addition, the
1997 amendments to the Company's Articles of Association to classify the Board
of Directors and to add certain other related provisions; the April 1998 Vermont
Legislative Amendment of the Vermont Business Corporation Act and the
Shareholder Rights Plans put in place in August, 1998 may be deemed to be
"anti-takeover" provisions in that the Board of Directors believes that these
amendments and legislation will make it difficult for a third party to acquire
control of the Company on terms opposed by the holders of the Class B Common
Stock, including primarily the Principal Stockholders and the Foundation, or for
incumbent management and the Board of Directors to be removed.
Market Risk
The Company is exposed to a variety of market risks, including changes in
interest rates affecting the return on its investments and foreign currency
fluctuations. The Company's exposure to market risk for a change in interest
rates relates primarily to the Company's investment portfolio. The Company has
classified all of its short-term and long-term investments as "available for
sale" except for certificates of deposits which are held to maturity. The
majority of these investments are municipal bonds and fixed income preferred
stock in which the market value approximates its cost at June 26, 1999. The
Company does not intend to hold such investments to maturity if there is an
underlying change in interest rates or the Company's cash flow requirements.
Certificates of deposits do not expose the consolidated statement of operations
or balance sheets to fluctuations in interest rates. The Company's exposure to
market risk for fluctuations in foreign currency relate primarily to the amounts
due from subsidiaries. Exchange gains and losses related to amounts due from
subsidiaries have not been material for the periods presented.
<PAGE>- 17 -
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1999 Annual Meeting of Stockholders was held on Saturday, June 26,
1999. The stockholders voted to (1) fix the number of directors at eight and to
elect one class of two directors to serve for three years expiring at the 2002
Annual Meeting of Shareholders, (2) and ratify the selection of Ernst & Young
LLP as independent auditors for the 1999 fiscal year.
(1) The tabulation of votes for the nominees for directors were as follows:
Class A Directors, term expires at the Annual Meeting of shareholders 2002:
For Withheld
---------- ----------
Henry Morgan 6,827,268 5,896,655
Jeffrey Furman 11,872,549 851,374
(2) The vote to amend the Company's 1995 Equity Incentive Plan to increase the
aggregate number of shares of stock authorized for delivery in connection with
stock awards thereunder from 900,000 shares of Class A Common Stock to 1,300,000
shares of Class A Common Stock was 4,800,368 for; 6,551,058 against; with 64,692
abstaining and 1,307,805 broker non-votes.
(3) The vote on the appointment of Ernst & Young LLP as the Company's
independent auditors for 1999 was 12,686,442 for; 23,275 against; with 14,206
abstaining.
<PAGE>- 18 -
ITEM 5 - OTHER ITEMS
Under the Company's "advance notice" By-law, stockholders who wish to make
additional nominations for election of directors at the Annual Meeting, or to
make a proposal at the 2000 Annual Meeting - other than one that will be
included by the Board of Directors in the Company's proxy materials - must
notify the Company no earlier than 120 days before the 2000 Annual Meeting and
no later than 75 days prior to the 2000 Annual Meeting. Under recent changes to
Federal proxy rules, if a stockholder who wishes to present such a nomination or
proposal fails to notify the Company by 75 days prior to the 2000 Annual
Meeting, then the proxies that management solicits for the 2000 Annual Meeting
will include discretionary authority to vote on the stockholder's proposal, in
the event (believed by the Company to be unlikely) that it can be properly
brought before the meeting notwithstanding the express provisions of the
Company's By-laws.
<PAGE>- 19 -
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit (11) Statement Re: Computation of Net Income Per Common Share
Exhibit (10.33.2) Employment Agreement dated March 31, 1999 between
the Company and Perry D. Odak
Exhibit (27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June 26,
1999, for which this report is filed.
<PAGE>- 20 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be duly signed on its behalf by the
undersigned thereunto duly authorized, being also its principal financial
officer.
BEN & JERRY'S HOMEMADE, INC.
DATE: August 10, 1999 BY: /s/Frances Rathke
--------------------------------------------
Frances Rathke, Chief Financial Officer
and Secretary
<PAGE>- 21 -
EXHIBIT 11
BEN & JERRY'S HOMEMADE, INC.
COMPUTATION OF NET EARNINGS PER SHARE
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net income $3,214 $2,130 $4,411 $2,510
------ ------ ------ ------
Denominator:
Denominator for basic earnings per share-
weighted-average shares 7,128 7,245 7,119 7,244
Dilutive employee stock options 500 300 471 254
------ ----- ----- -----
Denominator for diluted earnings per share-
adjusted weighted-average shares and
assumed conversions 7,628 7,546 7,590 7,498
====== ====== ====== ======
Net income per common share
Basic $0.45 $0.29 $0.62 $0.35
===== ===== ===== =====
Diluted $0.42 $0.28 $0.58 $0.33
===== ===== ===== =====
</TABLE>
EXHIBIT 10.33.2
BEN & JERRY'S HOMEMADE, INC.
NEW EMPLOYMENT AGREEMENT
BETWEEN
BEN & JERRY'S HOMEMADE INC. AND PERRY D. ODAK
This New Restated Employment Agreement by and between Ben & Jerry's
Homemade, Inc. (the "Company"), a Vermont corporation with its principal place
of business at 30 Community Drive, South Burlington, VT 05403, and Perry D. Odak
of Brockie Mansion, 900 Brockie Lane, York, Pennsylvania 17403 (the
"Executive"), originally effective the 31st day of December, 1996, and now, as
restated, effective March 31, 1999.
WHEREAS, the Executive is possessed of certain experience and expertise
that qualify him to provide the direction and leadership required by the
Company; and
WHEREAS, subject to the terms and conditions hereinafter set forth, the
Company wishes to continue to employ the Executive as its President and Chief
Executive Officer and the Executive wishes to accept such employment;
WHEREAS, the Executive has, as of the Effective Date, been employed for the
past twenty-seven months as the Company's Chief Executive Officer under an
Agreement effective December 31, 1996, as amended by Agreement dated as of
February 28, 1999 (together the "Predecessor Agreement"), which Predecessor
Agreement is being restated as of the Effective Date, as set forth below, as the
New Restated Employment Agreement effective March 31, 1999. The Predecessor
Agreement continues to govern all events up through March 30, 1999, other than
the March 24, 1999 grant of Options for 67,000 shares of Class A Common Stock.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, terms, provisions and conditions set forth in this Agreement, the
parties hereby agree:
1. EMPLOYMENT. Subject to the terms and conditions set forth in this Agreement,
the Company hereby offers and the Executive hereby accepts employment commencing
March 31, 1999.
<PAGE>- 1 -
2. TERM. Subject to earlier termination as hereafter provided and subject
to renewal as provided below, the Executive's employment under this Agreement
shall be for a term of twenty-seven months commencing on the effective date of
this New Restated Employment Agreement, namely March 31, 1999, and ending June
30, 2001. The term of this Agreement, as from time to time extended or renewed,
is hereafter referred to as "the Term of this Agreement" or "the Term hereof".
This New Restated Employment Agreement shall continue on a year-to-year basis
beyond the end of June 30, 2001 (or June 30 of a later year if this Agreement
has renewed), unless the Company notifies the Executive in writing not less than
120 days prior to June 30, 2001 (or June 30 of the applicable later year) that
the Company does not wish to renew the Agreement or unless the Executive gives
written notice to the Company of non-renewal of this Agreement not less than 120
days prior to the end of the Term on June 30, 2001 (or any June 30 of the
applicable later year). The Company's decision not to renew this Agreement shall
be treated as a termination of the Executive constituting Other Than For Cause;
provided, however, that the Company, with the Executive's prior written consent,
may elect not to renew this Agreement without also terminating the employment
status of the Executive.
3. CAPACITY AND PERFORMANCE.
a. During the Term hereof, the Executive shall serve the Company as its
Chief Executive and President.
b. During the Term hereof, the Executive shall be employed by the Company
on a full-time basis and shall have the leadership of and be
responsible to the Board of Directors for all operations of the
Company and shall have all powers and duties consistent with such
position, in accordance with the Bylaws of the Company, provided that
it is understood that the Executive has been delegated certain
authority for the Term by the Board of Directors of the Company as
provided in an instrument dated December 31, 1996, previously
delivered, which delegation (the "Delegation Agreement") is
incorporated herein by reference and shall remain in effect unless
modified or terminated by mutual written agreement during the Term
hereof.
<PAGE>- 2 -
c. During the Term, the Executive shall devote his full business time
(other than vacations) and his best efforts, business judgment, skill
and knowledge exclusively (except as provided below) to the
advancement of the business and interests of the Company and to the
discharge of his duties and responsibilities hereunder. The Executive
shall not engage in any other business activity or serve in any
industry, trade, governmental position or as a director of any other
business or organization during the term of this Agreement requiring a
level of activity greater than the level devoted to such "outside"
activities during the 12 month period April 1, 1998 through March 31,
1999, except as may be approved by the Compensation Committee. The
Company encourages participation by the Executive in community and
charitable activities, but said Committee shall have the right to
approve or disapprove the Executive's participation in such activities
if, but only if, in the judgment of said Committee, such participation
may conflict with the Company's interests or with the Executive's
duties or responsibilities or the time required for the discharge of
those duties and responsibilities. The Executive has previously
delivered a letter, supplemented by letter dated the date hereof,
containing a true and correct list of all directorships or other
participation in committees, consulting or other business activities
which the Executive has or intends to maintain during the Term, which
have been approved by said Committee.
<PAGE>- 3 -
d. The Executive has previously been elected to the Board of Directors.
The Company agrees to propose and recommend to the shareholders of the
Company at each appropriate Annual Meeting of such shareholders during
the Term hereof the election or re-election of the Executive as a
member of the Board.
e. On work days the Executive shall perform his duties hereunder from the
Company's executive offices in Vermont, except when at other locations
on business travel for the Company or for other activities approved by
the Board.
4. PAYMENTS AND BENEFITS. As payment for all services performed by the Executive
under and during the Term hereof and subject to performance of the Executive's
duties and the obligations pursuant to this Agreement:
a. Base Amount. During the term hereof, the Company shall pay the
Executive a base amount at the rate of Three Hundred Fifteen Thousand
Dollars ($315,000) per annum, payable in appropriate installments,
subject to increase from time to time by the Board, in its sole
discretion. Such base amount, as from time to time in effect is
hereafter referred to as the "Base Amount".
b. Stock Options Granted December 31, 1996 and January 1, 1997 Under
Predecessor Agreement
(i) The Executive received options granted on December 31, 1996 and
January 1, 1997 under the Predecessor Agreement, which are
non-statutory, non-incentive stock options, to purchase an
aggregate of 360,000 shares of Class A Common Stock of the
Company exercisable at the closing market price on Nasdaq on the
effective date of the grants thereof by the Compensation
Committee of the Board of Directors (the "Committee") under the
Company's Equity Incentive Plan (the "Plan");
(ii) The options have a Term of ten years, will become exercisable, so
long as the Executive is an employee of the Company (prior to
July 1, 1997 a consultant to the Company) under this Agreement as
it may be renewed (or under some other agreement or as otherwise
provided in Section 5), as follows:
First Year
----------
90,000 options become exercisable six months after the effective
date of this Agreement, namely June 30, 1997.
Second Year
-----------
None
<PAGE>- 4-
Third - Sixth Years
-------------------
5,625 options become exercisable at the end of each month,
commencing at the start of the third year of the Term (January
1999) and monthly thereafter through the end of the sixth year.
(iii)notwithstanding any other provision of the Predecessor Agreement
or the New Restated Employment Agreement, and notwithstanding any
determination or lack of determination by the Compensation
Committee on substantial performance of the Non-Financial
Objectives in the year 1998:
(1) the initial exercisability date of all the 270,000 options
that would otherwise vest during the third - sixth years
under clause (b)(ii) above shall automatically be
accelerated in accordance with the following:
When the fair market value of the Company's Class A Common
Stock (the "Stock"), as measured by the average of the daily
closing stock prices on NASDAQ for a period of 90
consecutive days, shall have satisfied the Per Share Fair
Market Value Threshold specified below and the Committee
shall have determined that the Executive has substantially
met the Non-Financial Objectives (as defined below) for 1997
or the preceding calendar year, as the case may be, or for
the first six months of 1999 as set forth below, then such
options for 270,000 shares (after the 90,000 options that
vested six months after the date of the original Agreement
but including the accelerated vesting of options for the
first two tranches of 50,000 shares under this Section
4(b)(iii) as set forth in the table and in the second
paragraph following the table below) shall become
exercisable as follows:
<TABLE>
<CAPTION>
Defined Per Share
Fair Market Value Number of Options
Threshold ("Threshold") Becoming Vested
----------------------- ---------------
<S> <C>
$16 Options for 50,000 shares--became vested in
1998 (see below)
$20 Options for 50,000 shares--become vested in
February 1999 (see below)
$23 Options for 35,000 shares and Options for
15,000 shares
$27 Options for 42,000 shares and Options for
18,000 shares
$30.50 Options for 42,000 shares and Options for
18,000 shares
</TABLE>
<PAGE>- 5 -
In each case the aggregate number of then unvested options
entitled to accelerated vesting pursuant to this Section
4(b)(iii) (50,000; 50,000; 35,000; 15,000; 42,000, 18,000;
and 42,000, 18,000 as the case may be) shall be the options
that would regularly vest the latest under (b)(ii) above
following the date when such acceleration under this Section
4(b)(iii) has become effective.
$16 and $20 Thresholds. The $16 Threshold was satisfied in
1998 and the first 50,000 shares in the table above
accelerated and became vested. The $20 Threshold was
satisfied in early 1999, prior to the date of this
Amendment, and the second tranche of 50,000 options in the
table accelerated and vested, thereby making a total on that
date of vested options for 190,000 shares plus such number
as may have become vested on a monthly basis, since January
1, 1999, pursuant to the provisions of Section 4(b)(ii).
$23, $27 and $30.50 Thresholds Satisfied in 1999 or early
2000. If and when the $23 Threshold or the $27 Threshold or
the $30.50 Threshold is satisfied in 1999 or in 2000 (prior
to the Committee's determination by the end of February,
2000 with respect to the Executive's performance of the 1999
Non-Financial Objectives), then options for 35,000 shares
pertaining to the $23 Threshold, options for 42,000 shares
pertaining to the $27 Threshold and options for 42,000
shares pertaining to the $30.50 Threshold shall accelerate
and vest on the date such Threshold is satisfied, as the
case may be.
15,000 Options Pertaining to $23 Threshold. In the event of
a favorable additional determination by the Compensation
Committee (such determination to be made during
August-September, 1999) that the Executive has substantially
met the Additional Non-Financial Objectives for the first
six months in 1999, these options for 15,000 shares
pertaining to the $23 Threshold set forth in the above table
will accelerate and vest if and when the $23 Threshold has
been satisfied.
If the Committee's August-September, 1999 additional
determination is that the Executive has not substantially
met the Additional Non-Financial Objectives, then the
vesting of the said 15,000 options will not accelerate if
and when $23 Threshold has been satisfied and, accordingly,
in that event, said options for 15,000 shares shall
accelerate and vest only when and if the $30.50 Threshold
has been met at some subsequent date and if options for
60,000 shares pertaining to the $30.50 Threshold shall have
vested directly as a result thereof (which requires that
there be in effect at or after said subsequent date a
favorable determination by the Committee with respect to
substantial performance of the Non-Financial Objectives for
the applicable prior year made by the Committee in 2000 or
in a later year).
<PAGE>- 6 -
$27 and $30.50 Thresholds and Options for 18,000 Shares and
Options for 18,000 Shares. In the event the $27 Threshold
has been met or the $30.50 Threshold has been met in 1999 or
in 2000 (prior to the date of the Committee's determination
on 1999 performance), the remaining 18,000 options
pertaining to the $27 Threshold (if said Threshold has been
satisfied) and the remaining 18,000 options pertaining to
the $30.50 Threshold (if said $30.50 Threshold has been
satisfied) shall not accelerate and vest at that time but
shall accelerate and vest only when there is in effect a
determination by the Committee made in the year 2000 (or in
a later year) that the Executive has substantially met the
Non-Financial Objectives for the Year 1999 or for the
applicable prior year, as the case may be. When the
remaining 18,000 options pertaining to the $30.50 Threshold
have accelerated and vested, then the second tranche of
15,000 options pertaining to the $23.00 Threshold shall
accelerate and vest, pursuant to the provisions of the
immediately preceding paragraph.
$23, $27 and $30.50 Thresholds Met Later Than 1999 or early
2000. If any of the $23, $27 or $30.50 Price Thresholds are
not met in 1999 or in 2000 (prior to the date of the
Committee's determination on performance for the Year 1999),
but instead are first met after the date in 2000 of the
Committee's said determination, then the specified
accelerated vesting of 35,000 options pertaining to the $23
Threshold, the 42,000 options and the 18,000 options
pertaining to the $27 Threshold and the 42,000 options and
the 18,000 options pertaining to the $30.50 Threshold shall
occur if (a) the Executive is, on the date such applicable
Threshold is met, an employee of the Company and (b) the
Committee's determination in effect at or subsequent to the
date such applicable Threshold is met is favorable that the
Executive has substantially met the Non-Financial Objectives
for the Year 1999 or for the applicable prior year, as the
case may be. Accelerated vesting of the 15,000 options
pertaining to the $23 Threshold shall occur only as provided
above under the heading "15,000 Options Pertaining to $23
Threshold".
(2) The Committee shall be required to make a determination
during the first year of the Term, favorable or unfavorable,
within 30 days after the date such Per Share Fair Market
Value Threshold has been met for 90 days and thereafter
shall make one determination each year, by the end of
February in each year except that the Committee shall make
an additional determination in July-August 1999 with respect
to performance of the Additional Non-Financial Objectives
for the first six months of 1999 set forth on Schedule I.
The Non-Financial Objectives for each year, commencing with
the second year of the Term, shall be agreed between the
Committee and the Executive prior to the beginning of each
such year and for the first year of the Term shall be agreed
between the Committee and the Executive by June 30, 1997.
Furthermore, the Additional Non-Financial Objectives for the
first half of 1999 are agreed between the Committee and the
Executive to be as set forth in Schedule I.
<PAGE>- 7 -
(3) The Company acknowledges the obligations of its Compensation
Committee to make its "additional determination", favorable
or unfavorable, on substantial performance of the Additional
Non-Financial Objectives by September 30, 1999 and its
yearly determination, favorable or unfavorable, with respect
to substantial performance of the Non-Financial Objectives
for the Year 1999 or a subsequent year by not later than
February in each year, and accordingly (in order to give
full effect to the provisions of this Amendment which make
certain acceleration of vesting of options contingent on a
subsequent favorable Committee determination in early 2000),
the Term of the Agreement is extended from December 31, 1999
to the date which is fifteen days after the date of the
Committee=s determination in 2000 as to whether or not the
Executive has substantially met the 1999 Non-Financial
Objectives.
(iv) Options for 200,000 shares have been granted by the Committee,
effective December 31, 1996 and the balance of options for 160,000
Shares shall be granted by the Committee effective January 1, 1997.
The full terms of the Options shall be consistent with this Section 4b
and shall be set forth in Option Certificates, subject to the
provisions of the Plan. Matters set forth herein shall control in the
event of any ambiguity between the Option Certificate or the Plan and
this Agreement.
For avoidance of doubt, this paragraph sets forth the status of the
Options for 360,000 shares of Class A Common Stock described in
Section 4b above. As of May 1, 1999, after giving effect to regular
monthly vesting and accelerated vesting, the Executive holds vested
options for 247,500 shares of Class A Common Stock in the aggregate,
including all of the options that accelerated upon the stock price
satisfying the $16 and $20 Fair Market Value Thresholds (the necessary
findings by the Compensation Committee having been made to cause such
vesting as well) and including 35,000 Options of the 50,000 tranche of
Options that potentially accelerate at the $23 Fair Market Value
Threshold which have accelerated and vested as a result of the
Amendment to this Agreement dated as of February 28, 1999, with the
remaining 15,000 Options of said tranche of 50,000 Options vesting in
the future only when and if the Committee makes the determination that
the Executive has substantially met the Non-Financial Objectives for
the first six months of 1999 (see Exhibit I hereto). As of May 1, 1999
Options for an additional 112,500 shares of Class A Common Stock were
unvested and remain subject to regular monthly vesting and accelerated
vesting as described in this Section 4b and to the applicable
provisions of Sections 5 and 6A. All of the Options that are vested as
of May 1, 1999 are irrevocably vested.
b.b Stock Options Granted in Year 1999.
(i) The Executive received Options which are non-statutory,
non-incentive stock options, to purchase an aggregate of 67,000
shares of Class A Common Stock of the Company exercisable at a
purchase price of $24.625, being the closing market price on
Nasdaq on March 24,1999, the effective date of the 1999 grant
thereof by the Compensation Committee of the Board of Directors
(the "Committee") under the Company's 1995 Equity Incentive Plan
(the "Plan");
(ii) The Options for 67,000 shares have a Term of ten years, will
become initially exercisable so long as the Executive is an
employee of the Company under this Agreement as it may be renewed
(or under some other agreement or as otherwise provided in
Section 5), as follows:
<PAGE>- 8 -
commencing with the month of January, 2000, 1,396 options become
exercisable at the end of each month through the month of
November, 2003 and 1,388 Options shall vest at December 31, 2003;
(iii)Provided, however, that the initial exercisability date of one
half of the 67,000 options granted in 1999 that would otherwise
vest during the period set forth in (ii) immediately above shall
automatically be accelerated and shall vest as follows:
as to 16,750 options, if the Compensation Committee determines
that the Executive has substantially met the Non-Financial
Objectives for the calendar year 2000; and as to 16,750 options,
if the Compensation Committee determines that the Executive has
substantially met the Non-Financial Objectives for the first six
months of calendar year 2001.
The aggregate number of the then-unvested options provided by
this Section 4 bb entitled to accelerated vesting under this
clause (ii) immediately above (16,750 in each case) shall be the
options that would regularly vest the latest under Section
4(b)(b)(ii) above following the date when such acceleration has
become effective.
The Committee shall be required to make a determination as to whether the
Executive has substantially met the Year 2000 Non-Financial Objectives by not
later than January 31, 2001 and as to whether the Executive has substantially
met the Non-Financial Objectives for the first six months of the Year 2001 by
not later than June 30, 2001. In the event that this Agreement has not been
renewed on and after June 30, 2001, the Committee shall nonetheless be required
to make such determination by not later than July 31, 2001, and in the event of
a favorable determination by the Committee, the acceleration of 16,750 Options
shall be effective, notwithstanding the termination of this Agreement on June
30, 2001.
<PAGE>- 9 -
The Non-Financial Objectives for the Year 1999 have been substantially
agreed between the Committee and the Executive and, when fully agreed, shall be
set forth on Schedule II. The Non-Financial Objectives for the Year 2000 and the
Non-Financial Objectives for the first six months of the Year 2001 shall be
agreed between the Committee and the Executive by December 31, 1999 and by
December 31, 2000, respectively and when so agreed shall be attached to this
Agreement by way of supplementary Schedules. The Company recognizes that the
Executive may be irreparably harmed if the Committee does not act in good faith
to diligently reach agreement with the Executive, on the timely basis set forth
above, as to the Non-Financial Objectives for the Year 1999, the Year 2000 and
the first six months of the Year 2001 and that the Executive may be irreparably
harmed if the Committee does not make a determination as to whether the
Executive has substantially met the Year 1999 Non-Financial Objectives by not
later than February 28, 2000, as to whether the Executive has successfully met
the Non-Financial Objectives for the Year 2000 by not later than January 31,
2001 and as to whether the Executive has substantially met the Non-Financial
Objectives for the first six months of the Year 2001 by not later than June 30,
2001. The Executive confirms, in connection with the foregoing, that he will act
in good faith to diligently reach agreement, on the timely basis set forth
above, on the Non-Financial Objectives for the Year 1999, the Year 2000 and
first six months of the Year 2001.
The full terms of the Options for 67,000 shares shall be consistent with
this Section 4bb and shall be set forth in an Option Certificate subject to the
provisions of the Plan. Matters set forth herein shall control in the event of
any ambiguity between the Option Certificate or the Plan and this Agreement.
c. Medical and Hospitalization Insurance. The Executive (and his family)
shall be entitled to participate in the Medical and Hospitalization
Insurance benefit plan for Company employees on the terms applied to
an employee.
d. Life Insurance. The Executive shall be entitled to participate in the
Life Insurance benefit plan for Company employees on the terms applied
to an employee.
e. Other Benefits. During the Term hereof and subject to any contribution
therefor generally required of executives of the Company, the
Executive shall be entitled to participate in the 401(k) plan and in
any other employee benefit plans from time to time in effect for
executives of the Company generally (in each case on terms applicable
to an employee), except to the extent such other plans are profit
sharing or bonus plans or stock plans or are in a category of benefit
otherwise provided to the Executive under this Agreement.
The Company may alter, modify, add to or delete its employee benefit
plans (including its medical and hospitalization and life insurance
plans) at any time as it, in its sole judgment, determines to be
appropriate.
f. Business Expenses. The Company shall pay or reimburse the Executive
for all reasonable business expenses of the Executive in the
performance of his duties and responsibilities hereunder, subject to
such reasonable substantiation and documentation as may be specified
by the Company from time to time. The Executive shall be entitled to a
car, as specified by agreement between the parties, during the Term,
with payments and all car operating expenses to be paid for by the
Company.
5. Termination of Employment and Severance Benefits. Notwithstanding the
provisions of Section 2 hereof, the Executive's employment hereunder shall
terminate prior to the expiration of the Term under the following circumstances:
<PAGE>- 10 -
a. Death. In the event of the Executive's death during the term hereof,
the Company shall pay to the Executive's designated beneficiary or, if
no beneficiary has been designated by the Executive, to his estate,
any earned and unpaid Base Amount that is earned but unpaid,
reimbursement of business expenses accrued prior to the date of death,
and continuation of Base Amount payments (plus continued participation
in the Company's medical and hospital employee insurance) for
six-months after the Executive's death. Options exercisable at date of
death may be exercised by the Executive's estate for 12 months (but
not beyond the stated term of the option), and unvested options are
terminated.
b. Disability.
i. The Company may terminate the Executive's employment hereunder,
upon thirty (30) days written notice to the Executive, in the
event that the Executive becomes disabled during his employment
hereunder through any illness, injury, accident or condition of
either a physical or psychological nature and, as a result, is
unable to perform substantially all of his duties and
responsibilities hereunder for one hundred eighty (180)
consecutive days during any period of three hundred and
sixty-five (365) consecutive calendar days.
ii. The Board may designate another employee to act in the
Executive's place during any period of the Executive's disability
prior to termination as provided in b.i above. Notwithstanding
any such designation, the Executive shall continue to receive
from the Company (or under a disability plan) the Base Amount in
accordance with Section 4.a and benefits in accordance with the
other provisions of Section 4, to the extent permitted by the
then-current terms of the applicable benefit plans until the
termination of his employment.
iii. The Executive shall be entitled to participate in the Company's
long-term disability plan, to the same extent as other employees.
No finding of disability under this Section 5b shall be made in
respect of any cause or condition which has not been approved as
a full disability under the applicable plan.
<PAGE>- 11 -
iv. If any question shall arise as to whether during any period the
Executive is disabled through any illness, injury, accident or
condition of either a physical or psychological nature so as to
be unable to perform substantially all of his duties and
responsibilities hereunder, the Executive may, and at the request
of the Company shall, submit to a medical examination by a
physician selected by the Executive or his duly appointed
guardian, to whom the Company has no reasonable objection, to
determine whether the Executive is so disabled and such
determination shall for the purposes of this Agreement be
conclusive of the issue. If such question shall arise and the
Executive shall fail to submit to such medical examination, the
Company's determination of the issue shall be binding on the
Executive.
v. Options exercisable at date of termination for disability may be
exercised for 12 months (but not beyond the stated term of the
option) thereafter, and unvested options are terminated.
c. By the Company for Cause. The Company may terminate the Executive's
employment hereunder for Cause ("Cause") any time upon written notice to the
Executive setting forth in reasonable detail the nature of such Cause, and the
Executive's failure to cure within thirty (30) days after such notice. The
following, as determined by the Board in its reasonable judgment, shall
constitute Cause for termination: the Executive's gross negligence in the
performance of his material duties and responsibilities to the Company; the
commission by the Executive of theft, embezzlement or other serious and
substantial crimes or intentional wrongful engagement in competitive activity in
violation of Section 9 below; or other deliberate willful action by the
Executive that is materially harmful to the business, interests or reputation of
the Company.
For purposes of Section 5c, no act, or failure to act, shall be "willful"
unless done, or omitted to be done, without reasonable belief that the action or
omission was in the best interests of the Company.
Notwithstanding the foregoing, the Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
him a notice of termination, and such termination shall have been approved by
the vote of two-thirds of the members of the Board of Directors (excluding the
Executive) at a meeting of the Board (after reasonable notice to the Executive
and an opportunity for him, together with counsel, to be heard before the Board
of Directors) finding that, in the good faith opinion of the Board of Directors,
the above standard of termination for Cause was met in such case and that such
Cause was not cured.
Upon the giving of notice of termination of the Executive's employment
hereunder for Cause following the determination of the Board under the preceding
paragraph, the Company shall have no further obligation or liability to the
Executive, other than for Base Amount earned and unpaid at the date of
termination, any options that are vested which shall continue to be exercisable
for 30 days (unless such options are terminated by vote of the Committee as
provided in the Plan, provided that the Company and the Executive agree that all
of the Options that are vested as of May 1, 1999, namely options for 247,500
shares, shall not be subject to termination by vote of the Committee in its
discretion under the Plan, in the event that the Executive is terminated for
Cause under this Section 5c), and payments or reimbursement of business expenses
accrued prior to the date of termination. All other options shall terminate.
<PAGE>- 12 -
d. By the Company Other than for Cause. The Company may terminate the
Executive's employment hereunder other than for Cause ("Other Than For Cause")
at any time upon notice to the Executive, provided that the Board of Directors
determines, after consultation with the Executive and after setting forth the
reasons for the Board's actions, that retention of the Executive as the Chief
Executive Officer would no longer be in the best interests of the Company. In
the event of such termination during the first year of the Term (or, upon vote
of two-thirds of the members of the Board, excluding the Executive, that a
decision should not be made in the first year, then in the first 15 months of
the Term), the Company shall continue to pay the Executive the Base Amount at
the rate in effect on the date of termination for twenty-four months. In the
event of such termination following the first year of the Term (or, upon vote of
two-thirds of the members of the Board, excluding the Executive, that a decision
should not be made in the first year, then following the first 15 months of the
Term), the Company shall continue to pay the Executive the Base Amount at the
rate in effect on the date of termination for twelve months. Subject to any
employee contribution applicable to the Executive on the date of termination,
the Company shall continue to contribute, for the period during which the Base
Amount is continued hereunder, to the cost of the Executive's participation
(including his family) in the Company's group medical and hospitalization
insurance plans and group life insurance plan, provided that the Executive is
entitled to continue such participation under applicable law and plan terms.
Upon any such termination, unvested options shall become exercisable to the
extent provided immediately below:
If terminated in the first year, i.e. calendar 1997 (or, upon vote of
two-thirds of the members of the Board of Directors, excluding the Executive,
that a decision should not be made in the first year, then in the first 15
months of the Term), 30,000 options if:
(i) the Earnings per share of Class A and Class B Common Stock
("EPS") for 1997 shall have increased 5% or more over EPS for
1995; or
(ii) the Consolidated Net Sales for 1997 have increased 12% or more
over Consolidated Net Sales for 1996; or
(iii)the Defined Per Share Fair Market Threshold of $16 (as defined
in Section 4b(iii) has been satisfied by the date of any such
termination and options have accelerated with respect to such
Threshold under Section 4b(iii).
In the event that results for the year 1997 are not available
because the year 1997 has not ended when the termination occurs,
the above thresholds shall be determined on a proportional basis
on the basis of the three months, six months or nine months
results that are available.
<PAGE>- 13 -
If terminated in the second year, i.e. calendar 1998 (or only commencing
within the fourth month of the second year, upon vote of two-thirds of the
members of the Board of Directors, excluding the Executive), 50% of the unvested
options if
(i) EPS for 1998 shall have increased 10% over EPS for 1997 and 15%
over EPS for 1995; or
(ii) the Consolidated Net Sales for 1998 shall have increased 15% over
1997 (or, if higher, Consolidated Net Sales for 1996).
If terminated in the third calendar year, i.e. 1999, 50% of the
then unvested options (including the options granted in 1996 -
1997 and the options granted in 1999) if (i) EPS for 1999 shall
have increased 12% over EPS for 1998 (or, if higher, EPS for 1997
or 1995); or (ii) the Consolidated Net Sales for 1999 shall have
increased 15% over Consolidated Net Sales for 1998 (or, if
higher, Consolidated Net Sales for 1997 or 1996); or (iii) the
Defined Per Share Fair Market Value of $27 (as defined in Section
4b(iii)) has been satisfied in 1999 and options have been
accelerated with respect to such Threshold under Section 4b(iii).
If terminated in the fourth calendar year, i.e. the year 2000, or
thereafter, 50% of the then unvested options, provided that 75% of the then
unvested options shall vest in the event of a termination without cause as a
result of the Company delivering a notice of nonrenewal in order to preclude a
renewal of the Agreement on and after June 30, 2001 or June 30 of a following
year, as the case may be.
All other unvested options shall terminate.
Vested options (after giving effect to the above paragraphs) shall be
exercisable for the following periods (but not beyond the stated termination
date of the options) after any such termination, as provided immediately below:
If terminated in the first year (1997) (or upon vote of two-thirds of the
members of the Board of Directors, excluding the Executive, in the first 15
months of the Term), for three months after termination.
If terminated in the second year (1998) (or only commencing with the fourth
month of the second year, upon vote of two-thirds of the members of the Board of
Directors, excluding the Executive that a decision should not be made in the
first year) for nine months after termination.
<PAGE>- 14 -
If terminated in the third calendar year (1999), for nine months after
termination.
If terminated in the fourth calendar year (2000), for 12 months after
termination.
If terminated in the fifth calendar year (2001), for 18 months after
termination.
If terminated thereafter, for 24 months after termination.
In the event that certain provisions pertaining to the first calendar year
(1997) of his Term are extended to the first 15 months of the Term by 2/3 vote
of the Board of Directors, excluding the Executive, the Company shall give the
Executive certain notice of at least 30 days prior to the end of the First Year
(1997).
The provisions of this clause (d) shall apply to all Options for 360,000
shares and for 67,000 shares that have been granted to date to the Executive.
e. By the Executive for Good Reason in the Absence of Cause. The
Executive may terminate his employment hereunder for Good Reason
("Good Reason"), upon notice to the Company setting forth in
reasonable detail the nature of such Good Reason, and the
Company's failure to remedy such matter within thirty (30) days
after receipt of such notice. The following shall constitute Good
Reason for termination by the Executive:
i. Failure of the Company to continue the Executive in the
position of Chief Executive Officer;
ii. Diminution in the nature or scope of the Executive's
responsibilities, duties or authority;
iii. Failure of the Company to provide the Executive the Base
Amounts and benefits in accordance with the terms of Section
4 or to observe any other material provision of this
Agreement; or
iv. Failure of the shareholders of the Company to elect or
re-elect the Executive as a director of the Company at each
annual meeting during the term of this Agreement, commencing
with the 1997 annual meeting to be held in June, 1997.
In the event of such termination, Base Amount, benefits and
options (including acceleration, period of exercisability and
termination of options) shall be paid or provided in the same
manner and extent as for a termination Other Than For Cause under
5d above.
f. Notwithstanding the foregoing, in the event of a termination
under 5d or 5e prior to June 30, 1997, the options for 90,000
shares that vest June 30, 1997 shall be accelerated and become
exercisable for 90 days upon any such termination.
<PAGE>- 15 -
6. Effect of Termination. The provisions of this Section 6 shall apply to
termination due to the expiration of the Term, termination pursuant to Section
5, non-renewal or otherwise.
a. Except for benefits expressly continued pursuant to Section 5,
benefits shall terminate pursuant to the terms of the applicable
benefit plans based on the date of termination of the Executive's
employment without regard to any continuation of Base Amounts to
the Executive following such date of termination.
b. The provisions of this Agreement shall survive any termination if
so provided herein or if necessary or desirable fully to
accomplish the purposes of such provision, including without
limitation the obligations of the Executive under Sections 7, 8
and 9 hereof and all indemnifications provided for in this
Agreement (including Sections 12 and 15). The obligation of the
Company to make payments to or on behalf of the Executive under
Section 5d and 5e hereof is expressly conditioned upon the
Executive's continued full performance of obligations under
Sections 7, 8 and 9 hereof. The Executive agrees that, except as
expressly provided in Section 5 with respect to continuation of
Base Amount and stock options as expressly provided, no
compensation is earned after termination of this Agreement, its
non-renewal or termination of employment or as a result of the
non-renewal of this Agreement or other termination of employment.
6A. Change in Control.
In the event of Termination Other than for Cause or Termination for
Good Reason, after a Change in Control (as defined below) all unvested options
at the date of any such termination shall accelerate and become immediately
exercisable at the date of such termination.
A "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
(a) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 35% or more
of the combined voting power of the Company's then outstanding
securities; or
<PAGE>- 16 -
(b) during any period of not more than two consecutive years (not
including any period prior to October 26, 1994), individuals who
at the beginning of such period constitute the Board and any new
director (other than a director designated by a Person who has
entered into an agreement with the Company to effect a
transaction described in Clause (a), (c) or (d) of this Section
6A) whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease for
any reason to constitute a majority thereof; or
(c) the shareholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than
(1) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or being converted into voting securities of the
surviving entity) 60% or more of the combined voting power
of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or
consolidation, or
(2) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no person acquires 35% or more of the combined voting
power of the Company's then outstanding securities; or
(d) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the
Company's assets.
Notwithstanding the foregoing provisions of this Section 6A, a
"Change in Control" under Section 6A(a) will not be deemed to
have occurred solely because of the ownership or acquisition of
securities of the Company (or any reporting requirement under the
Securities Exchange Act of 1934) relating thereto by an employee
benefit plan maintained by the Company for the benefit of
employees or by ownership of securities of the Company that were
beneficially owned as of December 31, 1998 by any of Ben Cohen,
Jerry Greenfield, Jeffrey Furman and Perry Odak, provided,
however, that a "Change of Control" under Section 6A(a) shall be
deemed to have occurred in the event of any of Ben Cohen, Jerry
Greenfield or Jeffrey Furman becomes the Beneficial Owner,
directly or indirectly, of Common Stock or other voting
securities of the Company representing an amount of beneficial
ownership which is (i) greater than 35% of the combined voting
power of the Company's then outstanding voting securities (the
threshold under Section 6A(a)) and (ii) greater than the amount
beneficially owned by any such Person as of December 31, 1998, by
at least 22% of the number of outstanding shares of Common Stock
of the Company as of December 31, 1998 (adjusted for stock splits
and the like).
<PAGE>- 17 -
In addition, a Change in Control shall not be deemed to have
occurred for purposes of this Section 6A if the Executive is the
person obtaining control or a member of any group obtaining
control in the defined Change of Control or if the Executive
continues to act as the Chief Executive Officer of the Company
thereafter, provided that if the Executive ceased to be the Chief
Executive Officer within not more than 12 months after the date
of a Change in Control, then all unvested options shall
accelerate and become exercisable just prior to the date he
ceases to be the Chief Executive Officer.
In the foregoing provisions of this definition of "Change in
Control", the following terms shall have the meanings set forth
below:
"Person" shall have the meaning given in Section 3 (a) (9)
of the Securities Exchange Act of 1934, as modified and used
in Sections 13 (d) and 14 (d) thereof; however, a Person
shall not include
(1) the Company or any controlled subsidiary of the Company,
(2) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or
(3) a corporation or other entity owned, directly or indirectly,
by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
"Beneficial Owner" shall have the meaning defined in Rule
13d-3 under the Securities Exchange Act of 1934 as amended
from time to time.
Notwithstanding the provisions of Section 5d or e, the
vested options (including those accelerated hereunder) may
be exercised for 30 months thereafter in the event of a
termination under Sections 5d or 5e after a Change in
Control has occurred.
<PAGE>- 18 -
7. Confidential Information.
a. The Executive acknowledges that the Company and its Subsidiaries
continually develop Confidential Information, as defined in
Section 14 hereof, that the Executive may develop Confidential
Information for the Company or its Subsidiaries and that the
Executive may learn of Confidential Information during the course
of employment. The Executive will comply with the policies and
procedures of the Company and its Subsidiaries for protecting
Confidential Information and shall never disclose to any Person
(except as required by applicable law or legal process or for the
proper performance of his duties and responsibilities to the
Company and its Subsidiaries, or in connection with any
litigation between the Company and the Executive (provided that
the Company shall be afforded a reasonable opportunity in each
case to obtain a protective order), or use for his own benefit or
gain, any Confidential Information obtained by the Executive
incident to his employment or other association with the Company
or any of its Subsidiaries. The Executive understands that this
restriction shall continue to apply after his employment
terminates, regardless of the reason for such termination.
b. All documents, records, tapes and other media of every kind and
description relating to the business, present or otherwise, of
the Company or its Subsidiaries and any copies, in whole or in
part, thereof (the "Documents"), whether or not prepared by the
Executive, shall be the sole and exclusive property of the
Company and its Subsidiaries. The Executive shall safeguard all
Documents and shall surrender to the Company at the time his
employment terminates, or at such earlier time or times as the
Board or its designee may specify, all Documents then in the
Executive's possession or control.
8. Assignment of Rights to Intellectual Property. The Executive shall
promptly and fully disclose all Intellectual Property to the Company. The
Executive hereby assigns and agrees to assign to the Company (or as otherwise
directed by the Company) the Executive's full right, title and interest in and
to all Intellectual Property which can be registered or which is capable of
being protected by the Company as a trade secret. The Executive agrees to
execute any and all applications for domestic and foreign patents, copyrights or
other proprietary rights and to do such other acts (including without limitation
the execution and delivery of instruments of further assurance or confirmation)
requested by the Company to assign such Intellectual Property to the Company and
to permit the Company to enforce any patents, copyrights or other proprietary
rights to such Intellectual Property. The Executive will not charge the Company
for time spent in complying with these obligations. All copyrightable works that
the Executive creates shall be considered "work made for hire".
9. Restricted Activities. The Executive agrees that some restrictions on
his activities during and after his employment are necessary to protect the
goodwill, Confidential Information and other legitimate interests of the Company
and its Subsidiaries, and that the agreed restrictions set forth below will not
deprive the Executive of the ability to earn a livelihood:
<PAGE>- 19 -
a. While the Executive is employed by the Company and, after his
employment terminates, for the greater of one year or the period
during which severance payments of Base Amount are being made
(the "Non-Competition Period"), the Executive shall not, directly
or indirectly, whether as owner, partner, investor, consultant,
agent, employee, co-venturer or otherwise, compete with the
business of the Company or any of its Subsidiaries within the
United States, or within any foreign country in which the
Products are sold at the date of termination of employment, or
undertake any planning for any business competitive with the
Company or any of its Subsidiaries. Specifically, but without
limiting the foregoing, the Executive agrees not to engage in any
manner in any activity that is directly or indirectly competitive
with the business of the Company or any of its Subsidiaries as
conducted or which has been proposed by management to the Board
within six months prior to termination of the Executive's
employment. Restricted activity also includes without limitation
accepting employment or a consulting position with any Person who
is, or at any time within twelve (12) months prior to termination
of the Executive's employment has been, a distributor of the
Company or any of its Subsidiaries. For the purposes of this
Section 9, the business of the Company and its Subsidiaries shall
mean the manufacture or sale of the Products.
b. The Executive further agrees that during the Non-Competition
Period or in connection with the Executive's termination of
employment, the Executive will not hire or attempt to hire any
employee of the Company or any of its Subsidiaries, assist in
such hiring by any Person, encourage any such employee to
terminate his or her relationship with the Company or any of its
Subsidiaries, or solicit or encourage any customer or vendor of
the Company or any of its Subsidiaries to terminate its
relationship with them, or, in the case of a customer, to conduct
with any Person any business or activity which such customer
conducts or could conduct with the Company or any of its
Subsidiaries.
c. The provisions of this Section 9 shall not be deemed to preclude
the Executive from employment or engagement during the
Non-Competition Period following termination of employment
hereunder by a corporation, some of the activities of which are
competitive with the business of the Company, if the Executive's
activities do not relate, to such competitive business, and
nothing contained in this Section 9 shall be deemed to prohibit
the Executive, during the Non-Competition Period following
termination of employment hereunder, from acquiring or holding,
solely as an investment, publicly traded securities of any
competitor corporation so long as such securities do not, in the
aggregate, constitute one-half of 1% of the outstanding voting
securities of such corporation.
Without limiting the foregoing, it is understood that the Company
shall not be obligated to continue to make the payments specified
in Section 5d and 5e in the event of a material breach by the
Executive of the provisions of Sections 7, 8 or 9 of this
Agreement, which breach continues without having been cured
within 30 days after written notice to the Executive specifying
the breach in reasonable detail.
<PAGE>- 20 -
10. Enforcement of Covenants. The Executive acknowledges that he has
carefully read and considered all the terms and conditions of this Agreement,
including the restraints imposed upon him pursuant to Sections 7, 8 and 9
hereof. The Executive agrees that said restraints are necessary for the
reasonable and proper protection of the Company and its Subsidiaries and that
each and every one of the restraints is reasonable in respect to subject matter,
length of time and geographic area. The Executive further acknowledges that,
were he to breach any of the covenants contained in Sections 7, 8 or 9 hereof,
the damage to the Company would be irreparable. The Executive therefore agrees
that the Company, in addition to any other remedies available to it, shall be
entitled to seek preliminary and permanent injunctive relief against any breach
or threatened breach by the Executive of any of said covenants, without having
to post bond. The parties further agree that, in the event that any provision of
Section 7, 8 or 9 hereof shall be determined by any court of competent
jurisdiction to be unenforceable by reason of its being extended over too great
a time, too large a geographic area or too great a range of activities, such
provision shall be deemed to be modified to permit its enforcement to the
maximum extent permitted by law.
11. Conflicting Agreements. The Executive hereby represents and warrants
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which
the Executive is a party or is bound and that the Executive is not now subject
to any covenants against competition or similar covenants that would affect the
performance of his obligations hereunder. The Executive will not disclose to or
use on behalf of the Company any proprietary information of a third party
without such party's consent.
12. Indemnification. The Company shall indemnify the Executive to the full
extent provided for Company directors and executive officers in its then current
Articles of Incorporation or By-Laws, and in any event shall indemnify the
Executive to the fullest extent permitted under the Vermont Business Corporation
Law, including an undertaking to advance litigation expenses. The Executive
agrees to promptly notify the Company of any actual or threatened claim arising
out of or as a result of his employment with the Company. The Company agrees to
maintain Directors and Officers Liability Insurance for the benefit of Executive
during the Term of this Agreement and for any other period during which
Executive shall be employed having coverage and policy limits no less favorable
to directors and officers than those in effect at the date of this New Restated
Employment Agreement.
13. No Duty to Mitigate. Following a termination of employment, the
Executive shall not be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement and such amounts shall not be reduced whether
or not the Executive obtains other employment.
14. Definitions. Words or phrases which are initially capitalized or are
within quotation marks shall have the meanings provided in Section 14 and as
provided elsewhere herein. For purposes of this Agreement, the following
definitions apply:
<PAGE>- 21 -
a "Confidential Information" means any and all information of the
Company and its Subsidiaries that is not generally known by others
with whom they compete or do business, or with whom they plan to
compete or do business and any and all information not readily
available to the public, which, if disclosed by the Company or its
Subsidiaries could reasonably be of benefit to such person or business
in competing with or doing business with the Company. Confidential
Information includes without limitation such information relating to
(i) the development, research, testing, manufacturing, plant
operational processes, marketing and financial activities, including
costs, profits and sales, of the Company and its Subsidiaries, (ii)
the Products and all formulas therefor, (iii) the costs, sources of
supply, financial performance and strategic plans of the Company and
its Subsidiaries, (iv) the identity and special needs of the customers
and suppliers of the Company and its Subsidiaries and (v) the people
and organizations with whom the Company and its Subsidiaries have
business relationships and those relationships. Confidential
Information also includes comparable information that the Company or
any of its Subsidiaries have received belonging to others or which was
received by the Company or any of its Subsidiaries with an agreement
by the Company that it would not be disclosed. Confidential
Information does not include information which (a) is or becomes
available to the public generally (other than as a result of a
disclosure by the Executive), (b) was within the Executive's
possession prior to the date hereof or prior to its being furnished to
the Executive by or on behalf of the Company, provided that the source
of such information was not bound by a confidentiality agreement with
or other contractual, legal or fiduciary obligation of confidentiality
to the Company or any other party with respect to such information,
(c) becomes available to the Executive on a non-confidential basis
from a source other than the Company, provided that such sources is
not bound by a confidentiality agreement with or other contractual,
legal or fiduciary obligation of confidentiality to the Company or any
other party with respect to such information, or (d) was independently
developed by you without reference to the Confidential Information.
b. "Intellectual Property" means inventions, discoveries,
developments, methods, processes, formulas, compositions, works,
concepts and ideas (whether or not patentable or copyrightable or
constituting trade secrets) conceived, made, created, developed
or reduced to practice by the Executive (whether alone or with
others, whether or not during normal business hours or on or off
Company premises) during the Executive's employment that relate
to the Products of the Company or any of its Subsidiaries.
c. "Products" mean all products planned, researched, developed,
tested, manufactured, sold, licensed, leased or otherwise
distributed or put into use by the Company or any of its
Subsidiaries, together with all services provided to third
parties or planned by the Company or any of its Subsidiaries,
during the Executive's employment; as used herein, "planned"
refers to a Product or service which the Company has decided to
introduce within six-months from the date as of which such term
is applied.
d. "Employment" shall mean employment of the Executive as an
independent contractor prior to July 1, 1997 and as an employee
commencing July 1, 1997.
<PAGE>- 22 -
e. "Termination of Employment" prior to July 1, 1997 shall mean
termination of the Executive's status as an independent
contractor.
15. Withholding Prior to July 1, 1997. The Company acknowledges that the
Executive presently has a consulting engagement and as a result is unable to
become an employee prior to July 1, 1997, although he will start under the
Agreement on the date hereof, at the request of the Company. Commencing July 1,
1997 the Executive shall be designated President in addition to being the Chief
Executive Officer and shall be an employee of the Company. Accordingly, prior to
July 1, 1997, the Executive shall be the Chief Executive Officer but shall act
as an independent contractor to the Company as provided above. For services in
any period in which the Executive is an independent contractor, the Executive
agrees to pay all FICA tax due on payments to him and all other taxes due
thereon and further agrees to indemnify the Company from and against any and all
withholding taxes, and from any interest and penalties arising from the
Company's failure to withhold on amounts paid by the Company to the Executive.
It is understood, notwithstanding any of the foregoing provisions of this
Agreement, that the Executive shall not be entitled to participate in benefit
and welfare plans and policies of the Company that are applicable to employees
while the Executive is an independent contractor, and the Executive shall
indemnify the Company from any liabilities, penalties and interest or
disqualification of any qualified plans from the related decision (hereby
consented to by the Executive) not to include the Executive in any such plans
except as a person becoming an employee on July 1, 1997.
15.1 Withholding After July 1, 1997. The Executive agrees that all payments
made by the Company under this Agreement shall be reduced by any tax or other
amounts required to be withheld by the Company under applicable law.
16. Assignment. Neither the Company nor the Executive may make any
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other; provided, however,
that, in the event that the Company shall hereafter effect a reorganization,
consolidate with, or merge into, any other Person or transfer all or
substantially all of its properties or assets to any other Person, the Company
shall require such Person or the resulting entity to assume expressly and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it. This Agreement shall inure to the
benefit of and be binding upon the Company and the Executive, their respective
successors, executors, administrators, heirs and permitted assigns.
<PAGE>- 23 -
17. Severability. If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
18. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
19. Notices. Any and all notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
effective when delivered in person or deposited in the United States mail,
postage prepaid, registered or certified, and addressed to the Executive at his
last known address on the books of the Company or, in the case of the Company,
at its principal place of business, attention Chief Financial Officer, with a
copy to Ropes & Gray, One International Place, Boston, MA 02110, Attention:
Howard K. Fuguet, Esq., or to such other address as either party may specify by
notice to the other.
20. Entire Agreement. This Agreement (and any letters, Exhibits or
Schedules setting out Non-Financial Objectives for various periods referred to
in this Agreement) constitutes the entire agreement between the parties and
supersedes all prior communications, representations and understandings, written
or oral, with respect to the terms and conditions of the Executive's employment.
21. Amendment. This Agreement may be amended or modified only by a written
instrument signed by the Executive and by a expressly authorized officer of the
Company.
<PAGE>- 24 -
22. Governing Law, Arbitration and Consent to Jurisdiction. This contract
and shall be construed and enforced under and be governed in all respects by the
laws of the State of New York, without regard to the conflict of laws principles
thereof. The parties each agree to promptly select a mediator and promptly
mediate in good faith any controversy, claim or dispute arising between the
parties hereto arising out of or related to this Agreement, its performance or
any breach or claimed breach thereof. In the event that such mediation does not
resolve any such matter, then such matter other than any matter in which
injunctive relief or other equitable relief is sought. shall be definitively
resolved through binding arbitration conducted in the City of New York, by a
panel of three (3) arbitrators in accordance with the then current Commercial
Arbitration Rules of the American Arbitration Association, provided, however,
that notwithstanding anything to the contrary in such Commercial Arbitration
Rules, the parties shall be entitled in the course of any arbitration conducted
pursuant to this Section to seek and obtain discovery from one another to the
same extent and by means of the same mechanisms authorized by Rules 27 through
37 of the Federal Rules of Civil Procedure. The power and office of the
arbitrators shall arise wholly and solely from this Agreement and the then
current Commercial Arbitration Rules of the American Arbitration Association.
The award of the panel or a majority of them so rendered shall be final and
binding, and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereto.
To the extent a dispute is not to be arbitrated in accordance with the
foregoing, each of the Company and the Executive (i) irrevocably submits to the
jurisdiction of the United States District Court for the Southern District of
New York and to the jurisdiction of the state courts of the State of New York
for the purpose of any suit or other proceeding arising out of or based upon
this Agreement or the subject matter hereof and agrees that any such proceeding
shall be brought or maintained only in such court, and (ii) waives, to the
extent not prohibited by applicable law and agrees not to assert in any such
proceedings, any claim that it is not subject personally to the jurisdiction of
the above-named courts, that he or it is immune from extraterritorial injunctive
relief or other injunctive relief, that any such proceeding brought or
maintained in a court provided for above may not be properly brought or
maintained in such court, should be transferred to some other court or should be
stayed or dismissed by reason of the pendency of some other proceeding in some
other court, or that this Agreement or the subject matter hereof may not be
enforced in or by such court.
<PAGE>- 25 -
IN WITNESS WHEREOF, this Agreement has been executed by the Company, by its
duly authorized officer, and by the Executive, as of the date first above
written.
THE EXECUTIVE: BEN & JERRY'S HOMEMADE, INC.
/s/Perry Odak By: /s/Frances Rathke
------------- -----------------
Title: Chief Financial Officer
- 26 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
See accompanying notes
$ in thousands, except per share data
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-25-1999
<PERIOD-START> Mar-28-1999
<PERIOD-END> Jun-26-1999
<EXCHANGE-RATE> 1.000
<CASH> 21777
<SECURITIES> 0
<RECEIVABLES> 27807
<ALLOWANCES> 0
<INVENTORY> 16735
<CURRENT-ASSETS> 100820
<PP&E> 63909
<DEPRECIATION> 0
<TOTAL-ASSETS> 170670
<CURRENT-LIABILITIES> 49302
<BONDS> 0
0
1
<COMMON> 248
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 170670
<SALES> 68172
<TOTAL-REVENUES> 0
<CGS> 40555
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (55)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 477
<INCOME-PRETAX> 4944
<INCOME-TAX> 1730
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3214
<EPS-BASIC> .45
<EPS-DILUTED> .42
</TABLE>
